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Operator: Welcome to the Safran Full Year 2025 Results. At this time, I would like to turn the conference over to your host, Olivier Andries, Safran CEO; and Pascal Bantegnie, Group CFO. Mr. Andries, please go ahead. Olivier Andriès: Good morning, everyone. Thank you for joining us. Today, we will review our 2025 results, share our 2026 outlook and briefly walk you through some of our updated 2028 assumptions. 2025 was an outstanding year for Safran. Airlines carried more than 5 billion passengers and against that backdrop of strong demand and still low retirement levels, our aftermarket activities clearly outperformed expectation across both spare parts and services. We have also reached an all-time high in LEAP production, delivering more than 1,800 engines, up 28% versus 2024. Defense and Space had a particularly strong year as well. In military propulsion, we accelerated M88 production, and we have secured a new Rafale export contract with the Indian Navy. In defense electronics, order intake reached a record level with 1.6 book-to-bill ratio, reflecting very strong market demand. We have also signed several strategic partnerships, expanded capacity across multiple product lines, and we have achieved the first major export success for Safran.AI, which is a new name we have given to the Preligens company we had acquired 18 months ago. In Aircraft Interiors, [ recent ] seats, commercial wins and improved pricing conditions confirmed that the strategic shift presented at our last Capital Market Day is being executed. Overall, we outperformed our initial expectation in 2025, delivering record financial results across all metrics. This, despite tariffs. Margin improved by 150 basis points and cash generation approached EUR 4 billion. Reflecting this performance, we are proposing a EUR 3.35 dividend per share, up 16% year-on-year. Finally, on portfolio management, the integration of Collins actuation activities is progressing well. At the same time, we are moving ahead with the divestment of 2 non-core activities, the sale of Safran passenger innovation was completed last month, and the easier transaction where we are going to sell our share of the joint venture to our partner Embraer is expected to close by midyear. Turning to Slide 4. Civil business highlights. We invest to secure [indiscernible] and you can see that clearly in our recent industrial announcement with the new LEAP-1A assembly line in Morocco. At the same time, we are continuing to expand our MRO footprint following the groundbreaking of our LEAP MRO shop in Morocco. We have recently inaugurated Safran's largest LEAP engine MRO center worldwide in India. We are also pleased to mark another important milestone in CFM's long-standing partnership with Ryanair. We announced that 3 days ago, of a new material service agreement that covers the entire fleet of around 2,000 engines, CFM56 and LEAP, and that will support 2 new Ryanair future maintenance, repair and overall shops that they have decided to launch in Europe. This is a compelling illustration of our open MRO market strategy we presented at our last Capital Market Day. Commercial momentum remains very strong. LEAP continues to be the engine of choice, as illustrated by the recent agreement with Pegasus in Turkey, for 300 LEAP-1B engines, which also includes long-term maintenance services. Finally, at the Dubai Airshow, Riyadh Air ordered 120 LEAP-1A engines to launch its FA21 neo fleet and selected our wheels and electric carbon brakes for its 787 fleet, ultimately more than 70 aircraft. We have also announced a joint cooperation with Emirates to manufacture and assemble seats in Dubai. And Safran Seats was selected to supply new business and economy class seats to retrofit more than 100 additional aircraft across both the 777 and A380 fleets. Turning to Slide 5. Momentum remains extraordinary strong in defense. We announced the groundbreaking of the first M88 MRO shop outside of France in Hyderabad, India. At the same time, as we continue to ramp up M88 production. We have also announced a significant investment at our Le Creusot site in France, adding new production lines for complex rotating parts for the M88 engine. We have also signed an agreement with Bharat Electronics in India to create a joint venture to manufacture our HAMMER guided bombs. Overall, in 2025, we have approved around EUR 1.4 billion of industrial investment, mainly to expand massively capacity across both Civil Aerospace and Defense. With that, I will now hand over to Pascal to walk you through the 2025 results in more detail. Pascal Bantegnie: Thank you, Olivier. Good morning, everyone. Today, I'll walk you through the adjusted accounts, and you'll find a bridge to the consolidated statements in the appendix. Let's start with FX trends, which are shown on Slide 7. In 2025, our trading floor faced a really volatile environment. The dollar weakened against the euro, the whole year, which wasn't easy to manage. Still, our team did a great job protecting the portfolio, and we managed not to trigger any KO barriers. That said, at the end of Jan, the euro-dollar shot up past 120, and that caused us to lose less than $1 billion in hedging volume, so less than 2% of the whole portfolio. We reinstated the same hedge volume afterwards so that did not impact our goal of reaching $112 in 2026. Based on the actual figures for 2025 and to reflect our revenue profile now that we include the actuation and flight control business, we have increased our expected exposure to $16 billion in 2026 and $17 billion from 2027 onwards. As always, these number should not be seen as a medium-term business outlook. We are confirming the $112 hedge rate for 2026, and we'll do our best to secure that rate for '27 and '28. We've also started hedging for 2029. And as a first indication, we are targeting a hedge rate between $1.12 and $1.14 based on current market conditions. Now if we look at Slide 8, our 2025 revenue came in at EUR 31.3 billion. It's EUR 4 billion higher than last year, which is up 14.7%. That's actually 14.8% organic growth, and we saw steady growth quarter-after-quarter throughout the year. OE sales went up by 11.3%, thanks to both higher volumes and better pricing. Services revenue was up 18%, showing just how strong airline demand was for MRO and spare parts. Changes in scope added a positive 3%, mainly because we brought in the actuation and flight control business, but the boost from this acquisition was completely offset by a weaker dollar, which dragged things down by 3.2%. Our recurring operating income reached EUR 5.2 billion, so that's more than EUR 1 billion higher than last year. The operating margin was also up by 150 basis points, hitting 16.6% of sales. The solid performance was mainly driven by strong results in the aftermarket, volume growth and our continued focus on operational excellence and keeping Safran competitive even in such a sweet environment. If we move to Slide 9, you'll see a summary of the income statement. Apart from sales and EBIT, which I'll get into in more detail later on, let's look at some of the other key P&L items. We had one-off items totaling EUR 479 million, which is a pretty big number. So most of that is in cash. About half comes from the EUR 244 million pretax capital loss tied to the divestment of Safran Passenger Innovations. There's also EUR 178 million in impairment charges on some programs and then a few other cash costs like restructuring and M&A expenses, especially from the actuation and flight control acquisition. Looking at financial income, our returns on cash investments actually topped our cost of debt, bringing in a net EUR 116 million in financial interest. Our apparent tax rate was 32.3%, which was heavily influenced by the French corporate surtax, EUR 370 million, which cut around EUR 0.90 per share of our EPS. All in all, net income attributable to the parent was EUR 3.2 billion, up 3% year-over-year, and that works out to EUR 7.6 per share. Let's dive into our businesses, starting with Slide 10 on Propulsion. Revenue here reached EUR 15.7 billion, which is a 17.6% organic increase. When we look at Propulsion services, revenue was up 21% organically. For the Civil aftermarket, spare parts sales climbed 18%, mainly thanks to the CFM56. That drove more shop visits, mid-single-digit growth and a higher proportion of full work scope shop visits. High thrust engines also did well, helped by growing wide-body traffic. LEAP engines contributed too, with third-party shop visits making up about 15% of total shop visits in 2025. We saw a 30% jump in services overall, mostly because LEAP aftermarket activities expanded under rate per flight hour contracts. Both helicopter turbines and military engines also helped drive propulsion services growth. On the OE side, revenue grew by 12% organically. We delivered a record 1,802 LEAP engines. So that's 28% growth compared to 2024 and well above our initial target. In Q4 alone, we delivered 562 engines, up 49% from Q4 last year. So we have surpassed 500 deliveries for 2 straight quarters now, which looks good for our 2026 goals. While M88 fighter engine deliveries were down year-over-year, production actually ramped up a lot in 2025, just as we had planned to keep up with a strong backlog, especially for export customers. Recurring operating income was EUR 3.6 billion, 28% organic growth. The operating margin stood at 23% of revenue, up 2.4 points, which is a strong result and almost aligned with our initial guidance earlier in the year, even with some lingering tariff impact. This improvement was mainly driven by strong civil aftermarket activity and really robust performance from CFM56, both in volume and work scope. The LEAP program also contributed with us starting to recognize profits on LEAP-1A RPFH contract and a still high ratio of spare engines. Let's now move to Slide 11 and talk about Equipment & Defense. Sales here is EUR 12.3 billion, which is up 11% organically and 16% overall. That includes about EUR 618 million from the Collins actuation and flight control business, which we consolidated for 5 months in 2025. OE revenue was up 11% organically with growth pretty much across the board. The strong performance in 2025 was mainly driven by higher volumes in defense, especially for things like the HAMMER-guided bomb, missile seekers and navigation and timing systems. We also saw good momentum in primary electrical system and wiring as well as nacelles and landing gears, especially for the A320. Aftermarket services benefited from the uptick in air traffic, going up by 12% organically with growth everywhere, but especially in landing gears, nacelles and evacuation slide systems. Recurring operating income came in at EUR 1.6 billion, and our operating margin improved by 50 basis points or 90 basis points if you exclude Collins, showing that we are making steady progress toward our 15% margin goal for 2028. The strong performance was driven by a favorable business mix and our efforts to stay competitive. OE volume growth was especially robust for narrow-body platforms as well as in avionics, defense and space. Services also did well with strong demand for carbon brakes, landing gear, nacelles and aero systems. One quick side note. As of Jan 1, 2026, Safran Ventilation System will move from Aircraft Interiors to Equipment & Defense, so we can create more synergies with our power electrical business. SVS is a profitable business. It brings in a double-digit operating margin with revenue slightly under EUR 200 million. Finally, looking at Slide 12. Aircraft Interiors continued to make real progress on its turnaround. Sales reached EUR 3.3 billion, including Safran Passenger Innovations, our IFE business, which is a 14% increase and actually bring us back to 2019 levels. OE sales went up by 15%, mostly thanks to higher deliveries in cabin, especially galleys, inserts and water and waste system for A320 and 737. Revenue also got a boost from our IFE activity as well as from higher volumes and better pricing on business class seats. Services were up 13%, mainly on the back of demand for Cabin spare parts, especially from customers in the Middle East, Asia and the Americas as well as from SVS, which I mentioned earlier, will transfer over to Equipment and Defense in 2026. Seats also did well, both with spare parts and services and passenger innovations helped out on spare parts and repairs. Recurring operating income crossed EUR 100 million with operating margin up 2.3 points. Cabin kept capitalizing on shifting production to best cost countries like Mexico, the Czech Republic and Tunisia and also on renegotiating prices for the lower-margin programs. IFE activities helped lift profits overall and seats kept improving, thanks to ongoing work on pricing and operational excellence. The strong performance really shows our focus on pass-through and price increases, which helped offset the impact of tariff. The very good news is that Aircraft Interiors has now reached cash breakeven with a noticeable EUR 140 million improvement just over last year. Now if we look at Slide 13, we generated EUR 3.9 billion in free cash flow, which is up 23%. That gives us an EBIT to cash conversion ratio of 75%. The strong result came from a 17% increase in EBITDA, so higher earnings less an impact from one-off items, along with a positive impact from working capital changes. For the first time since COVID, we managed to reduce inventory DSOs by 9 days. Also, we did increase inventories in dollar to support the ramp-up that was more than made up for by a strong inflow of advanced payments, which were higher than last year, especially thanks to the Rafale orders and other defense programs. We also paid an extra EUR 1 billion in income tax, reflecting our higher taxable income and including the EUR 377 million French corporate surtax. At the same time, we're still investing to support our growth and prepare for the future. Tangible CapEx was just under EUR 1.2 billion, focusing mainly on expanding engine MRO capacity and increasing production, especially for landing gears, smart weapons and resilient P&T systems. On Slide 14, you'll see that Safran ended 2025 net cash positive at pretty much exactly the same level as in 2024, right down to the nearest million. That's actually just a coincidence. This puts us at about 0.3x EBITDA. In line with the capital allocation framework highlighted at our last Capital Market Day, we made organic investment to sustain our growth and prepare for the future for about EUR 1.8 billion in R&D and CapEx as well as inorganic investment for EUR 1.6 billion, the main cash outflow this year being the Collins flight control and actuation system. We also returned EUR 2.6 billion to shareholders with the balance between dividends and buybacks. We also redeemed our OCEANE 2028 bonds early using shares repurchased in 2023 and 2024, which helped cut out on net debt by EUR 0.7 billion. Bottom line, Safran is still completely deleveraged, and we are in a really solid position with a strong balance sheet. For 2025, we are proposing a dividend of EUR 3.35 per share. That's a 16% increase compared to last year, and it does represent a 40% payout based on the adjusted net income, mainly restated from the capital loss from the SPI divestment. This year, as part of the EUR 5 billion share buyback program, we also bought back 5.1 million shares for cancellation, which cost a total EUR 1.3 billion. In December, we went ahead and canceled all shares that were being held for that purpose, so 5.3 million shares in total, resulting in capital ownership accretion of 1.6%. Also, between '24 and '25, we canceled 8.9 million shares, which amounted to EUR 2.1 billion and led to a 2.13% capital ownership accretion. Looking ahead to 2026, we'll keep moving forward with our share buyback program. The first tranche actually started early in mid-Jan. Just before we wrap up this section, let's quickly look at Slide 16. It's a quick reminder of the goals we set for 2025 back in December '21. I'm happy to say that we met or even exceeded all our key targets for 2025, which really shows our commitment to operational excellence and our focus on delivering strong 2-digit profitable growth. Over this period, both our revenue and free cash flow more than doubled, well ahead of our original outlook and EBIT grew even faster, nearly tripling what -- starting from a 10.2% operating margin in 2020 and landing at 16.6% in 2025, close to the middle of our 16% to 18% target. We achieved all this despite facing plenty of challenges, things like inflation, supply chain disruptions, tariff and even the French corporate surtax. So it really highlights how robust our business model is. Now let's take a look at our outlook for 2026 and our ambitions for 2028 to see what's coming next. Olivier, over to you. Olivier Andriès: Thank you, Pascal. I'm now turning to Slide 18 and our 2026 outlook. We expect to continue the LEAP delivery ramp-up with a further 15% increase. Operating in a still favorable environment, Civil aftermarket should continue to expand with spare parts up mid-teens and services up around 20%. In particular, Q1 should see a strong start in spare parts, helped by an easier comparison base. As a reminder, this outlook excludes Safran Passenger Innovation, which was divested on January 30. In more detail, for 2026, Safran expects revenue up low to mid-teens, recurring operating income between EUR 6.1 billion and EUR 6.2 billion and free cash flow between EUR 4.4 billion and EUR 4.6 billion, including an estimated EUR 470 million impact from the French corporate surtax. Let me now revisit some of the assumptions we shared at our Capital Market Day '24. Starting with LEAP OE on Slide 19. Our Q3 and Q4 delivery performance, more than 500 engines per quarter reinforces our confidence in delivering another 15% increase in 2026 and in reaching around 2,600 engines by 2028. This ramp-up is supported by continued supply chain improvements and the ongoing execution of our resiliency plan. On the performance side, LEAP continues to mature faster than the CFM56. For LEAP-1A, more than 1,450 kits of the new HPT blade have now been produced. This upgrade can more than double time-on-wing in harsh environment, bringing shop visit intervals in line with the CFM56. In parallel, around half of the LEAP-1A fleet is now equipped with the reverse bleed system highlighted at the Capital Market Day 2024, which reduces on-wing fuel nozzle maintenance. And for LEAP-1B, both the reverse bleed system and the HPT blade upgrades are expected to be certified in H1 2026 delivering the same durability improvements to the 737 MAX operators. Continuing with civil aftermarket on Slide 20. We are revising our CFM56 assumptions upward. In line with our partners' comments last July, sustained maintenance, repair and overhaul demand from operators and as a result, very low retirement levels supports a stronger outlook for CFM56 shop visits through 2028. We now expect a plateau of around 2,300 to 2,400 shop visits per year from 2025 to 2028. Compared with our Capital Market Day '24 assumptions, this represents more than 750 additional shop visits over the '25, '28 period. Beyond that, while shop visits are expected to start declining from 2029, we continue to see pricing and work scopes supporting CFM56 revenues through the end of the decade. On LEAP, our assumptions remain largely unchanged. We continue to see strong growth in shop visits with work scopes expanding. And we still expect the share of external shop visits to double from around 15% in 2025 to about 30% by 2030. Moving to Slide 21. The updated assumptions we've just discussed translates into around 15% additional revenue over the period compared with Capital Markets Day '24. As a result, the revenue annual growth between '24 and '25 is now expected to be in the low teens, up from mid- to high single digits at the time of our Capital Market Day '24. Profit growth is expected to follow a similar trajectory. Turning to margin at completion across the LEAP Red per Flight Hour portfolio. Progress has accelerated since our last update. Compared with CMD '24, we have delivered a further 2 points improvement, bringing the total margin increase to around 7 points between 2021 and 2025. This reflects both more favorable terms on new contracts and our continued focus on optimizing existing agreements whenever possible. And just as a reminder, the majority of the profit from the Red per Flight Hour contract portfolio will be recognized after 2030. As a result, on Slide 22, you can see that we are raising our 2028 targets. On revenue, both additional aftermarket activities and the consolidation of actuation support higher growth. We are, therefore, increasing our outlook with 2024 to 2028 revenue compared annual growth now expected to be around 10%. On EBIT, we are raising our 2028 guidance by EUR 1 billion. In propulsion, we are increasing our margin target from the low 20s to 22% to 24% despite tariff and an accelerated OE ramp-up. In Equipment & Defense, we confirm a mid-teens margin in 2028, now including the actuation and flight control activities. In Aircraft Interiors, we now target a high single-digit margin in 2028, which only reflects the divestment of Passenger Innovation and the transfer of Safran Ventilation Systems from Aircraft Interiors to Equipment & Defense. On free cash flow, we now expect an additional EUR 4 billion to EUR 6 billion over '24 to 2028. Despite the higher impact of 2 years of French corporate surtax around EUR 850 million compared to roughly EUR 500 million at Capital Market Day '24 and despite tariff. To conclude, let me briefly highlight a few key priorities. First, we remain fully focused on meeting customer demand while managing the OE ramp-up. We will continue to improve competitiveness and strengthen our industrial resiliency. We will also keep customers flying by providing spare engines, spare parts and by expanding our internal maintenance repair and overhaul network. In parallel, we expect to complete several divestments in 2026 in line with our portfolio pruning strategy. We will pursue our ambitious research and technology road map to prepare for the next single-aisle generation and to drive decarbonization. And finally, we remain firmly focused on our growth trajectory with the objective of increasing operating profit, expanding margin, strengthening cash generation. Thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] We will now take our first question, and this is from Christophe Menard from Deutsche Bank. Christophe Menard: Congratulations for the results. I had 3 questions. The first one on the cash conversion in 2028. And this is over clearly the '24 to '28 period, the 70% conversion. If I do a back of the envelope calculation, I'm getting the sense that you're probably targeting more conversion of 65% in later years. So is there a phasing on your cash? And is it linked to, for instance, prepayment outflows that we may have in the coming years? I will follow up with the next 2 questions afterwards, if you want. Pascal Bantegnie: So we upgraded our 2024-2028 cumulative free cash flow guidance to EUR 21 billion. As you rightly said, it could be an EBIT to cash conversion slightly below 70% in the outer years. What I could say is that we have not included yet any impact for 2027 and 2028 from a potential continuation of the French corporate sale tax. It could be EUR 0.5 billion for each year. It's not included in our guidance. At the same time, we have not included any new Rafale advance payments that may come from new contracts, and you can see quite a large one coming in from Asia. So the free cash flow upgrade guidance is coming from upward revision from aftermarket, the upward revision of LEAP engines deliveries as well. When you try to figure out what your EBIT to free cash flow conversion will be, it's all about the working capital expectations. Here, we have put some decrease in our inventory DSOs, as I said during the call, starting in 2025, continuing in 2026 and going forward. Should we deliver more equipment, LEAP or other stuff, then we could be able to have more favorable working cap changes. So we'll see with time. And we have included advanced payments, which are already booked in terms of orders, notably on Rafale. Christophe Menard: Thank you very much for this. So I understand there is a degree of conservatism as well on this. The 2 other questions. I think you said on the call earlier that you were getting ready for rate 75. You mentioned Morocco. This is all for 2027? Or can you share the time line for rate 75 on your [ end for your ] and the capacity you're putting online. And one quick question on the margin '26 per division. My understanding from what we're seeing on your guidance propulsion maybe -- can we assume that propulsion is more at the high end of the range you gave on your Slide 22? Olivier Andriès: Christophe, I'm going to answer on rate 75. I'm just saying that we take decision to invest to get prepared for rate 75. It's not up to me to comment when Airbus is going to be ready to reach rate 75 full year. But basically, what I'm telling you is that we are investing for that because we acknowledge that the demand is there for some time. So it's worth investing. That's why we have announced our LEAP assembly line in Morocco. It will help us meet rate 75. This assembly line is going to be ready by '28. And you may see in the future, we may announce future investment also in line with our objective is to meet rate 75 on other equipment as well. So we are just getting prepared. We have to be realistic. It does not happen overnight, but we are getting prepared. We are investing. Pascal Bantegnie: On your third question about margin per division, when you compute our guidance, you'll see that we continue to expect some margin expansion at group level. We also expect margin expansion at all 3 branches, including propulsion with a starting point, which is 23%. By the way, it's a 2.4% improvement from last year. And a year ago, I told you that we were about to grow our margin by 250 basis points, which we almost did despite tariff. So right, in 2026, we expect to continue to grow our margin in propulsion. The same in Equipment & Defense. It will be a slight improvement in Equipment & Defense because we will have a full year impact of the Collins actuation and Flight Control business, which, as you know, for the time being, is dilutive to our margin. And in Aircraft Interiors, despite the divestment of SPI, Safran Passenger Innovations and the transfer of a profitable business from Aircraft Interiors to Equipment & Defense. And despite that, we will see a decrease in revenues, we still expect to maintain or slightly increase our operating margin in Aircraft Interiors. So all in all, at group level and all branches, we should see some margin expansion in 2026. Operator: We'll now take the next question. This is from Sam Burgess from Goldman Sachs. Samuel Burgess: I've got a couple, if I may. Firstly, just on your free cash flow guidance. I mean, given the strength of the upgrade, sort of 30% on previous, can you see yourself accelerating the existing buyback? And just help us think through how you're thinking about capital allocation with that additional cash? And just secondly, in terms of the LEAP orders that you're signing today, can you just help us have some color on how many are going at the moment proportionately to long-term service agreement contracts versus T&M? That would be really helpful. Pascal Bantegnie: I'll take the first question on the free cash flow upgrade. On capital allocation, there is no need to change our philosophy or policy today because we have a 40% dividend policy -- sorry, 40% payout dividend policy that will remain unchanged for the next years. And as you know, we are executing a EUR 5 billion share buyback program. In 2025, we only executed 1/4 of that. So I would expect to execute another quarter of that program in 2026. We can always decide to speed up or slow down the execution of such a program. But as long as we still have the program into force, there is no reason to change that. Olivier Andriès: Hello, Sam. On LEAP, especially on support and services contract, we see now a good mix of what we call rate per flight driver contracts and material service agreement where we just provide spare parts and repair solution. And by the way, as I mentioned, the announcement we made 3 days ago with Ryanair is a perfect illustration of that. Ryanair has decided to invest in their own MRO shop, and we have decided to support them to do so in their own ramp-up. And also, we have concluded an agreement whereby for all this period, 15 years or more, we are going to provide spare parts and repair solution to them at negotiated conditions. So you see this is really an illustration of our long-term strategy where we see, let's say, a 50-50 share between flight contracts and, let's say, typical time and material or MSA contracts. It's interesting because in the past, usually only the legacy airlines have their own MRO shop, the Air France-KLM, the Lufthansa, the Delta Airlines. And we see now with this first mover, Ryanair has been -- is the first mover. We see a low-cost carrier investing in their own MRO shop, that's interesting. And for me, this is a trend, an interesting trend. I'm not saying that all of them will do that, but I'm sure we'll see more airlines coming into that kind of play. Samuel Burgess: I mean just a very quick follow-on from that, if I may. If you in terms of your MRO capacity expansion ambitions on LEAP, does that change at all with that kind of dynamic? And I guess, as a follow-on implications for propulsion margin over the midterm. Olivier Andriès: No. We -- there is no change. The compass is still the same, meaning that together between both partners, GE and us, basically, we aim at basically having internal LEAP shop visit representing about 50% of the global work. And we incentivize, we make sure basically and we -- yes, we want to favor those airlines and third parties that are jumping in the LEAP MRO. We want it to be an open MRO market. So external shop visits should long term represent 50% of the overall. So we are executing our MRO plan to increase capacity. As we have already said, it's about a EUR 1 billion investment just for maintenance shop, excluding, by the way, repair shop. This is only engine maintenance shop, EUR 1 billion. And basically, the plan is executed as planned. Morocco, India, Mexico, further investment in France and Belgium as well. And I know our partner is on the same path. Samuel Burgess: Okay. So no change to previous guidance on that. Operator: We'll now take the next question. This is from Milene Kerner from Barclays. Milene Kerner: I have 2, please. Olivier, you mentioned that 1,450 durability kits have been produced on the LEAP-1A so far. How do you expect a proportion of Light scope event to involve as the durability kit continues to grow across the rest of your LEAP 1A fleet and then the LEAP-1B. And what does that mean for the medium-term free cash flow trajectory? And then my second question is, as you're exiting now noncore cabin and interior and you're adding targeted defense assets, how should we think about your portfolio in the long term in terms of the mix between commercial and defense? Olivier Andriès: Milene, I'm not sure I got fully your question on the blades. The fact that part of the fleet is already equipped with those blades basically will just increase the intervals between shop visits. So this will push out for those LEAP engines that are equipped with the new blades, the shop visits are going to be pushed out, which in rate per flight hour contract is a positive for us, in fact, because it increases the maturity of the engines. So when are we going to have a full fleet of LEAP-1A equipped? I don't have a precise answer to that question. We'll start with the LEAP-1B as well. What are the consequences in terms of free cash flow? To be very clear, it's a positive as well because as today, most of our contracts are RPFH contract. Basically, any shop visit, any early shop visit is a spend for us. So maybe, Pascal, you can add comment on that? Pascal Bantegnie: Yes, I'll give it a try. With time, what matters is the mix between what we call quick turn and full performance restoration shop visit. And the more new HPC blades we have in the fleet, the less quick turns we need in the maintenance shops, meaning that the mix will evolve in a favorable manner in the years to come, which will benefit both EBIT and free cash flow going forward. But it is already in the plan and in our 2028 guidance. Olivier Andriès: On portfolio management, without entering into detail, I'll just give a tendency that should not surprise you. The tendency is that our Aircraft Interiors exposure should, with time, basically decrease as we are still executing our plan to divest some noncore activities inherited from the ex Zodiac acquisition and a significant part of them being in the Aircraft Interiors activity. So our aircraft interior exposure should reduce should be reduced. And I would say, as we stand ready to seize opportunities and as defense is a strong booster for everybody, if there are some, let's say, opportunities that are just passing by, that could be of interest for us in terms of technology because it's a good complement to what we do. And if it makes sense economically, we are ready and we can be agile and we are ready to jump in. So I would say in terms of tendency, directionally, our defense activity should grow and our Aircraft Interiors activity should be reduced long term. Operator: We'll now take the next question. This is from Benjamin Heelan, Bank of America. Benjamin Heelan: And I wanted to ask my first question on supply chain. We haven't actually touched on it a lot on this call yet. Can you talk about what you're seeing across the business? What are you seeing in LEAP? What are you seeing in the equipment business? Where are the challenges? Where are things improving? If you could just provide a bit of an overview in terms of what you're seeing from a supply chain situation, that would be great. Second question is on the propulsion margin, sort of '22 to '24. Could you provide a couple of swing factors within that, right? What's going to cause you to get to '22? What's going to cause you to get to '24? And how should we be thinking about R&D within that as well? I keen to hear that. And then thirdly for me, interesting on the presentation at the back, you've obviously given us guidance on the number of CFM56 shop visits, but you haven't given us any numbers yet on the LEAP. Could you provide a bit of a range in terms of heavy work scopes for LEAP that you're expecting in 2030. And then associated with that, obviously, you talked about the margin at completion of the LEAP improving 7 percentage points. When should we be assuming that the margin that you're booking on LEAP shop visits is going to be comparable to CFM56? How should we think about that? Olivier Andriès: Ben, many questions. I'll take the supply chain one. Just to say, directionally, we see an improvement of the supply chain. I'm not telling you this is blue sky yet. But we've seen in the course of 2025, let's say, noticeable improvements all across the board, not only on the engine side, but also let's say, the equipment side as well. What are the remaining challenges? They are mostly always more or less the same. It's upstream, I would say. It's about raw materials. It's about forging and casting. And by the way, this is why we have taken the decision at Safran to unlock, let's say, the situation on forging and casting. This is why we've decided to invest in our own casting facility, turbine blade casting facility of our own. We have decided to invest and we are investing in forging. We are the only -- I'm not sure that whether you know that, but we are the only engine manufacturer in the world having forging capacity internally. We are the only one. And we have decided to invest more in forging as well. So we -- basically, we have a strategy to, let's say, unlock the situation and to, how could I say, decrease our dependency or exposure to some big guys that could potentially have a [indiscernible] strategy. Then I would say the one that we are looking at very carefully and for which we have a resiliency plan is relating to rare earth, which is typically one of the areas that has been weaponized by some countries in the frame of those geopolitical tensions. And so on rare earth Basically, we are building stocks. We are also working on some alternative supply chains. I'm not saying that we are going to do that ourselves because this is not it's not our own activity, but we want to make sure that we can find alternative. Again, our compass is not only to continue to work on our competitiveness, but it's also to continue to work on our resiliency. Pascal Bantegnie: Okay. On your second question about the main drivers for profit margin expansion or decrease in propulsion. So there are many drivers. First, on civil engines, it's all about the number of installed engines and the ramp-up that we have in front of us. You know that the more installed engines we deliver, we have a loss per engine, even though it is reducing per unit, but still it is a loss. Then the spare engines, what we are looking at is the number of spare engines or the ratio between spare engines and the total number of engines being delivered. Today, it's pretty high at low double digits, and it tends towards 10%, 12% for the coming years. So it will be a negative if it goes down. Then it's all about aftermarket. As long as we continue to enjoy from very strong spare part momentum, not only on CFM56, but on the LEAP and IRS engines, it will be a positive. Then it's all about our policy to release profit margin on the LEAP RPFH contracts. As you know, we started to release margin on LEAP-1A RPFH contracts last year. As soon as we introduce the LEAP-1B new HPT blade in H1 this year, we will start to release margin on LEAP-1B contracts as well. As you know, it is capped by construction. We don't intend to release much of the margin before 2030. The good news, as Olivier highlighted in his concluding remarks is that the margin or the expected margin at completion of our book has increased by 7 points from 2021 to 2025. So we have more potential in terms of profit into our books that will be mostly released after 2030. So the name of the game, as you know, for us, is to avoid any dip in margin anytime in a year. This is clearly the target we have together with Olivier. And then one item which is not under our control is tariff. Tariff is given today. We know that we are in a fluid environment to say the least. So that may change one way or the other. Then on your sub question, I'm not sure I got all, but I'll try to answer it. I guess it was related to the long-term propulsion margin. And at some point in time, we are expecting a sunset of our CFM56 spare part business, likely starting in 2029 or 2030. We will have to start to release more profits coming from the LEAP RPFH contracts, but also from the LEAP spare parts activity as well. Olivier commented that we are diverting part of the customers from RPFH to time and material, more conventional spare part sales. Again, the name of the game is to avoid any dip in margin. So today, we have a fixed formula to release our profit. By the way, we have made little progress. I would say the progress rate of our LEAP RPFH contract is very low. It's about 5% today. So the potential is huge in terms of dollar profit for the next decade. So I'm not worried that we will be able to have no dilutive impact in the years to come. I hope it answers your question, Ben. Otherwise, please. Benjamin Heelan: Yes. No, it does. Operator: We now take our next question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: I have 2, if I may. The first 1 is coming back on the 7 points of improvement in the lead portfolio margin I think, Olivier, you said that the assumption from the CMD were actually largely unchanged in LEAP. So should we assume that it's because that change in portfolio margin will mainly flow through the P&L beyond 2028. The second 1 is on the hedge book. In Q1 last year, Pascal, you commented that you were working on firming up the rate to avoid the knockout activation. Could you maybe share how this has evolved and if we should consider that 2028 is now almost fully firmed up. And on the comments you made on 2029. If spot remains where it currently is, should you be able to build a full coverage for that year within 1.12 to 1.14. Is that how we should understand the comments you made? Pascal Bantegnie: Yes, as we said, between '21 and '25, we've been able to improve our expected margin at completion of our RPFH book by 7 points. Most of the profits will be released in the next decade. So it has no impact on the short-term '25, '26, '27 profit recognition methodology as we do cap our profit release by construction. So no change. But what I'm saying is that the overall expected profits within our books is even bigger than what it was a year ago. On hedging, FX hedging, as I say, we had faced a weakening of the dollar against the euro across the year. It now stands at $1.18, $1.19 per euro. all our KO barriers are within 121 to 130 or so. So if there is any peak in euro-dollar at any time as we did face at the end of Jan, then there is a risk that we may lose part of our hedging volume. Nevertheless, I'm really confident that we can deliver $112 in '26, in '27 and '28. For 2029, we are starting to hedge our year at $17 billion exposure. Given the current market conditions, the 1.12, $1.14 range seems achievable. Now the risk is that should the euro-dollar moves up again and stands at 125 or 130, there is no magic in what we do with our trading room. It means that with time, we'll see the hedge rate going up and converge to the spot rate. But there is a lag to that phenomenon. So as long as it stays within the current range, below 120, I'm comfortable we will maintain 112 up to 2028. Operator: We'll now move to the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: Two questions from my side, please. Could you elaborate a little bit on the growth that you've experienced in defense in 2025. If you could share numbers on that in equipment. And the second 1 is on wide-body programs. Do you see some risk on volumes there coming from seats or the rest of the cabin in terms of your capacity and the ramp-up point of view, please? Olivier Andriès: Olivier, Growth in defense, the dynamic has been extremely strong in some key munitions especially we have what we call a guided bomb, which is named Hanwha, which is extremely successful in export markets and is highly demanded at the moment. You may have seen that -- I can confirm you may have seen yesterday that Norway has decided to order hundreds of them, basically that they want to deliver to Ukraine. So these are what we are talking about. So are guided weapons that we manufacture. We have multiplied by 4 our production in the last 3 years. And I believe we will continue to scale up. Another example is our inertial navigation systems where that do equate mainly military equipment, aircraft, helicopters, tanks, ships, submarines, but also artillery. And here as well, the demand is extremely strong, and we believe we are going to multiply our production by probably 3 to 4 as well. Last example I'd like to mention is missile propulsion. We -- we are a missile propulsion designer and producer. And I think we are the only one in Europe to do what we call turbo reactor for missile. We are equipping the Scalp/Storm Shadow cruise missile or the exocet missile, but we are also equipping missiles that are designed and produced by Saab in Sweden or Kongsberg in Norway. And here as well, the demand has grown very massively. So we've just -- we have decided 18 months ago to invest that's EUR 100 million in our facility to multiply our production by 5. So those are examples of the very significant scale-up that we see in defense. On top of that, the demand is high also on optronics. We are a player in portable optronics or onboarded optronics for UAVs, for helicopters, for maritime patrol aircraft. And here as well, the demand is very strong. So all in all, on Defense Electronics it's 1.6 book-to-bill ratio, and I can promise that the book-to-bill ratio in 2026 will be far above 1 again. On seats and widebody, indeed, the demand for -- especially business class seats is extremely strong. And I think it's unprecedented again. And interestingly, it's not only a demand for line fit aircraft, but it's also a strong demand for retrofit aircraft. So basically, we've delivered this year, I think if I remember well, it's 2,600 business class seats, significantly above what we've delivered last year. And the growth is very, very, very strong. So we are going to invest to increase our capacity in business class seats. And this is what we are talking about with Emirates. We are going to build a new assembly line in Dubai for that because -- just to meet the demand. Now we still face -- I mean, we have significantly improved our development process. So today, we deliver on time. We deliver on quality to the airframers and to the airlines. But we are still facing rising expectation on the certification side. We are experiencing also a tighter interpretation of pre-existing rules. So all in all, this -- and this is an industry-wide situation. It's not specific to Safran. But the consequence of that is that, yes, indeed, seats could potentially be a pacing item for the ramp-up of the wide-body aircraft just because of, let's say, the tighter tightening of interpretation of pre-existing certification rules. Is it clear? Olivier Brochet: Extremely. Operator: We will now take the next question. This is from Adrien Rabier from Bernstein. Adrien Rabier: Just 1 follow-up, if you may, on the CFM56, please. Could you explain a little bit on what you expect to happen after 2028, the trajectory for shop visits? And then you mentioned pricing and scope of potentially in time. So any detail you can provide would be very helpful. Olivier Andriès: Well, I know that the dynamic has evolved in the latter years because, as you know, we were expecting, let's say, the start of what we call the sunset earlier than what we do see today. And this is a consequence of the so-called flying more for longer situation. So it's a dynamic situation. Today, we are very, very confident that the volume of shop visit will remain at this peak of 2,300, 2,400 up to 2028. So how will the dynamic unfold after that is still to be seen. So this is why basically we take a cautious approach there. It's going to be, let's say, it's going to be a combination of how quickly Airbus and Boeing are going to reach their peak rate for, respectively, the A320s and the 737. And they are on a trajectory to, let's say, to go up by then. It's going also to be -- one of the other elements in play is going to be the level of aircraft retirement. And I have to say, in 2025, there has been a very low level of aircraft retirement. We've been -- it's been about 150 aircraft, so more or less the same as in 2024, no change. And therefore, this is not feeling any used part market. So really, it's going to be a combination of traffic growth. The traffic growth in 2025 for the narrowbody has been more than 5% compared to 2024. So is it going to continue at this pace? So this is one entrant. The other entrant is going to be how many new gen aircraft are going to get into the fleet. So how fast are Airbus and Boeing going to be able to reach their peak rate. And the third element is going to be the level of aircraft retirement. So it may well continue for 1 or 2 additional years. It's too early to say. It's really today a question of how this dynamic will unfold. Operator: And the next question is from Ross Law Morgan Stanley. Ross Law: So the first one is just a follow-up on portfolio. You've previously spoken about an ambition to divest about 30% of the legacy Zodiac assets. Can you maybe just give us a progress update here? And how much of this target is covered by the recent deals? And when should we expect you to achieve this target? Second question is just a quick one on your 2026 FX assumption for the spot rate at $1.15. And it's been tracking around the 118, 119 mark year-to-date and at present. I'm just wondering why you are assuming $115 and not higher? And then lastly, just on the media article yesterday suggesting you're working on advanced ducted engine as a possible more traditional alternative to RISE for next-gen narrow-body. Are you able to confirm this? And also what it means for RISE and also your R&D outlook? Olivier Andriès: On portfolio, how do we progress? Let's put it that way. Between Safran Passenger Innovation and EasyAir, we are talking about a revenue of roughly EUR 0.5 billion, more or less, roughly. It's an indication. So how -- what does it mean in terms of percentage of the ex Zodiac portfolio progress? It's a few points, I would say. When we met at the Capital Market Day, basically, we had executed 10% for a target of 30% of the portfolio. I guess I should not -- we should not be far from 15%, but it's indicative. We may come back on that, but it's an indicative number. So there's more to come. We hopefully will progress in 2026. But I will say the obvious. Before launching a process of divesting an asset, we need to make sure that this asset has some kind of appeal to the market. And so this is why we are focused on the performance and economic recovery first. But we are planning to continue to divest, especially in the course of 2026. Pascal Bantegnie: On your second question about FX, true, we took the assumption of $1.15 per euro on the spot rate just because we built up our 2026 budget at the time, it was at $1.15. So now it's $1.18. So that means a slight negative. It will only impact negatively our revenue base. You know the sensitivity, it's about EUR 100 million, EUR 150 million of sales per cent spot rate. So we'll see with time, we could have chosen 1.20. It would be as long as 115. We'll see at year-end. And then your last question is about the RISE program. RISE is a technology program. We are developing technology bricks, new materials, gearbox, an open fan architecture, hybridization that we leave all options open. So there is nothing new in what you may have seen in some press reports about a ducted engine or an open fan engine. Olivier Andriès: Yes. I'll say the obvious as well. We are getting prepared to any scenario because at the end of the day, it's going to be an airframer decision to select a given engine architecture. So basically, RISE, as just Pascal has reminded, is a technology program. There's a lot of common bricks that basically we develop whatever the architecture is. And yes, indeed, we are working on an open fan architecture. But again, we need to be prepared to any scenario. We are still very confident that the open fan is, let's say, the most, let's say, rewarding, let's say, configuration in terms of fuel burn. There's, of course, a lot of challenges that we need to meet and need to tick boxes, if you wish, on this technology plan. But again, we need to be prepared to any scenario. So no surprise. Pascal Bantegnie: We'll take 2 more questions. Operator: Next question is from the line of Rory Smith, Oxcap. Unknown Analyst: You've given lots of color on the call so far about narrow-body engines. So that's very helpful. I just had a question on wide-body. Is it fair to assume that there's a similar sort of margin differential between, let's say, timing materials or spare parts versus services under wide-body service contracts, as you mentioned for under LEAP? That's my first question. Olivier Andriès: To the wide-body, I would say yes, Rory? Yes, indeed. similar. Unknown Analyst: Brilliant. And then just as a follow-up to that, is there anything you can tell us this morning just about this sort of engine durability issue. I'm not saying it's your component, but anything that you're hearing from your partner there that Boeing talked about on their 4Q call that may be impacting the flight test program for 777X. Olivier Andriès: Well, I cannot comment on that, Rory. Sorry for that. That is the last question? Operator: Yes, of course. Last question today is from Ken Herbert RBC CM. Kenneth Herbert: Two questions, if I could. First, you grew spare parts in civil engines about 18% in '25. The guide is for mid-teens growth this year with looks like basically flattish CFM56 shop visits and some growth on the LEAP. Can you just help dissect that a bit and why the slower growth? Is it anything in underlying assumptions on price or work scope or maybe wide-body versus narrow-body as a first question. And then second, we are starting to hear some concern -- not concerned questions from some of the larger CFM56-7B fleets about maybe lowering engine inventory levels this year as we go through the year. And I'm just curious if you can comment on that, if that's anything you've seen and how we should think about that? Pascal Bantegnie: Okay. I'll take the first one on spare parts for 2026. So we are guiding to a mid-teens revenue growth. It's driven by the 3 engine families. First one, CFM56, we should see more or less a flattish number of shop visits. So volume is flat. Price will be up. It's still to be agreed with our partner. It will be applicable from 1st of August. We will benefit from last year price increase in the catalog list price, which was mid- to high single digits. And then work scope. W scope should be a positive because as we saw in 2025, we're expecting a higher proportion of full work scope within the total of shop visits. So CFM56 will continue to be a driver. On the IRS engines, as you know, we have a minority stake on the GE engines. And here, we see good positive drivers as well in terms of pricing and volume and work scope on all 3 components. And then on LEAP, we'll continue to grow the number of shop visits for the LEAP, as we say globally from about 15% shop visit per formed by third parties to 30% by 2030 and with a favorable mix over time, meaning less quick turns and more full performance restoration shop visits. So that should benefit as well our guidance for spare parts in 2026. I would like to say right now, then what we will discuss in April, we should have a very strong start in spare parts in Q1 only because we have favorable comparison base. So you should expect a higher number than the mid-teens when we publish our Q1 numbers. Olivier Andriès: Ken, on your second question, I'm not sure what you are referring to. But what I can say is even if our overall performance has been extremely good on spare parts, especially CFM56 spare parts in the course of 2025. We have been a little bit constrained by some supply chain issues that are getting unlocked. And that's also what is going to be a component to feed 2026. So we see, let's say, supply chain, let's say, some supply chain bottlenecks getting unlocked on CFM56 spare parts as well, and that's going to help us in 2026. Pascal Bantegnie: Thank you all. Have a good day, and happy Valentine for tomorrow. Olivier Andriès: Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fingerprint Cards AB Q4 Results 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stefan Pettersson, Head of Investor Relations. Please go ahead. Stefan Pettersson: Thank you very much, and good morning, everyone, and welcome to FPC's earnings call following the release of our Q4 and year-end report this morning. So we'll start by a presentation of the report by our CEO, Adam Philpott; and then by our CFO, Fredrik Hedlund. And if you're following this call on the web, you can post questions throughout the call. And with that, let me now hand over to our CEO, Adam Philpott. Adam Philpott: Thank you very much, Stefan. Good to be here. Let me just start on the agenda. So fairly typical agenda that you would expect from us over the last few quarters. We'll start with an executive summary of the financial performance and highlights. A couple of key focus areas that we'll have is really digging into AllKey. You will have seen us talk a lot about AllKey in the report, and we started talking about AllKey over the last few earnings calls. And we'll also talk about asset and licensing deals, which you've also spoken a lot about as well. Then I'll ask Fredrik to help me out on the key figures before we summarize and spend some time answering your questions. So let me move then to the summary of the quarter. So firstly, for the quarter alone, and then I'll talk about the year, down slightly, 4% year-on-year down for revenue, but actually in constant currency up. So FX started to make a bit of an impact. But I think what it shows is quite stable revenue given the transformation that we've driven as a company as we migrate and evolve some of our customers up the value chain towards AllKey. Not only that, but you can see that same stability in terms of the gross margin. So really strong performance in maintaining gross margins at very high levels compared to our history, of course, also. And then for the year, 1 quarter could be a trend -- can be a data point rather, a year, of course, is a trend. And so as you look at the full year, up 30% year-on-year, 40% if you account for FX as well. So I think that paints a really clear picture on the direction and trending of the company as well. So really pleased with that overall performance also. But as you know, we've been going through a transformation as a company. And a big part of that is how we transition or evolve beyond sensors into systems. We will, of course, continue to drive a strong sensor product line with some of our key customers there. We've got some great customers in the sensor business. That's our bread and butter. We'll continue to develop that business. But of course, we have many customers who get greater value from us as we move into systems. And that's evidenced not only by some of the customer sentiments that we've shared in the past, and we'll share a bit more of that today, but also evidenced in our pipeline. We know that 50% -- around 50% of our existing customers see the value in AllKey for their products and are on an upgrade path going through evaluation into productizing and then shipping AllKey as part of their products. So really pleased, that's been our primary focus is on our existing customers, those for whom AllKey makes a lot of sense. And as you can see about 50% of our customers are involved in that. But at the same time, AllKey opens up opportunities for us to acquire new clients, really important to build out the customer base. And so as we look at our pipeline for the future, 50% of our pipeline is made up of new clients, and that's driven largely by AllKey. So really pleased to see that, and we'll spend a bit of time on that a little bit later, too. And we also continue to launch new AllKey products. We're seeing that bet really playing out strongly, so we're continuing to add to that portfolio, opening up different markets. Most recently in December announcing the AllKey Ultra product, expanding our lineup with the Secure Element variant, very differentiated for us as a company as well. So really pleased on how that bet is playing out. And of course, we've done some good asset monetization deals throughout the last year or 2, and that's something we see a great opportunity to continue as biometrics continues to be super important to organizations looking to ascertain identity, stay ahead of cybersecurity and move away from password. So iris has a big part to play there as to some of our other IP. And so we see a great opportunity to leverage those sorts of models into adjacent verticals also. So really pleased with the performance, resilient revenue during Q4, great performance for the year as we expand into AllKey. And so what I also want to do is, kind of take you back. Take you back to where we've come from and where we're going this year. This is our first earnings call of 2026, and that means that we're now in the third year of our transformation, the transformation program that I put in place when I joined the company. And so just to take you back briefly, when I joined, the first thing we needed to do, we had a burning platform. We needed to look at how we stabilize the company. We needed to rearchitect the company because the world around us had changed. And that meant a number of things. You may remember the 6-point plan, you can see on the left here, and that was a few key elements, really about cutting costs, getting OpEx to the right level, leaving some of those markets that were just taking money out of the company rather than putting money in because they were so unprofitable, tidying up the balance sheet and a few other fundamental elements. So that was year 1 in stabilizing and rightsizing the company. The second year was then about saying, well, what are the vectors we have for growth, looking at a few growth opportunities, and that was last year, our second year. And those growth opportunities were looking at cloud identity, looking at our iris assets and of course, moving up the value chain in the product that is AllKey. And so those were the bets that we placed last year to open up new growth avenues for the company. Cloud was a really promising one, and it was evidenced by things like a lot of M&A in that cloud identity segment. But what we found with cloud with is quite a long-term development cycle and therefore, quite asset intensive. And so for us, we still very much have our eye on that opportunity, but we're monitoring it rather than investing heavily in that. What we are focused on because of the bet that's taken off is AllKey. AllKey has shown huge promise throughout last year. And therefore, we are really focusing our investments, our attention on AllKey to really get behind the genuine and real demand that we're seeing for that product. We had a few bets. We looked at the ones that were really taking off, and we're focusing exactly on those. It's showing huge potential with existing customer demand. And as you remember, AllKey is about 3x the ASP of traditional sensors. It's showing new customer demand as well, so our job is to feed that demand. So as we look at year 3, it's really about focused growth. Looking at those bets we placed, focusing on the ones that are paying off and really doubling down on AllKey. The beautiful thing about AllKey is it absolutely leverages our core competence. The things that made us great in the first place, it really builds upon those. And therefore, it's a near adjacent, it's got less risk and it's got genuine demand from our clients. Of course, we saw the asset bets that we've placed pay off as well. Those are more episodic deals. They happen here and there, but we believe there's a lot more gas in the tank on those also. Those are like big deals. They happen occasionally. And so we're really focused on where are we going to get the next ones from. We've proven the model out and so continuing to get additional ones, which then also funds the business as we drive this transition up the food chain and into the segments that we're focused on. And then as we now dig into a couple of those focus areas. So I said AllKey and assets, those are the key things we want to focus on, particularly AllKey for our core business. So let's spend a bit of time on those 2 items. And so on the right here, you can see some demo products that we created. This is based upon AllKey and AllKey Ultra as well. You can see in those photographs, the little bit sticking out. That's a USB-C. So that gives you a sense on how small these are. They're incredibly elegant devices. We were at TRUSTECH, which is a fintech show in Paris in December. We have these with us and just the buzz around them was phenomenal. So really exciting product, really exciting market, obviously ties to FIDO market access or number of different markets, and I'll touch on some of those markets a little later. But a real buzz around these products from lots and lots of customers. And you can see the 2 different form factors there as well. And so our focus with AllKey was to, first of all, talk to our existing clients. We know that there's a lot of benefits for them in simplifying and taking complexity out of their products and also making it easier for them to integrate. And so our focus was to work with existing clients. I'm going to show you some pipeline in a second about how that's going. But really pleased. I talked a minute ago about 50% of our existing clients are upgrading to AllKey. So real demand, real pipeline for that product there. At the same time, because it's easy to use, easy to consume, it doesn't mean that we, as a company and the few engineers that we have, have to be involved deeply in every single deal, which means that we can scale the business without having to be a bottleneck based upon our internal capacity. And so we're starting to see a lot of new clients come on board. And again, I'll show you some data on that in a second. And in my opinion, we're only just getting started with new clients. We've been very opportunistic about incoming leads. The sellers have focused -- been opportunistic about a few clients that they've approached. We are now ruggedizing and doing campaigns at scale. So we'll start to see more new clients come into our pipeline as well. And then the third great thing about AllKey is because it's very simple to consume and adopt for a client, it's perfect for the channel because they don't need to come back to us for every question. They can be self-sustaining. They can go out and drive the market. And we're starting to see a lot of leads come from the channel that we specifically set up because of our AllKey product. So those are 3 key focus areas. We're actually going to focus more on the channel with some coverage in 2026 as well to unlock additional source of new customers there, too. Here's another interesting one, though. We see the potential to develop AllKey into the smart card because we're actually starting to see some early smart card demand. You may remember, it was probably 3, maybe even 4 earnings calls ago, you may not remember, that we talked about Payment that the company has been in for a long time and actually seeing that evolve into multifunction cards. We're seeing a bit of demand for that. Now I'm not going to stand here today and say it's going to take off, it's going to be the next big thing, because I think we hoped that Payment was going to be a bigger market than it has so far become. But we are starting to see some early demand. I'm not going to talk boldly about it today, but I will talk about it some more if we start to see some of the demand that we're starting to see manifest in genuine opportunities and real converted deals. So we're going to keep an eye on that. I didn't want to say nothing about it today because I want to be transparent about what we're seeing in the market. But at the same time, I'm not going to double down and say this thing is going to be huge because I think we've seen some false signs in the past, and I want to make sure we're really focused on real evidence and real conversion on the smart card. But we are seeing some demand. We do see that as a future vector for AllKey, particularly AllKey Ultra with a Secure Element on there, too, and it's something we're keeping our eye on. And of course, we have a volume center business. We're going to continue to do that. AllKey isn't about moving away from that. It's about expanding beyond that so that we can offer a broader portfolio and different value based upon our different -- based upon our clients and what they're really looking for. So huge opportunity for us, really nice to see how that is developing. And so let's talk about some evidence. We've talked about where the market is going. We've talked about AllKey a bit, and we've introduced it for a few quarters now. But I want to talk a little bit about pipeline. Now pipeline isn't something we've really shared on earnings calls before. So it's quite a new thing to start sharing. Pipeline isn't equal to revenue. It's not equal to invoicing. It's not equal to budget. It's simply an indicator of the opportunity we see out there. Here's what I will tell you, we run strong pipeline rigor. As a CEO, I used to be a Chief Revenue Officer for a $1.8 billion company. So I've kind of got some capabilities in pipeline management. And so pipeline is something I'm really focused on because it tells us where -- as long as we've got the right rigor, it tells us where the opportunity is that we need to invest behind. So we're really confident that we've got good pipeline. But it doesn't mean it's all going to close, of course, but we're pretty confident about some of the signals we get from our pipeline. And let me just talk to you quickly about the 2 charts here then. So the chart on the left is product mix by revenue. So of the total pipeline we have for '26 or '27 or '28, we split that by how much is AllKey and how much is sensors. And what you can see here is that we are really starting to grow the mix of our pipeline that is coming from AllKey. We're shifting customers to AllKey, but we're also acquiring new customers in the pipeline that are AllKey. And of course, 100% isn't flat. We're growing the pipeline at the same time. So from '26 to '27, the pipeline growth is greater than 20%. So we're getting more pipeline in, as you would expect, as we shift customers from sensors to systems, it's greater ASP. You would expect the pipe to grow. And of course, we're bringing new customers in as well. I won't talk about growth for 2028 because that pipeline is immature. We're still building pipe for 2028, but it gives you an indication of what's going on there. So really pleased to see the mix increasing significantly. Does it mean that 60% of our business in 2027 will come from AllKey? Not necessarily as this is about conversion, but it gives you directional insights into how we see the mix evolving. And then the chart on the right, I talked about we're bringing new customers into the pipeline as well because of AllKey. The chart on the right shows our total pipe for each of those years and how much of that pipe is from new customers versus existing. That's on quantity, so how many customers in our pipeline are new versus how many are existing. Historically, we've run at less than 20% of our pipeline from new customers. We've really been farming existing customers once we settle down in the access space. Now we're really starting to grow that customer mix as well. And that's obviously something we're very focused on. So great to see that already increasing in the pipeline. Of course, we need to convert and you would have a lower conversion on new customers than you would have on existing. But again, it gives you some direction around how we're growing or planning to grow our customer base. So exciting data for us to look at. And of course, as we think about what we're doing here, 3x the ASP, sustaining our margins at 50% to 60%, we track gross margins in our pipeline as well so that we can intervene should there be a low-margin deal, but really sustaining those margins as we move up the value chain and offer greater value to our clients, too. So a very exciting view on the pipeline. And then the other thing I said is, we have lots of good customer feedback as well. I talked to not all of our customers, I talk to most of our customers, and the team are deeply engaged both on the sales, of course, and on the engineering side as well. And so the interesting thing about the feedback we get from our customers, and we haven't had negative feedback, by the way. Sometimes people don't always like price, but we offer great value, and we're able to sustain our margins. But you can see the breadth of verticals that we're serving, fintech, crypto wallet providers, FIDO providers, software companies -- big software companies for that matter, IoT and wearables, access control, more of the traditional market. And then you can see there the blend of existing and new that we're seeing in those different segments with those different types of customers. And at the end, you can see the value drivers. So really broad range of feedback from different types of customers for some of the different levels of value that AllKey provides. So if you look at the fintech example, that kind of talks to where we're taking AllKey. I mentioned it in the smart card form factor earlier, but it doesn't just have to be smart card, it could be any type of device where that client, in particular, is really interested in putting their own custom applications on top of our MCU on the AllKey platform so they can use identity through fingerprint biometrics to do other types of tasks within their organization, too. So again, thinking of it as more of a platform that you can use biometric identity on for other software applications as well as some of those that we've spoken about previously, physical, logical access, Payment, et cetera. So that's a really exciting one. As we think about the crypto providers, the hardware wallet providers, obviously, security is really critical for those guys. So they love the MCU that we're using. And they also look at as a really trusted player because we're a European with a long track record of a credible company in this space. And they meet our people. They meet our engineers, and they love what we're able to do and the level of capability that we have in the organization. On the FIDO side, because it's a turnkey solution that we offer rather than the customer themselves having to put pieces together, it allows different types of FIDO players to come to the market and have a much less complex product, but also integrate our product far more quickly so they can get to market quickly. On the software side, you saw the design earlier in the photos that I shared. That really resonates as you think about how you plug this into a PC, FIDO, for example, or do other things on Windows Hello for authentication. So the design piece is critically important also. And then finally, a couple of other things. I talked about reduced complexity in our traditional customers, particularly for those customers who are slightly up the volume chain as well and therefore need an all-in-one solution. Having something less complex takes a lot of cost out, not just in creating the product, but in not having returns and things like that because it's a high-quality, durable, reliable product. And then on the wearables side, some of the feedback we've got is, these are consumer wearable companies who often want their consumers to be able to use their product for enterprise security because we offer enterprise-grade security as a company, particularly as it relates to our AllKey Ultra, they are able to access new markets or be able to offer new services in existing markets in extremely credible way. So really good feedback across the board from our customers that substantiates the quality of pipeline I shared previously. So there's a lot going on, on AllKey, very excited about it, very focused on getting behind that demand to ensure we capitalize and convert it, but that's obviously a very key focus for us for 2026. The other focus I did want to touch on is assets and licensing deals. We've done quite a few of these now, built a track record and some credibility around that. I wanted to talk quickly about one of those deals, and then I'll talk about how I see us replicating that. And so on the left, you can see a photograph. This is from Smart Eye booth at the Consumer Electronics Show just a month ago in Las Vegas. And so we signed a deal with Smart Eye in early 2025. They've been busy working on the developing the product, integrating it with theirs, working with our team as well. And I think what they demonstrated at CES proves what's possible with the iris asset. I wasn't at CES, some of our team were there. But I went over to meet the Smart Eye team and go through the demo myself recently. And they're now productizing this demo just for our reps to be able to go out and resell as well. As you know, from that deal, we have a 50-50 revenue share as we take that to market jointly. But looking at the product, it's extremely long range. You can approach from a few meters away. And even before you get within a meter, the camera starts to authenticate you. That's very different to every other iris asset on the market. Every other iris asset, you're pretty much going up to some binocular, either one eye or both eyes. It's not a very nice user experience. So this is much more intuitive, much easier, much less invasive for the user. And so it's quite unique on the market. So it works at a longer range. I think when I did it, I was authenticated about 70 centimeters. So just within a meter, longer range, really powerful. Also very easy to use. That's a big part of biometrics is if it feels invasive, it doesn't always work for users. But at the same time, very, very high efficacy. There's no point in being able to authenticate a distance if you can't do so with high efficacy. And iris is right up there at the highest efficacy along with Fingerprint. And at the same time, what the team have been able to do is be able to do that, but on ever lower cost hardware. That's a really important part of unit economics so that it makes it much more viable in the market as well. So Smart Eye have really proved out what's possible when we partner on iris, and we see many other areas where we can go and do that. Physical access is a really obvious one. Logical access is another obvious one. Health care comes up a lot because of the unique environment, and PPE, et cetera, the operators are working within there. And those are just a few. We see about 15 or so global markets that we're actively engaged in to look at where there's partnerships that we can do to jointly develop that asset for those markets where we otherwise couldn't fund it on our own, but also, of course, licensing that asset out in order to fund the business and get additional income in. So really powerful opportunity for us, big deal approach to that one, highly strategic, and we have some folks focused on doing exactly that. So with that, that's a bit of a round of ground on where we've come from, how we've performed, but also where we're going this year as we continue to execute the transformation plan with a real focus on AllKey and on our assets. And with that, let me hand to Fredrik Hedlund, our CFO, just to do a slightly deeper dive into the Q4 and 2025 numbers. So Fredrik, over to you. Fredrik Hedlund: Yes. Great. Thank you, Adam. So let's walk through the fourth quarter numbers. So in the fourth quarter, our revenue was down 4% year-over-year. But if you look at revenue from a constant currency perspective, our revenue increased by 9% year-over-year. And from a total year 2025 perspective, our revenue was up 30%. And from a constant currency perspective, revenue was up 40%. And if we turn to gross margins in the fourth quarter, our gross margin was 65.8%, which is in line with the fourth quarter of 2024. And if you look at our gross margins for the total year 2025, we ended up with a gross margin of 60.7%. And from an EBITDA perspective, we were slightly positive. And from a free cash flow perspective, we were also slightly positive in the fourth quarter. And when we look at cash, we ended our cash balance at SEK 27.1 million, which is SEK 1.2 million lower than the third quarter of 2025, so last quarter. And if you look at headcount, our headcount was down 31% year-over-year, and it kind of started to flatten out. So our headcount was flat versus last quarter. And as Adam mentioned, we managed to close the PixArt deal in the fourth quarter. And with that, Adam, back to you. Adam Philpott: Thank you, Fredrik. And so let me just move to summarize and then hopefully, we've got a bunch of questions coming in, and I'll hand to Stefan at the end to help us answer those questions. So as a summary, the fundamentals are stable. Revenue was slightly down for the quarter, but it was actually quite far up in constant currency. So we feel good about the transition that we're managing. And at the same time, we've been able to do that whilst maintaining very strong gross margins, particularly if you compare it to history. And we're doing that whilst having continued operational discipline and rigor around cost. So we took a lot of cost out of the business to right size the company, and we're maintaining that cost level whilst augmenting it with AI. We've got a number of agentic practices in place to ensure that our people are as productive as they're able to be using AI tools. So for us, AI doesn't replace staff, it augments them. And we're teaching people every day and encouraging people every day to experiment with how they use AI in a safe and secure way for our company's data. So pleased about how we're doing that also. And then the other key call out both for Q4, but also throughout this year, I think, is the progress we've made on the AllKey. That it's so encouraging where we have a number of bets and you see one of them, particularly one that's so close to our core competence really taking off and resonating with customers. It's one thing to have a great idea and then to build a product but you aren't always guarantee that, that product is going to take off. And so it's really -- I'm really pleased for our team, honestly, as much as our business there that things that they've done have manifested with our customers so far in such a positive way. Our job, of course, is to see that through and drive conversion, but really pleased about the customer sentiment we're getting, really pleased about the evidenced pipeline that we're getting as we help existing customers upgrade to AllKey, but then also very encouraged about the new customer pipeline that's coming in both direct and through our new channel partners in that space. So that's really exciting to see. So on the strategic focus, that's what it's all about, focus. We're focused on investing in the AllKey demand. We're also focused on expanding our asset deals and licensing deals that we've done to help fund that continued expansion and get more weight behind it. And also, of course, from a business perspective, driving to positive EBITDA and free cash flow through that operational discipline. So with that, I'm going to pause there. Thank you so much for your attention. Bang on half an hour. Stefan, let me hand back to you, and perhaps we can take some questions. Stefan Pettersson: Yes. Thank you, Adam. I think we'll begin by taking any questions there are from the phone lines. Operator: [Operator Instructions] We will now take the first question from the line of Markus Almerud from DNB Carnegie. Markus Almerud: Markus Almerud here from DNB Carnegie. So let me start with AllKey. Obviously, I was going to say. But you look at the -- if I start with the existing customer base where you say that 50% of customers are on an upgrade path. If you talk a little bit about the mix of that customer base, and I don't know what the mix is today. But in terms of volume, is it evenly split? Or do you have any single customers which are particularly large? And can you talk a little bit about that sort of trend? Adam Philpott: Yes. Do you want me to answer that one, Markus? Or do you want to -- if you got more on that one, sorry, I just jumped in there. Markus Almerud: No, no, no. I was just elaborating. So I'm just talking about volume basically. Adam Philpott: Yes. Yes. No, really, no. So I'll tell you how we've looked at it. We've looked at it by revenue. We've looked at the pipeline by quantity of customers, and we've looked at the pipeline by volume, of course, as well. Because exactly where you're going with this is because AllKey is 3x the ASP, you need minus 3x the volume in order to achieve the same numbers. And so as we look at the new customers, which I think your question was specifically about, there are some bigger customers in there. So when you think about revenue, but also to a degree, volume. There are some bigger customers in there, but it's actually spread quite broadly. So the quantity of customers as well is pretty good. That's what I was focused on when I talked about the pipeline data earlier is the number of customers that we're bringing in. Now typically, what you'll find is that we don't, as a company, go and target super small customers because, obviously, that doesn't make sense to get the right return on investment. We tend to target medium and then large customers so that we have a balanced pipeline. Larger customers, obviously, take longer to close and perhaps there's higher risk around those if you depend upon them. And so having medium customers to fill in the peaks between those are exactly the sort of pipeline balance that we look for. So I would say we've got a really balanced pipeline in terms of medium and large customers and the volumes would reflect those size of customer. Markus Almerud: And looking at the current customer base that you do have, which are now converting, you talk about 50% -- 50% of the current customer base, which is sort of on an upgrade path. What's the kind of size among those customers? Is it fairly even? Or are there any really large ones sticking out? Adam Philpott: I would say that actually, the bigger -- some of the biggest customers we have in our pipeline are newer customers to the company. We've got some very high-volume customers who are going to stay as sensor customers. That's why it's really important for me to emphasize that sensors remains a really important business to us. We're not moving out of it. We're not competing with it. We're expanding beyond it. So we've got some really big customers who remain in sensors. We've got some new big customers on AllKey. And then the bulk of our customers who are migrating, I would say, are kind of medium to large customers in that space as well. So it's a real variety of customers we're moving across. I think as we look at it on aggregate, both the quantity of customers around 50%. And then I also shared with you the pipeline data, of course, earlier. So you could see, for example, this year, about 30% of our pipe is AllKey because we only announced it at the end of 2024. The bulk of it really starts to kick in end of this year and definitely into 2027. That's when you see the revenue mix start to shift as well. But to your point, in that 60% in 2027, it's not dependent on one massive customer. I think the risk is relatively well spread. Markus Almerud: And on Ultra, which you released now in Q4, how is that progressing? And given that there is a Secure Element in there and you're looking at the kind of pipeline on that, or kind of just interest on that, is it mainly the types of FIDO and tokens and crypto? Or does it also tie into the Payment cards and maybe access cards? Adam Philpott: It's actually -- you're absolutely right. It's across all of those things. I think the thing I'm -- it was interesting. We put this package together called AllKey because we wanted to, A, move up the value chain ourselves, but B, take complexity away for customers to make their life easier, right? And so there was a really nice value equation for our clients. And it was our first foray into doing that. As we then introduce the Secure Element into that, the complexity that comes with the Secure Element is even greater. So taking that burden off our customers has been even more powerful, I think, and actually even more differentiated because to be -- to have the credibility and skills to operate at that level of security is even fewer people who can do that. So the competitive moat around us is even greater as is the value to our customers. So I'm really excited about the AllKey Ultra product. The pipeline is phenomenal, but we're really seeing that resonate as well as the AllKey product. I would say, to answer your question about the segments, definitely FIDO. You have some specialist FIDO providers who are probably going to want to provide their own Secure Element, because that's how they see their value add. That's fine. We'll continue to sell sensors to those guys. You've got others who just want to be quick to market and have a turnkey solution. They'll be more applicable for AllKey Ultra. So there's different types of players out there, but we can -- that is definitely a core market for the AllKey Ultra. You mentioned Payment. Absolutely. I shared with you earlier a feedback from a wearable customer. We're seeing a lot of demand there in terms of wearables as people start to tokenize. And also organizations who provide, whether it be consumer or personal wearable devices, want to add more services to it. They want to be able to start to have Payment. But rather than just have this device on your finger or on your wrist or in your ear or on your body, some other place, I don't know where they can do Payment. Of course, you want to be intention-based Payment where you probably have a step-up level of security using biometrics. So there's real demand in that space for our Secure Element product for Payment also. And then there's other markets around logical access. Of course, that probably ties closely into FIDO, Windows Hello as well. So certainly, Payment and FIDO, I would say, are key markets for AllKey Ultra. Markus Almerud: And in terms of timing, I mean, you talk about back end of '26 and then 2027 in terms of kind of getting into mass production of this. Is it the kind of timing here depending on your producers? Or is it more the kind of life cycle than the kind of time it takes for your customers to kind of get there? And tied to that, of course, I mean, how easy is it to scale production, is that a bottleneck? Adam Philpott: That's a really good question. So I think of it like a critical path. What pieces do we need to accelerate to get that business in quicker? It's not our ability to invest. It's not our supply chain. It's the productization cycle. So if you think about it, we go and talk to a customer, we've got this new integrated product. It's going to make your life easier. Okay, I'm interested. I'd like to see it, then we do a demonstration, and we -- then they like to evaluate and we give them an evaluation kit. Then they test us against most of other people. They select us because we're the best. And then they go to design in. So they design that into their product and build a prototype and then they move to full production design. That takes quite a long time. And then they have to start marketing, shipping, et cetera, their products. So it can be an 18- to 24-month cycle. It can be quicker as well. There's a lot of rapid prototypes, a lot of rapid engineering companies out there today. So actually you can come down with AllKey Ultra through even 9 months, but that would be best practice. So that would be, in my mind, what the critical path looks like to get this out. What I would say is, AllKey does accelerate that because they don't have to go and find our products, go and find an MCU, go and find a Secure Element and tie this stuff together, it rapidly simplifies the overall productization cycle. So that's kind of how I see it. What I do think, though, Markus, is that there's an opportunity to invest more behind this to build more pipe and to get more customers on board. Markus Almerud: A couple of more, if I may. On the licensing deals, first of all, I mean, I assume there's more to come. We spoke about that earlier, but our PixArt came in Q4 in October. And I assume there is -- I mean, you were alluding to that in the presentation, but I assume there is more to come and you expect these kind of to continue to come on a sort of ongoing basis, right? Adam Philpott: Yes. Absolutely, because I think of our company is an organism that produces products that we sell. That's our core business, but has a level of capability that other people want that they will pay for. And if you look at other companies, they actually ground this as one of their business lines. They say it's our corporate services or our design services or whatever. We don't do that because we want to focus on our products. But equally, we go and look out for those opportunities to bring in net income into the company that we can successfully monetize without distracting our resources away from the core business. So we absolutely see more of those. We've got incredible ASIC team. We've got an incredible algo team, and that's what partners, particularly, are interested in because they lack that. So we have a number of partners who want best-in-class talent. So there's a talent aspect to it, but there's also an asset aspect to it as well. I mentioned iris earlier. We're now -- we're seeing more and more demand for sort of biometrics and iris is a high-efficacy modality and people are looking for that. In the world of deep fake, people want high efficacy, not just vanilla access. So we're seeing demand for that. But that's very much a partnership model for us. We don't have so much resource that we can develop the different modalities. We want to focus on where we can make an impact and then partner where we need support, but that would be through a licensing mechanism to allow someone to develop that for their specific market rather than us do it for them. So iris is the second one. And then the third one, I call it assets and licensing deals. There's lots of different ways that we can ensure customers can benefit from our products in their market. We can sell them products and the more they buy, the better price they get or we can license technology to them as well, allow them to use their own supply chain, if that's a core competence of theirs so that they can unlock the right aspects of value that they're seeking. So those are really how I think about the assets and licensing. Markus Almerud: And the PixArt money, is it all in now? Or is there more to come in... Adam Philpott: I think -- yes, Fredrik, I would defer to you now. I think it's pretty much all in. But Fredrik... Fredrik Hedlund: You're correct, Adam. All in. Markus Almerud: Okay. And then finally, maybe I was excited to read the word inorganic in your release. Maybe you can share some more thoughts on kind of what you're looking for and what should we expect and all that? Adam Philpott: Yes, absolutely. Here's how I see it. I shared a picture on the last earnings call for those of you who have recognized. And it showed the fragmentation in the markets we serve. There's lots and lots of different vendors doing things that are adjacent to what we do. And so I think there's opportunity for industry consolidation because in isolation, we're all quite small. But when you aggregate it together, there's overlapping capabilities. So there's the opportunity for cost optimization, but there's also the opportunity for upsell revenue growth through cross-selling, for example, because there's kind of some adjacencies in complementary nature. We're not talking about getting the same company 5x integrated, not really about that. There's actually adjacent companies that can aggregate together, realize some cost optimization and deliver some benefits on the top line whilst they do so. So that's how I think about the inorganic opportunity due to the market fragmentation. Markus Almerud: Okay. Adam Philpott: Awesome. Thanks very much. As always, I appreciate your questions as well, Markus. Stefan, maybe we'll come back to you, see if there's anything that's come in on the chat. Stefan Pettersson: Yes. Let's take a couple of questions here. So after the first major JLR cyberattack, have you already observed a significant increase in interest from current customers and potential new customers on spending more in your security solutions? Adam Philpott: That's a great question. And as a cyber guy, I particularly like that question. So I've been in cybersecurity for probably, I don't know, more than 15 years now. And so I think what really interests me here is that identity has always been the weak link in cybersecurity. I don't know how long we've been talking about passwords is the #1 vulnerability, but it was very slow to change because passwords are free. People have to remember them. So the burden is on the end user, except the risk is on the organization. And so JLR was absolutely an identity-centric attack. It was stolen credentials through help desk account recovery. And so we're seeing not just increased demand in cybersecurity, which is pretty big anyway, but a focus on identity. If any of you follow me on LinkedIn, you'll see recently, I've been posting about identity. There's this phrase in the industry at the moment, which is attackers don't hack in, they log in. So think about it. It used to be hackers come in and they smash the back window or break down the front door. They don't do that. They put the key in the door, turn the lock, and walk straight on in, right? And so our job is to ensure that they can't do that because they can't steal the keys or they can't copy the key or they can't be given the key. They have to be unique to the individual through biometrics. So an answer to that great question, we are absolutely seeing an increase in demand. Is it attributable to JLR? Who knows, right? No one does attribution in cybersecurity because it's such a difficult and thankless and meaningless sometimes thing to do. But we are seeing increased demand, and we're seeing increased focus on identity. So it means we find ourselves in the right space. And so our job is to capitalize upon that. Stefan Pettersson: All right. Thank you, Adam. And another question on staff. I see that FPC has the same number of staff in Q4 as in Q3. Do you need to grow staff for more sales to generate more sales in the future? Adam Philpott: Yes, it's a good question. It's a fine balance, isn't it? We need to maintain operating rigor on our costs. But at the same time, we need to manage the growth lever as well. And if we're too limited in capacity, it can have an effect on that. I think the question specifically mentioned sales, not necessarily sales resources, but getting more sales, i.e., more revenue. Here's what I would say on that. I would say 2 things, and Fredrik, I'll pull you in because you probably got some other views as well. The first thing I would say is that I think there's additional capacity in our sales engine. And the way we think about that is to augment our salespeople with AI. I'll give you an example. We have an AI agentic model where when a lead comes in through our website or if we scan someone's ID at an event or wherever a lead comes from, we have a set of AI engines that will look at that contact, look at that customer and deliver a bunch of consolidated research to the rep on who the customer is, what they're doing, why biometrics might be of value and some of the things that our reps can talk to them about that create value for that company and help us as a company, too. That takes time away from the reps having to do that. That would be quite a lengthy research exercise. So just think about how we can support our reps is really important. So I think there's -- we've created more productivity for our reps. I know they wouldn't agree with me. They probably say they're too busy, but that's good. And so I think that's part of it is augmenting our staff with AI so they can be more productive. We are very active in doing that. We don't pretend we're the best at it. We don't hype it. But equally, we're definitely not doing nothing. So we feel good about our pragmatic approach to AI for capacity augmentation. That's the first thing. The second thing is we have actually expanded slightly. So we had a couple of reps, one who's business development, one who's sales in the U.S., who are looking at the cloud identity piece because that was taking too long and AllKey was taken off, we pivoted those guys towards AllKey. So we've increased our capacity. And what we're focusing one of them on is on our channel. We've got some big disties in North America. And if you don't go and see them and remain top of mind and keep educating them and building relationships with them, they forget about you and go and do something else. When you see them, we instantly see leads coming out of them through their networks. So lighting up that channel is really important, also focusing the business development on more campaigns that can then feed the rest with new leads. Those are some of the things we're doing to ensure that we are growing capacity and focused on putting our investments where the market is taking off. Stefan Pettersson: All right. Thank you, Adam. Does FPC have the opportunity for new customers in the defense industry, which is growing today due to the uncertainty? Adam Philpott: Yes. I would love to be more active in that space. I would say that with our ability to invest, that's quite capital intensive in the sense that it takes quite a long time. We do -- we are opportunistic in that segment at times. We approach clients, particularly manufacturers, et cetera. We need to be a little careful about what we can do there because of the nature of that industry and some of our contracts. But I think that is quite a focused undertaking. And so we just need to be very balanced because if we tie up our resources in something long term, it means our short-term funnel starts. So we just need to be a bit balanced about where we focus. Today, we tend to focus on sales cycles that are 12 to 24 months. That's kind of the sweet spot. If we start to get into much longer sales cycles, it means that we're kind of building for the long term, which is great, but not having any bank on the near term. So I do see us over time, expanding our aperture to longer-term deals once we've built out a much stronger base of short-term customers, but it's not something we have a specific campaign or focus on or assets on today. Stefan Pettersson: All right. Thank you very much. And thanks, everyone, for good questions. And I'd like to hand over to you, Adam, again, for any closing remarks. Adam Philpott: Yes. Thanks very much, Stefan. So I appreciate all of the questions, really good questions. I really enjoy answering those and hearing what's on your minds by the nature of your questions. As I said, the business is stable. We put some good stability in place on the fundamentals. We do, of course, focus on funding the business, both through accelerating the transition and spread up to AllKey, but also through those asset deals. So that's a key focus on our minds. I think what's really important that we've seen over the last year is proving out which bet is going to take off, observing it and then rigorously investing behind it. And that's really what we're doing on the AllKey bet with additional products to come off that roster as we continue to see proof points of demand such as those in the smart card space. So thank you for everyone. I appreciate you joining us for the first call of 2026. I appreciate you being with us on the journey as we're now in the third year of this transformation and look forward to speaking to you all again soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Safran Full Year 2025 Results. At this time, I would like to turn the conference over to your host, Olivier Andries, Safran CEO; and Pascal Bantegnie, Group CFO. Mr. Andries, please go ahead. Olivier Andriès: Good morning, everyone. Thank you for joining us. Today, we will review our 2025 results, share our 2026 outlook and briefly walk you through some of our updated 2028 assumptions. 2025 was an outstanding year for Safran. Airlines carried more than 5 billion passengers and against that backdrop of strong demand and still low retirement levels, our aftermarket activities clearly outperformed expectation across both spare parts and services. We have also reached an all-time high in LEAP production, delivering more than 1,800 engines, up 28% versus 2024. Defense and Space had a particularly strong year as well. In military propulsion, we accelerated M88 production, and we have secured a new Rafale export contract with the Indian Navy. In defense electronics, order intake reached a record level with 1.6 book-to-bill ratio, reflecting very strong market demand. We have also signed several strategic partnerships, expanded capacity across multiple product lines, and we have achieved the first major export success for Safran.AI, which is a new name we have given to the Preligens company we had acquired 18 months ago. In Aircraft Interiors, [ recent ] seats, commercial wins and improved pricing conditions confirmed that the strategic shift presented at our last Capital Market Day is being executed. Overall, we outperformed our initial expectation in 2025, delivering record financial results across all metrics. This, despite tariffs. Margin improved by 150 basis points and cash generation approached EUR 4 billion. Reflecting this performance, we are proposing a EUR 3.35 dividend per share, up 16% year-on-year. Finally, on portfolio management, the integration of Collins actuation activities is progressing well. At the same time, we are moving ahead with the divestment of 2 non-core activities, the sale of Safran passenger innovation was completed last month, and the easier transaction where we are going to sell our share of the joint venture to our partner Embraer is expected to close by midyear. Turning to Slide 4. Civil business highlights. We invest to secure [indiscernible] and you can see that clearly in our recent industrial announcement with the new LEAP-1A assembly line in Morocco. At the same time, we are continuing to expand our MRO footprint following the groundbreaking of our LEAP MRO shop in Morocco. We have recently inaugurated Safran's largest LEAP engine MRO center worldwide in India. We are also pleased to mark another important milestone in CFM's long-standing partnership with Ryanair. We announced that 3 days ago, of a new material service agreement that covers the entire fleet of around 2,000 engines, CFM56 and LEAP, and that will support 2 new Ryanair future maintenance, repair and overall shops that they have decided to launch in Europe. This is a compelling illustration of our open MRO market strategy we presented at our last Capital Market Day. Commercial momentum remains very strong. LEAP continues to be the engine of choice, as illustrated by the recent agreement with Pegasus in Turkey, for 300 LEAP-1B engines, which also includes long-term maintenance services. Finally, at the Dubai Airshow, Riyadh Air ordered 120 LEAP-1A engines to launch its FA21 neo fleet and selected our wheels and electric carbon brakes for its 787 fleet, ultimately more than 70 aircraft. We have also announced a joint cooperation with Emirates to manufacture and assemble seats in Dubai. And Safran Seats was selected to supply new business and economy class seats to retrofit more than 100 additional aircraft across both the 777 and A380 fleets. Turning to Slide 5. Momentum remains extraordinary strong in defense. We announced the groundbreaking of the first M88 MRO shop outside of France in Hyderabad, India. At the same time, as we continue to ramp up M88 production. We have also announced a significant investment at our Le Creusot site in France, adding new production lines for complex rotating parts for the M88 engine. We have also signed an agreement with Bharat Electronics in India to create a joint venture to manufacture our HAMMER guided bombs. Overall, in 2025, we have approved around EUR 1.4 billion of industrial investment, mainly to expand massively capacity across both Civil Aerospace and Defense. With that, I will now hand over to Pascal to walk you through the 2025 results in more detail. Pascal Bantegnie: Thank you, Olivier. Good morning, everyone. Today, I'll walk you through the adjusted accounts, and you'll find a bridge to the consolidated statements in the appendix. Let's start with FX trends, which are shown on Slide 7. In 2025, our trading floor faced a really volatile environment. The dollar weakened against the euro, the whole year, which wasn't easy to manage. Still, our team did a great job protecting the portfolio, and we managed not to trigger any KO barriers. That said, at the end of Jan, the euro-dollar shot up past 120, and that caused us to lose less than $1 billion in hedging volume, so less than 2% of the whole portfolio. We reinstated the same hedge volume afterwards so that did not impact our goal of reaching $112 in 2026. Based on the actual figures for 2025 and to reflect our revenue profile now that we include the actuation and flight control business, we have increased our expected exposure to $16 billion in 2026 and $17 billion from 2027 onwards. As always, these number should not be seen as a medium-term business outlook. We are confirming the $112 hedge rate for 2026, and we'll do our best to secure that rate for '27 and '28. We've also started hedging for 2029. And as a first indication, we are targeting a hedge rate between $1.12 and $1.14 based on current market conditions. Now if we look at Slide 8, our 2025 revenue came in at EUR 31.3 billion. It's EUR 4 billion higher than last year, which is up 14.7%. That's actually 14.8% organic growth, and we saw steady growth quarter-after-quarter throughout the year. OE sales went up by 11.3%, thanks to both higher volumes and better pricing. Services revenue was up 18%, showing just how strong airline demand was for MRO and spare parts. Changes in scope added a positive 3%, mainly because we brought in the actuation and flight control business, but the boost from this acquisition was completely offset by a weaker dollar, which dragged things down by 3.2%. Our recurring operating income reached EUR 5.2 billion, so that's more than EUR 1 billion higher than last year. The operating margin was also up by 150 basis points, hitting 16.6% of sales. The solid performance was mainly driven by strong results in the aftermarket, volume growth and our continued focus on operational excellence and keeping Safran competitive even in such a sweet environment. If we move to Slide 9, you'll see a summary of the income statement. Apart from sales and EBIT, which I'll get into in more detail later on, let's look at some of the other key P&L items. We had one-off items totaling EUR 479 million, which is a pretty big number. So most of that is in cash. About half comes from the EUR 244 million pretax capital loss tied to the divestment of Safran Passenger Innovations. There's also EUR 178 million in impairment charges on some programs and then a few other cash costs like restructuring and M&A expenses, especially from the actuation and flight control acquisition. Looking at financial income, our returns on cash investments actually topped our cost of debt, bringing in a net EUR 116 million in financial interest. Our apparent tax rate was 32.3%, which was heavily influenced by the French corporate surtax, EUR 370 million, which cut around EUR 0.90 per share of our EPS. All in all, net income attributable to the parent was EUR 3.2 billion, up 3% year-over-year, and that works out to EUR 7.6 per share. Let's dive into our businesses, starting with Slide 10 on Propulsion. Revenue here reached EUR 15.7 billion, which is a 17.6% organic increase. When we look at Propulsion services, revenue was up 21% organically. For the Civil aftermarket, spare parts sales climbed 18%, mainly thanks to the CFM56. That drove more shop visits, mid-single-digit growth and a higher proportion of full work scope shop visits. High thrust engines also did well, helped by growing wide-body traffic. LEAP engines contributed too, with third-party shop visits making up about 15% of total shop visits in 2025. We saw a 30% jump in services overall, mostly because LEAP aftermarket activities expanded under rate per flight hour contracts. Both helicopter turbines and military engines also helped drive propulsion services growth. On the OE side, revenue grew by 12% organically. We delivered a record 1,802 LEAP engines. So that's 28% growth compared to 2024 and well above our initial target. In Q4 alone, we delivered 562 engines, up 49% from Q4 last year. So we have surpassed 500 deliveries for 2 straight quarters now, which looks good for our 2026 goals. While M88 fighter engine deliveries were down year-over-year, production actually ramped up a lot in 2025, just as we had planned to keep up with a strong backlog, especially for export customers. Recurring operating income was EUR 3.6 billion, 28% organic growth. The operating margin stood at 23% of revenue, up 2.4 points, which is a strong result and almost aligned with our initial guidance earlier in the year, even with some lingering tariff impact. This improvement was mainly driven by strong civil aftermarket activity and really robust performance from CFM56, both in volume and work scope. The LEAP program also contributed with us starting to recognize profits on LEAP-1A RPFH contract and a still high ratio of spare engines. Let's now move to Slide 11 and talk about Equipment & Defense. Sales here is EUR 12.3 billion, which is up 11% organically and 16% overall. That includes about EUR 618 million from the Collins actuation and flight control business, which we consolidated for 5 months in 2025. OE revenue was up 11% organically with growth pretty much across the board. The strong performance in 2025 was mainly driven by higher volumes in defense, especially for things like the HAMMER-guided bomb, missile seekers and navigation and timing systems. We also saw good momentum in primary electrical system and wiring as well as nacelles and landing gears, especially for the A320. Aftermarket services benefited from the uptick in air traffic, going up by 12% organically with growth everywhere, but especially in landing gears, nacelles and evacuation slide systems. Recurring operating income came in at EUR 1.6 billion, and our operating margin improved by 50 basis points or 90 basis points if you exclude Collins, showing that we are making steady progress toward our 15% margin goal for 2028. The strong performance was driven by a favorable business mix and our efforts to stay competitive. OE volume growth was especially robust for narrow-body platforms as well as in avionics, defense and space. Services also did well with strong demand for carbon brakes, landing gear, nacelles and aero systems. One quick side note. As of Jan 1, 2026, Safran Ventilation System will move from Aircraft Interiors to Equipment & Defense, so we can create more synergies with our power electrical business. SVS is a profitable business. It brings in a double-digit operating margin with revenue slightly under EUR 200 million. Finally, looking at Slide 12. Aircraft Interiors continued to make real progress on its turnaround. Sales reached EUR 3.3 billion, including Safran Passenger Innovations, our IFE business, which is a 14% increase and actually bring us back to 2019 levels. OE sales went up by 15%, mostly thanks to higher deliveries in cabin, especially galleys, inserts and water and waste system for A320 and 737. Revenue also got a boost from our IFE activity as well as from higher volumes and better pricing on business class seats. Services were up 13%, mainly on the back of demand for Cabin spare parts, especially from customers in the Middle East, Asia and the Americas as well as from SVS, which I mentioned earlier, will transfer over to Equipment and Defense in 2026. Seats also did well, both with spare parts and services and passenger innovations helped out on spare parts and repairs. Recurring operating income crossed EUR 100 million with operating margin up 2.3 points. Cabin kept capitalizing on shifting production to best cost countries like Mexico, the Czech Republic and Tunisia and also on renegotiating prices for the lower-margin programs. IFE activities helped lift profits overall and seats kept improving, thanks to ongoing work on pricing and operational excellence. The strong performance really shows our focus on pass-through and price increases, which helped offset the impact of tariff. The very good news is that Aircraft Interiors has now reached cash breakeven with a noticeable EUR 140 million improvement just over last year. Now if we look at Slide 13, we generated EUR 3.9 billion in free cash flow, which is up 23%. That gives us an EBIT to cash conversion ratio of 75%. The strong result came from a 17% increase in EBITDA, so higher earnings less an impact from one-off items, along with a positive impact from working capital changes. For the first time since COVID, we managed to reduce inventory DSOs by 9 days. Also, we did increase inventories in dollar to support the ramp-up that was more than made up for by a strong inflow of advanced payments, which were higher than last year, especially thanks to the Rafale orders and other defense programs. We also paid an extra EUR 1 billion in income tax, reflecting our higher taxable income and including the EUR 377 million French corporate surtax. At the same time, we're still investing to support our growth and prepare for the future. Tangible CapEx was just under EUR 1.2 billion, focusing mainly on expanding engine MRO capacity and increasing production, especially for landing gears, smart weapons and resilient P&T systems. On Slide 14, you'll see that Safran ended 2025 net cash positive at pretty much exactly the same level as in 2024, right down to the nearest million. That's actually just a coincidence. This puts us at about 0.3x EBITDA. In line with the capital allocation framework highlighted at our last Capital Market Day, we made organic investment to sustain our growth and prepare for the future for about EUR 1.8 billion in R&D and CapEx as well as inorganic investment for EUR 1.6 billion, the main cash outflow this year being the Collins flight control and actuation system. We also returned EUR 2.6 billion to shareholders with the balance between dividends and buybacks. We also redeemed our OCEANE 2028 bonds early using shares repurchased in 2023 and 2024, which helped cut out on net debt by EUR 0.7 billion. Bottom line, Safran is still completely deleveraged, and we are in a really solid position with a strong balance sheet. For 2025, we are proposing a dividend of EUR 3.35 per share. That's a 16% increase compared to last year, and it does represent a 40% payout based on the adjusted net income, mainly restated from the capital loss from the SPI divestment. This year, as part of the EUR 5 billion share buyback program, we also bought back 5.1 million shares for cancellation, which cost a total EUR 1.3 billion. In December, we went ahead and canceled all shares that were being held for that purpose, so 5.3 million shares in total, resulting in capital ownership accretion of 1.6%. Also, between '24 and '25, we canceled 8.9 million shares, which amounted to EUR 2.1 billion and led to a 2.13% capital ownership accretion. Looking ahead to 2026, we'll keep moving forward with our share buyback program. The first tranche actually started early in mid-Jan. Just before we wrap up this section, let's quickly look at Slide 16. It's a quick reminder of the goals we set for 2025 back in December '21. I'm happy to say that we met or even exceeded all our key targets for 2025, which really shows our commitment to operational excellence and our focus on delivering strong 2-digit profitable growth. Over this period, both our revenue and free cash flow more than doubled, well ahead of our original outlook and EBIT grew even faster, nearly tripling what -- starting from a 10.2% operating margin in 2020 and landing at 16.6% in 2025, close to the middle of our 16% to 18% target. We achieved all this despite facing plenty of challenges, things like inflation, supply chain disruptions, tariff and even the French corporate surtax. So it really highlights how robust our business model is. Now let's take a look at our outlook for 2026 and our ambitions for 2028 to see what's coming next. Olivier, over to you. Olivier Andriès: Thank you, Pascal. I'm now turning to Slide 18 and our 2026 outlook. We expect to continue the LEAP delivery ramp-up with a further 15% increase. Operating in a still favorable environment, Civil aftermarket should continue to expand with spare parts up mid-teens and services up around 20%. In particular, Q1 should see a strong start in spare parts, helped by an easier comparison base. As a reminder, this outlook excludes Safran Passenger Innovation, which was divested on January 30. In more detail, for 2026, Safran expects revenue up low to mid-teens, recurring operating income between EUR 6.1 billion and EUR 6.2 billion and free cash flow between EUR 4.4 billion and EUR 4.6 billion, including an estimated EUR 470 million impact from the French corporate surtax. Let me now revisit some of the assumptions we shared at our Capital Market Day '24. Starting with LEAP OE on Slide 19. Our Q3 and Q4 delivery performance, more than 500 engines per quarter reinforces our confidence in delivering another 15% increase in 2026 and in reaching around 2,600 engines by 2028. This ramp-up is supported by continued supply chain improvements and the ongoing execution of our resiliency plan. On the performance side, LEAP continues to mature faster than the CFM56. For LEAP-1A, more than 1,450 kits of the new HPT blade have now been produced. This upgrade can more than double time-on-wing in harsh environment, bringing shop visit intervals in line with the CFM56. In parallel, around half of the LEAP-1A fleet is now equipped with the reverse bleed system highlighted at the Capital Market Day 2024, which reduces on-wing fuel nozzle maintenance. And for LEAP-1B, both the reverse bleed system and the HPT blade upgrades are expected to be certified in H1 2026 delivering the same durability improvements to the 737 MAX operators. Continuing with civil aftermarket on Slide 20. We are revising our CFM56 assumptions upward. In line with our partners' comments last July, sustained maintenance, repair and overhaul demand from operators and as a result, very low retirement levels supports a stronger outlook for CFM56 shop visits through 2028. We now expect a plateau of around 2,300 to 2,400 shop visits per year from 2025 to 2028. Compared with our Capital Market Day '24 assumptions, this represents more than 750 additional shop visits over the '25, '28 period. Beyond that, while shop visits are expected to start declining from 2029, we continue to see pricing and work scopes supporting CFM56 revenues through the end of the decade. On LEAP, our assumptions remain largely unchanged. We continue to see strong growth in shop visits with work scopes expanding. And we still expect the share of external shop visits to double from around 15% in 2025 to about 30% by 2030. Moving to Slide 21. The updated assumptions we've just discussed translates into around 15% additional revenue over the period compared with Capital Markets Day '24. As a result, the revenue annual growth between '24 and '25 is now expected to be in the low teens, up from mid- to high single digits at the time of our Capital Market Day '24. Profit growth is expected to follow a similar trajectory. Turning to margin at completion across the LEAP Red per Flight Hour portfolio. Progress has accelerated since our last update. Compared with CMD '24, we have delivered a further 2 points improvement, bringing the total margin increase to around 7 points between 2021 and 2025. This reflects both more favorable terms on new contracts and our continued focus on optimizing existing agreements whenever possible. And just as a reminder, the majority of the profit from the Red per Flight Hour contract portfolio will be recognized after 2030. As a result, on Slide 22, you can see that we are raising our 2028 targets. On revenue, both additional aftermarket activities and the consolidation of actuation support higher growth. We are, therefore, increasing our outlook with 2024 to 2028 revenue compared annual growth now expected to be around 10%. On EBIT, we are raising our 2028 guidance by EUR 1 billion. In propulsion, we are increasing our margin target from the low 20s to 22% to 24% despite tariff and an accelerated OE ramp-up. In Equipment & Defense, we confirm a mid-teens margin in 2028, now including the actuation and flight control activities. In Aircraft Interiors, we now target a high single-digit margin in 2028, which only reflects the divestment of Passenger Innovation and the transfer of Safran Ventilation Systems from Aircraft Interiors to Equipment & Defense. On free cash flow, we now expect an additional EUR 4 billion to EUR 6 billion over '24 to 2028. Despite the higher impact of 2 years of French corporate surtax around EUR 850 million compared to roughly EUR 500 million at Capital Market Day '24 and despite tariff. To conclude, let me briefly highlight a few key priorities. First, we remain fully focused on meeting customer demand while managing the OE ramp-up. We will continue to improve competitiveness and strengthen our industrial resiliency. We will also keep customers flying by providing spare engines, spare parts and by expanding our internal maintenance repair and overhaul network. In parallel, we expect to complete several divestments in 2026 in line with our portfolio pruning strategy. We will pursue our ambitious research and technology road map to prepare for the next single-aisle generation and to drive decarbonization. And finally, we remain firmly focused on our growth trajectory with the objective of increasing operating profit, expanding margin, strengthening cash generation. Thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] We will now take our first question, and this is from Christophe Menard from Deutsche Bank. Christophe Menard: Congratulations for the results. I had 3 questions. The first one on the cash conversion in 2028. And this is over clearly the '24 to '28 period, the 70% conversion. If I do a back of the envelope calculation, I'm getting the sense that you're probably targeting more conversion of 65% in later years. So is there a phasing on your cash? And is it linked to, for instance, prepayment outflows that we may have in the coming years? I will follow up with the next 2 questions afterwards, if you want. Pascal Bantegnie: So we upgraded our 2024-2028 cumulative free cash flow guidance to EUR 21 billion. As you rightly said, it could be an EBIT to cash conversion slightly below 70% in the outer years. What I could say is that we have not included yet any impact for 2027 and 2028 from a potential continuation of the French corporate sale tax. It could be EUR 0.5 billion for each year. It's not included in our guidance. At the same time, we have not included any new Rafale advance payments that may come from new contracts, and you can see quite a large one coming in from Asia. So the free cash flow upgrade guidance is coming from upward revision from aftermarket, the upward revision of LEAP engines deliveries as well. When you try to figure out what your EBIT to free cash flow conversion will be, it's all about the working capital expectations. Here, we have put some decrease in our inventory DSOs, as I said during the call, starting in 2025, continuing in 2026 and going forward. Should we deliver more equipment, LEAP or other stuff, then we could be able to have more favorable working cap changes. So we'll see with time. And we have included advanced payments, which are already booked in terms of orders, notably on Rafale. Christophe Menard: Thank you very much for this. So I understand there is a degree of conservatism as well on this. The 2 other questions. I think you said on the call earlier that you were getting ready for rate 75. You mentioned Morocco. This is all for 2027? Or can you share the time line for rate 75 on your [ end for your ] and the capacity you're putting online. And one quick question on the margin '26 per division. My understanding from what we're seeing on your guidance propulsion maybe -- can we assume that propulsion is more at the high end of the range you gave on your Slide 22? Olivier Andriès: Christophe, I'm going to answer on rate 75. I'm just saying that we take decision to invest to get prepared for rate 75. It's not up to me to comment when Airbus is going to be ready to reach rate 75 full year. But basically, what I'm telling you is that we are investing for that because we acknowledge that the demand is there for some time. So it's worth investing. That's why we have announced our LEAP assembly line in Morocco. It will help us meet rate 75. This assembly line is going to be ready by '28. And you may see in the future, we may announce future investment also in line with our objective is to meet rate 75 on other equipment as well. So we are just getting prepared. We have to be realistic. It does not happen overnight, but we are getting prepared. We are investing. Pascal Bantegnie: On your third question about margin per division, when you compute our guidance, you'll see that we continue to expect some margin expansion at group level. We also expect margin expansion at all 3 branches, including propulsion with a starting point, which is 23%. By the way, it's a 2.4% improvement from last year. And a year ago, I told you that we were about to grow our margin by 250 basis points, which we almost did despite tariff. So right, in 2026, we expect to continue to grow our margin in propulsion. The same in Equipment & Defense. It will be a slight improvement in Equipment & Defense because we will have a full year impact of the Collins actuation and Flight Control business, which, as you know, for the time being, is dilutive to our margin. And in Aircraft Interiors, despite the divestment of SPI, Safran Passenger Innovations and the transfer of a profitable business from Aircraft Interiors to Equipment & Defense. And despite that, we will see a decrease in revenues, we still expect to maintain or slightly increase our operating margin in Aircraft Interiors. So all in all, at group level and all branches, we should see some margin expansion in 2026. Operator: We'll now take the next question. This is from Sam Burgess from Goldman Sachs. Samuel Burgess: I've got a couple, if I may. Firstly, just on your free cash flow guidance. I mean, given the strength of the upgrade, sort of 30% on previous, can you see yourself accelerating the existing buyback? And just help us think through how you're thinking about capital allocation with that additional cash? And just secondly, in terms of the LEAP orders that you're signing today, can you just help us have some color on how many are going at the moment proportionately to long-term service agreement contracts versus T&M? That would be really helpful. Pascal Bantegnie: I'll take the first question on the free cash flow upgrade. On capital allocation, there is no need to change our philosophy or policy today because we have a 40% dividend policy -- sorry, 40% payout dividend policy that will remain unchanged for the next years. And as you know, we are executing a EUR 5 billion share buyback program. In 2025, we only executed 1/4 of that. So I would expect to execute another quarter of that program in 2026. We can always decide to speed up or slow down the execution of such a program. But as long as we still have the program into force, there is no reason to change that. Olivier Andriès: Hello, Sam. On LEAP, especially on support and services contract, we see now a good mix of what we call rate per flight driver contracts and material service agreement where we just provide spare parts and repair solution. And by the way, as I mentioned, the announcement we made 3 days ago with Ryanair is a perfect illustration of that. Ryanair has decided to invest in their own MRO shop, and we have decided to support them to do so in their own ramp-up. And also, we have concluded an agreement whereby for all this period, 15 years or more, we are going to provide spare parts and repair solution to them at negotiated conditions. So you see this is really an illustration of our long-term strategy where we see, let's say, a 50-50 share between flight contracts and, let's say, typical time and material or MSA contracts. It's interesting because in the past, usually only the legacy airlines have their own MRO shop, the Air France-KLM, the Lufthansa, the Delta Airlines. And we see now with this first mover, Ryanair has been -- is the first mover. We see a low-cost carrier investing in their own MRO shop, that's interesting. And for me, this is a trend, an interesting trend. I'm not saying that all of them will do that, but I'm sure we'll see more airlines coming into that kind of play. Samuel Burgess: I mean just a very quick follow-on from that, if I may. If you in terms of your MRO capacity expansion ambitions on LEAP, does that change at all with that kind of dynamic? And I guess, as a follow-on implications for propulsion margin over the midterm. Olivier Andriès: No. We -- there is no change. The compass is still the same, meaning that together between both partners, GE and us, basically, we aim at basically having internal LEAP shop visit representing about 50% of the global work. And we incentivize, we make sure basically and we -- yes, we want to favor those airlines and third parties that are jumping in the LEAP MRO. We want it to be an open MRO market. So external shop visits should long term represent 50% of the overall. So we are executing our MRO plan to increase capacity. As we have already said, it's about a EUR 1 billion investment just for maintenance shop, excluding, by the way, repair shop. This is only engine maintenance shop, EUR 1 billion. And basically, the plan is executed as planned. Morocco, India, Mexico, further investment in France and Belgium as well. And I know our partner is on the same path. Samuel Burgess: Okay. So no change to previous guidance on that. Operator: We'll now take the next question. This is from Milene Kerner from Barclays. Milene Kerner: I have 2, please. Olivier, you mentioned that 1,450 durability kits have been produced on the LEAP-1A so far. How do you expect a proportion of Light scope event to involve as the durability kit continues to grow across the rest of your LEAP 1A fleet and then the LEAP-1B. And what does that mean for the medium-term free cash flow trajectory? And then my second question is, as you're exiting now noncore cabin and interior and you're adding targeted defense assets, how should we think about your portfolio in the long term in terms of the mix between commercial and defense? Olivier Andriès: Milene, I'm not sure I got fully your question on the blades. The fact that part of the fleet is already equipped with those blades basically will just increase the intervals between shop visits. So this will push out for those LEAP engines that are equipped with the new blades, the shop visits are going to be pushed out, which in rate per flight hour contract is a positive for us, in fact, because it increases the maturity of the engines. So when are we going to have a full fleet of LEAP-1A equipped? I don't have a precise answer to that question. We'll start with the LEAP-1B as well. What are the consequences in terms of free cash flow? To be very clear, it's a positive as well because as today, most of our contracts are RPFH contract. Basically, any shop visit, any early shop visit is a spend for us. So maybe, Pascal, you can add comment on that? Pascal Bantegnie: Yes, I'll give it a try. With time, what matters is the mix between what we call quick turn and full performance restoration shop visit. And the more new HPC blades we have in the fleet, the less quick turns we need in the maintenance shops, meaning that the mix will evolve in a favorable manner in the years to come, which will benefit both EBIT and free cash flow going forward. But it is already in the plan and in our 2028 guidance. Olivier Andriès: On portfolio management, without entering into detail, I'll just give a tendency that should not surprise you. The tendency is that our Aircraft Interiors exposure should, with time, basically decrease as we are still executing our plan to divest some noncore activities inherited from the ex Zodiac acquisition and a significant part of them being in the Aircraft Interiors activity. So our aircraft interior exposure should reduce should be reduced. And I would say, as we stand ready to seize opportunities and as defense is a strong booster for everybody, if there are some, let's say, opportunities that are just passing by, that could be of interest for us in terms of technology because it's a good complement to what we do. And if it makes sense economically, we are ready and we can be agile and we are ready to jump in. So I would say in terms of tendency, directionally, our defense activity should grow and our Aircraft Interiors activity should be reduced long term. Operator: We'll now take the next question. This is from Benjamin Heelan, Bank of America. Benjamin Heelan: And I wanted to ask my first question on supply chain. We haven't actually touched on it a lot on this call yet. Can you talk about what you're seeing across the business? What are you seeing in LEAP? What are you seeing in the equipment business? Where are the challenges? Where are things improving? If you could just provide a bit of an overview in terms of what you're seeing from a supply chain situation, that would be great. Second question is on the propulsion margin, sort of '22 to '24. Could you provide a couple of swing factors within that, right? What's going to cause you to get to '22? What's going to cause you to get to '24? And how should we be thinking about R&D within that as well? I keen to hear that. And then thirdly for me, interesting on the presentation at the back, you've obviously given us guidance on the number of CFM56 shop visits, but you haven't given us any numbers yet on the LEAP. Could you provide a bit of a range in terms of heavy work scopes for LEAP that you're expecting in 2030. And then associated with that, obviously, you talked about the margin at completion of the LEAP improving 7 percentage points. When should we be assuming that the margin that you're booking on LEAP shop visits is going to be comparable to CFM56? How should we think about that? Olivier Andriès: Ben, many questions. I'll take the supply chain one. Just to say, directionally, we see an improvement of the supply chain. I'm not telling you this is blue sky yet. But we've seen in the course of 2025, let's say, noticeable improvements all across the board, not only on the engine side, but also let's say, the equipment side as well. What are the remaining challenges? They are mostly always more or less the same. It's upstream, I would say. It's about raw materials. It's about forging and casting. And by the way, this is why we have taken the decision at Safran to unlock, let's say, the situation on forging and casting. This is why we've decided to invest in our own casting facility, turbine blade casting facility of our own. We have decided to invest and we are investing in forging. We are the only -- I'm not sure that whether you know that, but we are the only engine manufacturer in the world having forging capacity internally. We are the only one. And we have decided to invest more in forging as well. So we -- basically, we have a strategy to, let's say, unlock the situation and to, how could I say, decrease our dependency or exposure to some big guys that could potentially have a [indiscernible] strategy. Then I would say the one that we are looking at very carefully and for which we have a resiliency plan is relating to rare earth, which is typically one of the areas that has been weaponized by some countries in the frame of those geopolitical tensions. And so on rare earth Basically, we are building stocks. We are also working on some alternative supply chains. I'm not saying that we are going to do that ourselves because this is not it's not our own activity, but we want to make sure that we can find alternative. Again, our compass is not only to continue to work on our competitiveness, but it's also to continue to work on our resiliency. Pascal Bantegnie: Okay. On your second question about the main drivers for profit margin expansion or decrease in propulsion. So there are many drivers. First, on civil engines, it's all about the number of installed engines and the ramp-up that we have in front of us. You know that the more installed engines we deliver, we have a loss per engine, even though it is reducing per unit, but still it is a loss. Then the spare engines, what we are looking at is the number of spare engines or the ratio between spare engines and the total number of engines being delivered. Today, it's pretty high at low double digits, and it tends towards 10%, 12% for the coming years. So it will be a negative if it goes down. Then it's all about aftermarket. As long as we continue to enjoy from very strong spare part momentum, not only on CFM56, but on the LEAP and IRS engines, it will be a positive. Then it's all about our policy to release profit margin on the LEAP RPFH contracts. As you know, we started to release margin on LEAP-1A RPFH contracts last year. As soon as we introduce the LEAP-1B new HPT blade in H1 this year, we will start to release margin on LEAP-1B contracts as well. As you know, it is capped by construction. We don't intend to release much of the margin before 2030. The good news, as Olivier highlighted in his concluding remarks is that the margin or the expected margin at completion of our book has increased by 7 points from 2021 to 2025. So we have more potential in terms of profit into our books that will be mostly released after 2030. So the name of the game, as you know, for us, is to avoid any dip in margin anytime in a year. This is clearly the target we have together with Olivier. And then one item which is not under our control is tariff. Tariff is given today. We know that we are in a fluid environment to say the least. So that may change one way or the other. Then on your sub question, I'm not sure I got all, but I'll try to answer it. I guess it was related to the long-term propulsion margin. And at some point in time, we are expecting a sunset of our CFM56 spare part business, likely starting in 2029 or 2030. We will have to start to release more profits coming from the LEAP RPFH contracts, but also from the LEAP spare parts activity as well. Olivier commented that we are diverting part of the customers from RPFH to time and material, more conventional spare part sales. Again, the name of the game is to avoid any dip in margin. So today, we have a fixed formula to release our profit. By the way, we have made little progress. I would say the progress rate of our LEAP RPFH contract is very low. It's about 5% today. So the potential is huge in terms of dollar profit for the next decade. So I'm not worried that we will be able to have no dilutive impact in the years to come. I hope it answers your question, Ben. Otherwise, please. Benjamin Heelan: Yes. No, it does. Operator: We now take our next question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: I have 2, if I may. The first 1 is coming back on the 7 points of improvement in the lead portfolio margin I think, Olivier, you said that the assumption from the CMD were actually largely unchanged in LEAP. So should we assume that it's because that change in portfolio margin will mainly flow through the P&L beyond 2028. The second 1 is on the hedge book. In Q1 last year, Pascal, you commented that you were working on firming up the rate to avoid the knockout activation. Could you maybe share how this has evolved and if we should consider that 2028 is now almost fully firmed up. And on the comments you made on 2029. If spot remains where it currently is, should you be able to build a full coverage for that year within 1.12 to 1.14. Is that how we should understand the comments you made? Pascal Bantegnie: Yes, as we said, between '21 and '25, we've been able to improve our expected margin at completion of our RPFH book by 7 points. Most of the profits will be released in the next decade. So it has no impact on the short-term '25, '26, '27 profit recognition methodology as we do cap our profit release by construction. So no change. But what I'm saying is that the overall expected profits within our books is even bigger than what it was a year ago. On hedging, FX hedging, as I say, we had faced a weakening of the dollar against the euro across the year. It now stands at $1.18, $1.19 per euro. all our KO barriers are within 121 to 130 or so. So if there is any peak in euro-dollar at any time as we did face at the end of Jan, then there is a risk that we may lose part of our hedging volume. Nevertheless, I'm really confident that we can deliver $112 in '26, in '27 and '28. For 2029, we are starting to hedge our year at $17 billion exposure. Given the current market conditions, the 1.12, $1.14 range seems achievable. Now the risk is that should the euro-dollar moves up again and stands at 125 or 130, there is no magic in what we do with our trading room. It means that with time, we'll see the hedge rate going up and converge to the spot rate. But there is a lag to that phenomenon. So as long as it stays within the current range, below 120, I'm comfortable we will maintain 112 up to 2028. Operator: We'll now move to the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: Two questions from my side, please. Could you elaborate a little bit on the growth that you've experienced in defense in 2025. If you could share numbers on that in equipment. And the second 1 is on wide-body programs. Do you see some risk on volumes there coming from seats or the rest of the cabin in terms of your capacity and the ramp-up point of view, please? Olivier Andriès: Olivier, Growth in defense, the dynamic has been extremely strong in some key munitions especially we have what we call a guided bomb, which is named Hanwha, which is extremely successful in export markets and is highly demanded at the moment. You may have seen that -- I can confirm you may have seen yesterday that Norway has decided to order hundreds of them, basically that they want to deliver to Ukraine. So these are what we are talking about. So are guided weapons that we manufacture. We have multiplied by 4 our production in the last 3 years. And I believe we will continue to scale up. Another example is our inertial navigation systems where that do equate mainly military equipment, aircraft, helicopters, tanks, ships, submarines, but also artillery. And here as well, the demand is extremely strong, and we believe we are going to multiply our production by probably 3 to 4 as well. Last example I'd like to mention is missile propulsion. We -- we are a missile propulsion designer and producer. And I think we are the only one in Europe to do what we call turbo reactor for missile. We are equipping the Scalp/Storm Shadow cruise missile or the exocet missile, but we are also equipping missiles that are designed and produced by Saab in Sweden or Kongsberg in Norway. And here as well, the demand has grown very massively. So we've just -- we have decided 18 months ago to invest that's EUR 100 million in our facility to multiply our production by 5. So those are examples of the very significant scale-up that we see in defense. On top of that, the demand is high also on optronics. We are a player in portable optronics or onboarded optronics for UAVs, for helicopters, for maritime patrol aircraft. And here as well, the demand is very strong. So all in all, on Defense Electronics it's 1.6 book-to-bill ratio, and I can promise that the book-to-bill ratio in 2026 will be far above 1 again. On seats and widebody, indeed, the demand for -- especially business class seats is extremely strong. And I think it's unprecedented again. And interestingly, it's not only a demand for line fit aircraft, but it's also a strong demand for retrofit aircraft. So basically, we've delivered this year, I think if I remember well, it's 2,600 business class seats, significantly above what we've delivered last year. And the growth is very, very, very strong. So we are going to invest to increase our capacity in business class seats. And this is what we are talking about with Emirates. We are going to build a new assembly line in Dubai for that because -- just to meet the demand. Now we still face -- I mean, we have significantly improved our development process. So today, we deliver on time. We deliver on quality to the airframers and to the airlines. But we are still facing rising expectation on the certification side. We are experiencing also a tighter interpretation of pre-existing rules. So all in all, this -- and this is an industry-wide situation. It's not specific to Safran. But the consequence of that is that, yes, indeed, seats could potentially be a pacing item for the ramp-up of the wide-body aircraft just because of, let's say, the tighter tightening of interpretation of pre-existing certification rules. Is it clear? Olivier Brochet: Extremely. Operator: We will now take the next question. This is from Adrien Rabier from Bernstein. Adrien Rabier: Just 1 follow-up, if you may, on the CFM56, please. Could you explain a little bit on what you expect to happen after 2028, the trajectory for shop visits? And then you mentioned pricing and scope of potentially in time. So any detail you can provide would be very helpful. Olivier Andriès: Well, I know that the dynamic has evolved in the latter years because, as you know, we were expecting, let's say, the start of what we call the sunset earlier than what we do see today. And this is a consequence of the so-called flying more for longer situation. So it's a dynamic situation. Today, we are very, very confident that the volume of shop visit will remain at this peak of 2,300, 2,400 up to 2028. So how will the dynamic unfold after that is still to be seen. So this is why basically we take a cautious approach there. It's going to be, let's say, it's going to be a combination of how quickly Airbus and Boeing are going to reach their peak rate for, respectively, the A320s and the 737. And they are on a trajectory to, let's say, to go up by then. It's going also to be -- one of the other elements in play is going to be the level of aircraft retirement. And I have to say, in 2025, there has been a very low level of aircraft retirement. We've been -- it's been about 150 aircraft, so more or less the same as in 2024, no change. And therefore, this is not feeling any used part market. So really, it's going to be a combination of traffic growth. The traffic growth in 2025 for the narrowbody has been more than 5% compared to 2024. So is it going to continue at this pace? So this is one entrant. The other entrant is going to be how many new gen aircraft are going to get into the fleet. So how fast are Airbus and Boeing going to be able to reach their peak rate. And the third element is going to be the level of aircraft retirement. So it may well continue for 1 or 2 additional years. It's too early to say. It's really today a question of how this dynamic will unfold. Operator: And the next question is from Ross Law Morgan Stanley. Ross Law: So the first one is just a follow-up on portfolio. You've previously spoken about an ambition to divest about 30% of the legacy Zodiac assets. Can you maybe just give us a progress update here? And how much of this target is covered by the recent deals? And when should we expect you to achieve this target? Second question is just a quick one on your 2026 FX assumption for the spot rate at $1.15. And it's been tracking around the 118, 119 mark year-to-date and at present. I'm just wondering why you are assuming $115 and not higher? And then lastly, just on the media article yesterday suggesting you're working on advanced ducted engine as a possible more traditional alternative to RISE for next-gen narrow-body. Are you able to confirm this? And also what it means for RISE and also your R&D outlook? Olivier Andriès: On portfolio, how do we progress? Let's put it that way. Between Safran Passenger Innovation and EasyAir, we are talking about a revenue of roughly EUR 0.5 billion, more or less, roughly. It's an indication. So how -- what does it mean in terms of percentage of the ex Zodiac portfolio progress? It's a few points, I would say. When we met at the Capital Market Day, basically, we had executed 10% for a target of 30% of the portfolio. I guess I should not -- we should not be far from 15%, but it's indicative. We may come back on that, but it's an indicative number. So there's more to come. We hopefully will progress in 2026. But I will say the obvious. Before launching a process of divesting an asset, we need to make sure that this asset has some kind of appeal to the market. And so this is why we are focused on the performance and economic recovery first. But we are planning to continue to divest, especially in the course of 2026. Pascal Bantegnie: On your second question about FX, true, we took the assumption of $1.15 per euro on the spot rate just because we built up our 2026 budget at the time, it was at $1.15. So now it's $1.18. So that means a slight negative. It will only impact negatively our revenue base. You know the sensitivity, it's about EUR 100 million, EUR 150 million of sales per cent spot rate. So we'll see with time, we could have chosen 1.20. It would be as long as 115. We'll see at year-end. And then your last question is about the RISE program. RISE is a technology program. We are developing technology bricks, new materials, gearbox, an open fan architecture, hybridization that we leave all options open. So there is nothing new in what you may have seen in some press reports about a ducted engine or an open fan engine. Olivier Andriès: Yes. I'll say the obvious as well. We are getting prepared to any scenario because at the end of the day, it's going to be an airframer decision to select a given engine architecture. So basically, RISE, as just Pascal has reminded, is a technology program. There's a lot of common bricks that basically we develop whatever the architecture is. And yes, indeed, we are working on an open fan architecture. But again, we need to be prepared to any scenario. We are still very confident that the open fan is, let's say, the most, let's say, rewarding, let's say, configuration in terms of fuel burn. There's, of course, a lot of challenges that we need to meet and need to tick boxes, if you wish, on this technology plan. But again, we need to be prepared to any scenario. So no surprise. Pascal Bantegnie: We'll take 2 more questions. Operator: Next question is from the line of Rory Smith, Oxcap. Unknown Analyst: You've given lots of color on the call so far about narrow-body engines. So that's very helpful. I just had a question on wide-body. Is it fair to assume that there's a similar sort of margin differential between, let's say, timing materials or spare parts versus services under wide-body service contracts, as you mentioned for under LEAP? That's my first question. Olivier Andriès: To the wide-body, I would say yes, Rory? Yes, indeed. similar. Unknown Analyst: Brilliant. And then just as a follow-up to that, is there anything you can tell us this morning just about this sort of engine durability issue. I'm not saying it's your component, but anything that you're hearing from your partner there that Boeing talked about on their 4Q call that may be impacting the flight test program for 777X. Olivier Andriès: Well, I cannot comment on that, Rory. Sorry for that. That is the last question? Operator: Yes, of course. Last question today is from Ken Herbert RBC CM. Kenneth Herbert: Two questions, if I could. First, you grew spare parts in civil engines about 18% in '25. The guide is for mid-teens growth this year with looks like basically flattish CFM56 shop visits and some growth on the LEAP. Can you just help dissect that a bit and why the slower growth? Is it anything in underlying assumptions on price or work scope or maybe wide-body versus narrow-body as a first question. And then second, we are starting to hear some concern -- not concerned questions from some of the larger CFM56-7B fleets about maybe lowering engine inventory levels this year as we go through the year. And I'm just curious if you can comment on that, if that's anything you've seen and how we should think about that? Pascal Bantegnie: Okay. I'll take the first one on spare parts for 2026. So we are guiding to a mid-teens revenue growth. It's driven by the 3 engine families. First one, CFM56, we should see more or less a flattish number of shop visits. So volume is flat. Price will be up. It's still to be agreed with our partner. It will be applicable from 1st of August. We will benefit from last year price increase in the catalog list price, which was mid- to high single digits. And then work scope. W scope should be a positive because as we saw in 2025, we're expecting a higher proportion of full work scope within the total of shop visits. So CFM56 will continue to be a driver. On the IRS engines, as you know, we have a minority stake on the GE engines. And here, we see good positive drivers as well in terms of pricing and volume and work scope on all 3 components. And then on LEAP, we'll continue to grow the number of shop visits for the LEAP, as we say globally from about 15% shop visit per formed by third parties to 30% by 2030 and with a favorable mix over time, meaning less quick turns and more full performance restoration shop visits. So that should benefit as well our guidance for spare parts in 2026. I would like to say right now, then what we will discuss in April, we should have a very strong start in spare parts in Q1 only because we have favorable comparison base. So you should expect a higher number than the mid-teens when we publish our Q1 numbers. Olivier Andriès: Ken, on your second question, I'm not sure what you are referring to. But what I can say is even if our overall performance has been extremely good on spare parts, especially CFM56 spare parts in the course of 2025. We have been a little bit constrained by some supply chain issues that are getting unlocked. And that's also what is going to be a component to feed 2026. So we see, let's say, supply chain, let's say, some supply chain bottlenecks getting unlocked on CFM56 spare parts as well, and that's going to help us in 2026. Pascal Bantegnie: Thank you all. Have a good day, and happy Valentine for tomorrow. Olivier Andriès: Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Alkane Resources Second Quarter Fiscal Year 2026 Financial and Operating Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] Now let me hand the call over to Natalie Chapman, Alkane's Corporate Communications Manager. Natalie Chapman: Hello, everyone. Thank you for joining our call today. Some housekeeping items to note. The accompanying presentation for today's call is available for download from the company's website at alkres.com. Today's press release, the financial statements and the MD&A are all posted on our website and SEDAR+. For those of you on the webcast, please move through the presentation slides yourself as directed by our presenters. Moving on to Slide 2. I'll remind everyone that this conference call contains forward-looking information that is based on the company's current expectations, estimates and beliefs and may also use terms that are non-IFRS performance measures. Please review Alkane's quarter 2 fiscal year 2026 disclosure materials for the risks associated with this forward-looking information and the use of non-IFRS performance measures. Please note that all dollar amounts mentioned on today's call are in Australian dollars, unless otherwise stated. Also, as management reviews the quarter and half yearly results, please remember that Alkane has a June 30 fiscal year-end. So the quarter ending December 31, 2025, is our second quarter of the 2026 fiscal year. And as we closed the merger with Mandalay Resources on August 5, 2025, our group financial and operating first half fiscal 2026 results shown today only include 5 months from the Costerfield and Bjorkdal mines, the former Mandalay operations and a complete 6 months of results from Tomingley. Please move on to Slide 3. Today's speakers from Alkane Resources are Nic Earner, Managing Director and Chief Executive Officer; and James Carter, Chief Financial Officer. I'll now hand the call over to Nic Earner. Nicolas Earner: Hi, everyone, and thanks for joining us today. Let's go to Slide 4, which provides a quick summary highlighting our record achievements on our very successful first half of 2026. Alkane had a record-setting second quarter and first half of fiscal 2026, both operationally and financially. We produced just over 43,600 gold equivalent ounces in Q2, which gives us just over 74,000 gold equivalent ounces for the first half of 2026. And remember here, the ex Mandalay asset production from July, the month of July is not included in that number. And so when we look at our full year, so the full 12 months, including July, including Mandalay assets, we're on track to meet that group 2026 guidance of 160,000 to 175,000 gold equivalent ounces. So given the strong prices for gold, the strong prices for Antimony and our great production results, our mines generated AUD 133 million of operating cash flow for the quarter, which has boosted our already strong financial position. As of quarter end, we had AUD 246 million in cash, bullion and liquid investments on hand. This strong financial position, combined with what we expect to be continued robust free cash flow from our operations, allows Alkane to aggressively grow the company through exploration, capital programs at each of our mines as well as advance the Boda-Kaiser copper-gold porphyry project and opportunistically grow the company inorganically. Now let me move on to Slide 5 to get into more details on the quarter. On a consolidated basis, in Q2, Alkane produced nearly 43,000 ounces of gold and 267 tonnes of Antimony, which equates to nearly 44,000 gold equivalent ounces. All of these are records for Alkane as a company. This was from mining nearly 581,000 tonnes of ore at an average gold grade of just under 2.4 grams per tonne and an average Antimony grade of just under 1%. Recoveries of just over 90% gold and just under 87% Antimony were higher than in Q1. Now I'm going to get into specifics with each mine shortly, but let me summarize, overall, all our mines are operating well and all of them meet our own expectations, which are very high. So let's move on to Slide 6 and look at Ting. In Q2, we processed nearly 319,000 tonnes of ore at an average recovery rate of 89.8% and an average grade of 2.5 grams per tonne. This led the mine to produce a bit over 22,000 ounces of gold. This is 20% higher than we got in Q1. High production came from slightly improved operations, but mostly from the planned mining sequence moving into higher-grade zones, also continued cost management. And this resulted in all-in sustaining costs in Q2 being AUD 2,216 per ounce. The U.S. dollar amount is on the screen there. This is 16% lower than in Q1. So the primary source of ore at Tomingley continues to be from the Roswell underground deposit. During the quarter, and I'm going to describe this is ordinary course of business for us, but I want to give you detail on this. We had some minor challenges. We had some shock credit downtime that delayed our paste fill. We had some lower development rates leading to lower development ore. And we redesigned some stope shapes to improve load recovery. But all these issues were overcome pretty rapidly and like I said, a part of the ordinary course of business. Our processing plant continues to perform well. We're milling in excess of budget. And primarily, this is a result of us inserting a mobile crusher to pre-crushed material prior to entering our processing circuit. So this pre-crushing material entering the circuit has seen a nominal increase in milling rates to approximately 1.3 million tonnes per annum with further optimization on both throughput and cost options for this mobile crusher continuing. Capital expenditure during the quarter was mainly for the Newell Highway realignment project. Construction of this is expected to be completed in about a year from now in 2027. This is a high-return project, which allows us to access the high-grade San Antonio deposits in 2 new open cut mines. Bottom line, improved productivity, lower costs, higher gold grade, higher gold prices. Cash flow from Tomingley was AUD 67 million in the second quarter or a bit over 70% higher than Q1. Moving on to Slide 7. Q2 at Bjorkdal, we processed nearly 330,000 tonnes of ore with an average grade of 1.04 grams per tonne and an average recovery rate of 87.4%. This allowed us to produce just under 10,000 ounces of gold. All-in sustaining costs in Q2 were AUD 4,117 per ounce. Again, the U.S. is on the screen or 2% higher than in Q1. Bjorkdal was a solid quarter mining performance. All production is going well. We've got consistent stope productivity, and we've got stable development activities. We've also started replacing some critical equipment, which has resulted, as you'd hope, in machine availability. Further equipment replacements are continuing in this quarter, current quarter 3. Mill throughput was a little bit slower -- I mean, lower than the previous quarter. This is primarily due to our mill reline, the new linings we put in were wearing slightly slower than the anticipated rate, good for relining, but it limited our maximum allowable mill load. The completion and commissioning of the return water system from the mine as well has also had a positive impact on flow performance to date, which has led to improved recoveries. With the improved productivity and higher gold prices, operating cash flow from Bjorkdal was AUD 35 million for the second quarter. On to Slide 8. At Costerfield, our gold and Antimony mine, we processed nearly 35,000 tonnes of ore. In Q2, we plan to be in a higher grade sequence in the mine. Therefore, we achieved an average gold grade of just under 10.4 grams per tonne and an average Antimony grade of 0.91%. Both of these were higher than in Q1. Gold recovery rates of 93.9% and an Antimony recovery rate of 86.8% were also higher in Q1. Our increased plant efficiency and throughput rates, particularly as well as the grade, allowed the mine to produce 10,790 ounces of gold and 267 tonnes of Antimony or 11,686 gold equivalent ounces. All-in sustaining costs in Q2 were AUD 2,149 per gold equivalent ounce, resulting in a 12% decrease from Q1. And this demonstrates the focus we have on getting high grade in and expanding our production rates. Costerfield summary, steady operational performance during the quarter, strong mining productivity as well, we continue to advance several initiatives to improve our ore quality and recovery. We continue to try and optimize drill and blast optimization, remembering this is a narrow vein stoping environment where we're trying to keep our widths as tight as possible. We continue to focus on operator training, and we are moving towards emulsion explosives because we want to improve some recovery and reduce dilution. So as we prioritize here on Costerfield, operational consistency and grade control, and we use this to underpin our strong production outcomes that we expect to get over the coming quarters. So with this great productivity, with our cost control, high gold prices and, of course, higher gold grade, operating cash flow from Costerfield was AUD 30 million for the second quarter. Now moving on to Slide 9. One of the key strategic initiatives that we have is to drive organic growth by increasing mineral resources, we have an aggressive exploration program across our portfolio. I'm going to tell you about that now. So on Slide 9 here that we're at. At Tomingley in Q2, we invested AUD 2 million for the quarter in several programs. This includes 1 and 2 on the picture, extension drilling under the existing pits of Wyoming and then Caloma North. #4 on the picture, resource infill drilling at Roswell, and we get results here like just under 8 meters at nearly 0.5 ounce per tonne. At #3, discovery of a new zone of gold-rich mineralization at McLeans right next to existing infrastructure, intercepting gold intercepts like 26 meters at 4.36 grams per tonne of gold. Down at # 5, and we own the land under this, drilling in El Paso, which also resulted in several significant intercepts, including 8.2 meters at 3.74 grams per tonne. And then last but not least, at #6, we commenced testing Peak Hill for its gold copper porphyry potential. And number seven, we're conducting geophysical targeting and drill testing for low sulfidation epithermal gold quartz veins at Glen Isla. What I want to show you here is that a lot is happening at Tomingley to expand the resources. And more importantly, the sheer volume and range and distance of this work alone demonstrates big potential and the reason why we continue to focus on exploration. So let's move on to Slide 10, Bjorkdal exploration. Here, we invested AUD 2 million on a program at # 3 there, Storheden on 2 programs to test the Northern and Eastern depth extensions #1 and 2 with the goal of extending the ore body that's currently being mined. So for example, at Storheden, the #3, the results of this drilling highlighted the doubling of the known depth and extent within a series of Bjorkdal, just like the deposit to the south style veins interpreted across 3 target domains. This was all released in December. The highlight results included 34 grams a tonne over 1.6 meters, 142 grams a tonne over 0.6 meters and 111 grams per tonne over 0.5 meter. This narrow vein, high grade, this is the backbone of what we see at Bjorkdal, and we've got the expertise to mine these type of veins, either narrow vein or over broader swarms efficiently. In additional, over at #4 to the right of your page, work has recently commenced to extend the Norrberget resource. So let's move on to Slide 11. At Costerfield, we invested AUD 6 million in Q2 on near-mine drilling with 3 main focus areas. Number one, Brunswick South drilling. We focused there on building the high-grade intercepts we discovered earlier in the year, so earlier in 2025 with progression to infill drilling late in the quarter. And number two, Kendall drilling, we're exploring a series of veins, quite high grade above the currently active Youle workings. And number three, the Sub King Cobra, we call it, we're drilling focused both on infill and extending the mineral resources below the existing Cuffley and Augusta workings. But additionally, perhaps even more excitingly, numbers 4 and 5, True Blue has progressed with 3 diamond rigs predominantly concentrating on infill drilling with a focus on step-out testing at our surface geochemical anomaly there. Meanwhile, #6, we're also testing the potential for a Sunday Creek style mineralization -- mineralization just below Costerfield's historic mines. So moving on to Slide 12. This is the Northern Molong Porphyry project, the entirety of which is shown on the map of this slide or stylized map on this slide, and this is a highly prospective gold and copper corridor. This project also encompasses in the bottom right of your page, our Boda-Kaiser copper gold project. During the quarter, we invested AUD 3 million on several programs, including a mobile magnetotelluric survey we completed across most of the deposit you see there, and we think this will guide us towards future high-value work programs. And we continue to make progress on a 4,500-meter reconnaissance drill program to learn more about the project's potential. Of course, we'll announce results as we receive them. What I want to make clear to you, the reason why we're focused on this is we're looking to further increase the already substantial gold and copper inventory. This project and what can come from it is incredibly leveraged to the current price. As you can see, the exploration work going on at each of our projects. Our goal is to expand resources to increase mine life production levels and drive new discoveries. Undoubtedly, I want you to see that exploration is a key pillar of our strategy that's fundamental to our organic growth objectives. And with that, I'm going to hand over to you now, Jim, to provide a review of our financial performance. Thanks. James Carter: Thanks, Nic. So if everybody could -- we'll turn to Slide 13. And so I'll start with an overview of the key financial highlights for the second quarter ended December and also the 6 months ended -- or the first half, which is the 6 months ended December as well. So we'll focus on these 2026 results because the results for the prior year do not include the former Mandalay operations. So consolidated revenue for the quarter was AUD 256.7 million at an average realized price of AUD 5,785 per ounce or around about USD 3,857 per ounce. And that was 18% higher than our Q1. Average antimony prices were AUD 42,500 per tonne or about USD 28,327 per tonne. And that was 19% higher this quarter than the previous quarter. These are record revenues were achieved in the second quarter. They were a result of strong operations, robust gold and antimony prices. And cash flows for our second quarter could have been a bit higher, about AUD 18 million higher. We had a shipment from Costerfield that sort of departed around the Christmas period. So -- that payment, which normally would be received a little bit quicker sort of because of the Christmas holiday period that came into -- received in early January, and that will be recognized in our Q3 cash flows. Site operating costs on a consolidated basis were AUD 2,031 per gold equivalent ounce produced. That was about 8% lower than the September quarter. This is a result of improved throughput levels, capturing some synergies from the merger and just trying to be -- maintain the cost discipline. All-in sustaining costs were AUD 2,739 per gold equivalent ounce or about USD 1,826 an ounce produced. That's about 8%. That was also 8% lower than the previous quarter. So at these cost levels, we are within our 2026 guidance range. EBITDA for the second quarter was a record AUD 147.2 million. Sustaining capital during the quarter, that was AUD 20 million. That included AUD 10 million for capital development at our Bjorkdal operation in Sweden and AUD 4 million of mining ancillary equipment at Bjorkdal and Tomingley. Our growth capital in the quarter was AUD 9 million, and most of that was at the Tomingley operation on the Newell Highway alignment, which Nic touched on a little bit earlier on the Tomingley slide. So for the event, that gives us access to the eventual mining of the San Antonio open pit in 2027. Exploration expenditures for the second quarter were AUD 11 million, and I think that was all captured by -- in the slides that Nic was talking about just slightly earlier. So if we turn to Slide 14, now, and we're really -- we're having a look at our second quarter cash flow. So in the December quarter, cash flow from our 3 operations was AUD 133 million or 82% higher than the first quarter. Corporate and other expenses were AUD 20 million. That included AUD 7 million for corporate and technical support across the group, AUD 6 million for a cash-back bond, which we were required to put down as part of our Newell Highway realignment project. That's a bond that sort of will come back to us over the course of the next 18 months or so upon successful completion of that project and AUD 3 million for Boda exploration at about AUD 2 million for Lupin closure costs. So after all of that, after sustaining capital growth, exploration, taxes and corporate, we ended the quarter with AUD 218 million in cash. So overall, there a AUD 58 million increase from the September quarter, which was really pleasing. So at December 30, 2025, liquidity remains exceptionally robust. We got cash bullion listed investments totaling AUD 246 million. So we've got a clean balance sheet. debt is just limited to some equipment financing for our mobile equipment across the group. So that's just giving us a really enviable financial foundation that we think that [indiscernible] and the peer group can match, underpins the foundation to grow the business, pursue our organic growth targets, which Nic had spoken about a bit earlier and gives us flexibility to act on strategic value accretive opportunities as they arise. So with that, I will turn the call back to you, Nic. Nicolas Earner: Thanks, Jim. All right. Let's go on to Slide 15. I want to focus on our outlook, which I think you can see has a pretty clear momentum. Leveraging the financial strength Jim just outlined, we're well positioned to scale up our business. We've got a dual track strategy. We're fueling growth while keeping a sharp focus on cost efficiency, a discipline that's reflected through the maintenance of our 2026 guidance. With our record-setting first half behind us, we're carrying a lot of energy into the remainder of the year. We're firmly on track to achieve the annual production minus the July Mandalay of 155,000 to 168,000 gold equivalent ounces. But as I say, let's look at this 3 operations for 12 months, 100% basis, full year guidance is pretty impressive, 160,000 to 175,000 gold equivalent ounces. Now on the cost front, we're disciplined. We want to drive down the cost at Bjorkdal. We're disciplined. We've got a consolidated all-in sustaining cost firmly on track at AUD 2,600 to AUD 2,900 per ounce. So this is US between USD 1,690 and USD 1,885 per ounce. The real story is our impressive commitment to organic growth. We're putting AUD 78, somewhere, it will land somewhere between AUD 78 million and AUD 88 million into growth capital and exploration to unlock the next chapter of this company. Tomingley, I don't want you to see this is just infrastructure. It's a gateway. This realignment of the Newell Highway is the key that unlocks the high-grade large-scale San Antonio deposit in about a year from now. And at Costerfield, our objective here for drilling is clear. We're extending the mine life and building the case for potential future processing expansion. And over at Bjorkdal, our focus is on precision. We're building a high-grade inventory that we want to redefine our future mine studies and increase the mining rate. So this guidance is more than just set of numbers, it's a road map that we're trying to build a larger platform achieving the vast potential of this business. So let's move to Slide 16. What you can see on this slide is more than just a plan. We have a commitment to performance, and we're delivering on that. We're squarely positioned to meet our production targets, but we're not stopping there. We're deploying the drill bit, which I've talked about across the entire portfolio to expand the resource base. This is the bedrock of the strategy, extend mine life and accelerate production growth at all 3 operating mines. And let's not forget Boda-Kaiser. This world-class copper-gold porphyry project remains an important part of our long-term value. We're moving with a purpose on the environmental studies, the permitting and the consultation to advance this project. And in doing so, we're giving ourselves maximum flexibility to consider ways to unlock value. Corporately, our balance sheet is a clear strategic advantage above our peers. In this gold price environment, we expect to continue building our cash position. And as we seek inorganic growth opportunities, we're well positioned to move quickly but with discipline, and we have strong financial flexibility. We're confident, we're focused. We're well positioned to drive long-term value for the shareholders. And with that, I'll hand the call back to the operator to start the Q&A session. Thanks, operator. Over to you. Operator: [Operator Instructions] We're going to take the first question on the line. And it comes from the line of Daniel [indiscernible] from [indiscernible]. Unknown Analyst: Congratulations on the very nice results. I have a question and I guess, a comment. So my question is you announced an ADR -- sponsored ADR program, and you already have an unsponsored ADR program and the shares trade in Canada and also Australia. And I know you talk all the time about increasing liquidity. And I'm just curious whether basically having these 4 venues for where your shares are trading is actually fragmenting liquidity and not really increasing it. That's my first question. Nicolas Earner: Yes. Thanks, Daniel. How about I answer that and you can ask the second part if there was one. Yes, clearly, we took a fair bit of advice out of North America on this one. The clear expectation that we think will occur is that most people will go with the issuer-sponsored ADR because of the increased liquidity that will come there rather than the nonsponsored vision just because the liquidity will be less there. And what's really interesting is what we wanted to do, and it remains to be seen whether this is correct, right? But what we wanted to do was create a vehicle for particularly retail investors in North America to be able to access the stock with liquidity in a clear price point because there would appear to be, particularly as gold has such interest, quite a degree of people that are using that mode and method and who just don't access the TSX and the ASX. So we're watching with interest, and we certainly think that it's something that we should try in this market. Unknown Analyst: Okay. And 2 more, if you don't mind. You talked a lot -- no, no, recently, you mentioned your aspiration to get into the ASX 200. And I recall at the time of the merger with Mandalay, there was a lot of talk about what a wonderful thing it would be to join the ASX 300. But it doesn't seem like joining the ASX 300 has done anything. I mean I look at this Edison report and that shows how undervalued you are compared to your peers and so forth. So I just wonder whether aspiring to join the ASX 200 is just sort of a waste of energy. Nicolas Earner: I -- you've got me a little bit baffled there because -- and happy to get you all comment on in case I've misinterpreted what you said. So if you look at Alkane and Mandalay pre this, Alkane's typical turnover was AUD 1 million a day. And Mandalay's at one point was AUD 0.5 million and then it rose up to be similar. And then post the merger, we are typically AUD 8 million to AUD 9 million. Mandalay is AUD 1 million to AUD 1.5 million. And we have seen a lot of index funds enter our register. And then from the point that we stabilized at in share price of a nominal sort of AUD 1.10, we've seen a drive up to AUD 1.50 with a lot of buying come across in the 12 months. So certainly, the index inclusion appears to have helped the register, the buying the share price to support the visibility of it. And all our understanding is that the ASX 200 will further deepen that pool. Are you looking at information that I'm not looking at, so I've misinterpreted you. Unknown Analyst: No, I just -- I'm not looking at sort of liquidity or trading volume and so on. I'm just looking at the valuation of the company compared to what at least Edison considers your peers. And the stock has been -- remains quite undervalued. And I just wonder whether joining these indices really helps at all. Nicolas Earner: I think if we -- look, I think if we had not joined the indices, then we would be horrendously undervalued, not just undervalued. So if you look at some of the peers that we have, like if you take, for instance, Catalyst and Ora Banda, they have passed into the ASX 200, both with an uplift in buying that's coming from that. And so as to where all these things settle, I think the fundamental basis of our cash flow, our reasonably consistent production performance. Of course, that has to shine through. And the index inclusion should be something that simply flows from that. But there's certainly value in exposure to a very large volume of money in the Australian superannuation funds being an ASX 200 versus ASX 300. Unknown Analyst: Okay. Great. And then if you don't mind, one final thing. So you've built up this large cash pile here, and you talked about the uses. I'm curious what the priorities are. You've got this quite exciting Boda-Kaiser project, and I imagine that will potentially involve a lot of CapEx. Mandalay, as I remember, years ago, used to pay a dividend and some of these large gold companies that you aspire to emulate pay dividends. And then you talk about corporate development and so forth. I'm just curious if you could talk a little bit about your priorities. And just one final thing. This earn-in seems like a very clever deal. But it would seem to me that proving that Mandalay has been -- or is a great deal would go a long way towards convincing people that the next deal is going to be a good one. That's it for me. Nicolas Earner: Yes, sure thing. A couple of different things to unpack within that. So let me -- hopefully, and you can come back to me if I miss one of them, my apologies. So if we look at -- our analysis suggests that right now, we can create more value for our shareholders by delivering on production, reinvesting into the businesses to keep the costs low, expanding the resource base and then also inorganic growth where other businesses are undervalued. And so that's our view. Unknown Analyst: [indiscernible] more undervalued than you are. Nicolas Earner: Yes, of course, me. Unknown Analyst: Okay. Yes. I'm sorry, I interrupted. Nicolas Earner: Yes. No, no, it's not the interruption. It's the assumption that we go and pursue a business that's higher value than we are. Anyway, so -- so then when we look at dividends, if you look at our peers on the ASX, of the top 20 gold companies, about 5 or 6 pay dividends at present. So clearly, as a Board, we look at that each time we meet around dividend and capital allocation. At the moment, our view is that we will continue to look for those internal things to create shareholder value. And then clearly, if we don't see that and our cash balances rising, then we would look to return those to shareholders, yes. So the second part of what you said is we're referring to the Nagambie earn-in. I think the thing that is really key to understand there is that there's a 30-day right of first refusal that Southern Cross [ hold ] on a deal they did with Nagambie a long time ago. I couldn't give you the exact timing. So they may either elect to match that or not. In the event that they don't elect to match that, yes, we're pretty interested in really seeing if the potential that we think could exist there at the Nagambie deposit does because logically, it could absolutely either dovetail into the later years of Costerfield or in an ideal world, allow an expansion of that facility. All those things would need approval. Yes. And last but not least, you spoke about convincing people that the Mandalay deal has been a success in order to do it. Yes, I can't -- of course, I can't say what the parallel history would have been if we hadn't have done the deal. We don't know in this rising gold price environment. But certainly, -- as a combined entity, both of us have had more value realized in our stock and our price to NAV and all the other multiples than we were equivalently on our own. So it certainly appears successful in all of those metrics. And certainly, a share price that's been achieved for Alkane or Mandalay in reverse that just did not appear possible on a stand-alone basis. So certainly, that's the feedback I'm getting from the vast majority of share. Operator: [Operator Instructions] And at this moment, we will proceed with the written questions. Natalie over to you. Natalie Chapman: Thank you, Nadia. I'm heading off to the written questions. So for M&As, where is your focus from a geographic perspective? Do you see any opportunities to build on operations in Australia and Europe? Or are you looking in other regions? Nicolas Earner: Yes. Thank you. Australia, New Zealand, U.S., Canada, Scandinavia. Natalie Chapman: Awesome. Thank you. Mandalay was very excited about True Blue. Is that the highest potential target at Costerfield? Or do you see another target as a priority? Nicolas Earner: Yes. Good question in terms of -- it depends on the time frame that you're talking about. So Kendall and Brunswick South are the near-term targets that we're most excited about. But I don't see either of those containing 300,000, 400,000 ounces at the moment. They appear to be more incremental adding of 1 or 2 years production. So True Blue, we're more excited about from a longer-term perspective because indications are that we may be able to replicate the entire corridor length that we see all the way Augusta to Brunswick, all the old mines, which have pulled over 1 million ounces out at [indiscernible] in the past. So that's -- so time frame-wise, True Blue, yes, is a more exciting prospect for us. Natalie Chapman: What exploration target or opportunity within your existing portfolio most excites you? Nicolas Earner: I think again, it depends on which hat you want to put on. I'm most excited by the potential of discovering a swan -- like a similar Swan Zone type thing as seen at Fosterville, discovering a similar thing deep at Costerfield. But that is a very long-dated bet, but it is the most exciting because of how transformational is in that sheer volume of ounces that they had. Yes. Hopefully, I've answered that, but please write another question if I've misanswered your question. Natalie Chapman: We're halfway through quarter 3 and gold prices are higher than quarter 2. What visibility into quarter 3 results can you share with us at this stage? Nicolas Earner: Yes. So we're -- our full year guidance is on a 12-month basis is 160,000, 170,000 ounces. And on the half year, we were a bit over 80,000 ounces equivalent and just under the top end of that guidance. So we expect a quarter similar to the quarter we just had. So yes, we're very happy with where we're at. Natalie Chapman: When do you think you might be in a position to make a decision on processing expansion at Tomingley? Nicolas Earner: Yes. So I think people may have seen some of the subtlety in what I've described. So at the moment, we're achieving what we were hoping to achieve or had planned to achieve, sorry, with the plant expansion. We're achieving that with pre-crushing. We're probably -- we were hoping to add 450-odd thousand tonnes of extra throughput on the addition of about AUD 45 million capital expansion. And we thought that we would try a whole heap of other things given all the money that we've invested into the circuit. On fine grind and all that sort of stuff. And pre-crushing was one of the things that we considered. And at the moment, we're north of 1.3 million tonnes per annum and with a line of sight of 1.4 million tonnes per annum. So all things going smoothly, I think that we will continue to eke out really small throughput improvements of the existing Tomingley plant because chasing effectively, we'd be putting AUD 45 million in for 100,000 to 150,000 tonnes per annum, which is not quite the case. And we don't have the, in my view, the ore resources yet until we get another major, major discovery of the size of Roswell to warrant updating the plant to say, 2 million tonnes per annum or something. Hopefully, that makes it clear for people. Natalie Chapman: [Operator Instructions] I've got another question in here. Given your strong cash position and the high price of gold, has consideration been given to buying out your hedging position? Nicolas Earner: Yes. I mean, as you can imagine, we talk about this at each Board meeting. We talk about all the financial instruments that we have or could put in place. One of the other things we do is we talk a lot to our shareholder base about it. And the current view at present is to deliver into the hedges in accordance with the schedules that we publish now, quarterly reports. One of the reasons for this is we're in a very, very volatile gold price environment at the moment. And the feedback from a lot of our shareholders is that they wished to be the ones taking the gold risk that we were a known quantity themselves. So that's our current plan. Obviously, we continue to review that. And then even in some of the things with Daniel cash balance, all these other things are things that we take into account. But at the moment, if you're putting together a financial model, just assume that we are delivering into the hedge book. Natalie Chapman: Right. Excellent. We have no further questions. So I'll hand the call over to Nic for closing comments. Nicolas Earner: Great. Thanks, everyone. I appreciate you taking the time to join us today. And look, whilst as per one of the questions Nat just asked, look, we've had a successful year so far, and we really look forward to showing you more of this progress and showcasing for those of you in North America, getting people here in Australia to understand these assets more and reflecting more of the value that exists in these really strong cash flows into our share price. So look forward to our next call in a few months. And as always, reach out if you have any questions. Have a good day, everyone. Appreciate it. Cheers. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the Capgemini Full Year 2025 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aiman Ezzat, CEO. Sir, Please go ahead. Aiman Ezzat: Thank you. Good morning. Thank you for joining us for the Full year 2025 results call, and I'm joined, of course, by our CFO, Nive Bhagat. So Capgemini delivered a solid set of results for 2025. Operating margin and organic free cash flow were on target and revenue growth finished above the upgraded guidance. In a demand environment that remained largely unchanged, our underlying performance strengthened quarter after quarter with momentum improving across regions, businesses and sectors. We won where clients invest in cloud, data and AI and digital business process services. We captured where it matters most to clients, the large transformation programs. For the year, revenues were EUR 22.46 billion, representing 3.4% growth at constant currency with around 2.5 points of scope impact. Bookings were EUR 24.36 billion, which represents a solid 1.08 book-to-bill for the year and a strong 1.21 in Q4, which is really an evidence of sustained commercial traction driven by a higher number of large deals. We demonstrated the strong resilience of our operating margin at 13.3% and organic free cash flow at EUR 1.95 billion in spite of cost pressure due to a higher bench in Continental Europe. Normalized EPS stands at EUR 12.95, plus 5.8% year-on-year. In line with our dividend policy, the Board will propose a EUR 3.4 per share dividend at the Annual General Meeting. So in a fast-changing environment, we also took strategic steps to lead in AI, Intelligent Operations and to reinforce our position on Sovereignty, and I will discuss these market trends shortly. So we finished the year on a strong note with another improvement in our underlying growth in Q4. Constant currency growth was 10.6% in Q4, including a scope impact of about 6.5 points, driven primarily by WNS and Cloud4C. Now stepping back and focusing on the underlying trend, we clearly see the benefits from the actions implemented over the last quarter. All regions improved between Q1 and Q4. North America recorded the strongest acceleration, while U.K. and Ireland and APAC and LatAm improved on an already solid performance. France gradually improved, but it remains challenging at year-end. The recovery in the rest of Europe was more pronounced and is now back to growth. The improvement is also visible across sectors, which all have significantly improved since the beginning of the year, even manufacturing is now stable year-on-year, excluding M&A impact. Finally, from a business perspective, Operations and Engineering recorded the strongest acceleration, both at constant currency and organically with double-digit growth in digital BPS across both Capgemini and WNS. One of the highlights of 2025 is the strength of our ecosystem of technology partnerships. Today, more than 2/3 of our bookings are associated with our top 12 technology partners. And in a world driven by cloud data and AI, cyber and sovereignty, clients are looking for solutions combining ecosystem of technology partners and services provided by relevant transformational focus, leveraging industry domain and functional expertise. I also want to highlight specifically the Defense sector, which continues to enjoy double-digit growth in 2025. And as the leading European player, Capgemini is uniquely positioned to capture this structural growth opportunity. I do expect to see further acceleration in the next 2 to 3 years as Europe ramps up its defense programs. So we expect good growth to continue in H1. For Q1, in line with traditional seasonality, constant currency growth should be in the range of 8.5% to 9.5% in constant currency with around 6.5 points of contribution from M&A. So quick words about our 2025 ESG policy achievements. So again, here, we demonstrated continued improvement in corporate responsibility with major progress on our ESG road map. So let me highlight a few points. From an environment standpoint, we accelerated towards our target of being net zero across all scopes by 2040, reaching 100% renewable electricity for all operations. We also made notable progress in gender balance. Proportion of women in the global workforce reached 40.5%, up 7 points since 2019. And for women among executives, leadership position, we reached 30.5%, up 13 points since 2019. Finally, on governance, we made further progress around cybersecurity with a CyberVadis score of 990 out of 1,000, positioning us as the leader in our industry. Now let's focus on our growth engine. And of course, let's start with AI. So AI in the enterprise has become a reality. Maturity is increasing about its possibilities, but also about what it will take to achieve real adoption and measurable results. So 2026 is really the moment of truth for AI, the moment where AI must transition from [indiscernible] to measurable business impact embedded in core operations, delivering value through AI-powered transformation. As we move to transformation, there is a growing awareness that the foundations are not yet in place, whether we're talking about infrastructure, data, standardized governance, risk and compliance frameworks. In practice, clients face siloed legacy systems preventing AI workflow orchestration, poor data availability and quality preventing AI performance and fine-tuning and legacy workloads running on-premise and preventing AI compute at scale. Finally, it's about human AI collaboration and trust. This is where the real complexity lies. This is our playing field. All this complexity, this is where we can drive real transformation requiring strong business acumen, domain knowledge, transformation capabilities, data and AI and technology depth. And in this context, Capgemini has the right capabilities and set up to deliver AI transformation to our clients, leveraging appropriate ecosystem and partnerships. Now let's take a couple of examples to make that more concrete. So just -- the first client example is a client who want to identify its procurement activities end-to-end to be more competitive. So from strategy and sourcing to procure to pay and end-to-end processes. So we are currently building a suite of 7 Agentic products that will provide market intelligence, assist buyers in the sourcing phase, analyze supplier responses to tenders, automate food cost calculations, simulate cost scenarios, analyze cost variances, consolidate forecasting, draft contracts and automate value tracking. As you see, the scope is pretty comprehensive. And the product is targeted to deliver tangible impact in the short term, strengthen working capital by optimizing payment terms, reducing inventory exposure and improving the cash impact of procurement, decrease operational and purchasing costs through automation and smarter decision-making and lower process execution costs and reduce reliance on manual efforts across procurement workflow. We can already document EUR 27 million of savings to date to what has been achieved. Our second client was facing issues of data center reliability with significant financial impact up to hundreds of thousands of dollars per minute of downtime of outage in addition to reputation damage. We developed a physics-informed AI model, identifying abnormal variation to predict and prevent equipment catastrophic failures, and alerting platform integrated with existing order workflow that's not requiring any operator training and a global and unified view of equipment operation, relationship and performance, feeding back operational and design improvement. Implemented and live, our solution has successfully prevented and mitigated catastrophic events, saving our customers millions and millions every year. And just one key metric, we have avoided around 50 critical incidents prevented per year. Now moving on to the second vector of growth, which is Intelligent Operations, which we consider still to be the largest showcase for Agentic AI. WNS was acquired in that context to provide the scale and vertical expertise required to lead in this market. The integration is proceeding as planned and should be operational in H2. I can confirm that the benefits are on track. Let me remind you, annual run rate of revenue synergies of EUR 100 million to EUR 140 million by the end of 2027 and annual run rate of cost synergies of EUR 50 million to EUR 70 million also by the end of 2027. The go-to-market activities as expected, are vibrant, and we have today 100 cross-selling opportunities identified. The Intelligent Operations pipeline of opportunities also growing with some very large deals in pursuit. With Intelligent Operations, we are leveraging AI to reshape and run entire areas of client business operation to achieve end-to-end strategic value creation by combining cost efficiencies and enhanced business outcomes. Happy to report that we closed our first mega deal of over EUR 600 million for a large global company, covering multiple functions and processes based on a true Agentic AI-led transformation solution, delivering significant cost reduction and enhanced business outcome and operating on a non-FTE based commercial model. So this is the largest of several contracts signed in the last 4 months with some potential extensions of scope. And this is a clear proof that the Intelligent Operations strategy is working and will be one of our growth pillars in the coming years. Let me move on now to sovereignty, where we see a significant appetite from clients to help them develop and implement their sovereignty strategy. This has become a huge topic in today's multipolar world. I took this as proof -- I take it as proof, this striking figure. Over 50% of services contracts will include some sovereignty requirements by 2029, up from 5% in 2025 according to Gartner. And sovereignty is not a monolithic framework, but is composed of 4 key dimensions: Data, operations, technology and regulation, and no one can really be sovereign across the full value chain. Now it is clear that as the largest European player, we are the driving force in developing offerings, ecosystems and partnerships to help large organizations implement sovereignty enabling solutions adapted to their needs and environment. We reinforced our solutions portfolio with the acquisition of Cloud4C, providing hyperautomated, AI-ready, locally governed cloud operation with sovereign compliant monitoring, disaster recovery, cybersecurity and continuity and in addition, with specialization across some industries and sovereign compliance frameworks. Now we are leveraging Cloud4C setup to create a European-hosted mirror platform to operate our European customers' sovereign workload. This is a perfect complement to our Bleu SecNumCloud JV with Orange in France. We are also leveraging our core partners, sovereign solution. We made 3 announcements in the past week with Google Cloud, AWS and Microsoft in addition to the sovereign technology partnership signed with SAP in November. Now we are extremely well positioned to capture the growth trend on sovereignty. Now the market is moving fast. And while a few areas have been softer in recent years, the opportunity set ahead of us is really compelling, especially in AI, Intelligent Operations and Sovereignty, as I have outlined earlier. We are executing a clear plan with selective strategic M&A, disciplined investment and a sharper focus on where we lead. Today, we are accelerating also our capability shift in order to deliver on the growth agenda. This will translate in a number of country-specific workforce and skills adaptation initiatives, leading to an estimated EUR 700 million restructuring over the next 2 years. These Fit for Growth local initiatives strengthen our competitive position and support sustained and profitable growth. For 2026, our targets are clear: Constant currency revenue growth of around 6.5% to 8.5%, with inorganic contribution of around 4.5 to 5 points. Operating margin of 13.6% to 13.8%. Organic free cash flow of around EUR 1.8 billion to EUR 1.9 billion, including the estimated year-on-year increase of around EUR 200 million in restructuring cash out. In 2026, we're going to demonstrate our ability to set the group on a new profitable growth agenda around AI, Intelligent Operations and Sovereignty. And this will further reinforce the group's financial profile. We are clearly pivoting the group to be the catalyst for enterprise-wide AI adoption, more to come during the Capital Markets Day in May. Thank you for your attention, and I now hand over to Nive. Nivedita Bhagat: Thank you, Aiman, and good morning, everyone. Let me start with the headlines for FY '25. We delivered a solid top line at EUR 22,465 million, which is up plus 1.7% on a reported basis and plus 3.4% at constant currency, placing us above the top end of the outlook we upgraded in October. This shows that our growth initiatives put in place over the year yielded results despite a mixed environment. On profitability, we protected the operating margin at 13.3%, stable year-on-year and in line with the guidance we set. Holding the operating margin despite the challenges we have faced in Continental Europe is proof point that our operating model is more resilient than ever before and shows the continued effectiveness of our cost discipline. Net profit group share ended at EUR 1,601 million with basic EPS at EUR 9.46. Normalized EPS, which strips out the other operating income and expense items was EUR 12.95, plus 5.8% year-on-year. Finally, we delivered organic free cash flow of EUR 1,949 million, in line with the around EUR 1.9 billion target we set at the beginning of the year, a strong testament to our financial discipline and focus. Let me take a moment to talk you now through the shape of the year. Growth rates gradually improved quarter after quarter at constant currency, but also ex M&A. Underlying growth strengthened further into Q4 and after taking into account the scope impact of around 6.5 points, our constant currency growth reached 10.6%. I'm happy to confirm that the organic growth in Q4 was therefore around 4%. To this effect, there is an error on Slide 27 of the pack. Now reflecting on the acceleration since the beginning of the year, what gives us confidence is that this wasn't a single sector or single region spike. We saw broad-based improvement across all businesses, regions and sectors. Currency impact was negative at 370 bps, so that's minus 370 bps in Q4 and minus 170 bps for FY '25. Based on current rates, currency headwinds should continue into Q1 2026 at slightly over 4 points and then settle at minus 1 to minus 1.5 points for the full year 2026. In summary, while the demand environment has remained largely unchanged, our current momentum is clearly stronger than it was a year ago. Turning to bookings. This was EUR 24.4 billion for the year with a very solid EUR 7.2 billion in Q4. In constant currency, our bookings are up plus 3.9% for the year and plus 9.1% in Q4, which mirrors the improvement in revenue momentum we just discussed. The book-to-bill of 1.21 in the quarter and 1.08 for the year is strong by historical standards, and this reflects 2 things. We continue to win in clients, new strategic priorities, particularly data and AI, and we won a higher number of large deals, which brings some added visibility. As Aiman said earlier, our portfolio investments from cloud, data and AI to digital core modernization, Sovereignty and Intelligent Operations continues to show good conversion, which sets us up well for the future. From a sector perspective, the improvement extended into Q4 on a like-for-like basis. This is also visible in manufacturing, which was stable in Q4. This solid performance was complemented by the contribution of WNS and Cloud4C acquisitions, which was mostly visible in the services, financial services, energy and utilities and consumer goods and retail sectors. Turning now to the full year, again at constant currency. Financial services and TMT sectors were the most dynamic in 2025, growing plus 9.2% and plus 7.7%, respectively. With the exception of manufacturing, which remained slightly negative, all the other sectors posted low to mid-single-digit revenue growth in 2025. Geographically, Q4 showed a step-up in underlying trends in our largest regions. North America improved and rest of Europe returned to positive growth. Growth rate improved in France, although still negative in Q4. The scope impact from WNS and Cloud4C is most visible in North America, United Kingdom and Ireland and in Asia Pacific and Latin America. In Q4, this is lifting these regions' already solid growth rates to around 20% on a constant currency basis. For the full year at constant currency, revenues in North America increased by plus 7.3% year-on-year. This has been fueled by continued underlying acceleration throughout the year with strong performance of financial services and to a lesser extent, in the TMT and manufacturing sectors. United Kingdom and Ireland region grew plus 10.5%, primarily driven by robust underlying momentum, notably in the financial services, TMT and public sectors. France revenues decreased by minus 4.1% in a challenging environment as illustrated by the persistent weakness of the manufacturing sector and the contraction of the energy utilities and the consumer goods and retail sectors. In the Rest of Europe region, revenues declined by minus 0.7%. The good performance of the public sector and the growth in Energy & Utilities and the services sectors were offset by a weak manufacturing sector. Finally, revenues in the Asia Pacific and Latin America region grew plus 13.8%, driven by financial services as well as the solid traction in the consumer goods and retail and TMT sectors. On profitability, North America operating margin expanded 40 bps, so that's plus 40 bps to 16.9%, while U.K. and Ireland held a strong 18%, which is 170 bps below a record 2024, which remains a very healthy level. Operating margin in France stands at 10.9% compared to 10.2% last year. As commented in H1, this improvement has been driven by one-off items. Excluding these one-offs, there has been no improvement in the underlying margin. Asia Pacific and Latin America was 12.6% at plus 20 bps and the rest of Europe ended at 11.4% at minus 60 bps. Across our businesses, the Q4 sequential uplift was also visible. Growth rates improved across all business lines on a constant currency basis, but also ex M&A. Strategy and operations, which has no M&A impact, improved significantly. This came with some contrast across regions as we have seen during previous quarters. The other highlight is Operations and Engineering. Let me unpack this as both WNS and Cloud4C are reported here. Starting with digital BPS, this is clearly the fastest-growing business. We have double-digit growth on a like-for-like basis across both Capgemini and WNS. Cloud Services and Engineering are also now positive. Moving on to the full year at constant currency. Applications and Technology grew plus 4.6%. Operations and Engineering, plus 4.9% and Strategy and Transformation at plus 2.4%. In terms of head count evolution, head count closed at 423,400, up 24% year-on-year and 19% since end of September, primarily reflecting the WNS integration. WNS is also accretive to our offshore leverage. Offshore leverage moved from 60% in September to 66% at the year-end. This is up plus 8 points year-on-year. Attrition was slightly down to 14.9% on a last 12-month basis before we incorporate WNS data in 2026. Let's now look at the operating margin bridge. Gross margin was 27.1%, down 30 bps year-on-year. This primarily reflects a prolonged soft market in Continental Europe. In this context, I would like to point out that our gross margin has been significantly more resilient than in any other previous down cycle. Additionally, in the current demand environment, we have tightened our selling expenses by 20 bps and our G&A by 10 bps. The net result is operating margin stable at 13.3% within the range guided for the year. Moving on to financial results. With the interest expense of the new bonds and lower interest income on cash, we moved from a net interest income of EUR 13 million last year to a net expense of EUR 30 million this year. On income tax, the effective tax rate is down year-on-year to 24.6% at the back of some noncash positive one-offs, which I did mention in H1. Now looking from operating margins to the bottom line. As anticipated, other operating income and expenses are up year-on-year at EUR 784 million. The restructuring costs amounted to EUR 205 million, in line with our comments in July. And with the acquisition of WNS, our acquisition and integration costs are at EUR 97 million. This takes the operating profit to EUR 2,199 million, which is 9.8% of revenues, down from 10.7% last year, given those noncore items. After financial and tax effects previously discussed, group net profit stands at EUR 1,601 million, down 4.2%. Basic EPS is EUR 9.46, down minus 3.7%, while normalized EPS was EUR 12.95, up plus 5.8% year-on-year. On cash generation and capital allocation, we generated EUR 1,949 million of organic free cash flow, stable year-on-year and in line with our around EUR 1.9 billion target. This year, again, the conversion of our net profit to organic free cash flow is clearly above 1 at 1.2x. In terms of our capital allocation, in 2025, we deployed around EUR 4.9 billion, approximately EUR 3.8 billion on WNS and C4C, EUR 1.1 billion on shareholder returns, which was split between EUR 578 million of dividends and EUR 542 million of buybacks. The employee shareholder program led to a EUR 0.3 billion capital increase, leading to a net outflow of EUR 4.6 billion. On the balance sheet, we redeemed the EUR 0.8 billion bond in June and then successfully completed a EUR 4 billion bond issue in September. We closed the year at EUR 5.3 billion of net debt. And as anticipated, the net debt-to-EBITDA ratio stands at 1.66, and this compares to 0.7x a year ago. And as a reminder, this was 2.8x post the Altron acquisition. In 2026, as we integrate WNS, we expect limited M&A and will accelerate our buybacks, which is consistent with the EUR 2 billion share buyback program announced in July. On that note, Aiman, I hand back to you. Aiman Ezzat: Thank you, Nive. So before we move on to the Q&A, let me briefly acknowledge the current market volatility that reflects the perception and uncertainty of AI-related impacts. So what matters, however, is unchanged. Capgemini fundamentals are solid. Our strategic priorities are clear, and our teams remain fully focused on our clients' needs. Now listening to our large Global 2000 clients, their needs are rooted in who they are, complex organization that requires end-to-end transformation capabilities, global execution at scale, deep industry expertise, technology-agnostic integration and rigorous regulatory compliance governance. These structural needs do not disappear with AI, they become even more essential. And that makes Capgemini's role integral as organizations navigate the future. The adoption of AI and GenAI will drive sustained profitable growth for the group and value for all our stakeholders. In 2026, we'll affirm our critical role in making AI real for our clients. With that, let's open the Q&A and to allow a maximum number of people in the queue to ask questions, I kindly ask you to restrict yourself to one question and a single follow-up. Operator, could you please share the Q&A instructions. Operator: [Operator Instructions] And the first question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: Congratulations for the fourth quarter first. So two questions for me. As you can guess, given the increasing scope impact in the fourth quarter, it's a bit tough for us to reconcile the numbers. I know you will not share with us the organic performance by regions, but I was interested to see if you could provide a bit more insight of the underlying organic trends in the main regions between the third and fourth quarter. In other words, if you've seen further improvements in U.S. and U.K. or if the improvement mostly come from a better Europe? And then my follow-up is probably going to talk more during the CMD on that. But when you discuss with clients, their midterm ambition and their potential budget, I would say, 3, 4 years out, when they look at the additional business regarding AI versus the savings that you will bring to them, do you see them having in mind a reduction of their budget? Or what is their stance at the moment? Aiman Ezzat: Listen, underlying organic and -- Nive can add precision to that. I mean, for me, everything is trending in the positive direction. I mean, definitely in North America, we continue to see further acceleration, which really underlines the recovery. U.K., France has improved and rest of Europe has improved. So -- and on the organic number, just to remind you, Nive said that the organic number is around 4% in Q4 overall for the group. Nivedita Bhagat: And I think just to add, geographically, Q4 has showed a step-up in underlying trends across all our regions. So North America has improved. Yes, rest of Europe has returned to positive growth. And of course, we have seen some improvements as far as France is concerned as well. Aiman Ezzat: Okay. On your second question, I don't think clients are thinking this way about reduction, et cetera. Clients are looking at how critical it is for them to adopt AI and where it can have an impact, both from a strategic perspective and from this. They are not thinking about, okay, I'm going to save money, I'm going to reduce my spend, et cetera. They're looking about how can I get real value out of AI, and they're ready to put the money on the table to make it happen because they consider that as being critical to their future in terms of transformation. I don't think we have -- I have seen clients discussing in 3, 4 years down the line, when I do the -- will I reduce my IT cost or will I reduce my spend on AI, et cetera, anything like that. Laurent, I don't think we are there. I think clients are really around where is the value creation. This is moving fast, how I can adopt it, where can I deploy it? How do I get benefit out of it, whether it's savings, time to market, innovation, better customer relationship, et cetera. And this is really what focus is a lot more than predicting what they will do in 3 or 4 years. I mean you see the uncertainty that's creating in many industries, including in ours by AI and really people are dealing with that more than trying to plan, am I going to save money and reduce my IT budgets in 3 or 4 years. Operator: We will now take the next question. And the question comes from the line of Nicolas David from ODDO BHF. Nicolas David: Congrats from my side as well for this very strong end of the year. My first question is regarding the Q4 to Q1 trends you are describing. Could you help us understand if in Q4, you saw some kind of exceptional budget flush or elements which prompt you to expect an organic growth at the low to mid-range of your guidance you described for Q1, a bit below what you saw in Q4? Or is it just comps or a bit of caution? And second question is, when you discuss with clients and you are signing contracts about identification of workflows, could you help us understand if those projects are done and those identification projects are done inside the traditional cloud business software with tool provided by the software providers, the legacy software provider? Or are they designed using new entrants tools or tools that you are developing yourself around the historical application layers? Aiman Ezzat: Okay. Listen, on the Q4 to Q1, it's more, I think, the seasonality that basically that you see that's going to impact thing, okay? I mean we'll always build some caution in what we say around where we head, but we are quite confident around the growth that we see in front of us. I mean, no specific concern that we see in terms of the business going into Q1. On the project, I think it's all of the above. Because, as you know, everybody wants to put their AI agents, their AI models, drive the consumption towards them. So whether you talk about software vendors and the Agentic layer, you talk about the hyperscalers and you talk about all the new entrants like OpenAI, Anthropic, Mistral, et cetera. All of the above work, they're all winning some business. We work with all of them. And the question is what is the pertinent solution for the client based on what he needs and who, at the end of the day, based on the strategy, whether it's short term or medium term, based on who has been the most convincing to them in terms of what they are pitching, and this is really what the clients go. But in a number of cases, they're also experimenting. Many clients have not have a long-term strategy, deciding of saying this is what I will do, this is my line and I will not move from it. And I think -- if people evolve and bring the right solution that are really pertinent to the client, to the client industries and specific environment, that is what they will adopt. What we have the client is navigate through some of that and ensure that they actually get real value because this is not about what solution or what agency going to adopt is how to make it happen in your critical processes, how to ensure that they're enterprise scale, how to ensure that they are safe, how to ensure that you can trust, how to ensure that the human AI model works. That's really where the complexity lies. But at this stage, we don't see clients saying, I will go this way or this way. I think it's still pretty open. Nicolas David: All right. But based on what you see, you believe that incumbent software player can be relevant in this move. Aiman Ezzat: Yes. I mean, again, I heard a number of technology CEOs talk about it, including from the hyperscalers recently. I mean, the thing about the death of software, I think, is a bit premature. The question is, what value are you bringing? If you don't evolve, I mean, same thing in our industry. If you don't evolve, software vendors don't evolve, then they will have a lesser role to play in the future. But you have to evolve to be able to embrace and bring the value to clients. At the end of the day, what clients are looking is not should I buy a software, should I buy an [indiscernible], I want value delivered. Who can help me deliver tangible value. That's what they're looking for. And if you play in there, then you have a role to play. If you don't contribute to that, then you get commoditized and basically downplayed over time. Simple. Operator: Your next question today comes from the line of Sven Merkt from Barclays. Sven Merkt: Your guidance for 2026 is obviously very solid, but still below the exit rate of Q4 on an organic basis. Can you help us to square this? And was there anything exceptional in Q4? Or have you just baked in significant conservatism into the guide? I noticed you called out still a complex macro environment earlier. And then secondly, a lot of focus, obviously, on helping your clients adopting AI. But can you speak a bit more about your internal road map to adopt AI to drive efficiency and what financial impact that could have over the long term? Aiman Ezzat: Okay. So listen, the guidance, I mean, when you start the year, I mean, we still have an environment that's basically not the most stable environment. So yes, we're going to have some conservatism as we start the year, and we'll see how the year plays out. But when you see the geopolitics, discussion around tariffs and a number of hot points across the world, you're going to have to be cautious and not just replicate what we see in Q4 of saying this is how the year is going to look out. So we see a solid H1. We have good views on H2, but we know there's still fluctuations that can happen along the year. If I go to your -- to the folks, I think it's a very good question around how we're adopting AI. So first, there is 2 key areas. In addition, we talked a bit about what we're doing with clients, 2 key areas. One is our operations, second thing in our delivery. So in our delivery, we are pushing. And it was slow because some of it is linked to our client environment. We work mainly in our client environment. If they don't provide us the tool, et cetera, we cannot really take advantage of that. And then there is client conservatism about what we use, what impact it's going to have, is it safe, et cetera, before just going for the savings. We start to see some more accelerated benefits in some areas. I cannot -- so it's not across the board still, but we really start to see pockets where we're gaining maturity, clients are gaining maturity and where we see we can progress faster. I mean, typically, if you take our offering in Intelligent Operations, that's what we do. I mean we are basically telling the client, we take this over, we're going to do the Agentic transformation. And of course, by doing that, as you imagine, we go up the experience curve quite quickly because we are adopting internally in our delivery model, how to make that happen. And we have a number of success. I talked about a couple of examples, but there's a number of others. So we are going up that experience curve area by area, business by business to see how we can accelerate the adoption. And of course, we're pushing for a strong acceleration this year, okay? The second part is in our Operations. And here, we have developed and created an internal platform data. So what we push to our clients, we have done it. We have built all the LLM layers above that with one of the technology partners, one of the large technology partners. And we are now -- have started developing the different Agentic layers. HR agent, sales agent, finance agent, proposal agent. So we are deploying internally what we're preaching to our clients. I think we'll probably dive more in detail around the number of these elements at Capital Markets Day and talk about what the impact that we see in terms of the future as we both adopt and deploy more of the solution also at clients. Operator: Your next question today comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can just stay on the AI debate. So the bear case on the IT services industry, as you know, is around the negative impact from cutting efficiency, massive simplification in software deployment. Can you share with us what you think the market is missing and how CAP can maintain its relevance in that new ecosystem? And if I can get a follow-up around pricing. I mean, is there any specific area where you do see significant price pressure from more efficient delivery supported by GenAI? Aiman Ezzat: So listen, again, I recognize the market is looking for clear evidence that AI is already translating into tangible value, whether it's gross margin or both. And for me, shifting the perception is not about making promise, it's really about execution. And that's really what we're focusing on. We're focusing on execution around growth, around margin, on cash flow, also providing more and more visibility and understanding about the trajectory in terms of how AI is progressing. We are embedding AI across all our offerings. So we are redesigning our offering in a certain way. So it's by design, not telling people see how you can use AI to improve things. Basically, we are designing how AI should be used. And I think this is what really where everybody is going and where we're helping our clients to go. You have to redesign your processes, the way you work and everything around the impact of AI. But I can tell you really when I -- besides examples, when I really talk to clients, the level of adoption we're still at the beginning. And because the transformation is complex, this is not easy things to do. And our best response to some of the fears in the market today is on delivering value, delivering value, explaining where we are winning, explaining the partners with whom we're signing who basically talk with them around how we're delivering value and how we need them and some will come in the near future, additional ones. So it's really about proof points. I mean this is our best response is proving that this works, that we're able to create value across the value chain of what we're doing in Capgemini. On the pricing, I don't think there's any change. There's not a specific area of pricing pressure. The environment is competitive. And of course, as you demonstrate more value creation potential, you, of course, can be able to generate better margin in certain areas. And I think this is really what we are focusing on. Operator: And the next question comes from the line of Mo Moawalla from Goldman Sachs. Mohammed Moawalla: And it's encouraging to see the revenue inflection. On the revenue growth, first of all, I just wanted to sort of clarify how is the kind of discretionary spending environment? To what extent did you get a bit of sort of budget flush effect? And then looking forward, you talked about some encouraging pipeline on intelligent operations. Is that something that's sort of baked into the guidance in terms of -- or is that sort of going to be as part of the conservatism you talked about? And then secondly, while the kind of growth is inflecting, we are seeing this kind of erosion on the gross margin. Can you sort of just help us understand that dynamic going forward? And that should we sort of anticipate that continuous kind of erosion in gross margin as pricing environment remains tough and you're kind of having to see some deflationary effect from AI? And is that sort of then what can you do on the OpEx side to try to kind of manage that impact on the operating margin? Aiman Ezzat: So first on the revenue growth. No, I mean, I don't consider there was any budget flush coming into Q4. I think it's really real growth that we have driven and improving across the board, as we said, even manufacturing now is not a headwind anymore because even excluding M&A, manufacturing has become flattish. So it's all trending in the right direction. From Intelligent Ops, we will never bet to include in our forecast some very large deals. So in our guidance, we will never bet on large deals. The other thing, just remember so that we don't get -- we understand the full impact of that. Some of these deals, as we say, these are complex deals. I mean we're talking about clients ending up a chunk of their operation and trusting us to run them and to transform them. So this is not -- it takes time to be able to close some of these deals. And the second thing, it takes time to transition. So the revenue doesn't come immediately. So a deal that we have today in the pipeline will have minimal impact in 2026, will have full impact in 2027, okay, just so that to you have a back of the envelope idea on that. Nive, on the gross margin. Nivedita Bhagat: Yes. On the gross margin, clearly, of course, this primarily reflects a fairly tough -- prolonged tough market that, of course, we've had in Continental Europe. And I think that's really one of the reasons why the gross margin is where it is. Now having said that, I think the gross margin has been far more resilient in this down cycle than any previous down cycle. And I think if I go back into the past, if I looked at the period of the financial crisis, I think we were down about 180 bps. If I look at COVID, we were down about 120 bps, whereas this time it's 30 bps. So not to sound defensive, but to say, I think we've been pretty resilient through this period of time despite, of course, 7 quarters of negative constant currency growth, just as a reminder. Now coming back, though, to the margin levers, I think, I've always said that the mix and portfolio mix is our biggest area of focus when it comes to that improvement. So that's an area of focus that will continue to happen. And all these investments we've made through our acquisitions, through the portfolio to what we see is going to help with that growth going forward. But additionally, yes, our Fit for Growth initiatives that Aiman just talked about will address some of that and will address some of the margin accretion from that perspective. And we will also, of course, continue to look at everything in terms of our operational parameters. So whether it's SG&A and looking at onshore/offshore, looking at what we do with our pyramid, et cetera, all of those aspects, we will continue to look at very strongly. So the focus is very much an improvement to gross margin as we go ahead, Mo. Operator: Your next question today comes from the line of Michael Briest from UBS. Michael Briest: Can you talk a little bit more about the Fit for Growth program? What your ambition is with the EUR 700 million restructuring envelope? And then thinking about head count more broadly, Obviously, you're using AI internally. WNS, there's an opportunity there around automation. Can you talk about how you expect head count to develop through the course of the year? And then just on the follow-up would be that EUR 600 million deal that you announced, Aiman, congratulations. How does that sort of fit into the GBP 100 million to GBP 140 million revenue synergies? It seems early to have won something so soon after the deal closed. But you mentioned the full pipeline. Can you give some more context on that and how quickly you can get to that GBP 100 million plus synergies? Aiman Ezzat: Okay. For the Fit for Growth program, I mean, listen, recognition that, first, I mean, you have seen that over the last few quarters, we get some -- we had some challenging environments in Europe, okay, across a number of countries. Some of them are linked to sectors. But also, we are anticipating some evolution from the technology and notably from AI in terms of evolution around some capabilities. So I think -- and we have to do quite a bit of reskilling also in some areas to be able to prepare our workforce for the future. So this is really what this Fit for Growth program is about. This is about basically realigning some capabilities with where we see now the opportunities coming up, whether they're Intelligent Operations, AI, Sovereignty or some other pockets which are emerging where we need to invest. So what we did is basically said we have to move fast. The market is moving fast, and this is about basically doing fast, something that we could do over several years is that we don't have time to waste. We really have to act fast, and we took the decision to be able to accelerate what we do traditionally over time to do it at a much faster pace. So that's for the Fit for Growth program. On the head count, you're always going to have both aspects. Growth drives head count. And at the same time, we're pushing very hard on AI and automation. Doing large Intelligent Operations deal adds us head counts. On the other side, we also drive a lot of productivity in some of the existing contracts. So the 2 will change. So think in the specific year, how the account is going to evolve will depend very much on the mix of business that we're going to win, how much is onshore, how much is offshore, et cetera. I think what -- the way I would look at it is I definitely expect that over the midterm, what we will see is an increase of revenue per head count. Right now, basically by embarking a large BPO business from WNS, we reduce effectively that because the revenue per head in this type of business is lower. But over time, I definitely expect a trend where with the leverage of Agentic AI, et cetera, we will be driving the revenue per head up. And on Intelligent Operations, we always said, I remember, since you have been following us for a long time, we did all the accretion in terms of revenue, the synergy of revenue on the IGATE deal on one deal, on one client. And here, basically, yes, we are. We're going to be able to do probably on some of the couple of large deals, a large part of the revenue accretion. It's going to take time for some of this to be able to ramp up. And just in addition to some of these large deals, also don't neglect the cross-selling opportunities. I mentioned 100 cross-selling opportunities. When you see the size of both businesses on our side, on their side, 100 cross-selling opportunities is a lot of deals. Some of them are small, but some of them are pretty large. I think I answered your three questions. So we'll be taking one final question as we're coming almost up to the hour. Operator: Your final question comes from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations, Aiman and Nive, on a strong close to 2025, also on winning the mega deal. If I can start with Intelligent Operations, first question there, could you share at this stage, how is the maturity of pipeline of similar mega deals looking at this moment? And also what your thought is about the sustainability of the double-digit growth you're seeing in Intelligent Operations? And if I may also ask a second question on evolution of AI tools and plug-ins. I do appreciate enterprises are still in early stage of adoption and the readiness is probably at nascent stage as well. So are you seeing or expecting the scope of productivity gains possible increasing and broadening the context not limited to, but for example, comment from Palantir around achieving complex for migration in as little as couple of weeks. How you would expect analyst community to reconcile with that? Aiman Ezzat: So first, I mean, listen, the pipeline, as you know, when you get to large deals, I mean, the closing time is always somewhat difficult to be able to estimate because they can go on for months and months and months before we're able to get to that. But the pipeline is good. We have some very large deals, but we also have some deals which are multi-steps. There's a client with whom we signed the first step around 2 or 3 functions at the end of last year. And now we are basically looking at scope expansion already this year, probably in the first half and maybe another one again later in the year. So they don't all come as one single deal. Sometimes they come as multiple steps in terms of closing some of these deals. But we have good confidence about ability to sustain double-digit growth when we see the pipeline and the deals that we have. I've good confidence for the near future to sustain the double-digit growth around all that business. On the AI tools and productivity gains, the productivity is coming bit by bit. Whenever I talk to clients, everybody has some nice cases when I ask them at scale. I think there have been interviews with CIOs of large banks recently. When you say what they say, we're still at the beginning because the reality is that besides generating code on an LLM and really trying to integrate that into an enterprise that's very complex with legacy systems, siloed data and all the like, it's a lot more complex. So it takes more time. And yes, there is a gap between CEO's expectation, I can tell you and what his team is able to deliver today. So everybody is trying to accelerate, but there is challenges. On things like Palantir, I think, again, people end up with the headline and they don't dig in detail, okay? And whenever we see something else, we take it seriously. We take it seriously about what is happening, are we missing something, et cetera. And we dig in detail, and we really understand what it is. I think you need to get some people maybe in your organization or other to really dig in detail about what it is. It is -- yes, there is advancement in certain areas. When you look really into the detail of what it is and to what it applies, it's not going to make your SAP migration in 2 weeks, okay? So don't stay on the headline, dig a little bit more in detail. As I say, we take things seriously. We did it. And we understand what exactly what is behind. There is advancements in some areas, but it's not stratospheric in terms of suddenly you can do SAP migration in 2 weeks, okay? That's the headline that people took and that headline is significantly wrong. And some of what they do, really the way it shows applies more to an environment of SMB data than it applies to large corporations, okay? I love to go into the detail around that, but I assure you, we are not concerned after digging. Thank you very much. I appreciate, of course, the exchange and all the questions and looking forward to interact with you over the coming days and weeks. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Kati Kaksone: Good morning, everybody, and welcome to Terveystalo's Q4 and Full Year 2025 Results Call and Webcast. As usual, we'll go through the results with our CEO, Ville Iho; and our CFO, Juuso Pajunen, and we'll follow that with a Q&A. My name is Kati Kaksonen, I'm responsible for Investor Relations and Sustainability here at Terveystalo. We'll take the questions via the phone lines first and then follow with questions via the webcast at the end of the presentation. Without further ado, over to you, Ville. Ville Iho: Thanks, Kati, and good morning from cold and beautiful Helsinki. Let's dive into Terveystalo results 2025. It's again time to take a couple of steps back and look at how we performed last year. Sort of the big headline here is profitability and efficiency. If one looks at our performance, financial performance, we are delivering all-time high profitability. And as you can see later, across all of the segments, they are improving. If one looks at profitability, things are great. If one looks at quality of our services, things are great. On the other hand, of course, you can see that we are living in a market, which is not favorable. But that only underlines the efficiency of our operational and financial engine. We are able to produce robust results even during headwinds. Healthcare Services is post-cyclical industry. And now we can see in our services -- frequency of use of services, we can see a decline even though number of customers served during the year was the same as during 2024. But strong financials, declining revenue due to macro and post-cyclical nature of our business, very strong improving quality. Double-clicking into the performance of our 3 different P&Ls. Healthcare Services improving with a declining revenue, Portfolio Businesses improving with declining revenue and Sweden improving with declining revenue. All of these signaling the same story. Market is difficult, but we have been able, through our actions, to improve operating leverage, efficiency, improve our engines. And as you can see from a longer trend, clearly, the best results ever produced by Terveystalo, thanks to dedicated, focused work in our operations. Given the circumstances, the focus of our actions are, of course, tilt more and more towards customer and growth. In headlines, the agenda is intact, and we concentrate in Healthcare Services, of course, still in digital transformation, getting even more efficiency, productivity into our processes. But as I said, even more focus in customer value, generating growth through all of the segments, consumers, Kela 65 and insurance customers are focus areas where we are gaining ground. Occupational health care, we are investing heavily in renewing our products and services. We have 2-year program started last year, and we will invest EUR 20 million in products and services and renew those. And once the market turns, of course, we are stronger than ever. In Portfolio Businesses, we have said that we will fix the profitability and then we step into the growth. And from the results, you can see that we have delivered the profitability turnaround. And as you saw from our actions before year-end, we signed the deal on acquisition of Hohde in dental services. So we are really delivering on growth as well going forward. We are investing into that one. Sweden, similar kind of story. We have -- through our program, we have fixed the profitability. We are pleased with the results. Against very difficult market, we have improved the profitability. And now we are ready to invest and grow that part of the business as well. Hohde deal is a major milestone for Portfolio Businesses and specifically to dental. In our earlier CMD, we said that dental is part of our core offering. We will invest into that one. We will grow that one. We will double the business with -- while doubling the profitability. And this is a major milestone in that journey, not surprising, but a very logical one. The joint combination of Terveystalo Dental and Hohde will be a really, really strong and high-quality player, generating ever more value for our customers, for our corporate customers and consumer customers alike. And we are, of course, very excited and proud of this step. We have been leading digital transformation in outpatient care for quite some time, and we continue on that journey. If one looks at this transformation in a little bit more structured way, we can distinguish 3 different modalities that we continue investing in. So we have a more traditional hybrid integrated care continuum, which is still going to be physician-led. And there, we invest in better integration, higher efficiency, better toolkit for professional and better customer experience and patient experience for our customer. There, we have just launched a major new platform for professionals called Ella. So that's our professional interface whereby they are able to process appointments and care continuums in higher quality, higher efficiency manner. The info and data is more structured and steps logical and transparent, when a patient is moving from one step to another in care continuum. This will be further enhanced this Ella platform and scale during this year. But we can already see tangible results in -- after the launch. In the middle part, we are talking about algorithm-led digital health retail modality. And there, really the automation and no touch, very low click type of operation is the key. So when you enter into our services, you come from web app, then you are engaging with automated AI-assisted care and patient steering engine, then you are steered either to a traditional modality or to digital appointments either to more traditional chat type of service, which we will make more and more efficient or just recently launched semi-automated AI-assisted appointment modality where actually the target is that the whole appointment chain can be processed by a professional at the end of the development by single click. And this is really fast, really available service area, which we will further invest into. We have fast development pace in the area and investments yield results. Final domain in the transformation is insight-centric proactive care, where best example in our implementations now is MedHelp platform, which we will introduce during Q1 for occupational health customers, clever insights, clever use of data, activation of patients and customers in right time and situations and getting -- making a major step from reactive traditional health care modality into proactive insight-driven. The semi-automated appointment is exciting stuff. As I said, we just launched a couple of weeks back, this new chain of appointment activity from patient point of view. As I said, you enter into the services through -- typically through a app. Then you are engaging with the AI-assisted care steering engine, then that's directing you into -- if the diagnosis scenario is relevant, it will guide you into AI-assisted appointment cycle, where actually at the end of the development, when we are developing this one during this year further, professional is able to approve the diagnosis only by single click. And then you get your diagnosis, you get your guidance to whatever is the right action to do at the end of the cycle. Really exciting, complementing our already really efficient digital platform and providing us a direction to the future and further potential for better customer value, higher availability of services and at the same time, higher efficiency and profitability. With that one, over to Juuso. Juuso Pajunen: Thank you, Ville. So let's talk about our financial performance. Obviously, it's already 100 minutes old report, so you know the numbers by heart. So let's start actually from the journey. Three years ago, I was standing here first time on telling quarterly results of '24 -- '22. And at that point of time, we had annual EBITA percentage of 8.4% and we thought that we are brave when we say that by '25, we will reach 12% EBITA. Actually, we reached that one already 1 year ahead of time, delivering 12.8% in '24. And this year, '25, we are delivering 14%. And now everything you see in these numbers, what comes to efficiency signal and proves that point that we have made a sustainable strong change in our operating model, and we are as efficient as one can be. And with Ville's description on the customer journey, one-click customer journey, we can still improve our efficiency. So where we are today is that in quarter 4, we are in all efficiency metrics strong. We have improved our EBIT. We have improved our margins. We have improved our EPS. We have not done that at the cost of our client satisfaction. Our appointment NPS is 87.6, which is extremely strong. Our medical quality indicator [ PEI ] is at all-time highs also. So we are efficient, we are impactful, and we are delivering financials. But at the same time, it is fair to say that we have revenue headwinds. Let's go through those ones a bit more in detail when we go on to the segment level. But all in all, quarter 4 highlights, we are strong, we are efficient, but we have market headwinds, and we will address those ones. If we then look on the whole group, we have positive margin development. So like I explained, we have the strength especially in our efficiency metrics. The revenue was under pressure in all segments, and we'll go then through on the segment levels. What we have in the megatrends is basic or in our trends. We have the outsourcing portfolio. We have the occupational health visits and the connected customers. So all of that one is actually a continuation already from Q3. Then when we are looking at the adjustment items, we had EUR 12.7 million. It is good to understand that majority of these ones are related on our efficiency actions, on our ongoing projects where we have taken an extra push in Q4. And a material part of those ones are consulting fees that are based on success. So they wouldn't be here unless we have been successful. And thus, of course, when the consulting assignments have now, especially in Sweden and material parts ended, we are in a positive place on that one. Then on top of that one, we had a write-off related to divestment of child welfare services. That one has actually now closed in 1st of February. So it will be totally out from our numbers starting 1st of February '26 onwards. That is a noncash related impairment. And then on top of that one, we had a tax dispute that contributed to these ones. So one-offs pushing our reported EBIT lower, but still also that metric is in a strong place. If we then go deeper and we start looking at Healthcare Services. So here, margin improvement, clear. Annual margin improvement, also strong, but we have the headwinds in the revenues. Visits are 7.6% down when adjusted for the 1 working day more in the calendar. And then we have other impacts slightly positive. But all in all, the revenue is 5% down. We will go a bit deeper into the visits and the volume growth in the following slide. But all in all, we have a strong plan, but we are also a post-cyclical company and post-cyclical by the industry logic. So we are just now under pressure, but with the efficiency that we have in our platform, we will turn this one around and with all of the actions we have in place. And the underlying megatrends have not gone anywhere. So this is by nature, seasonal and macro-driven. So as a post-cyclical company, the trends are continuing. We can split it now into different buckets. We have the seasonality. This is roughly 70,000 fewer upper respiratory infections during the quarter, and that has now continued in January and in February. So the current flu season is weaker than in ages. That one contributes a certain amount. We can't impact that one. It comes and it goes. Then we have the macro level item, which basically means that as a post-cyclical company, the macro catches us later. So companies -- when you have a continued sluggish macroeconomic environment, companies tend to invest less in their people, but they started -- that's the final place where you want to cut on your investments. That's why it hits us a bit later than in some other industries. And that one we can work on. We can concentrate on client value, we can concentrate on delivering highest possible impact with an efficient motor, but we can't hide away the fact that when companies start reducing their investments at one point of time, it also impacts us. But we have a clear action plan, both on how we capture back the growth irrespective of the macroeconomic environment and then how we utilize our efficient motor when we capture that growth. So we are in a positive place in that one from a plan perspective, and we are confident that we deliver on that one. The public sector has been now remembering that we talk about the Healthcare Services, where the capacity sales is a minor part of the total offering. It has been in a weak position for a long time because of the wellbeing counties, first setting them up, then chasing costs. But now the environment starts to stabilize little by little, and we have seen some positive signals. But at the same time, it is still fairly unpredictable market on which I come later on the coming slides. And then we have the positive momentum from the consumer. We have both the insurance market, where the number of insured continues to grow slightly, but also we have a strong market share and really appreciate offering for the insurance companies. And then the Kela 65 has produced positive volume growth and continues to deliver positive volume growth for '26. So all in all, we know what is happening. We have our action plan, and we will deliver according to that action plan. Then if we look Portfolio Businesses, we have a clear profitability improvement that has continued. We also -- it's good to acknowledge that previous year Q4 was a difficult one. And now we are obviously clearly improving on that one. The revenue was contracting because of the outsourcing contracts according to plan. It's also good to note that we have been very solid in steering those contracts and running those contracts, and they have now started to deliver also profits, which have been contributing Q4 results. Staffing, this trend is still partly of our own selections earlier, but at the same time, the market continues to do difficult. We have seen some positives in the total market environment, and we have been gaining market, but wellbeing counties are still in the cycle, where they are evaluating how they operate in the future. Dental and the private continues to be the positive part of this story. We have been able to grow the top line, grow the bottom line, and we are trending the right direction. And then you have seen our investment in Hohde. If we then look on Sweden, the market continues -- continue to be difficult. It's good to note that the operational efficiency is improving. We are ramping up on the EBITA percentages. We have on the EBIT percentages slightly declined on a noncash related impairment item, actually positive impairment from previous year Q4. So all in all, we are in plan. We are delivering. We are bringing the efficiency up, which we have done. And now we are in a place where we can start to utilize also this platform in an efficient manner and start ramping up the revenues. And the pipeline there is strong for the future. So we are confident on Sweden. But obviously, then the market conditions and the employment levels continue to be challenged also in the Swedish market. If we then talk about investments, I think that in here, what is happening is exactly what we have told. We have said that we are ramping up our investments in digital, and we are also doing physical investments. On the digital part, Ville explained about Ella, about the one-click journey. Those are a couple of the highlights. We have the MedHelp cooperation that we launched last year in the second half is now starting to deliver actual output during Q1 in '26. So what is important to note that when we do an investment, the investment cycle is fairly short from start of the investment to actual use of the digital asset is happening. Ella, it is the UI for the professionals. It's already in use by hundreds of doctors and the next phase rollouts are now happening actually as we speak. MedHelp, we have now -- we are now in a status where we have started to introduce it to our clients, and we are in the first rollout in Q1. So also this one is progressing. It is not a promise in the future. It is an action today. And that one, we will continue. We will continue in investing both organic and inorganic growth also in the future. And now with the M&A agenda, we have the Hohde transaction, a couple of smaller bolt-ons and so on. And then on the focus part, we divested the child welfare. That leads to cash flow. I have nothing new to say on this topic, but would have not been repeated for the past 12 quarters or whatever. We continue to deliver cash. Whatever we do in the bottom line, we do in the bank accounts also. EUR 207 million cash flow, slightly soft. There's a timing component on the accounts payables. Last day of the year was now a banking day, and we are responsible towards our vendors who are -- most of them are small and we pay on due dates. Pushing one day forward, those payments would have made actually a visible number change on this number, but that's not how we operate. Leverage 2.1 continues to be all-time low. When we want to invest, we can invest. We have the powder in our leverage ratios. And once again, referring back to Hohde that one is under the competition authority approval, so not yet visible in the leverage ratio until we gain approval and then we both get the business on to our end and hand over the money to sellers. Looking back on our financial targets. We have 3 targets. EPS growth, 10% per year. We also told that '25 will be clearly better than that 10%. We are now at 0.73, 29% up. Net debt to EBITDA being below 2.5, but can trail above it when an M&A occurs, we are 2.1. And then the leverage dividend -- attractive dividends, at least 80% of the net result, EUR 0.64 proposed by the Board of Directors, meaning 88% of the net profits as a total and 33% handsome growth on the dividend for year, assuming, of course, that AGM approves it. And so we do what we promised to do. We have delivered on each of these metrics once again. Then before going into the guidance, it is good to have a few words on the demand environment. When we talk about this picture, what we are saying is that the demand environment is anticipated to improve gradually by the end of '26. So the '25 arrows describe where we are starting the journey this year and '26 is like a balance sheet item. The arrows are describing where we expect to land at the end of this year. So what is happening now is that if we look public sector, it is yellow, and at the same time, we have continuous modest positives. We have some big ones. We do know that there's some big ones in the tender pipeline. There was one that we [indiscernible] won in Q4 last year. But at the same time, the predictability is fairly low. wellbeing counties are now polarizing and how they start to behave is always -- has been always difficult to predict. And for that reason, we are in the yellow part on that one. But still, I need to highlight that there are lots of positive big signals around there that could merit further positives in the future. Consumer market, we have a positive situation, maybe a bit more in dental. And in the total consumer market for '26, we are still positive. This is mainly contributing the Kela 65 and related. In insurance, it is a market where insurance penetration slightly grows still. At the same time, insurance companies are getting better and better on steering their customers and impacting the market. So it is a positive market. But at the same time, last time, the dynamics was the dark green arrow upwards. So we think that, that momentum is not as strong as it was earlier. When it comes to occupational health, we have a strong plan. We had a difficult '25. We are addressing all of our issues. We are confident that we are getting into growth. But now the market will remain challenged during '26 in total. And Sweden, we are seeing that the improvement for '26 is in the pipeline. So with this type of market dynamics, we come to our guidance. Our guidance for '26 is EUR 135 million to EUR 165 million of adjusted EBIT, '25 EUR 156 million. So basically, we are guiding a corridor, where we have room to improve, but also based on the market conditions, we can be weaker than this year. The estimates are basically built on a gradually improving market environment or demand environment. We already know as a fact that first half upper respiratory diseases will be clearly below previous year. You have seen how it behaved in Q4. You can go to see our open data sources to see how January, February up to week 7 have been behaving or up to week 6 at the moment, have been behaving. So we know as a fact that it will be a difficult flu season for the first half of the year. And then we are expecting for the second half normalization. So with all of that one, it means that our first half will be below '25 due to the market environment, due to the upper respiratory diseases. But when we go forward, then we are seeing gradually improving markets. Portfolio Businesses will continue to reduce by some EUR 20 million on the revenues on an annual basis. And then finally, our guidance is not including material acquisitions. That includes Hohde transaction also. We do not know when it closes, and it's not included in these numbers. So with all of this one, I think we are going for a, in absolute terms, solid '26. But of course, in relative terms, there are also scenarios where we can be weaker than in '25. With these ones, let's invite Kati back on to the stage and let's start the Q&A. Kati Kaksone: Thanks, Juuso. I think that we are now ready for questions. Do we have any questions from the phone lines? Operator: [Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have a couple of questions. We'll be taking this one by one. Firstly, starting from the outlook for this year. First question would be that why do you expect first half to be down from last year in terms of profits? I guess market conditions were pretty difficult already in the second half last year, but we didn't see profitability falling below the comparable period. So why is first half more challenging than second half last year? Juuso Pajunen: Well, if I start and Ville can complement. So if we look at the current status, we do know that the upper respiratory diseases are clearly below Q1 '25, which was clearly above average. So at the moment, that one is already a material visible and known headwind. Then the second component is that if we look our connected employees and the behavior of the employers, the connected employees continue to be some 4% down compared to Q1 '25, and that one contributes to difficulties in H1. And then the current macroeconomic environment, at least for January has not materially improved from the Q4 last year. So the employers are still clearly in the cost saving mode. So with all of these ones and against a very strong first half in '25, this is our expectation that in EBIT perspective, we will be below previous year. Ville Iho: And then -- yes. The only thing I would add is sort of summing up all of the dynamics in the market. What we see today is frequency of use of the services is down basically in all of the segments. So that is the main contributor. It's cyclical and then it's sort of upper respiratory morbidity type of impact. And it will, of course, turn around, but what we see today in the market is negative, especially against Q1 last year. Sami Sarkamies: Okay. And my second question regarding outlook would be, can you elaborate on the key uncertainties because we are looking at a pretty wide guidance range for this year? Juuso Pajunen: Yes. So basically, when we look the guidance and its parameters, the one component is kind of gradually improving demand environment. So the different type of variables in there is that what is the -- in the economic outlook, what will be the status of Finland and obviously, to a certain degree, Sweden's economy, how the employment behaves and how that one impacts on the employers' behavior. So that is one component. Then the consumer purchase power is the second component, which is relevant for us in our private out-of-pocket segments. So these ones put different type of scenarios in the table. In the positive momentum, as you know, we are efficient 20% EBITDA company. We can leverage the positive momentum in a very strong manner, but also if the current trend and the sluggish environment continues, it catches also us. So this is the clear external component. Then the second one is the seasonality related to upper respiratory diseases. That one, obviously, nobody knows how next August starts and how that one behaves in real life. So only way to predict is assuming regression to mean. Ville Iho: Yes. Maybe still to add, if one looks at us being a little bit negative on Q4, if one flips that one around, once the revenue and frequency of use of services come back, as Juuso said, operating leverage and efficiency is on such a high level that, of course, then it will really yield. But as sort of a very simple answer, it is the demand and specifically frequency of use of services, which is the -- it's not unknown, but that will then dictate on which end of the spectrum we will end in our guidance. Sami Sarkamies: So the lower end of the guidance range that would assume basically no recovery in Finnish macro, consumers not consuming and then, let's say, weak flu season during the second half of this year? Juuso Pajunen: Yes, that's a fair interpretation. Sami Sarkamies: Then you mentioned that you're still having 4% lower connected employees. I think that was also the case 6 months ago. So there's been no progress on that front. Can you elaborate on why you haven't been able to improve your market position even though that has probably been one of the key targets? Ville Iho: Well, if I start, I would say that the -- first of all, as I said, there's a 2-year program whereby we are investing EUR 20 million into our products and services, and we are making good progress in that program. One needs to understand the dynamics, how companies are making decisions and how long those processes are. So even though the operations, our commercial actions and our products have partly been upgraded, partly been already renewed, it takes some time until we can see that one in, first of all, connected employees use of services and profitability in that segment. But I'm really pleased in how [ Laura ] and our new team is now taking the challenge and pushing us forward. We have tangible things that we have already been able to deliver to our customers and with good response. During Q1, we'll have sort of best in the industry platform delivered to our customers in occupational health care. We have been able to -- a little bit history, last year was difficult from many angles. We had billing issues, et cetera, et cetera. We have been able to rectify those. And with all of these sort of soft points, we are or will be very soon clearly the market leader. And over time, the demand will be there. Sami Sarkamies: Okay. Then I wanted to touch on the one-off costs you had in Q4, EUR 30 million. I think you were not supposed to have this anymore after sort of the Alpha program. I understood that these are mostly related to Sweden, which doesn't generate any results at the moment. So can you elaborate on what kind of return on investment we will see this year if you have paid about EUR 10 million as sort of consulting success fees related to Sweden? Juuso Pajunen: No, let's first kind of correct. Sweden is by far not EUR 10 million on that one. You will see actually the final page of the report, you see also the adjustment items per segment. We have EUR 3.5 million in Sweden for Q4 and EUR 5.6 million on the full '25. So that is just to be clear that Q4 numbers, we have a component in Sweden. We took an extra push that included roughly 40 employees. In the admin part, we have digitalized, centralized and taken a huge leap in the admin part in Sweden, and that has yielded both a success fee component and a restructuring component. That was above our expectation, but that one will also basically improve our competitive advantage or competitiveness in the market and make us very, very efficient on that one. So I think that is a money well spent when we show that we can make money in Sweden. Then for Sweden to reach its full potential, it will require also positive development in the top line that for the full potential is definitely needed. Then if we look on the other adjustment items, we have an impairment related to divestment of child welfare roughly EUR 4 million. And then we had a tax dispute that is in the ballpark of EUR 2 million. And that is visible above EBITA because it has been seen as a cost -- operating cost on our profitability. So with all of those ones, Sweden program has ended. We have a minor program ongoing in the portfolios. And then we have the program Ville has in -- stating continuous 2-year program in occupational health competitiveness. That one is the occupational health program we have been talking about in Q3 and/or actually maybe already after Q2 release. And that one will continue. That is the only kind of worth mentioning program when we are going to '26 and '27. Sami Sarkamies: My final question would be on the dividend proposal. You're raising the payout ratio from 84% to 88%, even though we may be looking at a down year when it comes to earnings. What is the logic here? Because you're also doing M&A. So why you're sort of upping the payout ratio? Juuso Pajunen: Well, if we look now the numbers, so basically, first of all, we are confident for '26, we are confident for our future. We have a balance sheet that is clearly below our leverage target, even if you assume that would have happened already on 1st of January this year. So first of all, we have a capability to do so. We have one of our financial targets as an attractive dividend to our owners. It doesn't limit our growth opportunities. And at the same time, now if you look the child welfare, it is accounting-wise negative, but cash flow-wise, positive. And if you just kind of calculate from there, I think 88% is totally merited. Ville Iho: Yes, maybe just to complement, it's very much, as Juuso said, down to confidence. So now we are talking about headwinds in the market. One needs to remember that the underlying megatrends in our business, combined with the efficiency that we have been able to build into the machine over time will generate improving profits. And this is 1 year in a chain of years with positive outlook. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: I have a few questions left. I have to continue on Sami's question about the outlook for 2026. So of course, we have been discussing about your operational improvement throughout 2025 and your Q4 EBITA and EBIT grew quite significantly year-over-year. So then if we think about '26 and your comments about improving market towards the end of the year, so is the missing piece here pricing? Or -- because, of course, you have been talking about defending or gaining volumes in 2026 and that being maybe the most important focus area. Juuso Pajunen: So maybe if I start, the current market environment is not such that pricing or hefty price increases would be a topic in our toolbox. So that -- the competitive environment is such that pricing will be clearly in a different place compared to '23, '24 where we had also kind of high inflation or post high inflation environment. So that you could, in your narrative argue that, that is some kind of a missing piece in the total. Then what comes to the Q4 year-on-year improvement, it's good to note that in Q4 previous year, we had the onetime bonuses that we paid to all employees. We had the collateral labor agreement component also coming to all employees. So our Q4 '24 was not in a way as weak as it looked like from outset. So if we take an operational performance, we had a strong performance in Q4 '25, but you shouldn't take just kind of a comparison Q4 '24 to Q4 '25 without taking that mental adjustment, then you see that we didn't take any more that significant leap as the numbers indicate. Kati Kaksone: And maybe just to add on that. So the volume remains to be the key component. So in the first half, we're not going to be seeing improving numbers in the volumes because of the reasons that we already discussed. So the -- increasing the connected employees within the occupational health care will take some time. That will not be visible in the first Q1, especially. And then we have the other volume drivers at the moment going against us. But we do expect those trends, especially the connected employees to gradually then increase towards the end of the year. So that's the operating leverage driver there. Anssi Raussi: Those are good clarifications. Maybe I continue on diagnostics, which volumes declined. I think it was almost 12% in Q4, which is clearly more than the number of physical appointments. So of course, you mentioned your customers being in savings mode maybe right now, but is this only due to occupational health care customers downgrading their service packages? Or was there also something else relating to your own operations? Ville Iho: Yes. That's part of the answer, which you mentioned. Then looking at just sort of diagnosis mix when we are lacking a certain part of our upper respiratory diagnosis, and then, for example, MRI scans are less. So there are sort of clear logical explanations looking at sort of a core mix of the service needs that impact the volumes in diagnostics. Juuso Pajunen: I didn't fully capture your number logic. So just a reminder that we were basically workday adjusted 7.6% down. And even if you take that workdays in there, it was 1.6 positive. So we are, give or take, 6% down while the revenues are 5% down. So actually, we have a positive pricing/mix component in Healthcare Services. Then if we look the total group revenues and you compare that one to the visits, then you are kind of combining 2 different topics that are not fully in sync. In total -- in the total group numbers, we have the reduction in staffing, which is not visit related and the reduction in outsourcing business, which is not visit related. And then we have the reduction in Sweden where we don't record the visits either. So you need to be a bit careful when you are taking those bridges. Anssi Raussi: Okay. Yes, I was just looking at this number of diagnostics in Q4 year-over-year now. I think -- Juuso Pajunen: Yes. Anssi Raussi: -- but yes, that's clear. And maybe final question and a simple one on your guidance as you guide EBIT. So could you give us an assumption how depreciation and especially amortization will develop in '26 compared to '25? Juuso Pajunen: Well, basically, if we look on the amortization, obviously, we don't guide those numbers. If I hint you on the mathematics, you can go to balance sheet. You have seen that we have increased our investments, especially in digital items. Those ones will gradually hit the amortization in the income statement in the coming years. So you can fairly easily take the notes and you can see there the increases, decreases and you can from there deduct. But obviously, increased investment base will mean at one point of time, increased amortization. Anssi Raussi: Yes, try to see some Excel then. Juuso Pajunen: Yes, let's take it offline. I can show you some Excel skills. Operator: [Operator Instructions] The next question comes from Joni Sandvall from Nordea. Joni Sandvall: A couple of questions left for me. Maybe a question on the EUR 20 million investment that you are taking to address the changing needs of customers. So how much OpEx base is going to increase because of these actions in '26 and '27? Juuso Pajunen: So basically, let's put that one that the EUR 20 million is a collection of investments already made and investments coming. It includes, for example, the MedHelp investment that you see directly from our balance sheet also and then it is a further pipeline that we are doing. So I think that the proper view is once again to take on our tangibles, take the balance sheet, see the increases in there. And in our depreciation and amortization description, I think we say that the amortizations are 3- to 5-year period depending on the asset we are generating. So then you can from there evaluate the OpEx impact coming into the future or the amortization impact coming there in the future. And then if we take a look on the total OpEx, obviously, these investments would be investments unless they improved our revenue or reduced our cost base. And all of these ones are positive investments as such. Of course, then the quality improvement is an important factor and so on. But in the end, the idea of investment is to contribute in our profitability in the future. Joni Sandvall: Yes. Then the second question on the Hohde acquisition. How confident you are actually of the approval of this from the market authority, given it consolidates the market quite a lot. Ville Iho: Of course, we -- it's not in our hands, but maybe we can say that we made a very, very thorough analysis on the competitive landscape and what type of overlaps we have based on different experts and sources. And we are very confident in our plan. But then again, not in our hands, it's authority who makes the call. Juuso Pajunen: Yes, I think that Ville explain it through. Then of course, if you want to make your own assessment, it's fairly easy to look at the market dynamics, you see that we will -- even by doubling the revenues, we will be #2 in the market and our market share wouldn't probably start with #2. So from that perspective, of course, when you look at the total process, you can evaluate yourself how confident you are, but we are confident. Ville Iho: Yes. And that specific reason was one of the drivers us to start investing into this area. We saw that with our sort of average market share as high as it is, dental services is very good, a nice complement to our existing services and there we have room to grow, as Juuso explained in market share numbers. Kati Kaksone: Okay. I believe we don't have any further questions from the phone lines, but please we'll take one from the audience now. Roni Peuranheimo: Yes. Roni Peuranheimo from Inderes Oyj. Maybe about the insurance customers still, the growth rate declined here a little bit, and you see that the demand isn't as strong as it was earlier. So maybe what's behind this? I think it went from dark green to lighter green. Ville Iho: Yes. We take a couple of steps back. First of all, the insurance coverage continues to grow, which is positive. So the underlying element for growth are there for the future. Then as we equally know, insurance companies with the health insurances, they have been struggling with their profitability. They have implemented certain kind of steering mechanisms, which you also alluded to and gates and guardrails in how they are then sort of allowing services to steering guiding services for their customers. And all in all, even though we can be pleased with our own progress and our sort of success in gaining market share, the overall market reacts to a couple of years of very high morbidity and certain type of services sort of gain through insurances and this whole sort of equation and combination yields to sort of a flattish development during sort of first part of the year and then the recovery in the second. Roni Peuranheimo: All right. Then about the public market, you had there the yellow or flat demand and you mentioned that you see some positives. So is there also some clear possible negative drivers in '26? Juuso Pajunen: Yes. I think that in the total, the difficulty with public sector is to predict it at the moment. I think that I've been standing throughout the 3 years here quite many times saying that now it opens up. And at the same time, it has not opened up. There are so many things that are not in our hands and the predictability makes it a bit difficult. So we have positive signals. You may have seen us winning a process with Hohde in December with a positive revenue impact and so on, and we are gaining -- winning contracts. But at the same time, wellbeing counties are polarizing at the moment. There are those like Pirha who went for the big outsourcing that unfortunately, Pihlajalinna won and who are willing to take progressive measures jointly with public sector -- private sector. And then at the same time, there are those ones who are still very cautious. And how that dynamic plays out is simply difficult to predict. But we are positive in the total opening up, and we are confident that it will happen, but putting a timeline on that one is the reason why it is on yellow. Ville Iho: Yes. And back to your point, is there a downside? We are starting from such a low demand and very passive buying behavior. So it is quite difficult to see further downside in this business. Roni Peuranheimo: All right. Then one more about the occupational health care. You emphasized the post-cyclical nature and given that the Finnish unemployment the macro still weakened last year. So -- and you also mentioned that you anticipate growing connected employees. So maybe talk a little bit about how much the growth is in your own control versus the macro and maybe about your sales pipeline at the moment. Ville Iho: So if we start from sort of dynamics, as I said earlier, there's a lag in how we see the numbers against our actions, specifically in this segment. And I'm pleased with the progress of our program. Our win rates have been improving already during Q4, Laura and the team and the commercial team in there, they are doing a good job. What we cannot so much impact is frequency of use and the scopes of the services, which will then follow more the cyclical nature of this one. Now the companies have been in saving mode. They are also in a situation where you have a great supply of employees in almost all of the industries. So they are not sort of under pressure to improve the benefits for their employees. And this is cyclical, and we have seen this one happening many times. When the things -- when things turn, of course, this will turn as well. So a lot of this one is in our own hands, specifically when we think about the number of connected employees, use of the services more on the corporate side and more cyclical. Kati Kaksone: Thanks, Roni. We still have a couple of minutes time, so I'm going to be a bit selective on the questions that we have received from the webcast. Maybe let's talk a little bit about the drivers and the dynamics in the Healthcare Services. Could we please open up a little bit the drivers of the high profitability in the current Healthcare Services segment? And is that improvement sustainable in the longer term? Juuso Pajunen: Now we need to split that one into 2 different components. Is the improvement sustainable, meaning that can we improve quarter-by-quarter or year-on-year like we did from Q4 '24 to Q4 '25? No, we can't. In Q4 '24, we had in the underlying numbers, the onetime items, or the onetime bonuses that I referred earlier. And that one makes the improvement slightly better looking than it in real life is. Then on absolute level, we are in a positive place. We have a huge operating leverage. So from that perspective, when we get back on growth, when we get the yields on our occupational health projects that one will contribute to our profitability also. So there's 2 different answers, but the operating leverage is the key when you are looking to future. We have much to gain in this segment. Ville Iho: Yes. And as I said earlier in the presentation and comments, exactly as Juuso said, we have been able to improve profitability against lower revenue line, very, very weak macro. Operating leverage has been improving, strengthening the efficiencies there. So that will then yield improving results once we get the revenue line in order. That's very clear. And in that sense, it is sustainable, again, coming back to the fact that underlying megatrends are positive for demand of the Healthcare Services. Kati Kaksone: Then finally, a couple of words on the M&A landscape. Do we see any activity beyond the current ongoing transactions? And what are the most attractive segments that we are currently looking at? Juuso Pajunen: If I start and Ville can complement. I think that the M&A market activity has been gradually increasing throughout '25. It was very low in '23, '24, maybe especially in '24. And now we see that the market starts to be active. You can view it from different angles. There's IPO activity in Helsinki. There's transactions happening throughout Nordics and Europe little by little. So now there starts to be a market and little by little, of course, then you can start picking that what are the value-creating opportunities you want to capture. We have been continuously stating in our agenda that we have selective agenda in portfolios. Well, now we have obviously the Hohde in there, which will be hopefully close during this year. And then we have stated that in Sweden, for example, gaining scale and gaining efficiency -- after gaining efficiency, gaining scale would make sense. So that has been the other place that we have highlighted that we could look. And then obviously, in Healthcare Services, we are always checking out the smaller bolt-ons that would complement our white spots like we did in ophthalmology when we acquired Pilke in December. Kati Kaksone: Thanks. With that, any last words before we close the webcast Ville? Ville Iho: So again, great quality, great efficiency, great profitability, market under pressure, underlying trends supporting long-term growth with sustainable improvement agenda with us. So looking positively forward into H2 this year and specifically '27. Kati Kaksone: Thanks. With that, have a great rest of the day and/or upcoming weekend. Thanks for joining. Ville Iho: Thank you. Juuso Pajunen: Thank you.
Operator: Good morning, and welcome to AtlasClear Holdings Fiscal Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. Joining us today are John Schaible, Executive Chairman; Craig Ridenhour, President; Sandip Patel, Chief Financial Officer and General Counsel; Jeff Ramson of PCG Advisory who will provide the safe harbor statement and manage Q&A. I will now turn the call over to Jeff Ramson. Jeff Ramson: Thanks, operator, and good morning, everyone. Before we begin, I'd like to remind listeners that today's discussion may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For additional information, please refer to AtlasClear's Form 10-Q for the quarter ended December 31, 2025, and other filings with the SEC. AtlasClear undertakes no obligation to update forward-looking statements, except as required by law. With that, I'll turn the call over to AtlasClear's Executive Chairman, John Schaible. John Schaible: Thank you, Jeff, and good morning, everyone. Thanks for joining us. I want to start by taking a step back for a moment. Over the last couple of years, our focus has been on strengthening AtlasClear's foundation, simplifying the balance sheet, improving financial flexibility and ensuring our platform is positioned to operate the way we intend it to over the long term. The December quarter marks a clear inflection point for the company. From the very beginning, we've been very clear about our objective to build a modern technology-enabled financial infrastructure platform designed to serve smaller and midsized institutions, firms that are often underserved by larger incumbents. The work of the past 2 years was about creating the foundation to do that responsibly. In the December quarter, we're now seeing that vision move into execution. And that progress showed up in our results. Revenue grew 84% year-over-year. We reported net income of $6.8 million. Stockholders' equity turned positive to $21.7 million, and this is an accomplishment that we need to highlight. It means from our year-end of 2024, we have increased our stockholders' equity by nearly $60 million. Finally, we ended the quarter with $46.2 million in cash and restricted cash. Stepping back more broadly, the current market environment is becoming increasingly constructive for our model. As the market stabilize and expectations around interest rates evolve, we're seeing greater engagement from broker-dealers and financial institutions focused on operating more efficiently, managing their risk, modernizing their infrastructure, expanding beyond traditional equities into a wider range of products and services and firms are placing greater emphasis on flexibility, capital efficiency and operational control. We believe this dynamic aligns really well with the strengths of AtlasClear's clearing-centric platform. With that context, I'll turn it over to our President, Craig Ridenhour, to walk through operational highlights in the quarter and how we're entering 2026. David Ridenhour: Thanks, John, and good morning, everyone. Operationally, the story this quarter is about momentum becoming visible and a growing sense of optimism about where the platform is headed. Over the past year, we've been focused on getting the fundamentals right, tightening processes, being deliberate about where we put our resources and making sure the organization was structured to support sustainable growth. Wilson-Davis continues to perform as the core clearing engine of the platform. During the quarter, we saw continued strength across commissions, stock locate services and clearing-related activity, reflecting deeper client engagement and broader utilization of our services. Performance has been consistent and the excess net capital we're carrying provides the capacity to onboard additional relationships and expand services without stretching the balance sheet. What's changed is not just the numbers, it's the tone of the business. We're spending far less time managing around constraints and far more time executing on the opportunities in front of us. With that, I'll turn it over to Sandip to walk through the financials in more detail. Sandip Patel: Thanks, Craig, and good morning, everyone. I'll briefly walk through financial results for the quarter, touching on revenue, profitability and our balance sheet and liquidity position. For the fourth quarter ended December 31, 2025, AtlasClear reported revenue of $5.1 million, representing an 84% increase year-over-year. Growth was driven by higher client activity across the platform, led by continued strength at our operating subsidiary. From a revenue mix perspective, commissions were the largest contributor at just over $3 million for the quarter, with clearing fees, stock locate-related activity and other service revenues each contributing meaningfully. We also recorded a modest net gain from firm trading activity. Overall, this reflects broader utilization of the platform rather than reliance on any single revenue stream. Expenses increased in line with revenue growth, primarily due to variable compensation, clearing and data processing costs and stock-based compensation associated with new executive employment agreements. As activity scales, we are beginning to see improved operating leverage across the business. For the quarter, the company reported net income of $6.8 million, which includes noncash fair value adjustments. More importantly, the quarter reflects a materially stronger underlying operating and financial profile than a year ago. Turning to the balance sheet. Total assets increased to $77.6 million compared to $60.9 million as of June 30, 2025. Stockholders' equity increased to $21.7 million compared to a deficit of $6.8 million at fiscal year-end, a meaningful inflection point for the company. Liquidity strengthened significantly during the quarter. We ended December with $46.2 million in cash and restricted cash, including $23.1 million in cash and cash equivalents, providing flexibility to support operations, regulatory requirements and continued execution. At Wilson-Davis, net capital totaled $14.7 million at quarter end, supporting higher levels of client activity and providing capacity to onboard new correspondent relationships in a disciplined manner. Overall, the calendar fourth quarter reflects a substantially stronger financial position with improved revenue generation, positive equity, solid liquidity and capital strength that supports continued execution. With that, I'll turn the call back to Craig. David Ridenhour: Thanks, Sandip. As we look ahead, our priorities are clear. First, we're doubling down on what works. Wilson-Davis is the powerful engine driving our platform today. It continues to perform consistently, and we're building around it by improving the client experience, increasing operational consistency and making it easier for emerging and growing broker-dealers to onboard, operate and grow with us. That means refining systems and workflows to reduce friction, pairing automation with experienced high-touch service and deepening relationships with clients who value a more responsive clearing partner. Second, we're scaling responsibly and with conviction. We continue to see a healthy pipeline of interest from firms seeking more flexible and efficient clearing infrastructure. Our approach is deliberate and execution focused, onboarding the right clients, supporting them effectively and growing in a way that strengthens the platform rather than strains it. We're prioritizing opportunities that are accretive and fit our infrastructure, regulatory framework and capital profile, not growth for growth's sake. Third, we're advancing the full AtlasClear vision. That includes continued progress toward the proposed acquisition of Commercial Bancorp of Wyoming, subject to regulatory approval and customary closing conditions. More broadly, it reflects our belief that the environment for modern regulated financial infrastructure is becoming increasingly constructive. Smaller and midsized institutions want flexibility, responsiveness and reliability, and we believe AtlasClear is increasingly well positioned to meet that demand. Overall, the focus is execution, continuing to deliver for clients, expanding thoughtfully and building a platform designed for long-term durable growth. With that, I'll hand it back to John for closing remarks. John Schaible: Thanks, Craig. I'll close with a broader perspective. As we enter 2026, AtlasClear is operating from its strongest position yet. Wilson-Davis is performing as the operational backbone of our platform. We have a significantly strengthened balance sheet and 2 years of foundational work is now translating into clarity, momentum and most importantly, long-term value for the shareholders. Our path forward is focused and deliberate, enhancing the core clearing business with smarter technology, improving connectivity across workflows and ensuring the platform remains adaptable as markets, client needs in areas like fintech and regulated digital assets continue to evolve, all approached with the same disciplined standards that define our company. Thank you to our employees, our clients, our partners, and especially thank you to the shareholders for your continued trust and support. We value that trust deeply and look forward to sharing our progress as AtlasClear continues to move forward. Jeff Ramson: Thank you, John. During today's call, we received some good questions from shareholders, which I'll now direct to management. Jeff Ramson: There's been meaningful capital structure simplification over the past year, but investors are still focused on dilution and convertibles. Can you walk through what the fully diluted share count looks like today and whether we're largely past the heavy conversion phase? Sandip Patel: Great question, and thank you. I will take this one. The current outstanding share count is approximately 150 million shares. The only remaining viable conversions is from the October 8 financing, which has allowed the company to progress its agenda. On a fully diluted basis, at the current exercise price of $0.75 a share, this would be approximately an additional 43 million shares on the warrants granted in the units and a little over 14 million shares on the convertible note if converted. I should mention the original de-SPAC warrants are still outstanding, which represents approximately 26 million shares. But at a strike price of $690 per share, I think we would all be very ecstatic to see them convert. Finally, we cannot predict what happens in the future, but we fully expect any additional dilution to be accretive. Jeff Ramson: Okay. And another question. You ended the quarter with over $46 million in cash and restricted cash. How should investors think about true corporate liquidity versus regulatory capital and are we now in a position where the business can fund growth internally? John Schaible: I'll take that one, Jeff. From a regulatory capital perspective, the threshold that we really always have to stay above is $10.5 million. So while we'll be sitting on that cash, we never want to go below, but we can't maintain our correspondent license if we go below it. Fortunately, we've been able to significantly increase our regulatory capital as well. So the $23.1 million that I think Sandip referenced earlier is cash that we could spend, but we don't ever want to go below the $15 million that we're presently holding for that capital. Jeff Ramson: Got it. Got it. Very good. Okay. Next question. Wilson-Davis continues to be described as the engine of the platform. At what revenue level does the clearing business begin to generate consistent operating leverage? And what does the path to scale to profitability look like from here? John Schaible: Well, I think that's going to be an even bigger inflection point, Jeff. I guess I'll just keep going. Even bigger inflection point than the quarter that we just had. our operating costs last year were in the neighborhood of $14 million. And that's what we have to spend to be able to provide the services as a corresponding clearing firm, all the risk management trading and technologies and the staff to get the work done. Once we cover that, then we can scale tremendously upon our platform. And so we've announced the relationship with Dawson James and the third client. We're excited for when Dawson James begins trading. We'll certainly make an announcement when that happens because that will be above our operational cost. And everything from then on becomes variable. And our margins are solid. So it's really like a $14 million threshold. Beyond that, we really get to maximum operating leverage, and we can scale significantly more than we have today, and we think that's going to happen through 2026. The customer channel is very robust. Jeff Ramson: Great. Okay. Next question is kind of along those lines. Can you provide more clarity on the expected ramp time line for the new introducing brokerage firms and when investors should begin to see measurable impact reflect in revenue or account growth? David Ridenhour: Sure, Jeff. This is Craig. I'll jump in. I'm sure people have missed my voice. But as far as it goes, this is a great question to follow up on, John, because for us, scaling the correspondent clearing business is crucial to what we're doing with Wilson-Davis. And it's also just a highly untapped market. To refresh everyone's memory, we're going to really approach smaller institutions to midsized institutions that are really blacking some of these solutions because they can't get direct lined into some of the larger clearing operations. So for us, it's a huge scalable platform for us. But as far as what we're doing and where we're at with this process, as John mentioned, Dawson James had previously been announced. It's taken a little bit longer to get them up and moving. That's because internally, we had to go in and restructure and turn on some different technology lines to get the right correspondent clearing suite in place, which we're comfortable that we're now just about at that point. So we're optimistic that they'll be trading here momentarily. As John mentioned, we'll note to the Street when that happens. But what that allows us to do is for the correspondent clearing firm that we've signed that needs to remain nameless at this point, they should be up and operational fairly quickly. And every subsequent correspondent clearing client for us should come on much more quickly and with greater ease. So we're excited about our ability to ramp that quickly. And going to the question of kind of the timing and the impact from reflected revenues, these scale exceptionally well for us and very timely. So I would think that over the next few quarters, some of our numbers should begin to reflect that, and it should reflect very positively for us. So we're excited about where we are. Jeff Ramson: Very good. Last question I have here is on the proposed Commercial Bancorp acquisition, can you provide realistic update on timing, regulatory visibility and what the financial profile of AtlasClear looks like with or without that transaction? David Ridenhour: I'll take this one as well. It's a great question. We get it often. Of course, we had an announcement earlier in the week. We just executed or updated an agreement to a new stock purchase agreement, which really puts us in a great position. So that goes into the timing. We really need to get that in place. We are preparing to file our application with the Fed. We're optimistic that will be in the very near future. And that basically will put us into the Fed in for the approval and/or the review, which we ultimately hope results in approval, and we're optimistic we'll get there. And so realistically looking at it, the regulatory environment has changed completely over the last 12 to 18 months, in particular, the last 6. The regulators seem to be moving more quickly. What we thought was going to maybe be a year to 18-month process, we think could be shortened considerably. Again, things can happen. But certainly, things that are going on from an approval process right now for other institutions seem to be moving more quickly. So we're optimistic that this will move along more quickly and we'll ultimately get the approval. And then as far as the financial profile of AtlasClear, what it looks like with or without, let me address the without. Without we build Wilson-Davis as a correspondent clearing firm focusing on the small institution space. And if you look at correspondent clearing firms that are out there, and some of the ones that have been in the press and in the public eye, they're tremendous institutions with great margins, great scalability. And alone Wilson-Davis, we can build a highly profitable company that reflects in great shareholder value and equity pricing. So we're -- that's without Commercial Bancorp of Wyoming. With Commercial Bancorp of Wyoming, what it does is it creates a full licensing platform. We'll have correspondent clearing services for securities with the custody and banking services of a Fed member bank. We combine those together under the same umbrella, layer in technology. And now we create a one-stop solution that provides tremendous opportunities and leverage to our client base that we'll be going after. So although we can be incredibly profitable and are on our way with Wilson-Davis, you combine the 2 entities together upon effective approval, and we think -- we really think the sky is the limit. We're really in a sweet spot, and we're very excited over the next several years and great question. John Schaible: Can I just -- this is John. Can I just add a couple of things on that because I think it's important for the bank acquisition. The terms that we announced last week, the sellers are accepting 73% of the acquisition in our stock. And they're doing that because they see the vision, they believe in the vision, they want to be part of the vision. And then just from a straight economic perspective, the bank will be immediately accretive to us. In '25, the bank did about $1.9 million in revenue with $500,000 in net income. This is an incredibly -- it's small, but it's an incredibly well-run Federal Reserve member bank, and that allows us to come in and put the right technology in and do for the bank exactly what we've done with Wilson-Davis, which is increased revenues by 84% and tie it together in the way that Craig mentioned. And so we're super excited about the bank acquisition post pending approval. Jeff Ramson: Thank you, everyone. That concludes our quarterly call. We appreciate everyone joining. Operator: Thank you. You may now disconnect, and thank you for your participation.
Operator: Good morning, and welcome to Grupo Rotoplas' Results Conference Call. Please note that today's call is being recorded. [Operator Instructions] Today's discussion contains forward-looking statements. These statements are based on the environment as we currently see it, and as such, there may be certain risks and uncertainty associated with such statements. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, further events or otherwise. Please allow me to remind you that the company issued its earnings press release yesterday after market close. It can be found in the Investors section of its website. Also, the presentation for the call and the webcast link are in the Investors section. Today's call will be hosted by Mr. Carlos Rojas Aboumrad, Chief Executive Officer; and Mr. Andres Pliego, Chief Financial Officer. I will now turn the call over to the speakers. Carlos Rojas Aboumrad: Good morning, everyone. Thank you for joining us today. During 2025, we remained committed to what has always defined Rotoplas. Creating solutions that solve real water challenges and make a meaningful difference in people's lives. At the same time, this was a year where we stayed focused on efficiency, discipline, and execution across the business. During the year, we navigated a challenging operating environment, particularly in Argentina and in Mexico. In Argentina, market conditions remained depressed, while in Mexico, we faced strong rainfall and softer construction activity, alongside continued regional volatility. Yet, the fourth quarter showed resilient sales, improved profitability, and a stronger performance overall. Revenue stabilized, margins expanded, and we exited the year with better momentum than we had entering it. That discretionary improvement is important because it did not depend on a macro recovery. It came from structural changes in how we run the business. Throughout the year, we made a deliberate choice to focus on what we control, strengthening our operating model, improving efficiency, and allocating capital toward businesses that generate higher quality and more predictable returns. I'll walk you through the progress -- through that progress using the evolution of our four strategic pillars that we presented in December, because this framework explains how we are reshaping the company and why we are confident about the trajectory we're seeing. The first pillar is profitable growth and core expansion. Here, the focus was straightforward: reinforce the foundation of the business and make it structurally more efficient. For example, during the quarter across Mexico and Central America, we focused on gaining share through more targeted commercial strategies and region-specific pricing, while strengthening execution and maintaining strict cost control. We simplified processes, reduced operational complexity, and aligned our organizational structure with current demand and dynamics. The objective was not to do more, but to do better. At the same time, we continued developing better solutions centered on the end user, always prioritizing quality of life and ensuring that our products directly improve the daily experience of people. A good example of this approach is Peru, where we advanced our blow moulding capabilities. By modernizing production technology and improving plant efficiency, we lowered unit costs and enhanced our ability to differentiate in the market. Over time, this has created a leaner and more productive organization. The business today operates with greater focus on consistency, and that is showing in stronger commercial execution and better performance in our core markets, particularly as we moved through the second half of the year. The core is healthier, more agile, and generates the cash flow that supports the rest of the portfolio. That operating discipline gives us flexibility regardless of market conditions. The second pillar, water innovation and market disruption, is where a great transformation is taking place. We are steadily evolving from being primarily product manufacturing -- manufacturer into a solutions and services company, with recurring relationships and greater revenue visibility. This shift is strategic because services, while improving customer experience, they reduce cyclicality and improve the quality of our earnings. More importantly, these solutions are designed around the customer journey, helping us understand adoption, retention, and long-term needs, so we can create better businesses by staying closer to the customer. During the year, our services platform continued to gain scale and operational maturity. bebbia closed the year with more than 168,000 subscribers, strengthening its position in the residential segment. Through bebbia, we're not only providing purified water, but also improving the overall customer experience by simplifying access, eliminating the need for single-use plastic and uncomfortable water jugs, and making safe water more convenient and reliable for families. Also, the business improved in its economy, reflecting better efficiency and operating leverage as the platform scales. This confirms that the model is not only growing, but doing so in a disciplined way. At the same time, RSA continued to build momentum in water treatment and recycling. The business delivered strong growth in the quarter and is increasingly supported by recurring maintenance and long-term service contracts. That creates deeper customer relationships and much better visibility compared to one-off project work. These solutions also help our customers reduce their environmental impact, comply with regulations, and operate more efficiently while addressing water scarcity through the treatment and reuse. In doing so, not only strengthen our business, but it also create measurable positive impact in the communities we serve. Together, bebbia and RSA are shifting our mix towards recurring revenues and more stable cash flows. That is why we continue directing a growing share of our investment towards these platforms. The third pillar is tech and talent enablement. We view technology as an operational capability, not a support function. Through the year, we embedded digital tools and AI directly into day-to-day workflows across sales, planning, service, and finance. These initiatives are helping us remove friction, automate repetitive tasks, and improve the speed and quality of decisions. In parallel, we invested heavily in our people, training more than 1,500 employees and delivering close to 5,000 hours of targeted upskilling in digital analytics and operational capabilities to ensure our teams can fully leverage these tools in their daily work. We believe our collaborators are our greatest asset, and we are committed to preparing them for the future by continuously developing their skills and creating an environment where they can grow alongside the company. In parallel, we continue evolving our talent base toward more specialized and analytical roles. The objective is to create an organization that can scale without adding complexity or fixed costs. What we see today is a company that is more data-driven, faster in execution, and structurally more productive. These capabilities are becoming a competitive advantage because they allow us to grow efficiently and respond quickly to changing conditions. Our fourth pillar is sustainability and efficiency through capabilities. For us, sustainability is not a separate program or a reporting exercise. It is embedded in how we operate. The same actions that improve efficiency also reduce environmental impact. When we optimize logistics, we lower emissions. When we digitize processes, we reduce waste. When we use resources more intelligently, we improve both cost and footprint. At the core of this approach is our commitment to creating solutions that solve water challenges, help customers operate more sustainably, and ultimately improve lives through better access, treatment, and the use of water. This approach is already translating into measurable outcomes. During the year, we reduced Scope 1 and Scope 2 carbon intensity by 26% and lowered absolute water consumption by 6%, reflecting the operational efficiencies we're building in our plants and our processes. Also, if you join our water, our AGUA Day, you know that we launched our AGUA strategy. This new strategy strengthens standards across our operations and supply chain and deepens engagement with customers and communities. The important point is cultural. Sustainability is part of everyday decision-making. That positions us to remain relevant and trusted over the long term as expectations from regulators, customers, and investors continue to evolve. We can look, especially at the fourth quarter, we see our four pillars coming together. The external environment did not change materially, yet performance improved across several parts of our business. Execution was sharper, services gained traction, and the organization operated with greater discipline. That combination translated into better results and confirms that the improvements we are seeing are structural. As we close the year, Rotoplas is more focused, more efficient, and increasingly service-oriented company. We strengthen the foundation first, and that positions us to convert the future into profitability much more effectively. Thank you for your continued trust. I will now turn it over to Andres to walk you through the financial results. Andres Pliego: Thank you, Charlie. Good morning, everyone. Let me walk you through the P&L for the quarter, and then I will briefly touch on regional and solutions performance before moving to the balance sheet. Starting with revenues, as Charlie mentioned, we returned to positive top-line growth, driven primarily by recovery in product sales in Mexico and a strong momentum in our services platform. This performance helped partially offset the challenging macro environment in Argentina. During the quarter, services revenue grew 83% year-over-year, while product sales declined 3%. It's important to highlight that excluding Argentina, product sales would have grown 13%, reflecting a solid performance in the U.S., Peru, and Central America, even in the context of a stronger peso, as well as a gradual recovery in Mexico during the fourth quarter. Given the uncertainty and volatility across the region, our focus has remained firmly on variables we can control, particularly cost discipline, expense management, and cash flow generation. Our operating mindset continues to be centered on operational discipline and doing more with less. On costs and expenses during 2025, we executed a strategic workforce restructuring aimed at increasing productivity per employee. This process was supported by training initiatives and the integration of AI-enabled tools, allowing us to evolve our operating model towards more specialized and higher-value profiles. At the gross margin level, the fourth quarter margin does not yet reflect the full benefits of these initiatives. This is mainly due to the impact of MXN 101 million from hyperinflation accounting in Argentina, which resulted in a non-cash increase in cost of sales, driven by the measurement of beginning inventory. Where the impact of our efficiency initiatives is most evident is in SG&A. Operating expenses declined meaningfully. As a percentage of sales, they went from 38% to 33%, reflecting tighter cost control and stronger execution. The main efficiency drivers included: marketing optimizations with improved segmentations and higher return on investment across campaigns, the implementation of a formal budget control framework, requirement structured review, and approval for incremental spending, strict control of travel expenses, prioritizing only business-critical travel, optimization of digital software-related expenses, including better contract management and allocations of IT costs. Overall, operating expenses remain under strict control, resulting in a leaner and more sustainable cost structure that positions us well to expand margins as market conditions improve. At the same time, we continue to strengthen our operational base while selectively building new capabilities to support long-term growth. As a result of this discipline, we achieved a significant year-over-year increase in quarterly EBITDA. More importantly, we closed the full year with a 1% increase EBITDA, despite a 1% decline in sales, underscoring the resilience of our operating model. Finally, at the net income level, financial expense declined 60% year-over-year in the quarter, mainly due to the positive effect of hyperinflation accounting in Argentina. As a result, we reported a net income of MXN 91 million for the quarter, compared to a loss in the fourth quarter of 2024. Let me provide more color by region. Mexico, which represents 59% of group sales, delivered a recovery in product volumes during the quarter. This was supported by a more competitive regional commercial strategy designed to strengthen our market positioning in a challenging demand environment. The strategy focused on gaining greater regional competitiveness, complemented by seasonal promotional campaigns, including Ofertas Azules in November, which helped accelerate volumes. Importantly, this pricing and promotional strategy was executed without sacrificing margins. Moving to Argentina, the country represents 17% of total revenues, and demand remains very weak, with inflation dynamics continuing to pressure margins as price pass-through remains limited. In this context, the company prioritized cash discipline over growth, ensuring sustainability of operation through internal generated cash. Throughout the year, we implemented productivity improvements, zero-based budgeting, and workforce restructuring. However, persistently weak demand limited recovery, resulting in a negative EBITDA for the year. Additionally, in accordance with IFRS 29, we recorded a non-cash hyperinflation accounting adjustment in the fourth quarter that reduced EBITDA by MXN 75 million, driven mainly by inventory remeasurement. This adjustment has no impact on cash flow or operational cash generation. In the United States, which represents 10% of sales, quarterly revenues were almost flat in Mexican pesos, but increased 9% year-over-year in U.S. dollars, driven by stronger performance in the municipal and chemical verticals. EBITDA was positive for the third consecutive quarter, supported by SG&A productivity initiatives and continued gross margin expansion. On a full year basis, EBITDA was positive, reflecting a sustained turnaround driven by operational productivity and improved inventory management across branches. In our other markets, Peru, Central America, and Brazil, which together represent 13% of group revenues, we delivered a double-digit growth and margins improvement, underscoring the strengthening of our diverse portfolio. We continue advancing these markets with steady, disciplined, and profitable execution. Turning to segment performance, we have already covered products, so I will focus on services. The services segment represented 15% of quarterly sales and continued to deliver double-digit growth, with a clear acceleration in the fourth quarter, mainly driven by water treatment and recycling projects in Mexico. This acceleration was largely supported by year-end budget executions across corporate customers. Within services, bebbia continued to scale, adding 9,000 net subscribers during the quarter, reflecting a sustained demand and improving unit economics. During the year, we completed the migration of our full technology platform, including e-commerce, field services, and CRM systems. We also rolled out new functionalities to enhance the customer experience, such as online appointment scheduling and real-time technician tracking, strengthening service levels and operational efficiency. In Brazil, our water treatment operations maintained solid momentum. Quarterly services EBITDA was positive, with a 5% margin, reflecting continued improvements in unit economics, mainly across bebbia and wastewater treatment plants. As a result, the full-year EBITDA margin improved from negative 38% in 2024 to negative 8% in 2025. Still negative, but we're clearly on the path toward profitability. Overall, the segment made tangible progress, supported by scale and improved operational efficiency. Moving to the balance sheet, financial discipline and cash flow generation remained key priorities for the company. Ongoing cost control and working capital discipline strengthened our balance sheet during the year, resulting in a 9% reduction in net financial debt and a 23-day improvement in cash conversion cycle. As a result, net financial debt to EBITDA improved from 3x to 2.7x year-over-year. This performance was supported by a reduction in debt, tight cash management, more efficient working capital practices, and a selective approach to strategic CapEx. Operating cash flow increased 81% year-over-year, reflecting stronger execution and disciplined expense management. From a liquidity perspective, our cash position increased 18%, reinforcing our focus on maintaining a sound and flexible financial profile. Total financial debt closed the year at MXN 4.5 billion, a 5% decrease versus December 2024. This includes MXN 463 million in short-term debt, mainly related to working capital needs, and approximately MXN 4 billion in long-term debt corresponding to our fixed-rate sustainable bond. Finally, the blended cost of debt remained stable at 8.6%. Capital expenditures represented 4% of annual sales, reflecting a 25% year-over-year reduction consistent with our focus on capital discipline. Investment during the year was highly selective and primarily allocated to services platform in Mexico, mainly supporting the development of water treatment plants and the acquisition of bebbia systems. Our capital allocation approach remains anchored in strengthening the businesses while preserving flexibility. Within services, most investments are tied to secure contracts or committed customers, which allow us to redeploy capital with clear visibility and disciplined return thresholds. Let me briefly review how we closed our 2025 ESG targets. Overall, we met or exceeded two targets, two closely broadly in line, and two finished below our original ambition. We achieved or surpassed our goals on people with access to sanitation and CO2 intensity, Scope 1 and Scope 2 per tonne of processed resin. We're particularly proud of our emissions performance, driven by renewable energy sourcing, manufacturing efficiency initiatives, and the transition to new storage production technologies, which resulted in a 26% reduction year-over-year and a 32% reduction versus our 2021 intensity baseline. Our customer experience, we closed the year with an NPS of 81 in products and 60 in services, resulting in a weighted average of 79, while 98% of Tier 1 suppliers were assessed on sustainability criteria. We fell short on female representation in the workforce and cubic meters of purified water, which remain focus areas as we move into the next strategic cycle. Looking ahead, as Charlie mentioned, the AGUA strategy marks the next phase of our sustainability agenda, building on past progress and providing the framework to define priorities, set targets, and report progress going forward. To highlight a few milestones in the fourth quarter. In fourth quarter 2025, Rotoplas achieved an A rating in CDP Climate Change, placing us among a very small group of companies in Mexico and globally. We also expanded sustainability training for distributors in Peru, strengthening community access to water in Mexico through our Rotogotas de Ayuda program, and closed the year with more than 1,000 IoT-enabled rainwater harvesting systems installed in schools through Escuelas con Agua. This program, a partnership with the Coca-Cola Foundation and other organizations, now benefits more than 330,000 students. Before moving to Q&A, I would like to reiterate that we remain focused on what is within our control, guided by a clear, do more with less operating mindset. Despite the challenging external environment, fourth quarter performance showed sequential improvement, allowing us to close the year with higher EBITDA, alongside with a stronger leverage ratio and an improved cash position. Looking ahead, we continue to operate with the same level of financial discipline, reinforcing a solid foundation that supports sustainable growth and margin improvement over time, while maintaining a prudent leverage profile. Thanks once again for your time and interest. We're now happy to take your questions. Mariana Fernandez: Thank you, Andres, and thank you, Charlie. We have a couple of questions already. The first one from Orlando Alcantara, who also has a couple more, but I'll read the first one first. He says, Hi, Rotoplas team. Congrats on the results. My first question goes on the side of Mexico. We could observe substantial acceleration in the product segment on this quarter, breaking the negative growth we observed through the year. I imagine some strategies have been implemented to achieve this milestone. Can you elaborate more on this? Carlos Rojas Aboumrad: Hi, Orlando. Hey, thanks for joining. Yes, there -- definitely some strategies have been implemented. We've evolved both the attractiveness of our offer and we've also evolved our pricing strategies. We're able to do pricing in a more specific way regionally. And so we did see both improvement because of pricing and because of volume, but volume not necessarily because market growing. And it was more generated by us. Anything else, Andres? Andres Pliego: No. Mariana Fernandez: Okay, so I'll move to the second question from Orlando. My second question goes on the surprisingly breakeven of the service segment, observing the first positive EBITDA margin since 4Q '20. Should we consider this milestone in our model as a structural shift for the following quarters and years? What was done exactly to structurally shift OpEx and COGS this quarter? Carlos Rojas Aboumrad: Yes. So thanks also for that question, Orlando. As you know, we've been working for a long time on the services segment. It's a segment that we started from the ground up. It required a lot of investment, and it's gotten to that point where it's breakeven now. I think the trend was fairly clear. We will continue to prioritize, to some extent, growth of the services business. So, we expect for the services segment to stay very close to breakeven going forward. And as we grow this segment as much as we can, the opportunities are for us to take, and so we will make our best effort to take as much of it as possible. Anything else, Andres? Andres Pliego: Sure. Just probably add that, the strict cost and SG&A control that we have implemented has definitely benefit these two, well, wastewater treatment and bebbia, mainly. So that was a significant push for them to reach profitability, and that will stay, right? So, those economies of scale start to be noticeable as we continue to grow. So that's structurally for sure. Thank you, Orlando, for your question. Mariana Fernandez: I'll move to the third and final question from Orlando. He asks, I observed some efficiency at the working capital level, especially on inventories for Argentina. Is something internally being done to soften macro uncertainty? Andres Pliego: So thank you, Orlando. Inventories in Argentina were pretty high starting in 2025, so we did make a push to -- well, let me go back a second. So the main purpose for Argentina last year was for them to be cash flow neutral in for the year, right? So we prioritized the cash that they generated with their own resources. So they had a tough year because they had to basically be cash flow neutral with their own operations. And that had to be done mostly with working capital. So they made a lot of efficiencies in inventories. So they tried to reduce inventory significantly, reduce accounts receivable, and improve the accounts payable. So, there were significant changes in those three lines of the balance sheet. That also happened in Mexico and other regions. In Mexico, we also were very efficient with inventories and very efficient with accounts receivable. So it was an additional effort this year to be very well or very lean in terms of working capital. I don't know, Charlie, if you want to add anything. Carlos Rojas Aboumrad: No. Mariana Fernandez: Very good. So we'll move to the next one. Regina Carrillo from GBM. She has two questions, so I'll read the first one. 4Q showed positive EBITDA in services. Can we expect full year 2026 services EBITDA to return to positive? Carlos Rojas Aboumrad: Yes. Hi, Regina. Thanks for joining, and thanks for your question. As I mentioned, we do expect services to continue to be at the breakeven level, as we will grow as much as we can, but we will do so while having the EBITDA of services as close as possible to breakeven. Mariana Fernandez: And I'll read the second one. So after three consecutive positive quarters on EBITDA in the U.S., what do you think would be the long-term EBITDA margin target for this business? Carlos Rojas Aboumrad: The long-term EBITDA margin is very different from what we will have this year. This year, we expect it to be at similar levels we have today. So very, very slightly above breakeven. But we are developing a business for you know, generating closer to 15% EBITDA margins in the long-term future. We're identifying other opportunities that can drive that margin even further up. But the expected margin that, at least for this business, is 15%, going forward, long term, right? At the moment, we're focusing similar to other new businesses, which is mainly services. We're focusing on growth. Andres, anything else that you'd like to share? Andres Pliego: No, thank you, Regina, for your questions. Mariana Fernandez: I'm sorry. We'll move to the next one from Felix Garcia, from Apalache Research. Hi, thank you very much for taking my questions. Just two from my side. First, looking ahead to 2026, what would you say are your top priorities? Growth, margins or cash generation? Carlos Rojas Aboumrad: Hey, thanks for your participation and question, Felix. You asked a really tough one. It's a bit of a balancing act. I think we need to have always our purpose in mind of, you know, having the biggest impact we can with providing more and better water for people. This requires growth, but the macroeconomic situation also requires us to focus very much on strengthening our balance sheet. So cash is incredibly important at the moment. We are focusing on bringing net debt to EBITDA to levels below 2x net debt to EBITDA ratio. As long as we can do that, the priority is always growth and the highest possible impact we can have. Andres, what's your.... Andres Pliego: Well, I completely agree. Probably just to add that different businesses are in different stages, you know? So, as Charlie has mentioned, for services and bebbia in particular, the idea is more on growth and, as opposed to the products businesses, which will be more on margins, for example. But overall, I agree with Charlie. I guess the short-term objective is cash generation, reduce leverage, and so we will work towards a balancing act, as Charlie mentioned. Mariana Fernandez: Thank you. We'll move to Felix's second question, and he asked, regarding bebbia, how are you balancing commercial expansion with user quality and profitability per subscriber? Carlos Rojas Aboumrad: Yes, so regarding bebbia, the time is much larger than what we're currently serving, so the opportunity is still very large. We are not in a position where we need to sacrifice subscriber quality. What's very important is that we focus on the promise that we make to our customers, for them to have a great experience and to have the best quality of water. And so as long as we can focus on being able to deliver on that with an increasing amount of subscribers, the amount of subscribers we can get is still very, very high, and this is only the Mexican market. So we're not yet concerned with any challenges in growing bebbia in terms of having to sacrifice on the quality of the business for growth. Andres? Mariana Fernandez: Perfect. So we'll move to the next one from David Seaman from Alpha Cygni. Hi, can you elaborate on your plans to take bebbia to additional markets? Carlos Rojas Aboumrad: Hey, David. Thanks for joining. Yes, so again, the market size in Mexico is still very large, the total addressable market, and so we're still focusing on Mexico. We are looking at other markets, to start planting seeds, but the focus really has to be on developing the platform. The platform, there's more and more tools available to make sure that we can have, offer a great experience to customers in a much bigger amount of customers and geographical locations. So the focus still is on developing the platform. Andres, anything else? Andres Pliego: Thank you, David. Mariana Fernandez: So we'll move to Rodrigo Salazar's question from AM Advisory. His question is related to services. You already mentioned that growth was driven by water treatment plants, but could you help us understand what specifically changed in the quarter? Was it a significantly higher number of units added, the signing of a few unusually large contracts or something more structural in the business? And should we view this level of sales and EBITDA as a sustainable going forward or was there any one-time effect that boosted performance in the quarter? Carlos Rojas Aboumrad: Thank you, Rodrigo, for joining. Regarding the stability, water treatment plants is a fairly stable business. It has recurring revenues. There are sometimes projects that may bring some variability from quarter-to-quarter, but not from year-to-year. Then water treatment plants that supported this number were many different water treatment plants. So it wasn't one big one, and that it's a one-off. We are increasing our revenues by servicing new segments. And that will continue as we continue to understand better this business, we're identifying better opportunities. Now, we did mention that a big impact was from growth in water plants -- water treatment plants, but we did see also growth, significant growth in bebbia, no? Andres, is there anything else that you'd like to share? Andres Pliego: Yes, probably just adding that, no, no particular one-offs, no. So it's, it takes more time to close contracts, so I guess the push towards the end of the year was significant. But we do see these levels to continue, no? I mean, adding to what Charlie is saying, so nothing in particular. Carlos Rojas Aboumrad: Also, just taking on what Andres had mentioned earlier, there were significant improvements in our expenses in this business, which is structured. Mariana Fernandez: Thank you both. The next question comes from Martin Lara from Miranda Global Research. Good morning. Thank you for the call, and congratulations on these results. Could you please provide the CapEx guidance for 2026 as a percentage of sales? Andres Pliego: So thank you, Martin. So the CapEx guideline will be very similar to what we did in 2025. We will continue to be very strict, very return-oriented -- cash-on-cash return-oriented. And also focusing on the sort of, how we call it, the pay-as-you-grow CapEx, which is mostly services, right? Which is mostly bebbia and water treatment plants. So in terms of guidance as percentage of sales, it should be fairly similar, I would say. No non-material changes for this year. So we will continue to invest in the business, to do our maintenance CapEx, and to do the growth CapEx for the services business. So nothing in particular for the change as percentage of revenues. Mariana Fernandez: Perfect. So we'll wait a couple of seconds to see if we have another question. So, this is a comment about the Rotogotas de Ayuda. I congratulate you on continuing to implement the program and all those involved who make it possible. bebbia, the increase in users is good news, and now the challenge is not only to increase it, but to keep them with a quality service, which we will evidently be doing so. RSA, I've noticed you continue to grow in your goals. I congratulate you. So I don't know if you want to make a comment on the Rotogotas de Ayuda or something else. Carlos Rojas Aboumrad: Thanks for recognizing that. It's a tremendous initiative. We're very proud of it because what we're developing, and it's becoming more clear that it's feasible, is that as we help more our communities, that generates demand. Customers show commitment to Rotoplas because of, obviously, the quality of our offer, but also because of our commitment to our communities. And so it's a value-generating group where we support communities, and customers support us, and that continues happening. So thanks for the recognition. Mariana Fernandez: Yes. Thank you very much for your comments and your questions. Andres and Charlie, I don't know if you want to say something else before we close the call, we finish the call? Andres Pliego: Thanks for your support. Thanks for joining. I'll see you guys in a couple of months. Mariana Fernandez: Thank you. See you soon, and you may now disconnect.
Natsuki Morishima: Welcome to Dentsu FY 2025 Earnings Call, and thank you for joining us at this evening. My name is Morishima from the Group IR office, and I will be your conference operator today. This is a reminder that today's call is being recorded. Furthermore, this call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation materials are available on our website. Joining me today are Global CEO, Dentsu, Hiroshi Igarashi. Hiroshi Igarashi: [Foreign Language] Natsuki Morishima: Executive Officer, Executive Vice President and Global Chief Operating Officer, Dentsu and Chairman, and Dentsu Americas, Giulio Malegori. Giulio Malegori: It's Giulio Malegori, good evening, good morning. Natsuki Morishima: CEO, Dentsu Japan and Deputy Global COO, Dentsu, Takeshi Sano. Takeshi Sano: [Foreign Language] Natsuki Morishima: Global CFO, Dentsu, Shigeki Endo. Shigeki Endo: [Foreign Language] Natsuki Morishima: Today's agenda will begin with FY 2025 business update from Hiroshi Igarashi. Shigeki Endo will then present FY 2025 financial update, followed by explanation of strategic update from Hiroshi Igarashi. We will invite you to ask questions after the presentations. Mr. Igarashi, please go ahead. Hiroshi Igarashi: Good evening, everyone, and thank you for joining our fiscal 2025 earnings call tonight. The group's organic growth rate for fiscal 2025 slightly exceeded the guidance we announced in November last year, while our operating margins for both the Japan and international businesses outperformed the guidance, which was revised up in November. Japan achieved organic growth rate of 6.2%, while at the same time, registering highest ever net revenue and operating profit. Despite our international business recording negative growth, we are seeing improved profitability due to the initiatives we outlined in our mid-term management plan, which we announced in February last year. As for international business, we revised the assumption for impairment test and consequently recorded an additional goodwill impairment loss of JPY 310.1 billion in the fourth quarter of fiscal 2025. Following this accounting treatment, the balance sheet of goodwill on our consolidated balance sheet decreased approximately JPY 320.1 billion, which is less than half of the level registered at the end of fiscal 2024. Furthermore, we reached the decision not to pay a year-end dividend for fiscal 2025, which we previously communicated has been undetermined. The reason being the significant negative distributable amount on the balance sheet of the nonconsolidated financial statements for Dentsu Group Inc., which resulted from a loss on valuation of shares in affiliate companies, et cetera, which in turn resulted from the impairment of goodwill. Furthermore, we regret to announce that no dividend is forecasted for fiscal 2026 based on similar reason. As for fiscal 2026, we are expecting the Japan business to continue its steady growth with an organic growth rate of 2% to 3%. For the international business, we are expecting CXM in the United States to return to growth, which was -- which has been recording negative growth since fiscal 2023. We will continue to work towards restoring our competitiveness and improving profitability. Additionally, we have filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial position in preparation for future growth investments. Now on recent highlights. Globally, our AI-driven advertising strategy was highly appreciated by Siemens and will result in our relationship being updated and expanded in more than 150 countries. In Japan, we were selected by Samsung Electronics Japan as its partner agency based on our comprehensive capabilities that include both our abilities to make annual proposals and to form teams for strong execution. In the Americas, we were able to expand our relationship into the media domain with a major retailer, BJ's Wholesale Club, building upon the trust we have established in the CXM domain. Also in Italy, currently hosting the Winter Olympic Games, we won Esselunga, one of the country's leading food retail brands as well as Fastweb following our success in the Vodafone Group in EMEA and the U.K. we announced in the third quarter. As for industry awards and recognition, Dentsu Creative New York won the Grand Prix Prize at The Drum Awards. Furthermore, Dentsu Taiwan demonstrated its overwhelming competitiveness in the region by winning some 200 awards across various areas. Our CXM division was recognized as a leader in Gartner's Magic Quadrant for Digital Experience services for the second consecutive year, reflecting the consistent strength of our technology and value we provide. In addition, Dentsu Sports & Entertainment launched its operations in the Indian market, making an important step towards expanding our presence across Asia. I'll now pass the microphone to our CFO, Shigeki Endo, to update you on our financial results. Shigeki Endo: This is Shigeki. Let me take you through the financial results for fiscal 2025. I will start with key metrics. The full year organic growth rate was 0.5%, slightly above our guidance of broadly flat announced on November 14. This was due to the strong performance of our Japan business, which widely exceeded expectations. Results in the Americas and APAC were generally in line, while EMEA was slightly below expectations. The organic growth rate for the 3 months of the fourth quarter was 0.9%, maintaining positive growth following the third quarter. Consolidated full year net revenue increased 0.3% year-on-year to circa JPY 1.2 trillion, but underlying operating profit decreased 2.1% year-on-year to JPY 172.5 billion due to internal investments to restore our competitiveness as we explained last February. As a result, the full year operating margin was 14.4%. It fell 40 basis points below the previous year, but exceeded the 13% range guidance upgraded in November. This was due to the strong performance of the Japan business in the fourth quarter and cost controls in the Americas as well as scrutiny of internal investments. Moreover, regrettably, following on from the second quarter, we recorded an additional goodwill impairment loss of JPY 310.1 billion in the Americas and EMEA in the fourth quarter. As a result of the recording of goodwill impairment loss of JPY 396.1 billion for the full year on a statutory basis, we recorded an operating loss of JPY 289.2 billion and net loss of JPY 327.6 billion. The impairment was recorded with new assumption for impairment test, reflecting a revision to the level currently assumed to preclude further impairment losses. I will touch on this later at the end of my presentation. Now let me explain our full year performance by region. Japan business, which accounts for 42% of the group's net revenue, performed well throughout the year, achieving a high full year organic growth rate of 6.2%. Meanwhile, our international business saw negative growth rates in all regions. By market, the United States, the United Kingdom, Australia and China recorded negative growth, while Spain, Poland, India, Thailand and Taiwan saw positive organic growth. Next, detailed explanation of each region. In Japan, the full year organic growth rate was 6.2%, widely exceeding our expectations in November. Both net revenue and underlying operating profit reached record highs. As of November, we had anticipated a slight top line decline in the 3 months of the fourth quarter due to the high growth rate in the previous corresponding period. However, Japan recorded mid-single-digit positive growth with the marketing business exceeding expectations, driven by television, Internet media and marketing promotions and one-off content-related revenues. For the full year, Internet Media, in particular, performed well throughout the period. Due to business expansion with existing clients and revenue recognition from new clients won through pitches, Internet has seen double-digit growth in turnover for 8 consecutive quarters. BX also achieved double-digit growth with DX also performing well. In Japan, staff costs increased as we continue to implement talent expansion for future growth. But the increase in net revenue more than offset this, resulting in a full year operating margin of 24.4%, the same level as the previous year. I will come back on the guidance later, but we expect continued steady growth in Japan in fiscal 2026 with an organic growth rate of 2% to 3%. In the Americas, which accounts for 26% of the group's net revenue, the full year organic growth rate was negative 3%, in line with our November expectations. By business domain, CXM, which has been struggling, continued its sequential growth throughout the year and is indicating signs of bottoming out. We believe that this was driven by more precise analysis and evaluation under the new management structure, which strengthened the pipeline and led to wins of multiple new clients. Meanwhile, Creative saw a top line decline due to reduced client spending and losses during the year. Media continued to remain stable for the year. Furthermore, the full year operating margin was 22.9% 40 basis points higher than the previous year. While making internal investments, the Americas reduced its SG&A expense by approximately 3% on a constant currency basis through cost controlling efforts and maintained its operating margin level despite top line decline. In the Americas, we expect an organic growth rate of circa negative 2% in fiscal 2026 because of the anticipated top line decline in creative due to factors such as client losses that occurred in fiscal 2025, as mentioned earlier. However, CXM anticipates a return to positive growth. EMEA's full year organic growth was negative 1.8% slightly below our November expectations. This was due to delays in projects and change in scope for several clients in CXM. Our business domain for the full fiscal year, both CXM and Creative recorded high single-digit negative growth. It will take some time for CXM in EMEA to recover, whereas as mentioned earlier, CXM in the Americas is indicating signs of bottoming out. Meanwhile, Media, which accounts for more than 60% of EMEA's net revenue remained stable. During the 3 months of the fourth quarter, the United Kingdom continued to face challenges in CXM, but Spain achieved positive growth in all of the domains. The full year operating margin was 12.4%. Despite efforts to control SG&A expenses in response to top line decline, the operating margin was slightly lower than the previous period due to factors, including internal investments. We expect an organic growth rate of circa 1% for fiscal year 2026. APAC full year result was in line with our November expectations. However, the organic growth rate remained negative 6.8%. By business domain for the full fiscal year, Media remained stable, while CXM and Creative continued to face challenges, registering double-digit negative growth. However, the 3 months of the fourth quarter saw a slight turn to positive growth, the first since the fourth quarter of 2022. In China, media, which accounts for a high proportion of the total net revenue is turning to positive growth for the full year with increased win rate. We'll continue to strive for improved performance. The full year operating margin was 2.5%, an improvement from the previous fiscal year, but still at a low level. However, we have implemented thorough cost control and SG&A expenses, including internal investments, decreased by approximately 8% year-on-year on a constant currency basis. This enabled underlying operating profit to increase despite the lower top line. For fiscal 2026, we are expecting organic growth rate of circa 1%. Next, I will explain about the changes in underlying operating profit from the previous corresponding period. Full year underlying operating profit decreased by JPY 3.7 billion year-on-year from JPY 176.2 billion to JPY 172.5 billion. The group net revenue increased by JPY 3.3 billion from the previous fiscal year as the JPY 28.8 billion increase in Japan offset the JPY 24.8 billion decrease on a constant current basis in the 3 international regions. Staff costs increased by JPY 2.6 billion from the previous fiscal year across the group. Although the 3 international regions realized a total reduction of JPY 13.5 billion, primarily in the Americas and APAC, Japan registered an increase of JPY 13.8 billion, mainly due to talent expansion and the additional bonus payments in the fourth quarter. Similarly, operating expenses increased by JPY 3.6 billion from the previous fiscal year across the group. This was due to Japan recording an increase of JPY 9.1 billion due to factors such as the rebounding effect of the gains booked on foreign exchange hedge in the fourth quarter last fiscal year, which was partially offset by the decrease of JPY 6.3 billion realized by the 3 international regions. I'd now like to move on to our guidance for fiscal 2026. The organic growth rate is expected to be in the range of 0% to 1%. Japan business is expected to remain steady with positive growth of 2% to 3%, while the international business, which has recorded negative growth for consecutive years, is aiming to be broadly flat. In the Americas, despite the expectation of CXM returning to positive growth, organic growth rate is assumed at circa negative 2% due to factors such as client losses in Creative last year. EMEA and APAC are both expected to achieve organic growth of circa 1%. Meanwhile, operating margin is expected to be in the 13% range, slightly lower than the level from the previous year. This is due to overall costs being higher than last year, driven by internal investments and the impact of inflation. However, some of these increases will be offset by the benefits gained from the initiatives to rebuild the foundation of our international business. On a statutory basis, the group is expected to return to profitability in fiscal 2026, forecasting operating profit of JPY 152.6 billion and net profit of JPY 69.7 billion despite the continued recording of one-off expenses for rebuilding the business foundation during the fiscal year. Now please allow me to explain in some detail about the goodwill impairment loss. First, I deeply apologize as management for having continuously recorded impairment losses on goodwill. To reiterate, the fiscal 2025 organic growth rate was slightly higher than our expectation and the operating margin exceeded expectations. Americas CXM business, which had triggered the impairment, is gradually indicating signs of recovery and the medium-term outlook for international business has not deteriorated rapidly. However, we have reviewed the assumption for impairment test, as shown on the lower part of the slide in consultation with our auditors. As a result, apologies for the figures -- apologies that the figures are presented on the next slide and a goodwill impairment loss of JPY 310.1 billion was recorded in the fourth quarter. Combined with the second quarter, the total impairment loss on goodwill recorded for the full year amounted to JPY 396.1 billion. The group's total goodwill balance now stands at JPY 320.1 billion, representing a decrease of more than half from circa JPY 700 billion at the end of fiscal 2024. The assumption for this impairment test reflects a revision to the level currently assumed to preclude any additional goodwill impairment losses going forward and is entirely separate from the fiscal 2026 guidance explained earlier. For example, in the Americas, the full year 2026 organic growth rate in our guidance is circa negative 2%, while the impairment test projects negative 8.2%. This reflects a significantly more challenging view, especially considering that the Americas organic growth rate in fiscal 2025 was negative 3%. This severe view is based on 4 points. First, the impairment test assumption excluded all projects with identified potential order losses and adopted a significantly more conservative order outlook than the normal budget. Second, margins were also conservatively assumed. While the fiscal 2025 actual margin in the Americas was circa 23%, the impairment test assumed circa 17% for fiscal 2026. And excluded any future benefits from the ongoing rebuilding the business foundation initiatives, which are already showing results. Third, unlike the impairment recorded in the fourth quarter of fiscal 2024, we applied an extremely conservative assumption for the first year, which has the greatest impact on the impairment test. Finally, we also lowered the medium- to long-term growth rate for fiscal 2028 and onwards for the impairment test from circa 3% at the second quarter to circa 1%. Next is about the dividends. As was the case in the second quarter, goodwill impairment led to a loss on valuation of shares in subsidiaries and affiliates on a nonconsolidated basis and this caused distributable profit to become negative by JPY 234.3 billion, which serves as the source of dividends under the Companies Act. For this reason, we regret to announce that we have resolved to pay no year-end dividend for fiscal 2025 and are forecasting to pay no dividend for fiscal 2026. In response to this, we will endeavor to enhance EPS and maximize TSR by focusing on key areas where we are already making progress in achieving results and by thoroughly executing the initiatives to rebuild the business foundation and to reevaluate underperforming businesses. Additionally, we will make every effort possible to resume paying dividends in the future, including further acceleration of nonoperating asset sales. Furthermore, we have filed a shelf registration for the issuance of bond-type class shares that do not result in dilution of common stock, subject to approval of the partial amendment to the articles of incorporation at the Ordinary General Meeting of Shareholders in order to secure options in advance for enhancing the financial foundation in preparation for future growth investment. That is all from me. I would like to hand back to Igarashi san for the strategic update. Hiroshi Igarashi: Thank you, Shigeki. As explained, we have revised the assumption for impairment test at this time to the level where no further impairment losses on goodwill are expected. We deeply regret to announce that no dividend payments will be made for fiscal 2025 nor forecast for 2026. We remain fully committed to enhancing shareholder value by executing the strategies outlined in our midterm management plan, improving profitability and working toward the resumption of dividend payments in the future. Now I'd like to explain our strategic updates. As stated in our midterm management plan, the most urgent challenge for our group in returning to growth is restoring profitability in our underperforming international business. Our basic strategy is to improve profitability by reevaluating underperforming business and rebuilding our business foundation while restoring our competitiveness through internal investments and a focused business strategy. First, on reevaluating our underperforming businesses, recognizing that markets with significant invested capital and consecutive net losses were the main causes of deterioration in our group's performance, we accelerated the reevaluation of these underperforming businesses and executed initiatives. In the last fiscal year, both China and Australia, which have been loss-making since fiscal 2023, returned to profit on an underlying operating profit basis. This turnaround was achieved through rigorous cost efficiency initiatives, including front office optimization and compensation revisions. Although both markets showed negative organic growth for the last fiscal year, China's organic growth turned positive in the third and fourth quarters, contributing to the improvement in profitability. We will continue to review each market based on recent performance and steadily advance towards our goal to achieve no loss-making markets this fiscal year. In addition, for certain underperforming businesses, we have already begun process for downsizing, withdrawal or divestment. We will make an announcement as soon as possible for this fiscal year and beyond. Next, let me address the rebuilding of the business foundation. In fiscal 2025, we utilized JPY 20 billion as one-off expense and realized cost saving effect of JPY 14 billion. This includes a portion of the savings generated through workforce reductions involving 2,100 employees as part of the broader headcount reduction plan of 3,400 employees announced last August. In addition, we continued initiatives for standardization and sophistication of operations through business transformation driven by AI and automation. As part of this rebuilding of the business foundation, we have established approximately 750 internal initiatives, more than 80% of which are either already completed or currently in progress. The remaining headcount reductions will be implemented in fiscal 2026, adding JPY 28 billion in additional savings and bringing the total cost savings impact to JPY 42 billion. We expect the one-off expenses for this fiscal year to be JPY 26 billion. Our rebuilding the business foundation initiative also includes organizational restructuring such as continuing to integrate and reduce group companies. The number of international entities has been reduced by more than half as of January 2026 compared to January 2021 when we operated over 1,000 entities. This initiative will continue through this fiscal year. By integrating and simplifying headquarter functions, we will reduce costs further while progressing towards creating an organization that can deliver value to clients more quickly. Through the rebuilding of our business foundation, we now expect to achieve cost savings of approximately JPY 50 billion in annual operating costs in 2027 as announced in the midterm management plan. The cumulative efforts, including these initiatives of reevaluating underperforming businesses and rebuilding the business foundation have delivered results, enabling our international business to return to positive operating cash flow in fiscal 2025. Next, I would like to talk about our business strategy to restore our competitiveness. In the midterm management plan disclosed in February 2025, our group sets a policy of achieving global growth by becoming a growth partner for clients in every market. Building on this approach, our aim is to maximize the value we deliver to clients by sharpening our strategic focus across markets, clients and capabilities. I will now outline our progress in the United States, which we position as a focus market. As Shigeki explained, we expect negative organic growth for the Americas due to revenue declines in the creative domain. However, we are seeing 4 clear areas of growth momentum in the United States. First, we are advancing our transformation partner model through strong relationships with global clients. With Adobe, we established a global production and operating model through Dentsu Creative, enabling large-scale marketing support across multiple regions, including North America. And in the second half of last year, the partnership further expanded through Merkle into strategic transformation. Second, we are driving integrated growth with U.S. rooted local clients through the combined strength of media and CXM. With clients such as Principal Financial Group and i-Health, we are deepening relationships at the C-suite level while delivering unified media and CXM solutions, leading to a broader cross-practice expansion. Third, we are implementing and advancing an AI-powered content supply chain. Our capabilities to enhance creative production and automate content creation, activation and optimization through AI is being deployed to clients such as in the hospitality industry. Finally, in CXM, we are strengthening modern CRM using customer data as a core engine, connecting marketing execution with business operations. We are expanding initiatives that drive direct business impact by integrating loyalty and owned media capabilities into a data-driven operating model. We have extensive expertise in the quick service restaurant sector with recent examples, including Dairy Queen and Domino's. These momentums are also supporting the recovery of our CXM business, which accounts for some 35% of the U.S. net revenue. Despite continuing significant negative growth since fiscal 2023, the CXM business is expected to return to growth starting fiscal 2026. We believe this turnaround reflects the new leadership team's strong commitment and their continuous initiatives in improving performance as demonstrated by the increased win rates, reduced customer churn and stronger roster. In terms of capabilities, our CRM domain is driving growth, which among CXM has a strong affinity with media. We will continue to reinforce this area. In addition, we are seeing stronger client demand for new ways of utilizing AI, such as Agentic AI. We expect to generate revenue by combining our strength in commerce, analytics and data engineering within our CXM business. Regarding our international business, we are continuing to execute a strategy that positions media at the core of our growth. Media is an important business for us as it represents more than half of our net revenue in the international business, and it has delivered positive organic growth for 2 consecutive years. In fiscal 2025, media registered a steady performance by maintaining positive growth, not only as the international business, but also in each of the regions. Net wins for new media projects -- new media project also remained positive in both half of fiscal 2025, and we expect to maintain this momentum into the new fiscal year. Internal investments introduced under the current midterm management plan to strengthen core capabilities are also making a progress with a focus on further advancing our media-centered growth strategy. In fiscal 2025, we invested JPY 8 billion in developing data and technology-driven tools such as dentsu.Connect and in accelerating AI implementation. In fiscal 2026, we are planning to utilize up to JPY 14 billion in investing in the data and technology domain with the emphasis on strengthening our media business as we did last year. I would now like to share my concluding thoughts. In fiscal 2026, we will continue to realize a steady growth in our Japan business and achieve a turnaround in the U.S. CXM business so as to further restore our competitiveness and profitability. Given the extremely low likelihood of having to recognize further impairment losses on goodwill, we are confident that statutory profit will return to positive in fiscal 2026. However, considering the current performance and the changes in the business environment, we are withdrawing and will reset in due course some of the key financial targets for fiscal 2027 we disclosed in the midterm management plan. Having said that, we are still targeting operating margin of 16% in fiscal 2027 based on the expected continued realization of outcomes from profitability improvement initiatives going forward. We are planning to announce early this fiscal year our strategy for accelerating the transformation we set out in our midterm management plan. In addition, we are still exploring potential partnerships to enhance our competitiveness, and we will make announcements without a delay should any situation arise that require disclosure. Finally, we filed a shelf registration for the issuance of bond-type class shares today in order to secure flexibility options for strengthening our financial foundation in preparation for future growth investments. And finally, as announced today, we have decided to move to a new management structure to further accelerate our transformation. At our group, the Nominating Committee has been carefully reviewing potential candidates for the next CEO based on our succession plan. Amongst those candidates, Mr. Sano was determined to be most qualified to lead the group going forward during this transitionary period based on his strong track record in improving the performance of the Japan business as well as the efforts that he has been making in business transformation and in maximizing corporate value at a global scale. And so I would like to invite Mr. Sano to say a few words. Takeshi Sano: I'm Sano. Nice to meet you all. With this management structure, I will drive active discussions and mutual collaboration among the executive team so as to accelerate the execution of our strategies. I look forward to receiving your support. And I will certainly contribute to enhancing corporate value. Look forward to receiving your support. Thank you. And thank you for your attention. I'll now hand back the microphone to the operator. Natsuki Morishima: [Operator Instructions] The first question is Abe san from Daiwa Securities. Masayuki Abe: I am Abe from Daiwa Securities. I have 2 questions. My first question is regarding the impairment. So the equity ratio is down as a result of that. And as you said, you are filing shelf registration for the issuance of bond-type class shares. And I would like to ask about how you see the equity level. Do you think that you need further capital infusion from outside? Or do you -- are you simply preparing for further worsening of the financials? So I would like to ask your outlook regarding that. And then next is the business outlook. So outside of the North America, you are forecasting an increase in net revenue. Do you think that this is a conservative figure? How certain are you regarding the growth next fiscal year? Hiroshi Igarashi: Thank you very much, Mr. Abe. Regarding the first question, regarding the shareholder equity ratio from the impact of the impairment and what kind of options we are considering if there is further worsening of the shareholder equity. I would like to invite Endo-san, CFO, to respond. And the second question was that outside of the Americas, each region is expecting an organic growth. And do you think that this is a conservative figure? I will respond to this question. Shigeki Endo: Thank you. This is Endo. First of all, the consolidated equity is JPY 370 billion after impairment. It is not that we will immediately need equity finance. On the other hand, growth investment and structural reforms will continue. Therefore, in terms of the financing, we will consider every option, including equity finance. And as part of this consideration, in order to strengthen the financial basis for making such an investment without diluting EPS, in order for us to issue bond type cash shares in a more agile manner, we are going to ask for the approval of the AGM for the shelf registration. Hiroshi Igarashi: And second question, I will respond to the question. The increase in net revenue outside of the North America, is this a conservative outlook? And the response is, yes. We have -- for each market and for each region, been considering the budget formulation. Of course, we look at both risk and opportunity in detail. And we have incorporated the risks in our calculation for our budget. And we have issued the guidance as a result of that reflection. Therefore, we believe that this is an achievable budget. Natsuki Morishima: The next question will be from Mr. Maeda from SMBC Nikko Securities. Eiji Maeda: This is Maeda from SMBC Nikko Securities. So to begin with, the thinking behind the impairment on this occasion. From our perspective, we feel that it is better to take the impairment as quickly as possible. That is the kind of the position we have spoken previously. But on this occasion, you have embedded an impairment loss that would lead to 2 consecutive years of nondividend payment. But if you look at the recent performance, one may think that you may not have been required to take the impairment. So I thought that there could be a significant message or a significant intent behind it. So you didn't want to keep any negative legacy under the new management structure or did you want to kind of draw a line here to make significant improvement in international business versus that diminish? In order for you to engage in business structure reform, if you had goodwill still, then there was potential risk of having to take impairment in future. So did you actually dealt with that in advance? I think this was quite a bold recognition of goodwill on this occasion -- impairment on this occasion. So I wanted to understand the intent behind this. That's the first question. And for second question, in regards to the international business, based on your explanation thus far, it seems that you can aim towards recovery on your own and the success example from Japan can be implemented for international business that could potentially lead to different results. But the structural reform for the international business and towards the new management structure, what are the views? And if possible, I would like to hear a comment from Mr. Sano in this regard as well. Hiroshi Igarashi: Thank you, Mr. Maeda, for your question. First, in regards to our thinking behind the impairment, we should take the impairment as quickly as possible. And what was the situation on this occasion? It seems that we have recognized quite a significant impairment. Is there a significant message behind this? Have you kind of embedded the risk of the impairment in the future? So well, I would like to ask CFO, Mr. Sano, to respond and I will follow with my comments after him as well. And the second question is in regards to the international business. It seems that we can achieve recovery by ourselves. So inclusive of the structural reform, you wanted to hear a comment from Mr. Sano, who will be leading the company going forward. So I'll ask Mr. Sano to respond to the second question. Takeshi Sano: So this is Sano is speaking. Thank you, Mr. Maeda, for your question. So in regards to the impairment, please allow me to give some detailed explanation. So in the fourth quarter of FY 2025, we registered the goodwill impairment of JPY 310.1 billion and this comprised JPY 230.8 billion in the Americas and JPY 79.3 billion in EMEA last year in FY '25 in the second quarter. If we put the 2 together, we've recognized JPY 396.1 billion of the impairment loss for the full year. And if we break that down, Americas accounted for JPY 299.7 billion, EMEA, JPY 96.4 billion. And as a reference, the full year 2025, the total impairment amount was JPY 402.6 billion. And so apart from these that I have described, there were some impairment of intangible assets as well, which make up that number. And so the thinking behind this and our performance for FY '25, as we have explained, we were able to achieve a positive growth slightly above our expectations and our margin exceeded our expectations. And to say more, the Americas CXM, which triggered the impairment, is now steadily showing the recovery signs. And so it was not the case that we saw a rapid deterioration in the international business. But the assumption for the impairment test and we consulted with the accounting auditor and we have decided to revise the assumption. And the business assumption for the impairment test was such that no additional impairment loss would be recognized in the future. And so we actually lowered the level to such a level. And for FY 2026 we have a guidance, but this is completely separate from the impairment issue. So from our perspective, and I'm kind of repeating myself, but impairment of goodwill; we don't want to recognize any further impairment of goodwill in the future so we revised the numbers to those level. And the guidance for FY '26, which is to achieve profitability, and we have been deeply focused on that and so that was the basis upon which, we recognized the impairment in FY '25. Hiroshi Igarashi: And this is Igarashi speaking. It's exactly as Mr. Sano has explained. But from our perspective as a management, we have essentially caused negative surprise to yourselves and this is something that we regret significantly, the significant impairment loss on the goodwill on this occasion. And this came with the thinking that we do not -- no longer want to cause a negative surprise in the future. And so we took that in mind and discussed with the accounting auditor and made assumptions at that table. It's really based on reflecting all of the risk factors. But as Mr. Maeda has indicated, together with the reform of international business going forward, would there be a potential risk in the future? Well, rather than assuming that for now, we have reflected all of the risk to the maximum level possible so that we no longer will have to come up with negative surprise in the future and we wanted to engage in the reform on that basis and that is the message I would like for you to take. So I would like to ask Mr. Sano to make comment in regards to the international business. Takeshi Sano: This is Sano speaking. Mr. Maeda, thank you for your question. Yes, as you have indicated, at a certain likelihood that we do expect to be able to achieve that growth. Market, as you know, has undergone quite significant changes. Many changes are taking place due to AI or in international markets, we are seeing mergers of mega agencies. So many things are happening right now. So in the era of many changes, as many people say, it's also an opportunity. And from 2025, we've already started to achieve certain results in regards to rebuilding of our business foundation. And as I explained already, we have achieved the outcome, but we need to accelerate that even further. And so for that, revisiting the entities, improve transparency and to make the management structure more simple and they would enable a greater acceleration. The other is in regards to growth. So as you have indicated, many knowledge that we can utilize from Japan and for each of the markets not being completely uniform, but the markets have various strength or there are the client structures or the client -- the nature. So we need to identify how to win in each of the market and we feel that we can certainly do this. This completes my response. Natsuki Morishima: Next question is Mr. Kishimoto of Mizuho Securities. Akitomo Kishimoto: This is Kishimoto from Mizuho Securities. I also have 2 questions. My first question, For FY '26, I'd like to ask about the pitch size or pitch scale. What is the amount of pitch that you are seeing for this fiscal year and what is the ratio of offense and defense amongst the pitches? Next is the outlook for the Japan business. I believe that you have a really good pitch win rate. On the other hand, the organic growth rate is only expected to be 2% to 3%. Perhaps you are being conservative or last year there were some special market factors around TV. So perhaps last year was very strong and maybe as a rebound, the growth rate in FY '26 looks softer. Those are my 2 questions. Hiroshi Igarashi: Thank you very much, Mr. Kishimoto for your question. FY '26, I think your first question was more about the international business, the size of the pitches in the FY '26. So I would like to respond to that question. And regarding your second question regarding Japan business, FY '26 organic growth rate, 2% to 3%. Is this conservative or not? Is there any special factor behind that? I believe that this was your second question. So let me respond to your first question. FY '26 pitch size for Media pipeline, JPY 4.2 billion is the current size. Out of this pipeline, 80% is offensive. So 80% is offense and this pipeline is what we want to realize and also we would like to be winning new opportunities as well by approaching customers. And for Creative, there are some pitches that will be happening, but there is a lot of competitive pressure. Currently, GBP 701 million is the size and 73% is offense. For CXM, the pipeline is different from the other domains, but the pipeline is actually growing for CXM and 14% growth year-on-year, about [ 106 million. ] CXM, we have been doing very detailed analysis since last year so the pitch win rate is very good for CXM. On the other hand, client retention is also very high. So with that considered, we believe that the recovery trend will strengthen. Regarding the second question, I'd like to ask Sano-san to respond. Takeshi Sano: Thank you, Mr. Kishimoto, for your question. To give you the conclusion first. Yes, slightly conservative outlook I would say. One is that 2025, 6.2% growth rate, which is a high growth rate and so there is some rebound from that. And also last year there was the World Expo and the World of FedEx and so there were some large-scale events in FY '25. On the other hand, looking at the very strong share price and -- the stock market and the new administration from the election, the market environment is not bad at all. And there is the WBC, FIFA World Cup, the current Olympics and there are many large-scale events as well as the Asian Games. And so we have a good win rate and the Internet business, which is a growing business, we are growing ahead of our competitors. So against the guidance, we would like to outperform. Natsuki Morishima: So the next question is from Mr. Nagao from BofA Securities. Yoshitaka Nagao: This is Nagao from BofA Securities. My question is in regards to the balance sheet on a nonconsolidated basis. So I understand that the retained earnings is negative right now so we have the loss on retained earnings, but you have cash and you have the reserve capital. So the net asset overall is still positive. But in order to secure a buffer to enhance your capital so the capital policy on this occasion is essentially issuing a bond on this occasion. Is that the right understanding? So I wanted to ask and receive explanation about your capital policy going forward. So that's the first question. The second question is in regards to the North American business. CXM business apparently has started to improve and the Media business has recorded 2 consecutive years of positive and I understand that you want to also add values in the D&T area. So it seems that the forecast is not that pessimistic. Well, going forward when you look at the organic growth for the U.S. going forward, what are some of the concerns? If you could elucidate on that, please? And is it 2 questions per person? And the third question is the midterm management plan and you said that the operating margin target of 16% will be maintained. But you did take the impairment loss on the goodwill, but the ability to generate operating cash flow, I feel that, that has not been damaged. And so I think the operating cash flow target was JPY 140 billion. So do you have concerns about your ability to generate cash to that extent? It does relate to the first question on the balance sheet ability to generate cash flow. I don't feel that, that has been damaged. So could you give some comment on that, please? So those are the 3 questions. Hiroshi Igarashi: Thank you very much, Mr. Nagao for your question. For the first and the third question, Mr. Endo will respond to those together. This is the balance sheet regarding the unconsolidated basis and so the retained earnings or the net asset position, it seems that we still have room. So was that to secure a buffer on the capital policy that we are considering the issuance of class shares. So you wanted opinions about the capital policy and also in regards to ability to generate cash. So Mr. Endo will respond to that together. And the second question in regards to the North American business, it seems that it is starting to show steadiness. Is there are any concerns? And for that question, we'll ask Mr. Giulio Malegori to respond. Shigeki Endo: So this is Endo. Thank you very much, Mr. Nagao, for your question. So the balance sheet on a nonconsolidated basis. Well, the consolidated, the impairment loss that we have taken on this occasion, the distributable amount which is the source of dividend, ended up being negative JPY 234.3 billion. And with that and so whether it be the equity ratio or other financial, the indicators are impacted due to the impairment. And so we want to be able to issue class shares by changing our Articles of Incorporation. But this is more from the perspective of preparing for future big investment and we want to also strengthen the financial position to have greater I suppose flexibility in able to engage in various initiatives. So that's the first point. And the third question is the operating margin of 16% in the midterm management plan. This has been maintained. Well, as for cash, are there any concerns or not? I think that was the gist of your question. Well, in FY '25 and based on the track record, cash flow overseas, this is operating cash flow; this has been negative for several years, but this turned positive in FY '25. So in that regard, it's not the case that we have concerns about the cash. That is our view right now. But over medium to long-term growth going forward, we need to make investments. And so here under the new structure, we wanted to revisit the situation. And so in regards to the financial, the indicator of 16%, we have decided to maintain. Hiroshi Igarashi: So Giulio, please respond to the question. Giulio Malegori: Thank you, Nagao-san, for the question on the outlook of North America and any concern specific to that. Well, as you heard, we are looking for organic growth minus 2% for the full year. Let me elaborate quickly and briefly on each practice and then will comment specifically on the concern. When we look at Media, the solid momentum should continue. We anticipate more demand in performance-oriented and data-driven channels. And so we will accelerate our investment in the Media ++ strategy and we also embed AI-enabled workforce with stronger data integration across planning, activation and analytics. In CXM, I think you already heard about the progress and we intend to further accelerate the content supply chain and modern CRM. So to your specific point on the concern, this is really focused on the creative practice where we anticipate is an area that will face challenge. As Mr. Endo quoted, we've unfortunately seen significant client losses during '25 and they are impacting '26. There will be also -- we are anticipating some client spend reduction that we got in '25. So we hope to stabilize the business throughout services that combine Creative and Media production and social, but we need to factor in the impact of the losses that we got last year. So that's the outlook. It's just factor in the impact of last year, but we have a clear plan going forward. Thank you for your question. Natsuki Morishima: We have passed the planned time, but we do have 1 more hand remaining. So I'd like to ask Mr. Harahata of Nomura Securities. This will be the last question. Ryohei Harahata: This is Harahata from Nomura Securities. Sorry for going over time. I also have 2 questions, if I may. First question is regarding Gen AI and how that will impact the competitive environment for advertising agencies. For overseas ad agencies, there seems to be a headwind regarding the share price. How do you plan to differentiate yourself in the new Gen AI era? And my second question is to the next President, Sano. As a member of the new management, amongst the challenges that were discussed today, which challenge do you think is the most urgent that you need to address first? So I'd like to ask about your priorities. Also, as the new management member, why do you think that the new management will be better positioned to address these challenges? What has been strengthened through the change in management? That is my question to Mr. Sano. Hiroshi Igarashi: Regarding your first question regarding GenAI and the impact on the competitive environment, how agencies will be impacted by GenAI and how Dentsu plans to formulate its strategy against this backdrop. So I would like to address this question. And the second question was addressed to Mr. Sano regarding the new management. What will be the priorities and how the new management structure will allow you to better address those challenges? So in terms of the first question. Indeed, as Mr. Sano also mentioned earlier, our industry -- but not just our industry, AI is making waves across the different industries and we ourselves cannot think about our future business without use of AI either. In terms of rebuilding the business foundation, I mentioned that there are 750 initiatives and these are not just cost-cut measures, but standardization and automation are major themes. So in order to make the operation more efficient, being less labor dependent, using AI for higher efficiency. This is also necessary for building the business foundation. And also we'd like to look at the upside for our business opportunities. This year AI for growth is a major objective. How by leveraging AI we can achieve higher growth? This is a group-wide initiative. And data and technology, dentsu.Connect is the center of our data and technology and so we would like to centralize the AI-related expertise here. There are over 700 clients that have already introduced dentsu.Connect and also many agencies are investing in this area. But for the clients rather than being locked into a closed platform of agencies, which many clients are concerned about, we focus on interoperability which is connected and open to other platformers and the clients themselves so that AI can be adapted and customized or improved to match the needs of the clients. So I believe that the clients will understand this and work with us together to resolve their challenges. And so this is different from other agencies and is unique to Dentsu. And this is something that is now being understood amongst the clients and I believe that we can deliver results based on this policy. So Mr. Sano, please address the second question. Takeshi Sano: Thank you very much for your question, Harahata-san. There is so much that I'd like to say, but I'd like to keep it simple. First is the rebuilding of the business foundation, transparency, simplification, visualization to look at underperforming businesses to choose whether to exit or shrink or to improve the profitability. We need to execute with speed. That is the most important thing. And as the organization, there is going to be a Chief Transformation Officer, which is the first position to be in Dentsu, and to rebuild the business foundation and reevaluate the underperforming business. This is the executive management who will be in charge of that. And second is regarding growth. Our growth is to identify the issues of the client ahead of the client and to help the client resolve those issues. This is how Japanese business grew and we have to expand this globally. And as an organization, we need to be more flat meaning that each head of the region reports directly to me. But also Jean Lin, practice head was in between the reporting to the President. But each Media, CXM, Creative; President will be reporting directly to me. So we will remove that layer so that we can identify the issues of the client and enhance our competitiveness in a more swift manner. So these 2 are what we would like to prioritize. But there's one more thing I'd like to mention. There is a Chief Branding Officer. So there were some weakening of our brand last year with some speculative articles. So for the customers to understand the brand, the Dentsu brand and the Media brand, et cetera, in order to enhance our brand power; Jean Lin will be the Chief Brand Officer. So that is another initiative that I want to mention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to Marcus & Millichap's Fourth Quarter and Year-End 2025 Earnings Conference Call. As a reminder, this call is being recorded. I will now turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Jacques Cornet: Thank you, operator. Good morning, and welcome to Marcus & Millichap's Fourth Quarter and Year-End 2025 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steven DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including, but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transactional professionals, company's ability to retain its business philosophy and partnership culture amid competitive pressures, the company's ability to integrate new agents and sustain its growth and other factors discussed in the company's public filings, including its annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2025. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji. Hessam Nadji: Thank you, Jacques. Good morning, and welcome to our Fourth Quarter and Year-End 2025 Earnings Call. I'm pleased to report MMI's continued recovery from one of the most complex and prolonged market disruptions on record with 2025 revenue growth of 8.5% and adjusted EBITDA improving to $25 million compared to $9 million in 2024. The fourth quarter particularly showed the strength of our resolve and execution as we set out to beat the exceptional 2024 fourth quarter, which had been propelled by a significant drop in interest rates. Despite entering the fourth quarter of 2025, without the benefit of lower interest rates, I'm proud to report that we beat a tough comp by 2% on the top line and significantly improved profitability. We drove these results through elevated client outreach, tapping our extended lender network, and taking advantage of key market improvements despite the absence of lower interest rates. A larger-than-expected resurrection and closing of deals that had been delayed or canceled early in the quarter, and a lift in urgency among our private clients deciding to take advantage of bonus depreciation by year-end were key factors in the late-stage rally. Although the bonus depreciation provision of the new tax law does not phase out, its advantage became a stronger motivating factor in getting deals closed in the final period of the year. I'm also pleased to report that 2025 marked the strongest growth in our sales force in 7 years with nearly 100 net additions of brokerage and financing professionals. Various initiatives to combat the unusual pandemic and post-pandemic forces that have elevated our new agent dropout rate culminated in this critical return to growth. The additions include a steady cadre of experienced individuals and teams that continue to choose MMI as the ideal platform for taking their career to the next level. We are very encouraged by last year's hiring results and a strong candidate pipeline going into 2026. Throughout 2025, we maintained our market leadership position by transaction count completing nearly 9,000 transactions totaling over $50 billion in volume. This translates to more than 35 transactions per business day, reinforcing a consistent expansion of client relationships and enabling our team to move capital across markets and property types. Looking back, 3 key factors impacted our performance in 2025, all of which also bode well for the outlook in 2026. First, capital markets and investor sentiment improved, particularly in the second half of the year after recovering from the initial shock of Liberation Day. Despite a cautious federal reserve that lowered rates at a much slower pace than anticipated, lender spreads compressed by 75 to 100 basis points and loan-to-value ratios expanded. Many lenders have repaired balance sheets, restructured and are resolved a large portion of maturities and have more capacity as transaction volume has picked up. Second, momentum in our private client and middle market segments picked up last year as prices finally began to adjust and regional banks and credit unions became more active. MMI's $1 million to $20 million transaction count and revenue each grew 12% as we started to reestablish our traditional advantage in these segments. This part of the market not only comprises the vast majority of commercial property stock and transactions, but it is also poised for more activity as a narrowing bid-ask spread releases pent-up supply from sellers who previously were hanging on to assets. Third, our financing business continues a strong trajectory with revenue up 23% in 2025 after growing 26% in 2024. This solid pace is the result of our expanded cadre of experienced financing professionals and the team's ability to access over 420 separate lenders last year. Our team of nearly 100 finance professionals is interconnected through our proprietary technology, which is integrated with our expansive lender relationships. This tech-enabled combination secures the most optimal financing options available in the marketplace. MMCC and IPA Capital Markets closed over 1,600 transactions for a volume of nearly $12 billion, which includes a $2.3 billion portion placed with Fannie Mae and Freddie Mac primarily through our strategic alliance with M&T Bank. Agency financing has been one of the fastest-growing segments of our business. Thanks to the talent acquisition and rapidly growing collaboration we have managed to pull off between our finance professionals and our sales teams. The only segment that was off last year was our larger transactions valued at $20 million or more, which declined by 13%. This is primarily driven by a tough comparison to 2024 when our institutional segment led the recovery with a 28% revenue increase, including an 88% surge in the fourth quarter of 2024. Institutional apartment sales, which showed exceptional strength in 2024, eased as the acute flight to safety limited the buyer pool for lower-tier assets and secondary markets. While our IPA division is well positioned to continue expanding in the institutional arena, some volatility is to be expected as a number of metros grappled with oversupply. The ripple effect of high vacancies, particularly for multifamily in these metros is leading to a rise in underperforming assets that are not yet priced to clear the market. In summary, we're pleased with the significant improvement in the company's key metrics. However, we are laser-focused on driving further momentum in the pace of recovery and capturing the substantial growth runway ahead of us. We entered 2026 with greater clarity on the path to achieving this, thanks to a largely recalibrated marketplace and our unwavering conviction in our client value proposition. Building on that strengthening position, we remain disciplined in our approach to strategic investments while maintaining prudent cost controls. The investments we have made over the past several years in talent retention and acquisition, technology infrastructure and branding are beginning to show leverage as the revenue tide turns. As I've mentioned on previous calls, the expensing of capital investments has been an outsized drag on earnings since the start of the market disruption in 2023, given the hampered revenue production of the past few years. As market conditions and broker productivity improve, so will the production level of the talent pool we have retained and added to over the past several years. As a critical part of our technology strategy to leverage AI and drive efficiency, the company's centralized back office and marketing center called Brokerage Transaction Services or BTS is intensifying its reliance on third-party services at a lower cost, while we also begin to leverage various AI applications to our benefit. These efforts are concentrated in financial analysis, document generation, underwriting and lead scoring. All of these efforts are showing promising results, but need significant advancements in the AI capacity and the use of historical data mining for accuracy and scalability. We expect and fully embrace the opportunity that AI has opened for massive efficiency in virtually all aspects of property analysis, underwriting client targeting and outreach, an era of higher throughput at a much lower cost is emerging, and our goal is to lead this tremendous productivity gain over time. However, we do not expect AI to disintermediate the function of a value-added broker, given the expertise, building by building nuances and buyer seller relationships that ultimately drive the commercial real estate industry. In our view, the broker of the future will be armed with an array of additional analytics with more efficiency in a way that will help clients create value. At the same time, value-added offerings such as our auction services and loan sales division continued to gain traction, generating direct incremental revenue and increasing sales and financing opportunities through collaboration with our sales force. Looking ahead, we entered 2026 with greater optimism driven by several positive market fundamentals. Interest rates, while still elevated, have stabilized, which provides a more predictable valuation benchmark. Simply stated, values have to adjust to the new normal in the cost of debt, and they're doing so. The price corrections over the past 3 years, combined with a major pullback in new construction are creating compelling investment opportunities, especially on a replacement cost basis. Cap rates are up 85 to 110 basis points on average since 2022, and prices are down roughly 20% on average. This, combined with lower all-in interest rates driven largely by lower lender spreads should further bolster investor demand and capital flows in 2026. Despite expectations of a more accommodative federal reserve, inflation pressures and trade-related variables will likely limit the Fed's ability to significantly lower rates. While the labor market is slowing faster than expected, the incoming Fed chair will most likely face the same obstacles to lowering rates. Nevertheless, we expect last year's transaction market improvements to continue as time narrows the bid-ask spread and facilitates the sale of many delayed trades. 2026 is a milestone year for all of us at MMI as we celebrate the company's 55-year anniversary. Many aspects of the company's culture that retain and attract the best of the best in brokerage, financing, management and support functions, find their cornerstones in the company's founding principles that still drive us today. These include bringing efficiency and value, liquidity and certainty to an otherwise fragmented market, measuring our success by our clients' results, and creating long-term and rewarding careers for all team members at Marcus & Millichap. As we mark this important milestone, all eyes are on the future and our quest to lead in an ever-changing industry. Our multi-pronged growth strategy includes expanding our leadership in the private client market, further penetrating the institutional segment through IPA, and accelerating the scaling of our financing, auction, loan sales and client advisory services. Given our disciplined approach to acquisitions, recent attempts to acquire additional financing boutiques, appraisal and valuation firms and complementary adjunct businesses such as investment management and cost aggregation have not yet come to fruition. However, they will in time, as the company is committed to providing an array of additional services that align with our dominance in investment brokerage and financing. Our ultimate goal is to enhance our offerings to a client base we have come to know extremely well throughout the years. Powering this vision is MMI's stellar balance sheet with nearly $400 million in cash, reinforcing our ample purchasing power for strategic acquisitions, which we continue to pursue. Most recently, we have engaged in multiple large-scale explorations that would enable us to expand our financing business more rapidly. We're proud to have balanced strong liquidity and purchasing power with a consistent return of capital to shareholders with $47 million provided in dividends and share repurchases executed in 2025. As we look to the future, we are excited about a new real estate cycle and the vast opportunities ahead for expanding our market presence and revenue diversification to enhance long-term value. And with that, I will turn the call over to Steve for more details on our results. Steve? Steve Degennaro: Thank you, Hessam. Total revenue for the fourth quarter was $244 million, an increase of 2% compared to $240 million for the same period in the prior year. As Hessam mentioned, year-over-year comparisons in Q4 are against an exceptionally strong fourth quarter last year. For the full year, total revenue was $755 million, up 8.5% compared to $696 million last year. Breaking down revenue by segment, real estate brokerage commissions for the fourth quarter were $205 million, moderately exceeding last year's tough comp and accounting for 84% of quarterly revenue. We completed 1,902 brokerage transactions with a total volume of $11.8 billion for the quarter. While transaction dollar volume was lower by 4%, transaction deal count was up by more than 9% over last year, and the average commission rate was 1.7%. The relative increase in private client transactions contributed to a 7% decrease in the average fee per transaction given the higher mix of smaller deals. For the full year 2025, revenue from real estate brokerage commissions was $633 million compared to $590 million last year, an increase of 7%. We completed a total of 6,038 brokerage transactions, up 11%, with total volume of $35 billion, up 3.5% compared to prior year. For the year, average transaction size was $5.8 million compared to $6.2 million in the prior year, reflecting the pickup in private client activity. Within brokerage for the quarter, our core private client business accounted for 65% of brokerage revenue or $133 million up from 59% and $120 million in the same period last year. Private client transactions grew 13% in volume and 10% in transaction count. For the full year, Private Client contributed 64% of brokerage revenue or $406 million versus 62% and $366 million, an 11% increase in revenue year-over-year. For the fourth quarter, middle market and larger transaction segments together accounted for 31% of brokerage revenue at $65 million compared to 38% and $77 million last year. The year-over-year change in revenue is attributed to a decline in transactions and dollar volume in these segments of 8% and 14%, respectively, and is largely a result of fewer large transactions. Large transactions significantly outpaced the market last year, creating a very tough year-on-year comp. For the full year, middle market and larger transaction segments combined represented 32% of brokerage revenue or $200 million compared to 34% and $203 million last year. Revenue from our financing business was $33 million during the fourth quarter up 6% year-over-year from $31 million last year. The growth reflects an 8% increase in transaction volume totaling $3.7 billion across 507 financing transactions, which was a 19% increase year-over-year. The average origination fee was down nominally due to an increase in larger deals closed in the quarter. For the full year, financing revenue was $104 million, a 23% increase compared to last year. This growth was driven by a 33% rise in transaction count totaling $11.9 billion in volume, a notable increase of 31% year-over-year. Our overall performance reflects the continued momentum and progress and scaling of our finance platform and success in recruiting amended producers over the past several years. Other revenue, primarily from leasing, consulting and advisory fees was $5 million in the fourth quarter compared to $6 million in the same period last year. For the full year, other revenue totaled $19 million compared to $22 million in the prior year. Turning now to expenses. Total operating expenses for the fourth quarter were $229 million, a 2% decrease from last year on higher revenue, demonstrating our continued focus on operational efficiency. For the full year, operating expenses were $769 million, up 5.5% over 2024 though lower than our revenue growth rate of 8.5%. Cost of services for the quarter was $155 million or 63.3% of revenue compared to 63.2% last year. For the full year, cost of services totaled $470 million or 62.3% of revenue, up slightly from 62% last year. SG&A expense for the quarter was $71 million or 29% of revenue compared to $76 million in the same period last year, a decline of 7%. For the full year, SG&A totaled $286 million or 38% of revenue, an improvement compared to 40% of revenue in the prior year. Our ongoing expense discipline is aimed at enhancing operating efficiency and leverage and improving profitability. For the fourth quarter, net income was $13 million or $0.34 earnings per share. This compares to net income of $8.5 million or $0.22 per share in the prior year, a significant EPS improvement of 55% year-over-year. For the full year, net loss was $1.9 million or $0.05 per share, which, as a reminder, includes an $0.08 per share charge for a legal reserve we took in the third quarter. This compares to a net loss of $12.4 million or $0.32 per share in the prior year. The improvement in operating results in the year marks a meaningful inflection point, signaling renewed momentum across the business. Regarding the legal matter, we disclosed with Q3 earnings, there is no material update to report, and we remain fully committed to pursuing relief through the appeal process. Adjusted EBITDA for the fourth quarter was $25 million, up 39% compared to $18 million in the same period last year. Full year adjusted EBITDA was $25 million compared to $9 million in the prior year. Adjusted EBITDA for the full year would have been $4 million higher, if not for the legal reserve recorded in the third quarter which highlights the substantial progress in operating performance over the prior year. Moving to the balance sheet. We continue to be well capitalized with no debt and $398 million in cash, cash equivalents and marketable securities, a $17 million increase over last quarter. The growth in cash was achieved while also returning $29 million to shareholders during the quarter through a $10 million dividend paid in October and $19 million of share repurchases, underscoring the strength of our cash generation as well as our disciplined capital allocation approach. Earlier this week, we announced that our Board declared a semiannual dividend of $0.25 per share or approximately $10 million payable on April 3, 2026, to shareholders of record on March 13, 2026. During the year, we repurchased shares totaling $27 million at a weighted average price of $28.77 per share. Since inception of our dividend and share repurchase programs nearly 4 years ago, we have returned approximately $217 million in capital to shareholders. Looking ahead to 2026, we see several positive catalysts for our business, which Hessam summarized. First quarter revenue is expected to follow the usual seasonality trend and be sequentially lower than Q4. While we are encouraged by the prospect of continued momentum in the New Year, our cautiously optimistic outlook is tempered by ongoing macroeconomic and geopolitical uncertainties that could moderate the pace of transaction activity. Cost of services for the first quarter should follow the annual reset and be in the range of 60% to 61% of revenue. SG&A for the first quarter should reflect an increase year-over-year in absolute dollars, consistent with higher agent support tied to improved revenue performance in 2025 and continued investments in technology and central services to support our sales producers. As for taxes, the effective tax rate for the quarter and the year is expected to be in the range of 50% to 60%. We remain committed to our balanced capital allocation strategy, which includes investing in technology and talent, pursuing strategic acquisitions and returning capital to shareholders. Our strong balance sheet provides us with significant flexibility to pursue these objectives while maintaining our competitive position. With that, operator, we can now open the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Blaine Heck with Wells Fargo. Blaine Heck: Hessam, as you alluded to, the broker group has been under a lot of pressure this week, driven by concerns about AI displacement within the business and impacting the CRE sector more broadly. You talked about some of the changes that you guys have already made. But looking forward, I guess, which segments of your business could be impacted, whether that's certain deal sizes or business units? And do you think your focus on the Private Client Group gives you guys more or less protection from AI disruption? Hessam Nadji: Blaine, good to have you on the call. I was happen to be just on CNBC a few hours ago on this very topic because it's getting a lot of media attention, especially as it has impacted the Commercial Real Estate Services segment in the last 48 hours or so. And my view and I think that of many in the industry is that AI is here to stay. And there's almost countless ways that AI is going to improve the manual processes that are so labor intensive in our business, whether it's underwriting, data gathering, data parsing, document generation and really all the production-related components of our business, which is significant. If you think about the number of times a broker needs an asset analysis, a submarket analysis, a metro analysis even before a first meeting with a client, even before they've really gotten to know the client. The need to be educated in that first interaction itself creates a tremendous amount of labor. And we're excited about finding scalable ways for AI to make that process a lot more efficient and a lot less costly, frankly, so that we can reallocate capital to other ways that the company can advance forward and more R&D as well as improving our margins. That's a given. The big question mark is what happens in the second wave of AI? I believe right now, we're in the first wave of really this initial level of replacing a lot of manual tasks and labor-intensive tasks. The second wave is more interpretive in my view. And that's where the intelligence that would be expected from AI would start to have a gray area with the expertise and the personal experience and interpretation skill set of a good broker. In commercial real estate, trying to scale that interpretive capability of AI becomes a lot more challenging because the data is disorganized. You have to have micro historical data to feed to the AI that is not a cookie-cutter across various markets, not a cookie-cutter across various asset types. And therefore, the notion that even in ways that they -- for-sale housing market, the residential housing market, is far easier to commoditize in terms of analyzing or digitizing the valuation models or the buyer selling matches that you can do for the for-sale housing market are very hard to transfer over, I think, in a cookie-cutter fashion to commercial real estate. And one commentary I made on CNBC when I was on a few hours ago is that you can build the exact same asset, exact same size, features and characteristics and open for business on the exact same day across the street from each other. And 10 years later, from an investment perspective, those could be entirely different cap rates, entirely different NOIs based on the way that they're managed, the capital improvements and so on. So that's where the complexity of just how much interpretive power can be extracted from AI given its reliance on accurate historical data and the learning that the algorithms would have to do. To answer your question, I do believe that the notion of fee pressure because of the commoditization of the data is going to be out there for a while. I think every disruption that we can think of in the last 20 years which initially was perceived to threat intermediary value-add work and brokerage value-add work has actually helped the brokerage business. Think about it. This is deja vu for me being in the thick of the inception of the Internet and Marcus & Millichap really being on the forefront of embracing the Internet and embracing electronic portals because we thought it would actually enhance our value proposition and not destroy it. We were one of the founding investors in the LoopNet in the late '90s, for example. So this goes back a while for us. And we take it very seriously from the standpoint of evaluating the threat to our value proposition and at the same time, really focusing on the ways we can take advantage of it. You could argue, Blaine, that a single tenant net lease that is far easier to underwrite, I mean people say that, but even a single tenant net lease requires really good underwriting. By the way, you got -- you got to go look at the real estate. It's not really a bond, but closer to a bond than, let's say, a shopping center or an office building or even a multifamily rental building. And those easier to underwrite and more homogenous assets could get further down the road of being impacted by AI and requiring less of the broker touch. However, I go back to -- and this is another thing we discussed on air a few hours ago. I go back to the relationship component, the due diligence component and the art of keeping the buyer, the seller and the lender into a deal from a psychological perspective, the art of managing the vendors that are on the critical path of removing contingencies or the due diligence, I don't think robots are going to go around and do that anytime soon. So I really believe that we're headed for the next generation of reinventing the broker as we went through in the early 2000s because of the Internet and because of digitization of information availability, but I think it's going to make us better. And it's going to make the industry more selective and focus on the talent of the individual in their interpretive and people skills rather than commodity data gathering. Sorry for the long-winded answer, but I'm very passionate about this one. Blaine Heck: No, that's very helpful perspective and well said. Shifting gears, you guys had very strong growth in broker count this quarter. I guess a few questions around that. First, was this something that you had visibility into given your recruitment efforts? Were you expecting that level of growth this quarter? Or was there something that drove kind of a surprise to the upside? Second, are there any specific specialties you targeted in that growth? You've been kind of hiring more experienced brokers that can handle larger transactions, but I kind of would have expected a larger average deal size this quarter if that was the case. And then just third, how should we think about your plans to grow headcount as we look forward into 2026? Hessam Nadji: Very important topic. As you know, and we have messaged multiple times, we've been under so much pressure because of the disruption created by the pandemic into our multi-decade tested system and really almost a unique feature of the company in the way that we have been successful in attracting new talent with no experience, training them, supporting them into becoming market leaders. That has driven the company for so long up until 2020. And that whole component of our system was badly disrupted because of the pandemic and then the market volatility that ensued just elevating the dropout rate of the individuals that we hired really from 2020 on. First on -- because the market was shut down and in-person training was not possible. And then because the market had such a huge run and then a big crash. So that volatility makes it very hard to train new people into the business. And we made a concerted effort over the last 3 years to increase the channels of bringing in talent, qualifying the talent. Not only have we increased the inflow of candidates. We've really upgraded the filtering of those candidates, whether it's campus recruiting, whether it's our internship program that we have more than doubled in size and organized with a very specific curriculum across the country. The expansion of the William A. Millichap Fellowship program, all of which have been very successful. We started those 3 years ago. So it takes time for all these kinds of initiatives to produce tangible results. Everything in the business has a bit of a lag time which is frustrating, but a reality. And we did have visibility to it going into 2025, senior management felt very strongly that the underpinnings had time to get laid and work, and it was time for us to expect better actual tangible results in 2025. It became a major focus for our local market leaders that run our offices and our division leaders, our Chief Revenue Officers and all the way to myself. So we began to build a stronger candidate pool and again, with tougher standards of bringing in talent. The experienced talent that joined in 2025 usually would face a bit of a transition from whatever brand they came from. We don't expect them to repeat their 3- or 4-year, 5-year average immediately when they get here. There's normally a 6- to 9-month transition time before they rebuild the pipeline with us. So that's probably why you were questioning whether that cadre of the new sales force additions would have already brought some business with them. I believe that we're going to see some of that in 2026 as a benefit of the experienced folks we hired in 2025. Going into the New Year, we are not letting up on any of the initiatives we put into place in order to produce the results we produced in 2025. Our expectations are very high going into the year just as they were in 2025. And if anything, our systems, the expansion of our recruiting team, which is under new leadership, are all going to help maintain the momentum. Blaine Heck: Okay, great. Very comprehensive. Last question, you also mentioned continuing to explore strategic transactions. I wanted to see whether you think this latest market disruption and fear over AI displacement might bring about some opportunities for kind of lower cost acquisitions and how you're thinking about the risk reward of external growth given the current kind of concerns over disintermediation from AI. I guess, has anything changed with respect to your appetite for add-ons or maybe the profile of those potential expansion opportunities? Hessam Nadji: Nothing has deterred our strategy for attracting new talent, attracting boutiques and regional firms that I believe would thrive within the MMI platform. The introduction of AI as more of a business factor enhances that. It doesn't, in my mind, or as part of our strategy, diminish it at all. And I did want to really summarize for all of our shareholders and our analysts the attempts that we've made to diversify the platform going into 2022, 2023. And those include companies that we looked at in the appraisal valuation business, the cost aggregation business, even investment management was explored with a couple of opportunities that had come up. And the common theme that I've shared before was that going into '23, '24, there was so much near-term uncertainty. And there was some -- on our part in being able to forecast the first 2, 3 years of performance of an acquired target. And there was so much reliance in both the valuation and the terms of the target companies on guaranteed value upfront, that became the biggest obstacle that we felt very uncomfortable with and some of the deals that we looked at, given the near-term market uncertainty. As that fades and we really believe it has faded. And as I mentioned and Steve mentioned in his commentary, we're more optimistic about 2026 as the market gets closer and closer to an operating environment that we would consider fairly normal. Our confidence would be higher in that the first few years of an acquisition become somewhat more predictable than '23, '24 and '25 certainly were. And in retrospect, Blaine, I'll have to say that the decision to pass on the vast majority of those deals was the right thing to do. Knowing what has transpired and frankly tracking them and still being in touch and knowing how they fared. So I think we did our job in terms of being diligent with our shareholders' capital. But the desire to diversify this platform in a way that's value add to our existing sales force and the core customer base we've already gotten so close to is very much there, if anything, is even more energized as the market certainty and clarity returns. Operator: Our next question comes from the line of Mitch Germain with Citizens. Mitch Germain: Just following up on the M&A question. Is it just market uncertainty? Or has it also been a function of either price or a cultural fit that has prevented some of these transactions from getting over the finish line? Hessam Nadji: Mitch, I'll take that one, and Steve could add some comments as well. Really, all 3. Culture has been the least problematic because we already do a lot of due diligence upfront as to who we want to approach that we feel is like-minded and would have compatible cultures. We really haven't gotten too far down the road with a lot of targets that didn't have a good culture. There is only one I can think of meaningful size where we had to get to know them and get to know their culture, and that became in and of itself as well as a major gap in valuation expectations and in then terms, a big hurdle, we just couldn't get our heads around, even if you can get the numbers resolved. But the bid-ask spread has been wide from our standpoint. There are others who are more aggressive and maybe more willing to take risk back in '23, '24 and we weren't on a case-by-case basis. And then as I mentioned, the gap in terms of guaranteed value versus earn-out. We are very focused on bringing on talent that wants to be a part of MMI for at least 7 to 10 years or longer. And we're not really looking to become somebody's retirement plan. And what we face is a big challenge, Mitch. I think you're very familiar with this based on our previous conversations is that the vast majority of our targets are boutiques and regional firms that have 1 or 2 founders, that started a brokerage group or a team that became somewhat of a company. And those founders just having had some decades behind them are not really the revenue producers in most of the cases and their current revenue producers would not participate in an acquisition from a capital event perspective. So it's like, what are you really paying for? And in our fragmented core business, the pool of targets of any size that have a diverse revenue kind of stream sources of revenue stream are fairly rare to find. That's why our experienced producer recruiting has been much more successful. And -- but again, we have organized ourselves in a way where we're targeting specific spaces, specific companies and specific groups, whether it falls under experienced professional recruiting or a quasi-acquisition. Steve, anything to add? Steve Degennaro: Yes. Mitch, that's exactly where I was going to go. The guarantee and not wanting to be founder's retirement plan, that is certainly a very real factor in the brokerage business, perhaps a little bit less so in some of these adjacent spaces, but still, it's a strong, strong consideration that has kept us from consuming a handful of these deals. Mitch Germain: Are you able to -- have you been able to increase your cross-sell from your financing division to your brokerage? Where does that stand today? Hessam Nadji: Yes. That's a definite, yes. The best example, is in our IPA Capital Markets segment where we brought in a very experienced finance professional, teamed them up with some of our most experienced sales teams. The one case that I can think of right away is our IPA Capital Markets for Multifamily where we brought in the Eisendrath Financial (sic) [ Finance ] Group in 2022 and paired them up with our top 5 or 7 IPA sales teams across the country and their collaboration and joint efforts in winning business and serving the clients for both the investment sales component and financing and then in some cases, refinancing of other properties has been very successful in a short amount of time. Other examples include another IPA Capital Markets team that we brought on board in New York that has collaborated with a number of our investment sales teams. Our loan sales division, Mission Capital is actively either responding to leads that our sales force uncovers by talking to lenders or the other way around. And I'm also happy to say that within our auction business, the channel that auction has opened, both for aging inventory that is not effectively selling through conventional marketing and now can be put on an auction platform. And frankly, our Head of Auction would say that's too limiting of how the auction channel can be helpful to a seller even in the front end of deciding to market an asset, the right asset that is. So both of those types of scenarios are now creating cross-selling between auction, loan sales and our conventional finance division and our sales force. Mitch Germain: Got you. How do you envision 2026 performance with regards to, obviously, the market has been fairly unstable. And it appears that outside of this whole AI noise that's been impacting the share price, the market itself, going into 2026, it things like it appears as if allocations are increasing, people have accepted the new pricing paradigm. Definitely things like -- it seems like there's a little bit less volatility. So do you think that, that will begin to resonate in the financial performance of MMI, particularly in the early part of the year. It's been a little bit of a kind of unstable start where you're kind of starting at a deficit in earnings and then kind of in the fourth quarter, working your way back up. Do you think that some of those losses are going to begin to narrow now that the environment stabilized a bit? Hessam Nadji: Here's how I'll respond to the question, Mitch. I'll say that going into the early stages of 2026 is the best start of a calendar year since 2022. I will definitely say that because the factors that you mentioned have all occurred in the resetting of the prices, the acceptance that a Fed miracle is not around the corner, to bring interest rates way back down and basically be the Hail Mary for the pressure on values, reversing after the Fed to increase rates by 500 basis points. All those kind of processes that take the market a couple of years to process and recalibrate are, for the most part, behind us. That is not to say that 2026 or the current environment is a normal operating environment. We still have a bid-ask spread. We still have very fickle investor sentiment where the cautiousness because of the unexpected events of 2025, i.e., Liberation Day and the tariff effect, the 6-week shock to the capital markets that we absorbed last week, has a lot of our clients asking ourselves, what's around the corner? What else could happen? And the fact that the interest rates have been sticky around the 4% yield on the 10-year treasury hasn't been all that constructive. We really don't see a surge in activity and a big boost in investor sentiment unless the 10-year gets closer to 3.5. And so expecting it to be range bound around that 4% and expecting this sort of measured incremental improvement in market sentiment and therefore, activity is, I think, is reasonable for 2026. Certainly, not a hockey stick where we can declare the end of uncertainty and announce the beginning of certainty because they're still just these lingering tentacles of what's happened because of the Fed action, because of the inflation pressure and still price discovery. Mitch, there are multiple markets where we're just beginning to see the level of distress, what I'll call situational distress, not systemic big portfolios being sold off by lenders at big discounts, but actual individual assets, small portfolios with situational distress where the property was purchased with very aggressive financing, very aggressive underwriting, and that didn't materialize in the near term loan is terming out or a longer-term loan is maturing. Those assets all need rescue capital or they have to be sold at a significantly lower price than they traded last time. And our team is actively working with countless owners on working out those situations that aren't yet translating into immediate transactions but will in the next 12 months, 12 to 18 months. So it's not a smooth normalized environment where it's still a lot of troubleshooting. Deals are taking longer. Our marketing time lines have not come in that much. And what we benefited from was just increasing our exclusive inventory through a lot more focus on being out talking to clients and really trying to make a market. So a lot of the incremental improvement, which we're frustrated with because it should be even better is coming from the fact that most of it was created by sweat and blood, not so much a hockey stick relief type of a trend in the marketplace. Steve Degennaro: Yes. And I'll just add, Mitch, that as we've talked about, there's a certain amount of fixed costs that are sort of embedded into our business model, loan amortization on capital to attract and retain producers. But as the revenue -- it only really takes even modest revenue growth before you start seeing operating leverage in the -- flow down through our financials. That's not a forecast of any sort, but just a reminder that as revenue starts to recover as the market starts to recover, revenue follows the impact on our operating income has a pretty solid flow-through. Operator: We have no further questions at this time. Mr. Nadji, I'd like to turn the floor back over to you for closing comments. Hessam Nadji: Thank you, operator, and thank you, everybody, for participating on our call. Thank you for the questions, Blaine and Mitch. We look forward to seeing a lot of you on the road. This concludes our fourth quarter call, and we look forward to having you on the next earnings call. The call is adjourned. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Cameco Corporation Fourth Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Cory Kos, Vice President, Investor Relations and Communications. Please go ahead. Cory Kos: Thank you, operator, and good morning, everyone. Welcome to Cameco's Fourth Quarter and Annual 2025 Conference Call. I would like to acknowledge that we are speaking from our corporate office in Saskatoon, Saskatchewan, Canada, which is on Treaty 6 territory, the traditional territory of the Cree people and the homeland of the Metis. With us today are Tim Gitzel, Chief Executive Officer; Grant Isaac, President and Chief Operating Officer; Heidi Shockey, Senior Vice President and Chief Financial Officer; and Rachelle Girard, Senior Vice President and Chief Corporate Officer. Tim will provide some commentary to start the call, and we will open it up for your questions. Today's call will be approximately 1 hour, concluding at 9:00 a.m. Eastern Time. Our goal is to be open and transparent with our communications. So if we do not have time to get to your questions during this call or if you would like to get into detailed financial modeling questions about our quarterly and annual results, we'd be happy to respond to any follow-up inquiries. There are a few ways to contact us with additional questions. You can reach out to the contacts provided in our news release. You can submit a question through the send us a message link in the Investors section of our website or you can use the Ask a Question form at the bottom of the webcast screen, and we'll be happy to follow up with you after this call. If you join the conference call through our website event page, there are slides available, which will be displayed during the call. For your reference, our quarterly investor handout is also available for download in a PDF on our website at cameco.com. Today's conference call is open to all members of the investment community, including the media. During the Q&A session, please limit yourself to 2 questions and return to the queue. Please note that this conference call will include forward-looking information, which is based on a number of assumptions, and actual results could differ materially. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. As required by securities laws, we also need to make you aware that during today's discussion, the company will make references to non-IFRS and other financial measures. Cameco believes these measures provide investors with useful perspective on underlying business trends and a full reconciliation of non-IFRS measures is available at www.cameco.com/invest. Please refer to our most recent annual information form and MD&A for more information about the factors that could cause these different results and the assumptions we have made. With that, I will turn it over to Tim. Timothy Gitzel: Well, thank you, Cory, and good morning, everyone. Thank you for joining us to discuss Cameco's fourth quarter and full year 2025 results. Earlier this week, the U.S. Government Department of Energy requested a meeting in Washington, D.C., which turned out to be overlapping with our earnings call this quarter. So due to the exceptional circumstances, I'm recording these introductory comments just before we release, and then I'm catching a plane to Washington. Needless to say, continuing to advance our landmark partnership agreement signed last fall with the U.S. government to build Westinghouse reactors remains a priority. So I'll lead in with my remarks and hand off to Grant, Heidi and Rachelle for the Q&A portion of today's call. We're into the second week of February now, but I'll start by wishing everyone a belated Happy New Year. As I reflect on this past year, on one side of the coin, we saw ongoing geopolitical turmoil, incredible volatility and general uncertainty seemingly at every turn. But on the other side of that same coin, we also saw resilience, people, institutions and industries adapting, refocusing on the fundamentals and continuing to make meaningful progress on long-term decisions despite the noise. I'm reminded that progress like this doesn't happen overnight. It's built through consistency, strong communities, great people and a lot of discipline. If I were to summarize the past year in the context of our business and our strategy, I would say that 2025 reflects disciplined execution across the organization. Disciplined because we remain anchored to our long-term strategy, we've learned to look past the distractions of near-term volatility and shifting market themes. And I believe the execution shows up clearly in our business today. Cameco has invested across the fuel cycle, and we are delivering meaningful value to our owners, customers, partners and communities. We operate world-class uranium mines in what we call Tier 1 because they're proven to be Tier 1, not only in terms of the quality of the deposits, but the established economics of the operations. Beyond our flagship mining assets, we also maintain proven Tier 2 operations that are currently in care and maintenance, providing future flexibility. Our long-term production plans are further supported by our advanced exploration projects and by some of the best uranium exploration properties on the planet. We operate refining, conversion and fuel fabrication businesses with the decades of expertise required to be a long-term partner that customers can rely on. We continue to explore our way into next-generation enrichment through our investment in global laser enrichment, where tangible progress is advancing the technology for use in tails re-enrichment. And through our investment in Westinghouse, not only have we added more fuel cycle and reactor lifecycle expertise, we have insight into the future of nuclear fuel demand like never before. Through that investment, we are continuing to advance deployment of the industry-leading Gen III plus AP1000 reactor in Western markets. It's a proven construction-ready design and not unproven concepts, so it aligns with our focus on disciplined execution. Turning to our results. The quarter and the year reflect a strong finish to 2025, supported by robust contributions from all segments of the business, improved realized pricing and continued value creation from our investment in Westinghouse. As anticipated, the fourth quarter was an important contributor to full year performance, reinforcing the benefits of our long-term contracting strategy and our measured approach to production and supply. Looking more broadly at the market, 2025 marked another year of accelerating momentum across the nuclear fuel cycle. On the demand side, we saw an inflection not because of a single data point, but because policy, fundamentals and contracting behavior increasingly moved from rhetoric to action. Governments, utilities, industrial energy users and the public have recognized nuclear's essential role in delivering secure, reliable and carbon-free baseload power. On supply, however, we're not yet seeing a comparable inflection. Long-term contracting volumes in 2025 remain below replacement rate levels, reinforcing the need for continued discipline. Utilities are focused on securing dependable supply in an environment where secondary supplies are thinning and potential new production faces long lead times, inflationary pressures and geopolitical uncertainty. While long-term contracting activity increased late in the year, we are simply not prepared to satisfy that demand at today's economics, which do not support sustainable supply. Our discipline is intentional. History tells us that real price discovery occurs when contracting levels reach or exceed replacement rates. We continue to negotiate contracts and unlock value by selectively adding to our long-term portfolio while preserving significant uncommitted volumes to be priced when more demand comes to the market. The pounds we are adding have pricing terms that provide downside protection, but allowing us to retain exposure to improving demand. To start 2026, we have commitments to deliver an average of about 28 million pounds of uranium annually over the next 5 years. Average realized prices continue to improve, reflecting the strengthening long-term market environment. We ended the year with approximately 230 million pounds committed under long-term contracts. Considering the reserves and resources we have in the ground, we are preserving significant uncommitted productive capacity to deploy as fundamentals continue to strengthen. That alignment between long-term contracting and our supply sourcing remains a cornerstone of our strategy. Touching briefly on the results we released this morning. We reported -- our annual revenue increased to about $3.5 billion in 2025, up 11% compared to 2024. Adjusted EBITDA was about $1.9 billion, which was up 26% from the previous year and adjusted net earnings of just under $630 million represent a 115% improvement compared to 2024. Needless to say, we are very pleased with the outcome. The theme of disciplined execution can be seen in our financials with discipline, providing us with the flexibility to manage risk, support operations and respond to opportunities as markets evolve. Our balance sheet remains a core strength, ending the year with approximately $1.2 billion in cash and short-term investments, $1 billion in total debt and strong liquidity supported by consistent cash flow generation. Operationally, in our uranium segment, we produced 21 million pounds on a consolidated basis in 2025, exceeding our revised annual guidance. Cigar Lake once again demonstrated its world-class performance producing above expectations, while McArthur River and Key Lake delivered in line with our revised plans following the development delays earlier in the year. Importantly, while production volumes from our Canadian mines were lower than initially planned, our supply flexibility and long-term planning of our supply sources allowed us to meet delivery commitments and continue to capture value. Our supply levers include inventory, loans, spot purchases when appropriate and committed long-term purchases like the production we buy from our JV Inkai asset in Kazakhstan. In 2025, despite a rocky start to the year and a pause in production in January last year, JV Inkai met its annual production target. We took delivery of 3.7 million pounds, representing our share of 2025 production as well as 900,000 pounds that remained in Kazakhstan from our share of 2024 production. Our Fuel Services segment delivered another strong year as well, including a record UF6 production at Port Hope. Pricing in the conversion market remains at historically high levels. supported by tight supply, growing demand and a renewed focus on security of supply. With the tension stemming from a supply deficit and conversion, we continue to add long-term contracts with pricing that underpins the sustainability and the value of our operations. Our investment in Westinghouse continues to exceed the acquisition case expectations. In 2025, Westinghouse delivered strong underlying performance, including a significant increase in adjusted EBITDA. We received cash distributions related to both the strong results as well as an additional distribution in 2025, tied in part to its participation in the Korean nuclear project in Czech Republic. While we do not expect comparable distributions in 2026, the Korean consortium continues to advance the Dukovany project, which Westinghouse will be involved in along with work on another 2 reactor project at the Temelin site in Czechia. Westinghouse's outlook remains strong and reinforces the long-term value of our investment. During the fourth quarter, we announced a strategic partnership between Cameco, Brookfield, Westinghouse and the U.S. government aimed at accelerating the deployment of Westinghouse reactor technology. Backed by at least USD 80 billion in planned investment from the U.S. government, this initiative underscores the growing alignment between policy, energy security and the only proven nuclear technology that is ready to deploy today. Following the term sheet signed in October, constructive discussions are continuing in support of reaching a definitive agreement. As I said, I'm on my way to Washington for the ongoing discussions literally as you listen to this call today. For Cameco, this partnership also supports long-term demand across the fuel cycle, and enhances our insight and ability to meaningfully participate in the global nuclear build-out. Looking ahead, we expect growth across the nuclear fuel cycle to continue, driven by electrification, decarbonization and energy and national security priorities. These are all themes you've heard us repeat call after call. But it's important to reinforce them because they reflect the durability we have not seen before in nuclear. And as the focus on the sector grows, commitments will increasingly be measured by delivery. Plans for future uranium supply, along with headline grabbing narratives, promising greenfield conversion and novel enrichment technologies continue to attract attention. But the next phase will be defined by execution. Execution is the proof behind commitments and the foundation of trust. And this is where Cameco's experience, assets and discipline matter. In 2026, we expect to produce between 19.5 million and 21.5 million pounds of uranium and between 13 million to 14 million kilograms of uranium product in our Fuel Services division. JV Inkai is planning to ramp up to its full capacity of 10.4 million pounds this year, our share of which is 4.2 million pounds. That's accounted for as a committed purchase along with other long-term purchase commitments. We plan to buy up to 3 million pounds, keeping in mind that we expect to use our various supply levers efficiently, so we're not forced to buy in the spot market if it doesn't make sense. We expect to deliver between 29 million and 32 million pounds of uranium in 2026 with an average realized price between CAD 85 and CAD 89. Fuel Services deliveries are expected to match production at 13 million to 14 million kgU. And our outlook for our share of adjusted EBITDA from Westinghouse is approximately USD 370 million to USD 430 million, representing continued strong performance, albeit lower than in 2025. Remember that back in the second quarter of 2025, we accounted for the significant payment related to the Korean reactor built in the Czech Republic, which was USD 170 million for our share related to that specific project. It's a good reminder that as new build activity gains momentum, you can expect some degree of lumpiness in the results from Westinghouse with these big reactor projects pushing forward. So to conclude, we believe the risk to supply continue to be greater than the risk to demand, we believe that Cameco as a disciplined operator with proven Tier 1 assets, integrated capabilities across the nuclear industry and a strong balance sheet, is well positioned to deliver long-term value. So thank you for your continued interest and support. And operator, the team is now ready to take questions. Operator: [Operator Instructions] The first question today comes from Brian Lee with Goldman Sachs. Brian Lee: Maybe first off, just around this new guidance framework for the Westinghouse business. I think that makes a lot of sense given all the activity that's happening and how it's not going to be linear. But can you maybe give us some sense of the framework or ballpark range of what kind of the financial impact of each project is? And presumably, you're talking about 2 packs because it does seem like the Westinghouse guidance for 2026 is including -- it says in the MD&A, one project going forward in the U.S. this year. So maybe just thoughts around how we should think about the sizing of the financial impact from each of these projects? And then maybe any color around potential projects in Bulgaria, Poland, maybe even Canada as well? I have a follow-up. Grant Isaac: Yes. Thanks, Brian. It's Grant. I'm going to maybe start with your second question, and then we'll work backwards into the specific guidance. I mean, Westinghouse continues to be a very exciting space for us. We see nothing but enormous upside for the leading gigawatt scale Gen III reactor. We think the opportunities continue to grow. So we remain very disciplined as Cameco. We don't put stuff into the forward guidance until it is at FID. But let's just think about what's on the docket. When we look at the U.S., I think everybody knows about the $80 billion project to build 8 to 10 reactors in the United States. But don't forget, there were a number of conversations in flight with utilities who had been working with the Department of Energy's Energy dominance financing group. So we're not talking 8 to 10. We're talking about a bigger number in the United States that are under consideration, perhaps another 10 in addition to the U.S. government program. We know that Canada wants to build 4 gigawatt scale reactors at Bruce Site C, but we also know that they're talking about another 10 at the Wesleyville site, so potentially 14 there, added to 10 plus 10 perhaps in the United States. We know Poland wants to build AP1000s. They picked it for a 6-reactor program. We know Bulgaria wants to build AP1000s. We know Slovenia is having a very good look. We know Slovakia is having a very good look. And of course, we participate in every Korean new build, and Tim in his comments flagged that not only have the Koreans advanced the Dukovany site in Czechia, but are also looking to advance the Temelin site with another 2 reactors. And then we could even expand it a little bit further and talk about new builds in other jurisdictions, parts of the Middle East, Saudi Arabia, United Arab Emirates. The point being the upside case for energy systems is very, very significant. And we're seeing a lot of activity in that area. But many of those are not at FID yet, and so they're not in our guidance. What we wanted to do was very prudently say, look, Westinghouse is a mature investment for us now. We guide the Cameco core on an annual basis. We're going to guide the Westinghouse core on an annual basis and then kind of provide a framework for how each of these reactors plug in. And that framework that we've shown in the past on a per reactor basis, and good of you to note that you generally build them in 2 packs, you don't build them as 1, so multiply by 2. But on a per reactor basis, you're looking at something around $400 million to $600 million EBITDA for every reactor that gets built. That's through the engineering and procurement part of the Westinghouse scope. So we almost invite folks, you choose how many reactors you think are going to go forward in that framework and the years. And you can see the big lumpiness that comes from it. So we're just going to guide on a more systematic core-related basis. And then when you look at the Westinghouse guidance in 2026 and you compare it to 2025, it's actually up over our initial 2025 guidance with, of course, the swing factor in 2025 being the royalty payment on the Dukovany units in Czechia. But the Westinghouse core continues to perform as expected, reactors being saved, reactors being restarted, reactors going through subsequent license renewal plus the nearly 70 reactors under construction right now, let alone those that are on the drawing board, I guess our point, Brian, is Westinghouse just continues to be extraordinarily well positioned for the tailwinds in the nuclear space. Brian Lee: That's great. I appreciate all that color, Grant. And then maybe just my second question around kind of the modeling assumptions here. When I look at the average realized pricing outlook for 2026 in uranium, it appears pretty flattish at the midpoint year-over-year. Can you maybe speak to why there isn't a bit more appreciation happening there? Maybe just it's the timing of contracts, but I would have thought that you'd see some movement on that line given how pricing has generally been on an uptrend in recent years. Grant Isaac: Yes, Brian. So let's shift to the other end of the spectrum and talk about uranium a little bit. This is what discipline looks like. You've heard us say for the better part of 2 years now that as we're in a market that is beginning to understand that more uranium is required and needs to be -- needs to come to the market. And you can just see that from the uncovered requirements wedge. If you look at that wedge of uranium that the fuel buyers have not yet bought, that wedge is as big as it's ever been. There is a significant amount of demand that has to come to the market. And that says to an incumbent producer that now is the time to be disciplined. Now is the time to let that demand form and let it come to the market. And those who have been watching the market know that we have not achieved replacement rate across the industry yet. In fact, we're well below replacement rate. And we, as Cameco, have been in every cycle, and we know that when you're at replacement rate or above, that's when real price appreciation comes. I provide that as context because we've been saying we're being very fussy in the amount of volume that we're willing to place and we're being very fussy with the terms and conditions that we're willing to part with future materials. So no surprise. We just haven't been layering in the big volumes because while we're being fussy, not every utility is prepared to agree to our terms and conditions. So you're not seeing that pickup in the near term because we're preserving those pounds for when more demand is coming to the market. That's our disciplined marketing strategy, and it's also reflected in the disciplined pace at which we then produce into that demand. So this is what discipline looks like. This is how you capture long-term value. This is not the moment to be locking in huge volumes because we think more demand has to come. And as that demand comes, it's going to probably price stronger uranium, and that's when we want to do more contracting. And then that's when you'll see a lot more exposure to rising prices. Operator: The next question comes from Alexander Pearce with BMO Capital Markets. Alexander Pearce: So an easy question to start with, Grant. Given [indiscernible] absence from the call, do you think you're getting close to finalizing the agreement? Or would you expect maybe we could see something in the next kind of quarter? Or could it be a bit later in the year? Grant Isaac: Yes. Just a bit of context around the agreement with Cameco, Brookfield, Westinghouse and the U.S. government. Obviously, we announced a definitive term sheet at the time of announcement. And then there was work to do on the definitive agreement, and that continues. What the conversation is really about is these 3 projects underneath that are advancing. There's a lot of momentum behind them. The first one is identifying where the 2 packs are going to go and the model that they're going to be built under. And that's work being done by the Department of Commerce and the Department of Energy. And we're only sort of involved around the edges and figuring that piece out. The second big project is identifying what the order of the long lead items would look like. So there's been a separation, if you will, between the normal process of identifying a site and figuring out the model it's going to be built under and then ordering long lead items. Those 2 have been separated because everybody is working backwards from the Trump executive order that says 10 large nuclear power plants have to be under construction by 2030. So if you wait and do step 1 first, identify all of the sites and identify the model and then you order long lead items, you won't achieve the executive order. We're obviously heavily involved in the conversation about ordering the kit for 10 reactors right now upfront. And then the third project, of course, is just securing the financing to come from Japanese as part of the foreign direct investment commitment. So this isn't about negotiating the definitive agreement. This is about fulfilling all of these next steps, very exciting conversations about what the order for long lead items would look like. I think if we allowed ourselves to be optimistic, we do believe there's a good chance that we will see a long lead item order as part of this program in 2026. And in fact, that will probably coincide with long lead item orders on other programs as well. So 2026 is set to be a pretty transformative year where announcements turn into action on the gigawatt scale new build section. Alexander Pearce: Thanks Grant. So would you suggest that there could actually be some upside to the '26 guide then if everything comes into place and you get the 2 units, et cetera, et cetera? Grant Isaac: Yes, perhaps there could be. I mean we built a little bit of that into the guidance for Westinghouse, but that's sort of on a small order basis. This concept of separating long lead items from figuring out where each 2-pack is going to be built in the model actually kind of reverses the framework that we put out for thinking about how every AP1000 flows revenue and margin and cash flow. And that is normally, you would start to do the engineering work. You would sign the FEED 1, which is tens of millions of dollars and then the FEED 2 contract, which is hundreds of millions of dollars, all leading to a final investment decision, which would then trigger the procurement side of the business, the ordering of the long lead items, that really important procurement process that Westinghouse provides oversight and guidance and quality assurance and all of that on. With the separation of the long lead items from identifying where the reactors are going to be built, we actually could see the procurement revenues and margins beginning to flow first. And so that will be something that we'll watch for in 2026. And obviously, we'll be very vocal about what that means to the Westinghouse business should we find ourselves in a position of securing orders for -- substantial orders for lots of reactors and their long lead items. Operator: The next question comes from Orest Wowkodaw with Scotiabank. Orest Wowkodaw: Could we spend a few moments just talking about the production outlook at specifically McArthur River. I'm surprised to see the potential impact here in '26. It looks like your guide would suggest that output could be as much as 4 million pounds below the 18 million pounds design. What -- I guess, can you give us more color what's going on there and whether this issue is expected to be resolved this year? Or could this continue into future years? Grant Isaac: Yes, Orest, great question, and we'll spend a little bit of time on it, of course. So if you think about McArthur River, even with the guidance we put out for 2026, it makes McArthur the second largest uranium mine in the world by quite a margin. So between Cigar and McArthur, this is a lot of uranium production that Cameco is responsible for. And it really reflects just how strong the production team is there. So we announced in September of 2025 that we were seeing delays at McArthur River. And we also said at the time that you can't divorce our plans to produce from where the market is at. And so when we look at today's market that's not at replacement rate, a market where we think a lot more demand has to come. That's a market where we're not yet placing growth pounds or expansion pounds or extension pounds because the demand just simply hasn't been there. Pricing has been getting stronger and stronger on very limited demand, but ultimately, that demand hasn't been very strong. So that then informs how we think about our production plan. So we look at McArthur River. We look at those delays that we announced in September 2025. And the 2025 production just hit the top end of that revised guidance in 2025, which was good. But ultimately, we just stick to the plan that we put in place in September 2025. We have no incentive right now to accelerate it in any way. So that's not what we're trying to do. We're not trying to take any heroic action at McArthur River. We're just systematically working on the mine development that's required as we move into new zones. And we're not being incented by the market. We're not being told by the market with volumes of demand that it's time to do anything different than systematically go ahead and do that. So we are seeing a bit of a tail on the 2026 guidance. But ultimately, McArthur has produced at 18 million pounds before. It's produced at 20 million pounds before. It has a license to go to 25 million pounds. McArthur is an extraordinary asset. We are just timing it and pacing it as part of our demand strategy and our disciplined strategy, and that's all that this reflects. Orest Wowkodaw: And could that -- based on that incentive, could that then potentially continue into '27 and beyond if you don't see the market improve? Grant Isaac: Well, the market is improving, and we don't guide 2027 and 2026. But -- but our confidence that the team is working on a path to ensure that the development is there for the production when we want it, that confidence is there. It's just in 2026 as we're looking at a market, and I'd just remind everybody on the call, term contracting in 2025 ended up being 116 million pounds, well, well short of replacement rate. That tells us more demand has to come to the market. And so we just -- we watch that very carefully. We never front-run demand with supply. And then that is reflected in our -- in the decisions we make about the pace at which we develop our assets. And to the extent that you believe more demand is coming, which means a stronger pricing environment is coming, these pounds are worth more in the future than they are today, which encourages us to remain very disciplined on that plan. Orest Wowkodaw: Okay. And does that also mean that the expansion to 25 million pounds likely comes later rather than sooner? Grant Isaac: Well, not necessarily. We're doing the work and continue to do the work to fully understand what's required at both the mine as well as the Key Lake mill for when we make the decision to go to a higher level of production. Remember, when we sign long-term contracts, we typically don't start delivery for until 2 years and beyond. It always gives us a built-in runway to respond with our production. And what we're doing ahead of that in a market that we feel is getting stronger and stronger and more demand has to come, but hasn't quite hit replacement rate yet, what we're doing is making sure we understand everything that needs to be done at the mine and mill in order to achieve that higher level of production once it's priced accordingly. So I would just delink the two. One is just the plan of mine development from the plan for mine expansion, but we have not made that decision yet and we don't have any time frame for making that decision. That decision is ultimately up to the fuel buyers collectively. And it's ultimately up to them bringing more demand to the market in order to signal that it's time to expand. Operator: The next question comes from Ralph Profiti with Stifel. Ralph Profiti: Grant, the MD&A, and just going back to the last question, did bring up some technical risk highlights around McArthur River Zone 1 and Zone 4. And as you talk about this slow proactive managing of these risks, I just want to get a little bit of sense on the technical risks around sort of production capability limits in the short term and whether or not you would still characterize some of the technical limits as being transient and temporary? Or is this more of a mine development risk that could take sort of multiyears to figure out versus production capability irrespective of what the market is telling you? Grant Isaac: Yes. Ralph, I think I understand your question to be, are we flagging risks that would prevent us from, say, being on a disciplined production strategy? So in the MD&A, we are identifying the factors that led to that announcement in September of 2025 that we weren't going to meet our plan at McArthur River. So that was things like encountering a clay zone that was proving to slow down the rate at which we install freeze capacity and therefore, build up a frozen ore inventory, and that was slowing down the rate at which we were developing into that zone. Once we fell behind that plan, our strategy doesn't encourage us to try to catch up. So we're just working systematically at the development that has been, I would say, rephased or repaced as a result of those risks. So those risks have not changed, and they've not gone up. They're not suddenly -- it's not suddenly a riskier environment. It's just our response to it is measured with the market. And should we see a market that starts to bring more demand and more demand bring stronger and stronger price discovery, like it is right now, we're continuing to see strengthening floors and strengthening ceilings in market-related contracts. We're continuing to see that long-term price go up. If we see an acceleration of that process, that's what would encourage us. to accelerate the mining plans at McArthur River. But these are linked. The pace at which we bring production on also sends a signal to the market. And right now, the signal we prefer to send is that production is matched to the demand that's in the market as opposed to trying to front run it. Ralph Profiti: Thanks Grant. And kind of my follow-up is along the same lines because you and Tim talked about discipline and the balancing act of contract layering, existing 230 million pounds and the reserve base that backfills that. At what point are we going to see potential chemical run into sort of stresses on being able to production backfill the next, say, 10 or 15 years of that contract book and the growing demand. At what point does that become stressed? Grant Isaac: Well, Ralph, the way we look at this market with a historic wedge of uncovered requirements in front of us and which is, I think, one important part of the macro story. The second important part of the macro story is the ability of the global uranium supply stack to respond. And I mean both the primary production stack and the secondary stack, both are declining significantly while demand is strengthening, while there's a big wedge of demand still to come to the market. Ralph, this just sounds like an incredible opportunity for an incumbent producer. It sounds to me like a very constructive pricing environment. And so when you say stress, it really is sequencing the plants to match the demand that's going to come to the market. We're very confident, the demand needs to come. We've seen it can be delayed, it can be deferred, but it ultimately can't be avoided. As that demand comes, as utilities bring demand into the early 20s, mid -- or early 30s, into the mid-30s into the market, and we capture that demand, Ralph, that gives us lots of time to prepare our assets, to prepare our existing Tier 1 asset. And remember, our Tier 1 asset base is not running at full capacity. It gives us lots of time to prepare our Tier 2s in care and maintenance, which aren't even running today. It gives us lots of opportunity to consider where do we have brownfield expansion from those Tier 1s and Tier 2s -- and it gives us a lot of time to consider what the development needs to be for additional new production. But ultimately, it's about being disciplined and not trying to front run that because as we've seen time and time again, those who build up productive capacity and don't have a home for it end up jamming it into the spot market where it's absolutely value destructive for investors in uranium. So for us, it is about staying disciplined. When we see that sort of tightness in the market, Ralph, it gets reflected in higher prices of uranium. That's the dynamic that gets us very excited. Operator: The next question comes from Lawson Winder with Bank of America. Lawson Winder: Grant, thank you for your comments today and the update. If I could, I'd like to come back to the Westinghouse EBITDA guide. And then if there's time, just follow up on your fuel services guidance. But just on the Westinghouse guide, kind of a basic question here. But I mean, if you look at the midpoint of this guidance versus the midpoint of the 2025 guidance, it's up 5%. And while I respect that you have changed the way that you're guiding, I mean, the prior guide was for 6% to 10%. Is there just one thing you can point to that you would say attributed to that roughly 1% below the prior range? Grant Isaac: Well, I would say if you look at what was driving the lower end of that range, and you'll remember us talking about this quite a bit, it really was around the core of the business. So what are the drivers around the core? Where do you get pickup in the core from the existing fleet? And it really was things like reactors that were shut down being restarted, reactors that were going to be shut down being extended. And then it was reactors going through subsequent license renewals and therefore, doing the work required to run for another 20 years. And also, we've seen an uptick in reactors that are now interested in uprates or super uprates, all growing that sort of core business of Westinghouse. That interest in reactors being restarted, saved, upgraded, extended has not gone down. It's, in fact, only gone up. But of course, the processes to get there, the time required to get the licenses and the permits to go through the regulatory approvals, maybe has taken a little bit longer than expected so that the orders, the immediate orders and the immediate work to do that hasn't picked up quite as quickly. That just means Lawson, it's still in front of Westinghouse. It doesn't mean it's lost. It doesn't mean it's underperforming our demand expectations. It's just the subsequent license renewals and the uprates are just not happening as fast as maybe we would like, but they're still happening because they need to happen. And in fact, we're seeing more of that interest flow into orders entered going forward. So we just continue to be very excited about Westinghouse's position in the core. Unknown Executive: I think I might add to that, Lawson, that the new build business is really lumpy, and that forward guidance over the 5 years, it's going to move from year-to-year. So it was a 5-year guidance. And because of the lumpiness that we're seeing that every year. And I think we'll see -- continue to see that going forward. So it's not necessarily going to be a direct straight line in terms of growth. Lawson Winder: Okay. That's super clear. And then if I could just get your thoughts on the conversion markets. Your fuel services guidance is one thing. And then there's your fuel services contract book. And so you noted 83 million -- sorry, 83 million kilograms of conversion under contract versus 85 million last year. And we're looking at a conversion market that is experiencing an obvious global shortage. I'd be curious to get your thoughts on why the lack of contracting and conversion just given the backdrop. And then when we think about Cameco's current capacity, is Cameco now close to achieving run rate for the expanded capacity at Port Hope on fuel services and conversion? Grant Isaac: Conversion is a fairly good analog for uranium. So I'm going to spend a little bit of time on it when we think about its contracting. Totally agree, the conversion market is tight. Totally agree that, that tightness is likely to sustain for a while and totally agree that this should be signaling more conversion capacity coming into the market from the West. So all of that makes perfect sense, Lawson. Remember, when you think about contracting in the nuclear fuel cycle, price matters, and it's easy to point to a historic conversion price. But you know what else matters is tenor. What matters is how long can you secure on an escalated basis those historic prices. And the important analog is you actually only get one chance to sell new capacity because once you commit your capacity, it's no longer new and you don't have the kind of opportunity or power in the market. So for us, conversion is about not just it's at historic price, but now it's about capturing that historic price for as long as possible. And so if there's the next step in the conversion market, we want to see the tenor stretch out in conversion contracts. We want to see this historic pricing, not for a 3-year window or a 5-year window, but we want to see it for a 10- or a 15-year window. We want to see that market stretch out. So when you think about this notion that we're being fussy right now, we've got these incomparable set of strategic assets, strategic mining assets, conversion, fuel fabrication. We want to maximize the value of these assets. And we want to maximize them over a longer term. So -- because we know new capacity will come into the market. And when it does, that new capacity, by definition, will actually probably have price downward pressure. So we want to capture new contracts that protect us and our owners from the downward pressure that will come from new capacity. So if we're holding out in the conversion space, it's not holding out on the price side, it's holding out on the tenor side. And the analog to uranium is you only get one chance to sell new capacity in uranium. And so we see those in the -- that are potentially new entrants to the uranium side are saying, "Okay, well, yes, we're going to sell under long-term contract, but we're only going to sell for 3 years, and then we're going to renegotiate a new contract after 3 years at a higher price." And you probably won't. You only get one chance to place that new production. So don't squander it. So when we look at the conversion market, we're in a unique window. We're in a window where price is strong. And now it's a matter of capturing this historic pricing for as long as we can, knowing that the Converdyn plant is going to come back online, knowing that we are going to increase production at Port Hope in order to capture some of this demand and knowing that there's -- there remains pressure on Springfields to restart and pressure on the Orano plant to get to full capacity. When there's more capacity in the market, there's less leverage. We just want to take full advantage of our very unique position with our incomparable suite of strategic assets. Operator: The next question comes from Craig Hutchison with TD Cowen. Craig Hutchison: Just given the huge push in the U.S. to secure domestic nuclear fuels chain and critical minerals with partners like Canada, I was just wondering beyond your historic partnership with Westinghouse last year, are there other opportunities for you guys to work with the U.S. government across the fuel chain, whether that's your conversion business, global laser re-enrichment or even a potential restart of your Tier 2 assets if there's -- you could establish long-term floors? Grant Isaac: Yes, it's a great question. When you think about Cameco, our long-term relationship with the U.S. government has always been very strong. For many years, we were the largest producer of uranium in the United States. If our mines and mills are running in the U.S., we will again be the largest producer of uranium in the United States. The U.S. government has always been interested in our GLE, Global Laser Enrichment project as reflected in the tails re-enrichment program that we have with the Department of Energy, which is a very exciting opportunity to actually secure a source of U.S. uranium and U.S. conversion for the future by simply re-enriching a stock of depleted UF6 that sits as a liability right now for the Department of Energy. So there's always been a lot of interest. And of course, the U.S. government has a unique demand outside the civilian nuclear space, and that is demand for Navy propulsion fuel, which is demand that's going to find its way into the market right at this time when that gap between demand and supply is very significant. You're going to see national programs looking for naval propulsion fuel. And by the way, folks, that's the same uranium and conversion. It's the same UF6 that needs to go into the civilian program. So we've always had very strong relationships in the U.S. But at the moment, there's a bit of a narrative that U.S. origin uranium, for example, is at a premium. And it just isn't right now. I mean we fail to see evidence that utilities are really willing to pay a premium for U.S. origin. They want Western uranium, but not necessarily U.S. And again, it goes back to my answer previously, you only get one chance to sell new capacity. So when we think about those Tier 2s and we think about restarting them, we think about maximizing the value of bringing that capacity back and the leverage that we have in pricing that capacity because once up and running, you got cash and noncash costs and you've got payroll and all of that stuff, you get one moment to place that capacity. So if we see a U.S. interest in U.S. origin go up, nobody is better positioned than we are to capitalize on that. Craig Hutchison: Okay. Great. Maybe just a quick follow-up on GLE. Are there any kind of milestones you want to point to this year in terms of just derisking, I guess, the science behind the process? Grant Isaac: Science behind the process is derisked, Craig. So when we announced achievement of TRL6, think about it in the context of what that marks is we can confirm that, that technology enriches uranium to that 99.6 Sigma level of nuclear reliability that is critical in order to say that you've got a technology that folks are willing to contract with. So what remains now is TRL 7, 8 and 9, which are where you prove up that this level of reliability can be deployed at a commercial scale for CapEx and OpEx that make it competitive in the Western uranium space. So for us, it is about focusing on these next steps, TRL7 and beyond and focusing, in particular, on the DOE tails re-enrichment project. Others will focus on LEU and high-assay LEU. We will focus on the tails re-enrichment because that's effectively an aboveground mine, producing, what, 4 million to 5 million pounds of uranium a year, 2,000 tons of conversion at a time when uranium and conversion are scarce and getting scarcer. That seems like the best place for us to focus. And nothing I would point to expected in 2027. But of course, we would update on a quarterly basis if there were -- if there was anything notable about it. It just continues to be an exciting tails re-enrichment project. Operator: The last question today comes from Mohamed Sidibe with National Bank. Mohamed Sidibe: Just maybe on the Westinghouse guidance and completely understandable on the lumpiness of the new build segment. Just wanted to get a little bit more clarity on the core business segment. I think you noted that you remain excited about that. I know you guided in the past to about 6% to 8% core business revenue growth there. Is this something that we can still think about over the next couple of years as things are getting advanced in that segment? Grant Isaac: Yes. The core does continue to be exciting. I'll just -- I'll go back and restate a few of the factors that we watch for. Obviously, that core business is fuel fabrication and it's reactor services; 2 really general ways to think about it. Where does the demand come from? Well, every reactor that was shut down that's being restarted is more demand. Every reactor that is going through a life extension is more demand. Every reactor that not only is going through a life extension, but looking for operating very significant more power out of those reactors is more demand. And then, of course, there is other core elements to think about the Springfields project in the U.K., which we continue to evaluate, we continue to assess. We continue to see what the strongest business case would look like, but that would exist in the core of the business. That would be upside to the core of Westinghouse. And then, of course, you can't forget the AP1000 new builds because every new build becomes 80 to 100 years of core business. So when we look at the core, we see a lot of upside. We're very excited about Westinghouse's position as the leading OEM for light water reactor technology. And we just really like what their position as having the leading Gen III plus light water reactor means for the core going forward. So our enthusiasm has not diminished at all. Mohamed Sidibe: That's great. And just on the fuel services, if I could ask maybe on the unit cost of sales there on the year-over-year guidance increase. Is there anything that's in plan to try to get back the cost within the 2025 range within that segment? Unknown Executive: What I would say about that is we're just seeing some general inflationary pressures definitely in that segment. And so really, it's going to just kind of be looking at the level of production and the mix there of the various products because there's a number of products that go into that segment. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Grant Isaac for any closing remarks. Grant Isaac: Yes. Thank you to everyone who is able to join us today. We really appreciate it. Obviously, we believe we're exceptionally well placed to support the next chapter of nuclear growth while protecting and extending the value of our assets and shareholders. We continue to see pricing dynamics that are very constructive for an incumbent producer and 2026 will be an exciting year for us. So have a wonderful weekend. Operator: This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, ladies and gentlemen, and welcome to Hydro One Limited's Fourth Quarter 2025 Analyst Teleconference. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director of Investor Relations at Hydro One. Please go ahead. Wassem Khalil: Thanks, Shannon. Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our President and CEO, David Lebeter; and our Chief Financial and Regulatory Officer, Henry Taylor. On the call today, we'll provide an overview of our quarterly results, and then we'll answer as many questions as time permits. As a reminder, today's discussion will likely touch on estimates and other forward-looking information. Listeners should review the cautionary language in today's earnings release and our MD&A, which we filed this morning regarding the various factors, assumptions and risks that could cause our actual results to differ as they all apply to this call. With that, I'll turn the call over to our President and CEO, David Lebeter. David Lebeter: Thank you, Wassem. This morning, I'll provide an update on our recent activities and accomplishments during the quarter. Then Harry will take you through the financial results. As I look back on 2025, I can't help but reflect on the growth in energy demand that's forecasted for Ontario over the next 25 years. This growth is driven by new homes, businesses, electric vehicle manufacturing and charging, mining, agriculture and advanced manufacturing, and it's reshaping the province's economic landscape. For Hydro One, this represents both a responsibility and a tremendous opportunity, a responsibility to build in a safe and fiscally prudent manner, the infrastructure that will power Ontario's communities and businesses and create long-term value for our shareholders. We are acting now by delivering reliable power where it's needed the most when it's needed. By building the lines that enable Ontario's success, we are positioning Hydro One for sustainable growth, supporting local jobs, businesses, Ontarians, strengthening the Ontario-based supply chain and delivering reliable electricity to all our customers. We are connecting power and possibilities for the people of Ontario. I'm happy to report that we had another strong year for safety in 2025. And as we all know, a safe workplace is an essential foundation of operational excellence. As of this month, we have worked 20 consecutive months without a high-energy serious injury or fatality. And in 2025, our recordable injury rate was 0.68 per 200,000 hours, well below the world-class benchmark of 1. These achievements reflect the professionalism of our crews across the province and highlight what is possible when we work together to achieve a common goal. The extreme weather events in December put our operational capabilities to the test. We experienced two back-to-back storms affecting more than 250,000 customers. In response, our teams mobilized quickly, safely restoring power under exceptionally challenging conditions. We were there when our customers needed us the most, and we didn't stop until every customer was restored. Our focus on reliability, operational excellence and customer service continues to translate into strong customer satisfaction results. In 2025, residential and small business customer satisfaction remained strong at 88%. Commercial and industrial customers rated us at 82%. Transmission customers gave us 79%. While we recognize there is more work ahead, these results demonstrate meaningful progress towards positioning Hydro One as a trusted energy partner, a partner whose investments deliver tangible value to its customers. In 2025, we continue to invest in the infrastructure needed to support the province's rapid electrification and economic expansion. We deployed approximately $3.4 billion of capital and in service approximately $2.9 billion of assets, reinforcing our commitment to build a resilient, reliable and future-ready grid. At the same time, we remain highly disciplined as stewards of the customers' dollars. Through our energy -- through our enhanced focus on productivity, we generated approximately $254 million in savings across capital and operating expenditures. This reflects our commitment to fiscal prudency, optimizing every dollar we invest to generate the most value for our customers. As I mentioned earlier, Hydro One is playing a central role in enabling Ontario's growth through the development of new large-scale transmission infrastructure. We continue to work collaboratively with partners to develop and build the critical lines to support this growth. In November, we were designated to develop and seek all necessary approvals for the construction of a new priority 500 kV double circuit transmission line between Bowmanville and the Greater Toronto area. The line will support economic growth in the region and deliver clean electricity from the first four small modular reactors in the Darlington nuclear facility. It is expected to be in service in the early 2030s. We also filed a leave to construct, our Section 92 application with the Ontario Energy Board for a 230 kV double circuit transmission line in the Niagara region in Southern Ontario. The line will run from Thorold to Welland, supporting capacity and reliability in the region's clean energy future. The approximately $311 million project is expected to be completed by 2029. Subsequent to the quarter, we were designated to develop and seek all necessary approvals for the construction of the Greenstone transmission line in Northern Ontario. The project will be a 230-kilometer single-circuit transmission line that will be designated for future expansion. The line will enhance reliability for Northern communities and support economic growth in the mining sector. This project is expected to be in service in 2032. Lastly, earlier this week, Hydro One was designated to develop and seek all necessary approvals for the construction of the Barrie to Sudbury Transmission Line. The project will be approximately 290-kilometer long, single-circuit, 500 kV transmission line and is expected to be in service in 2032. Development work on a single -- on a second single circuit 500 kV transmission line will also be carried out to support new generation opportunities in Northern Ontario. All of these projects -- across each of these projects, our 50-50 First Nations equity partnership model ensures that proximate First Nations share directly in the value created by the transmission line components. I also want to highlight the successful completion of the Chatham to Lakeshore transmission line in 2024, which represented the first project to be completed through our 50-50 First Nations equity partnership model. As of earlier this month, all 5 partner First Nations have secured financing and are now equity partners, marking a milestone in how well -- marking a milestone in how we advance reconciliation, community partnerships and economic inclusion. None of this progress is possible without the dedication of our employees. They are the heartbeat of Hydro One and their commitment drives our success. I am pleased to share that the collective agreement that was reached with the Society of United Professionals on January 13, 2026, was ratified by the union members earlier this month. The collective agreement covers engineering, supervisory and other professional roles and takes effect from October 1, 2025, and runs through March 31, 2028. I want to thank both bargaining teams for negotiating in good faith to reach an agreement that supports employees, customers and long-term health of our company. Before I pass the call to Harry, I want to acknowledge the Hydro One's recognition as one of Canada's best employers for 2026 by Forbes and Statista. The ranking is based on recommendations from employees and professionals who view Hydro One as a desirable employer. These rankings are derived from independent surveys of more than 37,000 Canadian-based employees working in companies with a minimum of 500 employees in Canada. We are proud of the culture we continue to build, one rooted in inclusion, empowerment and a sense of belonging. Our teams feel heard, valued and motivated to excel. Just as importantly, we share a strong sense of purpose. The work we do matters to this province and to everyday Ontarians who rely on us. That commitment fuels our culture and drives our success. With that, I'll turn things over to Harry to discuss our financial results. Harry, over to you. Henry Taylor: Thank you, David. Good morning, and thank you all for joining us today. As David highlighted, we had a very strong finish to the year, and we look forward to continuing to deliver on our commitments in 2026. In the fourth quarter, we delivered basic earnings per share of $0.39 compared to $0.33 in the fourth quarter of 2024. On a full year basis, earnings per share were $2.23 compared to $1.93 in 2024. Our net income in the quarter was higher by 16.5% compared to the same period from a year ago. The key drivers behind the result this quarter include revenue growth driven by volume growth in transmission and distribution as well as OEB-approved 2025 rates and also lower OM&A costs, primarily due to the lower corporate support costs. Now these were partially offset by reductions in revenue net of purchased power due to regulatory adjustments, primarily resulting from higher earnings sharing, which we account for in the fourth quarter, a higher interest expense due to an increase in long-term debt outstanding and higher income tax expense due to the increase in pretax earnings. On a full year basis, our net income was higher by 15.8% with the key drivers of the increase being higher revenues net of purchased power due to OEB-approved 2025 rates as well as higher average monthly peak demand in transmission and growth in customer count and energy consumption in distribution, partially offset by the accounting for the higher earnings sharing mentioned earlier and also lower OM&A costs, primarily due to lower work program expenditures as well as lower corporate support costs. Now these positive drivers were partially offset by higher depreciation, amortization and asset removal costs due to the growth in our capital assets, higher interest expense and higher income tax expense. Both our transmission and distribution segments performed well this year. And as a result of our efforts, we were pleased to share approximately $166 million with our customers through the reduction in future rates. On the productivity front, we are happy to report that our efforts in the year resulted in us achieving approximately $254 million in productivity savings. This achievement continues the trend we have delivered in prior years and reinforces our commitment to keeping costs as low as possible. The savings were delivered as absolute reductions in spending, reduced unit costs or greater noncustomer revenue, all of which flow back to our customers in the form of reduced rates in our next rate period. Our fourth quarter revenue, net of purchased power decreased year-over-year by 5.2% Transmission revenues decreased by 2.8%, primarily due to regulatory adjustments, including the higher earnings sharing. These were partially offset by stronger average monthly peak demand and increased revenues from OEB-approved 2025 rates. Distribution revenues, net of purchased power decreased by 10.1%, mainly due to the regulatory adjustments, including higher earnings sharing and lower revenue associated with mutual storm assistance costs recovered from third parties. These were offset by increased revenues from OEB approved 2025 rates, higher energy consumption and higher customer count. On the cost front, operating, maintenance and administration expenses in the quarter decreased by approximately 30.8% year-over-year. In the Transmission segment, costs were lower by 37.5%, mainly due to lower corporate support costs and lower work program expenditures attributable to facilities maintenance and vegetation management. In the Distribution segment, costs decreased by 25% due to reduced mutual storm assistance costs and lower fuel costs of Hydro One Remotes as well as lower corporate support costs. These were partially offset by higher work program expenditures, including emergency restoration and vegetation management. Depreciation, amortization and asset removal expenses for the fourth quarter were essentially unchanged year-over-year. With respect to our financing activities, we saw a 10.8% increase in interest expense year-over-year. This was mainly due to the increase in our outstanding long-term debt following the additional issuances we executed during the year, partially offset by capitalized interest. During the quarter, Hydro One issued $1.6 billion of medium-term notes. This consisted of $1.2 billion of 3.9% notes due in 2033 and $400 million of 4.8% notes due in 2056. In 2025, Hydro One issued a total of approximately $2.7 billion in medium-term notes to support our capital program and to refinance maturing debt. All of the issued notes were completed under our sustainable financing framework. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our FFO to net debt ratio as at December 31 was 14.2% and remains well above the threshold limits the rating agencies use to trigger a credit rating review. Turning to taxes. Our income tax expense in the quarter was $30 million compared to $17 million in the same quarter last year. The increase year-over-year was primarily due to the increase in pretax earnings. As a result, our effective tax rate this quarter was 11.4% compared to 7.8% a year ago. On a full year basis, our 2025 effective tax rate was 14% compared to 13.4% realized in 2024. We continue to expect our effective tax rate to be between 13% to 16% for the remainder of the JRAP '23 period. Looking at our capital expenditures. In the fourth quarter, we invested $939 million, which was an increase of 17.5% over the same period in 2024. The increase resulted from investments in our Transmission segment. specifically the Waasigan transmission line, the St. Clair transmission line and other major development projects as well as higher spend on distribution customer connections. These were partially offset by a lower volume of line refurbishments and a lower volume of wood pole replacements in both the transmission and distribution segments. On a full year basis, capital expenditures were approximately $3.4 billion, representing an increase of 9.9% compared to 2024, primarily due to the items mentioned earlier. Looking at our assets placed in service. In the fourth quarter, we placed $1.3 billion in service for our customers, which was an increase of 19.1% compared to the prior year. In the Transmission segment, we saw an increase of 26.4% year-over-year, primarily due to timing of assets placed in service for station refurbishments and replacements as well as investments placed in service for customer connection projects. These were partially offset by the absence or overlap of the in-service addition relating to our Chatham by Lakeshore transmission line, which was placed in service in 2024 as well as a lower volume of line refurbishments and wood pole replacements. In the Distribution segment, in-service additions increased by 2.6% from the prior year due to investments in the broadband initiative and the advanced metering infrastructure or AMI 2.0 system. These were partially offset by a lower volume of wood pole replacements and line refurbishments. For the full year, we placed approximately $2.9 billion of assets in service for our customers, which was an increase of 17.8% compared to full year 2024. And that year-over-year increase was mainly due to the higher distribution and service additions. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually for this rate period using the normalized 2022 EPS of $1.61 as a base. Finally, I'm also pleased to report that our Board of Directors declared a dividend of $0.3331 per share payable to common shareholders of record on March 11, 2026. With that, we will open the phone lines and be happy to take questions. Wassem Khalil: Thank you, David and Harry. We'll now open the call for questions. The operator will explain the Q&A polling process. We ask that you limit your questions to one question and one follow-up. If you have additional questions, we request you rejoin the queue. In case we can't address your questions today, my team and I are always available to respond to follow-up questions. Please go ahead, Shannon. Operator: [Operator Instructions] Our first question comes from the line of Robert Hope with Scotiabank. Robert Hope: Question is on the IESO launching the new competitive procurement for transmission in the province. How do you think future large-scale transmission projects could fall under this program? And how does Hydro One position itself in a competitive environment? David Lebeter: Robert, thanks for that question. As you know, the IESO has just kicked off that process, and they're still taking input from the different participants who might bid into that market such as ourselves. So we're hopeful that they're going to come up with realistic criteria for determining which transmission lines do go into the competitive process. I feel fairly comfortable saying that it probably won't include lines that are time constrained, need to be built quickly or infrastructure on our existing right of ways that we use the same corridors that we do. What they will be looking for, I anticipate is transmission lines, we have a bit longer runway because we all know the competitive process takes more time and they're greenfield for the full length, which eliminates a lot of conflict. But we've been participating, as I said, providing feedback on our thought process. I know others have, and we look forward to hearing what they can bring forward later on this year. Robert Hope: Appreciate that. And then sticking with the government. So the Ontario launched the expert panel on local electric distribution, the [ Pulse Panel. ] What would you like to see come out of this? And do you think we could see increased consolidation on the back of this? David Lebeter: Yes. I think there is a potential for increased consolidation further out, but that isn't the government's intent when I talk to them. What they were trying to do is make sure that all the local distribution companies, whether they be large, such as ourselves or the small ones are adequately financed to make the investments they need to make in a system, which is, in many cases, end of life and in many cases, not for the economic activity or the growth that it needs to support. So I'm looking forward to the results of the panel. I think it will be positive for this industry. I do expect it will identify some local distribution companies that do have funding challenges, which may lead to consolidation. But as I said, that wasn't their original intent. And I think it will give a clearer picture of the state of the electric -- the distribution system in Ontario. Operator: Our next question comes from the line of Maurice Choy with RBC Capital Markets. Maurice Choy: I just wanted to ask about the 5 partner First Nations that have secured financing for the Chatham to Lakeshore line. I recognize that there are different First Nation groups across different projects. So not all these projects have the same 5 partners. But was there any indication in your process that would suggest to you that we wouldn't have the same outcome across all your backlog projects? David Lebeter: Maurice, David Lebeter. It was a very good process. We had many, many long conversations with the partners. I believe if you were to speak with them, they would say they're very happy with the partnership and where they landed with the financing they were able to arrange. And I don't see any indication that this will get more challenging as we move across. There are 129 different nations in the province of Ontario. And of course, given the transmission build that we have, we're going to be interacting with many of them. But the goal was to set a foundation or a template, if you like, that we can replicate across the province. And we've gotten support from our First Nations partners in doing that. It makes it easier for them, makes it easier for us, which allows the projects to move forward faster and creates certainty for everybody in what they can expect as we move forward. Henry Taylor: And Maurice, it's Harry here. I would just add, Chatham by Lakeshore was a watershed both for us, for our First Nations partners, but also the financial institutions supporting the nations. I think everybody learned through the process of the 5 nations, there are 4 different providers of capital, one of which is not supported by a federal or provincial guarantee. So everybody learned a lot, and we're pretty optimistic as we look ahead to our future partnerships that things will get easier and we know what to do, how to do it, what the processes that the different institutions use, et cetera. So we are really excited about the opportunity and the potential for our partnerships and the support that they -- our partners receive from different elements of the communities. Maurice Choy: Maybe as a quick follow-up to that. Is there a way to size up the capacity that they have given that your backlog is just growing right now from 10 to 14 right now. And if they participate across the transmission projects at a 50% rate, you have an ability to issue equity. Do they have the similar ability? Or is it capped at some point? David Lebeter: Maurice, what we've seen is a great expansion in the market of people willing to lend to the nations on these types of projects. These are, as you know, low-risk projects, so they're ideal for them to go out and borrow money. At this point in time, we don't see any concerns, but it's certainly something everybody is keeping an eye on, and I'll just reiterate, the expansion of the capital market that's willing to support these type of projects was really impressive to see. Maurice Choy: That's great news. Maybe just to finish off, obviously, as a regulated utility, managing affordability is part of your day-to-day operations. So nothing new there. But ahead of your JRAP filing, I wonder if you could just give us some color on your early engagement with some of the stakeholder groups, what their sentiment is like, what they're willing to accept in terms of rate increases? Or are they going to prioritize investments in? Henry Taylor: Maurice, we have engaged in 2 rounds of -- well, customer engagement, laying things out quite clearly in terms of what we're proposing and what the impacts on. And we have been very happy with the results. We see very strong support for the investments we're proposing to both expand the capacity of our -- both distribution and transmission networks, but also support improved reliability. So the bill impacts are explicit in our customer engagement, and we put them through exercises of trade-offs. It isn't crazy, but the support for significant investment has been both reassuring and comforting for us. So I can't give much more for that. You'll see a lot of the details in our rate application, which we will be filing late summer, early fall this year. David Lebeter: Maurice, if I might just add on top of that. The last time we went out, we did about 40,000, 45,000 customer interviews for JRAP '23. For JRAP '28, we reached out and connected with over 100,000 customers. So we think we got a really strong feedback from that group. We have a good understanding what they want. And a lot of these investments are focused on improving reliability and expanding capacity. These are investments that communities, citizens and businesses value. Maurice Choy: Is there a way to compare the sentiment and tone between the '23 and '28 JRAP engagements? Henry Taylor: It's largely the same in terms of the support for what the proposals are. And that's across all customer segments. So we have residential. We also have small commercial industrial, large commercial industrial, and then there's another group as well. And consistently, the support is there. I think statistically, we're down a little bit, but it's still more than -- more than 2/3 or something are supportive or very supportive and willing to -- they understand the bill impacts and still support it. Operator: Our next question comes from the line of Mark Jarvi with CIBC. Mark Jarvi: Just wanted to follow up on the last question and answer. Obviously, with the transmission lines being awarded to you, there's certainly a timeliness and urgency of that. Just when you think about the other things that you could flex in your budget, you're planning for next JRAP when you talk to customers, what's sort of the dialogue around deferring some sustaining CapEx? Obviously, reliability is important. I'm just wondering what they're thinking in terms of growth versus reliability trade-offs right now. David Lebeter: When we do the customer interaction, we actually tell them what the investments are going to do, whether they're going to create reliability, whether they're enabling non-wire solutions, whatever that happens to be. And given the growth that we're going through right now, our asset planning team is really pushing anything that isn't urgent out. We don't want to be spending money where we don't need to because we want to recognize the impact on the bills. So it's really our investments are focused on the areas that the equipment is at end of life or the reliability isn't up to standard. It's a lower reliability. We want to improve that or there might be economic growth in the area that's being held back because of capacity. Those are the sort of investments we're doing. Where we can delay and the way we do this is we can put a monitoring on the equipment, so we have a better understanding of what's happening. We can change our maintenance regime. So we look at it more frequently or touch it more frequently to keep it going or in some cases, we're able to change the loading on a circuit or a system that helps prolong the life. So we're trying to extend the life so we get the maximum value out of every asset we have and put the dollars where they're most needed. Mark Jarvi: Makes sense. And then Harry, maybe you can comment in terms of the incremental capital you plan to spend in '26 and '27, how might that impact earnings? Like I'm not sure if you get a recovery on that. Does it create a little bit of a drag with higher financing costs? Just how does that higher CapEx translate to earnings over the next couple of years? Henry Taylor: It's a limited impact, Mark. We will have some incremental interest expense; however, we've been able to achieve some really good coupons on the bonds that we're issuing. We're actually ahead of where our expectations were for this year -- we were for last year, and I'm hoping we will for this year. Most of it will not go in service. Most of the incremental will not go in service this year. So we won't be earning anything on it. But we do not think it will create any drag. It's why we're sticking with the guidance that we previously published. Operator: Our next question comes from the line of John Mould with TD Cowen. John Mould: Maybe just going back to your [ OM&A ] profile. On an annual basis, it was down about $100 million year-over-year. Can you give us a little more color on, I guess, a, what the lower corporate support costs were? And then b, how should we think about your OM&A run rate going forward, just given your assets in service at the end of 2025? Henry Taylor: John, it's Harry here. The reduction were driven twofold from a corporate and more broad period. One, we had a pretty significant severance accrual in last year for a voluntary separation program that we ran at the beginning of this year. And that paid off in terms of reductions in both corporate but also field costs. In addition, with our growth in capital expenditures and in-service assets, we capitalized some corporate overhead support costs, all in line with the OEB approved model. So between the overlap of the severance, the reduction in salaries and benefits and corporate costs and capitalization of more on a year-to-year basis, we saw that significant reduction. The run rate will be used this year as a base and start to move. Our productivity initiatives are certainly paying off and helping us, less in corporate, although they're there, but also in field as well. And so I'm confident our OM&A cost run rate will not suddenly spike back up, if you will, that this is a sustainable level. David Lebeter: John, it's David. You can take a look at the Joint Rate Application '23 filing, you'll see the approved envelopes that we got for the OEB. We are going to live within those envelopes. So you can use that as a proxy for our run rate for the next two years. John Mould: Yes, that's great. And then just on M&A, in the past, you've mentioned a willingness to consider M&A outside of Ontario, but limited to neighboring jurisdictions. Wondering what you're seeing in that in the market in terms of potential opportunities that might fit within the criteria you've laid. David Lebeter: Yes. We haven't seen anything. We've got lots of work on our plate in Ontario. As I said in other calls, we're not outside Ontario looking for opportunities. But if the right opportunity came along, and it wasn't going to distract us from our primary focus, which is building the 14 transmission lines and running our distribution system in Ontario, we would certainly take a look at it. But we don't have anything on our plate right now, and we're not actively looking. Operator: And that does conclude our Q&A session for today. I'd like to turn the call back over to Wassem Khalil for any further remarks. Wassem Khalil: Thank you, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that weren't addressed on the call, please feel free to reach out, and we'll get them answered for you. Thank you again, and enjoy the rest of your day. Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Have a great day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the TC Energy Fourth Quarter 2025 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Gavin Wylie, Vice President of Investor Relations. Please go ahead. Gavin Wylie: Thank you. I'd like to welcome you to TC Energy's Fourth Quarter 2025 Conference Call. Joining me are Francois Poirier, President and Chief Executive Officer; Sean O'Donnell, Executive Vice President and Chief Financial Officer; along with other members of our senior leadership team. Francois and Sean will begin today with some comments on our financial results and operational highlights. A copy of the slide presentation is available on our website under the Investors section. Following remarks, we'll take questions from the investment community. Please limit yourself to two questions. And if you're a member of the media, please contact our media team. Today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information, please see reports filed by TC Energy with Canadian securities regulators and with the U.S. Securities Exchange Commission. Finally, we will refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. A reconciliation is contained in the appendix of the presentation. With that, I'll turn the call to Francois. Francois Poirier: Thanks, Gavin, and good morning, everyone. 2025 was a defining year for TC Energy. We laid out a clear set of strategic priorities and we delivered. First, I'm exceptionally proud of the team's safety performance, our best in 5 years, and that is directly enabling our strong operational and financial results, reflected in our 9% year-over-year increase in comparable EBITDA. Importantly, in less than 18 months since we spun off our Liquids business, we have replaced nearly all of its EBITDA with high-quality natural gas and power projects. On execution, we placed $8.3 billion of projects into service on schedule and over 15% under budget. That same focus is evident at Bruce Power, where Unit 3 remains on track for a return to service this year. As we enter 2026, we're building on our strong base business performance, consistent execution and disciplined capital allocation that continues to deliver solid growth, low-risk and repeatable performance. Driven by LNG exports, rising power generation and increasing reliability needs for local distribution companies, we expect North American natural gas demand to increase by 45 Bcf per day from 2025 to 2035. This is equivalent, for context, to adding the entirety of the European gas market over the next 10 years and demand is materializing real time. As the only major energy infrastructure company focused solely on natural gas and power across Canada, the U.S. and Mexico, we have an advantage to capture outsized value from our diversified portfolio. We serve 7 LNG facilities representing 30% of North American LNG feed gas across 3 countries. We serve 170 power plants positioned near high-growth markets like PJM and MISO. And we are approximate to 60% of projected U.S. data center growth. We are also the only midstream company to have a stake in the world-class nuclear facility, Bruce Power, in a market where electricity demand is expected to grow by 65% through 2050. Our competitive position combined with this compelling backdrop is creating for us a broad set of opportunities across geographies, customers and each of our strategic growth pillars. In the fourth quarter, we advanced $5 billion of projects at various stages. We placed $2 billion of assets into service on time and under budget, and we expect to place approximately $4 billion into service this year. We continue to optimize our capital plan, shifting $0.5 billion of capital forward into 2026 to capture in-year EBITDA while creating capacity for higher return growth in the outer years. We added $600 million of new projects in the fourth quarter, including additional NGTL expansion facilities and a brownfield U.S. compression expansion project at a 5x build multiple. We continue to advance commercial discussions with customers across a diverse set of high-quality opportunities moving roughly $2 billion of late-stage derisked opportunities into our pending approval bucket. With recent sanctioning and ongoing optimization of our opportunity set, our high conviction pending approval portfolio now sits at about $8 billion. Sean will walk you through how this will impact our capital spend through the end of the decade. Outside pending approval, we see an additional $12 billion of projects in origination, supported in part by our recent nonbinding open season on Columbia Gas that was 3x oversubscribed. That $12 billion represents a relatively conservative view. It doesn't, for instance, include potential developments like Bruce C, where feasibility and early development work are progressing. Importantly, the projects we're pursuing are consistent with our targeted build multiple range of 5 to 7x. Collectively, this progress reinforces our confidence in 2026 to fully allocate our $6 billion annual target in net capital expenditures through 2030. And I believe our opportunity set gives us the optionality to surpass this level of investment sanctioned this year for the latter part of the decade. Wide-scale electrification, ongoing coal retirements and the rapidly growing energy needs of AI and data centers are driving a significant and sustained increase in North American electricity demand. Our strategy has been very intentional to capture this growth without increasing our risk exposure. Our primary focus is on brownfield and corridor expansions that leverage our existing footprint to primarily serve investment-grade utility customers, particularly in regions where we hold long-standing incumbent positions. Notably, the majority of the 10 Bcf per day of expected growth in power demand is concentrated in markets that directly overlap our footprint. Recent project announcements like TCO Connector, Northwoods, Pulaski and Maysville, are all strong examples of this strategy and practice. Our resilience is anchored by long-term take-or-pay contracts that further benefit from a diverse and durable set of demand drivers. This low-risk strategy positions us well to deliver sustained value for our shareholders, and this same opportunity extends to Bruce Power, which I'll turn to next. Bruce Power's top focus remains delivering the highest level of reliability, availability and safety performance across all 8 units. Alongside the major component replacement program, the team is executing a proactive targeted initiatives to strengthen the reliability of critical equipment. The net benefit of these initiatives is improving plant reliability and availability that has a meaningful financial impact. Every day a unit remains available, it leads to roughly $1 million per day of incremental revenue for TC Energy. And as shown in the chart on the right, Bruce Power's availability has steadily improved with expected availability in the low 90s percent range for 2026. As realized power prices also trend higher, we continue to strengthen our financial performance. And with that, I'll turn it over to Sean to walk through the numbers. Sean O'Donnell: Thanks, Francois. Good morning, everybody. In the fourth quarter, TC delivered 13% year-over-year growth in comparable EBITDA. It was a solid quarter to end an exceptional year. Our pipeline businesses set new all-time high delivery records, a direct result of our team's outstanding focus on safety and operational excellence. In our Power and Energy Solutions business, Bruce Power achieved 86% availability, which includes the planned outage on Unit 2 and is in line with our expected annual availability in the low 90% range for full year 2025. On the right-hand side, we show our comparable EBITDA bridge for the quarter. You'll see that we generated almost $3 billion in EBITDA. Let me walk you through the components of how each business helped us get there. Starting with Canada Gas. EBITDA increased by $110 million due to higher incentive earnings and flow through depreciation on both the NGTL and Mainline systems. In the U.S., EBITDA increased by $188 million, primarily from our Columbia Gas settlement as well as additional contract sales and higher realized earnings related to our U.S. natural gas marketing business. In Mexico, EBITDA increased by $163 million, which was a 70% increase relative to last year due to the completion of Southeast Gateway. The increase from Southeast Gateway was partially offset by currency and tax items, which remain well managed within our overall financial hedging framework. And finally, in our Power and Energy Solutions business, equity income from Bruce Power was lower quarter-over-quarter. That is primarily from Unit 4 being off-line for its MCR program at the same time, Unit 3 is off-line for its MCR program. We also saw lower availability due to planned maintenance outages which was partially offset by higher contract price. In summary, it was a strong quarter due to high availability and EBITDA contributions from the assets our teams helped place into service in 2025. With the $4 billion in projects expected to go into service in 2026, including Bruce Unit 3's return to service, we continue to see strong EBITDA momentum heading into 2026. Shifting to our investment outlook and our capital allocation dashboard. We have a few new features to highlight here in order to bridge you from our last call in November. In November, we shared that by the end of 2026, we expected to have fully allocated our $6 billion annual target through 2030, with project build multiples in the 5x to 7x range. We have made the progress we expected towards that objective. In the past few months, we've added approximately $2 billion of high conviction derisked projects, which are shown in the gray bars. This brings our late-stage pending approval opportunity set to approximately $8 billion. That increase is net of the $600 million of new projects announced earlier today, along with ongoing optimization and high grading of our capital program. As the pending approval bucket continues to grow, we have been successful in pulling forward capital by 1 to 2 years, as shown in the arrows on the top of the page. We are optimizing short-cycle maintenance capital into our 2026 plan, which earns an immediate return on and of our invested capital. To give you a sense for other optimization opportunities that our teams are finding, we have pulled forward the in-service date of our NKY Gate Enhancement to late 2027 and have several other opportunities under evaluation. This not only adds EBITDA to our 2028 outlook, but also creates investment capacity for growth capital in the later part of the decade. Looking ahead, we will continue to evaluate similar NPV positive capital optimization opportunities where it makes sense to accelerate EBITDA and optimize balance sheet capacity that we can redeploy in future periods. To wrap up the capital outlook, I'd like to highlight that the increase in our pending approval bucket, together with our $12 billion of additional opportunities in origination, we anticipate capital investment to not only approach our $6 billion target, but as Francois mentioned, to potentially surpass this level toward the latter part of the decade, consistent with our messaging in prior quarters. Turning to our long-term financial outlook on Page 13. This chart, as we presented in November, continues to reflect the solid trajectory we see this year and looking towards 2028. We are reaffirming both our 2026 outlook with comparable EBITDA of $11.6 billion to $11.8 billion, as well as our 2028 outlook, where we are positioned to deliver comparable EBITDA of $12.6 billion to $13.1 billion. This sustained performance in the fourth quarter and this outlook both underscore the strength and repeatability of our base business. Turning to the right-hand side. I'm pleased to share that our Board of Directors has declared a first quarter 2026 dividend of $0.8775 per common share, which is equivalent to $3.51 per share on an annualized basis. This results in a 3.2% year-over-year increase, which is within our 3% to 5% range, and represents the 26th consecutive year that TC Energy has delivered dividend growth to our shareholders. We continue to be proud to deliver this growth year after year as part of our total shareholder value proposition. I will wrap up by summarizing why our portfolio is increasingly 1 of 1 amongst our peers. TC Energy is delivering strong total shareholder returns while operating one of the largest, most straightforward and focused capital backlogs in the sector. Perhaps most importantly, we're doing that with lower-than-average execution risk in the fastest-growing energy markets in North America. We have the largest portfolio of natural gas and power investment opportunities relative to our size through the end of the decade. Importantly, our growth projects continue to be underpinned by long-term contracts regulated frameworks and strong counterparty quality. We're growing in the deepest growth markets, and we are growing in the right way with respect to our well-established risk preferences. We are deploying capital where we see the highest risk-adjusted returns, extracting more value from existing infrastructure, and remaining disciplined on project selection and capital allocation. As a result, TC Energy offers a compelling lower risk investment proposition, durable growth, execution strength and attractive risk-adjusted returns. With that update, I'll pass the call back to Francois. Francois Poirier: Thank you, Sean. Now as we begin 2026, our strategic priorities remain consistent with what drove success over the last 2 years. We will continue to, firstly, maximize the value of our assets through safety and operational excellence. And this year, we're adding -- we're going to do so while leveraging commercial and technological innovation, including the use of artificial intelligence. Second, we're going to prioritize low risk, high return growth, including placing projects in-service on time and on budget or better. And based on what we're seeing in our project development pipeline, we expect this year to sanction $6 billion of net annual capital expenditures through 2030 and have visibility to increasing that level of investment for the latter part of the decade, and all consistent with targeted build multiples in the range of 5x to 7x. With a diverse set of high conviction late-stage projects, we expect continued durable growth with clear visibility to disciplined capital investment through the early part of the next decade. And thirdly, we will maintain financial strength and agility to support long-term value creation. Building off the momentum from strong operational performance, consistent execution and disciplined capital allocation, I'm confident in our ability to continue to deliver solid growth, low risk and repeatable performance. Operator, we're now ready to take questions. Operator: [Operator Instructions] The first question today comes from Praneeth Satish with Wells Fargo. Praneeth Satish: Based on the recent open season announcement, it seems like average project sizes that you're looking at are getting larger. Please correct me if I'm wrong, but the projects now appear to be moving kind of well past the $1 billion mark. So in that context, I wanted to revisit balance sheet capacity, and I know you show capacity out through 2030 on the slide deck. But can you give us an early sense of what 2031 looks like? How much of that year is already committed? How much is pending, waiting for approval? And how much is true white space? Because I imagine most of the projects, once these large projects, if you sanction them today, will have 2031 in-service dates. So just trying to get a sense of that long-term balance sheet capacity. Tina Faraca: Praneeth, this is Tina. I'll kick off and then turn it over to Francois. We are continuing to see a deep pipeline of opportunities of all scope and scale. And as you look at the projects that we have in origination, primarily focused on power generation opportunities, we've got about almost $12 billion in the pipeline of projects that run the gamut from, say, $200 million to over $1 billion. The open seasons that you mentioned, our focus there is to really try to aggregate as much of the demand as possible so that we're not advancing multiple projects and able to bring larger scale projects into service. And so those open seasons that you mentioned, one, the Columbia open season, where we launched a 500 million a day open season with 1.5 Bcf of bids that came in. We're going to be working to aggregate that and determine what is the right path forward for that project. On Crossroads, a great example of the value of steel in the ground. We have a pipeline there that capacity is about 250 million cubic feet a day, looking at expansion there of about 1.5 billion. So a lot of great opportunities we're progressing, but again, a wide range of scope and scale. Those open seasons, our approach to that is getting those across the finish line this year, so we can move into execution going forward. Francois Poirier: And Praneeth, on the extension of our capital program, some of the projects we're pursuing are, as you mentioned, with 2031 and even 2032 in-service dates. Some of the projects that we've sanctioned, we're being asked by customers to move earlier, as they're being responsive to their data center customers and other customers. And some of the projects we're looking at are even shorter cycle than that. So the beauty of our capital program is that we've got visibility and duration out several years, and it is starting to spill into the early 30s, and that just gives us more confidence in our ability to continue to deliver on that 5% to 7% compound annual growth of EBITDA. Praneeth Satish: Got you. That's helpful. And maybe just turning to the Crossroads project. I know you're an open season, but maybe if you could just talk about the strategic rationale there? Is it primarily data centers, coal-to-gas switching? And then we know of at least one other midstream operator that's targeting similar markets. So just any high-level color on the competitive dynamics. Yes, just trying to get -- and the other question here is given the scale of it, could this project create a pathway to additional projects over time? Tina Faraca: Yes, Praneeth, the Crossroads expansion project is driven primarily by power generation requirements or gas for power generation that could take the form of data center demand, coal-to-gas or electrification. Several of our large electric utilities are looking for additional capacity to support some of the projects in the Midwest. Other customers are looking for more supply diversity. So looking at Appalachia supply and Mid-Con supply, et cetera. So it kind of -- it's taking all shapes and forms there. But the interest level has been really picking up in that area. And if you think about our footprint in the Midwest, I think it's really second to none. And you look at the growth in the Midwest, we're excited about capturing those opportunities. Francois Poirier: Maybe to add to Tina's comments on that, Praneeth. It's a good reminder that we have 13 pipelines across the United States. A lot of our growth has been driven by our Columbia and ANR systems, but we are looking at growth projects across the entire fleet and the entire footprint of our projects in all 3 countries. Operator: The next question comes from Theresa Chen with Barclays. Theresa Chen: Also had a question related to one of your recently highly successful open season. On Columbia, Tina, your comments on how this project could evolve going forward. Can you just remind us what is the expansion capability on the system at this point? And what are the gating factors to upsizing the original scope? Tina Faraca: Thanks, Theresa. We had advertised this open season as a 0.5 Bcf opportunity set. But because of the significant demand of 1.5 Bcf. We're looking what is the best way to optimize that capacity and try to satisfy as much of the demand as possible. What we want to do is look for that sweet spot where we are still competitive in the market and can address as many of the customer requirements as possible. So early days yet as we're continuing the negotiations with all of the customers, but the plan would be to sanction that project this year. Theresa Chen: And Francois, when you mentioned the projects coming under budget by 15%, can you just talk about what has allowed this to happen? And to what extent is that repeatable with your current investments underway. And just as we think about spending and balance sheet capacity on a go-forward basis, I would love to get your thoughts here. Francois Poirier: I appreciate the question, Theresa. We were obviously very prudent with project planning and having high-quality estimates for our projects. Clearly, we had a bit of a tailwind over the last few years as contractor capacity was a bit looser than we had anticipated during the planning process so that we had some tailwinds when we came to actually signing up some of those contracts. So the combination of those things allowed us to deliver really impeccable execution, in addition to the fact that we had our own internal initiatives to look for value wherever we can, using AI and using best practices to make sure that we're being as competitive as possible. I expect our execution to continue to be excellent going forward. And the double-edged sword of having large contingencies being returned to the mother ship, if you will, is that you've lost an opportunity to put in another growth project if the capital was held on to for the 3 or 4 years it takes between sanctioning and in service. So you're going to see us maybe challenge ourselves and be a little bit more aggressive and proactive in our estimation going forward. We want to make sure that we're not missing out an opportunity. It is such an opportunity-rich environment. But having said that, we now, in our processes, invest a lot more capital upfront in developing higher-quality estimates, making sure that our project planning is far more advanced than we ever have in the past before we sanction something. So I fully expect our high-quality execution to continue in the future. Operator: The next question comes from Rob Hope with Scotiabank. Robert Hope: So it's interesting to see how the shape of the capital expenditures through 2030 has changed since Q3 with a pretty good step-up in 2030. So when you think about the kind of, we'll call it, white space in '28 and around those years, how do you think about layering on short-duration projects? Or how quickly could you be comfortable in going above that $6 billion to $7 billion capital range in the outer years? Francois Poirier: Yes. Thanks for that question, Rob. I'll start, and I'll ask Sean to provide some color. Part of the reason like in 2028, we have more white space than we had a quarter ago is that we took advantage of some optimization that is NPV positive to bring forward some of our maintenance capital on which we earn a return from '27 and 2028 into 2026, where we still had some spare capacity. That does 2 things. It brings forward EBITDA growth earlier into our growth delivery. But secondly, it creates capacity for additional growth projects in the future. So you're going to see us continually optimizing and smoothing out that portfolio. Things are unfolding as we expected with respect to the sanctioning of projects. As we mentioned in prior quarters, the size of projects is increasing. So we had to go and reoptimize some of our projects as part of utility bid processes. The PUCs are providing more clarity around what they expect in terms of routing clarity in order to sanction projects. So the utilities themselves have been very prudently making sure that they can meet those requirements. But we see, for example, 2 sizable projects we're competing for that we expect to be awarded here over the next few weeks to a couple of months. So things are proceeding as planned. Sean O'Donnell: Rob, it's Sean. I'll -- please, go ahead. Robert Hope: No, no, go please. Sean O'Donnell: I was just going to tack on a little bit of the balance sheet. I'm sitting here next to Tina and Greg, and yes, there are projects. We're talking about kind of by weeks and months. And candidly, '25, '26, '27, we're given the balance sheet continued time to breathe. And it creates capacity. And like I said -- as Francois said, we're maybe a month away from having better visibility on that '28, but the balance sheet continues to appreciate that time for that optionality in '28. Sorry, on to your question now. Robert Hope: Sorry. Maybe just in terms of kind of the $12 billion of additional projects in origination, based on the commentary that the Columbia project could be sanctioned this year, how do you think about the conversion of moving that into the pending approval? And could we see some of these $12 billion even being sanctioned in '26? Francois Poirier: I think where we launch open seasons, typically, we're having conversation with potential customers before we even launch them. So we have a fair degree of confidence that there's market interest. The purpose of the nonbinding open seasons is to confirm that interest and allows us to optimize the size of the projects, as Tina mentioned. So when we talk about Ohio, when we talk about Crossroads, those are in that $12 billion bucket. They are not in the pending approval bucket, which is restricted to 90-plus percent probability projects. And we still expect projects like that to be sanctioned this year. So that all together, when you put it all together, is what gives us confidence that not only are we going to fill all of the white space to $6 billion out to 2030, but there's a very good chance we're going to be looking to go above that $6 billion level, starting in '29 or more than likely '29, but possibly also '28. Operator: The next question comes from Maurice Choy with RBC Capital Markets. Maurice Choy: Just wanted to pick up on your early response on growth rate. You've accelerated $500 million capital this quarter. And it sounds like there are more opportunities like these to pull forward projects by 1 or 2 years. Would these generally lead to a higher growth rate than 5% to 7%? Or are these filling up white space and therefore meant to be supportive of your 5% to 7% rate? Sean O'Donnell: Maurice, it's Sean. Good question. The $500 million that we're pulling forward, they will contribute to EBITDA. But I'll tell you, that's -- we're going to be in range. Those are healthy numbers, but not big enough to kind of move our range at this point in time. Maurice Choy: But we need to pull forward more than $500 million in the coming quarters, at least in the ending year, would it be upgradable to some extent? Sean O'Donnell: If we're successful in pulling together sizable dollars, then we'll revisit that, of course. But at this point, we are within range on the '28 and '27 pull forwards. Maurice Choy: Got it. Makes sense. And then just to finish off, I wonder if you could just help us compare and contrast the characteristics of the $8 billion projects pending approval and the $12 billion that are in the origination. And specifically, what I'm hoping to understand is, by geography, gas versus nuclear, are the returns quite similar or are some of them green versus brownfield? Sean O'Donnell: Maurice, it's Sean. I'll maybe kick that one off to make sure we were clear on the characterization of what is pending versus what we have in flight. As Francois said, what we have in plan for pending are what we characterize as 90% or more likely, very advanced, fully documented, typically requiring only management or Board-level approvals to sanction. That is the characterization of our pending. As it relates to kind of a heat map and distribution of the pending, maybe I'll turn that over to Tina to give you a sense for where those dollars are coming from. Tina Faraca: Thanks, Sean. As we talked about earlier, given we're in 3 countries, and we have multiple pipelines spanning coast-to-coast, border-to-border, we're seeing opportunities across our entire portfolio in the U.S. in particular, where we see the bulk of the growth those opportunities are really focused primarily in the Midwest. But we are seeing, as we just noted, projects developing along our West Coast systems, our East Coast systems, really all over the map there. In terms of your question on brownfield versus greenfield, our approach has always been to leverage our footprint wherever possible to produce the most economic, efficient build with minimal disruption. So this won't change going forward. Maurice Choy: I noticed there's no mention about nuclear in any of these responses. And do these numbers have the remaining MCRs or even Bruce C in any of them? Francois Poirier: So the MCRs are included in those numbers, but Bruce C is not. Bruce C is still in early stages of development. And so that would be upside to even the $12 billion of advanced projects in advanced BD. Operator: The next question comes from Zack Van Everen with TPH. Zackery Van Everen: Maybe starting on the power and data center side. I know your historical and continued plan has been to focus on the utility customers. I was curious if the more recent political push to keep utility rates flat, has changed any of those conversations and maybe push you guys more towards supplying gas to the mobile power solutions. Francois Poirier: So I'll start at a high level here, Zack, and ask Tina to provide some proof points. As I talked about in my prepared remarks, particularly in the U.S., we really are focusing in front of the meter with our utility customers. To the extent a data center wants to get serviced directly for gas and is willing to provide a long-term contract that is consistent with what we get from the utility customers, we will, of course, contemplate those. We're not looking at any power project development and ownership behind the meter at this time. But Tina, any additional color? Tina Faraca: Yes. Our strategy is really working. We are continuing to have close collaborations with our utilities to develop those solutions that a reliable and cost-effective, and in most instances, serve more than one type of load, not just data center load. You mentioned some of the cost allocation issues, Zack, and there are jurisdictions such as Wisconsin that are tailoring their regulatory framework to better balance system reliability with cost recovery. So we're seeing a lot of utilities figuring it out to kind of say the phrase there, but there are opportunities with many of these utilities where those cost issues are being reconciled. Zackery Van Everen: Got you. That makes sense. And then maybe one on Gulf Coast demand. We continue to see LNG facilities pull more and more from the Northeast as much as they can to the Gulf Coast. Was curious if you could remind us of the ability to expand ANR and/or Columbia Gulf and what that could look like as far as size and timeline if there is demand to expand those pipes? Tina Faraca: We placed 8 LNG projects into service in the last few years, Zack. We've got 2 more that are under construction our [ Gap ] West project and on the East Coast of Canada, our Cedar project. So we've put in about almost 10 Bcf per day of LNG opportunities, primarily in the U.S. What we're seeing right now is a lot of the growth in the Louisiana Gulf Coast has already contracted for much of their pipeline capacity, including on our projects. But to the extent there is an opportunity or a need for additional egress from Appalachia in particular, our pipes are well suited to do that with our Columbia Gulf and our ANR systems. At this time, we're not seeing that draw, but we stand ready to support that when it does show up. Operator: The next question comes from Ben Pham with BMO. Benjamin Pham: I was wondering if you can comment on the stickiness of your 5 to 7x EBITDA build multiple on new projects. And particularly, what internal -- external factors do you need to see that to be sustained? Francois Poirier: So when we look at, obviously, our pending approval projects, which are in the 90-plus percent category, even when you look at the advanced BD group of $12 billion, Ben, we're still looking in aggregate at a 5 to 7x EBITDA build multiple. So the return profiles that we've been able to sanction projects at in the last couple of years are sticking. And the general dynamic is that the utility space has continued to be very creative at finding more brownfield expansion capacity. The data centers have learned that being flexible in their location to go where those efficient deliveries are available has helped us do that. And so we fully expect the return profile in aggregate to be in that 5 to 7x range. And it's got to do with our ability as a company to execute with excellence. We've been able to enter into strategic joint ventures with OEMs and sometimes even with contractors. And what's being reinforced here is the value of pipe in the ground and the value of incumbency has allowed us to continue to earn premium rates of return relative to history. Benjamin Pham: Okay. Got it. And maybe second question just going back to some of the questions on the balance sheet capacity. You mentioned the size of your projects increasing, customers looking to accelerate projects, but you need the balance sheet to [ debreath ] in the next couple of years. How are you guys thinking about the asset recycling equation of it? Just kind of where valuations are right now in the pipe sector. And then maybe also thoughts on JVs such as the Columbia one. Sean O'Donnell: Ben, it's Sean. I'll take that one. As we talk about asset recycling, I'll just point you to Crossroads as an example, right? Probably a project nobody asked us about 2 years ago. And just the value of incumbency, the value of optionality, it gets better every quarter, right? So we're in the process of re-underwriting, have been for several months, re-underwriting every asset so that we know where the growth projects are, right? And are we best served to capture them? Or if over the next kind of couple of years, we want a capital rotate, we know exactly where the growth projects are on any asset we might want to rotate. So it's just understanding the new dynamics, the new growth projects on every asset we have. And we've got a couple of years, right, probably before we have to make that FID decision above $6 billion towards $7 billion. So we've got time. And we're just -- we're tuning up our capital rotation inventory. It's quite simple, while we grow cash flow on those assets. Operator: The next question comes from Aaron MacNeil with TD Cowen. Aaron MacNeil: Maybe just to build on Ben's question or get some additional clarification. You've talked about the balance sheet capacity, potential uptick in spend in 2028 or 2029. What's your just higher level evolved thinking about how to finance a potential step-up in the spend profile? Like I guess, I'm getting a sense that you may be able to do that organically or should we still expect some form of external financing if it's equity or asset recycling? Francois Poirier: Thanks for the question, Aaron. It's Francois. I'll take this one. It's very important for us as heavy deployers of capital to have efficient cost of capital. So we want every tranche of our capital structure to be investment grade. As you know, we're heavy users of hybrid and subordinated capital. So with the 2 notches below senior unsecured capital, we want to continue to maintain our credit rating in that BBB+ or equivalent range. Right now, the long pole in the tent in terms of credit metrics is the 4.75x debt-to-EBITDA. So that's important to us. But as Sean mentioned, we've got time to get there. And the first way to get there is the dollar you don't spend is the best approach. So we're going to look to outperform and deliver our projects under budget as the first source. The second source is getting more EBITDA out of your existing assets. And we're just at the front end of using technological innovation and to allow us to do that. We've got a couple of very promising pilot projects that have allowed us to monetize capacity in different parts of our system that we weren't even aware we had. There's obviously complex algorithms that allow us to be aware of capacity to sell in the short term when it's really very, very valuable. So there are a number of things we can do through commercial innovation and technological innovation. We're going to do those first because obviously, growing cash flow without raising internal or external equity is going to be the most efficient way to do that. And we have a couple of years to pursue those before we have to make any decisions. Aaron MacNeil: Okay. No, that makes a ton of sense. Maybe just switching gears to Canada. I can appreciate that it's not a focus of the quarter. But can you give us an update on the Canadian Mainline settlement that should happen later this year? And just given tightening fundamentals for Canadian Natural Gas egress even with LNG Canada Phase 1 ramping, is there any appetite to expand capacity on the system as part of that settlement? Is it in the $12 billion bucket? Maybe just any updates there would be helpful. Tina Faraca: Yes, thanks. I'll take that question. The current Mainline settlement is in effect until the end of 2026. And this current settlement has really been a win-win as evidenced by the strong system flows we've had lower tolls for our customers and the returns we're seeing on the Mainline. We've been in discussions with our customers over the last several months on a post-2026 settlements with more meetings planned over the coming months, but we're very optimistic we're going to see an opportunity to extend that settlement as we continue those discussions. Multiple factors that are taking into effect when we are in those discussions, including the ability to invest capital. And so as the settlement progresses and moves into actuation there, we'll give you more updates. But right now, our plan is to develop another win-win solution to meet the customers' needs. Operator: The next question comes from Manav Gupta with UBS. Manav Gupta: Like one question with a subpart. But basically, I'm trying to understand, can you -- right now, you obviously have one unit down at Bruce, but going past 2031, we see significant free cash flow inflection from Bruce as all units are up and running and life is extended by multiple decades. So if you can talk about the free cash flow inflection that happens post-2031 with all units of Bruce running. And then the question we sometimes get from investors is if you do decide to move with Bruce C, that would be a significant spend, would you expect some kind of government support, government bonds, what would be the financing in place for -- if you would decide to move ahead with Bruce C? Greg Grant: Sure. Thanks, Manav. It's Greg Grant here. So just as it pertains to Bruce C. So I'll start there. We are continuing to work with some of our pre-FEED studies, includes technology selection, preconstruction work. And we do have funding in place for that. So that actually has been provided by the federal government, and we're currently working on our next tranche of funding from the ISO in Ontario. So that will kind of take our funding to the end of the decade, but it's self-perform funding through that mechanism. Great point, as you talk about cash flow near the end of the decade, we had a great slide on the last quarter material that talked about that inversion point where we've been investing about $1 billion a year into Bruce. By the end of the decade, you'll see about $0.5 billion starting to come back, and then that's upwards of over $2 billion once the MCR program is complete. So when you look at a nuclear construction project, that's going to take 10 to 15 years as you think about the next phase of Bruce C and the units we'd be adding. So $2 billion plus of cash flow and then a long construction period, you're actually going to be able to not only self-fund should we choose to and finance it within Bruce, but also pay distributions. So if you think we're well positioned within Bruce to handle the financing and deal with the expansion, but also just a great management team, and really excited about the opportunity as we see the support for nuclear in the province. Operator: The next question comes from John Mackay with Goldman Sachs. John Mackay: I want to go to the $6 billion to $7 billion kind of annual range you guys are talking about, is that -- particularly in the context of looking at 2030, which is already pretty full and some of these bigger projects, you might be FID-ing soon that could have some capital kind of hitting in 2030. Should we think of that $6 billion to $7 billion as a kind of average over several years, but you'd be willing to go above it in a single year if you're not able to move some of the timing around? Maybe just talk through some of those dynamics with, again, how much of 2030 specifically looks relatively full at this point? Francois Poirier: I appreciate the question, John. As you've heard me say in many times in prior quarters, the first filter we run this through is our human capital and our ability to execute our projects on time and on budget. I can tell you that, that work is more or less complete. We just concluded Board meetings over the last few days, where we presented our human capital plan and execution plan and readiness to upsize our capital program with the Board. And I can tell you, we stand ready for a ramp-up in the size of our capital program going forward. At this point, in terms of the individual bars in each year that are in the pending approval bucket, we haven't -- we don't really go through the optimization and smoothing out of our capital until it's been approved. So I wouldn't be too fussed by a peak in an individual year. We can smooth things out. We can move some capital forward, some capital back. And we still have room in my view, to add capital in the 2030 year, if required. So as our cash flow grows and as our readiness and our human capital also grows, you're going to see the program steadily grow. And so starting in that '29 year likely and then in '30 and '31, you'll see us sustainably be above $6 billion, and I won't put any limitations on where it's going to go at this point. The opportunity set is there, and we're going to pursue what are generationally the highest returns I've seen in my 35 years in the business. Operator: Next question comes from Keith Stanley with Wolfe Research. Keith Stanley: I wanted to ask on the Crossroads pipeline. So you referenced it's 250 million cubic feet a day today. How would you expand that by 1.5 Bcf a day? Is that a lot of new build construction in looping? And then on the demand side of the project, is it primarily targeting Indiana demand in Northern Indiana? Or are you trying to get to the Chicago hub or somewhere else with it mainly? Tina Faraca: Thanks, Keith. On the first question, what we would do is leverage our existing corridor to increase the capacity of that system. So again, we like our brownfield in corridor approach so primarily depending on the volume that we put under contract would be likely moving and/or compression along the existing corridor. That again will be dependent on the volume. As far as the location, it's all of the above. We're seeing demand across that entire corridor but also outside of that corridor. So Crossroads can facilitate volumes into ANR or from ANR and facilitate volumes from Northern Border or to Northern Border. So it's a unique pipeline that will allow us to basically wheel capacity between multiple pipelines and not just focus on the market along that pipeline. Keith Stanley: Got it. Second one, just -- sorry if I missed this, but the gray bar pending approval capital buckets, how much of that relates to negotiated rate pipeline projects versus more regulated investments like NGTL? Tina Faraca: The most prevalent deals we are working on for -- in that bucket or in the U.S. And for the most part, those will be negotiated rate contracts given the size and the demand components of those. So the majority of that would be negotiated rate contracts. Operator: Ladies and gentlemen, this concludes the question-and-answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wylie for any closing remarks. Gavin Wylie: Yes. Thanks, everybody, for participating this morning. As the operator mentioned, if there were any questions that we were unable to get to for the call, please do contact myself or the Investor Relations team. We'll be happy to walk through. We thank you very much and appreciate your interest in TC Energy and look forward to our next update with our first quarter results. Thank you. Operator: This brings a close to today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Capgemini Full Year 2025 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aiman Ezzat, CEO. Sir, Please go ahead. Aiman Ezzat: Thank you. Good morning. Thank you for joining us for the Full year 2025 results call, and I'm joined, of course, by our CFO, Nive Bhagat. So Capgemini delivered a solid set of results for 2025. Operating margin and organic free cash flow were on target and revenue growth finished above the upgraded guidance. In a demand environment that remained largely unchanged, our underlying performance strengthened quarter after quarter with momentum improving across regions, businesses and sectors. We won where clients invest in cloud, data and AI and digital business process services. We captured where it matters most to clients, the large transformation programs. For the year, revenues were EUR 22.46 billion, representing 3.4% growth at constant currency with around 2.5 points of scope impact. Bookings were EUR 24.36 billion, which represents a solid 1.08 book-to-bill for the year and a strong 1.21 in Q4, which is really an evidence of sustained commercial traction driven by a higher number of large deals. We demonstrated the strong resilience of our operating margin at 13.3% and organic free cash flow at EUR 1.95 billion in spite of cost pressure due to a higher bench in Continental Europe. Normalized EPS stands at EUR 12.95, plus 5.8% year-on-year. In line with our dividend policy, the Board will propose a EUR 3.4 per share dividend at the Annual General Meeting. So in a fast-changing environment, we also took strategic steps to lead in AI, Intelligent Operations and to reinforce our position on Sovereignty, and I will discuss these market trends shortly. So we finished the year on a strong note with another improvement in our underlying growth in Q4. Constant currency growth was 10.6% in Q4, including a scope impact of about 6.5 points, driven primarily by WNS and Cloud4C. Now stepping back and focusing on the underlying trend, we clearly see the benefits from the actions implemented over the last quarter. All regions improved between Q1 and Q4. North America recorded the strongest acceleration, while U.K. and Ireland and APAC and LatAm improved on an already solid performance. France gradually improved, but it remains challenging at year-end. The recovery in the rest of Europe was more pronounced and is now back to growth. The improvement is also visible across sectors, which all have significantly improved since the beginning of the year, even manufacturing is now stable year-on-year, excluding M&A impact. Finally, from a business perspective, Operations and Engineering recorded the strongest acceleration, both at constant currency and organically with double-digit growth in digital BPS across both Capgemini and WNS. One of the highlights of 2025 is the strength of our ecosystem of technology partnerships. Today, more than 2/3 of our bookings are associated with our top 12 technology partners. And in a world driven by cloud data and AI, cyber and sovereignty, clients are looking for solutions combining ecosystem of technology partners and services provided by relevant transformational focus, leveraging industry domain and functional expertise. I also want to highlight specifically the Defense sector, which continues to enjoy double-digit growth in 2025. And as the leading European player, Capgemini is uniquely positioned to capture this structural growth opportunity. I do expect to see further acceleration in the next 2 to 3 years as Europe ramps up its defense programs. So we expect good growth to continue in H1. For Q1, in line with traditional seasonality, constant currency growth should be in the range of 8.5% to 9.5% in constant currency with around 6.5 points of contribution from M&A. So quick words about our 2025 ESG policy achievements. So again, here, we demonstrated continued improvement in corporate responsibility with major progress on our ESG road map. So let me highlight a few points. From an environment standpoint, we accelerated towards our target of being net zero across all scopes by 2040, reaching 100% renewable electricity for all operations. We also made notable progress in gender balance. Proportion of women in the global workforce reached 40.5%, up 7 points since 2019. And for women among executives, leadership position, we reached 30.5%, up 13 points since 2019. Finally, on governance, we made further progress around cybersecurity with a CyberVadis score of 990 out of 1,000, positioning us as the leader in our industry. Now let's focus on our growth engine. And of course, let's start with AI. So AI in the enterprise has become a reality. Maturity is increasing about its possibilities, but also about what it will take to achieve real adoption and measurable results. So 2026 is really the moment of truth for AI, the moment where AI must transition from [indiscernible] to measurable business impact embedded in core operations, delivering value through AI-powered transformation. As we move to transformation, there is a growing awareness that the foundations are not yet in place, whether we're talking about infrastructure, data, standardized governance, risk and compliance frameworks. In practice, clients face siloed legacy systems preventing AI workflow orchestration, poor data availability and quality preventing AI performance and fine-tuning and legacy workloads running on-premise and preventing AI compute at scale. Finally, it's about human AI collaboration and trust. This is where the real complexity lies. This is our playing field. All this complexity, this is where we can drive real transformation requiring strong business acumen, domain knowledge, transformation capabilities, data and AI and technology depth. And in this context, Capgemini has the right capabilities and set up to deliver AI transformation to our clients, leveraging appropriate ecosystem and partnerships. Now let's take a couple of examples to make that more concrete. So just -- the first client example is a client who want to identify its procurement activities end-to-end to be more competitive. So from strategy and sourcing to procure to pay and end-to-end processes. So we are currently building a suite of 7 Agentic products that will provide market intelligence, assist buyers in the sourcing phase, analyze supplier responses to tenders, automate food cost calculations, simulate cost scenarios, analyze cost variances, consolidate forecasting, draft contracts and automate value tracking. As you see, the scope is pretty comprehensive. And the product is targeted to deliver tangible impact in the short term, strengthen working capital by optimizing payment terms, reducing inventory exposure and improving the cash impact of procurement, decrease operational and purchasing costs through automation and smarter decision-making and lower process execution costs and reduce reliance on manual efforts across procurement workflow. We can already document EUR 27 million of savings to date to what has been achieved. Our second client was facing issues of data center reliability with significant financial impact up to hundreds of thousands of dollars per minute of downtime of outage in addition to reputation damage. We developed a physics-informed AI model, identifying abnormal variation to predict and prevent equipment catastrophic failures, and alerting platform integrated with existing order workflow that's not requiring any operator training and a global and unified view of equipment operation, relationship and performance, feeding back operational and design improvement. Implemented and live, our solution has successfully prevented and mitigated catastrophic events, saving our customers millions and millions every year. And just one key metric, we have avoided around 50 critical incidents prevented per year. Now moving on to the second vector of growth, which is Intelligent Operations, which we consider still to be the largest showcase for Agentic AI. WNS was acquired in that context to provide the scale and vertical expertise required to lead in this market. The integration is proceeding as planned and should be operational in H2. I can confirm that the benefits are on track. Let me remind you, annual run rate of revenue synergies of EUR 100 million to EUR 140 million by the end of 2027 and annual run rate of cost synergies of EUR 50 million to EUR 70 million also by the end of 2027. The go-to-market activities as expected, are vibrant, and we have today 100 cross-selling opportunities identified. The Intelligent Operations pipeline of opportunities also growing with some very large deals in pursuit. With Intelligent Operations, we are leveraging AI to reshape and run entire areas of client business operation to achieve end-to-end strategic value creation by combining cost efficiencies and enhanced business outcomes. Happy to report that we closed our first mega deal of over EUR 600 million for a large global company, covering multiple functions and processes based on a true Agentic AI-led transformation solution, delivering significant cost reduction and enhanced business outcome and operating on a non-FTE based commercial model. So this is the largest of several contracts signed in the last 4 months with some potential extensions of scope. And this is a clear proof that the Intelligent Operations strategy is working and will be one of our growth pillars in the coming years. Let me move on now to sovereignty, where we see a significant appetite from clients to help them develop and implement their sovereignty strategy. This has become a huge topic in today's multipolar world. I took this as proof -- I take it as proof, this striking figure. Over 50% of services contracts will include some sovereignty requirements by 2029, up from 5% in 2025 according to Gartner. And sovereignty is not a monolithic framework, but is composed of 4 key dimensions: Data, operations, technology and regulation, and no one can really be sovereign across the full value chain. Now it is clear that as the largest European player, we are the driving force in developing offerings, ecosystems and partnerships to help large organizations implement sovereignty enabling solutions adapted to their needs and environment. We reinforced our solutions portfolio with the acquisition of Cloud4C, providing hyperautomated, AI-ready, locally governed cloud operation with sovereign compliant monitoring, disaster recovery, cybersecurity and continuity and in addition, with specialization across some industries and sovereign compliance frameworks. Now we are leveraging Cloud4C setup to create a European-hosted mirror platform to operate our European customers' sovereign workload. This is a perfect complement to our Bleu SecNumCloud JV with Orange in France. We are also leveraging our core partners, sovereign solution. We made 3 announcements in the past week with Google Cloud, AWS and Microsoft in addition to the sovereign technology partnership signed with SAP in November. Now we are extremely well positioned to capture the growth trend on sovereignty. Now the market is moving fast. And while a few areas have been softer in recent years, the opportunity set ahead of us is really compelling, especially in AI, Intelligent Operations and Sovereignty, as I have outlined earlier. We are executing a clear plan with selective strategic M&A, disciplined investment and a sharper focus on where we lead. Today, we are accelerating also our capability shift in order to deliver on the growth agenda. This will translate in a number of country-specific workforce and skills adaptation initiatives, leading to an estimated EUR 700 million restructuring over the next 2 years. These Fit for Growth local initiatives strengthen our competitive position and support sustained and profitable growth. For 2026, our targets are clear: Constant currency revenue growth of around 6.5% to 8.5%, with inorganic contribution of around 4.5 to 5 points. Operating margin of 13.6% to 13.8%. Organic free cash flow of around EUR 1.8 billion to EUR 1.9 billion, including the estimated year-on-year increase of around EUR 200 million in restructuring cash out. In 2026, we're going to demonstrate our ability to set the group on a new profitable growth agenda around AI, Intelligent Operations and Sovereignty. And this will further reinforce the group's financial profile. We are clearly pivoting the group to be the catalyst for enterprise-wide AI adoption, more to come during the Capital Markets Day in May. Thank you for your attention, and I now hand over to Nive. Nivedita Bhagat: Thank you, Aiman, and good morning, everyone. Let me start with the headlines for FY '25. We delivered a solid top line at EUR 22,465 million, which is up plus 1.7% on a reported basis and plus 3.4% at constant currency, placing us above the top end of the outlook we upgraded in October. This shows that our growth initiatives put in place over the year yielded results despite a mixed environment. On profitability, we protected the operating margin at 13.3%, stable year-on-year and in line with the guidance we set. Holding the operating margin despite the challenges we have faced in Continental Europe is proof point that our operating model is more resilient than ever before and shows the continued effectiveness of our cost discipline. Net profit group share ended at EUR 1,601 million with basic EPS at EUR 9.46. Normalized EPS, which strips out the other operating income and expense items was EUR 12.95, plus 5.8% year-on-year. Finally, we delivered organic free cash flow of EUR 1,949 million, in line with the around EUR 1.9 billion target we set at the beginning of the year, a strong testament to our financial discipline and focus. Let me take a moment to talk you now through the shape of the year. Growth rates gradually improved quarter after quarter at constant currency, but also ex M&A. Underlying growth strengthened further into Q4 and after taking into account the scope impact of around 6.5 points, our constant currency growth reached 10.6%. I'm happy to confirm that the organic growth in Q4 was therefore around 4%. To this effect, there is an error on Slide 27 of the pack. Now reflecting on the acceleration since the beginning of the year, what gives us confidence is that this wasn't a single sector or single region spike. We saw broad-based improvement across all businesses, regions and sectors. Currency impact was negative at 370 bps, so that's minus 370 bps in Q4 and minus 170 bps for FY '25. Based on current rates, currency headwinds should continue into Q1 2026 at slightly over 4 points and then settle at minus 1 to minus 1.5 points for the full year 2026. In summary, while the demand environment has remained largely unchanged, our current momentum is clearly stronger than it was a year ago. Turning to bookings. This was EUR 24.4 billion for the year with a very solid EUR 7.2 billion in Q4. In constant currency, our bookings are up plus 3.9% for the year and plus 9.1% in Q4, which mirrors the improvement in revenue momentum we just discussed. The book-to-bill of 1.21 in the quarter and 1.08 for the year is strong by historical standards, and this reflects 2 things. We continue to win in clients, new strategic priorities, particularly data and AI, and we won a higher number of large deals, which brings some added visibility. As Aiman said earlier, our portfolio investments from cloud, data and AI to digital core modernization, Sovereignty and Intelligent Operations continues to show good conversion, which sets us up well for the future. From a sector perspective, the improvement extended into Q4 on a like-for-like basis. This is also visible in manufacturing, which was stable in Q4. This solid performance was complemented by the contribution of WNS and Cloud4C acquisitions, which was mostly visible in the services, financial services, energy and utilities and consumer goods and retail sectors. Turning now to the full year, again at constant currency. Financial services and TMT sectors were the most dynamic in 2025, growing plus 9.2% and plus 7.7%, respectively. With the exception of manufacturing, which remained slightly negative, all the other sectors posted low to mid-single-digit revenue growth in 2025. Geographically, Q4 showed a step-up in underlying trends in our largest regions. North America improved and rest of Europe returned to positive growth. Growth rate improved in France, although still negative in Q4. The scope impact from WNS and Cloud4C is most visible in North America, United Kingdom and Ireland and in Asia Pacific and Latin America. In Q4, this is lifting these regions' already solid growth rates to around 20% on a constant currency basis. For the full year at constant currency, revenues in North America increased by plus 7.3% year-on-year. This has been fueled by continued underlying acceleration throughout the year with strong performance of financial services and to a lesser extent, in the TMT and manufacturing sectors. United Kingdom and Ireland region grew plus 10.5%, primarily driven by robust underlying momentum, notably in the financial services, TMT and public sectors. France revenues decreased by minus 4.1% in a challenging environment as illustrated by the persistent weakness of the manufacturing sector and the contraction of the energy utilities and the consumer goods and retail sectors. In the Rest of Europe region, revenues declined by minus 0.7%. The good performance of the public sector and the growth in Energy & Utilities and the services sectors were offset by a weak manufacturing sector. Finally, revenues in the Asia Pacific and Latin America region grew plus 13.8%, driven by financial services as well as the solid traction in the consumer goods and retail and TMT sectors. On profitability, North America operating margin expanded 40 bps, so that's plus 40 bps to 16.9%, while U.K. and Ireland held a strong 18%, which is 170 bps below a record 2024, which remains a very healthy level. Operating margin in France stands at 10.9% compared to 10.2% last year. As commented in H1, this improvement has been driven by one-off items. Excluding these one-offs, there has been no improvement in the underlying margin. Asia Pacific and Latin America was 12.6% at plus 20 bps and the rest of Europe ended at 11.4% at minus 60 bps. Across our businesses, the Q4 sequential uplift was also visible. Growth rates improved across all business lines on a constant currency basis, but also ex M&A. Strategy and operations, which has no M&A impact, improved significantly. This came with some contrast across regions as we have seen during previous quarters. The other highlight is Operations and Engineering. Let me unpack this as both WNS and Cloud4C are reported here. Starting with digital BPS, this is clearly the fastest-growing business. We have double-digit growth on a like-for-like basis across both Capgemini and WNS. Cloud Services and Engineering are also now positive. Moving on to the full year at constant currency. Applications and Technology grew plus 4.6%. Operations and Engineering, plus 4.9% and Strategy and Transformation at plus 2.4%. In terms of head count evolution, head count closed at 423,400, up 24% year-on-year and 19% since end of September, primarily reflecting the WNS integration. WNS is also accretive to our offshore leverage. Offshore leverage moved from 60% in September to 66% at the year-end. This is up plus 8 points year-on-year. Attrition was slightly down to 14.9% on a last 12-month basis before we incorporate WNS data in 2026. Let's now look at the operating margin bridge. Gross margin was 27.1%, down 30 bps year-on-year. This primarily reflects a prolonged soft market in Continental Europe. In this context, I would like to point out that our gross margin has been significantly more resilient than in any other previous down cycle. Additionally, in the current demand environment, we have tightened our selling expenses by 20 bps and our G&A by 10 bps. The net result is operating margin stable at 13.3% within the range guided for the year. Moving on to financial results. With the interest expense of the new bonds and lower interest income on cash, we moved from a net interest income of EUR 13 million last year to a net expense of EUR 30 million this year. On income tax, the effective tax rate is down year-on-year to 24.6% at the back of some noncash positive one-offs, which I did mention in H1. Now looking from operating margins to the bottom line. As anticipated, other operating income and expenses are up year-on-year at EUR 784 million. The restructuring costs amounted to EUR 205 million, in line with our comments in July. And with the acquisition of WNS, our acquisition and integration costs are at EUR 97 million. This takes the operating profit to EUR 2,199 million, which is 9.8% of revenues, down from 10.7% last year, given those noncore items. After financial and tax effects previously discussed, group net profit stands at EUR 1,601 million, down 4.2%. Basic EPS is EUR 9.46, down minus 3.7%, while normalized EPS was EUR 12.95, up plus 5.8% year-on-year. On cash generation and capital allocation, we generated EUR 1,949 million of organic free cash flow, stable year-on-year and in line with our around EUR 1.9 billion target. This year, again, the conversion of our net profit to organic free cash flow is clearly above 1 at 1.2x. In terms of our capital allocation, in 2025, we deployed around EUR 4.9 billion, approximately EUR 3.8 billion on WNS and C4C, EUR 1.1 billion on shareholder returns, which was split between EUR 578 million of dividends and EUR 542 million of buybacks. The employee shareholder program led to a EUR 0.3 billion capital increase, leading to a net outflow of EUR 4.6 billion. On the balance sheet, we redeemed the EUR 0.8 billion bond in June and then successfully completed a EUR 4 billion bond issue in September. We closed the year at EUR 5.3 billion of net debt. And as anticipated, the net debt-to-EBITDA ratio stands at 1.66, and this compares to 0.7x a year ago. And as a reminder, this was 2.8x post the Altron acquisition. In 2026, as we integrate WNS, we expect limited M&A and will accelerate our buybacks, which is consistent with the EUR 2 billion share buyback program announced in July. On that note, Aiman, I hand back to you. Aiman Ezzat: Thank you, Nive. So before we move on to the Q&A, let me briefly acknowledge the current market volatility that reflects the perception and uncertainty of AI-related impacts. So what matters, however, is unchanged. Capgemini fundamentals are solid. Our strategic priorities are clear, and our teams remain fully focused on our clients' needs. Now listening to our large Global 2000 clients, their needs are rooted in who they are, complex organization that requires end-to-end transformation capabilities, global execution at scale, deep industry expertise, technology-agnostic integration and rigorous regulatory compliance governance. These structural needs do not disappear with AI, they become even more essential. And that makes Capgemini's role integral as organizations navigate the future. The adoption of AI and GenAI will drive sustained profitable growth for the group and value for all our stakeholders. In 2026, we'll affirm our critical role in making AI real for our clients. With that, let's open the Q&A and to allow a maximum number of people in the queue to ask questions, I kindly ask you to restrict yourself to one question and a single follow-up. Operator, could you please share the Q&A instructions. Operator: [Operator Instructions] And the first question comes from the line of Laurent Daure from Kepler Cheuvreux. Laurent Daure: Congratulations for the fourth quarter first. So two questions for me. As you can guess, given the increasing scope impact in the fourth quarter, it's a bit tough for us to reconcile the numbers. I know you will not share with us the organic performance by regions, but I was interested to see if you could provide a bit more insight of the underlying organic trends in the main regions between the third and fourth quarter. In other words, if you've seen further improvements in U.S. and U.K. or if the improvement mostly come from a better Europe? And then my follow-up is probably going to talk more during the CMD on that. But when you discuss with clients, their midterm ambition and their potential budget, I would say, 3, 4 years out, when they look at the additional business regarding AI versus the savings that you will bring to them, do you see them having in mind a reduction of their budget? Or what is their stance at the moment? Aiman Ezzat: Listen, underlying organic and -- Nive can add precision to that. I mean, for me, everything is trending in the positive direction. I mean, definitely in North America, we continue to see further acceleration, which really underlines the recovery. U.K., France has improved and rest of Europe has improved. So -- and on the organic number, just to remind you, Nive said that the organic number is around 4% in Q4 overall for the group. Nivedita Bhagat: And I think just to add, geographically, Q4 has showed a step-up in underlying trends across all our regions. So North America has improved. Yes, rest of Europe has returned to positive growth. And of course, we have seen some improvements as far as France is concerned as well. Aiman Ezzat: Okay. On your second question, I don't think clients are thinking this way about reduction, et cetera. Clients are looking at how critical it is for them to adopt AI and where it can have an impact, both from a strategic perspective and from this. They are not thinking about, okay, I'm going to save money, I'm going to reduce my spend, et cetera. They're looking about how can I get real value out of AI, and they're ready to put the money on the table to make it happen because they consider that as being critical to their future in terms of transformation. I don't think we have -- I have seen clients discussing in 3, 4 years down the line, when I do the -- will I reduce my IT cost or will I reduce my spend on AI, et cetera, anything like that. Laurent, I don't think we are there. I think clients are really around where is the value creation. This is moving fast, how I can adopt it, where can I deploy it? How do I get benefit out of it, whether it's savings, time to market, innovation, better customer relationship, et cetera. And this is really what focus is a lot more than predicting what they will do in 3 or 4 years. I mean you see the uncertainty that's creating in many industries, including in ours by AI and really people are dealing with that more than trying to plan, am I going to save money and reduce my IT budgets in 3 or 4 years. Operator: We will now take the next question. And the question comes from the line of Nicolas David from ODDO BHF. Nicolas David: Congrats from my side as well for this very strong end of the year. My first question is regarding the Q4 to Q1 trends you are describing. Could you help us understand if in Q4, you saw some kind of exceptional budget flush or elements which prompt you to expect an organic growth at the low to mid-range of your guidance you described for Q1, a bit below what you saw in Q4? Or is it just comps or a bit of caution? And second question is, when you discuss with clients and you are signing contracts about identification of workflows, could you help us understand if those projects are done and those identification projects are done inside the traditional cloud business software with tool provided by the software providers, the legacy software provider? Or are they designed using new entrants tools or tools that you are developing yourself around the historical application layers? Aiman Ezzat: Okay. Listen, on the Q4 to Q1, it's more, I think, the seasonality that basically that you see that's going to impact thing, okay? I mean we'll always build some caution in what we say around where we head, but we are quite confident around the growth that we see in front of us. I mean, no specific concern that we see in terms of the business going into Q1. On the project, I think it's all of the above. Because, as you know, everybody wants to put their AI agents, their AI models, drive the consumption towards them. So whether you talk about software vendors and the Agentic layer, you talk about the hyperscalers and you talk about all the new entrants like OpenAI, Anthropic, Mistral, et cetera. All of the above work, they're all winning some business. We work with all of them. And the question is what is the pertinent solution for the client based on what he needs and who, at the end of the day, based on the strategy, whether it's short term or medium term, based on who has been the most convincing to them in terms of what they are pitching, and this is really what the clients go. But in a number of cases, they're also experimenting. Many clients have not have a long-term strategy, deciding of saying this is what I will do, this is my line and I will not move from it. And I think -- if people evolve and bring the right solution that are really pertinent to the client, to the client industries and specific environment, that is what they will adopt. What we have the client is navigate through some of that and ensure that they actually get real value because this is not about what solution or what agency going to adopt is how to make it happen in your critical processes, how to ensure that they're enterprise scale, how to ensure that they are safe, how to ensure that you can trust, how to ensure that the human AI model works. That's really where the complexity lies. But at this stage, we don't see clients saying, I will go this way or this way. I think it's still pretty open. Nicolas David: All right. But based on what you see, you believe that incumbent software player can be relevant in this move. Aiman Ezzat: Yes. I mean, again, I heard a number of technology CEOs talk about it, including from the hyperscalers recently. I mean, the thing about the death of software, I think, is a bit premature. The question is, what value are you bringing? If you don't evolve, I mean, same thing in our industry. If you don't evolve, software vendors don't evolve, then they will have a lesser role to play in the future. But you have to evolve to be able to embrace and bring the value to clients. At the end of the day, what clients are looking is not should I buy a software, should I buy an [indiscernible], I want value delivered. Who can help me deliver tangible value. That's what they're looking for. And if you play in there, then you have a role to play. If you don't contribute to that, then you get commoditized and basically downplayed over time. Simple. Operator: Your next question today comes from the line of Sven Merkt from Barclays. Sven Merkt: Your guidance for 2026 is obviously very solid, but still below the exit rate of Q4 on an organic basis. Can you help us to square this? And was there anything exceptional in Q4? Or have you just baked in significant conservatism into the guide? I noticed you called out still a complex macro environment earlier. And then secondly, a lot of focus, obviously, on helping your clients adopting AI. But can you speak a bit more about your internal road map to adopt AI to drive efficiency and what financial impact that could have over the long term? Aiman Ezzat: Okay. So listen, the guidance, I mean, when you start the year, I mean, we still have an environment that's basically not the most stable environment. So yes, we're going to have some conservatism as we start the year, and we'll see how the year plays out. But when you see the geopolitics, discussion around tariffs and a number of hot points across the world, you're going to have to be cautious and not just replicate what we see in Q4 of saying this is how the year is going to look out. So we see a solid H1. We have good views on H2, but we know there's still fluctuations that can happen along the year. If I go to your -- to the folks, I think it's a very good question around how we're adopting AI. So first, there is 2 key areas. In addition, we talked a bit about what we're doing with clients, 2 key areas. One is our operations, second thing in our delivery. So in our delivery, we are pushing. And it was slow because some of it is linked to our client environment. We work mainly in our client environment. If they don't provide us the tool, et cetera, we cannot really take advantage of that. And then there is client conservatism about what we use, what impact it's going to have, is it safe, et cetera, before just going for the savings. We start to see some more accelerated benefits in some areas. I cannot -- so it's not across the board still, but we really start to see pockets where we're gaining maturity, clients are gaining maturity and where we see we can progress faster. I mean, typically, if you take our offering in Intelligent Operations, that's what we do. I mean we are basically telling the client, we take this over, we're going to do the Agentic transformation. And of course, by doing that, as you imagine, we go up the experience curve quite quickly because we are adopting internally in our delivery model, how to make that happen. And we have a number of success. I talked about a couple of examples, but there's a number of others. So we are going up that experience curve area by area, business by business to see how we can accelerate the adoption. And of course, we're pushing for a strong acceleration this year, okay? The second part is in our Operations. And here, we have developed and created an internal platform data. So what we push to our clients, we have done it. We have built all the LLM layers above that with one of the technology partners, one of the large technology partners. And we are now -- have started developing the different Agentic layers. HR agent, sales agent, finance agent, proposal agent. So we are deploying internally what we're preaching to our clients. I think we'll probably dive more in detail around the number of these elements at Capital Markets Day and talk about what the impact that we see in terms of the future as we both adopt and deploy more of the solution also at clients. Operator: Your next question today comes from the line of Frederic Boulan from Bank of America. Frederic Boulan: If I can just stay on the AI debate. So the bear case on the IT services industry, as you know, is around the negative impact from cutting efficiency, massive simplification in software deployment. Can you share with us what you think the market is missing and how CAP can maintain its relevance in that new ecosystem? And if I can get a follow-up around pricing. I mean, is there any specific area where you do see significant price pressure from more efficient delivery supported by GenAI? Aiman Ezzat: So listen, again, I recognize the market is looking for clear evidence that AI is already translating into tangible value, whether it's gross margin or both. And for me, shifting the perception is not about making promise, it's really about execution. And that's really what we're focusing on. We're focusing on execution around growth, around margin, on cash flow, also providing more and more visibility and understanding about the trajectory in terms of how AI is progressing. We are embedding AI across all our offerings. So we are redesigning our offering in a certain way. So it's by design, not telling people see how you can use AI to improve things. Basically, we are designing how AI should be used. And I think this is what really where everybody is going and where we're helping our clients to go. You have to redesign your processes, the way you work and everything around the impact of AI. But I can tell you really when I -- besides examples, when I really talk to clients, the level of adoption we're still at the beginning. And because the transformation is complex, this is not easy things to do. And our best response to some of the fears in the market today is on delivering value, delivering value, explaining where we are winning, explaining the partners with whom we're signing who basically talk with them around how we're delivering value and how we need them and some will come in the near future, additional ones. So it's really about proof points. I mean this is our best response is proving that this works, that we're able to create value across the value chain of what we're doing in Capgemini. On the pricing, I don't think there's any change. There's not a specific area of pricing pressure. The environment is competitive. And of course, as you demonstrate more value creation potential, you, of course, can be able to generate better margin in certain areas. And I think this is really what we are focusing on. Operator: And the next question comes from the line of Mo Moawalla from Goldman Sachs. Mohammed Moawalla: And it's encouraging to see the revenue inflection. On the revenue growth, first of all, I just wanted to sort of clarify how is the kind of discretionary spending environment? To what extent did you get a bit of sort of budget flush effect? And then looking forward, you talked about some encouraging pipeline on intelligent operations. Is that something that's sort of baked into the guidance in terms of -- or is that sort of going to be as part of the conservatism you talked about? And then secondly, while the kind of growth is inflecting, we are seeing this kind of erosion on the gross margin. Can you sort of just help us understand that dynamic going forward? And that should we sort of anticipate that continuous kind of erosion in gross margin as pricing environment remains tough and you're kind of having to see some deflationary effect from AI? And is that sort of then what can you do on the OpEx side to try to kind of manage that impact on the operating margin? Aiman Ezzat: So first on the revenue growth. No, I mean, I don't consider there was any budget flush coming into Q4. I think it's really real growth that we have driven and improving across the board, as we said, even manufacturing now is not a headwind anymore because even excluding M&A, manufacturing has become flattish. So it's all trending in the right direction. From Intelligent Ops, we will never bet to include in our forecast some very large deals. So in our guidance, we will never bet on large deals. The other thing, just remember so that we don't get -- we understand the full impact of that. Some of these deals, as we say, these are complex deals. I mean we're talking about clients ending up a chunk of their operation and trusting us to run them and to transform them. So this is not -- it takes time to be able to close some of these deals. And the second thing, it takes time to transition. So the revenue doesn't come immediately. So a deal that we have today in the pipeline will have minimal impact in 2026, will have full impact in 2027, okay, just so that to you have a back of the envelope idea on that. Nive, on the gross margin. Nivedita Bhagat: Yes. On the gross margin, clearly, of course, this primarily reflects a fairly tough -- prolonged tough market that, of course, we've had in Continental Europe. And I think that's really one of the reasons why the gross margin is where it is. Now having said that, I think the gross margin has been far more resilient in this down cycle than any previous down cycle. And I think if I go back into the past, if I looked at the period of the financial crisis, I think we were down about 180 bps. If I look at COVID, we were down about 120 bps, whereas this time it's 30 bps. So not to sound defensive, but to say, I think we've been pretty resilient through this period of time despite, of course, 7 quarters of negative constant currency growth, just as a reminder. Now coming back, though, to the margin levers, I think, I've always said that the mix and portfolio mix is our biggest area of focus when it comes to that improvement. So that's an area of focus that will continue to happen. And all these investments we've made through our acquisitions, through the portfolio to what we see is going to help with that growth going forward. But additionally, yes, our Fit for Growth initiatives that Aiman just talked about will address some of that and will address some of the margin accretion from that perspective. And we will also, of course, continue to look at everything in terms of our operational parameters. So whether it's SG&A and looking at onshore/offshore, looking at what we do with our pyramid, et cetera, all of those aspects, we will continue to look at very strongly. So the focus is very much an improvement to gross margin as we go ahead, Mo. Operator: Your next question today comes from the line of Michael Briest from UBS. Michael Briest: Can you talk a little bit more about the Fit for Growth program? What your ambition is with the EUR 700 million restructuring envelope? And then thinking about head count more broadly, Obviously, you're using AI internally. WNS, there's an opportunity there around automation. Can you talk about how you expect head count to develop through the course of the year? And then just on the follow-up would be that EUR 600 million deal that you announced, Aiman, congratulations. How does that sort of fit into the GBP 100 million to GBP 140 million revenue synergies? It seems early to have won something so soon after the deal closed. But you mentioned the full pipeline. Can you give some more context on that and how quickly you can get to that GBP 100 million plus synergies? Aiman Ezzat: Okay. For the Fit for Growth program, I mean, listen, recognition that, first, I mean, you have seen that over the last few quarters, we get some -- we had some challenging environments in Europe, okay, across a number of countries. Some of them are linked to sectors. But also, we are anticipating some evolution from the technology and notably from AI in terms of evolution around some capabilities. So I think -- and we have to do quite a bit of reskilling also in some areas to be able to prepare our workforce for the future. So this is really what this Fit for Growth program is about. This is about basically realigning some capabilities with where we see now the opportunities coming up, whether they're Intelligent Operations, AI, Sovereignty or some other pockets which are emerging where we need to invest. So what we did is basically said we have to move fast. The market is moving fast, and this is about basically doing fast, something that we could do over several years is that we don't have time to waste. We really have to act fast, and we took the decision to be able to accelerate what we do traditionally over time to do it at a much faster pace. So that's for the Fit for Growth program. On the head count, you're always going to have both aspects. Growth drives head count. And at the same time, we're pushing very hard on AI and automation. Doing large Intelligent Operations deal adds us head counts. On the other side, we also drive a lot of productivity in some of the existing contracts. So the 2 will change. So think in the specific year, how the account is going to evolve will depend very much on the mix of business that we're going to win, how much is onshore, how much is offshore, et cetera. I think what -- the way I would look at it is I definitely expect that over the midterm, what we will see is an increase of revenue per head count. Right now, basically by embarking a large BPO business from WNS, we reduce effectively that because the revenue per head in this type of business is lower. But over time, I definitely expect a trend where with the leverage of Agentic AI, et cetera, we will be driving the revenue per head up. And on Intelligent Operations, we always said, I remember, since you have been following us for a long time, we did all the accretion in terms of revenue, the synergy of revenue on the IGATE deal on one deal, on one client. And here, basically, yes, we are. We're going to be able to do probably on some of the couple of large deals, a large part of the revenue accretion. It's going to take time for some of this to be able to ramp up. And just in addition to some of these large deals, also don't neglect the cross-selling opportunities. I mentioned 100 cross-selling opportunities. When you see the size of both businesses on our side, on their side, 100 cross-selling opportunities is a lot of deals. Some of them are small, but some of them are pretty large. I think I answered your three questions. So we'll be taking one final question as we're coming almost up to the hour. Operator: Your final question comes from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations, Aiman and Nive, on a strong close to 2025, also on winning the mega deal. If I can start with Intelligent Operations, first question there, could you share at this stage, how is the maturity of pipeline of similar mega deals looking at this moment? And also what your thought is about the sustainability of the double-digit growth you're seeing in Intelligent Operations? And if I may also ask a second question on evolution of AI tools and plug-ins. I do appreciate enterprises are still in early stage of adoption and the readiness is probably at nascent stage as well. So are you seeing or expecting the scope of productivity gains possible increasing and broadening the context not limited to, but for example, comment from Palantir around achieving complex for migration in as little as couple of weeks. How you would expect analyst community to reconcile with that? Aiman Ezzat: So first, I mean, listen, the pipeline, as you know, when you get to large deals, I mean, the closing time is always somewhat difficult to be able to estimate because they can go on for months and months and months before we're able to get to that. But the pipeline is good. We have some very large deals, but we also have some deals which are multi-steps. There's a client with whom we signed the first step around 2 or 3 functions at the end of last year. And now we are basically looking at scope expansion already this year, probably in the first half and maybe another one again later in the year. So they don't all come as one single deal. Sometimes they come as multiple steps in terms of closing some of these deals. But we have good confidence about ability to sustain double-digit growth when we see the pipeline and the deals that we have. I've good confidence for the near future to sustain the double-digit growth around all that business. On the AI tools and productivity gains, the productivity is coming bit by bit. Whenever I talk to clients, everybody has some nice cases when I ask them at scale. I think there have been interviews with CIOs of large banks recently. When you say what they say, we're still at the beginning because the reality is that besides generating code on an LLM and really trying to integrate that into an enterprise that's very complex with legacy systems, siloed data and all the like, it's a lot more complex. So it takes more time. And yes, there is a gap between CEO's expectation, I can tell you and what his team is able to deliver today. So everybody is trying to accelerate, but there is challenges. On things like Palantir, I think, again, people end up with the headline and they don't dig in detail, okay? And whenever we see something else, we take it seriously. We take it seriously about what is happening, are we missing something, et cetera. And we dig in detail, and we really understand what it is. I think you need to get some people maybe in your organization or other to really dig in detail about what it is. It is -- yes, there is advancement in certain areas. When you look really into the detail of what it is and to what it applies, it's not going to make your SAP migration in 2 weeks, okay? So don't stay on the headline, dig a little bit more in detail. As I say, we take things seriously. We did it. And we understand what exactly what is behind. There is advancements in some areas, but it's not stratospheric in terms of suddenly you can do SAP migration in 2 weeks, okay? That's the headline that people took and that headline is significantly wrong. And some of what they do, really the way it shows applies more to an environment of SMB data than it applies to large corporations, okay? I love to go into the detail around that, but I assure you, we are not concerned after digging. Thank you very much. I appreciate, of course, the exchange and all the questions and looking forward to interact with you over the coming days and weeks. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Rithm Property Trust Fourth Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Emma Hoelke, Deputy General Counsel. You may begin. Emma Bolla: Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Property Trust's fourth quarter and full year 2025 earnings call. Joining me today are Michael Nierenberg, Chief Executive Officer of Rithm Capital and Rithm Property Trust; and Nick Santoro, Chief Financial Officer of Rithm Capital and Rithm Property Trust. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Property Trust website, www.rithmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements, including any statements regarding illustrative portfolios or earnings. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. With that, I will turn the call over to Michael. Michael Nierenberg: Thanks, Emma. Good morning, and happy Friday, the 13th. Thanks for joining us on Rithm Property Trust, our fourth quarter earnings call. Just a few things. While investment activity remained light away from a small investment that Rithm Property Trust made in the Paramount transaction that our parent, Rithm announced in December, the balance sheet, cash, the company remains in great shape. During the fourth quarter, we also announced a reverse split of our shares on a 6:1. So when you look at it today, obviously, with the stock trading something between $15 and $16 versus where it was, I think it was something around $2, right? We feel like it's going to hopefully attract more interest in the stock with a higher -- obviously, a higher share price, recognizing that we did do a reverse split. As many of you know, and we've said this repeatedly, we took over the management contract of what was formerly known as Great Ajax in June of 2024 with the intent of making it a dedicated commercial real estate vehicle as well as an opportunistic investment vehicle. What we did then is we repositioned the company. We cleaned up the balance sheet. We raised capital. And today, we remain focused on what I would say is a potential recap of the company along with earnings and dividend growth. We have a clear path, which depends on capital formation to be clear, to take the company from flat earnings to a future state where the company is earning something between $1.60 and $1.70 per share and trades, give or take, about a 9% dividend yield with a book value of approximately $20. That all depends on; one, the recap; and two, where you actually raise the capital. The plan for the vehicle would be to acquire multifamily loans from our operating business, Genesis, which we have already identified those -- that pool of loans along with other commercial real estate investments, so there will be no J-curve as we think about earnings growth and where we're going with the vehicle. Today, as we know, many REITs, BDCs and other capital vehicles are not trading well. And while we will be patient, we hope to accomplish this when the markets stabilize. I'll now refer to the supplement, which we have posted online, and I'm going to begin on Page 3. So when you look at the company today, obviously, there's a pretty active investment pipeline. The company today sits with, give or take, about $100 million of cash and liquidity. Total equity in the vehicle is $300 million. And when you look at our trading price, which I think is something around $15, the company is trading at roughly, give or take, something around 50% of book. When we look at the vehicle, it is externally managed by Rithm. So when you look across the firm, we have a ton of real estate investment professionals and others, which are here to support the vehicle and support the growth. As you all know, we've done this before when we started New Residential back at Fortress in 2013, and we hope to achieve the same level of growth and success from an earnings perspective and a growth perspective in this vehicle as we go forward. When you look at financial highlights, earnings were flat. We took over this thing, as I pointed out in June of '24, where the company wasn't making any money. You look at Q4, GAAP earnings, $2.5 million. EAD is kind of $500,000 to the negative, which leads to a per diluted share of $0.06 negative. Book value, as we pointed out, was about $300 million or $31 per diluted share. Common stock dividend that we pay, we're going to continue to pay that dividend is 8.7% from a dividend yield perspective. And then as I pointed out, cash and liquidity is, give or take, about $100 million. Really, the whole play here is you have a clean balance sheet, you have a clean company, you have a dislocated sector in the real estate space. You have many commercial REITs, which are underwater because they have either liquidity issues, or they have a balance sheet that continues to need to get cleaned up. For us, we're going to be patient. We're not going to keep this vehicle outstanding forever. But while saying that having a clean vehicle where we want to recap this similar to what Blackstone did around BXMT with Cap Trust, I think it was -- that is our ultimate goal here as we look to grow the vehicle. And it's not just about growth; it's how do we make our shareholders' money. We do think that this and then some of -- a lot of the capital vehicles, including Rithm and RPT are trading at extremely low valuations. So hopefully, they write themselves. But as we think about this vehicle, we will be patient. We are sitting on cash and liquidity. We do want to do a recap. And we think from an opportunistic standpoint, we have the assets that will now take this business to grow earnings to something between $1.60 and $1.70 per share, assuming that we do a recap of the vehicle. When you look at the portfolio on Page 6, what are we going to do with it? We speak about multifamily loans, our Genesis business, which we bought from Goldman in 2022. At that time, they were doing $1.7 billion of production. This year, I think we're projecting we're going to do something between $6 billion and $7 billion of production. We're going to be growing our multifamily lending business. We are seeing some potential opportunities in that space even around acquiring licenses to become a Fannie, Freddie servicer or originator in the multifamily space. So that's something that we're currently working on. Obviously, we're making a big push in the commercial real estate space. We announced the acquisition of Paramount. We love that transaction. It will take a little bit of time, but we're really excited about where we sit there, our entry level, our basis and where we're going to go with that company. And then when we think about opportunistic investments, we've been very good at identifying them and acquiring them through the course of our careers, but taking the company back to 2013 on the New Residential/Rithm level. When you look at Page 7, we talk about our ability to source, whether it be at the Rithm parent level, whether it be at Genesis, whether it be at Paramount. Obviously, we announced the closing of Crestline who -- in December. And then along with our partners at Sculptor, we have a lot of opportunity to source product. Looking ahead at the opportunity on Page 8, Commercial real estate, we love the office story. I know there's -- yesterday, obviously, with the AI story, a lot of the commercial real estate REITs got hit. The one thing I want to point out from a company perspective, both at the Rithm level and at RPT, we have a very diversified business. If you look at Rithm's earnings in the fourth quarter, we produced north of $400 million in earnings available for distribution. We have certain things that performed extremely well, other things where we had, for example, higher amortization in our mortgage company. But net-net, when you look at that business and you look at our diversified earnings streams, whether it would be at Rithm, Rithm Property Trust, we're very good at -- in my opinion, at creating diversified earnings streams that if one lever is not being working great, another lever will work great. So when you look -- when we look at the opportunity here for RPT, obviously, commercial real estate, we like a lot. There will be other things in the opportunistic space that we think are going to be highly accretive to what we're going to do in this vehicle as well, and we look forward to executing around that. So with that, I'll turn it back to the operator. We'll open up for some Q&A. Operator: [Operator Instructions] And your first question comes from Craig Kucera with Lucid Capital Markets. Craig Kucera: I think the Paramount transaction at Rithm Capital closed for about $1.6 billion and was generating about $300 million in NOI. Will RPT be receiving a slice of that NOI going forward? Or how should we think about the earnings impact or accretion from that investment? Michael Nierenberg: You should -- I would think about it more as something that's probably -- it's back-ended. It's a pro rata share of what Rithm did on the balance sheet. So when you look at it, RPT has $50 million of the Paramount deal in -- on its balance sheet, and it will be pro rata versus Rithm. Craig Kucera: Okay. That's helpful. And just thinking about the loans that you're originating at Genesis, which I believe would be accretive to Rithm relative to where you raised capital last year. Are you exploring -- feeding Rithm with more of those types of loans? And I guess when you talk about your future state on a larger capital base, is that sort of a wait for the common to kind of get closer to book value? Or kind of where -- what's the path there? Michael Nierenberg: So Genesis, which I pointed out is going to do roughly $6 billion to $7 billion of production we expect this year. There's obviously plenty of loans that go into both the Rithm balance sheet. Obviously, if we're successful around a capital raise for RPT, there'll be loans that we've identified. So as I pointed out, there is no J-curve. The loans would go right on to the balance sheet, and you'd see a real pop in earnings at the RPT level. We also source third party. I mean we're actually developing more and more channels around sourcing third-party loans in that very same space, whether it would be on multifamily or in some of the very -- the kind of sponsored type loans that Genesis does. The other thing I would point out there, we have a funds business, obviously, and we have either funds or SMAs with -- whether it be with sovereigns around the globe or we also have a vehicle. We launched a fund on one of the wirehouses that's actually taking some of that product. So we have a number of different capital vehicles that are actually acquiring, whether it be Genesis loans and/or similar type loans from other originators, and we expect that to continue. Regarding your question on the capital side, Rithm sits with anywhere from typically $1.5 billion to $2.5 billion of cash and liquidity on balance sheet at most times. Obviously, our stock is trading at a discount to book. I don't anticipate us issuing equity here. Unless there's something that's highly accretive for what we're trying to do as an organization. So -- yes, that would be my comment around the equity side. Craig Kucera: Okay. That's helpful. Michael Nierenberg: Thank you. Operator: Your next question comes from the line of Henry Coffey with Wedbush. Henry Coffey: It's good to be on the phone with you all. So timing, I mean, I think that's the only question at this point. Getting RPT over book value, that's a big jump. Is there a tolerance for finding other sources of capital, be they preferred or common that would allow you to move ahead with the recap plan? Or are we just going to have to kind of wait? Michael Nierenberg: I think timing is a good one. I would respond to markets. So you say timing, I say markets. The answer is -- the short answer is yes. I mean there's third-party capital that wants to be part of the vehicle. Is it possible at some point that we bring in third-party capital alongside the vehicle as it exists today? I think the short answer is yes. But while saying that, we're not going to leave this vehicle outstanding trading as where it does forever. So it's a timing thing. We want to make sure that we don't want to do something that's highly dilutive. If you recall last year, we did a pref in and around this. The company is sitting with some cash and liquidity. We also have what I would call liquid floaters on balance sheet. So to the extent that we found something more accretive, it's likely that we would sell those down and then invest in something else. But it's a timing thing. It's a market thing, and it's also -- I would expect us to continue to add more third-party capital to our lives. Henry Coffey: And then basically, just to kind of reiterate, the primary source of loans is going to be multifamily and what Genesis generates mainly higher-yielding repositioning loans? Or you'll be doing some more traditional multifamily lending as well inside of RPT? Michael Nierenberg: I think it's -- right now, what we've identified as a pool of assets, I think it's something around $1 billion of assets that would go right into the vehicle, obviously, subject to Board approvals. And once that happened, you'd see an immediate pop in earnings. So that's the way I would view it. Could there be other types of loans? The answer is yes. But for now, you look at the Genesis loans from a levered perspective, they're well north of 15%, and I think they'll be highly accretive to what we're doing in the vehicle. Henry Coffey: All right. I look forward to moving forward with you on this. Michael Nierenberg: Good to hear your voice, Henry. Have a good weekend. Operator: [Operator Instructions] And your next question comes from the line of Jason Stewart with Compass Point. Jason Stewart: Interesting opportunity at Genesis. Obviously, Genesis is not a forced seller. You do know the quality of the loans you're familiar with them. But could you talk about the pros and cons of buying from a Genesis versus a third party who might be more of a motivated or forced seller in the market? Michael Nierenberg: We do both is what I would say. The short answer is the more we could do, the better. Based on our third-party fundraising, we have -- I'm not going to call it insatiable demand, but we have a tremendous amount of demand for this product, both in our funds business on the Rithm balance sheet because obviously, there are higher coupon earners as well as into the Rithm Property Trust. So it's going to be a combination of everything. We've already set up flow agreements with a number of originators. We are -- the one thing I would point out is we're extremely mindful of credit as we source product from other third parties. And one thing I like about our Genesis business is that the gentleman who runs at Clint Arrowsmith, as you've probably spoken with in the past, does a great job around credit, his background, he comes from a bank as a credit officer. That's really, really important. So while we could turn on the jets and grow origination, we got to be mindful of our credit box, and that's something that we also have to think about as we source from third parties because you see this in this business, once things get -- and I'm not singling anybody else, but once things get a little bit where this product is probably the most in demand from what I would call our LPs and what we want to do on balance sheet. You just have to make sure you don't have any missteps around the credit side, and that's something that we're extremely mindful of. But the long-winded -- my short answer to my long-winded explanation is we are going to source from third parties wherever we can as long as we're comfortable with the credit. Jason Stewart: Got it. Okay. And you mentioned banks. I would have expected banks to have been sort of rate dislocated sellers in this market. Is that something you're seeing an opportunity to acquire, especially since it's multi? Or is that opportunity past? Michael Nierenberg: You're not seeing a lot of bank selling is what I would say when I talk about the banks, we launched a fund on one of the wirehouses on the bank platform. And that's -- again, that's creating more demand for the product that Genesis is making and some of our non-QM products. So I think the banks are probably better buyers. What you've seen from the banks, the regional banks pulling back, right? We've seen that over the course of the past couple of years, which has created this great opportunity for Genesis and some of our other lending businesses to grow production. Jason Stewart: Okay. Got it. One big picture question. You mentioned the Fannie, Freddie licensing. Is the ultimate goal here to be able to go end-to-end sort of from an intermediate loan to permanent financing through the GSEs? Is that the vision for RPT down the road to have that license and create the customer relationship end-to-end? Michael Nierenberg: Yes, if we could do it, for sure. I mean when you think about the power of the franchise, look at Genesis. Genesis could go and they can make a loan to a builder in, let's just say, in the build-to-rent space. The mortgage company, Newrez, can then put a -- work in conjunction with Genesis and provide loans, for example, to those -- to that community of builders or it could be in either a builder that's buying, building and selling on a go-forward basis. So a lot of our thesis and what we're trying to do across the board is to be able to capture as much wallet as we can from our customer base. You look even at the mortgage company, which has over 4 million customers, are there other products that we could offer them that are going to generate earnings for our shareholders, and we're working on cards and other things that we hope to roll out here in the near future. So that is an example, but end-to-end is something that we're trying to do for sure. Jason Stewart: Appreciate it. Michael Nierenberg: Thanks, Jason. Operator: There are no further questions at this time. I will now turn the call back over to Michael Nierenberg for closing remarks. Michael Nierenberg: Have a great holiday weekend, everyone. Thanks for your support. Thanks for dialing in and be safe. Speak to you soon. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome, everyone, to Beyond Air Financial Results Call for the Fiscal Quarter Ended December 31, 2025. [Operator Instructions] And now I'd like to turn the call over to Corey Davis of LifeSci Advisors. Please go ahead. Corey Davis: Thank you, operator. Good morning, everyone, and thank you for joining us. Earlier today, we issued a press release announcing the operational highlights and financial results for Beyond Air's third quarter of fiscal 2026 ended December 31, 2025. A copy of this press release can be found on our website, beyondair.net, under the News & Events section. Before we begin, I would like to remind everyone that we will be making comments and various remarks about future expectations, plans and prospects, which constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated. We encourage everyone to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Additionally, this conference call is being recorded and will be available for audio rebroadcast on our website beyondair.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 13, 2026. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. With that, I'll turn the call over to Steve Lisi, Chief Executive Officer of Beyond Air. Steve, go ahead. Steven Lisi: Thanks, Corey, and good morning to everyone. With me here today is Dan Moorhead, our new Chief Financial Officer. It has been a pleasure working with Dan over the past several months. He brings a proven track record as a proactive CFO with demonstrated success supporting commercial organizations through periods of rapid growth. I also look forward to his active engagement with the investment community as he becomes fully integrated into the role. Also joining us today is Bob Goodman, our Chief Commercial Officer. Bob assumed the role in October after previously joining Beyond Air as a Board member back in June. Let me start my prepared remarks by saying just how pleased I am to speak with you today and provide an update on what has been a productive and meaningful period for our company. We have achieved several significant milestones, strengthened our balance sheet to support continued commercial execution and made the strategic decision to sell our NeuroNOS subsidiary in exchange for equity in the acquiring company and up to $32.5 million in upfront development and commercial milestone payments. We believe these recent events have strengthened our ability to execute our commercial strategy and create long-term value for our shareholders. Let me walk you through these updates in greater detail. Starting with our core business. Revenue in the fiscal quarter increased 105% year-over-year to $2.2 million. This represents continued progress as we scale adoption and expand awareness of LungFit PH in clinical settings. We now support more than 45 hospitals across the United States and internationally that have adopted our first-generation LungFit PH system. Customer feedback has been encouraging with retention exceeding 90% and more than half of customers under multiyear agreements. We believe this installed base positions us well to support continued revenue growth from our first-generation system while preparing for the anticipated FDA decision for our second-generation system. Our commercial team continues to refine its targeting strategy, prioritizing hospitals most likely to adopt a LungFit PH today and expand usage following approval of the second-generation system, which we expect to receive before the end of calendar 2026, subject to regulatory review and clearance. We are making steady progress building relationships with clinicians, administrators and health care systems. Our current objective is to continue expanding Gen 1 system utilization through calendar 2026 in the U.S. and internationally, while preparing for the potential launch of our second-generation system once approved. As previously discussed, Gen II system is designed to offer reduced size and weight, simplified operation, extended service intervals, improved backup system functionality and very importantly, compatibility with both air and ground transport. We believe these enhancements will expand the addressable market relative to Gen I and support broader adoption over time. At this point, I'm going to pass the call over to Bob Goodman, who has made excellent progress since taking the reins as Chief Commercial Officer about 4 months ago. Bob? Robert Goodman: Thanks, Steve. And let me begin by saying I share Steve's enthusiasm about the opportunities ahead for Beyond Air. I as well believe that LungFit PH is the best-in-class nitric oxide solution globally. Feedback from U.S. customers and international partners on system performance and customer support have been extremely positive, providing a solid foundation for continuous growth. We have national group purchasing organization agreements with Premier and Vizient, which together provide access to nearly 3,000 hospitals across the United States. As awareness of LungFit PH increases, we expect additional opportunities at the GPO and integrated delivery network level in 2026. As previously announced, we have been working with TrillaMed to support our engagements with the federal health care systems. I'm pleased to announce that together with this valued partner, we completed the first sale of LungFit PH to a VA Medical Center. This initial commercial sale to the VA hospital system establishes an important foothold, opening potential pathways for future orders and broader adoption across the system and provides access to the largest health care network in the United States. Internationally, we continue to see strong engagement from our distribution partners. Over the past several months, we've expanded our global LungFit PH distribution network with new agreements in Canada, Germany, Brazil, Austria, the Netherlands and Sri Lanka, bringing total international coverage to 40 countries. As we broaden our global footprint, we are laying the groundwork for long-term growth and positioning Beyond Air to serve a significantly larger addressable market. It is important to note that we are live in a few hospitals with LungFit PH and have already begun to see repeat orders for accessories from several countries. Taken together, these commercial, operational and strategic developments give me confidence in the trajectory of the business. What also gives me confidence are the people at Beyond Air. The dedication of this team is second to none, and I've been in this business for decades. This includes all the aspects of the team from clinical support from marketing to customer service to engineering, to finance, to regulatory to quality, et cetera. Our people are fully engaged and dedicated to the vision of improving the lives of patients and medical staff with LungFit PH. I also want to emphasize the advantages that Steve mentioned earlier on our second-generation system. From my time spent with customers and potential customers in the United States, I believe that the Gen 2 system addresses everything on the wish list from clinicians and hospitals. I'm extremely confident that I, along with the team here, will execute on our vision of becoming the global nitric oxide leader. Now I'll turn things back over to Steve. Steven Lisi: Thanks, Bob. Turning to Beyond Cancer. We recently announced that our abstract was selected for the 2026 AACR Annual Meeting, which is taking place from April 17 to 22 in San Diego, California. As previously announced, the study enrolled 10 subjects at doses of 25,000 and 50,000 parts per million of nitric oxide gas delivered over 5 minutes intratumorally. These patients all had metastatic disease and were heavily pretreated. All subjects had a life expectancy of less than 12 months. We have already reported that the safety profile observed to date is acceptable. The data presented at AACR will include updated overall survival data for which median survival has not yet been reached as of October 1, 2025. We remain dedicated to pursuing the Phase Ib combination study with anti-PD-1 therapy, and we will communicate more details as we progress. With respect to NeuroNOS, our neurology-focused subsidiary, on January 13, 2026, XTL Biopharmaceuticals announced a binding letter of intent to acquire NeuroNOS in exchange for Beyond Air's approximately 85% ownership interest. Consideration includes a 19.9% stake in XTL, $1 million in cash and milestone-based contingent payments totaling up to $31.5 million. Following closing, NeuroNOS is expected to serve as XTL's flagship platform for autism and neuro-oncology development. We believe this agreement provides the potential to create meaningful value for our shareholders by enabling NeuroNOS' pipeline to advance with dedicated focus and funding through XTL Bio. We will not provide additional commentary beyond public disclosures while the transaction remains pending. To conclude, the $5 million financing completed in January 2026, together with the previously announced promissory note and equity line of credit for up to $32 million with Streeterville Capital that we announced in November 2025, provide resources to support commercial execution and readiness for the second-generation LungFit PH system. We remain focused on disciplined execution and delivering advanced nitric oxide solutions to clinicians and patients around the world. Now I will turn it over to our CFO, Dan Moorhead. Daniel Moorhead: Thanks, Steve, and good morning, everyone. I'm excited to join my first call since being appointed CFO about 7 weeks ago. I still have a lot to learn but I'm incredibly impressed by what the team has achieved, not just over the past year but even within the past few months. The progress has been extraordinary, and I see a bright future ahead as the team continues to execute on our growth strategy. Our financial results for the third quarter of fiscal year 2026, which ended December 31, 2025, are as follows: Revenue for the fiscal quarter ended December 31, 2025, increased 105% to $2.2 million compared with $1.1 million for the fiscal quarter ended December 31, 2024. On a sequential basis, this represents a 21% increase compared with last quarter. Gross profit increased to $300,000 for fiscal third quarter 2026 compared to a gross loss of $200,000 for the same period last year and a gross loss of $300,000 in the prior quarter. Turning to operating expenses. We continue to see reductions across SG&A, R&D and in our supply chain as a result of cost reduction initiatives taken in the past 12 months as well as the decrease in R&D costs related to our Gen II device, which are mostly behind us since the PMA was filed with the FDA. Total operating expenses for the fiscal third quarter of 2026 were reduced to approximately $6.9 million, which is down from $10.7 million for the same period last year. This translates to a 36% reduction year-over-year and a greater than 60% reduction from the high of $17 million at its peak. Research and development expenses were $2.4 million for fiscal third quarter of 2026 as compared to $3 million for the same period last year. As I mentioned earlier, the year-over-year decrease was primarily driven by lower development costs associated with our Gen II device with the remaining reduction attributable to a decrease in headcount and related costs. SG&A expenses for the quarters ended December 31, 2025, and December 31, 2024, were $4.5 million and $7.7 million, respectively, a decrease of 42% year-over-year. Almost all of the decrease of $3.3 million was from a reduction in employee-related costs. Other expense was $1 million compared to $2.4 million for the same period a year ago. The decrease in expense of $1.5 million was primarily attributed to the prior period loss associated with the extinguishment of debt of $1.9 million. Net loss attributed to common stockholders of Beyond Air was $7.3 million or a loss of $0.85 per share basic and diluted compared with $13 million or a loss of $2.96 per share basic and diluted. Please note that the per share results for both periods were calculated to reflect the company's 1-for-20 reverse stock split, which became effective on July 14, 2025. Net cash burn for the quarter was $4.3 million, which is a reduction of over 40% versus a year ago. We believe our overall cash burn will continue to reduce as revenue grows and will only get better until we get approval and start building inventory in preparation for the launch of Gen II. As of December 31, 2025, we reported cash, cash equivalents, restricted cash and marketable securities of $17.8 million. Subsequent to the end of the third quarter, we completed a $4.5 million equity financing net of issuance costs, and we believe this capital provides us with a cash runway into calendar year 2027 and potentially to profitability provided we continue to hit our current revenue estimates and continue to control costs. With that, I'll hand the call back to Steve. Steven Lisi: Thanks, Dan. Operator, we'll take questions now. Operator: [Operator Instructions] Our first question comes from the line of Mike King with Rodman & Renshaw. Michael G King: I have a couple of questions, if you don't mind. I just wonder if you could talk a little bit more about the sales process. I mean I think it's a great breakthrough that you've got sales into the VA system or VA hospital, I should say but it brings up the topic of the VA system, as you mentioned. How do you penetrate systems rather than a single hospital at a time? What needs to happen in terms of the sales process or the RFPs or things like that, that can see us knocking off more than one health care facility at a time? Steven Lisi: Yes, go ahead, Bob. You take this one. Robert Goodman: Yes, sure. And then you can definitely provide any color if you like, Steve. Thank you. Yes. So Mike, yes, with the VA system, we're on, as you know, and our product is being offered through the ECAD system. So that catalog actually makes it an easier approach for our customers to get to us directly. It's outside of an RFP process but we're -- yes, we're still able to actually compete with other RFPs that come up through -- there's a couple of different ways of the VAs contract with vendors. But -- so yes, so we have access that way. So it's great. Michael G King: Okay. And in your formal comments, you mentioned words to the effect that you're identifying facilities most likely to acquire the system. How do you -- how do you -- or can you say how you identify them? And maybe help us understand how you're targeting those facilities? Robert Goodman: Yes. So we've done a really good job standing up our commercial organization, both in the U.S. and internationally. And right now, what we're doing is we're focusing and not to say an overhaul but more of an exactness with our people and our process and our technology. So different prospecting tools with good intelligence and good CRM rigor to follow up with the customers and taking the process of real good demand generation where we're getting top of the funnel looks at our customers and having really good pipeline discipline so we could get in front of the right customers and then have our people, the people part of it in the right places at the right time with the right coverage. So we have that right reach and frequency getting in front of these customers and just getting in front of more and more. So we have that touch. So yes, we've been really refining that and the customers are really responding well for our ability to get in front of them. Michael G King: That's great. Has there been any appreciable change in the length of the sales cycle? Robert Goodman: Yes. I mean that pretty much Mike still remains the same. At the real front end, if you get kind of real lucky based off of the timing of a contract that might be expiring and that customer is really, really organized and you can knock out a real quick demo and evaluation, you could do that in that 4- or 5-month time frame. But it's really in that right around 6 to 9 months, and it could be longer. But what we're doing is a good job identifying the customers and again, reaching out to them and finding out where they're at with their contract and making sure that they see the value of our product. And with that, we're hoping that, that might restrict things just a bit. But we're really organized and our clinical teams are out there in the field with our sales teams to make sure that we're in front of them as early as possible. Michael G King: Okay. And I apologize, one more quick one. How do you segment or can you segment the next-gen system so that this is typical of a lot of businesses where a next-generation chip, let's say, is coming out or something and the sales cycle kind of concertina effect where the purchaser may hold off until the next-gen system is available. Is that a concern? Or are you segmenting a different market with the new system? Robert Goodman: Yes. So we're focusing right now, as you'd expect, on our first-generation product, and it's been really, really well received, the version 24 of Gen I. So -- and we're focusing on the non-transport systems, okay? And we're being really well received there. As there's natural conversations within the market for the transportation systems, that's a later on Gen II conversation, and we're really kind of breaking away from those conversations but being aware that these are systems that are going to want to be working with us in the future. Operator: The next question is from the line of Marie Thibault with BTIG. Marie Thibault: Welcome, Bob and Dan. I wanted to quickly just check in on anything -- any communications you've been having with the FDA on the Gen II process. Just speak to your confidence in the timeline, I think you said by end of calendar year. And then what will be needed to do post clearance in terms of building inventory, kind of a time line we might think about before you can go into a formal launch and ramp. Steven Lisi: Okay. Thanks, Marie. Well, I'll comment on the FDA side. So we've been having fairly constant communication with FDA, and we're very happy with the interaction. we don't really see any major hurdles. Everything that FDA has asked for, we'll provide them. It shouldn't be a problem. And I'm sure there'll be -- the process will continue with the FDA, and we'll continue to answer the questions as we go forward. We still are waiting on the work to be completed with our contract manufacturer, so we can be inspected. And that's essentially in our minds, what the gating factor will be from a timing perspective. So we feel highly confident in the timelines that we provided given the state of affairs today. I don't know if I gave you the answer you need or if there's other things you want to ask. Marie Thibault: Yes. Yes, that's great to hear. And then I guess I'll ask a quick follow-up here on the international side. I know you've got some great partnerships and some efforts going on there. So any wins or any catalysts to think about on the international side? Steven Lisi: Sure, Bob, do you want to take the international question? Robert Goodman: Yes, sure. So we have had some recent wins, which is great. And I think as you know from the past calls, it was all about setting up and getting our distributors armed with our demo devices so they can get in front of the systems. But then there's the whole part of the process with whether it's Europe or Middle East or Australia, where it's mostly tenders compared to the U.K. or Portugal where there's a national frame or you get that hunting license like Germany and APAC where you can go direct. So with all those different regions, yes, no, we've had wins. And on top of having wins, we're now actually seeing customers reorder filters. So the product is being deployed into hospitals now, which is great, and we're starting to, again, get that stickiness. So it's fantastic. Operator: Our next question is from the line of Justin Walsh with Jones Trading. Justin Walsh: Wondering if you can provide any color on what attracted XTL Biopharmaceuticals to be interested in the NeuroNOS opportunity? And then how, I guess, collaboration or working with them will look going forward, given that you still have a stake in that company? Steven Lisi: Thanks for the question. So yes, Justin, look, XTL was a company looking for an asset, and there were multiple choices for them. I think what excited them about this opportunity is the science. I mean there's been 2 papers, landmark papers published about the work done by Dr. Amal, who's a scientist and the innovator behind this approach to treating autism as well as glioblastoma. I just want people to recognize that the functions of nitric oxide in the brain are numerous. So I think that's what attracted them to this. There's a clear path to human studies. I think a lot of the work that's been done by the NeuroNOS team has given that clarity to anybody who's taken a look under the hood. So I think it's just a matter of providing the FDA what they require, which is pretty straightforward. It's just a matter of getting that work done. So with XTL coming up with funding, they'll be able to bring this into humans. So I think the attractiveness was great science, clear path to human trials. And as everyone on this call probably knows, translating efficacy from rodents to humans is something that's difficult to predict but we'll find out. And I think that's what attracted and we're going to get there and do that study and figure out if the efficacy translates. And if it does, we're looking at a potential treatment for autism and glioblastoma at this point. So it's very exciting, just a little bit early for Beyond Air to maintain and fund. So this is why the transaction was done, and we're very happy that a lot of this transaction for Beyond Air is us getting a 20% stake in the new entity. That's the confidence we have that this is going to be in human trials. And we have confidence on the safety side for sure. The efficacy side, we'll see what happens. Operator: The next question is from the line of Jason Kolbert with David Boral Capital. Jason Kolbert: Can we talk a little bit about COGS and how COGS performed in the quarter? And over the next couple of years, what do you think a sustainable COGS is? Steven Lisi: Dan, do you want to take that one? Daniel Moorhead: Sure. We tend to see Gen I, again, we think we're in the -- and Steve can help me on this. I'm still pretty new on it. But we expect COGS long term as we get to scale in the 60% range and moving up towards 70% with the Gen II product. But in the near term, again, with revenue levels growing but growing at a more moderate pace until we hit the Gen II launch, again, I think you're going to see it pretty close to that what you saw in Q3 and continue to grow from there. But long term, I think that gives you a little profile, and I'm guessing you guys have possibly talked about that in the past as well. Steven Lisi: And just follow up on what Dan said, if you don't mind. Yes, I think Dan is right in what he says but I would -- there are a couple of factors. And like Dan said, he's barely 2 months in. There are a couple of factors that we're still trying to figure out with respect to the margin on, and that will be from a pricing side of the market. So I think that goal of 70% with the Gen II is a great goal. That's target. If it's 65%, 65%, that's not the end of the world for us. But I think that's our target, and I think we'd like to hit it. And target with Gen I would be to get close to 60%. But again, I think a Gen I is more of a 50s type thing. But again, it's going to depend on how the price shakes out in the market at the end of the day. And that remains to be seen. You had a follow-up, Jason? Jason Kolbert: Very helpful. Can you talk also about SG&A and how sensitive the sales cycle would be to increasing SG&A, hiring additional salespeople? How does that impact kind of revenues? What I'm trying to do is get a handle on more capital deployed in SG&A, does that translate into more revenues? Steven Lisi: Well, Jason, I mean, you had [Audio Gap] Operator: The next question is from the line of Yale Jen with Laidlaw. Yale Jen: Just in the press release, you mentioned that for the Gen II, there has a potential of extending the service intervals. Could you elaborate a little bit more on that specific aspect? Hello, can you hear me? Operator: Yes. Please standby ladies and gentleman, we are experiencing technical difficulties. Our conference will resume momentarily. Please remain on line, our conference will resume momentarily. Please remain on line, your call will resume momentarily. [Technical Difficulty] Steve, you're now reconnected, please continue. Yale Jen: I believe in the press release, you mentioned that the second gen will have the potential of extending the -- make a longer service intervals. Could you elaborate a little bit more specifically on this particular aspect? And then I have a follow-up. Steven Lisi: Thanks, Yan. Appreciate that question. So the current system, the first-generation system, every 1,000 hours, we need to bring it in for service. So that can be that can -- it could be a slight disruption for the hospital if they're using a couple of thousand hours a year per machine. So we might be in there every 6 months rotating machines. So it's a smooth process but it's an expensive process for us, right? So we just come in, drop them a new machine and pick that one up and bring it in for service. So it's not very frequent but it's something we'd like to improve upon. So with the second-generation machine, we think that service interval will be pushed out to at least 3,000 hours before we need and potentially longer. So testing is still going on. We haven't reached that juncture yet where the reliability testing that we're doing has stopped. So it's still ongoing. So we're past the 3,000-hour mark at this point, which means it's at least 3x longer before we have to go in. So if we were going in every -- at a hospital, let's say, we're going in every 10 months, now we're going in every 30 months on average before we have to swap out the machine. So that's -- it's certainly better for the hospital from that standpoint, although I don't think the swap outs are really a problem for them because our team does a great job and it runs so smooth. But from a gross margin perspective, I think that's the impact that you heard about earlier on a question when Dan and I were responding to the gross margins between Gen I and Gen II. Yale Jen: Okay. Great. And maybe just touch on that to this one a little bit, which is that would this be needed -- you mentioned you're still testing for maybe even longer interval for the service needed. Would that be required before you submit for the Gen II review? Or that's something that could be -- the Gen II review without having this particular aspect? Steven Lisi: No, this is -- so there is a reliability hurdle with FDA. We've already passed that hurdle. So anything that we get is just more of a guide for us for service with our customers. That's really what it is. So it's not a gating factor for FDA approval. Yale Jen: Okay. Great. Maybe one more question. So on the oncology side that since you guys already have a little bit more cash in hand, should we think about the Phase II -- Phase Ib study potentially to start later this calendar year? Steven Lisi: Well, I don't know when it will start, Yale. We're certainly speaking with people and looking at that. So I don't want to commit to a time line at this point. While we do have a nice balance sheet at this moment in time, I think we need to focus the balance sheet on the commercial operations at this point. So it would probably not be something that Beyond Air would commit to fully fund a study like that. Maybe once we are more comfortable with our path to profitability, that could be a different conversation that we have internally. Yale Jen: Okay. And congrats on the good quarter in terms of the top line. Operator: Thank you. At this time, we are showing no further questions in the queue. And this concludes our question-and-answer session. I would now like to turn the call back over to Steve Lisi for any closing remarks. Steven Lisi: No, I'd just like to thank everybody for dialing in today. Bye-bye. Operator: Thanks, everyone, for their time today. You may now disconnect your lines at this time, and have a wonderful day.
Derek Dewan: Hello, and welcome to the GEE Group Fiscal 2026 First Quarter ended December 31, 2025, Earnings and Update Webcast Conference Call. I'm Derek Dewan, Chairman and Chief Executive Officer of GEE Group, and I will be hosting today's call. Joining me as a co-presenter is Kim Thorpe, our Senior Vice President and Chief Financial Officer. Thank you for joining us today. It is our pleasure to share with you GEE Group's results for the fiscal 2026 first quarter ended December 31, 2025, and provide you with our outlook for the fiscal 2026 full year in the foreseeable future. Some comments Kim and I will make may be considered forward-looking, including predictions, estimates, expectations and other statements about our future performance. These represent our current judgments of what the future holds and are subject to risks and uncertainties that actual results may differ materially from our forward-looking statements. These risks and uncertainties are described below under the caption Forward-Looking Statements Safe Harbor and in Thursday's earnings press release and our most recent Form 10-Q, 10-K and other SEC filings under the captions Cautionary Statement regarding forward-looking statements and forward-looking statements safe harbor. We assume no obligation to update statements made on today's call. Throughout this presentation, we will refer to the periods being presented as this third quarter or the quarter, which refers to the 3-month period ended December 31, 2025. Likewise, when we refer to the prior year quarter, we are referring to the comparable prior 3-month period ended December 31, 2024. During this presentation, we will also talk about some non-GAAP financial measures. Reconciliations and explanations of the non-GAAP measures we will address today are included in the earnings press release. Our presentation of financial amounts and related items, including growth rates, margins and trend metrics are rounded or based upon rounded amounts for purposes of this call and all amounts, percentages and related items presented are approximations accordingly. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website. Now on to today's prepared remarks. The challenging conditions in the hiring environment for our staffing services have been ongoing since the second half of 2023. These stemmed from what is now widely acknowledged as the substantial overhiring that took place in 2021 and 2022 in the immediate aftermath of the pandemic and the macroeconomic weakness and uncertainties related to persistent inflation and high interest rates that followed. The near universal cooling effect on U.S. employment and businesses use of contingent labor and hiring of full-time personnel have persisted and resulted in volumes below once prior norms. Many of the businesses we serve, continue to implement layoffs and hiring freezes rather than adding new employees. Companies and businesses continue to cautiously assess the economy and market conditions to ensure their investments in technology and human capital are strategic and sustainable. Another setback for us this quarter was the acquisition of one of our larger clients and movement of its business to an affiliate of the acquirer. This was a high-volume, lower-margin account, which somewhat lessened the negative impact on our results. Also, on the brighter side, our direct hire revenue, which has the highest gross margin at 100%, was up 8% in the quarter and appears to be on course so far for a better fiscal 2026 versus fiscal 2025. We also expect the use of contingent labor to stabilize this year as we are aware that some businesses are beginning to initiate new projects, which may be expected to lead to more job orders and full-time and contingent staffing placements. Artificial intelligence, or AI, is gaining ground at an accelerated pace and is further complicating the HR and project planning opportunities and risks facing virtually all companies, including consumers of our services. We believe these conditions are contributing to decreases in job orders for both contract and direct hire placements, also negatively impacting our financial results. Conversely, we are implementing and incorporating AI into our own business and strategic plans in order to digitize, streamline, enhance and accelerate our recruiting and sales processes. Another closely aligned AI goal of ours is to provide our clients with the necessary human resources to implement and support their use of AI and help them increase speed, efficiency and profitability. These initiatives are a high priority for us, and our goal is to begin seeing returns later this year. Our contract staffing and direct hire placement services are currently provided under our Professional segment. The operations and substantially all the assets of our former Industrial segment were sold during fiscal 2025 and have been reclassified as discontinued operations and excluded from the results of continuing operations we're presenting today unless otherwise stated. Our consolidated revenues were $20.5 million for the quarter. Gross profit and gross margin were $7.4 million and 36.1%, respectively, for the quarter. Consolidated non-GAAP adjusted EBITDA was negative $97,000 for the quarter. We reported a net loss from continuing operations of $150,000 or $0.00 per diluted share for the quarter. We continue to aggressively take action to adjust and enhance our strategic focus, growth plans and financial performance and results, including streamlining our core operations and improving or adjusting our productivity to match our current lower volumes of business. This has helped us improve our results despite lower business volume. We took measures to reduce our SG&A during the second half of 2025 by an estimated amount of $3.8 million, which helped us achieve the $736,000 reduction in SG&A in the fiscal 2026 first quarter versus the prior year first quarter. As we announced early last year, we completed the acquisition of Hornet Staffing in fiscal 2025 and have increased our focus on VMS and MSP sourced business, including the use of special recruiting resources and acceleration of the integration and use of AI technology into our recruiting, sales and other processes. We anticipate achieving continuing improvements in our productivity and restoring profitability as soon as practically possible. Our goal remains to be profitable again in fiscal 2026. In addition to these near-term initiatives, we are working closely with our frontline leaders in the field to support them as we all continue to aggressively pursue new business in addition to growing and expanding existing client revenues. We are seeing some positive results from these efforts. As the uncertainty and volatility currently gripping our economy and labor markets lessen, I am very confident that we are positioned to meet the increased demand from existing customers and win new business. I want to reassure everyone that we fully intend to successfully manage through the challenges I've outlined and restore growth and profitability as quickly as possible. GEE Group has a strong balance sheet with substantial liquidity in the form of cash and borrowing capacity. The company is well positioned to grow organically and to be acquisitive. We also continue to believe that our stock is undervalued and especially so based upon the recent trading at levels very near and even slightly below tangible book value. And that there is good opportunity for upward movement in the share price once we are able to operate again in more normal economic and labor conditions and restore profitable growth. Management and our Board of Directors share the responsibility and are committed to restoring growth and profitability, which will lead to maximizing shareholder value. Before I turn the call over to Kim, I want to update you on recent activity since our press release issued on January 22, 2026, in response to Star Equity's public commentary regarding an indication of interest in our company. Since then, management and the Board have met to review and discuss multiple unsolicited expressions of interest in the company and continue to evaluate various strategic alternatives to enhance shareholder value. As we indicated in our press release on January 22, 2026, our Board of Directors in accordance with its fiduciary duty will consider any bonafide offer regarding a business combination, acquisition or other transaction that it believes will enhance shareholder value. Once again, I wish to thank our wonderful dedicated employees and associates. They work extremely hard every day to ensure that our clients get the very best service and the most important ingredient for our company's future success. At this time, I'll turn the call over to our Senior Vice President and Chief Financial Officer, Kim Thorpe, who will further elaborate on our fiscal 2026 first quarter results. Kim? Kim Thorpe: Thank you, Derek, and good morning. Consolidated revenues from continuing operations for the quarter were $20.5 million, down $3.5 million or 15% from the prior year quarter. Contract staffing services revenues for the quarter were $17.8 million, down $3.7 million or 17% from the prior year quarter. As Derek mentioned, one of our former larger high-volume, low-margin clients was acquired and moved its business to an affiliate of the acquirer at the beginning of the fiscal first quarter. This accounted for $2.6 million of the declines in our consolidated A contract services revenues this quarter. Absent the loss of this single customer, consolidated revenues declined $3.8 million -- I'm sorry, 3.8%, forgive me. On the brighter side, direct hire revenues for the quarter were $2.7 million, up $200,000 or 8% from the prior year quarter. In addition, for January 2026, the first month of our current fiscal second quarter, we recorded direct hire revenue of $1.2 million, which exceeded all of the individual prior months in this fiscal year. Gross profits and gross margins for the quarter were $7.4 million or 36.1%, respectively, compared to $7.9 million and 33% from the prior year quarter. The improvement in our gross margin is mainly attributable to the increase in direct hire placement revenues, which have 100% gross margin as well as a higher mix of direct hire placement revenue relative to total revenue. Also contributing to a lesser extent is an increase in prices and spreads on some of our professional contract services businesses. While the loss of the high-volume, low-margin client we spoke about, caused the majority of our revenue reduction this quarter, it also contributed to the improvement in our business mix and gross margin on our remaining professional contract services business. Selling, general and administrative expenses for the quarter were $7.7 million, down $700,000 or 9% from the prior year quarter. SG&A expenses as a percentage of revenues for the quarter were 37.6% compared with 35.1% for the prior year quarter. In response to the realities of our present environment, we continue to prioritize and focus heavily on streamlining our core operations and providing our productivity to match our current lower volumes of business. As Derek just mentioned, we reduced our SG&A during the second half by approximately $3.8 million on an annual basis, which helped us achieve our overall SG&A savings of $736,000 in our current quarter versus our prior year quarter, improving our results despite a lower volume of business. I also want to reemphasize Derek's earlier point that our plans and goals are intended to restore profitability during fiscal 2026. In addition to the initiatives Derek reported, we are in the beginning stages of updating and further integrating our ERP and APCO tracking systems and certain other key operating systems and processes. We also intend to consolidate certain of our legal entities later this year in order to further reduce administrative and compliance costs. These -- the ultimate goals of these longer-term initiatives with the others is to help us increase speed, accuracy and efficiency throughout our operations and ultimately to get an SG&A ratio of 30% of revenue or less. Our loss from continuing operations for the quarter was -- our net loss was $150,000 or 0% per diluted share as compared with a loss of $684,000 or $0.01 per diluted share from the prior year quarter. This improvement primarily is due to cost reductions and productivity improvements, of course. Our EBITDA, which is a non-GAAP financial measure, was negative $303,000 for the quarter as compared with negative $513,000 for the prior year quarter. Adjusted EBITDA, also a non-GAAP measure, was negative $97,000 for the quarter as compared with negative $304,000 for the prior quarter. As of December 31, 2025, our current or working capital ratio was 5.3:1. Our liquidity position remained very strong with $20.1 million in cash, an undrawn ABL credit facility with availability of $4.2 million, net working capital of $23.9 million and no outstanding debt. Our net book value per share and net tangible book value per share were $0.45 and $0.22, respectively, as of December 31, 2025. To conclude, while we're disappointed with our results and remain cautious in our near-term outlook, we remain resolved to restore profitability and are preparing for the longer term, including making modernization improvements and enhancements, such as updating our core financial and operating systems and the integration of AI across all of our businesses. Having completed our acquisition of Hornet Staffing in fiscal 2025, we also intend to continue to pursue other acquisitions, albeit in a very disciplined, prudent manner with particular emphasis on businesses focused on AI consulting, cybersecurity and other IT consulting. Before I turn it back over to Derek, please note that reconciliations of GEE Group's non-GAAP financial measures discussed today with their GAAP counterparts can be found in the supplemental schedules included in our earnings press release. Now I'll turn the call back over to Derek. Derek Dewan: Thank you, Kim. Despite the macroeconomic headwinds and staffing industry challenges impacting the demand for our services, we are aggressively managing and preparing our business to mitigate losses, restore profitability and be prepared for an anticipated recovery. What we hope you take away from our earnings press release and our remarks today from our strategic announcements is that we are moving aggressively not only to prepare for a more conducive and growth-oriented labor market, but also to restore growth by continuing with the execution on both organic and M&A growth plans and initiatives. We will continue to work hard for the benefit of our shareholders, including consistently evaluating strategic uses of GEE Group's capital to maximize shareholder returns. We are very pleased with our 2025 acquisition of Hornet Staffing and the value and opportunities it brings and have identified other acquisition opportunities that we believe can offer additional growth and profitability platforms for us. Before we pause to take your questions, I want to again say a special thank you to all our wonderful people for their professionalism, hard work and dedication. Now Kim and I would be happy to answer your questions. [Operator Instructions]. Kim Thorpe: We have a few questions coming in. We will take them in the order that they come. If you'll bear with us for a moment. Our first question, which I will read, what incentives would need to be put in place for management to consider a value realization event, sales, special dividend, et cetera? And my answer to that question is we -- management has employment agreements that already provide those incentives. So there are no additional incentives that would need to be made in that regard. Our second question, is an activist investor takeover the only route towards getting a return for shareholders, the only path to value realization at this point? Well, of course, not. We will -- as we said in the press release, the Board and management are both committed to do what's in the best interest of the shareholders. And we have some other questions coming up that we'll talk a little bit about what Derek mentioned toward the end of his prepared remarks. If the -- here's a question, if the company was sold at a comparable multiple to BGSF's -- I'm sorry, BGSF's recent sale of their professional division and [ Peres ] enterprise value to revenue, there would be about 150% upside to the current stock price. Why is the company not actively pursuing this, especially in light of the recent star equity exchanges and pursuing along the current path -- and I'm sorry, along the current path has not recognized any value for shareholders. Derek, do you want to comment on this? Derek Dewan: Sure. So as you're aware, in many cases within a public company, there's nonpublic information and actions being taken that have yet not been disclosed. So as we stated in our press release at the last part of the earnings release, we do evaluate any proposals to maximize shareholder value. And someone, I think in this question, you mentioned 150% increase versus the current stock price. I would say that, that's extremely low, and that would be not what we believe is fair value for our shares. And if there is an offer, we anticipate it'll be much better than that. Kim Thorpe: Okay. The next question is for someone that's concerned about the lower value of the stock having been in place for some time. When is it time for dramatic and intentional changes to be made to correct that? We agree with that. We're working on a number of new things. So that's the answer to that question. And then the next question, can you provide more color on what multiple offers you mentioned included? Derek Dewan: We can't at this time, but they are being evaluated, and we will respond appropriately. And also keep in mind that -- that's just one facet of maximizing shareholder value. We are also internally focused on, as Kim said earlier, cost reduction, profitability improvement. Case in point, our direct hire business increased 8%, which in the industry, if you look at the peer group, is very good. That's 100% gross margin business. And our January month was also higher than the prior 3 months in the first quarter. So organically and internally, we're improving. As you can see, the EBITDA improved and net income improved, and we anticipate as we go further into the fiscal year, more improvement. Kim Thorpe: I believe that's it. Those are all the questions. Derek Dewan: Thank you very much for joining us today. That concludes our call.
Operator: Good day, ladies and gentlemen. Welcome to the CAE Third Quarter Financial Results for Fiscal Year 2026 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead, Mr. Arnovitz. Andrew Arnovitz: Good morning, everyone, and thank you for joining us today. Today's remarks, including management's outlook and answers to questions, contain forward-looking statements, which represent our expectations as of today, February 13, 2026, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks, factors and assumptions that may affect future results is contained in CAE's annual MD&A and MD&A for the 3 months ended December 31, 2025, which is available on our corporate website and on our filings with the Canadian Securities Administrators on SEDAR+ and the U.S. Securities and Exchange Commission on EDGAR. On the call with me this morning from CAE are Calin Rovinescu, Executive Chairman; Matthew Bromberg Matthew, the company's President and Chief Executive Officer; and Constantino Malatesta, our Interim Chief Financial Officer. After formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Calin. Calin Rovinescu: Thank you, Andrew, and good morning, everyone. Before Matt and Constantino take us through the Q3 results and discuss the transformation plan, I want to briefly add my perspective. Q3 was a solid quarter, all things considered, despite the Civil business experiencing a somewhat softer order activity than expected. Defense, on the other hand, had a stronger quarter than expected, and we're increasing our outlook for that segment. In my view, a quarter like this reinforces why we firmly believe that having two strong businesses with leading positions in attractive markets like our Civil and Defense segments makes so much sense for CAE. As you'll hear from Matt, we're starting to implement the several phases of our multipronged transformation plan with a focus on sharpening our portfolio, disciplined capital management and capital allocation, and improved performance through operational excellence and cost transformation. We expect this plan to lead to increased earnings and cash flow and long-term sustainable value creation. We've already made certain important organizational changes to several areas of our company. We've identified several opportunities for network rationalization and potential noncore divestitures. We've reduced capital expenditures and are building a plan for improved utilization and returns from our simulators. Specific targets resulting from the transformation plan are expected to be made available after next quarter so that you will be able to more closely monitor our progress. As we said on the last call, CAE's culture over the last years has centered primarily on growth, and it's now time to harvest that growth. The Board and I are strongly supportive of the disciplined data-based approach that Matt and the leadership team are undertaking, challenging the status quo while protecting what is core to CAE. We are closely aligned with both the direction and pace of the transformation and fully recognize that some of the actions required to strengthen the business will have some near-term revenue impact. We're comfortable with that trade-off as we position the company to become more resilient and to deliver stronger returns with more disciplined capital allocation. And with that, Matt, over to you. Matthew Bromberg: Thank you, Calin, and good morning, everyone. Q3 was a solid quarter despite the softness in Civil. Our performance reflects a more balanced portfolio, improved cost discipline, a focus on program management and better cash flow collection. I'm very proud of the team for delivering these results ahead of our expectations, especially while advancing the transformation plan. Even in the planning phase, the transformation plan is influencing our decisions with respect to portfolio focus, capital discipline and performance. For instance, focusing our capital on core opportunities is further reducing our fiscal 2026 CapEx outlook, and our focus on working capital has improved free cash flow. Combined, we've achieved our full year deleveraging target ahead of schedule and further strengthened our balance sheet. While there is still much to do, these early improvements give us confidence in the strategy and in the opportunity ahead. Over the past 90 days, I've met with over 100 investors to discuss CAE's performance and to review the transformation plan. In these discussions, 4 themes resonated. First, CAE competes in an industry with strong tailwinds. We operate at the intersection of Civil Aviation and Defense, two markets with durable long-term growth drivers. We have world-class technology. We have unparalleled customer relationships. And most importantly, we have exceptional employees across the organization. In our Civil segment, we are the market leader in simulator development and sales, and we operate the largest independent training network in the world. In Defense, we operate around the world locally and with a strong core of capabilities in simulation, training and mission rehearsal. In this segment, we are the largest independent Defense training company in the world, and we have unparalleled breadth of platforms and capabilities. These are strategic assets that give us long, consistent runway. Second, we developed simulation and training solutions for more than 220 aircraft platforms. That's more than anyone in the industry. We bring unmatched depth in system engineering, hardware, software integration and image generation. Moreover, we have some of the most -- some of the world's most comprehensive databases for geospatial environments, aircraft, airports, sensors and operational performance. Third, I've been struck by the level of trust, our Civil Aviation and Defense customers place in CAE. Our customers trust CAE with their most valuable assets, their pilots, their aircrew, their passengers and the military personnel. That trust reflects the critical role we play in ensuring readiness in moments that truly matter, and it underscores the responsibility we carry as a company. And finally, building on the strong foundation, the transformation plan will establish a more consistent, higher-quality business that generates higher margins and higher cash flow. The transformation plan has three focus areas: portfolio sharpening will simplify our portfolio and focus our resources on what we do well. Tighter capital discipline will ensure that every investment meets strategic and financial targets and that capital, R&D and all expenditures will be assessed against a balanced scorecard to ensure awards, sales, profit, cash flow and return on investment thresholds are all met. And finally, performance improvement will streamline the business and focus on every element of operations from engineering to production, from sales to free cash flow. Some of these actions will have near-term revenue impact as we ramp and move through the transformation, and that is expected. Now I want to briefly touch on our most recent leadership changes. As we announced earlier this quarter, Ryan McLeod will be joining CAE as our Chief Financial Officer. Ryan brings deep experience in operational finance, capital discipline and transformation execution. His background and approach align closely with the priorities we are driving across the company. His culture will fit exactly with what we are and where we want to go, and I'm very much looking forward to partnering with him as we move into the next phase of CAE's transformation plan. But I also want to take a moment to recognize Constantino Malatesta. Over the past 1.5 years, Constantino has served as an interim CFO during a period of significant change for CAE. His leadership, his judgment and his steady hand have been instrumental in strengthening financial discipline and maintaining stakeholder confidence. And on a personal note, he has made my own transition into the role as smooth and effective as possible. I'm very grateful for his hard work, his continued support, and I really enjoy working with him. Thank you, Dino. In summary, we operate two strong businesses, and I see clear opportunity to do more. Returns are below where they should be and capital intensity across CapEx, R&D, SG&A is higher than warranted. Over the past 6 months, our analysis has confirmed these observations and sharpened our view of the opportunity ahead. And this is precisely what our transformation plan is designed to address. I'll come back to that in a moment, but first, I'll ask Dino to walk through the financial results. Constantino Malatesta: Thank you, Matt. I appreciate the kind words. Good morning, everyone. Third quarter consolidated revenue of $1.25 billion increased 2% year-over-year. Adjusted segment operating income was $195.8 million, up 3% from $190 million in the third quarter last year, and adjusted EPS was $0.34 compared to $0.29 a year ago. During the quarter, we incurred $7.3 million of transformation-related expenses, primarily recorded in SG&A. These costs are included in adjusted segment operating income and adjusted EPS and reduced adjusted EPS by approximately $0.02. Net finance expense this quarter amounted to $54.1 million, down from $56.6 million in the third quarter last year, mainly due to lower finance expense on long-term debt due to a decreased level of borrowings during the period. This was partially offset by higher expenses on lease liabilities. Income tax expense this quarter was $29.6 million for an effective tax rate of 21% on a statutory and adjusted basis compared to an adjusted effective tax rate of 29% in the third quarter of fiscal 2025. We continue to expect a run rate effective income tax rate of approximately 25%, reflecting the expected geographical mix of earnings and ongoing tax legislation reforms from various jurisdictions. Net cash flow from operating activities was $407.6 million this quarter compared to $424.6 million in the third quarter of fiscal 2025. Free cash flow was a solid $411.3 million, above the $409.8 million recorded in the third quarter last year. This underscores continue discipline and operational strength. Capital expenditures totaled $50.6 million this quarter with approximately 75% invested in growth. Reflecting tighter capital discipline, we now expect full year capital expenditures to be more than 10% lower than last year, driven by a further reduction in Civil CapEx, which is now expected to be approximately 30% lower year-over-year. Our net debt position at the end of the quarter was approximately $2.8 billion for a net debt to adjusted EBITDA of 2.3x at the end of the quarter, surpassing our goal to reach 2.5x net debt to adjusted EBITDA by the end of the fiscal year. Now turning to our segmented performance. In Civil, third quarter revenue decreased 5% year-over-year to $717.2 million. Adjusted operating income decreased 6% to $141.8 million, resulting in a margin of 19.8%. These decreases were driven by lower simulator sales and lower utilization in our trading centers and were partially offset by the contribution from sales of used simulators across the network. Civil adjusted segment operating income this quarter includes $4.9 million of transformation-related expenses, which impacted the adjusted segment operating income margin by approximately 70 basis points. Training center utilization was 71%, down from 76% in the prior year period, and we delivered 15 full-flight simulators compared to 20 last year. This primarily reflects lower demand for commercial and business training and simulator deliveries versus the same period last year. In Defense, revenue increased 14% year-over-year to $534.9 million, while adjusted segment operating income increased 38% to $54 million, delivering a 10.1% margin, which marks the first time in over 6 years, the Defense margin has been at or above 10%. This performance was driven by higher activity and profitability on new higher-margin program awards and the ramp-up of recently awarded contracts in the U.S. and Canada, reflecting a more favorable mix of products. Defense adjusted segment operating income this quarter includes $2.4 million of transformation-related expenses, which impacted the adjusted segment operating income margin by approximately 40 basis points. With that, I will turn the call over to Matt. Matthew Bromberg: Thanks, Dino. Before turning to the outlook, I want to highlight a few recent developments that underscore momentum across both Civil and Defense segments. In Defense, we continue to see strong demand across allied markets, supported by this multigenerational increase in Defense spending. Our Defense & Security segment has unique capabilities and global reach. We operate through strong locally rooted businesses in the United States, in Canada and across key international markets. And this allows us to serve sovereign customers with credibility, proximity and trust. That combination of global scale and local presence positions us to capture international opportunities. A good example is our partnership agreement with Saab announced in November on the GlobalEye Airborne Early Warning platform. Saab is a well-established global aerospace and defense company serving government customers across many markets. Our agreement on GlobalEye underscores how leading OEMs and airframers view CAE as best-in-class at what we do as a critical enabler to the effectiveness and competitiveness of their platforms. For Saab, CAE's training and simulation capabilities enhance the operational value of the platform and strengthen its appeal to sovereign customers and operators. Programs like GlobalEye illustrate how CAE partners with leading OEMs to deliver long-tenured integrated training solutions. On GlobalEye, CAE is uniquely positioned to provide integrated training that combines the cockpit, front-end flight training with back-end mission systems training. We do so by leveraging CAE's ability to integrate simulation, mission rehearsal and system engineering across the full operational life cycle and across the entire platform. Combined with our global footprint, this enables CAE to deliver scalable training franchises deployable across allied markets. Looking ahead, CAE expects to benefit from Canada's defense spending as international platforms are selected in partnership with leading OEMs across air, maritime and multi-domain environments. Beyond Saab, CAE works with a broad set of partners, including Lockheed Martin, General Atomics, Leonardo, Airbus and many others. These partnerships are expected to support CAE's role as a long-term provider of mission-critical training, simulation and mission rehearsal capabilities to sovereign customers. We intend to continue broadening our relationship with key strategic partners over the next few years. Also during the quarter, we announced our selection to deliver Australia's Future Air Mission Training System, a highly significant and competitively awarded program for CAE. This award is another example of CAE's differentiation in large complex integrated flight training programs, where we bring together simulation, training and mission rehearsal into a single integrated training ecosystem. With an initial 10-year period of performance and a value of more than $270 million, this contract positions CAE shoulder to shoulder with the Australian Defense Force. It represents a meaningful step forward in advancing next-generation air mission training capabilities for Australia. More broadly, this award underscores an important characteristic of integrated flight training programs. They are not transactional in nature. They provide long-term visibility, deep customer relationships and establish scalable platforms that expand as customer needs and operational concepts evolve. These programs are supported by dedicated CAE teams, many of whom will spend the majority of their careers working on the same tenured program working side-by-side with uniform personnel. The Australian Future Air Mission Training Program and as another example, the Canadian Future Air Crew Training Program, or FACT, are just two of many opportunities and examples where CAE can provide the front-end and the back-end training solution. These are infrastructure-like businesses that leverage all of our capabilities to benefit the war fighter. Now turning to Civil. In Civil, we had a highly successful Singapore Airshow, where we signed 8 agreements for more than $160 million, and that reflects CAE's position as a long-term training partner across Civil Aviation. Taken together, these announcements underscore the durability of our customer relationships, the relevance of our global training network and our ability to support operators across regions, aircraft types and business models. While we continue to lead the industry in today's training requirements, we are also looking to the future. Over the past quarter, we announced that our training solutions have been selected by two of the pioneering companies in advanced air mobility or eVTOL emerging space. We are proud to be selected by Joby Aviation and Embraer Eve Air Mobility. We are partnering with Joby and Eve to enable an entry into service underpinned by CAE's track record of innovation, integration and certification. CAE has a long history of industry firsts, and this emerging aviation segment is just another proof point. Joby and Eve have put their confidence in CAE to help establish the training standards for this new category of aircraft. It's my observation that while these companies are focused on developing cutting-edge and disruptive aircraft technologies, they want to leverage our experience and our footprint in end-to-end training. CAE has fielded more than 220 aircraft platforms, as I mentioned before, and operates in every corner of the globe, more than any other provider. And once again, our Prodigy image generator is a key differentiator. It allows us to deliver high fidelity visualization required for complex low-altitude operations in urban environments, where situational awareness and accurate visual clues are critical. Taken together, these developments reflect our focus on maintaining our customer-centric relationship with existing operators while also providing -- developing new partnerships to ensure CAE continues to lead in the evolving markets. We'll continue to do so where we can differentiate through our intellectual property, our global infrastructure and our standards. And as we do this, we will maintain focus on the heightened financial expectations that we have set for the entire organization. Now looking ahead to the balance of the year. CAE's business portfolio is becoming more balanced. And for the year on a consolidated basis, near-term softness in the Civil segment and strength in the Defense segment largely offset each other, leaving us in the range of where we expected to be overall. We still expect the fourth quarter to be our strongest of the year in Civil. However, our outlook for the year has softened with mid-single-digit percentage decline in annual adjusted segment operating income compared to last year. Overall, we expect an annual Civil adjusted segment operating income margin in the 20% range. This change is driven by three factors: softer-than-expected market conditions, U.S. dollar translation impacts and the rationalization of our commercial simulator network. The network actions are being accelerated to align capacity with current and expected demand and are intended to improve utilization, returns and resilience over time. In parallel, we are reinforcing a more disciplined operating and commercial culture, supported by strengthened processes and a more structured go-to-market approach, including the use of a balanced scorecard for capital allocation and commercial decisions. We are prioritizing opportunities that meet our return thresholds and capital objectives while maintaining our leading market position. And as a result, some previously forecasted full-flight simulator orders and deliveries have shifted to the right. While our near-term outlook reflects the factors we've discussed, the long-term fundamentals in the aviation market remains strong. Boeing and Airbus each have backlogs that extend roughly a decade at current production rates. And when combined with other major OEMs, the global commercial aircraft backlog totals approximately 17,000 aircraft, providing multiyear visibility for the industry. Business jet OEMs similarly report healthy backlogs representing several years of deliveries and activity in the fractional ownership market continues to strengthen. These fundamentals reinforce our confidence and our bullish view on the secular outlook for aviation. In Defense, our performance year-to-date has been stronger than we expected. We now expect the Defense adjusted segment operating income to grow by more than 20% year-over-year compared to the low double-digit percentage growth we previously guided. We expect the annual adjusted segment operating income margin for Defense to be approximately 8.5%. Defense budgets allocate substantial and growing resources to training, simulation and mission rehearsal, areas where CAE has long-standing capabilities and competitive positioning. While not all the spend is directly addressable, it highlights the size and strategic relevance of the opportunity in front of CAE. Given the geopolitical environment and this multigenerational commitment to increase spending across NATO and allied countries, Defense spending will grow at a much faster rate in the future than we've seen historically. And Canada's commitment to spend $82 billion in Defense over the next 5 years with a long-term ambition to reach roughly 5% of GDP by 2035 are very important tailwinds for CAE. These commitments will last for decades. For CAE, this is an opportunity. With our capabilities aligned to training, simulation and mission rehearsal, where a meaningful portion of Defense spending flows and a sovereign incredible footprint across many allied markets, we're uniquely positioned. With our strong Montreal-based engineering and manufacturing facility, we're uniquely positioned. With our worldwide footprint, we're uniquely positioned. And with our industry-leading capabilities and technology, we're uniquely positioned. Now let me pivot and talk about the transformation plan. Before I get started, this is not a sprint. It's not a loose run. It's more of a marathon. It's going to take time. But we've been training and we're getting ready, and we're going to start moving quickly forward. This quarter reflects progress in the planning and evaluation phase of the transformation plan. As I mentioned earlier, we're already seeing benefits in our cash flow and leverage ratio. These benefits are a direct result of the team's focus on a sharpened portfolio, improved capital discipline and our performance-driven operating model. In particular, we have launched a process to explore strategic alternatives for noncore assets. We've commenced rationalizing our Civil training network to rightsize it for market demand, and we are looking at every aspect of our operating model, starting with a shared service outsourcing initiative launched last week. The work is advancing well, and we expect to have the evaluation phase substantially complete by the time we report year-end results in May. At that point, we will provide an outlook for next year together with some specific longer-range targets and a clear articulation of how the transformation plan all comes together to benefit the company. We launched the transformation plan in November and established a transformation program office with dedicated executive leadership. The team is currently managing a range of initiatives, each evaluated based on a balanced scorecard and each aligned to one of our three priorities: portfolio focus, capital discipline and performance excellence. Our governance cadence is rigorous with detailed line-by-line status reviews with the entire executive management committee meeting -- committee every 2 weeks, and this will ensure execution and results. The plan will leverage our market position, our leading Civil network and our unique technology foundation to transform CAE into a higher-performing business with improved margins, stronger free cash flow and better returns on investment. Now let's go into a little bit more detail. First, our portfolio refocusing. We have completed our business and asset review, and have identified several noncore assets representing approximately 8% of revenue. For each of these assets, we will explore strategic alternatives. We have already identified several potential transactions, engaged advisers and will quickly move through our execution phase. Announcements will be made when the strategic direction becomes clear with a suitable strategy, a suitable counterparty and open market and of course, with economics and timing that enables value creation for CAE. Second, it's our focus on capital discipline, and that starts with taking a rigorous bottoms-up view of the balance sheet to ensure that every dollar of capital employed is delivering maximum value. This includes aggressively removing non-value-added costs from the business. We are also applying a significantly higher bar for returns and payback periods on all newer projects -- new capital projects. These process changes are already yielding benefits as we are reducing our CapEx and R&D forecast, as Dino indicated. However, the most significant near-term opportunity lies in the Civil training network. Today, we operate 373 full-flight simulators globally, of which 250 are for commercial airline training. The performance across this network varies meaningfully. Our data shows a clear distribution. We know where every simulator is, and we know how it performs. Clearly, there's an upper tier of strong performers, but a lower tier of underperforming assets and a sizable middle market that could be further optimized. As we assess the underperforming tier, we see significant opportunity to rationalize our commercial airline training capacity. As mentioned, we will move approximately 10% of deployed commercial airline simulators. As we do this, we will look at our footprint for other opportunities to relocate devices and improve utilization and returns. As I've mentioned, these actions take time. These actions require us to work through customer contracts and commitments to find suitable alternatives for their training. We also need to work through facility leases and local regulation. So overall execution is expected to take between 12 and 24 months. As we move through this process, some near-term revenue impact is expected. Mitigation plans are in place and customer focus is at the forefront. In parallel, we see opportunities to unlock additional value by selectively integrating elements of our business aviation and commercial aviation training networks, where it will be optimal to combine capabilities and footprint, we will do so. The objective is a training network that is rightsized for the market and its expected growth, supported by a leaner cost structure and a stronger go-to-market execution. Given that the training network represents a material portion of our capital base, these actions are central to driving higher margins, stronger cash flow and improved returns on capital. We are also conducting a comprehensive view of our R&D portfolio to ensure alignment with strategy and return thresholds. Projects that do not meet the bar will be ended or curtailed, and we expect R&D investment to moderate over time. We are demanding greater rigor and discipline around capital approvals. We revised our corporate policies and procedures, in particular, as it relates to CapEx. These changes tighten the standards under which capital investments are approved. As a result, any material capital decisions elevated in my office raising the bar in returns, cash flow and capital efficiency. Finally, we have raised the bar in our bidding and commercial decision-making, applying more rigorous standards that prioritize returns, free cash flow, pricing discipline and are aligned with our current network strategy. We're being more selective by design, reflecting a clear focus on value creation rather than just volume. Taken together, these changes we are putting in place are more about metrics. They represent a shift in culture. In addition to tightening capital accruals and bid discipline, we are reinforcing execution and accountability day-to-day. We are increasing ownership for nonworking capital with a clear expectation and tighter discipline around inventory management, billing accuracy and timely collection of receivables. And that leads to performance. We're focusing on embedding the same disciplined balanced scorecard approach we apply to capital allocation and commercial decisions to everything we do. We're simplifying the organization, tightening accountability and increasing the operating cadence. We recently signed a global partnership with a world-leading enterprise transformation provider to implement a shared service operations model for selected back-office functions. In the initial phase, we are transitioning approximately 80 finance and HR processes into a modernized global shared service operation. This provides CAE immediate access to best-of-breed processes and Gen AI-enabled tools. And we expect to deliver meaningful reductions in corporate administrative costs while improving the scalability, execution and quality over time. Free cash flow has strengthened during the quarter, driven by greater discipline around noncash working capital. In Civil training, account receivable improved steadily, primarily due to reductions in aide receivables and tighter collection practices. Even at this early stage of the transformation, we have reinforced clearer ownership it's due to weekly tracking and implemented stronger enforcement mechanisms. And as a result, utilization of our revolving credit facility declined, contributing to lower interest expense for the quarter. More to come. And looking forward, we're developing a Factory of the Future road map, designed to build the simulator of the future and strengthen our competitive edge. This work is focused on modernizing how we design, how we produce and how we deliver simulators by improving our production processes, logistics, supply chain, quality and delivery across the products organization. In parallel, we're laying out the groundwork for a modular open architecture product strategy that will allow us to build more scalable, upgradable simulators and insert new technologies more efficiently over time. While these initiatives are not yet in execution, they're deliberate elements of our longer-term road map and are intended to help CAE outpace competitors through lower complexity, shorter lead times and a more modern, efficient production model. We are also strengthening accountability by more directly aligning executive compensation with the objectives of the transformation. This work began early in my tenure with discussions with the Board starting roughly 6 months ago, recognizing that calibrating these changes thoughtfully takes time. You should expect a clear and more direct linkage between compensation and outcomes, metrics such as return on capital, free cash flow generation, margins and earnings per share are expected to feature prominently across both short-term and long-term incentive programs. And more importantly, it's not just about senior leadership. Over time, we expect these same performance standards and scorecard-driven priorities to cascade more broadly through the organization. So incentives at multiple levels reinforce the behaviors required to improve returns, strengthen cash generation and deliver sustainable value creation. To sum up, we are challenging assumptions, we are executing with discipline, and we're maintaining a clear focus on improving returns. The actions we are taking are grounded in data and designed to position CAE for stronger performance over time. We benefit from powerful fundamentals across both end markets. As I've mentioned, in Civil Aviation, we are positioned for long-term growth in our market, driven by global air travel demand, fleet expansion and pilot requirements. And in Defense, we're seeing multigenerational growth supported by sustained increases in Defense spending across allied nations in training, simulation and mission reversal, and that will play an important part in international readiness. I look forward to sharing the details of our transformation plan and again, specific longer-term targets and our fiscal 2027 outlook when we report our full year results in May. Thank you. Back over to you, Andrew. Andrew Arnovitz: Thanks, Matt. Operator, we'd now be pleased to take questions from financial analysts. Operator: [Operator Instructions] Your first question comes from Fadi Chamoun with BMO. Fadi Chamoun: Matt, I think you'll probably realize for us on this side of the equation, we're not known for patients. So I'm going to ask you a few questions about kind of the longer-term perspective that you're providing today. So can you kind of help us understand where the goalposts are 2, 3 years down the road? Can the Civil business generate solid mid-teen return, lower ROIC return? What is the range of kind of broadly speaking, ROIC target that you think could be achievable as you undergo all of these kind of changes over the next 24 months? And a couple of quick follow-ups. Can you share what the revenues of the 25 simulators or 10% of capacity that you intend to retire in the commercial full-flight simulator side? And when you look at, I mean, utilization in the low 70s, the orders lagging full flight simulators deliveries, can Civil grow EBIT in the next 12 months? Or is this going to be -- with the disruption that you're doing in the short term, it is going to be a bit of an off year basically as we get to the other side of this transformation. A lot there, but any quick color you can share would be great. Matthew Bromberg: Thanks for all the questions. Let me try and take them one by one. First, from a longer-term perspective, we're still looking at how each one of these initiatives will impact the portfolio, and that takes time, and we want to be cautious so that we don't over or undercommit to you and the other analysts. However, I go back to the longer-term fundamentals of our industry. On the Civil side, and this is what matters, the industry grows at 4% to 5% every year over the long term. There are disruptions. There are geopolitical disruptions, there are supply chain challenges. We've seen it before, and we'll see it again. But if you step back from an annual disruption, that's the long-term trajectory of the Civil market. And we CAE play a unique role. We're the world leader in full-flight sims, production, development, deployment, and we have the largest independent training network in the world. So long term, those fundamentals are strong and will continue. And on the Defense side, which I think is unique, we see the same outlook. For the first time in my career, we see 4% to 5% of long-term outlook in Defense as well, and we're uniquely positioned to capitalize on that. You asked secondly about how returns will evolve over time. Give us some time to look at it. It's a complex set of equations, and we have to look at each asset. We have to look at each strategy, and we have to make sure that we understand the impact. But I will answer your question about utilization and what the reduction in the Civil training network would do. If -- and let me emphasize this, Fadi, if I could take out all those sims immediately, and I can't. Remember, I said it will take anywhere from 12 to 24 months to do it. And if I retain all the customer volume that's in there, and that is our intention, but that requires a lot of negotiations, then Civil utilization would go up to 75%, 400 basis points. Now I can't take them out overnight, and I need to work on retaining them, but that's the impact on utilization. So when you look at those assets, the 25 simulators, they're clearly the underutilized, underperforming assets to our network, but they consume resources. They consume capital, they consume real estate and they consume inventory. And so by doing this, we'll strengthen the focus of the network, and then we'll attempt to better utilize, better sweat the other assets to improve utilization and focus. And remember, it's not just about utilization, it's about the contract. We have a variety of different contractual mechanisms. And so you need to look at the profitability and the revenue that comes out of that, all that's in front of us. So Fadi, thanks for the question. Operator: Your next question comes from Krista Friesen with CIBC. Krista Friesen: Maybe just to follow up on the last one there. Have you started to have these conversations with your Civil customers in terms of rationalizing the network? And how have those been going? And do they seem amicable to the consolidation of some of these changes? Matthew Bromberg: Yes, it's a great question. Thank you for asking it. We have started the conversations, and each one requires a tailored approach. And I remind you, when we built the network, every full-flight simulator in the training center was built for a reason. And over years, operating strategies, airline strategies, demand for travel changes. And so taking a pause in the network and looking at it is a rational, appropriate thing to do. If we step back from individual conversations, what we're really doing is sizing the network for today's demand. We overbuilt the network. It's too large for the demand that we see today. And so we're going to reduce the size of the network to accommodate today's demand and the expected growth we see. Now each one of those conversations with airlines requires time and patience. We're a very customer-centric organization and initial conversations are positive, but we have more work to do. Thanks for the question. Krista Friesen: And if I can just ask a follow-up. It sounds like 2027 will be a noisy year just as you go through some of these transformations. But how are you thinking about free cash flow for 2027? Is there an opportunity there just as CapEx starts to come down? Matthew Bromberg: Yes. Let me turn that over to Dino. Constantino Malatesta: Thank you, Matt. So definitely, our focus will be continued strong free cash flow generation. I'm really proud of what we delivered in the quarter, and we're maintaining that focus highlighting some of the things that Matt said, focus on inventory management, payable management; focus on collections of ARs. It really will be continued discipline, and we are committed and expecting to generate strong free cash flows in the future and continue to be below the leveraging 2.5x net debt to adjusted EBITDA on a continued basis. Matthew Bromberg: And thanks, Dino. Let me just add, as we generate strong free cash flow and potentially proceeds from some of the portfolio actions that we're taking, the first initiative will be to invest and fund the transformation. A strong balance sheet and strong cash flow will allow us to put those resources to work. Each one has a business case, each one has to meet our expected return thresholds, but that's priority one. Obviously, second priority is to make sure we continue to delever, and that will take some time. And after that, when we have the luxury to do so, we'll revisit what to do with the free cash flow. Operator: Your next question comes from Konark Gupta with Scotiabank. Konark Gupta: Matt, I wanted to dig into the nature of the assets that you have identified, the noncore assets, 8% of revenue. Is it safe to presume that most of these assets, maybe all are in the Civil segment or they're in Defense as well? And I mean, when these assets come out of the system, have you identified how much of the margin drag these were causing? And what can we expect post divestitures? Matthew Bromberg: Yes. Thank you for the question. So there are assets, businesses in both the Civil and Defense side, to be clear. And these are good businesses. These are really good businesses. But as we look at where we do well and where we want to focus our resources, these businesses will do better with another owner. And so that's what we're focused on. And each individual asset business requires us, again, as I mentioned in my comments, to have the right counterparty, the right strategy and the right economics for CAE. And so we'll give you more details on each one as we get more confidence in the future state. Thanks for the question. Konark Gupta: I appreciate that. And if I can follow up. I think you mentioned about real estate a few times in the past. With the simulator rationalization and these noncore asset sales, are you taking out some of your real estate portfolio as well? I mean, whether it's leased or owned? Matthew Bromberg: Yes, I appreciate the question. We're looking at it, and the intention is to do that. We have a very large real estate portfolio. But as I mentioned also, we have to look at leases, we have to look at the base space where the simulators go and see what the opportunities are. And that will be more of the details that will come out in subsequent quarters. But absolutely, we want to look at the real estate portfolio as well as the asset base. Operator: Your next question comes from Cameron Doerksen with National Bank. Cameron Doerksen: Maybe a question on, I guess, the market outlook. Obviously, Civil continues to be a little bit of a challenge for yourselves. Just wondering if there's, I guess, any light at the end of the tunnel here? I mean, are there, I guess, any indications that you see on the horizon that maybe some of the Civil Aviation training demand might pick up? Or is it kind of the same as what we've seen in the last couple of quarters? Matthew Bromberg: Yes, I appreciate the question, and I've spent a significant amount of time with the team looking at the Civil market. I think we over-indexed ourselves looking at specific metrics. I think if you step back, you have to look at the entire market, aircraft deliveries, grounding, supply chain issues, air traffic control disruptions. It's a complex weather metrics and we all look at it. From my perspective, this is the market. We're sitting at it. We're not trying to reach some destination, this is the market. And as I mentioned earlier, we overbuilt the network. So we're going to resize the network for the market demand we have today, and that positions us well for the future. And as I mentioned just a couple of moments ago, as we resize the network and stabilize ourselves for the growth, the market will grow long term at 4% to 5%. It has for the past 20 years, it will for the next 20 years. But I'm not in a position to predict exactly what next quarter will look like. The demand that we're seeing today is softer than we expected, but this is the market, and we expect to size everything around it. So I appreciate the question. Cameron Doerksen: Okay. That's great. And maybe just a quick follow-up on the, I guess, the divestitures. I mean, have you actually had early conversations with any potential buyers of some of these businesses? Just trying to get a handle on what the timing of a sale of some of these businesses might be. I mean, is this something that could happen in the next 12 months? Matthew Bromberg: Yes. I appreciate the question. I've run portfolio transformations before, and we have a very experienced team. You have to move slowly through this process and you have to move cautiously to the process to make sure you get everything ready. So it's 18 to 24 months is typically what these transformations take, and we're not going to rush it. And so it's too early to talk about buyer interest or discussions or any of those details. But again, as each individual business gets more mature in its own process, we'll start to make those announcements when we're ready. Operator: Your next question comes from Kristine Liwag with Morgan Stanley. Kristine Liwag: Just wanted to follow up on Defense. Margins were pretty good in the quarter. And so I was wondering, is this a function of the low-performing contracts finally rolling off? Are there any left? Or what did you have a particular gain on sale or -- sorry, incremental benefit from a more profitable contract. So a little bit more details on what's happening in the Defense margin would be great.? Matthew Bromberg: Yes. Look, I appreciate the question. It's a combination of things. It is good focus on existing programs. And going forward, we're going to talk about growth. We're going to talk about margin expansion. There's still some of the legacy programs left to wind down, but I'm confident that the team continues to maintain its focus on execution. In addition, it's been really good focus on cost controls inside the Defense business, and that is also helping performance. The Defense business has an infrastructure and cost base just like the Civil business and focusing on those cost controls is paying dividends. In addition to that, as we look forward, we're going to try and sign contracts that will have margin accretion opportunities, and we've talked about that before. These things are all combining. But in this particular quarter, we had a contract mix that provided some tailwind that we don't expect to reoccur. And that's why we provided guidance for the year that's going to be 8.5% margin. That's solid improvement, and that's not a stopping point. That is a pause in the journey of driving this business to where I expect to achieve, which is like any other strong Defense business between 10% and 11%. We'll provide that guidance at the end of the year on how long it will take to get there, but don't view this quarter as where we are yet, just view it as a combination of those three factors. So I appreciate the question. Kristine Liwag: Great. And if I could follow up, Matt, your background is from U.S. Defense companies. When you look at CAE's Defense portfolio and you assess its strength, it is the largest training Defense company in the world. How do you assess its strength? What do you think its role is? And when you start looking at potential $1.5 trillion U.S. budget, the Europeans are spending a lot on Defense too. Where do you think CAE sits in that broader picture? Matthew Bromberg: Yes, it's a great question. So let me answer it from a few dimensions. First, when Defense money is spent, anywhere from $0.07 to $0.10 out of every dollar is related to simulation training and mission rehearsal. That money comes out of both procurement dollars and operational maintenance dollars. So that puts us in a fantastic position. Not all of that is addressable to us because often training is done organically, meaning by the Defense department, but a lot of it will be available to us. Secondly, we have a very large international footprint. That's unique. There are many Defense companies that wish they had the international presence we do in terms of facilities and teams on the ground working side by side, and they have strong relationships. Just a couple of weeks ago, I was in Germany at our Stolberg facility, celebrating its 65th anniversary working side-by-side with the German Air Force. That is a fantastic facility, and that creates fantastic relationships and puts us in a fantastic position. So I think we're well positioned geographically to capture the opportunities you've talked about. And as I mentioned earlier, we're unique in the industry that we have 220 different platforms that we've developed over time. That's a combination of Civil and Defense. So when someone comes to us and wants to develop a new simulation system, a new mission training center, we're uniquely positioned to do that. We know more about hardware and software integration, how to combine front-end and back-end training, and how to have the best final output that uniquely positions us as well. We do one thing. We do training, simulation and mission rehearsal. And then finally, our ability to do programs like FAcT and the Australian program I mentioned, it's an end-to-end training solution. So we bring our training centers, our training simulation capability. We train integrated flight training, flight ops. We train, we bring courseware. And taking the requirements to train a war fighter, to train a pilot, it's complex. We know how to decompose those, we know how to execute them, and we do it better than anyone else. Thanks for the question. Operator: Your next question comes from James McGarragle with RBC. James McGarragle: I just wanted to follow up on one of the comments in the prepared remarks. Obviously, you're looking for higher return, higher margin type of business. So on one hand, being more selective is going to help you get higher returns, higher margins. But how do you also think about being more selective while driving absolute levels of free cash flow growth and kind of capitalizing on all the secular opportunity available to you? Matthew Bromberg: Yes. Could you, sorry, repeat the question? I didn't quite follow. I apologize. James McGarragle: Yes. No worries. So just in the prepared remarks, you mentioned you're looking at higher return and higher margin type of business. So obviously, being more selective is going to help you get higher returns and higher margins. But just how do you look at being more selective while also driving higher absolute levels of free cash flow growth and kind of capitalizing on the secular opportunity available to you? Matthew Bromberg: Okay. Yes. Thanks for the question. I think I follow where you're going. First, being more selective in our capital decisions obviously means we'll spend less of our free cash flow on future capital deployments. That's the first step. And we will make decisions based on a more balanced scorecard. We will try to ensure that every asset meets a higher set of return thresholds, and that's going to reduce CapEx and that's going to improve cash flow. Secondly, we're doing the same thing in our research and development portfolio. I mentioned we're doing a bottoms-up review of every project. We have a significant number of research and development projects, too many. And so we're going to look at the ones that we're executing. And if they're core, strategic, we'll maintain it, but focus on disciplined execution. If they're not, we'll curtail them or wind them down. And then going forward, we'll be more selective about where we spend money on research and development. That will improve our free cash flow. And then finally, in a big part, it's about solid sustained performance execution, ensuring that we write the right contracts, that we collect quickly and that we focus the entire team on free cash flow. That includes inventory management as well. That's new focus for the company. It's not an overnight change. But as I indicated, we're already seeing the benefits of focus on account receivable collections, and there's more to come. So everything across the transformation plan will improve our free cash flow. Thanks for the question. James McGarragle: And then just a quick follow-up. How are you thinking about your ability to pass on higher pricing? Is there any flexibility to drive higher pricing with your customers and long-term partnerships? Just trying to understand how quickly you can use price as a driver of better returns across your customer set? Matthew Bromberg: Yes. I appreciate the question. I've been asked this question a lot. We don't operate with a catalog. We don't operate out of a storefront. We negotiate agreements with airlines, and they're sophisticated, very important customers. What matters to me and the team is that we get the right value for what we provide, whether it's a full-flight simulator or a training center and then they get the right value out of what they buy. We have long-term agreements and lots of joint ventures. And so it's not a catalog, it's not a storefront, but focusing on getting value for what we provide and making sure we make the right decisions going forward, that's front and center. Operator: Your next question comes from Benoit Poirier with Desjardins Capital Markets. Benoit Poirier: Matt, could you maybe talk about the opportunity to improve pricing through a dynamic approach, but also about the opportunity to leverage synergies between Civil and Defense. I'm just curious to know where you are in this journey. Matthew Bromberg: Okay. I appreciate the question. As I mentioned earlier, pricing with sophisticated airline customers is a complex endeavor. It's not a catalog. It's not a shared app of some nature. It's how we create relationships that go many, many years. And so we'll look at providing, as I said previously, the right value to the customers and ensuring that we get the right value back for what we provide. That's what we're going to focus on. When you think about utilization, our focus is to improve it. We want to sweat those assets. We want to harvest them. We want to improve utilization, and that will improve everything about the business. It will improve our return on invested capital. It's going to improve the utilization of the assets. It's going to improve free cash flow. And there are a variety of tools that we'll explore in doing it. So sorry, can you repeat the second part of -- Oh, the question was Defense and Civil, yes. So on Defense and Civil, we already have many opportunities to work closely together. As I mentioned in our remarks, the core of our engineering capability and our manufacturing capability is here in Montreal. And that's important because we leverage this large infrastructure, which has higher Civil volume than Defense volume to reduce the cost and improve the efficiency of delivering Defense products. And on the other side, we leverage Defense product development, which is often several years ahead of where the Civil market needs to improve the technology that sits in our portfolio. The hardware, software integration, the system engineering, in some cases, the image generation required for military products can be several years ahead of where we need it for Civil products, and we've done that in the past. What we want to do is do more of that. We want to leverage the demanding nature of Defense products, simulation, training, mission rehearsal, live virtual constructive environments. We want to leverage all that development and use it to benefit the Civil side of our business, and we want to leverage our Civil infrastructure, supply chain, factory to improve the cost effectiveness of the Defense solution. I do firmly believe in having a balanced business, and I think they work well together. A lot of that opportunity is in front of us, and we're focused on unlocking it, but it's a great question, and thank you for it. Benoit Poirier: Okay. And maybe just a quick follow-up on the balance sheet. You ended the quarter with a strong leverage ratio of 2.3x ahead of the plan. You mentioned the desire to reinvest, put those resources to work you need to deliver. But with the upcoming strong free cash flow, it looks like you'll be in a position to discuss about capital deployment opportunity, not far away. So any thoughts about where do you see an optimal leverage ratio for this type of business and your -- maybe the preferred avenues when it comes to capital deployment to shareholders? Matthew Bromberg: Yes. Let me have Dino first answer, and then I may add a couple of comments. Dino, please? Constantino Malatesta: Thank you, Matt. Thank you, Benoit, for the question. So definitely, the expectation is that we do maintain the leverage ratio to be below 2.5x. And we do want to continue to reduce debt and of course, reduce the interest costs. So that will be very much a focus on our side. I think Matt said it earlier, right, we want to deliver -- continue to deliver strong free cash flow. The cash generation will help us position ourselves for the future, right? We want to continue and operationalize the transformation costs -- transformation plan and the costs associated with that. So we are looking at that. We're looking at being below 2.5x and maintaining that. That's our expectations, and we'll continue that focus. But really, it goes back to a disciplined approach, both to noncash working capital, CapEx, raising the bar and making sure that the decisions that we make meet that balanced scorecard approach. Matthew Bromberg: Yes. And I'll just add, I'd ask everyone internally and externally to get -- allow us to get a few quarters under our belt. It wasn't too many quarters ago, and we had a lot of pressure in this company because of our balance sheet. So we want to ensure we have sustained repeatable processes. We want to fund the transformation plan. We want to focus on the right investments when they matter and go forward. So it's great that we all see we're in this inflection point, but let's ensure that we continue to execute and build sustainable cash flow generation for the future. Operator: Your next question comes from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Congrats on all the things you have going on. It looks like you're going to make a lot of progress. Maybe just on the pilot hiring. In the U.S., at least, it looks like it's rebounding a little bit towards the end of 2025 after a pretty dismal summer. So -- but it still seems like conditions are pretty soft within the Civil business. How much of that softness is coming from commercial versus business aviation customers? Matthew Bromberg: Thanks, Sheila. Appreciate the compliment, and I appreciate the question. I think, as I mentioned earlier, we over-indexed on pilot hiring. We need to step back and look at the overall industry. There are many ratios and metrics that we can look at aircraft deliveries, aircraft grounding, pilot hiring, crew ratios. There are many factors that disrupt that, bankruptcies and incidents around the world. It's a global industry. As I look today at the softness, it's more on the commercial side than on the business side, but the markets are tied together. The demand for pilots on the commercial side affects directly the demand for pilots on the business side and the demand for new pilot training. It's a combined ecosystem as people progress up through the aircraft types. So as I said earlier, this is the market. This is where we are. We're going to size our deliveries. We're going to size our network for the market, and we're going to make sure that we're ready to capture the opportunities as the growth occurs. It's almost like we're -- I hate to use a bad analogy, but it's like on The Wizard of Oz and we're on Yellow Brick Road, and we think there's something out there. Now, we're there. This is the market. We want to position the network. We want to position our factory. We want to position our customers so that we can grow together. And that's why I step back from a quarter-over-quarter point and say, if you look at this market, it's going to grow at 4% to 5% a year. We're the market leader in full-flight sims, and we have the largest training network. We're just going to size it for where we are today. Thanks, Sheila. Sheila Kahyaoglu: Got it. And if I could ask a follow-up to Kristine's question on Defense margins. I understand this is the new baseline we should be working off of with the problematic contracts fully rolled off. I guess from here, how do we think about timing of new contracts anniversary-ing and resizing, repricing the portfolio? Matthew Bromberg: Yes. Let me clarify. I didn't say or I didn't mean to say that we've rolled off the old contracts. We're still in execution, and there's time in front of us. What I want to emphasize is that the team is focused on program management, program execution, ensuring that we control costs. As we've been doing for the past couple of years, we'll continue doing it forward. When we look forward, we want to embark and sign contracts that will be value accretive to the business that have high return thresholds, higher margins and higher cash flow. That takes time. I've been doing this for a long time and Defense dollars take many years to be awarded. And even when they're awarded, it takes many years to flow to contractors. So Q3 is not a new baseline. As I indicated, we plan to end the year at about 8.5% margin, and our focus is on steady continued margin expansion in the Defense business, which is going to be based on executing these legacy contracts, focusing on the new contracts and more importantly, controlling costs because that's within our control and our timing. And so that will be more of the guidance we provide at the end of the year. Operator: [Operator Instructions] Your next question comes from Anthony Valentini with Goldman Sachs. Anthony Valentini: Matt, just to stick on the Defense margin conversation for a second. You know better than anybody else that the international margins for the Defense primes are typically -- significantly higher than domestic work. And you pointed to the fact that you guys have higher mix to international, which is exciting, obviously, on the growth side, given everything that's happening. But I guess I'm curious if there's something structural that will limit you guys in having higher mix to this higher international margin, and therefore, you guys can achieve margins higher than the Defense primes. Or if it's the right way to think about it that, that mix to international means that the margin potential is actually better than what the Defense primes achieved given they're only 80% or 90% domestic. Matthew Bromberg: Yes, I appreciate the question. When you're looking at Defense markets, yes, generally, international margins can be higher, but there's other factors to consider. You have to consider the award channel. Is it a foreign military sale award channel? Or is it a direct commercial sales channel? You have to consider the product. When we sell our commercial products to the Defense world, and we do, we sell many commercial full-flight sims into the Defense world because they're used by Defense players, they come with commercial margins. But where we sell bespoke Defense products, that's different. We also have development work versus production work. So I don't think you can generalize and say Defense margins are significantly higher to use your term, they're not. What we want to do is develop the right mix and the right contract portfolio, and that's where we're going to focus going forward. It comes back to as we continue to improve our overall Defense margins, we're going to provide guidance on how we see it increasing. I don't think it will be an overnight change in Defense margins. It's going to be methodical, controlled improvement in our performance based on everything I mentioned. Anthony Valentini: Okay. That's incredibly helpful. Maybe on the -- quickly on the Civil side, I think, obviously, you have no control over what's happened historically. But a few years back, there was an initiative to consolidate some facilities and some simulators. And I know that's been a huge part of your transformation strategy, and you guys are talking more about that today, and it sounds like it's going to become more efficient. But how do investors get confidence around this not being something that is like cyclical, a part of this business that will need to happen every few years and get comfortable that like this is the last time that they're going to have to go through this type of thing. Like is there anything that you guys have learned as you were going through and identifying that you think you can make this kind of be the last time? Matthew Bromberg: I appreciate the question. I can't focus or comment on what happened previously, but I can tell you what we're doing today. What we're doing today is sizing the market for today's demand. That's important. What we're doing today is we're going to be disciplined about putting new sims in place. It's going to reduce our CapEx. It's going to reduce the growth of the network, and we're going to sweat the assets. We're going to utilize them. That requires a completely different operating model, a different cadence and different KPIs and all that is being deployed. And so the final thing I'll say is that's why we increased the threshold for capital approvals to make sure that I see them so we can control the outflow. So there's many elements to how we're going to control and monitor this. And that's the elements that we put in place that we've talked about. So I'm not going to speak to the past. I tell you where we are and where we're going, and we're going to control it. We're going to be disciplined. Operator: This concludes question-and-answer session. Matthew Bromberg: Yes. Thank you, operator. I see we've overrun here a bit. I want to thank all of the participants today for joining us and for their questions. And I'll remind you that later today, a transcript of today's call, including the Q&A session, will be made available on CAE's website. Thanks very much. Have a good day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning. My name is Sylvie, and I will be your conference operator today. Welcome to Interfor Corporation's Fourth Quarter 2025 Results Conference Call. [Operator Instructions] During this conference call Interfor's representatives may make forward-looking statements within the meaning of applicable securities laws. Additional information regarding the risks, uncertainties and assumptions of such statements can be found in Interfor's most recent press release and MD&A. And I would like to turn the call over to Mr. Ian Fillinger, Interfor's President and CEO. Mr. Fillinger, you please go ahead. Ian Fillinger: Thank you, operator, and thank you, everyone, for joining us this morning. With me on the call, I have Mike Mackay, our Executive Vice President and Chief Financial Officer; and Bart Bender, our Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of 2025 and then pass the call to Mike and Bart to cover off Q4 and the outlook. 2025 was another year marked by historically weak lumber prices and significant market volatility. Yet we continue to execute with discipline and strengthen the company in several important ways. I thought a few notables were worth mentioning. We took steps to reinforce liquidity and extend our financial runway, which Mike will speak more to. We also took decisive portfolio actions, adjusting operating postures at several mills and permanently closing 2 high-cost facilities in the U.S. South, which were indefinitely curtailed in 2024, ensuring our production profile is better aligned with demand. Across the platform working capital performance remained a highlight, logistics and lumber inventories were reduced significantly, a meaningful achievement in a down cycle. We advanced the final phase of our Thomaston mill in Georgia with commissioning of the new sawmill expected in early March. We anticipate this asset will be a top decile performer and a key contributor to our long-term cost structure. And importantly, employee turnover continued to improve, reflecting the work our teams are doing on engagement and retention. 2026 will be hard to predict. However, we're well positioned to deal with uncertainty. We've implemented clear, measurable balance sheet guardrails to ensure resilience through the cycle and a commitment to directing free cash flow toward debt reduction targets. We also defined cost structure targets benchmark to trough cycle pricing, ensuring that further price weakness can be absorbed without eroding liquidity, and that we can continue to create long-term value even in constrained markets. Till we have more clarity on the economic impacts of political developments in both the U.S. and Canada, we remain prudent in our approach to capital allocation. Our foundations are strong. Our footprint is diversified, and we continue to see opportunities to improve the business without large capital commitments. With that, I'll now turn the call over to Mike to walk through the quarter in more detail. Mike Mackay: Thanks, Ian, and good morning, everyone. I'll begin by providing comments on the fourth quarter earnings, followed by an overview of our recent balance sheet initiatives and then end with some guidance on go-forward capital allocation priorities. . From an earnings standpoint, Interfor posted negative $29 million of adjusted EBITDA in the fourth quarter. These results reflected weak lumber market conditions, ongoing trade measures and production curtailments across the platform. Nevertheless, our results in the fourth quarter were an improvement compared to the negative $36 million of adjusted EBITDA we posted in the third quarter after normalizing for the large noncash duty expenses that impacted that period. The sequential improvement was driven by several offsetting factors. From a sales perspective, realized selling prices were weaker on average due to slightly lower market pricing in most regions as well as a full quarter of higher countervailing antidumping duties as well as the introduction of a 10% Section 232 tariff in October. From a cost perspective, however, production cost per unit improved by 4%, as higher conversion costs as a result of our downtime were more than offset by positive inventory valuation adjustments as lumber prices began to improve towards the end of the year. Despite the negative adjusted EBITDA, cash flow from operations was breakeven for the quarter due to a notable recovery of working capital driven by reduced inventories and lower receivables. Notably, looking back over the last 3 years of this prolonged market downturn, cash flow from operations has been positive in each of 2023, 2024 and 2025, totaling just over $300 million over that 3-year period, even amidst the very weak lumber market conditions. This reflects focused efforts on working capital management, as Ian alluded to, tax recoveries and ongoing initiatives to improve our cost structure and optimize the operating platform. Turning now to the balance sheet. While admittedly, our leverage is not where we'd like it to be at this point in the cycle, we continue to take proactive actions to help us weather the storm of the current volatile markets. During and subsequent to the quarter, we completed a series of complementary financing transactions, including our previously announced equity raise as well as several new net debt-neutral refinancing initiatives. Taken together, these initiatives bolster our liquidity, effectively clear out our debt maturity runway for 2026 and 2027 and provide us both the time and flexibility to make the appropriate operating decisions if necessary. At the end of the year, our net debt to capitalization ratio was 36.5%, and we had pro forma available liquidity of $482 million. This level, combined with anticipated divestiture proceeds over the next year or so, will provide significant financial flexibility to navigate ongoing volatility. These divestitures include the ongoing sale of our B.C. Coast forest tenures as well as anticipated sale of real estate at our former Summerville and Meldrim facilities in the U.S. South. Turning lastly to capital allocation. Following the completion of several major capital investments in recent years, culminating with the completion of our Thomason project in Q1, we're continuing to anticipate lower spending going forward. Total capital spend for 2026 is expected to be between $75 million to $80 million and preliminary estimates for 2027 are expected to be in the range of around $60 million, focused almost entirely on maintenance. In terms of capital allocation, as Ian alluded to, any free cash flow will be directed solely towards leverage reduction. The timing to reduce this leverage will ultimately depend on lumber prices and market conditions. However, our priority in the near term remains simple and clear. We're encouraged by some early signs of improvement in the lumber markets in recent weeks, though our planning assumptions remain conservative. With that, I'll now turn the call to Bart to provide some commentary on the markets. Barton Bender: Okay. Thanks, Mike. Good morning, everyone. As we look ahead to 2026, the economic environment remains uncertain. Trade and geopolitical developments continue to introduce incremental risk could slow both interest rate easing and broader economic activity. That said, the U.S. economy continues to show resilience around growth and employment. Current expectations suggest that meaningful interest rate easing could shift to later in 2026. From a housing perspective, affordability continues to be challenged. Mortgage rates are expected to remain at or near levels at least in the first part of 2026. Repair and Remodel largely influenced by home purchases is expected to remain relatively flat at the current levels. Turning to supply. We're beginning to see the impact of production curtailments across the industry. Some curtailments are formally announced, many are not. One useful indicator is shipments of Canadian lumber into the U.S. markets. Over the last 6 months, shipments annualized to approximately 8.5 billion board feet compared to just over 10 billion in 2025 and 11.5 billion board feet in 2024; that's a material drop in supply. And that, when you couple that with the curtailments in the U.S., altogether, these reductions are starting to balance the lumber markets. Market activity suggested destocking was taking place with our customers for the back half of 2025 as really there was no incentive to carry any extra inventory in the marketplace. This would mean that mills were not seeing true levels of demand, which given supply reduction should be interesting, as we enter the seasonally higher lumber consumption months of spring. Logistics has been relatively stable. However, the recent winter is impacting service levels and causing some delay in shipments. We expect that demand for lumber was also impacted during these weather events. As always, Interfor will continue to monitor our customers' needs and adjust our production levels accordingly. With that, I'll turn it back over to you, Ian. Ian Fillinger: Thanks, Mark. Operator, we're ready to take any questions. Operator: Thank you, sir. [Operator Instructions] First question will be from Matthew McKellar at RBC Capital Markets. Matthew McKellar: Just wanted to follow up on Bart's comments about some delays in shipments. It sounds like logistics were kind of stable before that. How significant is the disruption you're seeing today? And you gave a sense that things can normalize fairly quickly? Or do you expect some tightness there for some time to come? Barton Bender: Yes. It's not at a prolonged situation. I think the winter weather that you saw kick in into some unusual places and also the usual places in the North have caused some railcar delays and some truck delays, which will impact shipments, but those will clear out in a couple of weeks, 3 weeks. So I'm not expecting anything prolonged. Matthew McKellar: And then you seem to take quite a bit of downtime in the Pacific Northwest in Q4. Have you been able to restore your operating stance in that region to start 2026 with how prices have trended? Ian Fillinger: Yes, Matt, Ian here. Thanks for the question. We are adding incremental hours in the Pacific Northwest right now. And the way we do that is obviously, you look at the pricing that's available to those operations, build the order file that's cash positive over a multi-week period and then slowly bring hours into the operation. So I would say it's a very conservative risk adverse adding of hours that really it depends on pricing, demand and order file. So there is -- there are hours that are increasing slightly but not at a rapid pace at this point. Operator: Next question will be from Ketan Mamtora at RBC Capital Markets. Ketan Mamtora: Ian, Bart, maybe to start with, can you give us some perspective of what your channel inventories are at the moment? And what is your sense of inventories in the channel at the moment? Barton Bender: Yes. Thanks, Ketan. Yes, as far as our view of the dealer and distribution channels across our lines, they appear to be on the lean side with some recent volatility, making it a bit harder to decipher. But there seems to be little willingness to build any inventory as Bart had alluded to, just given market uncertainty at this time. So I would -- that would be our best view at this point, Ketan. Ketan Mamtora: And then your inventories, Ian? Ian Fillinger: Yes. We're comfortable with our inventories. We've got them very lean and we're running the operations relative to the sales price and the demand on the order file. So yes, very good and comfortable position in the inventory. There's no access around any kind of materiality in any one of our regions across the company. So very, very tight at this point. But appropriate given where the market is at. Ketan Mamtora: Got it. And then as we think about the first quarter, Ian, how should we think about your production in the first quarter? I know in Q4, you all had talked about 250 million board feet of sort of curtailments. Is there a way to think about Q1? Ian Fillinger: Yes. I would guide to the early part of Q1 here is some small incremental hours particularly in the South and the Pacific Northwest that are happening now. But Ketan, going out further, we're just -- we're reviewing it on a week-to-week basis and just making sure that we're not adding hours and building inventory. So it's really got to have the right price and the right order file in front of it. So incrementally, hours are up a bit for the first part of Q1 to be determined for the last part here. Ketan Mamtora: And then just last question... Ian Fillinger: Very cautious right now. Ketan Mamtora: Understood. That's helpful. And then just last one for me. On the balance sheet side, do you think everything that you had to do kind of to get into a position where you think that, that's comfortable for you? Do you think that's behind you are there other options that you all are considering? You've got duty deposits. Is that an option to kind of monetize? Mike Mackay: Mike here. I think the moves we made here in the last quarter, including the equity raise have been very meaningful is how we think about them, really cleared out the maturity runway in the next few years, in our view, in terms of flexibility and in terms of whatever market conditions come our way. So I think in a large part, it's been completed. I would say they were proactive moves on our part to get ahead of it and anticipate the downside scenarios. . Duties wise, I think with all the ongoing uncertainty around this file and moving pieces politically, it's probably lower down the list of things to consider, but do feel the other moves we made have really moved the dial substantially here. Ketan Mamtora: Fair enough. That's very helpful. I'll jump back in the queue. Good luck. Operator: [Operator Instructions] Next question will be from Sean Steuart at TD Cowen. Sean Steuart: Mike, I want to follow up on the balance sheet. On the debt side, you did a lot of -- made a lot of progress this quarter. You're getting amendments from creditors on the covenant calculations. I guess what I'm trying to square up here is beyond the minimum liquidity requirement, can you give some context on concessions you guys are giving with -- to get those amendments? And I'm thinking in terms of any incremental increase in your overall borrowing costs? Are there any sensitivities around that you can give us? Mike Mackay: Yes. Sean, good question. I would say, as I addressed on the last question. This is really proactive measures on our side. There would be -- our new notes are obviously priced a little higher than our existing structure. But overall, if you look at our interest costs, they're in the 6.5% range. So there would be some incremental borrowing costs that come with this, but nothing too meaningful in a couple of million dollar range type of thing, Sean. So I wouldn't say there's concessions, the equity raise I would say, went a long way for our lenders in terms of showing we're willing to do to help ourselves. And so I think that was all part and parcel with this package. Our new issuance on debt is really looking at funding some maturities that are coming our way. So we have some of it fall off as we go ahead here under the normal course. Sean Steuart: Okay. It's encouraging to see that progress. Can you give us a sense, Mike or Ian, the cadence of the asset sales, both the tenures and the idle sawmill sites. The cadence of those proceeds and overall magnitude that you're targeting? Mike Mackay: Yes, I'll take that one, Sean. So for the B.C. Coast, I think our guidance previously was in around $30 million to $35 million, that still stands. I think we've always said on this file, it's timing that's a little more uncertain. But I think for planning purposes, that's really a fair number to look at over the next 12 to 18 months. The asset sales, a little more hesitant to give some guidance there. We're in an active marketing process right now. I would say it's meaningful, though. So order of magnitude in and around the same as the B.C. Coast, but I don't want to get too much more specific, those properties are in attractive geographic areas in growing cities and so pretty meaningful real estate divestiture proceeds. Also, 12 to 18 months will probably be a decent guidance for that, Sean. Sean Steuart: Okay. One last question. Ian, you touched on the following -- or the lower labor turnover, presumably you're referring to the U.S. South there, can you put some numbers around that, that I know that's been a challenge for the industry for the last several years, but any numbers you can put around changes in that turnover rate? Ian Fillinger: Yes, Sean, it has been. And it has been 2 years in a row where we've reduced our turnover rates, particularly in the South as the focus mills that we've identified as the mills that needed the most help to make progress on that. But Overall, in the South, I believe it's around 3% or something improvement. But in some of the focus mills were there were higher turnover rates, those are in double-digit percentage improvements through the retentionary initiatives that we put in place. So yes, really good progress by our operating and HR teams to address that. Well, obviously, lots of work still to do, but 2 years of trending in the right way has been encouraging. Operator: [Operator Instructions] And at this time, Mr. Fillinger, we have no other questions registered. Please proceed. Ian Fillinger: Okay. Thank you, operator. As always, Mike, Bart and I are available to respond to any further questions as is Bryan Fast, our Director of Investor Relations. Thank you, everybody, for attending, and look forward to talking to you next quarter. Have a great day. Operator: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Good morning, and welcome to H&R Real Estate Investment Trust's 2025 Fourth Quarter Earnings Conference Call. Before beginning the H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections and the remarks that follow may contain forward-looking information which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information and the material factors or assumptions that may have been applied in making such statements, together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on H&R's website at www.sedarplus.com. I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter. Thomas Hofstedter: Thank you, operator. Good morning, everyone. With me today are Larry Froom, our CFO; and Emily Watson, COO of Lantower. We'll jump right into it, and I'll hand it over to Larry. Larry Froom: Thank you, Tom, and good morning, everyone. Overall, given the headwinds we faced with multifamily supply concerns, a weak office market, the tariff war creating general market uncertainty and a weaker Canadian economy, we are very pleased with our results and in particular, the 1.6% growth in same-property net operating income on a cash basis for the year ended December 31, 2025, compared to the same period last year. FFO for the year ended December 31, 2025, was $1.21 per unit a 1.4% increase over the $1.20 for the year ended December 31, 2024, a great result considering the headwinds I just mentioned, and the fact that we have property sales of approximately $527 million over the 2-year period from January 1, 2024, to December 31, 2025. Breaking down our same-property net operating income on a cash basis between the segments: Residential segment was up 1.1% for Q4 2025 compared to Q4 2024 and was up 1.2% for the 2025 year over the 2024 full year. Emily will provide more details on Lantower's results shortly. Our Office segment, same property net operating income on a cash basis increased 1.5% for both Q4 2025 compared to Q4 2024, and for the year 2025 over the 2024 year. Our office occupancy at December 31, 2025, was 96% with an average remaining lease term of 5.2 years. We expect vacancy to increase in 2026 with RBC's lease of approximately 189,000 square feet at 330 Front Street, maturing on December 31, 2025. We are in negotiations with several prospective tenants for part of the space. Our office portfolio at December 31, 2025, consisted of 15 properties. Four of these properties were classified as held for sale at December 31, 2025. Two of which were sold in January 2026. Hess Tower is expected to be sold at the end of this month and 25 Shepherd is expected to be sold in the second half of 2026. After the sale of these 4 properties, the pro forma office segment will comprise 12% of our total real estate assets. Retail segment same-property net operating income on a cash basis increased 4.4% for Q4 2025 compared to Q4 2024 and was up 7% for the 2025 year compared to 2024 due to occupancy gains at River Landing and ForEx. Our net investment in ECHO and 23 Canadian retail properties were sold in January 2026, and we are expecting to sell the remaining 3 Canadian retail properties in March of this year. The only remaining retail assets will be the commercial component of River Landing and is expected to comprise 4% of our total real estate assets. Industrial segment same-property net operating income decreased 9% for Q4 2025 compared to Q4 2024 and decreased 3.7% for the 2025 year over the 2024 year. Industrial occupancy decreased from 98.9% at December 31, 2024, to 90.7% at December 31, 2025. Our 3 industrial developments totaling approximately 360,000 square feet at H&R's ownership share have all been leased. Two of the leases totaling approximately 204,000 square feet will commence in Q1 2026 and the third will commence in Q4 of 2026. Our FFO and AFFO payout ratios were a healthy 50% and 60%, respectively, for the year ended December 31, 2025. The proceeds received from the sales announced to date have been used to repay debt. Our pro forma debt to total assets at the REIT proportionate share are expected to be 41.8%, and the pro forma debt to EBITDA is expected to be 8.7x coverage. With that, I will turn the call over to Emily for an update on the Lantower Residential segment. Emily? Emily Watson: Thank you, Larry, and thanks to all of you for joining us. I'll begin with an overview of our fourth quarter performance in the operating environment across our multifamily platform before turning to market trends, development progress and operational strategy. However, I want to start by stepping back for a moment because the fourth quarter marked an important inflection point not just for Lantower, but for the multifamily sector more broadly. 2025 did not unfold like a typical year due to elevated supply causing slower momentum and softer job growth further depressing pricing power across many Sunbelt markets. That context matters because it frames how we think about our -- both our fourth quarter results and the setup for the years ahead. Against that backdrop, our portfolio performed as expected and in several respects, better than we anticipated. Collections remained strong and resident retention remained high, while new lease pricing remained pressured in certain markets, renewal performance continued to provide stability supported by a resident base that remains employed and financially healthy. Wage growth continues to track over 3% and our average rent-to-income ratios remain near 20%, reinforcing affordability and supporting consistent renewal behavior. Importantly, fewer than 10% of our move-outs during the year were tied to home purchases, the lowest level we've seen historically, underscoring the structural affordability advantage of renting in our market. What materially changed as we exited the year was not demand. It was supply. After several years of outsized deliveries, new competitive supply is now declining meaningfully, with forecast indicating a reduction of 36% in 2026 compared with 2025. With that shift, while that shift did not immediately translate into pricing power in the fourth quarter, it did begin to stabilize fundamentals beneath the surface. Same-property NOI from residential properties in U.S. dollars increased 1.1% on a cash basis for the 3 months ending December 31, 2025, primarily due to lower property operating costs, including repairs and maintenance, insurance and bad debt expense. This was partially offset by a decrease in rental income at H&R Sunbelt properties, primarily due to a decrease in occupancy. Same asset occupancy ended the quarter at 92.8%, a decrease of 2.2% from the prior year and down 1.8% from Q3. Sunbelt blended lease trade-outs were negative 3.2% in Q4, an improvement of 30 basis points over Q3 and a 280 basis point improvement over Q4 2024. New lease trade-outs in Q4 were negative 12.4% and renewal lease rates increased 4%. January blended trade-outs for the Sunbelt were negative 3.6%, a 70 basis point improvement over January of 2025. Our Sunbelt portfolio fair market value is supported by a third-party appraisal and recent market transactions, thereby maintaining a weighted capitalization rate of 4.9%. This level remains consistent with Q3 and reflects ongoing institutional confidence in the sector due to compelling long-term fundamentals, including robust population and employment growth, business-friendly environments, and durable migration patterns that underpin lasting value creation. Turning to development. Our new Dallas assets continue to progress well. Lantower West Love is 90% occupied and Lantower Midtown is 84% occupied on track to stabilize in early Q2. Both communities are outperforming competitive market absorption averaging 21 leases per month versus industry standards of roughly 12 per month since initial move-in. Each was completed on time and on budget, underscoring the discipline of our development execution. Our REDT Projects remain on budget. We are on schedule to receive first move-ins at Lantower Bayside in Tampa in March of 2026 and first move-ins at Lantower Sunrise in Orlando in April with completion expected mid-2026 for both assets. In addition, Lantower currently has 9 Sunbelt developments in the pipeline totaling approximately 2,900 suites at H&R's ownership interest. Multiple sites are fully permitted and ready for construction, and we are advancing design, drawing and permitting on the remainder. These projects reflect our conviction in the long-term growth of our Sunbelt markets and our ability to capitalize on favorable land positions as construction costs stabilize. As we look ahead, we took an important step to position the portfolio for its next phase of growth. Beginning April 1, 2026, we will transition to a third-party property management model through partnering with Greystar. This evolution reflects our focus on improving operating leverage, reducing fixed overhead and increasing strategic flexibility across the residential platform. By externalizing day-to-day property management, we retain continuity at the property level with the majority of our on-site associates expected to transition while enabling the platform to scale more efficiently. This structure allows us to pursue additional multifamily investments in additional high-growth Sunbelt markets without incurring the cost and complexity of expanding a property management organization. We will retain a focused internal team dedicated to asset management, development and strategic oversight, ensuring continuity of leadership, investment discipline and long-term value creation. In closing, our fourth quarter results reflect a portfolio that remains fundamentally found in an environment that has been anything but typical. While near-term pricing pressure persist in certain markets, the structural setup for multifamily housing is improving. Supply is moderating, affordability remains compelling and resident behavior continues to support stable occupancy and cash flow. Combined with a more scalable operating model and disciplined capital allocation, we believe Lantower is well positioned to navigate the next phase of the cycle and deliver durable value creation over time. Finally, I want to thank our Lantower team for their focus, adaptability and commitment through a challenging year and their continued commitment to the Lantower portfolio success. And with that, I'll turn the call back to Tom. Thomas Hofstedter: Thanks, Emily. Operator, you can open up the call for questions, please. Operator: [Operator Instructions] The first question comes from Sam Damiani at TD Cowen. Sam Damiani: Good morning, everyone. Tom, there hasn't been any new disposition signings or announcements since last November. Just wondering if you could comment on the efforts, the initiatives and why it's been quiet on that front now for 3 months? Thomas Hofstedter: No special reasons, just seasonality. End of the year, we did a lot. Christmas time comes, the market slow in December, January, as you know, it's currently February. So I know it's your favorite question. We're not jumping on to do sales just for the sake of doing sales. We will expect to -- we have on the market some assets that are there now that are going on now. We expect to realize some sales out of Caledon. The government has to take the land for the 413 Highway expansion. We expect to hear some news on 26 Wellington that was going in the market, 25 Sheppard, we expect to hear some news. The deals just take time, nothing unusual. We're still proceeding with selling our -- the properties that we circled, and we are totally optimistic that we'll get to the finish line. Sam Damiani: Okay. And then just on the 310 to 330 Front, I think that asset was in discussions for sale last November, the tenant in one building is obviously vacated. Is that no longer under active discussion for disposition? Thomas Hofstedter: It's no longer under active discussion. We decided to go ahead and the office market has gotten better. We have a large chunk of contiguous space of basically full building that very few or nobody in the market downtown has. So we're optimistic on our ability to lease that out sometime this year. And at that point in time, after we successfully stabilize the property, we'll probably be looking to sell it. Our game plan hasn't changed at all. Maybe we circled have moved around by a few months. But at the end of the day, in a year from now, we totally expect to have our industrial division, our Lantower division probably our Calgary, [ Bow and DC ] assets. And for the most part, we sold most of those remaining assets probably by the end of the year. Sam Damiani: Okay. Last one for me. Just on the fair value reductions in Long Island City. Like have you seen market transactions that have prompted you to go through the process to test those values and record those big fair value losses in Q4? Thomas Hofstedter: Well, It's -- when you have an asset like that where the -- which... Sam Damiani: Jackson Park and mostly... Thomas Hofstedter: So the Jackson Park, we had an appraisal -- third-party appraisal, which I was very, very verbal on and vocal on that I didn't agree with. We had reluctance from -- previously from the auditors to write down something where we had a third-party appraisal. Subsequent to that, we've now achieved our own third-party appraisal, even though we have an appraisal at a higher amount from our partner, Tishman, and we elected to bring it down to where we feel the value always was. It was more or less an accounting issue where the auditors didn't allow us to bring it down to where we thought the value was, not that the value has changed. Operator: [Operator Instructions] And the next question comes from Jimmy Shan at RBC Capital Markets. Khing Shan: So maybe just to start off on Lantower for Q4. I did notice there was a -- the NOI increased a decent amount from Q3. I was kind of wondering what was behind that quarter-over-quarter growth? Emily Watson: Mostly seasonality had a lot to do with the Q4. We had some true-ups in our real estate taxes that gave us some lift in the Sunbelt and an extra payroll in Q3 that we don't have in Q4, just kind of the timing of those things. And then Jackson Park has some seasonality as well from their leasing velocity that they typically have in the August -- June to August in Q3. So really not anything different. It's just mainly driven by the seasonality and some real estate trips. And partly, we won several appeals that also had some -- we budget for what the consultants tell us kind of what the -- where they think and they just came in a little bit better than what we had anticipated. So some true-ups in Q4. Larry Froom: I'll just add to what -- sorry, Jimmy, just to what Emily is saying. I think in U.S. dollars, the same-store assets increased by $3.2 million Q4 over Q3. So as Emily is saying about half of that is due to the Sunbelt and about half of it is due to Jackson Park. What Emily was referring to the realty taxes and some amendments. The reason it's not in our MD&A is because we had the same kind of value in Q4 of 2024. So -- but Q4 over Q3, you see that pick up. And then of course, there's ForEx that's just adding to that difference of the $3.2 million. Plus overall, just something that's not same asset in the whole residential is Midtown and West Love of ramping up occupancy are now starting to contribute to NOI. And so that is also leading to an increase in overall NOI from Lantower. Khing Shan: Okay. That all makes sense. And then in terms of the decision to outsource the property management to Greystar, I guess, is the plan going forward to continue to scale the portfolio? Because intuitively, I would have thought that outsourcing it means or not remaining internal mean you can't really see a path to scale in that portfolio. Maybe what's the thinking around the decision there? Emily Watson: Yes. I would disagree with that actually. In a previous company, I had 30,000 units and outsourced to Greystar along with some others. And it really requires you to be able -- well, it allows you to be far more nimble where you want to invest. You're not tied to I have to have critical mass if you can chase returns a little bit easier to maximize. But what it really allows you to do is leverage their buying power. And that goes from everywhere -- anywhere from their pay-per-click on marketing to paint costs across the across the portfolio. So even if we got to a 30,000, 50,000 unit property -- portfolio, we're still not going to have the buying power of a company that has 1 million units. So we saw a lift when we outsourced River Landing a few years ago, and we anticipate that we'll see similar cost savings as well. And just one nugget to -- our discount on paint, for instance, is only 40% with Sherwin-Williams, whereas theirs is 85%. To really just extrapolate kind of every turn, there's buying power that will hit, but I expect every line item on our financial statement. And it will allow us to be able to be laser focused on asset management and driving results and not as people-intensive to be able to really move a little bit faster on scaling the portfolio. Khing Shan: Okay. Is the plan to scale the portfolio though, going forward? Thomas Hofstedter: The word scale is interesting. We do plan for selling some of our assets more for regional reasons from an asset management perspective, not to scale down an asset to sell assets, out more just for operation. Khing Shan: Sorry, say it again, are you going to -- you're planning to sell a few assets? Thomas Hofstedter: We are planning on selling some of the portfolio where we don't like -- where Emily and the company don't like the geography or where we don't feel comfortable with the growth. And so we will, over time, be selling some assets, trading some assets in and out. We will maybe be developing some assets. The external on property management is different in Canada than the United States. United States -- it's a very mature business. It's not extremely profitable at the management fee level versus Canada, which is much more expensive. So it's very common in the United States to farm out management fees for the reasons Emily mentioned, but also because it's relatively cheap. So we're not -- going internal doesn't save you a whole pile of money on management fees as it does in Canada, and it gives you the flexibility to sell assets without having to worry about human resources. But when I say sell assets, it's really an asset management function. It's really rotating out of cities or markets or regions that we don't see the growth in and rotating back into stronger markets. Larry Froom: And just to be clear, given our cost of capital, we're not planning on acquiring any new assets. The only assets we may acquire would be if we did a 1031 exchange replacing assets we sold. . Khing Shan: Okay. And then lastly, just on the asset sale. Tom, you had mentioned before through the $2.6 billion that you think you could potentially sell. So you've -- you're close to doing $1.5 billion. I guess there's $1.5 billion left. Is that still a good number to think about? I know there are a lot of moving parts and markets unknown, but is that still the target for 2026? Thomas Hofstedter: No. We'll see where we are by the end of the year. The target for '26 is what I mentioned beforehand. It's more -- and I can't say they're all going to get done because some of them are beyond our control such as Caledon, but we do expect Caledon [ Guyanese ] we do expect; 26 Wellington, we do expect; 25 Sheppard, we do expect Phase 1 of the Cove. I can't say which of those will actually get to the finish line or not get to the finish line, but the magnitude of those assets as you can -- and I can't tell you if Caledon is going to be buying all the lands, which could be $300 million, $350 million of value or $150 million of value. So I don't really have a handle on it because it's out of our control, but the magnitude of the land based on the assets that I just mentioned that are up for potential disposition are substantial. Khing Shan: What would be the range of value? Thomas Hofstedter: You know what? It could be as low as $500 million and easily in excess of $1 billion. Operator: We have no other questions. I will turn the call back over to Tom Hofstedter for closing comments. Thomas Hofstedter: Thank you, everybody. Have a wonderful long weekend. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.