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Operator: Good day, everyone, and welcome to the Arca Continental Fourth Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of IDEAL Advisors. Please go ahead. Melanie Carpenter: Thank you, operator. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review the results for the fourth quarter and full year of 2025. The earnings release went out this morning. It's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; the Chief Planning and Strategic Capabilities Officer, Mr. Jes�s Garc�a; and the Chief Operating Officer, Mr. Jean Claude Tissot. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release or guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo. Arturo Hernandez: Thanks, Melanie. Good morning, and thank you for joining us today to review our fourth quarter and full year 2025 results. 2025 was a complex and challenging year for our business. We faced extreme weather events, operational disruptions and a volatile macroeconomic backdrop. These factors influenced consumption patterns and weighed on traffic in several of our markets. Our teams responded with agility and discipline, delivering strong execution, sustaining profitability while continuing to invest in the long-term foundations of our business. In many respects, 2025 marked a transition year. We navigated heightened volatility while staying firmly focused on what we can control. We made meaningful progress scaling digital platforms and analytics to enhance commercial capabilities, strengthening our end-to-end supply chain and driving productivity across the organization. As a result, we closed the year with stronger fundamentals, greater operational flexibility and improved readiness to capture opportunities as conditions normalize. We are confident in the strength of our operating model and our readiness for the period ahead. Moving on to our consolidated results. For the fourth quarter, total consolidated volume declined 0.8% and for the full year, 2.1%. Consolidated revenues in the quarter were down 0.6%. For 2025, revenues increased 4.6%, supported by revenue management, effective portfolio mix and strong execution across channels. Consolidated EBITDA in the fourth quarter declined 4.5%, posting a margin of 21%. Full year consolidated EBITDA increased 3% to a record level, surpassing MXN 50 billion for the first time in the company's history, underscoring the resilience of our operating model and continued focus on profitability. Now let's review the performance of our operations. Our beverage business in Mexico ended the year on an encouraging note, delivering a gradual and sequential volume recovery in the second half, supported by our sophisticated revenue growth management capabilities, portfolio optimization and continued progress in returnable packaging initiatives. In the fourth quarter, unit case volume, excluding jug water, declined 3%, cycling exceptionally strong growth of 7.8% and 3.5% versus the same quarter in the prior 2 years. For the full year, total volume declined 3.4%, reflecting strong 2024 comps. Sparkling beverages declined 2.5% in the quarter, partially offset by outstanding sequential double-digit growth in Coca-Cola Zero. This momentum was supported by expanded coverage and affordable packages, including the 450-milliliter nonreturnable format. Remarkably, Coca-Cola Zero achieved a CAGR of 15.8% in the last 5 years. Stills increased 2.8%, led by teas, dairy, juices and nectars, driven by sustained momentum in the modern trade channel, mainly in supermarkets, which were up 6.3%. Net sales grew 1.2% in the quarter, with average price per case, excluding jug water, up 5%. For the full year, revenues rose 1%. EBITDA in the quarter increased 5.1%, reaching a margin of 23.9%. For the full year, EBITDA declined 1.7% with a 23.4% margin, supported by disciplined expense control, operational efficiencies, proactive hedging initiatives and favorable negotiations on key inputs. Looking ahead, we will continue to accelerate the deployment of digital capabilities to drive operational efficiency and improve visit frequency and effectiveness. Key initiatives include broader use of TUALI and the Suggested Order tools, along with new AI-driven inventory planning and predictive analytics to further strengthen execution. Turning to South America. Total volume during the quarter and the full year were broadly flat, reflecting softer results in Ecuador and Argentina, largely offset by growth in Peru. Total revenue declined 5.6% for the quarter, while increasing 3.1% for the full year. Fourth quarter EBITDA declined 14.9% with margins at 22.2%. On a full year basis, EBITDA increased 6.5%, reaching a margin of 19.6%. Overall, our results reflect the gradual and uneven recovery across the region with distinct dynamics by country. Taken together, the region remains on a constructive path characterized by modest growth, improving fundamentals and increasing confidence in the trajectory ahead. In Peru, our operations delivered a strong finish to the year, supported by resilient demand and solid execution across channels. Total volume in the fourth quarter was up 3%, cycling strong growth over the same quarter in each of the past 4 years. Notably, this was the highest quarterly volume since we assumed operations in 2015. Growth was broad-based across categories, led by sparkling up 1.9%, stills 1% and water at 10%. Core brands, Coca-Cola and Inca Kola delivered solid performance, with volumes up 2.7% and 3.1%, respectively. In stills, the water segment stood out, supported by double-digit expansion in brand San Luis. Sports and energy drinks also contributed, increasing 2.6% and 8.6%, respectively. Importantly, Powerade continued to build momentum following the rollout of its new formula, further enhancing its relevance within the category. For the full year, total volume increased by 0.5%, confirming a clear sequential recovery through the second half of the year. Volume growth was also supported by targeted market-focused investments. In 2025, our team in Peru installed nearly 44,000 cold drink units, reaching our highest coverage level to date. This momentum, combined with disciplined execution, drove value share gains in alcoholic ready-to-drink beverages across both sparkling and still categories. Moving on to Ecuador. Volume in our beverage business declined 5.4% in the quarter and 4.4% for the full year, reflecting a consumer environment that remains moderate, though constructive. Despite this backdrop, we sustained a solid competitive position, delivering value share gains in both sparkling and still beverages. These results were supported by affordability initiatives, particularly the expansion of returnable packages. Notably, the mix of returnables increased by 0.3 percentage points during the year. We also continued to strengthen our portfolio through innovation with the introduction of the Flashlyte brand to compete in the fast-growing rapid hydration segment. Looking ahead, we remain focused on sustaining profitability through disciplined cost management and efficiency optimization across the supply chain. Now lastly to Argentina. Fourth quarter volume declined 1%, while increasing 5.2% for the full year, supported by selective pricing and affordability initiatives with recovery led by the traditional trade. Our operation navigated this environment through strong end market execution and a continued focus on returnable packages. We also delivered value share gains in NARTD beverages, with single-serve packages gaining traction and driving a 1.1% improvement in mix during the quarter. These gains were led by a remarkable performance in the energy category, highlighted by the strong momentum of Monster. In addition, our digital agenda continues to advance with digital sales reaching 75%, supported by the rollout of our proprietary B2B platform, TUALI. Our beverage business in the United States delivered another year of strong financial and operating performance. In the fourth quarter, volumes grew 2.2% and transactions increased 3.5%, reflecting our focus on sustaining consumer engagement and driving interaction at the point of sale. For the full year, volume declined 1.2%. This quarter showed broad-based momentum across categories. Our low-calorie portfolio grew by 9% with Coca-Cola Zero up 11%, Diet Coke up 2% and Diet Zero Dr Pepper up 10%. Still beverages increased 3.7%, driven by strong performance by Monster, Fairlife and our water brands, supported by excellent holiday point-of-sale execution. Quarterly net sales rose 4.9% with average price per case up 2.8%. Full year net sales increased 3.3%. EBITDA in the quarter declined 4.3% with a margin of 17.5%. For the year, EBITDA increased 4.2% with a margin of 17.2%. This is the highest full year EBITDA margin since we acquired this operation in 2017, underscoring the strength of our operational model. Finally, we are pleased with the seamless integration of our recently acquired adjacent franchise territory in Oklahoma, which commenced operations on November 1, further strengthening our footprint and growth opportunities in the region. To conclude our review of operations, the Food & Snacks business delivered low single-digit sales growth for the full year, demonstrating strong execution despite a high single-digit decline in the fourth quarter. Disciplined pricing, portfolio optimization and operational efficiencies continue to support profitability and strengthen the position of our Food & Snacks business going forward. I will now hand it over to Emilio to discuss our financial results. Please, Emilio? Emilio Marcos Charur: Thank you, Arturo. Good morning, everyone, and thank you for joining us today to review our results. We're closing a year impacted by significant challenges not only for our business, but also for the global economy, which has faced multiple external pressures. Consistent with our historical approach, we remain focused on the factors within our control, our execution, operating discipline and effective management of costs and expenses. This sustained approach is reflected in our performance throughout the year. We delivered sequential volume improvement every quarter and achieved full year growth in both revenues and EBITDA, highlighting the solid fundamentals of our operations even in a highly complex environment. At the same time, disciplined cost and expense management enabled us to maintain our EBITDA margin within the 20% range despite the headwinds we faced. These results demonstrate our ability to manage volatility while reinforcing our business fundamentals. And they confirm that even in challenging times, disciplined execution and a clear approach enable us to deliver a solid performance. Now let me provide you with further details on our financial results. Consolidated revenues decreased 0.6% in the quarter to MXN 64.5 billion, mainly explained by the exchange rate effect given an exposure to U.S. dollar. For the full year, revenues grew 4.6% to MXN 247.9 billion, reflecting the consistent results derived from our successful RGM strategy. On a currency-neutral basis, revenues rose by 5.4% in the quarter and 3.6% for the full year period. During the quarter, SG&A expenses decreased 0.3% to MXN 20.4 billion, while the SG&A to sales ratio was fairly in line with fourth quarter '24 at 31.4%, reflecting our continued commitment to operational discipline. In the fourth quarter, consolidated EBITDA was MXN 13.5 billion, a decrease of 4.5% compared to the same period of 2024. For the full year, consolidated EBITDA rose 3% to reach MXN 50.2 billion. On a currency-neutral basis, EBITDA grew 1.3% for the quarter and 1.9% for the full year. EBITDA margin for the fourth quarter contracted by 80 basis points to 21.8%. The contraction is explained by the high comps in the U.S. and South America region in the fourth quarter of 2024 given the factors that we have disclosed in previous calls. At the same time, profitability in our Mexico business continued to improve sequentially, with the region delivering a 90-basis points margin expansion during the quarter. For the full year, EBITDA margin was 20.2%, reflecting a 30-basis points contraction. Despite the challenging environment and volume pressure, we successfully sustained margins within the 20% range, supported by our effective hedging strategy and disciplined expense control and ongoing operational initiatives to support margin stability. Now moving on to the balance sheet. As of December, cash and equivalents totaled MXN 28.6 billion, while total debt stood at MXN 62.3 billion, resulting in a net debt-to-EBITDA ratio of 0.7x, reinforcing the strength and flexibility of our balance sheet. In 2025, we distributed a total dividend of MXN 8.62 per share. This reflects a payout ratio of 75% of retained earnings and a dividend yield of 4.3%, consistent with our disciplined capital allocation approach. On February 4, we successfully completed the issuance of MXN 9,500 million in a local bond on the Mexican debt market in 2 tranches, one for MXN 6,240 million with a 7-year term at a fixed rate of 8.96%, and the other for MXN 3,260 million with a 3-year term at a variable rate equivalent to TIIE de Fondeo plus 40 basis points. With this issuance, we improved our debt structure profile. Looking ahead, we remain confident in our strategy. Our disciplined management of costs and expenses and a strong commercial and operational capabilities position us well to navigate uncertainty and continue delivering solid results. Thank you for your continued support as we remain committed on delivering sustainable long-term value. And with that, I will turn it back to Arturo. Please, Arturo. Arturo Hernandez: Thank you, Emilio. As we conclude today's call, I want to thank our exceptional team of associates. 2025 tested our execution and our teams rose to the challenge, delivering results in an environment that demanded agility, discipline and focus. This year reinforced what differentiates our model, the importance of adaptability in navigating unstable conditions across our markets and the operating leverage we continue to unlock to our digital capabilities. Even in a challenging year, we protected margins, stayed closely connected to customers and consumers and continued to strengthen the fundamentals of our business. For the full year, we anticipate consolidated revenue growth in the mid-single digits year-over-year, driven by balanced contributions from volume, pricing and mix. We will continue implementing pricing actions to at least offset inflation across our operations while remaining firmly committed to keeping our portfolio affordable and relevant for consumers. We plan to invest around 7% of total sales in capital expenditures with a disciplined focus on strengthening market execution, expanding and modernizing our production and distribution network and advancing our information technology and digital agenda. Looking ahead, we entered 2026 with better visibility and a more normalized operating environment. We also see incremental upside from major brand-building occasions, including the FIFA World Cup. With 24 matches hosted in 2 of our territories, we expect to drive incremental demand and deepen consumer engagement. 2026 also marks 2 historic moments for our company. We celebrate 100 years of Coca-Cola in Mexico, a brand that has become deeply embedded in the country's culture. This anniversary provides a powerful opportunity to reinforce local relevance, strengthen brand affinity, deepen our connection with consumers and communities, and recognize the enduring partnership that has shaped our shared success. At the same time, Arca Continental celebrates 100 years as a Coca-Cola bottler. This milestone honors a century of driving sustainable growth, continued investment, boosting the local economy and being a pillar for the communities where we operate. Most importantly, honoring the past is about preparing for the future. We entered 2026 with confidence and momentum. Profitability, efficiency and disciplined growth will continue to guide our decisions. With stronger capabilities, disciplined execution and solid fundamentals in place, we are confident in our ability to perform across business cycles and deliver sustainable value creation. Thank you for joining us today. Operator, please open the lines. We will be happy to take your questions. Operator: [Operator Instructions] We'll take our first question from Ben Theurer with Barclays. Benjamin Theurer: On Mexico, so fourth quarter profit finished clearly strong and probably a little bit stronger than what was initially expected. Could you elaborate what the drivers were towards the end of the year and how that positions you as we move into 2026, thinking broader picture around the backdrop of the adverse taxation that was put in place about a month ago. But then obviously, you've called about out the tailwinds from the World Cup, and then let's just hope for better weather. So just a little bit how we finished and how that sets us up for 2026? Arturo Hernandez: Yes. Thank you, Ben. Certainly, we're satisfied with our fourth quarter in Mexico, especially considering that we were cycling a 7% volume increase from last year. And so we had a good result, especially from the perspective of profitability. December was particularly very strong in the quarter, where we grew volume 2.1%. And we believe this validates the recovery potential of the business in Mexico, especially as we face new challenges in 2026. From the profitability standpoint, we continue balancing the pricing and affordability scenario and promoting growth across some of the priority categories in our portfolio. If you look at the categories in Mexico, Coke Zero grew more than 18%, stills grew volume, tea had spectacular growth at also 18%. Energy, juices, nectars, all those categories grew volume in the quarter. So the other thing is that we -- throughout the year, we adjusted our OpEx. We started '25 thinking that the consumer environment was going to be better than it turned out to be. So we were prepared for tailwinds throughout the year. So we had to adjust our OpEx. And at the end of the year, we were able to do that. So our margins continue to improve. And so as we face '26, we are tracking in line with expectations. We're managing the tax adjustment with our proven affordability and pricing tools. And we remain confident that we're going to be delivering a healthy performance throughout the year, especially protecting profitability. So I'm going to turn it over to Jean Claude to talk a little more about '26. Jean Claude Tissot: Yes. Thank you, Arturo. And to your point, we have prior experience with similar taxes with [ IEPS ] and the use of our tools. But something that I would like to emphasize is why we had a very good fourth quarter and that is going to be the base for 2026. But the local team and the leadership from the team in Mexico is that we are going back to basics. We are strengthening our foundation while embracing the future through our digital transformation. Going back to basics with a strong momentum with pricing and packaging as a lever to ensure competitiveness and transactions. We are expanding returnables. We are protecting entry-level packages and managing mix with a more differentiated zero sugar strategy. And we are embracing the future through our digital transformation that you saw through our digital capabilities and artificial intelligence tools with our B2B platform, TUALI. Our pricing copilot and TPO initiatives, both with an end-to-end approach with supply, with our forecasting, distribution network and warehouse automation. We worked together with the Coca-Cola Company to see the fast start in Mexico and the feedback that we received was really good. And yes, we are ready, as you are saying, for a great opportunity that we have in 2026, that is the World Cup. Operator: Our next question comes from Froylan Mendez with JPMorgan. Fernando Froylan Mendez Solther: Can you hear me well? Jean Claude Tissot: Yes. Fernando Froylan Mendez Solther: I would really appreciate if you could dig in into the guidance of next year on a country-by-country basis, obviously focusing a little bit more on Mexico. If anything has changed from your original expectations on the impact on volumes from the increased taxation and whatever extra pricing you would do for next year. So a little bit more detail on country, region-by-region basis volume, pricing outlook for next year, that would be highly appreciated. Arturo Hernandez: Sure, Froylan. Let me start by Mexico, as you requested. And the current environment, as you know, is that we're facing the price increase in line with what we anticipated. So we -- as Jean Claude explained, we're going back to basics in our operation. We're focusing on our traditional playbook, but at the same time, deploying our digital initiatives. So that will help us mitigate the impact of elasticity as we increase prices. So we've seen a constructive response from the consumer. Engagement remains very healthy across our core categories and channels. Modern trade particularly responds well to targeted promotions and competitive pricing. And the traditional trade remains resilient, especially as it is supported by digital execution in this market. So we are reinforcing affordability through returnables, entry-level packs, strengthening our execution or metrics for execution, cooler placement and as I said, leveraging digital tools, particularly our revenue management tools, pricing and promotions to fine-tune our decisions in the marketplace. These -- all these actions are helping us manage the transition very effectively and at the same time, maintain competitiveness. So we're confident that we're going to deliver on our guidance for Mexico. In the other markets, well, the U.S. has its particular challenges, but we also have the opportunity to capitalize on the World Cup, which is an extraordinary event in the year. And we're focusing on improving our execution, especially focusing on transactions and growth categories and also efficiency projects that we've been deploying in the last few months, and we're going to capitalize on those as well. In Peru, it's probably our most promising market in terms of growth -- of the growth potential. We have the opportunity to continue to win in the stills categories, which is a huge opportunity in Peru as well as the dual cola strategy within Inca Kola, which is a unique advantage that we have in that market. And if you look at the -- just the growth in coolers, we had a historic cooler placement in Peru last year, 43,000 units. We're going to continue to do that. The coverage is still quite low as compared to Mexico. And same thing in Ecuador. Ecuador faces different challenges. It's not as favorable the consumer environment, but we also have seen recovery in the last few months. In the case of Argentina, well, Argentina is recovering. As you know, we expect lower volatility, improving consumer confidence. And I would say, more predictable backdrop performance in 2026. We have reversed the negative trend we saw in the third quarter. The key in Argentina is we have competitive price points across key categories, focused on immediate consumption, single-serve and very importantly, an efficiency program to protect margins. We expect margins to recover in Argentina throughout the year. So every market has its particular challenges. There are some, I would say, basics in all of our markets, which we're going to be working on, digital deployment and the -- going back to our fundamentals or stick to our fundamentals and things we can control. So we're confident about our guidance in each of the markets. Fernando Froylan Mendez Solther: If I can follow up just quickly in Mexico. So should we still expect a low single-digit decline in volumes and still some additional pricing efforts throughout the year to reach at least inflation? And what about margins? Is this shifting to more profitable mix or higher-priced SKUs? Is that helping margins and changes anything on your margin outlook for Mexico? Arturo Hernandez: Yes. Well, we haven't seen anything in Mexico that would change our outlook and what we've mentioned before. And in terms of margins, we do anticipate -- and this was expected, we anticipate margin pressure from tax-related volume impacts and elasticity. But this will be also mitigated by volume tailwinds from major events as Jean Claude explained and digital rollouts and also the favorable comps with some unusual activity throughout 2025. So with efficiency initiatives and disciplined cost management, we're confident that we're going to be able to protect our margins throughout the year. Operator: We will move next with Felipe Ucros with Scotiabank. Felipe Ucros Nunez: So first, a quick one on IEPS. Just wondering if you can comment on whether an offset has been implemented in the market? And what type of volume evolution? If so, what type of volume evolution you've seen after the offset in the beginning months of the year? And then in second place, congrats on the M&A in the U.S. Just wondering if you can talk to us a little bit about the target and how it may impact the current operation in the U.S.? Anything you can give us in terms of size, margins and how things will change after this? Arturo Hernandez: I'll talk about Mexico, and then I'll turn it over to Chuy to talk about the M&A activity in the U.S. As I said, we haven't seen anything in Mexico that would change our view on what to expect for the year. We did have some favorable weather in the first part of the year. So it's hard to figure out how much of that will have an effect on what we're seeing in the market. Again, we are approaching the situation with the same discipline and the same playbook that has proven effective in previous cycles. So we have the experience of dealing with situations like this one. So we -- I think we have -- we're able to predict better and also to execute better. What are we doing is maintaining competitiveness through the best price pack architecture for the current situation. We are protecting our consumer affordability with returnable packages and very strategic price points. When this happens, you have the opportunity to kind of realign your price pack curves and architecture to promote the price points and the SKUs that are more favorable. And also, we're leveraging our tools, basically, pricing and promotional tools that also have proven very effective, and that is certainly an improvement as compared to 12 years ago when we faced similar a situation. So we do expect the volume decline derived from the tax in '26. But there are, as we've said, strong tailwinds that will be also mitigating that impact. So we haven't seen anything that would change our view in that regard. So we are going to be consistent with the playbook. And with that, I'll turn it over to Chuy. Jesús García Chapa: Thank you, Arturo, and thank you, Felipe, for your question. Our most recent transaction, the acquisition of Idabel Coca-Cola Bottling in Oklahoma in December of last year, reflects how we approach consolidation, adjacent territories, clear strategic fit and real opportunities to generate synergies. Idabel is a long-established small Coca-Cola bottler operating since 1911 with strong ties to its local community and previously owned by the Fulmer family. It is located next to our existing footprint, and it does not have a production facility as it was supplied by Coca-Cola Southwest Beverages as well as other nearby bottlers. This obviously makes integration simpler, and it lowers execution risk. Idabel also distributes Dr Pepper and Monster brands, which strengthens the overall commercial opportunity with our partners. I will summarize this as deals like this are representative of the type of consolidation we favor. They're focused, value-accretive and operationally aligned. So we're really excited to be serving a new set of clients and customers for Coca-Cola Southwest Beverages. Arturo Hernandez: So this is the natural thing that we think will be happening in the next few years in the U.S. marketplace. Operator: We will move next with Rodrigo Alcantara with UBS. Rodrigo Alcantara: Congratulations on the results. Also to Jean Claude for the appointment as COO. My question is precisely in the U.S., Jean Claude. Maybe to understand better, I mean precisely this playbook that is allowing you to deliver that volume growth in not necessarily such a friendly consumer environment in Southeastern region -- the South region in the U.S., right? I mean we have all these of this context right of the Spanish population. In addition to that we have the upcoming cups -- World Cup to the [ SNAP ]. So you already spoke very clearly about the tailwinds, right, that could lift your bonds like the World Cup, right? But it would be nice to understand precisely the playbook that is allowing you to navigate this challenging factor in the U.S. That will be my question. Jean Claude Tissot: Thank you, Rodrigo for the questions. And yes, obviously, I am biased and excited to talk about U.S. performance. Yes, we had a very good year. As you know, we won the Candler Cup in 2025. And the question is, why the good results. We are -- we have confidence in North America outlook. As you're saying, we finished with positive momentum. And even though we had the challenge of some fake news during the year, but recovering volume, share and transactions. Why? Something that we have been sharing with you that has been a priority in the U.S., the culture. The culture that we have with our frontline heroes on how we are working together with the Coca-Cola system, the Coca-Cola Company and the other bottlers. But also, we have been implementing what we have been sharing that we are doing in the rest of our countries. A simple formula that is going back to the basics, strengthening our foundation while embracing the future through digital transformation. Going back to the basics in the U.S. has been a focus on all 3 channels with a focus on solid fill rate and growing transactions. And in terms of the digital transformation has been our myCoke.com implementation that is like TUALI in Latin America. Also the tools that we are providing to our commercial teams that they have the information by store to see our execution and performance, working together with our customers, but with that end-to-end approach between supply and commercial, connecting the dots between those 2 areas. Then three pillars: culture, going back to the basics and the fundamentals of our business, and the digital transformation that we have been implementing together with our Digital Nest. Arturo Hernandez: So I think that Rodrigo, this is -- the U.S. for us is a story, not about what we're going to do in '26, but throughout the years, it's consistent, high-quality customer-focused execution. And that is based, as Jean Claude said, on a strong culture that has been transformed. Just -- and we don't talk about these metrics usually in some of these meetings, but when we came to the U.S., engagement score was in the 60s, and last year, it's in the high 80s with all of our associates. So this is the culture that we're talking about. So we think this delivers consistent results throughout the years, aside from particular things that we're going to have as headwinds or tailwinds throughout '26. Rodrigo Alcantara: Thank you, Arturo. Indeed very consistent results. Congrats. Arturo Hernandez: Thank you, Rodrigo. Jean Claude Tissot: Thank you, Rodrigo. Operator: We will move next with Alejandro Fuchs with Itau. Alejandro Fuchs: Congratulations on the results and also on the 100 years of Arca this year, pretty impressive milestone. I have just one very quick question for Emilio. I think the rest of the questions have been answered already. But for Emilio, there was a big net financial expense this quarter of almost MXN 2 billion. I was to see -- was there anything unusual this quarter there that explain a little bit of a higher financial expense? Or is this the level that we should expect going forward, especially for 2026. I think if you could provide some color there, that would be very helpful. Emilio Marcos Charur: Thank you, Alejandro. Yes, we're celebrating 100 years of being a franchise in Mexico. Thank you for your comment. Yes. Well, the main variation on the net interest expense is basically 2 reasons. One is the increase in the financial expenses, explained by a higher interest payment that we have since we have new debt in Mexico of around MXN 15,000 million associated with CapEx and the M&A activity that we had last year. And the second one is the decrease in financial income since interest rates were lower than last year and also, we had a lower cash position basically in Mexico and U.S. So what you're seeing on the financials is the net of expenses and income. So at the end, I think the short answer is higher debt in Mexico and U.S. Operator: We will move next with Fernando Olvera with Bank of America. Fernando Olvera Espinosa de los Monteros: It's a follow-up regarding the acquisition in the U.S. and I would like to hear your thoughts of what changed versus previous years that motivated this franchise to sell its business? And how can this cause other franchises to again, to be motivated to sell their business in the future? Arturo Hernandez: Well, we don't really know exactly what motivated them. We have been having conversations with the owners of the franchise for some months or maybe a couple of years. But I think at the end of the day, what we have to realize is that this is kind of the logical thing to happen as the business of Coke franchises becomes more a business of scale. If you think about this business throughout time, probably 30, 40 years ago, owning a Coke franchise, scale was not really the name of the game because you had a very local operation. You had kind of a obviously, most favored nation treatment by Coca-Cola. And you didn't require the sophisticated capabilities that you require now or you didn't have the large accounts. Now it's different. And one of the things that's changing is, particularly as we move into digital conversations with customers that we need to have, as I said, more modern tools for a lot of the commercial core processes, it makes sense to have more scale in the operation. It's not -- that's not specifically the reason in this case, but what it creates is the opportunity to share the value that will be created through consolidation. So that's why I've been arguing that consolidation is a positive thing for everybody in the system and Coca-Cola Company also believes that. And I think that is a trend that will continue. Exactly when that is going to happen, it's hard to predict because it depends on very personal decisions by franchise owners. But again, it's -- I think it's the logical thing to happen in the future. Operator: We will move next with Alvaro Garcia with BTG. Alvaro Garcia: Two on my side. One on the cost outlook for '26. We still saw some gross margin pressure, which I think probably had to do with the U.S. in this fourth quarter, but into '26. I was wondering if -- I mean if you can give some color on sort of key raw materials and what you're seeing in the context of obviously a pretty important affordability strategy in Mexico. And then my second question is on snacks. You mentioned this high single-digit decline in the fourth quarter. So any sort of update on sort of how you're thinking about allocating capital to this business strategically would be helpful. Arturo Hernandez: Sure, Alvaro. Let me turn it over to Emilio. Just mentioning first that as we look at margins going forward, I mentioned the challenges and opportunities we have in our operations, particularly in the case of volume in '26. We are confident about our pricing strategy. We're going to be consistent with what we've said and especially as we improve our tools for pricing and promotions. The raw material environment, Emilio can expand on that and a very strong focus on OpEx efficiency throughout '26. So Emilio, please. Emilio Marcos Charur: Thank you, Arturo, and thank you, Alvaro, for your question. Well, I would like to mention that despite the macroeconomic volatility, most of our key raw materials continued to show stable trends during the fourth quarter, and we expect that stability to continue this year. I would say that with the exception of -- for aluminum. Aluminum prices continue to rise, especially MWP component. So for that reason, we have fully hedged our LME, which is the other component of aluminum. So we have hedged 100% of our needs in Mexico and 97% of our needs in U.S. for LME, and both at a higher price than last year but lower than the current spot prices. So we are in a better position compared with the market as of today. In addition, we hedged 50% of our MWP requirements in the U.S. also above last year prices but below the current market prices. We have also covered 90% of our sugar needs in Peru at levels below 2025. So we are better than last year here. And 71% of our high fructose needs in Mexico in line with inflation and 43% in U.S. at the same levels of 2025. So as you can see, we are basically very well on the hedges with the exception of aluminum basically in U.S. Arturo Hernandez: With respect to snacks, well, the fourth quarter, we had a mixed performance in our snacks operations, some net sales declining in some markets like Mexico, U.S. and growing in Ecuador. And this reflects a varied market dynamics by country. So in some countries, we have more synergies. Your question was about snacks business, just confirming? Alvaro Garcia: Yes, it was about sort of how you're thinking about the business longer term, sort of how you think about... Arturo Hernandez: So yes, this -- we don't allocate a disproportionate amount of capital in this business, and we constantly evaluate strategic opportunities to strengthen the business and maximize volume. Let me tell you that we do regularly assess this business in our portfolio, including the U.S. Snacks division. And this is part of our commitment to long-term growth. As I said, in some cases, we have stronger synergies as in Ecuador. In other cases, it's not the same. And also the business is not connected to our beverage operation. It's quite independent. So we are very flexible to make decisions about this business in the future. Operator: Our next question comes from Ricardo Alves with Morgan Stanley. Ricardo Alves: I want to go back to the U.S. Besides frontline pricing, I wanted to go into more details on revenue management, your strategy longer term on revenue management. It would be super helpful for us maybe to illustrate your strategy on ground, if you can share some specific examples. Where is really the focus of the management in stuff that it's really going to move the needle on your unit revenues? Is it opportunity on a higher value mix, higher value brands? Is it more get more exposure or work better on your packaging and mix of packaging, use smarter promotion activity now with the digital. You mentioned digital in several fronts. So I wonder if maybe this is where the -- there are several ways in which we are able to think about how you are tackling new opportunities to improve even more the U.S. business, but it's difficult for us to really have a grasp on what really could move the needle, what are the practical examples that you are implementing right now. So I just wanted to understand a little bit better your longer-term strategy, what could be the upside in the U.S. Maybe it's efficiencies, right? You talked about efficiencies as well. I know that in the U.S., we talked in the past about route optimization, integration of distribution centers. There's many things in my mind right now. I just wanted to get from you what is really on top of your mind to improve even further the U.S. business? Arturo Hernandez: Thank you, Ricardo. I will turn it over to Jean Claude, just by saying that, yes, you pretty much described the many opportunities that we have in the market. Revenue management pricing has been a fundamental capability, and that's been a driver for value in that operation. And in every operation, as I've said, if there would be one commercial capability that we really want to get right, it's pricing and promotion. I think we've -- we're off to a very good start in the last few years. Efficiency is becoming more of a priority in the U.S. as well. We're investing for making our supply chain more efficient. And -- but I will turn it over to Jean Claude to provide details. Jean Claude Tissot: Thank you for the question, Ricardo. And indeed, RGM has been and will continue to be critical in our strategy in the U.S. What we have done? We have been focused on increasing transactions. 2025, despite all the challenges that we had at the beginning of the year due to the fake news, we were able to finish the year once again growing transactions. Why do we grow transaction is because we have been developing a new portfolio. We have strengthened our portfolio in terms of packages, but also in terms of categories, in terms of innovation. We have been -- you have seen the improvement that we have done with brands such as Core Power. But RGM is also how we are bringing our digital transformation and use the implementation of tools such as the price promotions and the copilot pricing. And pricing as well has been the alignment that we have with the Coca-Cola system with the Coca-Cola Company, the other bottlers and the customers. Then it's a combination of initiatives that are together with our execution, allowing us to grow the margins as you saw. Operator: We will move next with Renata Cabral with Citi. Renata Fonseca Cabral Sturani: My question is about the strategy on Coca-Cola Zero, we saw -- any standout growth in the quarter? And also, if you see the -- over the last 5 years, the CAGR has been around 16%. So my question is how much we can continue to see this trend over the Coca-Cola Zero. And if you can say for country, where do you see still the biggest opportunity to increase the portfolio? Arturo Hernandez: Yes. Thank you, Renata. I think Coca-Cola Zero is probably the biggest innovation we've had in the portfolio and in the Coca-Cola system in recent years. And it's been a very, very successful product as it captures new consumers, younger consumers and also consumers from Coke Original Taste that would prefer a zero-calorie version. So this has been relevant in every market. It's been growing . As I mentioned before, it grew 18% in Mexico. It's growing in the U.S. It's actually sustaining the sparkling segment in the U.S. and Coca-Cola brand. So we will continue to promote Coke Zero in every market. And one example of that is that in the case of Mexico, it will take center stage in all advertising and promotions tied to the '26 FIFA World Cup. This is a very powerful global platform that we will use to celebrate our iconic brand and showcase our commitment to offering this no-calorie versions of our products. So you're going to see a much more relevant presence of Coke Zero in all of our marketing activity. And also, it's obviously a very profitable product. So it helps to sustain our profitability as we grow into the zero-calorie segment. Operator: Our next question comes from Antonio Hernandez with Actinver. Antonio Hernandez: Just a quick follow-up on the Snacks business in Mexico, and particularly in the U.S. Obviously, the competitive environment and its performance being affected by consumer trends or any other highlights that you could provide? Arturo Hernandez: I'm sorry, just to clarify, your question is about consumer trends, competitive environment in Mexico and the U.S.? Antonio Hernandez: In the Snacks business. Arturo Hernandez: In the Snacks business. Okay. Yes, I will turn it over to Chuy to make some comments about Snacks. This operation now reports to Jean Claude, but it was supervised by Chuy last year. I can tell you that Snacks had a mixed performance in the fourth quarter. That reflects different dynamics in different countries. Much more challenging, I would say, in the U.S. than in Latin America. So we've been focusing on, again, being very profitable in this business, focusing on growth categories and also continue to invest in the brands that are more relevant for our consumers in each of the markets. And innovation is very important in this business. So I will let Chuy expand on that. Jesús García Chapa: Thank you, Arturo, and thank you, Antonio, for your question. I think the fourth quarter reflects what happened during the year. The Bokados performance as well as the Inalecsa performance was very good. Most of our challenges are in the U.S. market. I'll give you an example, in Mexico, our focus is basically on 3 categories, extruded snacks, tortillas and mixes. And the products in these categories for the most part, grow double digit. Ecuador has been facing some political and economic challenges. But at the same time, we have a very good position across channels, and we have been investing primarily on product displays and that has been very successful. As far as the U.S., we definitely see more aggressive pricing from competitors and ongoing category contraction in all segments. And we're basically continuing to strengthen our portfolio profitability through an optimized price package strategy. And we'll continue strengthening our innovation agenda, sponsorship strategies and expanded distribution network, particularly for Deep River in some of our key strategic accounts. Operator: We will move next with Carlos Laboy. Carlos Alberto Laboy: My question maybe is more directly for Jean Claude. Look, the passion and intensity for client service that your people in the U.S. have, I mean, I haven't seen anything like that anywhere in the world. But the revenue growth management tools that they operate with, right, for volume, price mix, trade discount, how do you see them in terms of their stage of development for where they need to be or where they can get to? And what's the upside that you have in terms of -- in 2026, 2027 for the efficiency, the capacity of these tools given how you see your IT projects in the pipeline moving along? Jean Claude Tissot: Thank you for the question, and thank you also for the nice words about our culture, something that make us super proud. Regarding our question about RGM is part of going back to the basics as well. As you know, we have that vision how to evolve to be a shelf replenisher, to be a market developer in U.S. market and RGM is essential. We have been developing tools to grow our transactions to expand our portfolio with single-serve packages in all the categories, not just in sparkling. The development of zero sugar and the tools -- and the digital tools, as you are saying, that we have to make sure that we connect our digital tools such as the TPO, pricing copilot with our supply tools as well to ensure that going back to the basics, we have the best fill rate. A lot of improvement working together with the Digital Nest with [ CONA ], but we are excited as well for what is coming. We cannot say that we are done with all our digital initiatives. We are excited about what is coming. To continue with that vision that is about culture, is about being a market developer, is about back to the basics, embracing the future through our digital transformation and all our RGM tools. Arturo Hernandez: And Carlos, I would say that the tools continue to evolve as the portfolio continues to evolve, and there's also an element of change management as we have to somehow involve our brand partners into the effort. I would say that in terms of promotional activity, there's still a lot of opportunity as we continue to refine the tools. Operator: Thank you. This concludes today's Q&A portion. I would now like to turn the conference back to Arturo Gutierrez for any additional or closing remarks. Arturo Hernandez: Thank you, and thank you again for your time and your continued interest in Arca Continental. If you have any additional questions, our Investor Relations team is always available. We look forward to connecting with you again in the next quarter. Have a great day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello. This is the Chorus Call conference operator. Welcome to Vecima Networks Second Quarter Fiscal 2026 Results Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] Presenting today on behalf of Vecima Networks are Sumit Kumar, President and CEO; and Judd Schmid, Chief Financial Officer. Today's call will begin with executive commentary on Vecima's financial and operational performance for the second quarter fiscal 2026 results. Lastly, the call will finish with a question-and-answer period of analysts and institutional investors. The press release announcing the company's second quarter fiscal 2026 results as well as the detailed supplemental investor information are posted on Vecima's website at www.vecima.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company's unaudited interim condensed consolidated financial statements and accompanying notes for the 3 and 6 months ended December 31, 2025 and 2024. Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable securities laws from which Vecima's actual results could differ. Consequently, attendees should not place undue reliance on such forward-looking statements. All statements other than statements of historical fact are forward-looking statements. These statements include, but are not limited to, statements regarding management's intentions, belief or current expectations with respect to market and general economic conditions, future sales and revenue expectations, future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and/or are beyond our control. Vecima disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. Please review the cautionary language in the company's second quarter earnings report and press release of fiscal 2026 as well as its annual information form dated September 25, 2025, regarding the various factors, assumptions and risks that could cause actual results to differ. These documents are available on Vecima's website at www.vecima.com under the Investor Relations heading and on SEDAR at www.sedarplus.ca. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks. Please go ahead. Sumit Kumar: Good morning, and welcome, everyone. Thank you for joining us. In our earnings release today, we announced that Vecima is nearing the cusp of a major growth inflection. I'm going to start today's call with some comments on this outlook and our expectations for the next 12 months before moving on to an overview of our second quarter highlights. Judd will provide our financial review, and then I'll return to wrap up before we open the call for questions. As you know, the global cable and broadband industries have been preparing for a full-scale transition to next-generation DAA technology for several years now. It's something we've described as a once-in-a-generation technology transition, fundamental to how networks will be built and operated and requiring major multiyear capital investment by operators. From the start, Vecima made a deliberate decision to lead this transition through sustained investment in a comprehensive portfolio of next-generation solutions. It's a strategy that's positioned Vecima as a global leader in DAA technologies, and it's already been -- and it's already driven meaningful growth. But we've always recognized that the true scale of the opportunity would depend on customers moving to full-scale adoption and deployment. While it's taking time to reach this point, that critical new phase of adoption is approaching. On the broadband side, our lead Tier 1 customer is now preparing to expand wide-scale deployment and they've shared their anticipated product needs and expected timing with us. Based on that outlook, we anticipate a sharp rise in demand for our Entra Remote PHY products, including the EN9000 GAP platform and ERM3 and 4 RPDs beginning in the fourth quarter. This is a major multiyear upgrade program. Now with it underway and expanding, we expect it will provide sustained benefits to Vecima over an extended period. On the commercial video side of our portfolio, we also announced today that our lead North American Tier 1 customer has selected our next-generation TerraceIQ platform to underpin the wholesale upgrade of its commercial video network nationally. This includes upgrades to thousands of our customers' existing commercial account properties as well as ongoing rollouts to service new commercial video contracts, and it represents another multiyear opportunity for Vecima. These 2 developments, combined with continued strong demand for our high-margin fiber access products and the traction building for new products like our EN3400 are providing excellent forward visibility. Based on customer indications on a next 12-month basis, we're now estimating revenue growth of between 20% to 30% as compared to the last 12 months. The anticipated demand profile also positions adjusted EBITDA margin for the same period to break through 20% as our product mix expands with higher-margin offerings and as we make gains in operating efficiency. Paired with the top line growth expectation, this translates to an anticipated 70% to 85% increase in next 12-month adjusted EBITDA compared to calendar 2025. I want to note that we continue to see some third quarter timing lumpiness related to recent industry consolidation activity. We discussed this on our last call, but we now expect the impact to be modest and further mitigated by a favorable Q3 product mix. By the fourth quarter, we expect to see demand ramping up sharply. The developments announced today paved the way for renewed and sustained growth, and they follow on another rewarding quarter for Vecima in Q2. So turning to our second quarter results. I'm pleased to report that we achieved solid year-over-year revenue growth of 3.5%, paired with a significantly stronger gross margin percentage of 44.9%. The 850 basis point year-over-year improvement in our gross margin reflects an expected return to a more typical and higher-margin product mix as well as continued improvement in our operating efficiencies. We also generated adjusted EBITDA of $10.6 million in Q2 with an adjusted EBITDA margin of 14.4%. In our Video and Broadband Solutions segment, we turned in a productive quarter marked by steady sales performance, improved profitability and important product and customer advances. We continue to seed the market with our EN9000 platform, the industry's only GAP node, which is gaining deep adoption with customers. We expect the EN9000 platform will continue to pay many short- and long-term dividends as it widely seeds broadband networks with a modular, standardized and future-proof platform that's capable of being upgraded with multiple successive generations of DOCSIS or fiber-to-the-home technology for years to come. We also commenced deliveries of our new EN3400 GAP node, which is a more compact and condensed version of the EN9000, specifically targeted to multi-dwelling unit and enterprise applications. Our innovative new Power Holdover Modules, which provide Entra platforms with protection from power fluctuations in the field also gained traction in Q2. Both the EN3400 and Power Holdover Modules provided meaningful contributions to our Q2 results and VBS product mix. In our Entra Cloud portfolio, we continue to expand vCMTS trials with our lead customer while also expanding our engagement with additional customers. We view vCMTS as a major long-term growth driver for Vecima, supporting an addressable market estimated to be worth USD 350 million by 2029. I also want to highlight the contribution from vCMTS sales is not yet a significant factor in current revenues or within the strong projected growth for the next 12 months, meaning that vCMTS remains a major incremental growth opportunity for the business. On the fiber access side of the portfolio, Q2 was another successful quarter with ongoing strength in Entra optical sales. We also secured our first customer for XGS-PON in the U.S. and closed an order for our new Entra EXS1610 All-PON platform with a European customer. So all in all, an excellent quarter for VBS and our customer engagements for Entra increased to 147 from 123 a year ago. To date, 70 of those customers have purchased Entra products from Vecima. Looking at our other business segments. Our Content Delivery and Storage segment achieved another strong quarter with revenues of $12.3 million, growing sharply both year-over-year and quarter-over-quarter and gross margin climbing to a very robust 65.1%. These results were supported by increased demand for our media scale managed IPTV solutions as customers continue to migrate their networks from QAM to IPTV while also expanding their subscriber bases on IPTV. Second quarter also brought further contribution from our newer dynamic ad insertion products. DAI is providing a compelling use case for operators that are seeking to increase their video ARPUs without having to increase their rates to customers. So as such, it's a highly effective way for our customers to increase their monetization of video while retaining and building their subscriber base, and we view it as an important growth driver for CDS. Turning to Telematics. We achieved another highly profitable quarter with year-over-year revenue growth and an exceptionally strong gross margin of 71.4%. During the quarter, Telematics added 11 new customers and booked 345 new subscriptions for our NERO asset tracking platform. This brought the number of asset tags under management to over 106,000. So a very successful second quarter for Vecima across all 3 of our business segments, and we're moving forward with a very exciting outlook as some of our largest customers advance to wider scale adoption. I'll return to talk more about what we see ahead in just a few moments. But first, I'll pass the call to Judd to provide our Q2 financial review. Judd? Judson Schmid: Thanks, Sumit, and good morning to everyone with us on the call today. I'll be reviewing our second quarter financial performance in more detail. And for the purposes of this call, I'll assume that everyone has seen our Q2 fiscal 2026 news release, MD&A and financial statements posted on Vecima's website. We had another solid quarter of financial results. Starting with consolidated sales, revenue grew to $73.7 million in the second quarter, increasing 3.5% year-over-year and 3.7% quarter-over-quarter. Our Video and Broadband Solutions segment accounted for $59.6 million of our revenues with VBS sales increasing slightly year-over-year and up 2.8% sequentially compared to Q1. Next-generation Entra DAA products were the key driver of our VBS segment results. At $56.3 million, Entra sales were steady year-over-year and up 2.3% on a sequential quarterly basis. Commercial video sales added $3.2 million to the VBS results and were up 8.7% from Q2 fiscal '25 and 12% from Q1 fiscal '26. In our Content Delivery and Storage segment, second quarter revenues of $12.3 million climbed a sharp 20.7% year-over-year and were up 9.7% from the first quarter of fiscal '26. This growth reflects significant IPTV installation and expansion activity, including a 39% increase in product sales and slightly higher services revenue year-over-year. We continue to note that quarterly sales variations are typical for the CDS segment. In our Telematics segment, second quarter sales of $1.8 million grew 5% year-over-year, but were 3% lower than last quarter. The year-over-year gains reflect the increase in the number of tags and assets now being monitored. As we expected, gross margin rebounded in Q2 with gross margins climbing to 44.9%. That compares very favorably to 36.4% in the same period last year and 42.1% in Q1 of '26. After normalizing for inventory reserves and warrant expense, our adjusted gross margin also increased sharply to 46.4% from 35.6% last year and 43.9% in Q1 of fiscal '26. The improvements in gross margin and adjusted gross margin primarily reflect the return to a higher-margin product mix in our VBS segment and accretive contributions from our CDS segment as well. Turning now to our second quarter operating expenses. These increased slightly to $29.8 million from $29.3 million in Q2 last year. On a quarter-over-quarter basis, operating expenses were $1.8 million higher. Notable year-over-year changes are as follows: G&A expenses were lower at $6.7 million or 9% of sales as compared to $7.3 million or 10% of sales in the same period last year. This $600,000 improvement reflects decreased expenses for legal fees, other professional services, training and development costs, offset by higher expense for salary, wages and benefits. Sales and marketing expenses increased to $9.4 million or 13% of sales from $7.3 million or 10% of sales last year, reflecting lower finished goods inventory allowance recoveries of $100,000 in the current period compared to $1.7 million in Q2 of fiscal '25. R&D expenses for the second quarter increased to $13.2 million, or 18% of sales, from $11.3 million or 16% of sales last year. This is primarily a result of higher amortization of our deferred development costs, along with lower capitalized labor development costs. As we note each quarter, we defer some of our R&D expenditures to future periods until our products begin commercialization. And so reported R&D expense in a period is typically different than the actual cash expenditure. Adjusting for this, our actual cash R&D investment was $16.8 million or 23% of revenues in the second quarter, up from $15.9 million or 22% of revenues in Q2 of last year as we continue to emphasize our investment in future product developments and building our innovation pipeline. Also included in OpEx for Q2 of last year were $2.8 million in restructuring charges related to our workforce reduction at that time. We continue to monitor and control our operating expenses contributing to our bottom line results and do not foresee any significant OpEx increases in the near term. Now looking at bottom line results. Second quarter operating income increased significantly to $3.3 million from an operating loss of $3.4 million in the same period last year. The $6.7 million improvement primarily reflects VBS' higher-margin product mix as well as the increase in CDS sales, which typically carry accretive gross margins and the $2.8 million restructuring charge taken in last year's Q2. Lastly, net income for the second quarter increased to $100,000 or $0 per share from a net loss of $7.9 million or a $0.32 loss per share in the same period of fiscal '25. Additionally, adjusted earnings per share for the second quarter grew to $0.04 from an adjusted loss per share of $0.30 in the same period last year. Turning to the balance sheet. Working capital of $49.3 million decreased from $51.2 million at the end of June of '25. As we discussed, in our MD&A, the components of working capital can be subject to swings from quarter to quarter. Product shipments can be lumpy as they reflect the fluctuating requirements of our customers. Contract timing issues like those with greater than 30-day payment terms also affect working capital, particularly if shipments are back-end weighted for the quarter. Lastly, cash flow provided from operations for the second quarter decreased to $6.8 million from $15.2 million during the same period last year, primarily related to the changes in working capital. Our net debt position as a whole remains conservative however, and stood at $66.9 million at the end of the second quarter, down from a peak of $92 million in Q3 of fiscal '24. We had forecasted a slight increase in our net debt position for Q2 and continue to focus our efforts on paying down our debt. On a final note, the Board of Directors approved a quarterly dividend of $0.055 per common share payable on March 23, 2026, to shareholders of record as of February 22, 2026. It's important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. Now back to Sumit. Sumit Kumar: Thank you, Judd. To recap our expectations for the next 12 months, we are anticipating a year-over-year revenue gain of 20% to 30% with 12-month adjusted EBITDA margin breaking through 20% based on customer indications. We expect to see this momentum growing beginning in Q4, driven by Vecima's portfolio strength, our design wins with major customers and the many other DAA-based gigabit network upgrades that are occurring globally. We anticipate our VBS segment will lead the growth with strong demand for a wide range of next-generation Entra DAA solutions. Our Remote PHY device solutions, our EN9000 and EN8400 platforms and our highly successful Entra Optical fiber-to-the-home portfolio are all expected to be strong contributors. Additionally, our newer EN3400 platforms and Power Holdover Modules are expected to gain momentum over the next 12 months. Our VBS results are also expected to be strongly supported by the program win with our lead Tier 1 customer and related uptake of our TerraceIQ Commercial Video platform. While we haven't yet factored vCMTS contribution into our outlook, this too could have a positive impact on our next 12-month results and will be incremental to the demand profile, nonetheless. In our Content Delivery and Storage segment, we continue to focus on driving revenue growth through managed IPTV expansions with new and existing customers and the rollout of DAI. As always, we note, however, that quarter-to-quarter performance in the CDS segment can be lumpy. And in our Telematics segment, we're anticipating steady and highly profitable performance from our high-margin recurring software and subscriptions-based monitoring business for vehicles and assets. Across Vecima's operations, we're moving forward with a sharp focus on capturing the significant opportunities ahead, both over the next 12 months for high growth and in the long term. Our strategy of building the industry's broadest and most innovative portfolio of interoperable cable and fiber access products and IPTV solutions has created multiple engines for growth. Combined with a wide customer base and deep relationships with some of the world's largest operators and BSPs, we've invested in and built a broad, uniquely innovative and world-leading platform that we enjoy today, and that sets us up for sustained expansion. As wide-scale deployment of DAA now gets underway and IPTV adoption continues to grow, Vecima is uniquely positioned for success, not just in the next 12 months but for years to come. That concludes our formal comments for today, and we'd now be happy to take questions. Operator? Operator: [Operator Instructions] Our first question comes from Ryan Koontz with Needham & Co. Ryan Koontz: Nice to hear about the improved outlook this year and gaining momentum there. I want to ask about the GAP node and what you hear are the criteria for customers to decide to go with a traditional node design versus a GAP node. I kind of understand -- I do understand the future-proof investment thesis, but how do you think customers are deciding to go with one versus the other? What do you think the criteria is? Sumit Kumar: Ryan, thanks for the question. Yes, with the GAP platform, as we've talked about, we've developed in conjunction with our lead Tier 1 operator customer, this future-proof platform that's modular and scalable and can evolve both over multiple generations of cable access, the DOCSIS 3.1, DOCSIS 4.0 and evolve to fiber-to-the-home modules inserted within that same platform and longevity in terms of any other use cases that emerge once those nodes are widely deployed. So operators are typically seeing that, that platform allows them a long runway of capability within the network from successive generations of access technology. You could even go so far as thinking about edge compute and some of the opportunities that arise there from. So -- and we can also mix services within the same platform, cable, DOCSIS, fiber-to-the-home, PON OLTS within the GAP platform. The thermal management is excellent. It gives them a lot of capacity there in terms of the cooling -- the passive cooling that it offers. And in the past, there's been a lot of fragmentation and unique nodes. So we contributed this standard in conjunction with our operator partner. We are the only manufacturer in the world of this platform today. So we have a significant time-to-market advantage. And as we said, it's being broadly adopted giving us a great amount of network incumbency at operators like our lead Tier 1. Ryan Koontz: Got it. It's helpful. And you mentioned the thermal management. Is it better than a node or what differentiates it from a traditional node in terms of the thermals? Sumit Kumar: It's just how we've designed the heat dissipation within the platform, how the modules slot into the available slots in the lid and all the network and the way the heat is passing through to the fins on this type of platform. It's taken 30 or 40 years of experience from vendors like us, from our operator partner to know that we -- the peak of engineering for thermal capacity is there in this platform. So we've been forward-looking with what we can do with the platform, again, with our operator partner is helping us to define that standard. Ryan Koontz: Sure. It sounds like the OLT business is picking up. Are you hearing any changes in terms of fiber deployment plans from customers? Is it still primarily greenfield deployments? Or are you picking up much about rehabbing coax with fiber in the cable industry? Sumit Kumar: I think the focus definitely has been on network edge, greenfield expansion, more and more opportunities our customers are seeing for that. Of course, the rural subsidy activity is going strong, too, and adding to our customers' footprints and their passings overall. I don't think that overbuild is a focus. We have a lot of capacity on the cable side with 3.1 and 4.0 and the cost advantages there. So the cable network has got a long runway to it for multi-gigabit symmetrical 4.0. There's standardization work being done on generations beyond 4.0 for DOCSIS as well. But the fiber activity, there's a lot of ground to plow on expansion of the network itself without overbuilding. Ryan Koontz: Got it. You talked about a new win for your new video platform. Do you have a rough idea of what your TAM is there, say, in North America for those sorts of products? I mean is it still primarily a legacy model? I don't think about linear being upgraded a whole lot. I assume you're going to kind of a switched IPTV-type model there. Can you maybe talk about where we are in adoption for those sorts of products? Sumit Kumar: Great. Yes. No, you're absolutely right that we are going to IP ABR input, switch to [ IP ], you can think of. So the feed to the commercial video platforms is evolving from a linear QAM feed to IPTV ABR. And that's the generational shift that we're seeing in this platform. We've led this market for the past 15 years, and it began when networks were converting to all digital from analog and commercial services and hospitality, in particular, needing a bulk demarcation solution into the property. So that's been a market we've enjoyed for well over a decade, and we have good visibility. Of course, it doesn't have the growth engine capacity, something like broadband access, but it's going to be very meaningful to our results and particularly with this lead Tier 1 with the amount of units of the prior generation that they have fielded with our Terrace QAMs and our TC600Es, we see a very meaningful contribution over the next 12 months and really the next 3 years or so as they upgrade that whole footprint. So I won't get too specific on the TAM side, but 5 years ago, the commercial video -- maybe 5 to 10 years ago, commercial video drove the entirety of Vecima business. So that will give you a sense of the magnitude. Operator: [Operator Instructions] The next question comes from Alexandre Ryzhikov with LionGuard. Alexandre Ryzhikov: I guess, Sumit, I just want to focus on your comments around renewed and sustained growth. I get that your largest customer will ramp up spending on network evolution in '26 and '27, and that will drive growth. But I guess what gives you confidence in growth beyond that upgrade cycle? Maybe if you can just break down the key drivers of growth beyond '26, calendar '26, that would be helpful. And then I have a follow-up. Sumit Kumar: All right. Thanks, Alex. Yes. Of course, that's a very meaningful program as we've talked about and with our lead customer and what will happen over the next several years there. I think that focusing there, that cycle is a significant wholesale upgrade that's happening to the cable network. I think what sometimes gets lost in the picture is that there is continuous segmentation activity and expansion activity that occurs for all operators. So it's not a start-stop type of program, it will tail off into a more regular run rate type of scenario. And another thing that I think we like people to understand is that only about 50% of our business today is in cable access. So we're already on the path of diversifying business. So we have a whole set of customers when I talk about the 147 engagements we have for cable and fiber access that are also in their own cycles of moving to the upgrade. We've had these lead Tier 1s in the whole industry that have led the timing in some very scaled programs, but very typical of DOCSIS upgrades across the industry is that we will have multiple other customers come into the fold after these large Tier 1s start to ramp back down to more of a run rate scenario. And then the fiber access and vCMTS are incremental to our portfolio. Fiber access in the sense of we've added XGS-PON, much larger TAM. We've been a leader in 10-gig EPON fiber-to-the-home to this point. And with this much larger TAM in XGS, we announced that we had the first customer win today. Our differentiation should come into play and give us a good market share in that much larger TAM. So we thought about this and the profile still sets itself up between the new customer additions, the fiber expansion, the addition of vCMTS to lead us to a sustained growth scenario after this next couple of years of very strong growth that are anchored by our lead customer. Alexandre Ryzhikov: That's very helpful. I guess maybe specifically on vCMTS, I think you still included in your press release the TAM for that business the estimate from Dell'Oro for $350 million. Are your expectations around market share, call it, in 2029, still the same as they've been previously? Do you think you can capture 1/4 of this market? I know currently, essentially, it's a single player has all of it. Maybe just help me understand your expectations today around the opportunity there for you. Sumit Kumar: Yes. No, great question. I think like we said and like you reiterated, the market is about $350 million, it will reach by 2029. There are only effectively 3 viable vendors in the space, us being one of them. We have our lead win with Cox. And typically, in every segment that we participated in, we have been successful and we have the track record of building this meaningful market share. The IP that we brought into bear originally started in our MAC PHY platforms that we've put into the Entra Cloud and virtualized in vCMTS. We've been a leader in MAC PHY for years now. That translates to a reasonable expectation between what we're doing with Cox, between these other engagements that we've already built a significant number of them for vCMTS and the natural timing of the rest of the market as it grows to $350 million. I think we've seen that it's very common to expect that a player like us when there's only 3 in the market and the customer engagements we have is going to have a respectable market share. Alexandre Ryzhikov: Great. And then my final question on capital allocation. I know you've talked about prioritizing debt repayment. But if I think about just the multiple on the numbers that you've shared today on '26 EBITDA, you're trading at a huge discount to all of your peers. So why not be more aggressive on debt repurchases? I know the volume is very low, but why not explore NCIB or some other type of share repurchase given where the market is valuing you today? Sumit Kumar: Yes. No, thanks for pointing that out. And of course, we agree that there's -- we have opportunities to the upside in the valuation. I think that fundamentally, that pathway from our growing performance is going to provide an avenue. I think, as Judd mentioned, we have been focused on bringing down our leverage and our debt position, and we see that happening relatively significantly in these next 12 months of the P&L performance and the EBITDA delivery. So that should open up the opportunity to explore other uses of capital. And one of the topics that does tend to gain the thought process is should we look at share repurchases. We haven't done any significant M&A in a while either. That would be the other avenue to turn to. But our first focus is on the cash generation, and that is expected to be there. Operator: [Operator Instructions] as there appears to be no further questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Ladies and gentlemen, good afternoon, welcome to the DexCom, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Release Conference Call. My name is Abby, I will be your operator today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star 1 on your telephone keypad. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, Vice President of Finance and Investor Relations. Mr. Christensen, you may begin. Sean Christensen: Thank you, operator, and welcome to DexCom, Inc.'s fourth quarter and fiscal year 2025 earnings call. Our agenda begins with Jacob Steven Leach, DexCom, Inc.'s President and CEO who will summarize our recent highlights and ongoing strategic initiatives. Followed by a financial review and outlook from Jereme M. Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask the analysts to limit themselves to one question each so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our fourth quarter and fiscal year 2025 performance, on the DexCom, Inc. Investor Relations website on the events and presentations page. With that, let's review our safe harbor statement. Some of the statements we will make on today's call may constitute forward looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward looking statements included on this call are made as of the date hereof, based on information currently available to DexCom, Inc. are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in DexCom, Inc.'s annual report on Form 10-Ks, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward looking statements after the date of this call or to conform these forward looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation, or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our fourth quarter and fiscal year 2025 earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jacob Steven Leach. Thank you, Sean, and thank you everyone for joining us. It's an honor to join you today with my first earnings call since officially stepping into the role of CEO last month. As many of you know, in more than twenty years at DexCom, Inc., I've had the privilege of helping build the CGM category and redefine diabetes care. But as I reflect on all the innovation and impact we've delivered, I believe we are still early in our journey. There remains a massive opportunity to help improve metabolic health for our customers globally. And I'm excited to lead DexCom, Inc. into our next chapter. I recently had the opportunity to share my initial vision as CEO and highlight three key areas of focus for our organization. First, we will be the premier glucose sensing solution for all. Glucose remains central to all stages of metabolic health management. And we still see significant opportunity to improve the experience of glucose sensing. This will include greater sensor accuracy, improved reliability, stronger connectivity, and more. We will always keep pushing to enhance this experience for our customers and further entrench our position as the market innovator. A great example of this can be seen today with the broad rollout of our DexCom G7 15-day system. As of early January, this product is now available across all channels in the US. And while it's still early, the initial feedback has been excellent. Customers and physicians have been thrilled with the longer wear time, which reduces the number of sensor changes required each month, as well as the new algorithm, which offers our greatest accuracy to date. We are currently in the process of building greater awareness of this product's availability in the market, and we will be working hard to get G7 15-day into the hands of as many people as possible. Our second strategic priority is that we will set the standard for customer experience. This includes raising the bar for all of our customers. Not only the individuals that wear our sensors, but also prescribers, caregivers, distribution partners, payers, and more. We want DexCom, Inc. to consistently create experiences that delight our customers and make their lives easier. We recently highlighted several new products and features that do just that. This includes My Dexcom Account, our newly launched digital support system, which is significantly streamlining the customer support experience and saving valuable time for our customers. We also have additional offerings planned as we further integrate AI into this customer experience in the near future. We are also excited to start the early access launch for DexCom Smart Basal this month. We have always looked for ways to ease customer burden and improve outcomes. And Smart Basal has the potential to become the new standard for any person managing type two diabetes with basal insulin. We believe this personalized dosing module can lead to more accurate basal insulin titration, accelerate the time to reach optimal dose, significantly simplify workflows for the prescriber, and most importantly, improve outcomes for those using our products. Our DexCom Direct EHR integration, which is now live, or onboarding at over 160 health systems, provides a quick and easy connection to customer CGM data across multiple EHR platforms. This is something that the prescribing community has been requesting for years and we are happy to be the first to provide this in our industry. For Stelo, we recently announced a comprehensive nutrition database that will be launched shortly in our smart food logging feature. Following this update, Stelo can provide a detailed breakdown of macronutrient information for each meal, giving customers a better understanding of how food choices impact their glucose. We will also be following this up with a completely redesigned app experience later this year, which will offer a more consumer friendly experience and enhanced customer insights. And just last week, we received clearance for a new patch technology that we believe will provide an even better experience for customers across our entire product portfolio. This technology has demonstrated in clinical trials the ability to strengthen sensor survival on our G7 system including G7 15-day. This is the type of customer focused innovation that we need to continuously deliver. We want to create meaningful, seamless experiences for our customers that drive greater satisfaction, engagement, and utilization. Ultimately, this can also increase customer lifetime value and serve as a growth driver for our business. Our third strategic priority is that we will expand international market share. The core pillars of our international playbook remain the same. We can drive growth and share through broader DexCom awareness and by expanding CGM access for more people globally. In recent years, we've also broadened our market reach with the expansion of our CGM product portfolio, which can be tailored to the needs of each market and reimbursement system. We now have several examples of how this tiered offering has enabled us to win new coverage, and greater share. We also plan to add to our portfolio in 2026 with Stelo, and a new CGM system in our international markets to expand access to new segments of the market. I could not be more excited about the significant opportunity across our international markets. In fact, as we look across the evolving market landscape internationally, there is a path for this opportunity to become even larger than our core US market. As you can tell, there is a lot to be energized about as I step into the role of CEO. I am also very encouraged by the way we closed out 2025. In the fourth quarter, we delivered revenue growth of 13%, which brought our full year revenue above the high end of our most recent guidance. This reflected continued strong new customer demand and encouraging sell through trends as the quarter progressed. We will now look to build on this momentum as we move into the new year. I also want to call out continued progress from our manufacturing and logistics teams which left us exiting the year at an operational high note. Over the course of Q4, we built our inventory toward preferred levels of finished goods, reestablished more efficient shipping routes through ocean freight, and continued to strengthen performance throughout our supply chain. As expected, this helped us deliver nice sequential improvement in gross margin and drove the expected reduction in the sensor deployment issues that we identified earlier last year. Our team was able to manage all of this while simultaneously preparing for our G7 15-day product launch. We know that first impressions matter, so we have been incredibly focused on product performance and ensuring a great initial experience. It has been rewarding to now see that effort be recognized in the market. In summary, we have a lot to be excited about in both 2026 and in the coming years. Along those lines, we are currently planning an investor day for May 2026 where we plan to provide additional details on our outlook. We hope to see you there. With that, I will turn it over to Jereme. Jereme M. Sylvain: Thank you, Jacob Steven Leach. As a reminder, unless otherwise noted, the financial metric presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For 2025, we reported worldwide revenue of $1,260,000,000 compared to $1,110,000,000 for 2024, representing growth of 13% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange in addition to non-CGM revenue acquired or divested in the trailing twelve months. US revenue totaled $892,000,000 for the fourth quarter, compared to $803,000,000 in 2024, representing an increase of 11%. As Jacob Steven Leach mentioned, we saw sell through trends build over the course of the fourth quarter, which we are now also seeing carry into the new year. This is correlated well with our broader G7 15-day product launch, which has already generated a lot of interest among customers and prescribers. International revenue grew 18%, totaling $368,000,000 in the fourth quarter. International organic revenue growth was 15% for the fourth quarter. Our international business finished the year well, with particular strength in some of our largest markets, including Germany, United Kingdom, and France. France ended the year as one of our fastest growing markets as we benefited from significant type two access expansion at the end of last year. This is a great example of our ability to drive growth and market share as broader type two coverage forms across the globe. Our fourth quarter gross profit was $799,800,000 or 63.5% of revenue compared to 59.4% of revenue in 2024. As expected, we drove more than 200 basis points of sequential gross margin improvement during the fourth quarter. This reflected continued progress in our freight expense as we were able to reestablish ocean shipping during the quarter as well as continued improvement in our scrap rates as we strengthened supply chain performance throughout the quarter. Given some of the supply challenges we had in 2025, this demonstrates the dedication and incredible work by our team for our customers. Operating expenses were $4,683,000,000 for 2025, compared to $451,700,000 in 2024. Operating income was $331,500,000 or 26.3% of revenue in 2025 compared to $209,500,000 or 18.8% of revenue in the same quarter of 2024. Adjusted EBITDA was $422,200,000 or 33.5% of revenue for the fourth quarter compared to $300,100,000 or 27% of revenue for 2024. Net income in the fourth quarter was $265,100,000, $0.68 per share. We remain in a great financial position, closing the quarter with approximately $2,000,000,000 of cash and cash equivalents. Our strong cash position provides us with significant financial flexibility. This was evident during the fourth quarter as we both settled our expiring $1,200,000,000 convertible notes in cash and repurchased another $300,000,000 of stock in the open market. Even after this activity, we remain in a great financial position. This is also supported by our growing free cash flow profile. In 2025, we have surpassed $1,000,000,000 of free cash flow for the first time. Turning to 2026 guidance. As we stated last month, we anticipate total revenue to be in a range of $5.16 to $5.25 billion, representing growth of 11% to 13% for the year. This guidance assumes continued strong category growth and incremental growth contribution from Stelo, and new product advancements across our platform. It also assumes that the coverage landscape remains predominantly the same as it stands today, but we will continue to push for additional CGM access globally. From a margin perspective, we expect full year non-GAAP gross profit margin to be in a range of 63% to 64%, non-GAAP operating profit margin to be approximately 22% to 23% and adjusted EBITDA margin of approximately 30% to 31%. Our guidance assumes gross margin will improve 200 to 300 basis points in 2026 as we benefit from lower freight expenses, additional manufacturing efficiencies, and the growing contribution from G7 15-day. We also expect that gross margin expansion to play through an operating margin expansion in 2026 even as we have incremental hiring and spending planned to support sales, innovation, the launch of our Ireland manufacturing facility late in the year. These investments will better position us to capitalize on broader global coverage, including our expectation for Medicare coverage for the type two non-insulin population. With that, we will now open for questions. Sean? Sean Christensen: Thank you, Jereme M. Sylvain. As a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary. Operator, please provide the Q&A instructions. Operator: Thank you. And we will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. If you wish to be removed from the queue, press star 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Again, it is star 1 if you have a question. And our first question comes from the line of Matthew Charles Taylor with Jefferies. Your line is open. Matthew Charles Taylor: Hi, great. Thanks for taking the question. Jake, I wanted to ask you on your first call as CEO to talk a little bit more about some big picture items. You mentioned in your comments that feel like the company is early on the the glucose journey, on the fencing journey. And I guess I'd imagine a lot of that has to do with the potential coverage to come here in the future. So I wanted to have you talk a little bit more about where the existing legacy and core markets could go in the coming years, but also with an eye to non intensive type two coverage that we could see coming over the next twelve to twenty four months. Thanks. Jacob Steven Leach: Thanks, Matt. You know, I really do think we are in the early innings of a game here with when you think about the size of the problem out there with metabolic health and the growth of diabetes globally. And then you look at the solutions that we provide with our technology and the outcomes that we can drive, if you look across every segment of patients that we serve, whether it is type one, type two insulin users, or type two non insulin users, we drive significant outcomes both health outcomes for the user and their prescribing physician, but also financial outcomes for the health systems. And so the awareness of those outcomes continues to grow, and we have generating evidence for years to help unlock the access for millions of users so as you mentioned, you know, as we look at the landscape of coverage, we have started, you know, towards last year, seeing coverage unlocked commercially for type two non insulin users, and we are on the verge of of expansion into the broader group of type two that are covered by Medicare. And so when that expansion happens, it is almost 12,000,000 people would then suddenly get access to CGM. So that is why when I think about the road ahead and the the durable years of growth we have got, there is just this tremendous opportunity to have an impact on the lives of of many people. And, you know, as you think internationally too, the opportunity there is pretty significant. As I mentioned in my comments, it is we so we see this being larger the US over time. Now internationally, typically, the coverage trails a bit from the US, but with the evidence we continue to generate, and the awareness we continue to generate, we are confident that over time, this access is going to continue to open and provide opportunity for us to impact more more lives. Operator: And our next question comes from the line of Lawrence H. Biegelsen with Wells Fargo. Your line is open. Lawrence H. Biegelsen: Good afternoon. Thanks for taking the question. I guess I will follow-up on type two noninsulin. Jake, based on your response there, it sounds like you think it is coming soon. The CMS I am asking about the CS CMS proposal. You know, your main competitor is saying first half 2026. Are you in agreement with that? And when when are when should we expect to see the RCT data and and just maybe lastly, how do you want us to think about the kind of potential impact from CMS coverage of of type two non insulin, non insulin? Thanks for taking the question. Jacob Steven Leach: Yeah. Thanks, Larry. You know, as we, we we continue to work with CMS, and, you know, actually, as we have been sitting here waiting for the coverage decision from them, actually had the ADA update their their guidelines for type two non insulin and really further moving towards recommending the product for that group and recommending if they have a choice. And so I think that is clearly based on the real world outcomes that we have been generating. So we mentioned at JPMorgan around the the registry we have started for non insulin users, and that is basically people that have covered today that are type two non insulin users, and at those outcomes, we are seeing great sustained outcome in terms of health improvement and high sensor utilization. And so that gives us confidence that we know that we can make an impact in this population, and, clearly, the the private payers have seen that and have started moving the direction of coverage. And so we are going to continue to do everything we can do to support a coverage decision here with with Medicare, in which one of the things you mentioned is our randomized control trial in type two non insulin users that trial, we are very excited to read that trial out here towards the middle of this year. And, you know, it is a trial about 300 people. We have got two arms, you know, those who are not using CGM and those using, standard care methods. And we are fairly excited to share the results of that as as we get towards the end of the study. Operator: Our next question comes from the line of Travis Lee Steed with Bank of America. Your line is open. Travis Lee Steed: Hey, everybody. Wanted to ask about fifteen day and, you know, both how we should think about the rollout of that, the impact on in margins, and and also kind of the use of that to to open up new markets. I I heard you mention new products, launching internationally and talking about international getting to be bigger than the US. That is only 30% of your company today. So lot of international growth there. So just wanted to kinda touch on on those two topics. Jereme M. Sylvain: Yeah. Sure, Travis. This Jereme. I I can certainly start on the margin side, and and then I can turn over to Jacob Steven Leach in terms of you know, talking about long term opportunities outside the US. So, you know, as we think about the fifteen day product, you know, clearly in the US, it is launched today, and and and we would expect that to to certainly start to contribute to margins over the course of this year. The reality is it starts to contribute to margins even more in future years because this is a year about getting folks interested, making sure they understand the benefits, really converting a base over time. Start with new patients, and we will convert the base. So the contributions, yes, there will be some some some certainly some help this year, and and you can see that in our gross margin guidance. The real opportunity starts as you get further out. Obviously, Stelows on a fifteen day platform. G7 has moved to that platform. You can imagine most of our products moved to that platform over time. And and as as we launch out new product platforms, that is obviously the focus. So you can see where that becomes kind of the basis for launching. And that cost ultimately, it it becomes a bit of an advantage, right, in terms of going into new markets. It is really hard to get into this space. There is there is really, you know, a few companies that can really produce it at scale. And that scale is how you are able to build the product at a cost that as you move into, say, some emerging markets, where you can take advantage of those opportunities, both wear length and cost, and ultimately delivering the highest quality product within those confines. So I do think it does provide us an opportunity, not only from a margin perspective, but also from the opportunity of expanding and driving new opportunities where there is a fit for need purpose for our product. You have already seen us move to fit for need where you start to see our product portfolio strategy outside the US. This just helps us continue to drive down that pathway. Jacob Steven Leach, you wanna give some some just thought longer term on international and and what we can do with that? Jacob Steven Leach: Sure. Yeah. Absolutely. The fifteen day product wear time, we will be extending that to the portfolio globally. So we have launched it on Stelo. We have launched in the G7. In the US, we are going to extend it globally. And the feedback from users has been pretty incredible. One note that is important is that, you know, over the time frame that we have had seven in the market, we have made a lot of enhancements to the product and to the technology. To the processes, everything about how build that sensor and provide it to users has been enhanced. And so the fifteen day product got all of that from day one, so as we launched this new version of G7, seeing great feedback about both the longevity of the sensor, the reliability, but also the accuracy. This is the most accurate sensor we have ever produced. And users are noticing it. You can see it out there in the blogs. You can see it in customer feedback. They really are seeing that this algorithm enhancement we have made is playing through in their their experience, which is important as we are striving to continue to be the premier glucose sensing solution for all. And so excited about the ability to continue to to expand fifteen day across the portfolio. Operator: And our next question comes from the line of Robert Justin Marcus with JPMorgan. Your line is open. Robert Justin Marcus: Great. Thanks for taking the question. Jereme, I wanted to ask on the OpEx guide. You have a 63% to 64% gross margin and when I do the math, it looks like you are getting about a 100 basis points of deleverage on OpEx to get to the the range. So what are you spending it on after such a great year of expense control? What where are you kinda listening the the flow a little bit in 2026? Thanks. Jereme M. Sylvain: Yeah. It is it is a fair question, Robbie. And and look. We had a we had a really great year this year in terms of OpEx control. In fact, I think Q4 you know, you you look at the spend profile sequentially from Q3 to Q4. Spend is essentially flat. And so, you know, really great job done by the team there. Jereme M. Sylvain: As you as you roll forward the map, I mean, if if you kinda use it in round numbers, the the goal is not necessarily to delever. I think if you kinda know you gotta play within the ranges a bit to get there, but the goal is not necessarily to delever. The point is is the leverage in the P&L next year predominantly will flow through gross margin. And and the goal is to keep the op margin or the op expenses as a percent flat. Now what is running through that P&L is the launch of our Ireland manufacturing facility. So we have a facility in in Ireland that you guys are all all aware of it. We are going to be hiring and staffing up. We will obviously be turning on there will be a lot of folks there in training. We will be running, you know, validation validation samples across those lines. We expense those that happen. So there is a big investment in that in that manufacturing facility. We will turn that on here likely in the fourth quarter of this year. At which point those costs will come out of OpEx and up into COGS. But as we ramp up those expenses over the course of the year, you will see those playing through. That is what really soaks it up. So, obviously, that is a bit of a one time thing when you are opening up a facility. Those will dissipate as we move, obviously, to turn that facility on into 2027. Underneath all of that, Robbie, I think it is important to note that because you are still getting leverage it is just there is an investment we are making into a facility though, obviously, that that that investment in leverage will obviously then play through in 2027 and beyond. So we are still getting leverage there. We are still getting leverage obviously in gross margin. The work continues. Just this year, gross margin is going to do a little bit of the work while there is some I will say, temporal things running through OpEx. Operator: And our next question comes from the line of Danielle Joy Antalffy with UBS. Your line is open. Danielle Joy Antalffy: Hey. Good afternoon, guys. Thanks so much for taking the question. Jake or or Jereme, whichever one wants to take this, I had a question on how you guys are thinking about utilization. And obviously, as basal ramps, I I I suspect utilization is coming down a bit. And as we do get coverage for non insulin using two utilization will also look different there. And I am just curious as you guys are sort of thinking about not only 2026 but beyond and obviously do not want to front run the analyst day, but even qualitatively, how to think about utilization based on what you know today. Thanks so much. Jacob Steven Leach: Yeah. Thanks, Danielle. You know, as we look at the spectrum of users with our you know, the the highest utilization we see in those those AID users type one on automated and some delivery systems, you know, they are they are well north of 90% utilization, which makes sense because those AID systems do not operate without sensor connected to them, and they are you know, the ease of use and the outcomes that they drive are so powerful that that is what we see there. Jereme M. Sylvain: Type two IIT and non AID Kevin Ronald Sayer: type ones are it is very similar. It is kind of in that 90 to 85% range. And those those utilization rates have remained fairly consistent over time. So we are not seeing much much change there. To your question around Bazel and and also the NIT users. So Bazel, we have had a longer time frame with those users as coverage opened up a number of years ago. And so that that group has about an 85 to 80% utilization rate. That is actually what we saw in our in our studies, you know, and we have seen it play out the real world, which is always great when you see the clinical trial actually reflect real world use. And so 80-85% in that type two base. Some of the more recent learnings is from our registry where you know, we we always anticipated that type two non insulin users might not have the same rate of utilization as those type two basal users just because of the the difference in the insulin. They are not taking a dose of insulin. There is not the risk of hypoglycemia. Number of those things. So we are kind of assume there might be slightly less utilization in that group. In the registry, which is which is this new group of patients that have coverage, for CGM, that are type two non insulin users, that registry is about twelve months old, and we are seeing high utilization rates in that group very similar to those basal when you are in a reimbursed environment. I think that is that is a key we see the best utilization when our patients have coverage. And so we are seeing good utilization there, and and we will continue to track it. But so far, those rates have remained pretty stable. And it is an important aspect as we think about our expansion globally. And as as we continue to see more customers come on to to the products. And important also because type two is our largest opportunity as we think about the long term, and so we will keep those in mind. But we are feeling good about what we are seeing you know, as we look at user experience too, there is really an opportunity to drive further utilization as we get more engagement with the product. And so as we make the software updates, we start adding more AI insights to the technology. The idea is can we drive utilization even higher? So I think that is still a question to be to be out there, but I would like to see it improve even further. Jereme M. Sylvain: Think the best way to take it, Danielle, is at least back to the models is to think about it as the utilization, the trends have remained the same. In fact, there is work we are doing to make them better. It is just really more about the mix. And as you guys are modeling, by cohort, think about it that way versus utilization by cohort going down. Just make sure you have the mix right, and and and that should help out. Operator: And our next question comes from the line of David Harrison Roman with Goldman Sachs. Your line is open. David Harrison Roman: Thank you. Good afternoon, I wanted just to maybe dig a little bit more into the 2026 revenue outlook and maybe specifically around just the new patient dynamic. I think sometimes we get wrapped around the axle on this record, new patient dynamic. That may or may not be significant as we look forward here. But can you maybe just give us some broader perspective on what is assumed from sort of underlying volume growth at different ends of the guidance range? And what are some of the factors operationally that need to play out that would put you the 13% level, and and what would put you at the 11% level? Jereme M. Sylvain: Yeah. Thanks. It is a it is a fair question. And and at the end of the day, I know we do spend a lot of time talking about new patients. At the end of the day, what drives revenue is your patient base. And and, obviously, a key component to that is how many new patients you add, but it is also what you do around retention, utilization, and then, of course, price. And so and so, you know, as as you think about the the puts and takes into next year, you know, think about it this way. You know, we start we start we exit the year. And I will and I will talk about this in the in the coral, say, G and D series business. We actually are talking about patient base growing at about 20%. Almost 20%. And so that is your starting point for what you would expect in terms of starting point for volumes as you move into the year. Over the course of the year, our expectation you know, is is we have a couple points of price, and and that has been consistent. Our our and that the the remainder in the delta what I would say is any anticipations around unit volumes would be around mix. And the reason mix is still there, it is much smaller than it used to be. We do still have a lot of new coverage coming on, specifically in the PBM space for for type two non insulin. And then outside the US, we are winning a lot of tenders in in Dexcom One Plus, and it comes at a different price point. So that mix is still there. And and it will but will come down from from 2025. That mix impact. So that puts your unit volume growth there just south of that 20. It puts you in the, you know, the mid to upper teens, and that gives you kind of presumptions around unit volume. You know, from there in terms of that, you are thinking about the inputs. We we talked a little bit about this at JP Morgan, so we are happy to reiterate it. We do not necessarily need a record new patients to hit the the low end of our guidance. And you would wanna hit a record new patient to certainly hit the top end of the range and and beyond. And so that is the way we are going to run the business. Obviously, we had a record new patient year in 2025. We will obviously focus on on setting high targets internally and achieving those targets internally. But that gives you some of the inputs and puts and takes in the guidance. The other piece of the guidance, I think, is just important to note. This assumes coverage stays predominantly the same. And so, obviously, if things change around coverage, that would change our our patient outlook certainly. And then we would have to kinda give you guys an update as that moves through the year. Hopefully, that gives you some puts and takes. You are right though, David. The the end of the day, these are all puts and takes around a user base and how that user base grows and moves over time. And that is why it is it is really important we always acclimate everybody with how did our user base grow year over year, and you guys have the most recent update based on our last touch point. So they use the puts and takes and and and any other questions, we would be happy to follow-up with. Operator: And our next question comes from the line of Jeff Johnson with Baird. Your line is open. Jereme M. Sylvain: Jeremy or Jake, I think you pointed on your prepared remarks about Jeff Johnson: strengthening U. S. Sensor uptake trends in the fourth quarter and said those continued into the first quarter. Maybe you could just flesh that out a little bit for us. What was that some of the recovery from the central deployment issues kind of midyear? Was that continued strength in maybe T2 AID uptake? Anything you can point to there and just talk about maybe Jeremy, you also mentioned your installed base being an important driver of growth. Just how stable that T1 and IIT T2 user base has been now as Libre three is starting to launch in the U. S? Thanks. Jereme M. Sylvain: Yeah. Thanks, Jeff, for the question. You know, I think as you look at you know, the the we look at what is called sell through trends. And that is that is our way of looking at who is ultimately you know, going to the pharmacy or going to the to the DME, picking up product. That becomes really important. You know, you can look at other things. There is various other data points we use but we certainly use those as well because that is people actually physically picking up and using the product. And we saw that improve over the course of the fourth quarter and continue. Now there is a couple different reasons out there, and and certainly, you know, part of it is going to be certainly some work we have done around, you know, certainly, sensor deployment. Jacob Steven Leach alluded to it earlier. We have done some really nice work around that. We have seen our warranty rates coming down and and certainly our complaint rates coming down. Moving into the year. That is that is exciting to see. It also helps to have launched our fifteen day product. We only launched it in the DME in the fourth quarter. So that is not necessarily a large piece of it, but certainly, we expect having that new product out there to be a really good opportunity. And then, you know, naturally, as you would expect, as as we get out in front of physicians one, two, three, four times, and and and they can see the coverage landscape changing for those non insulin users. You know, that certainly starts to play out a little bit as well. I think what you are seeing is a little bit of all that. I mean, all of these things are intertwined. The end of the day, you know, providing a a fifteen day product and all the features and the accuracy associated with great, having less sensor deployment challenges is great. And and certainly having our our Salesforce out calling on folks. All those things really coming together. So we are seeing that play through. In terms of stability of the user base retention utilization, know, you are kind of alluding more to the retention side. It is been it is been stable. I mean, we have not seen many changes at all. Over that time frame. Certainly, there was there was a lot of there was some noise. Over the course of the summer, but I think we have been we have been very focused on making sure that we have gotten in front of those and that the experience that folks have when using the product is an excellent one. Jacob Steven Leach alluded to it earlier. Spent a ton of time really focused on this speaking to patients, speaking to to physicians, speaking to advocacy groups over the course of time, and making sure we are listening. And and to the extent that we do need to make changes, make those changes. All in all, at the end of the day, I think what it proves is DexCom, Inc. has built an incredible product. Built on amazing accuracy. And and and I think people are passionate about one, using the product and making sure they are getting all the benefit out of it. I think you are you are seeing that as we are getting out into the field. So we have seen that stable. I I I would expect to see that stable moving forward. Even with know, other even competitive product launches out there. Operator: And our next question comes from the line of Marie Yoko Thibault with BTIG. Your line is open. Marie Yoko Thibault: Hi, good evening. Thanks for taking the questions. Jeremy, wanted to on pricing. You mentioned a couple points of pricing as one of the factors being some of the commercial unlock of the type two noninformed patient population. Would you have us thinking about any potential facing headwinds as we think about the Medicare unlock that could be coming here in the next twelve months or so. And most, of course, volume will be an offset. The the amount of volume mix will make a difference, but how would you have us thinking about that in regards to the couple points that you referenced with the commercial? Thanks. Jereme M. Sylvain: Sure. Yeah. You know, every year, you know, when we go through negotiations, it is interesting. You know, it is it is we are always asking for more coverage, and and and and for good reason. Right? There is a lot of folks who ultimately need it, we know that we can deliver value really to all pathology. But but, you know, every year, there is it is the classic, you know, volume price conversations, and and everybody goes through it. It has been pretty stable for some time. As you are so so nothing new this year, but, you know, in the context of how you are thinking about, you know, CMS and you know, coverage and how that unlocks, you know, I I think the the the way CMS at least has has done work around this space is they have done the work around competitive bid. Really, that is where the the the rubber hits the road in terms of how they are thinking about it from that perspective. If you think about how how the approvals work, you know, there is there is there is an L code. Ultimately, that is proved. And and and that coding applies to where the coverage ultimately sits. That typically does the approval. Pathology approval, it is the is the guidelines, the rules. Pricing is typically handled separately from that. And so I think what what you have got is you have already got a natural mechanism in place for what is a fair value is through the competitive bidding process, which I we will we will we will obviously work through, and we would expect that to to kick in really here more in 2028. So I think that is at least how we are thinking about it in terms of how that unlock would play out statutorily is maybe the best way to put it. Should something change, we will certainly keep you posted. But at least that is our read on on kind of how the that would play out, and we will know a lot more. Right? Obviously, we are we are excited about CMS coverage. We we talked about it. We are building for it as we speak. I mean, as we start to build capacity today, we are building to be ready for it as if it came tomorrow. So that I mean, that is how bullish we are on on on it coming. And so, you know, we will we will certainly give you more more feedback as we go because we we obviously expect it to be a key part of everything we do this year, including, obviously, an RCT readout. Which, again, we will have here in the first half. Said the middle of the year, obviously, it is it is going to be in the first half. We committed to that, but but as we kinda move here over the next few months. Operator: And our next question comes from the line of Matthew Oliver O'Brien with Piper Sandler. Your line is open. Matthew Oliver O'Brien: Jason, and Jeremy, I would love to double click on that that commentary on international just saying that, you know, you are gonna you are gonna basically make up think it is about a $2,000,000,000 delta between your US and your OUS business. And I know it is going to take time. But can you talk about you have got a big competitor out there. They have got a huge international business. How do you do that? How do you close that $2,000,000,000 delta? And I am assuming we are we are just talking revenues and not just volume. How do you do that? Over what time frame? Is it fifteen years? Is it five years? And and then, Jeremy, what kind of impact does it have do we have any pockets of weakness on the margin side as you are scaling that business that it is becoming a bigger portion of the overall revenue base. Thanks so much. Jacob Steven Leach: Yeah. Thanks, Matt. You know, when I look at the international opportunity, there is two big pieces. Right? There is the opportunity to continue to within the markets we are already present in. If you think about we have we have established pretty strong businesses throughout Europe and we are just getting started in the Asia Pacific region. And so when you think about just going deeper in the patient populations, you know, coverage across the international markets, as I mentioned earlier, trails the US. So there is really a lot of coverage to still unlock when we think about the international patients. You know, type two basal is only starting to coverage wins. We got a win in France. We have seen Japan move there. And, you know, we are we are looking towards Germany to start. We have got some coverage there for basal insulin users, but that is just basal. I mean, there is still the opportunity for NIT around the globe. If you just look at the the sheer volume of patients and the impact that we know that our tech technology can make, the opportunity is there. The key and the unlock is for us to generate the the evidence make sure there is awareness of the evidence, the advocacy from both the clinicians and the patients and basically drive that through each of these markets. We have been very successful. We have we have basically we have been the leader in driving evidence generation for the unlock millions of lives, and so we are going to keep doing that. Around the globe. It takes work. Every health care system is slightly different. It is actually reflection of that is in the the fact that we have a a pretty substantial product portfolio outside the US to really meet the needs of both different segments of users, but also the different tiered structures of pricing that we see outside the United States. And so we are going to continue, as we mentioned, to add another product to that portfolio, which will help us expand to that the customers that we do not have today. And so going to be very focused on on driving access and also making sure we have a product per that takes advantage of that access when it comes, and we will be ready. I think previously, with our focus in the United States, we there was more opportunity outside of United States we did not take advantage of, as you mentioned, that our competitor did. But we are we are going to be ready this time as more access opens. We are going to be there to be the one for for taking the share there. Jereme M. Sylvain: Yeah. In terms of time frame, it it will take a little while. You know, it is not going to be in the next five years. Jereme M. Sylvain: And the reason is is we have a lot of bullish expectations still here in the US. And so that is why I think it is really important. We will talk about, obviously, we are going to be talking about it until we see the coverage with CMS expansion, obviously. And we will not stop there. We will be looking to try to expand into prediabetes and beyond. And so, you know, the US has a long runway ahead of it. As you think about the international markets, though, you know, we are still not in. Tons of markets around the world. And so the Jacob Steven Leach alluded to the markets we are already in. There is an opportunity to go deeper. There is certainly an opportunity to work on taking share, and and we will do that. And you know, I think we have done a really nice job over the years. But there is a lot of markets we are we are going to need to go into over the years, and and we have plans to do that. We will talk a little bit more about it in May at at our investor day. But a lot of opportunity with that is not even in our P&L and or in our revenue today. That that we can see ahead of us. And so and so, yes, it it it is a longer term vision. Absolutely. But when you start to sit down and think about the countries we are not in today and think about, you know, how many folks around the world are impacted with diabetes, and and the coverage that is starting to kick up when we we show up in countries, you can see the the opportunity is immense. And it is really on us to get out there, make sure we get into those countries, and we are in those countries to take share. So it it is more than five years. You are you are it is fair point. And we will have a little bit more color as we as we get into May. Operator: And our next question comes from the line of Jason with Raymond James. Your line is open. Jason Bedford: Good afternoon. I had a question on Basal, which is seems to be the segment of the market that is taken a little longer to evolve. What has been the hurdle to to deeper adoption into this segment? And do you view Smart Basal as a tool to kinda reintroduce G7 to this population? And drive better growth? Jacob Steven Leach: Yeah. Thanks for the question. You know, to your point, we we do feel like Smart Basal is a great opportunity for us to meet the needs of of the patients. I think we have seen good growth in basal given the population and the coverage and as we continue to wanna expand that across the globe, we are going to use this new tool. And and it is really designed to improve the user experience both for the patient and the prescriber so that when they think about a patient who is going to go on to basal insulin therapy, this is the product they should get. They should get a G7 paired up with Smart Basal. And the system, we we are very excited to start piloting that that technology this month. We have got a number of clinics across the United States already selected. They will come on, and we we would tend to learn from the workflows and how this product fits in seamlessly. To their workflow and and drives the outcomes that both the patients and the physicians are after. Getting to the right dose faster so that they can really see the benefit of that insulin therapy. I think as we we do more of that and we we get the experiences around it, it is going to drive more and more share of of that patient population. Jereme M. Sylvain: Feel better, Jason. Operator: And our next question comes from the line of Michael K. Polark with Wolfe Research. Your line is open. Michael K. Polark: Hey. Good afternoon. I have a gross margin question, maybe two parter. So in 2025, I think there were 325 basis points of one timers called out scrap freight and small receiver recall. If I look at the '26 guide, the midpoint calls for 270 bps of expansion. So not not even getting all of that one timer stuff back and and and also not considering credit for fifteen day, which is starting. So the question is why is this the right gross margin guide? And do you agree or where are we on the scrap and and freight kind of overhangs. And if I could sneak in one related item just on hardware mix in the US. Excluding Stelo. In 2025. What was G6 versus G7 ten day and by the end of '26, what will G6 mix be versus G7, ten day, G7, fifteen day? Thank you. Jereme M. Sylvain: Got it. So I will I will I will answer the first one. You know, at the the I think you have a little bit too much math in what I call the O COGS associated with that. It is a little bit less than that. And so what you should see as you think about the year if you were rolling it forward, is is you will see improvements across the certainly, OCOG. A little bit a little bit of that will spill here in Q1 just because you cap enroll certain variances and obviously, freight and scrap stays in, but there is certain variances as you are getting up to speed. So you just have to be mindful of that. It does not go away immediately overnight. Because you do roll those in. But but it is a little bit less than the number you have. It is little bit of roll into the year. You will see the improvements play through. You will also see fifteen day, and so you will you will see those numbers. And and and likely, what you will do is you will pop out of the top end of our of our guidance range. But just just remember, in the fourth quarter, we turn on Ireland. So all of those fixed costs we talked earlier with Robbie about that weigh down the P&L in the first three quarters. In the op margin side or the OpEx side flip to COGS, and so we would actually expect a decline in our gross margins in the fourth quarter you have a full facility turning on all those costs, but the production levels will be much lower. And so there is a lot of fixed overhead that you will not pick up in cap and and enroll that. So I I think that that at least helps understand, you know, there that is why there is some geography that might help there a little bit. And obviously, the con the converse of that is you would expect to see op op expenses come down in the fourth quarter. It is all a moot point across the board when you look at op margin. Because it is all geography. But, hopefully, that helps you at least as you are kinda penciling out the year. And then you are thinking about the sequencing over the course of the year. Jacob Steven Leach: Just a little bit too about customer base and the products they are using. So we have seen, you know, rapid obviously, declines of G6 users as they have switched over to G7. And so the vast majority of our our base here in the US is is on G7. And as we we have launched the fifteen day actually in December, we start seeing quite a few up upgrades from G6 to G7 15-day. And so we anticipate that that will continue. And and our intent is towards the middle of this year, is when when G6 will really start phasing out and so we will start building in more capacity for for G7. Operator: And our next question comes from the line of Joanne Karen Wuensch with Citi. Your line is open. Joanne Karen Wuensch: Good evening, and thank you for taking the question. Could you tease out what the Cello contribution was to the 2025 results and what is embedded in your 2026 guidance? And any color you can give on how that is going, that would be wonderful. Thank you so much. Jereme M. Sylvain: Sure. Yeah. So we we talked about a $130,000,000 of Stellar revenue in 2025. And so, you know, kind of at the top end of our two to 3% number. So that is certainly we are happy to see that. And a lot of great progress over the course of the year channel wise and you know, really excited about the the the new and we we shared a little bit of the some of the pictures at JPMorgan on our presentation, so you will see it up on our website. We have got some new new new app coming for Stelo here in the the coming months. So really excited about that. In terms of 2026, you know, we had talked about it contributing about a point to growth in 2026. So guys can do the math on that. Obviously, those are big round numbers just given how big the organization is, but again, we still expect it to be a nice contributor to growth. Albeit, the base, you will actually have a base this year versus, obviously, in 2025, you did not have a base to compare it to. Jacob Steven Leach: And, Joanne, it is just on when you think about the how it is going with Stelo, you know, as Jereme mentioned, we are really excited about the new innovation that we are bringing. We have a whole new redesigned app. We are launching a new smart basically, enhancing the smart food logging that we already had that now will capture macronutrients and things. But what we are seeing is, you know, a whole spectrum of different types of users start using Stella. And particularly, one of the groups that we have got our eye on is this type two non insulin users. These are the folks that that do not have coverage for CGM. And so they are using the Stelo product over the counter. But over time, what we are seeing is there is there is a real opportunity for those folks for us to transition them Cello over to G7 as coverage emerges. And so if Cello becomes a very important part of our portfolio, not just for prediabetes and health and wellness, but also to get type twos access to the technology early and then transition them to a covered product as coverage continues to unlock. Operator: And our next question comes from the line of Brandon Vazquez with William Blair. Your line is open. Brandon Vazquez: Hey, everyone. Thanks for taking the question. Wanted to focus, you know, a little bit on the innovation pipeline, but know there is a lot to be done on the hardware still. We are talking about a G8 and things like that. But there is a lot of software you guys are coming out with, like Smart Basal. We are just talking about Stellows, meal tracking, things like that. Just spend a minute talk to us little bit about what is left in the pipe on the software side. Like, what else can you do here what else can you leverage the software side for? And then maybe the kind of follow-up to that is, do you think at some point you need to start to validate these features in clinical trials for them to make more meaningful impact and drive kind of large scale adoption. Thanks. Jacob Steven Leach: Yeah. Thanks thanks, Brandon. Fantastic question. No. We are nowhere near done. There is so much more we can do. On both that you mentioned the hardware, but also on the software. You know, our goal is to be the premier glucose sensing solution for all people. Which what that really means is that it takes into account all the different journeys that a patient has from becoming aware of our product to a physician prescribing it to the patient onboarding, to them using it and driving the outcomes that are so important. And then, of course, service. In all of those aspects, if you think about that whole journey, there is many things that we can continue to enhance digitally through software. Whether it is for the physician or for the patient themselves, to help them onboard faster. So really our our goal is to remove friction, to remove any kind of speed bumps so that they get the experience that is the highest caliber. And so trying to develop the best solution plus the best experience, and we do feel like over time, that is going to be the winning formula because you have got folks that are not only seeing the outcomes, but they are also sticky and staying and retained and having a wonderful experience for many years to come. Basically increasing the lifetime value. You know, driving those outcomes, as you mentioned, is very important for us to run clinicals and or generate real world evidence that shows the outcome of how those new features do actually drive outcomes. And we have we have done that, you know, basically through all the different patient segments. We have done some recent work with real world evidence type two, but even things like our delayed high alert, which is an innovative feature that is built into the product that basically delays the high alert and it it has clinical outcomes associated with it. And so that is something that as our Salesforce gets out there, and talks to physicians, they can talk about the difference that that the competitive difference that we provide in the outcomes that we drive. And I just one thing I wanted to mention is our Salesforce is so fired up right now based on the fifteen day and all the enhanced we have made and all the enhancements we have coming. We are really looking forward to spend some time with them at the national sales meeting in a couple of weeks, but there is so much more we can do. And I cannot wait to show you guys over time all the innovation that we are going to bring. Jereme M. Sylvain: And to your question, the whole clinical, you know, validation of features, you know, I I think the you know, for example, I mean, most of these that is exactly what you do. Right? I mean, you think about Dex Bazel, that that their SmartBasel that goes through, obviously, a 510(k) clearance US, o US. So just just think about all these features. They are all going through the appropriate clinical pathways where appropriate and where where where meaningful. So expect us to continue to do that, but also expect us to look at new and novel ways to navigate technical features into the hands of users over time and work with the administration on how we do that. And then there is obviously a lot of coming out now about how to bring innovation quicker and Jacob Steven Leach's team is teed up to do just that or the R&D team is teed up just to do that, is to bring innovation quicker and quicker and put it in the hands of users. Operator: And our next question comes from the line of Joshua Thomas Jennings with TD Cowen. Your line is open. Joshua Thomas Jennings: Wanted to ask two parter on G7 fifteen days. Sounds like the early patient experience has been strong. Great durability with the centers lasting out to to fifteen days. Just wanted to see if there is any more color on on any or any data you have just on that durability of where and and does the patch that you just got approved, the new adhesive technology, maybe improve the percentage of sensors that get out to fifteen days, out into the 90% range. And then, I guess it is a three parter, but just any any rebate dynamics that we should be thinking about in 2026 as G7 fifteen day enters the pharmacy channel. Thanks, Ruth. Taking all the questions. Jacob Steven Leach: Yeah. Thanks, Josh. Yeah. Sensor survival longevity, as we call it, is is a super important part and super important part of CGM portfolio. And as we extend sensor wear, it is obviously something we look closely at. And it is actually the the our goal is to ensure a good user experience so we are we do not unlock that extended life until we are confident in its performance. And so, in the field, what we are seeing is very consistent across the patient spectrum with what we saw in our clinical studies. Now we recognize that, you know, from very early days of CGM when it all when our first CGM only lasted three days, not all sensors last, and often, it is as as you mentioned, related to adhesive. And so we have been driving adhesive innovation for several decades. And with the new version of the patch for G7, we are excited that it it it does drive a pretty meaningful improvement in survival, and we will put it across the whole portfolio of Dexcom OnePlus and Stellows so that all of our patients get get the benefit. So it will continue to drive drive that performance. For any sensor that does not last a period of time, we have a very robust program that we continue to enhance around how to ensure patients always have the sensors they need because we know how important this technology is to all of our users and the benefits they get from it. So that goes back to that the idea of setting the bar for service and and being the the the gold star there. We we are making investments there. We are continuing to enhance the way that we handle those types of situations to ensure our users get the best experience. Jereme M. Sylvain: Yeah. And then just your question on rebates. You know, the the there is two ways to think about rebates. One is what is the rebate rate and what is the net price? And then the second piece is is how many folks select you know, the the the the, essentially, the rebate rate. In those plans. The rebate rate in terms of, you know, the the the the pricing slotted right into the G7 ten day. So effectively, G7 fifteen day, G7 ten day are effectively the same price. So that for for a month supply, think that is important. So effectively same same revenue per per per month. On the flip side, in terms of utilization, our expectation oh, not utilization. Select or, yes, inclusion into that rebate catalog, our expectation is 100% of all those sensors. So, you know, sometimes you you start at 96, 97, 98. Now, you know, you move up those areas. Someone folks you know, some say not preferred or or not covered. Fifteen day essentially is slotting in right where G7 is. So we are at 100%, a percent. We should not see any changes essentially in rebates trends as a result of moving over fifteen days. Operator: And our next comes from the line of Richard Newitter with Truist Securities. Your line is open. Jereme M. Sylvain: Just Richard Newitter: simple one for me. I just wondered if you can comment on revenue cadence at all specifically the 1Q, but but anything else throughout the year. I think Street said about a 6% sequential sequentially lower 1Q versus 4Q. Is that, you know, is that a reasonable place and way to think about it or anything else you would call out? Jereme M. Sylvain: It is it is good good question. Fair question. You know, I think cadence wise for the full year, you know, our expectation is continuing to see a little less into Q4 and a little more into Q1. And it just it it is a slow evolution over time, but as more and more goes to the pharmacy, and less and less goes through the the the DME commercial part of the business in terms of at least the total patients. So still both good businesses. You you do not have that stocking dynamic you typically see in house in the fourth quarter where someone tries to maximize benefits. You still have that. You still have a decent sized business, but it is just less of a percentage of the business. So the expectation is, obviously, Q1 is a little bit higher than than typically in Q4. I would say last year, we talked about, you know, Q1 being, you know, a seven to 8% decline, and we came in closer to seven in that range. I would say this year, we have been talking oh, we talked about this at JPMorgan. On stage. We we think it is a six to 7% decline. So I think the street is a little bit is within the range probably at the higher end of that range, but but not far out of it. It is a pretty it is a pretty safe place to be. Six to 7% sequential is about what we would think, and this is a little bit less seasonality this year than than last year. Operator: And our final question comes from the line of William John Plovanic with Canaccord Genuity. Your line is open. Michael Kratky: Hey, guys. It is Zachary on for Bill. Thank you for taking the question. So I guess back to the G7 non intensive type two. So in the past, you say, know, right now, we have 6,000,000 covered lives, and we can get to 25,000,000. You said Medicare would be 12,000,000. So just where do we stand today? And then you know, and just, I guess, explain what I guess, the cadence of covered labs could look like. Thank you. Jereme M. Sylvain: Sure. Yeah. So you are really you are really thinking about the the commercial side of the house. Obviously, the Medicare side of the house will start with fee for service, and then you move into Med Advantage. So, you know, it will go Part B then into Part C, and we can talk about that as it as it comes. But that should happen pretty quickly. On the commercial side, kind of the side, think you are more alluding to in progress we have made. You know, we talked about 6,000,000 lives. It was the three big PBMs, and and we talked about knocking down, you know, some additional plans, etcetera. I I think the expectation is we have knocked down you know, another percent of that market over the course of renewals this year. But that will continue to take place. We you will keep working that. It does not have happen just annually. It is something that we will continue to do. Over the course. So that would be, you know, individual plans, kinda smaller PBMs, PBMs on custom formularies. We got another good chunk of it, I think, but, you know, we will keep chipping away at that. So it puts you at maybe 6,500,000 of the 12 and a half, maybe a little bit higher than that even. But we will keep chipping away, but that is at least the updates. We have a few more in there that continue and you know, I would I would expect to give you updates over the course of the year as we we keep chipping away and and try to get that to to full coverage over time. Operator: And that concludes our question and answer session. I will now turn the call back over to Jacob Steven Leach for closing remarks. Jacob Steven Leach: Thank you, operator, and I would actually like to take this moment to thank our employees around the world. This past quarter and, frankly, this past year demanded focus, resilience, teamwork, and our people really delivered. What what makes DexCom, Inc. special, it is not just our technology. It is the people behind it. Our team's commitment shows up our execution. And in the trust that millions of people place in DexCom, Inc. So on behalf of the leadership team, and our board, thank you to our employees for everything you do. And thank you all for joining us today. We look forward to updating you next quarter. Operator: And ladies and gentlemen, this concludes today's and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AVITA Medical, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message saying your hand is raised. To withdraw your question, please press star 11 again. Be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Ben Atkins. Please go ahead. Thank you, operator. Welcome to AVITA Medical, Inc.'s fourth quarter and full year 2025 earnings call. Joining me on today's call are Cary Vance, Interim Chief Executive Officer, and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website at www.avitamedical.com under the Investor Relations section. Before we begin, I would like to remind you that this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Cary. Cary Vance: Good afternoon in the U.S., and good morning in Australia. Thank you for joining us today. Before we get into the numbers, I want to start by coming back to how we closed the last call. In Q3, I ended with three priorities: driving disciplined execution, refining our commercial focus, and positioning AVITA Medical, Inc. for growth in 2026. The fourth quarter was about delivering on those commitments. You can see that summarized on the slide in front of you. We exited the year with a more disciplined operating model, improved visibility into cash use, and a clearer understanding of how our customers adopt and use our products. We refined our commercial focus around utilization in our core burn and trauma centers. And importantly, removed sources of friction, reimbursement uncertainty, and restrictive balance sheet constraints that had weighed on execution throughout 2025. These are not headline outcomes on their own, but together, they matter. They make the business more understandable, more forecastable, and more repeatable. As we walk through the quarter today, you will hear how those execution priorities show up in the numbers, our operating cadence, and in how we positioned heading into 2026. Turning briefly to the results. We reported fourth quarter revenue of $17,600,000 and a full year revenue of approximately $71,600,000. This represented about 11% growth over 2024 and was in line with our updated revenue guidance. From my perspective, the fourth quarter was less about acceleration and more about control. The numbers reflect the business that is operating more predictably with greater discipline. David will walk through the details in a moment. A major focus throughout 2025 was resolving reimbursement uncertainty of ReCell. As of today, six of the seven Medicare Administrative Contractors have published payment rates for ReCell procedures. This removes the key constraint that weighed on utilization throughout the year and has begun to restore confidence for clinicians. As we said last quarter, predictable reimbursement not only for our products, but also for the clinicians who use them, is what allows our strong clinical and real-world health economic data to translate into routine standard use of ReCell. With that clarity in place, we are now seeing early signs of utilization beginning to normalize as accounts reengage. Ultimately, growth in this business is driven less by adding new hospital accounts and more by increasing adoption, utilization, and repeated use of our products—ReCell, CoHiliX, and PermeDerm—by clinicians. Roughly 90% of our revenue today comes from about 200 burn and trauma centers. We have aligned sales incentives, forecasting assumptions, and field activity around earlier adoption and repeat use within these core accounts. We have also continued the shift away from bulk ordering toward more organic monthly usage patterns. Utilization matters, because it creates predictability for clinicians, for hospitals, and for our business. As we look ahead, utilization will become an increasingly important way we value execution internally. Today, the focus is on establishing the right operating cadence and doing the fundamentals well, so progress can cascade and compound over time. That consistency is supported by the breadth of our platform. Our strategy is built around a single integrated platform—ReCell, CoHiliX, and PermeDerm—used repeatedly by the same clinicians across multiple patient episodes. ReCell remains the foundation of our business, supported by extensive clinical evidence demonstrating faster healing, improved outcomes, and shorter hospital stays. The CoHiliX I post-market study is now fully enrolled. And the PERMEADERM-one study is nearing full enrollment. These studies are designed to generate practical real-world clinical and economic evidence that reflect how surgeons use these products in wound care, with data expected later in 2026. At the 2026 Boswick Burn and Wound Symposium last month, investigators presented early findings and case experiences from these studies. Also notable, two cases presented from the podium reported all three of our technologies—ReCell, CoHiliX, and PermeDerm—used together on individual patients. This reinforces that our strategy to evolve from a ReCell-only story to a multiproduct acute wound care platform is translating into real-world clinical practice and higher revenue per patient opportunities. Outside the U.S., we are taking a disciplined distributor-led approach as we build our footprint in select markets where there is clear clinical need and the right regulatory and operational foundations in place. Since receiving CE Mark approval for ReCell Go last October, we have supported initial clinical use in a small number of European markets, focused on establishing familiarity and operational readiness. In the aftermath of the tragic nightclub fire in Crans-Montana, Switzerland, our teams and distribution partners were able to respond quickly to requests from surgeons because those foundational elements were already in place. Our role in situations like this is to remain responsive and reliable in support of patient care under extraordinarily difficult circumstances. We will continue to partner closely with the burn community to help ensure access to ReCell where and when it is needed. As David will walk you through, our commitment to execution discipline is reflected in our financials, particularly in our cost structure, cash use, and balance sheet. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. This was less about adding capital and more about removing the distraction of restrictive covenants so the organization can stay focused on execution. Turning to 2026, we expect full year revenue of $80 to $85,000,000, representing growth of approximately 12% to 19% over 2025. This outlook reflects normalization of ReCell utilization, expanded portfolio use within core accounts, contributions from CoHiliX and PermeDerm, and a more predictable operating environment. This is execution-led growth, driven by consistent delivery, quarter by quarter, and not one-time events or aggressive assumptions. With that, I will turn the call over to David to walk through the financials in more detail. David O'Toole: Thank you, Cary, and good afternoon, everyone. As Cary outlined, the fourth quarter marked the close of the year of stabilization for AVITA Medical, Inc., and the transition into a more execution-focused phase of the business. I will walk through what that execution discipline looks like in the numbers, particularly across costs, cash use, and our balance sheet. Turning first to the full year view for 2025, we reported revenue of approximately $71,600,000, representing 11% growth over 2024. This marked a further consecutive year of revenue growth for the company, and reflects a business that continued to grow despite the reimbursement-related. Full year gross margin was 82.1%, compared to 85.8% in 2024. This decrease reflects certain inventory reserves and impact from product mix and the increased contribution from CoHiliX and PermeDerm. As we previously discussed, while the product mix impacts the reported margin percentage, these products contribute incremental gross profit without a commensurate increase in operating expenses, supporting operating leverage over time. The combination of year-on-year revenue growth and gross margins above 80% provides a solid foundation for us going forward. Turning to the fourth quarter. Total revenue was $17,600,000, compared to $18,400,000 in the prior-year period. This was consistent with our revised revenue expectations and showed stabilization within our business. Fourth quarter gross margin was 81.2%, compared to 87.6% for the same period last year, driven by inventory reserves and product mix. Moving to operating costs, total operating expenses in the fourth quarter were $24,700,000, down 5% year over year. This reduction was driven primarily by lower sales and marketing expenses, reflecting reduced headcount, compensation, and commissions following the commercial transformation earlier in the year. General and administrative expenses were essentially flat, while research and development increased modestly due to planned investments in our PermeDerm and CoHiliX post-market studies. The fourth quarter included $1,200,000 of one-time severance costs, which will not be reoccurring. Excluding these costs, fourth quarter operating expenses were down 10% year over year. For the full year, even with the nonrecurring severance costs included, operating expenses declined by $10,400,000, or 9%, reflecting a substantially lower operating structure going forward. Turning to cash. The key takeaway here is improved control and visibility around cash use. The fourth quarter marked the third consecutive quarter of improvement in net cash use, declining from $10,100,000 in Q2 to $6,200,000 in Q3 and $5,100,000 in Q4. As we look towards the first quarter in 2026, cash use will increase due to the timing of annual compensation and payroll-related items, which is expected and planned for within our operating model. We ended the quarter with $18,200,000 in cash and marketable securities. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. The levels and flexibility in this facility are meaningfully better aligned with our current operating trajectory. Under the new agreement, the revenue and cash covenants provide substantially more headroom. To put that in context, the initial trailing twelve-month covenant of $68,500,000 translates to only $15,400,000 of revenue in Q1 to not trigger the revenue covenant. For the full year 2026, the trailing twelve-month requirement of $73,000,000 is aligned significantly below our 2026 revenue guidance. In addition, the minimum cash covenant has been reduced from $10,000,000 to $5,000,000, significantly lowering covenant risk and reinforcing that the facility was structured to support execution rather than constrain it. The facility is interest-only with no amortization, and includes optional incremental capital if needed subject to meeting a certain revenue milestone. Overall, this refinancing was about simplifying the balance sheet, reducing friction, and removing distraction. From a financial perspective, our priorities for 2026 are straightforward: maintain disciplined control of operating costs, support revenue growth with a stable and scalable cost structure, and continued cash efficiency as revenue increases. Through that financial framework, an improved capital structure, and a clear line of sight into 2026 growth, we believe AVITA Medical, Inc. is better positioned to execute consistently and move towards financial sustainability. With that, I will turn the call back to Cary. Cary Vance: Thanks, David. In summary, the actions we have taken over the past several months have positioned AVITA Medical, Inc. for a stronger and more consistent 2026. We have restored reimbursement clarity, simplified our commercial focus, removed operational friction, strengthened financial discipline, and advanced the clinical evidence underpinning our multiproduct platform. Those actions set the execution milestones we will report against throughout the year. As we move through 2026, our focus is straightforward. Do what we said we would do. Report it clearly. And let execution speak for itself. With that, let's open for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question comes from the line of Ryan Zimmerman of BTIG. Your line is now open. Ryan Zimmerman: Good afternoon, and thanks for taking our questions, and appreciate all the color and clarity today. On the guidance, David, with the new revenue covenant, how would you have us think about the pace of growth through the year? Is the $15.4 million a good jumping-off point for Q1? Or are you trying to message that that is well below what you can do, and so there is no covenant risk there? I think that would be appreciated. And then I have a follow-up. David O'Toole: Yep. And I am sure Cary may have a couple of things to say also, but the $15.4 million should not be taken as anything around guidance at all, Ryan. What we are trying to do is what you indicated, is say that there is a lot of headroom for the covenant number of $15,400,000. You know, we had $17,600,000 in the fourth quarter. We would not expect to go down that much in the first quarter. We have given guidance of $80 to $85,000,000, and even if you annualize that just over four quarters, you would not get to anywhere close to that $15.4 million number. Cary Vance: So, you know, we are not giving quarterly guidance, as you know. But that $15,400,000 was just to tell everyone that the new debt was structured to take covenant risk off the table, and that is what we have done. Ryan Zimmerman: Very clear. Thank you, David. And, Cary— Cary Vance: Sorry. Yeah. Ryan. Hi, Ryan. So, yeah, I would just kind of pile onto that. I think that our jump-off point is Q4. I mean, what we strive to do in Q4 is to kind of normalize and flatten things out in terms of the ordering patterns and our ability to forecast, so we feel good about not only the performance of Q4, but our handle on the business to the point where we were able to, I think, understand Q1. And I think so far, we continue to understand Q1. So I think from Q4 to Q1 and from Q1 through the rest of the year, you should see progressive growth, gradual acceleration. And I think we have a good understanding of our business and more to come on that. Ryan Zimmerman: Appreciate that, Cary. And then, if we could spend a minute on the reimbursement dynamics that affected 2025. So it sounds like much of what hampered 2025 with the MACs is behind you. But if you could give us a little more color into the reestablishment of payment from the six of the seven MACs. What do you have now that you can say with certainty, and what is holding up that seventh MAC? Is there anything we need to be concerned about, or is it just something administratively? Maybe you could spend a little bit more talking through what has transpired over the last, call it, quarter and into the first quarter. Cary Vance: Sure. So first of all, we are highly engaged with all seven. I think that we could put these in buckets, meaning we got commitments months ago that they would publish. Then they did publish, and then once they published, it is a matter of kind of hospital by hospital, physician by physician, them becoming aware, and them putting it into practice in terms of getting reimbursed and kind of returning to a clarity that will help us going forward. So that has occurred as each of the MACs kind of came on board. In terms of that seventh one, we are highly engaged with them. That is all I can tell you is that there is no reason to be concerned, just that we are engaged with them in a process and in their process, and we are hopeful and expect that they will publish as well. Ryan Zimmerman: Okay. Thank you. Thanks for taking my questions. Cary Vance: Sure. Thanks, Ryan. Thanks, Graham. Operator: Thank you. One moment for our next question. Our next question comes from the line of Joshua Thomas Jennings of TD Cowen. Your line is now open. Hi, congratulations on all the progress and the refinancing, and great to see the six of seven MACs have established payment rates. I wanted to just ask about, first, can you share with us just a core customer experience where CoHiliX and PermeDerm have made it through the VAC process? And are you seeing signals, or what signals are you seeing that give you confidence that they ultimately can be strong CoHiliX and PermeDerm attachment rates in ReCell cases. Cary Vance: Yeah. I mean, I think—thanks, Josh. I think the process is that we have a champion in some of these accounts for PermeDerm and/or CoHiliX, and we work with them from a clinical perspective, economic perspective, to help them understand the value. And then it is put into VAC, and that champion helps move it along, and the idea is that once it comes out of the VAC, that that same champion then starts to push it into the department and into their practice. So we have seen that in a few of the VACs where those products have exited. And so that has been effective in terms of us getting some uptake out of the VAC. Joshua Thomas Jennings: Excellent. And is there kind of an all-star account where CoHiliX and PermeDerm made it through that VAC process and you are seeing nice attachment rates in ReCell cases? Cary Vance: Well, no. I probably cannot point to one right now, but I would say that when we were at the Boswick Burn conference, as I said in my comments, there were a couple presentations from physicians that used all three of the products, ReCell, CoHiliX, and PermeDerm. And I think that, again, is early days in terms of someone using all three of those, but I think we will be able to report out more going forward as these products come out of the VAC and as they begin to be used in conjunction with each other. Joshua Thomas Jennings: Understood. And you still have CoHiliX-one, PermeDerm-one study data to help with that utilization trajectory. And just ultimately, do you see CoHiliX and PermeDerm adoption driving increased demand for ReCell as well? I mean, I have been thinking about ReCell pulling through CoHiliX and PermeDerm, but down the line, could CoHiliX and PermeDerm get you into more accounts or just drive utilization higher in the near 200 trauma/burn center base? Cary Vance: Yeah. I mean, it is a good question. I think ReCell is the established brand. It is the product that has been around the longest. But, ultimately, we have relationships in these accounts. We have physicians that are using ReCell that I think are at least drawn and open to the discussion around CoHiliX and PermeDerm because of the relationship we have and because of their affinity for ReCell. But you are right. I think that those physicians that may not be using ReCell or even institutions that may not use ReCell, if they are drawn to CoHiliX or we end up really making some progress there, of course, it allows you to make a connection and establish a relationship there and have the dialogue around treatment and care that could lead to a ReCell discussion as well. Joshua Thomas Jennings: Excellent. And maybe just lastly, with some of the turbulence around MACs and payment rates for ReCell, just as you start to see adoption and utilization of CoHiliX and PermeDerm over the course of 2026, just review the reimbursement pathway. I think there is a clear pathway, and there are not going to be any hurdles, but just to check that box, if you could lay that out for us, that would be great. Thanks for taking all the questions. Cary Vance: Yep. I mean, again, I think you are correct. We have had to deal with these physician payments through the MACs over the last year, but we do not expect any other disruptions to that process going forward, other than continuing to work through these in the months to come. Joshua Thomas Jennings: Great. Thank you. Operator: Thanks, Josh. Thank you. One moment for our next question. Our next question comes from the line of Ian Arndt of Lake Street Capital Markets. Your line is now open. Ian Arndt: Hey, thanks for taking the question here. I was wondering if you could break down the primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus contributions from the CoHiliX and PermeDerm launches. Cary Vance: Would you mind repeating that? It is a little bit quiet. Hard to hear that question. Ian Arndt: Yeah. Sorry about that. Wondering if you could kind of break down primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus new contributions from CoHiliX and PermeDerm launches? Cary Vance: Yeah, thank you. It will be mixed. I mean, we expect growth in all three product lines, and we expect most of that to be driven by increased utilization within existing accounts, whether that is additional physicians or additional types of procedures. So we see that trajectory in terms of utilization and have that plan in place. And so we expect all three product lines to grow, and we expect them to grow mostly within existing institutions where we have relationships going forward throughout the year. Ian Arndt: Okay. Thank you. That is very helpful. And I have a quick follow-up if that is okay. In the third quarter, you noted that roughly one third of your target accounts were in the VAC review for CoHiliX. Could you provide an update on the conversion rate of those reviews and the active ordering accounts? Are you seeing any specific bottlenecks in the process? Cary Vance: Any significant—am I seeing—currently, we have—I am sorry. Currently, we have—how many in CoHiliX VAC? Was that your question? Ian Arndt: Yeah. Just based off of the comments from the second quarter. If you could give an update on the conversion rate of those reviews that are now active ordering accounts. Are you seeing any bottlenecks in the process, or could that delay the 2026 growth? Cary Vance: Yeah. So, without just giving a number, I would say that they continue to come out of CoHiliX VAC at a kind of a steady rate, and we would expect that over the next, I would say, six to nine months even. And so as they come out of the VAC, they are starting to order product. And so for us, that is going to be a continual kind of week-by-week, month-by-month, quarter-by-quarter process of anticipating and understanding that they will come out of the VAC and when they do, get them to order sooner, larger, faster, and to have a very positive experience with it, obviously, as well, and to develop more than just that one champion in the account so that it can broaden and deepen. But what we are not seeing in the VAC is bottlenecks other than administrative bottlenecks. It is just they go through their process, and there is no set time. It depends on the account. And we provide them with all the clinical or economic to make the argument that it should successfully go through the VAC. So we have not seen, you know, denials through the VAC really. But it is a process that takes some time. And we have seen that. Ian Arndt: Okay. That was very helpful. Thank you. Thanks for taking the question. Cary Vance: Thank you. Operator: Thank you. This concludes the question-and-answer session. I would like to turn it back to Cary Vance for closing remarks. Cary Vance: Thank you, operator. Thank you to everyone else who has joined us today as well. I look forward to updating you on the progress in the quarters to come. Thank you. Have a good rest of the day. Operator: Thank you for your participation in today's conference. This is the end of the program. You may now disconnect.
Operator: Good day, and welcome to the SPS Commerce, Inc. Q4 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. Please note, this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk, Investor Relations for SPS Commerce, Inc. Please go ahead. Thank you, Kim. Good afternoon, everyone, and thank you Irmina Blaszczyk: For joining us on SPS Commerce, Inc. Fourth Quarter and Full Year 2025 Conference Call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com, and at the SEC's website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Relations section of our website, spscommerce.com. During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. And with that, I will turn the call over to Chad. Chad Collins: Thanks, Irmina, and good afternoon, everyone. Chad Collins: Thank you for joining us today. The 2025 marks SPS Commerce, Inc. 100 consecutive quarter of revenue growth, highlighting the company's pivotal role in driving efficient collaboration among trading partners. As omnichannel retail has evolved, and supply chains have grown increasingly complex, we delivered solid fourth quarter and full year results despite a challenging macroeconomic backdrop and tariff-related uncertainty, which contributed to spend scrutiny and delayed purchase decisions throughout the year and continued to impact our customers in the fourth quarter. For the full year 2025, revenue grew 18% to $751,500,000. Recurring revenue grew 20% driven by fulfillment growth of 22% year over year. SPS' sustained and profitable growth and ongoing expansion of our network demonstrate our success in delivering the products and services that retailers and suppliers depend on to strengthen their collaboration and drive continuous improvement. In 2025, we acquired Carbon6, to build on the SPS acquisition of SupplyPike in the prior year and extend the reach of our network with clear leadership in revenue recovery solutions. Revenue recovery represents a $750,000,000 addressable market across 1P U.S. sellers and a significant cross-selling opportunity within our network, which we have highlighted throughout the year. For example, All Star Innovations, which offers turnkey solutions for taking products from concept to consumer, has been an SPS fulfillment customer since 2022 and started using the revenue recovery solution last year for several retailers including Walmart, Target, Home Depot, and Amazon. CyberPower Systems, a global manufacturer of power protection and management solutions, is a longstanding fulfillment customer. To drive further efficiencies across their supply chain, they leverage revenue recovery for some of their key customers, including Amazon, Walmart, and Home Depot, and recently added Amazon Canada. Other recent examples of customers who are realizing the benefits of revenue recovery include Outdoor Cap, one of the world's leading headwear manufacturing and importing companies; TaylorMade, an American sports equipment manufacturing company; EOS, a beauty and skincare company; and Bunge, a global agribusiness and food company. Over the years, we expanded our portfolio of solutions through acquisitions and product innovation to support the evolving needs of our growing network while strengthening longstanding partnerships, many of which have spanned decades. As we are celebrating 100 consecutive quarters of growth, I wanted to highlight a customer who has partnered with us throughout that journey. Wolverine Worldwide is a global marketer of branded footwear, apparel, and accessories. They began as a fulfillment customer with a single connection and grew within our network by connecting to additional retailers, and eventually subscribing to analytics. Building on this longstanding relationship, we recently supported Wolverine's expansion into Europe, resulting in a successful go-live on fulfillment with over 300 trading partners. Trader Joe's, a national chain of over 100 neighborhood grocery stores, rolled out EDI requirements across the entire vendor base to reduce manual processes, improve order selection efficiencies, reduce shipping errors, and prepare for future growth. With SPS' fulfillment solution, Trader Joe's is accelerating progress toward 100% vendor compliance. Gambler's, a trusted retail brand for farm and home supply products, recently switched to SPS Commerce, Inc. in an effort to improve order automation and support omnichannel growth. Gambler's opted for SPS' supply chain performance suite and increased EDI compliance from three to nearly 100 vendors. Petco, a pet retailer who operates in over 1,500 locations in the U.S., Mexico, and Puerto Rico, leveraged SPS' retailer management solution to transition over 700 suppliers to standardized digital supply chain requirements. As a result, the retailer reduced manual data reconciliation, delivered measurable efficiency gains, and improved trading partner performance tracking. SPS is committed to ongoing innovation to support customers on their journey to modernize their supply chains. We recently introduced our new agentic capabilities embedded into the SPS supply chain network called MACS. Offering new AI functionality, MACS draws on hundreds of thousands of trading connections, decades of expertise, proprietary network intelligence, and billions of transactions to help our customers unlock greater value from AI. Put simply, by leveraging the data across our network, SPS is competitively positioned to deliver more meaningful and scalable AI enhancements across our product portfolio to better address the trends that are shaping the future of supply chain collaboration. With that, I will turn it over to Kim to discuss our financial results. Kimberly Nelson: Thanks, Chad. We reported a solid 2025. Revenue was $192,700,000, a 13% increase over Q4 of last year and represented our 100th consecutive quarter of revenue growth. Recurring revenue grew 14% year over year. Adjusted EBITDA increased 22% to $60,500,000. For the year, revenue was $751,500,000, an 18% increase, and recurring revenue grew 20%. The total number of recurring revenue customers was approximately 54,600, as the number of 1P customers was flat sequentially while the number of 3P customers declined by 350. ARPU for the year increased to approximately $14,300. Adjusted EBITDA grew 24% to $231,400,000. We ended the year with total cash and cash equivalents of $151,000,000. In 2025, we deployed 76% of free cash flow to repurchase $115,000,000 of SPS shares. In addition, the Board of Directors approved an increase of $200,000,000 in the current share repurchase program, which came into effect on 12/01/2025. Kimberly Nelson: For a total authorization of up to $300,000,000. This demonstrates our commitment to effectively deploy and return capital to shareholders while maintaining a flexible capital structure. Now turning to guidance. For the 2026, we expect revenue to be in the range of $191,600,000 to $193,600,000, which represents approximately 6% year-over-year growth at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $55,500,000 to $57,500,000. We expect fully diluted earnings per share to be in the range of $0.46 to $0.49 with fully diluted weighted average shares outstanding of approximately 38,200,000 shares. We expect non-GAAP diluted income per share to be in the range of $0.95 to $0.99 with stock-based compensation expense of approximately $17,200,000, depreciation expense of approximately $4,500,000, and amortization expense of approximately $9,600,000. For the full year 2026, we expect revenue to be in the range of $798,500,000 to $806,900,000, representing approximately 7% growth over 2025 at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $261,000,000 to $265,500,000, representing growth of 13% to 15% over 2025. We expect fully diluted earnings per share to be in the range of $2.50 to $2.58 with fully diluted weighted average shares outstanding of approximately 38,400,000 shares. We expect non-GAAP diluted income per share to be in the range of $4.42 to $4.50 with stock-based compensation expense of approximately $67,100,000, depreciation expense of approximately $21,600,000, and amortization expense for the year of approximately $38,300,000. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pretax net earnings. I would like to now turn the call over to Chad for closing remarks. Chad Collins: Thank you, Kim. Before I conclude my prepared remarks, I would like to take a moment to acknowledge the announcement in our earnings release that Kim Nelson, our Chief Financial Officer, intends to retire after nearly twenty years with the company. Kim has been a steady and trusted leader through some of the most defining chapters of SPS Commerce, Inc.'s journey, from the IPO to our evolution into a global organization that just achieved 100 consecutive quarters of growth. On behalf of the entire SPS team, I want to thank Kim for extraordinary contributions and congratulate her on her well-earned retirement. In addition, I am pleased to welcome Joseph DelPretto, who will assume the CFO role as of 03/16/2026. Joe brings more than twenty years of experience leading finance, accounting, and operational strategy for high-growth publicly traded technology companies, most recently serving as Chief Financial Officer and Treasurer of Sprout Social. With a leadership style that upholds our core values, I am confident Joe will build on the strong foundation Kim created and help guide SPS through our next chapter of growth. Kim will remain at SPS through the transition process to ensure a seamless succession. Today, we also announced the addition of two new independent directors to our board and a cooperation agreement with Anson Funds. Following extensive engagement with a number of our large investors, including Anson, we are excited to welcome Mike back to the board and appoint Phumbi, who together bring valuable experience that will help us advance our strategy. As I pause to reflect on the company's achievements to date, I would like to take a moment to convey my genuine enthusiasm for the opportunity that lies ahead. We recently wrapped up our annual field kickoff event, and I was encouraged to see the sales team so highly energized by our recent launch of AI-enabled products, which we believe competitively position SPS to deliver unparalleled value to our customers. In addition, our reimagined retail go-to-market strategy is enabling more strategic conversations with retailers, initiating new engagements and cross-selling opportunities across our expanded product portfolio. Our competitive differentiation and inherent growth levers support our revenue growth expectations of at least high single digits without acquisitions beyond 2026. We expect to increase our adjusted EBITDA margin by two percentage points annually as we remain committed to steady margin expansion and free cash flow generation to support ongoing share repurchases and drive shareholder value. Lastly, I would like to recognize that our success to date and prospects for future growth are a testament to SPS Commerce, Inc. employees worldwide. Their dedication and commitment to excellence underscores my conviction in our $11,000,000,000 global addressable market and our next chapter of growth. With that, I would like to open the call for questions. Operator: We will now begin the question and answer session. Please pick up your handset before pressing the keys. At this time, our first question comes from Scott Berg with Needham. Hi, everyone. Thanks for taking my questions. Before I get to those, Chad Collins: I guess, Kim, it has been a really fun ride. I do not know why now is the right time. I look forward to catching up on that later, but just know that you will be missed. Getting to the quarter here, you talked about a challenging macro environment that persisted in the fourth quarter. When we look at the numbers, I think we would all agree they came in maybe a touch weaker although within guidance than what we are used to and accustomed to. What were some of the challenges in the quarter that might have maybe impacted your expectations relative to where the numbers kind of ended up? Kimberly Nelson: Sure, Scott. So as we established our expectations for Q4 going back a quarter ago, as you can imagine, there were different scenarios or parameters of how that could play out. To your point, on the top line, we ended up at the lower end of our revenue guidance. We ended up at the higher end of our adjusted EBITDA guidance. So specifically on the revenue side, what we saw in Q4 was a continuation of headwinds that we have spoken about in the past. Some of those headwinds with our existing customers, just more challenging time for them, invoice scrutiny, uncertainty, etcetera. And then, specific on the revenue recovery side, there is nice demand there, so the demand is strong. However, with the take-rate model that we have there, we did see more to the lower end of what our expectation would be along with the Amazon policy changes that have occurred. Chad Collins: Got it. Helpful there. And then, I saw the press release on your new MACS agentic AI solutions there. I guess, how do we think about the opportunity there? Is this some functionality that you think you can monetize on an individual SKU basis, or does this just kind of enhance your product platform and your competitive positioning relative to other competitors out there? Yeah. Yeah. So as I mentioned in the prepared remarks, I am super excited about this new capability that we have launched. So it is really an agentic capability that is built right into the network. So it has access to the network itself plus all our proprietary information about how retailers work and the requirements that retailers have for their supply chain. So we have sort of surfaced that capability up initially, with three new features that are in our Fulfillment product. The first feature is really a chat feature, which allows the user to have guided workflows into how they process transactions back and forth with their trading partners, as well as full inquiry capabilities around retailer requirements, as an example, asking what are the different shipment requirements or acknowledgment requirements that are different between Walmart and Target. The second feature is a monitor capability. So think of this almost like a dedicated agent for a customer that is monitoring all their transaction activities across our network. If there are any anomalies, like an order did not come as expected or they did not send the invoice out as expected, that monitor capability is going to catch that for customers. And then the final feature is allowing agent-to-agent communication. So we know we have a very rich data source in the SPS network, and it is most likely many of our customers will want to interact with that via agent-to-agent communication. So we have launched a model-to-model protocol interface into the network, and that gives full capability for agent-to-agent communication. In terms of the monetization, this is initially available to beta customers, and we do have customers that are using it in the beta format with very good feedback. And as we move through that beta, we are going to monitor the customers’ usage of that and help that inform the monetization strategy. I absolutely believe this will be a competitive differentiator that will help us on the competitive side of the business and also help us with retention. But as we get to understand more and more about how customers are using this, I think the monetization opportunities will become clearer as well. And these first three features are just the first three areas where we are exposing MACS because it is built right into the network itself. We fully expect to be exposing MACS across the entire product portfolio over time. Understood. Thanks. And congratulations on a good quarter. Operator: Our next question comes from Matthew VanVliet with Cantor. Good afternoon. Thanks for taking the questions. Chad Collins: Congrats on the retirement, Kim. I guess as we look forward in terms of reviving growth Timothy Greaves: Here to maybe levels you are more expecting, what maybe additional resources and investments do you think can be made, and drive sort of above-average returns, maybe even pushing beyond some of the community events? Anything that you are already working on and expect to be rolling out here shortly that can help drive the top-line performance. Chad Collins: Sure. Yeah. So, we do expect that for increasing customer count over time, our unique go-to-market with the retail enablement programs will continue to drive a lot of that, and we continue to invest in that area and refine those approaches there. In addition to that, you may have noticed that we brought on a new Chief Marketing Officer, and we are advancing the maturity of our marketing capabilities as a way to win new customers in ways outside of the retail enablement program. So that would be incremental to what we already get with the retail programs, as well as market back to our existing customers, highlighting the broad product portfolio and the opportunity that we have with existing customers, both for the cross-sell opportunity for analytics and revenue recovery, but also the further penetration with fulfillment, adding more trading partners. So, 2025 was a tough year in our end market. We did see a lot of challenges, and the main driver our customers were telling us about was global trade. So as we sort of lap some of those effects in 2026, have more of the cross-selling momentum from the product going forward, we expect all these will continue to drive long-term growth for SPS. Timothy Greaves: All right. Very helpful. And then given the changes at Amazon in particular, is there a thought of maybe pulling back some of the resources for the revenue recovery, maybe waiting to see how that plays out a little more in the market over the next several quarters and sort of reassess from there? Or what is the approach to thinking about continuing to invest in a business that has been underperforming your expectation? Chad Collins: Yeah. So, I think what you will see from us with revenue recovery is we do see the strong demand for this product in the market. So in terms of our ability to cross-sell it to our fulfillment customers and especially the demand that we are seeing from the 1P sellers, which the 1P sellers on Amazon line up much more with our ideal customer profile and our typical fulfillment and analytics customer, that is going well. So I think what you will see is us continue to invest in that 1P area of the business where it very much fits our strategy, lines up with our ideal customer profile. And on the third-party side, not that we will not continue to manage that and there is demand for that product as well, but it probably will not get the same level of total focus as the 1P will. And I think over time, there are probably some opportunities as well in this business to drive the mix a little bit more from take-rate model to the subscription model, but that will come over time. Alright. Great. Thank you. Operator: Our next question comes from Dylan Becker with William Blair. Hey, Chad. Hey, Kim. Dylan Becker: Welcome. My congrats on the retirement. I am looking forward to catching up and hearing what is next, maybe for you, and also for Chad as well too. But as we think about kind of the broader demand backdrop and what we have talked about in the past with some of those initial projects that were into 2026, can you give us any update on how those have continued to progress? And maybe what is implied kind of in the outlook for 2026 as it pertains to your expectations on the mix of the net new customer side of the equation as that had stepped up in 2025, if that continues, as well as some of the cross-selling efforts that have been an area of more resource dedication as well too. Kimberly Nelson: Sure, Dylan. I will take that last one first, then I will hit your other two. So we would continue to expect that the majority of the revenue growth is coming from that ARPU side of the equation. That does not mean we will not continue to add customers. Retail go-to-market, as Chad talked about, is a great way through those retailer relationship management programs to get us in front of new customers, but the mix between the two will continue to be more heavily skewed on the ARPU side. When we think about some of the dynamics as it relates to the retail relationship campaigns, we still see strong demand for that. What we are seeing, however, is that that is probably going to be a bit more, call it, back half versus front half, just the timing of when those are coming in. So still very strong demand, but a bit more later in the year versus earlier in the year. And then as it relates to just some assumptions in our guidance, you may or may not have picked up if you think about the Q1, sort of the midpoint is 6% on top-line growth. For the full year, the midpoint is about 7% of top-line growth. We are still lapping some of those headwinds that we have talked about in 2025 across our business, and we really get to a point in the back half of the year where we have lapped those headwinds. So we are still facing some of those, again, it is the headwinds in the year-over-year compares in the front half of the year that we then have lapped in the back half. Dylan Becker: Very helpful. Thank you, Kim. Then maybe for Chad, kind of sticking with the topic of the idea of AI, MACS is obviously a part of it, but it does feel like there has been more of an emphasis on kind of an accelerated product momentum. And we have talked in the past about how you guys can leverage network to deliver value. But maybe how you are thinking about that innovation cadence ticking up and how that can contribute to a lot of the parts that maybe you guys kind of touched on, but, obviously, customer retention, potential pricing power, serving as that carrot for incremental customer adoption, but really leaning into more of that AI initiative to help continue to support some of the pipeline momentum that you are seeing. Thank you. Chad Collins: Yeah. Absolutely, Dylan. So, what we are hearing from our customers is that data is absolutely key to their AI initiatives, and we are a tremendous source of data. So in our network with our fulfillment product, that generates massive amounts of retail and distribution data. Obviously, our analytics business is based on data itself. And so we are just uncovering more and more use cases where we can expose that utilizing agentic capability. So I mentioned a few that are showing up in fulfillment now. I will also mention that we are doing a major technology re-platforming to our analytics product, which really allows that data that is in that analytics product to fit, just being on some more modern technologies in our customers' AI use cases a lot more effectively. And I do think that you will continue to see innovation from us, but at the heart of that is really the data that is on the network and the insights that customers can get from that. And with the way the agent technology is moving forward, the speed at which that could come, it is really moving quickly. Very pleased with what the team has done and the time frame they have done it to get MACS in the market. Dylan Becker: Terrific. Thank you, both. Operator: Our next question comes from Lachlan Brown with Rothschild and Company Redburn. Dylan Becker: Hi, Chad, Kim. Congrats on the tenure as CFO. Lachlan Brown: On M&A, your last transaction was over twelve months ago now. So how is the M&A environment at the moment? Conscious that publicly traded software has materially derated over the last few months, are you seeing this reflected at all in private valuations? And how competitive are the bidding processes at the moment? Are you seeing much private equity? Chad Collins: Yeah. So we continue to manage an M&A pipeline and stay active in that market. What I would say is we also have work remaining as we integrate the revenue recovery business into everything we are doing at SPS Commerce, Inc., especially on the go-to-market side. And, at this point in time as well, a share repurchase is an attractive use of the capital that we have. So we are just balancing out all of those factors. You will see the board authorized another $200,000,000 of share repurchase, bringing that total to $300,000,000 that they have authorized. And so that can be a definite attractive use of the tremendous free cash flow that this business generates. Lachlan Brown: That is clear. Thanks. And on MACS Connect, which supports MCP and agent-agent communication, presumably great for supporting the SPS ecosystem and your customers. But given your moat is the retail network data, how do you manage AI ERP peers taking that strategic data out and using it to their benefit? And, also, could you potentially look to price MCP access? Chad Collins: Yeah. I think we will price the MCP access. At our field kickoff event we had last week, we did a live demo for our sales team of this MCP interface where we were connected to one of our ERP partners and their agent-to-agent communication, and then we utilized, in this case, Claude—it could have been any type of chat-based LLM capability—and actually showing how that Claude was able to connect data out of the SPS network and this particular ERP provider's data and put that together in a way that was very helpful for many customer use cases. So I think it just exemplifies that we will have use cases that are directly interacting with MACS, our agent, but we will also have many use cases where we are just a participant in the customer's agent-to-agent workflow. And I am confident that the data that we are bringing to that workflow will be valuable enough that we will be able to monetize over time those types of agent-to-agent communications. Lachlan Brown: Makes sense. Thanks for the questions. Operator: Our next question comes from George Kurosawa with Citi. Dylan Becker: Okay, great. Thanks for taking the questions. I want to echo congratulations to Kim. I wanted to follow up on the discussion from last quarter about some enablement campaigns that from a timing perspective pushed out of Q4 and into the first half of 2026. I wanted to just follow up on if you expect to execute on those. Just looking at the guide, it seems like possibly maybe some of those are skewing more towards Q2 than Q1. Just any color on that trend. Chad Collins: Yes. So those particular ones that did slip here into 2026 are still moving forward, and some of them are actually running at this point in time. What I would say, though, is keep in mind as those programs affect customer count, there can be a little lag in that. So because they actually do not really affect the customer count until we are fully up and running and billing those customers. So those programs are continuing. But I would expect them to drive more customer counts in the latter stages of Q2 and more in Q3 than they will in the first half of the year. Dylan Becker: Okay. That is helpful color. And then on the 3P customers for Carbon6, I think you had guided to about 150 net declining customers, seems like it came in a little below that. Maybe just any color on your line of sight to maybe those headwinds normalizing and or how long you expect those to persist for? Thanks. Chad Collins: Yeah. So, we really do think about the 1P customer count and the 3P customer count quite differently given the comments I made earlier about just the strategic focus. So you will see in our results, we are flat from a 1P customer count and then down 350 in the 3P side. As we focus more on the 1P side of revenue recovery, which is really where our ideal customer profile lies. On the 3P side, the dynamics there are our focus is on 1P. We are attracting 1P customers in. Often, 1P customers that we attract are existing customers, because of this ideal customer profile. So they are not going to positively impact the customer count. Whereas on the 3P side, these are much smaller businesses. They do have a higher churn rate. And so there is going to be just some natural churn based on the size of the customer there. So you kind of have this dynamic with a little bit higher churn in 3P. 1P, which might not always increment up on the customer count side because sometimes these are existing SPS customers just taking on the revenue recovery solution. So, hopefully, that is a little bit more color on those dynamics on customer count between 1P and 3P. Dylan Becker: Very helpful. Thanks for taking the questions. Operator: Our next question comes from Christopher Quintero with Morgan Stanley. Lachlan Brown: Hey, Chad, Kim. Congrats on the deserved retirement here. I wish you all the best. I actually wanted to follow up on the enablement campaign commentary. So last quarter, you talked about those moving into the first half of this year, and now we are talking about most of those moving to the second half of the year. So I guess what gives you the confidence that Dylan Becker: Those will actually commit in the second half of the year versus potentially pushing out again to 2027? Chad Collins: Yeah. They are moving forward, Chris. What I was really, when I mentioned maybe pushing out, it was more about just the timing effects of when we start billing those customers. Right? So we kind of need to complete the program. The retailer has to go live, and then we kick in with the invoicing. So, it is not that the programs themselves are directly getting delayed, but just providing a little outlook that the actual customer count impact may come a little bit later. Lachlan Brown: Got it. That is helpful, Chad. And then I want to ask about Dylan Becker: The down-sell activity, reducing the number of connections, reducing the number of document volumes, like how far through we are in terms of Lachlan Brown: How much more downside there is to that, or is this something that is going to continue throughout the rest of the year? What is your best Dylan Becker: Guess or expectation around the trajectory of those trends? Kimberly Nelson: Sure. So we started to see some of the down-sell activity in 2025. So the latter part of 2025. So our belief is that we will have lapped the headwinds by the end of 2026, if that makes sense. Because that is basically a full year then of those headwinds. So our belief is in 2026, we have lapped that down-sell and those headwinds that we have experienced. And we have that philosophy, we have that incorporated into our guidance. Operator: Got it. Thank you, Kim. Dylan Becker: Our next Operator: Comes from Parker Lane with Stifel. Hi, this is Jackson Bogli on for Parker. Thank you for taking my questions. Dylan Becker: Kim, congratulations on the retirement as well. My first question, I am curious, what levers are you targeting to pull to achieve the EBITDA margin expansion in 2026? A little color there would be helpful. Kimberly Nelson: Yep. Happy to answer that. So a lot of it is really a continuation of some of the dynamics that you have seen in 2025. So when you think about, I will start with gross margin as an example. So you may or may not recall that over a multiyear time period, we have made a lot of investments in the overall customer experience, and all right things to do for customers today and customers in the future. But we got ourselves to a position where we were able to now start seeing some of the benefits of that and drive more of the gross margin and those efficiencies. Simply stated, we do not necessarily need to add as many folks as we have had to do historically. You started to see that call it very later part of 2024. You saw that through 2025, and that continues into 2026. So gross margin expansion is a meaningful component of that overall anticipated, call it, 2% of EBITDA margin expansion. That being said, we do see opportunities in other line items as well, particularly in the sales and marketing as well as G&A side. R&D, we do think our level of spend as a percent of revenue is appropriate. We are not really looking to get more efficient there in total. But the larger component in 2026 of the two percentage points of EBITDA margin expansion you would expect to come through gross margin. Lachlan Brown: Okay. Chad Collins: And then secondly, looking at the delays in the enablement pipeline, Jackson Bogli: Are you seeing any bright spots from specific verticals or different size of vendors, or are the delays pretty much across the board? Chad Collins: I would say that is pretty consistent across all the, you know, we have a pretty broad definition of retail, which includes kind of the mass merchant retail, grocery, distribution. It is a pretty consistent behavior across all those. Things food-related, there have been some favorable dynamics from some of the food safety activities that have been regulations there, but overall, pretty consistent across Dylan Becker: Okay. Thank you. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum. Jackson Bogli: Great. Thanks for taking the questions. Maybe just a couple left for me. As you look at the overall softness in the outlook for the quarter and in the forward guide, can you quantify it maybe and break it down between two drivers, one just being the macro softening at your customers and the willingness to spend versus the percent that is coming from the revenue recovery dynamics? If you had to allocate the weakness in the guide to those two factors, how would you weight that? Kimberly Nelson: So, hi, Jeff. What I would say is both of those are important in the numbers. Think of it as how we exited 2025 impacts your starting point then in 2026, and so that has an impact then, obviously, your Q1, your beginning of 2026. And then implied in our guidance, we are lapping those headwinds, and those headwinds actually are both of what you hit upon there, right? It is right-sizing of some contracts as well as some of the dynamics we have seen on the Amazon policy changes. And we do believe that those headwinds, by the second half of the year, we have lapped that. And so that is implied within our guidance for a slight increase in our overall revenue growth second half of year. Timothy Greaves: Okay. Jackson Bogli: And then just maybe secondly, on the pricing front, when you look at individual customers, understanding people maybe downsized the number of connections, but if you look at the pricing and potential pricing pressure on a per-connection basis, is there anything you would call out in terms of the customers maybe getting more price sensitive on a per-connection basis? And kind of along those lines, I remember over the years, periodically, things would pop up about EDI versus more real-time API-based connectivity. Have you seen any shift in the base and thereby pricing pressure accordingly? Chad Collins: Yeah. No. If you look at it on a per-connection basis, I would say it is consistent. And when customers are typically downsizing, it is because they have lost that business with a particular retailer. Or based on the way their cost of goods have changed, they are deciding not to do business in certain ways with certain retailers. So it tends to be driven more from that. On the API side, in most cases, this is not a choice of how to connect. It tends to be more that the wholesale-type connections tend to be EDI. If it is more modern in a marketplace, it tends to be more API. And our network does both. So we support both types. And in fact, when it is API connect, a lot of times there is potentially more value in that for a customer because those API connections tend to be a little bit more complex than the EDI connections. Mhmm. Got it. I will leave it there. And, Kim, congrats. It Jackson Bogli: Has been just a really exceptional tenure. You have been a class act all the way along. So certainly, wish you all the best. Kimberly Nelson: Thank you. Operator: Our next question comes from Mark Schappel with Loop Capital. Timothy Greaves: Hi. This is Tim on for Mark. Thank you for taking my questions. I guess I will ask around the go-to-market strategy. You know, given the new CTO that you onboarded, is there any changes that we should expect or anticipate over the coming year? Chad Collins: Yeah. We are super excited to have Eduardo on the team. Obviously, he played a pivotal role in our big field kickoff event that we just recently had. I would not say you should expect major changes in the go-to-market, but with this wider product portfolio, the opportunity that we have identified to expand ARPU, definitely more customer practices and things that will help us drive expansion of that ARPU with the customer is a priority in our go-to-market, not an exclusive priority. But driving that ARPU, I think, will be a key component of our strategy and therefore a focus going forward. Timothy Greaves: Okay. I think that is the only question I have. Operator: A reminder, if you would like to ask a question, please press star then 1. Our next question comes from Nehal Chokshi with Northland Capital Markets. Lachlan Brown: Yeah. Thank you. Jackson Bogli: Couple of questions for me. One is that Timothy Greaves: I am pretty sure you addressed, but just to be perfectly fair, Chad Collins: You know, why did the 1P customers be flat quarter to quarter? Because the prior two quarters, you know, that was showing good growth again. Kimberly Nelson: Hi, Nehal. I can answer that. We mentioned this on last quarter's earnings call as well. This has to do with the timing of some of those relationship management, formerly known as community enablement, programs. So the color we had given a quarter ago was the timing of those, instead of being in Q4, was going to be in 2026. And as such, we signaled that our expectations were that the 1P customer count would be flat sequentially. And that is, basically, we landed right on with what our expectations were. Chad Collins: Right. Okay. And, do you expect the pace of 1P customer adds to return to what you were seeing in the second quarter and third quarter as we go through calendar 2026? Kimberly Nelson: Sure. So the biggest driver as it relates to the 1P customer count is related to the relationship management, formerly known as the community enablement, programs. So the timing of those programs will have an impact in the timing of the customer adds. And, so, some of the dialogue we have had here on the call is we have a strong community enablement pipeline. More of that, however, will be in, call it, the Q2 to second half of the year. We still run them throughout the year, but more of those would be later on, closer to the second half of the year. So at this point in time, we would assume that Q1 2026 would also probably be flat to Q4 2025 due to the timing. Jackson Bogli: Okay. And then, Chad Collins: General and administrative, Jackson Bogli: That was up 29% year over year for calendar 2025, Chad Collins: Whereas 15%, 16-ish Kimberly Nelson: Percent of revenue. There are various costs in there that you would expect. There have been investments we have been making in some of our back-end tools and technology from both the tools and technology as well as the team, augmenting the team, etcetera. We do have a stated goal of 10% to 15% for G&A over time. Operator: Thank you. This concludes our question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Killam Apartment Real Estate Investment Trust Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on February 12, 2026. I would now like to turn the conference over to Mr. Philip Fraser, President and CEO. Please go ahead. Philip Fraser: Thank you. Good morning, and thank you for joining Killam Apartment REIT's Fourth Quarter and Year Ending December 31, 2025 Conference Call. I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Erin to read our cautionary statement. Erin Cleveland: Thank you, Philip. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operations, strategy, financial performance conditions or otherwise. The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements. Such statements involve numerous inherent risks and uncertainties, and although Killam management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online on SEDAR+. All forward-looking statements made today speak only as of the date which this presentation refers and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws. Philip Fraser: Thank you, Erin. We are very pleased with our strong financial and operating results for the fourth quarter and year ending December 31, 2025. We achieved our 2025 strategic targets, as shown on Slide 2, which included a 6.1% total same-property NOI increase for the year. This growth was driven by 5.4% revenue growth in our same-property apartment portfolio and a 7.8% same property revenue growth in our MHC portfolio and finally, a 4.4% increase in our same-property commercial portfolio. As market demand shift, Killam is focused on occupancy, rental rates and operating costs to achieve positive NOI growth. Our same-property apartment occupancy for 2025 was 97.3%, 30 basis points lower than last year. Average monthly rental rate in our same-property apartment portfolio increased 4.8% year-over-year, balancing our occupancy levels with rent growth resulted in a strong 5.4% increase in the same-property apartment revenue. Despite a 4.1% increase in operating costs, this top line growth enabled us to realize a 40 basis point margin increase in our same-property apartment portfolio. As we began the new year, market rental rates will continue to stabilize in some markets, and we expect to produce solid results by capturing positive leasing spreads from the gap between in-place and market rents in 2026 with our target of both revenue and NOI increasing by at least 3% for our same-property apartment portfolio. Dale will now take us through our financial results in more detail followed by Robert, who will provide an update on our commercial segment. I will conclude with an update on our recent developments and our capital allocation strategy. I will now hand it over to Dale. Dale Noseworthy: Thanks, Phil. Key highlights of Killam's 2025 financial performance are presented on Slide 3. For the full year, net income totaled $29.4 million, a decrease of $638 million year-over-year. This decline was primarily driven by $120.5 million fair value loss on our investment properties, reflecting higher cap rates in select markets and moderating market rents. This compares to $252 million in fair value gains in 2024. In addition, 2024 included a onetime deferred tax recovery of $279 million relating to the completion of the plan of arrangement. These factors more than offset strong underlying operating performance, including a $14.3 million increase in net operating income, driven by same-property growth and contributions from developments completed in 2023 that are now fully stabilized. As a result, Killam delivered solid growth in key performance metrics. FFO per unit increased 4.2% to $1.23, while AFFO per unit rose 5.1%. We were also pleased to see our AFFO payout ratio improved to 69% from 71% in the prior year. Turning to Slide 4. Our fourth quarter results remained strong. Same-property NOI increased 4.5%, supported by revenue growth of 4.1% and expense growth of 3.4%. FFO was $0.30 per unit, representing a 3.4% increase over Q4 2024. Our performance in 2025 reflects the weighted average rental increase of 4.8% across the same property portfolio. With a healthy mark-to-market spread, we continue to achieve rent growth on both renewals and new leasing. As shown on Slide 5, rental rate growth moderated from the peak levels seen in 2024, consistent with broader trends across the Canadian apartment market in the last year. Our experience continues to demonstrate the competitively priced rents drive strong demand and leasing activity. Our teams remain focused on dynamically managing rents, occupancy and incentives across our core markets to maximize revenue growth. We also saw a return to more typical leasing seasonality in the last year with a slowdown in the winter. We have historically achieved peak occupancy in September. This pattern has largely disappeared between 2022 and 2024 due to elevated population growth. We'll be monitoring the upcoming spring and summer leasing season closely and look forward to providing further insight in future quarters. Looking ahead to 2026, we expect our Atlantic markets to continue to outperform, supported by attractive mark-to-market opportunities. As shown on Slide 6, the portfolio-wide mark-to-market spread is approximately 9%. We've seen a decline from the peak mark-to-market in 2024, which reflects a combination of moderation and asking rents and quarterly rent increases we have achieved. Halifax continues to present the greatest opportunity at 15% followed by St. John's Newfoundland and St John, New Brunswick. Bridge Columbia is also positioned to perform well in 2026, supported by strong recent leasing activity, improving occupancy and a 10% mark-to-market spread. Higher interest rates have been a headwind to earnings over the last 4 years. While refinancing remained a drag in 2025, the impact was less pronounced than in 2024 with financing costs increasing 5.9% year-over-year. We believe we are now past the most significant financing headwinds as illustrated on our debt ladder on Slide 7. Year-over-year interest expense growth is expected to begin stabilizing as early as 2027, allowing a greater portion of NOI to flow through to FFO. We've also continued to strengthen our debt profile, with CMHC insured mortgages representing 91% of total apartment mortgage debt at year-end, up from 83% last year. At year-end, debt as a percentage of total assets was 41.9%, shown on Slide 8, reflecting the fair value loss recorded in Q4. Importantly, debt-to-normalized EBITDA improved to 9.66x demonstrating that earnings growth continues to outpace increases in leverage. We remain focused on further improving this metric in 2026. Looking forward, we're optimistic about our ability to grow NOI and FFO per unit. In addition to same property performance and easing interest expense pressure, we expect increasing contributions from our development pipeline. In 2026, The Carrick is expected to contribute approximately $800,000 of year-over-year FFO growth now that it is nearing full lease-up. In addition, upon completion and lease-up, Brightwood and Eventide will generate additional FFO contributions. We continue to expect AFFO growth to outpace FFO growth as capital from asset dispositions is redeployed into newer, more efficient properties. I'll now turn the call over to Robert for operational highlights. Robert Richardson: Thank you, Dale, and good morning, everyone. I'll address Killam's capital investment strategy, share with you the results of Killam's annual resident survey and highlight Killam's commercial portfolio. Killam's maintenance capital investment totaled $82 million in 2025, down from $90 million in 2024, an $8 million year-over-year reduction. This decrease reflects several initiatives, including a portfolio-wide preventive maintenance program featuring energy-efficient upgrades such as solar panels and building automation systems that enable remote monitoring and early detection of problem areas. Investment in 2,062 repositioned suites over the past 5 years, improving asset quality while delivering 15% to 20% returns, continued focus on developing and acquiring newer assets. Based on 2026 forecasted NOI, 32% of Killam's apartments were built within the past 10 years. The portfolio's average age is 29 years, which supports lower maintenance CapEx requirements and allows capital to be redirected to value-enhancing projects. To date, Killam has built or under construction over 20 buildings totaling 2,363 suites. The strategic disposition of non-core capital-intensive assets also improves Killam's working capital flexibility. Killam's annual survey of residents is an important tool for Killam as it provides insight into our residents' priorities for their unit and building. Based on this, we can make informed decisions. For more than 15 years, Killam has engaged independent research firms to survey our residents. Narrative Research's 2025 Resident Survey report the following on 3 key metrics: resident satisfaction with condition of current apartment, 87% score; professionalism of maintenance staff, 91.4%; residents' likelihood to recommend Killam to friends and family, 87%. These results are consistent with prior years and are considered strong, particularly given current market uncertainty. Killam's commercial portfolio was very busy in 2025. Our commercial team leased 56,000 square feet of vacancy at an average base rate of $20 per square foot net and a net effective rate of $12 per square foot, allowing for cost of tenant inducements, fees, et cetera. As well, Killam renewed 117,000 square feet at an average base rate of $20 per square foot and delivered a weighted average increase on in-place rents of 15%. Killam's commercial portfolio totals 1.2 million square feet and is 97% occupied. Approximately 200,000 square feet are ancillary or mixed-use retail within apartment properties with financial results booked to the residential portfolio. The remaining 1 million square feet are concentrated in 3 primary assets. Brewery Market contains 143,000 square feet and is a historic Halifax property with a mix of retail and office tenants located on Lower Water Street adjacent to Killam's 240 suite, The Alexander and The Governor with 12 luxury suites, the Brewery Market is 96.1% occupied. Westmount Place is a 305,000 square foot asset located in Waterloo on 18.1 acres acquired in 2018 for its location and multi-residential development potential, a testament to the location and quality of Killam's new builds is the 130-suite property, The Carrick. It opened in June 2025 and is now 95% leased. The Westmount site can support an additional 750 to 1,000 suites depending on market demand. Westmount Place is anchored by a 33,000 square foot T&T Supermarket, a 20,000 square foot Michaels Craft Store and a 197,000 square foot 4-storey office buildings occupied by Sun Life paying $13.36 per square foot as rent. As many on this call would know, Sun Life will vacate March 31, 2026. We have identified the opportunity to relocate an existing retail tenant to the ground floor of the office building and have toured the site with and are pricing an offer for a highly regarded national retailer to take the dominant corner fronting Westmount Road. Westmount Place already has a roster of tenants that are medical related, including dentistry, optical, pharmacy, a podiatrist and a chiropractor, and we plan to build on this cohort. Additional inquiries include potential fitness technology and insurance tenants. Retail rental rates are expected to be in the $20 to $25 per square foot range and offices in the $15 to $20 per square foot range. Royalty Crossing is an enclosed mall containing 419,000 square feet in Charlottetown. Killam acquired full majority ownership in phases from 2019 to 2021 and now hold 75% alongside a 25% local JV partner. Since 2021, annual revenue has increased from $4.6 million to $6.8 million, a 48% increase while NOI has grown from $3 million to $5.5 million, an 83% increase, representing a 12% return on investment. Killam has added 51,000 square feet of leasable area with another 15,000 square feet scheduled for occupancy this year bringing the total of 434,000 square feet. Enhancements include a premier food court with all new fixtures, ample sunlight and a cohort of food offerings for the whole family. Under construction presently is the new 12,000 square foot PEI patient medical center. By applying the same focused and value-driven approach that produced such strong results at Royalty Crossing, we are confident in our ability to transform Westmount Place and deliver attractive long-term returns for unitholders. I will now hand you back to Philip. Philip Fraser: Thank you, Robert. During the fourth quarter, Killam completed the disposition of 1 small property in PEI. For the year, we completed the disposition of 23 properties totaling 1,139 units and 2 parcels of land for a combined sale price of $148 million with net cash proceeds of $87.8 million. Proceeds were used to fund $168 million of property acquisitions containing 416 units, which is shown on Slide 12. The sale of these Atlantic Canadian properties align with Killam's strategy to optimize value from its portfolio and to increase geographical diversification outside Atlantic Canada. Our disposition target for 2026 is to recycle a minimum of $50 million in assets. These dispositions are in the early stages, and we will have more details by the time we release our Q1 results in May. The capital will be used to pay down our line of credit used for our NCIB program or for acquisitions in our key markets. Killam invested $6.8 million in energy initiatives during 2025, including $2.1 million in Q4. At the end of 2025, our solar power production capacity was 3.66 megawatts per year, producing approximately 8.54% of our operationally controlled electricity. We have 6 new solar panel installations planned for 2026, 5 in Ontario and 1 in Halifax. Half of these will be completed in 2026 and the other half will be in 2027. These investments represent a total production capacity of 1.15 megawatts or an additional 2.5% of our operationally controlled electricity. Killam continues to advance its development program in 2025. The Carrick, as shown on Slide 14, opened on June 1, 2025 and is now 95% leased. Brightwood, with the 128-unit development we started in January, is scheduled to be completed the first week of May 2026. Progress photos of the building are on Slide 15. Leasing has started at this property, and we are currently 7% leased. As shown on Slide 16, construction continues at the Eventide, the 55-unit building located in Halifax and it is expected to be completed by Q4 of this year. Pre-leasing has started. Slide 17 shows recent pictures of the construction site at Nolan Hill Phase 3, our 296-unit JV development in Calgary that we have a 10% ownership interest. Completion is expected to be Q3 2027. In closing, 2025 was a strong year for Killam, highlighted by solid operating results. While we expect 2026 to deliver a more modest pace of growth, we believe it will be a positive year as we move beyond the peak of interest expense headwinds and start to reposition our Westmount commercial property. Looking further ahead into 2027, we see multiple areas for growth. Many of our key markets are positioned to benefit from increased federal defense spending and related economic activity. In Alberta and Newfoundland, the oil and gas industry will help support and grow the provincial economies. Also, as Canada works to reach 2% of GDP spending on defense, Victoria and especially Halifax will see large D&D investments in growth. A full list of the recent announcements is shown on Slide 18. Our geographical diversification continues to demonstrate its value, and we believe the portfolio is exceptionally well positioned. To conclude, we are very pleased with our 2025 performance and remain committed to investing in high-quality assets and developments and to continue to execute our overall strategy and create value for all of our unitholders. I would like to thank our employees for their hard work and dedication. Thank you. I will now open up the call for questions. Operator: [Operator Instructions] And we have our first question from Mike Markidis with BMO. Michael Markidis: Phil, I don't think you mentioned it in your remarks, but maybe you could just give us a little bit of color on the recent acquisition that you announced. And specifically, I'm just curious on the cap rate of 5%, if that represents market, if it was off market. I'm just trying to circle that and reconcile it with the weighted average capital you guys use on your Halifax portfolio. Philip Fraser: Yes. Mike, it's Phil here. Yes, thanks for the question. I mean this is an asset that was built in 1973. So even when we started Killam in 2002, it was one of almost the marquee sort of assets in the city. It was built by a local developer at the time, and he owned it right up until the day that we bought it from him. And he always knew that we were interested in it. And when they got time to sell it, he gave us a call. So it's totally off market. We like the building and comes with 4.4-acre site, 108 units. The -- it's made up of 2s and 3s. The 2 bedrooms are 1,250 square feet. The 3 bedrooms are 1,400 square feet. And the interesting thing was that it is catered to an older demographic, plus 55%, very little wear and tear on the building, maintained at about the highest standard that we've ever seen it coming from -- like from a purchase. And we just know that because the building is fully electric, meaning it's heated by electric and the size of the site, we will be able, over the next year or so, to install solar panels. We're looking at it now on the roof, on the side and into the parking lots that we'll be able to reduce the operating costs down significantly over the next couple of years. And on a 5% cap, you look at the $30 million basically, you can figure out the NOI, but we can move up that sort of cap rates in the next couple of years, half of it on the operating side and half of it was just natural sort of increases in rents. Michael Markidis: Okay. That's great. I was just curious, tying that in the acquisition market, if you could give us a sense of how you're seeing returns for acquisitions today versus developments. I guess you started Nolan Hill, and that seems like it's going to be finished in Q3 of '27. So dovetailing that to do you guys plan to start any other projects in the near term? Philip Fraser: Well, to answer the first part of your question, I mean, in terms of what's out there and what we're seeing, there are a few opportunities, not saying that we're going to buy them. But really, I think where pricing is, depending on the asset, some of this -- the product is up around a 5% all-cash yield in other markets. There's opportunities in Alberta that you could buy between 5% and 5.25%. So you know what, I mean it's just a current reflection of where the market is depending on the market you're in versus -- again, these are one-off deals with relationships or whatever. On the development side, which I set it on the last conference call, the new developments if we can get them out of the ground and that's -- there's an if there because everything seems to be taking longer than our expectation, it would have to have all the current government-assisted funding to make these things work. And again, the biggest part of it that makes them work is if you have an affordable component than your average rent that you're asking from a lease-up point of view is lower than what is pure market, and that is the key today to get these things up and built and then all the other sort of advantages from an interest rate or less cost on the CMHC financing. Michael Markidis: Okay. Got it. So it's achieving in excess of 5%, but with an affordable rent component. Got it. Okay. Just last one for me before I turn it back. Rob, you gave some -- a little bit of color on progress at Westmount and the commercial backfill that has to happen there. I think it was maybe last part of the call before, you gave sort of a timeline of how you expected the lease-up to occur and the NOI replacement to occur. I was just wondering if you could give us some updated thoughts on that. Robert Richardson: Yes. So I would say to you that they may be pushed out a little bit. We've been working diligently for the last 6 months with our architects, the engineers and taking a look at the work we want to do to reposition the building, and it will probably take longer. We won't see any increase from the renovations until 2027 -- summer of '27. That's what it's looking like. So we have identified one of our tenants that can take up some more additional space, but there's other things that need to be done to the building that are a bit more structural. And so we need time to get that done. Michael Markidis: Okay. So no replacement NOI until mid '27, if I heard you correctly. And then just on the total cost, has there been any change to the scope of expected CapEx? Robert Richardson: Yes. So there's another good number. We're working our way through it. And it looks like it's going to be a total cost of $15 million and see how that goes. Operator: Our next question is from Jonathan Kelcher with TD Cowen. Jonathan Kelcher: Just turning to your targets for 2026. Just on the revenue target of 3% plus to the apartment portfolio, like can you give us a little bit of a breakdown between renewals versus turnover versus occupancy expectations? And then just, I guess, related to that, in the MD&A, you talked about market rent -- potentially see market rent growth in the second half of the year. Is any of that built into your rent growth assumption? Dale Noseworthy: When we look at that -- the revenue number, you're right, it is a mix. Overall, probably close to 4% revenue growth. In terms of turns and renewals, we do renewals is probably in the -- around the 3% range, maybe 3.5% depending, and on the turns, 4 to 7. I mean it really does change based on which units are turning every month, and we're watching it closely, and it jumps around a bit. So -- but averaging approximately 4%, and then we've got incentives, which incentives are likely to increase a little bit. What we are seeing is in many markets where incentives have been used [ non-regularly ] over the last year, they're actually moderating in terms of number of units that are having incentives. Philip Fraser: What we're saying is maybe 80 basis points to 90 basis points on the incentive side. Dale Noseworthy: Yes. Philip Fraser: So we're watching those closely per market per building. Dale Noseworthy: And then the other piece, of course, is vacancy. And so we would have seen in Q4, we had a little bit of an uptick in vacancy, but that's we're seeing good leasing momentum. So in the second half of the year, we could see some year-over-year improvement there. So of course, all of those factors coming together. When we look at market rents increasing potentially in the second half of the year, I mean, as we see leasing momentum and we're having the discussions about, okay, well, we've only got a couple of leases -- units to lease, can we start moving those rents up. Those discussions are already starting and it's February. So of course, spring and summer demand will be really important. But Newfoundland is one example that market rents have continued to move up. And even in cities like Halifax and across Atlantic and across the market, frankly, it really depends on the unit. And there's lots of demand for those affordable units. So we are looking asset by asset, market by market. But it's -- as we look to the spring leasing, we are feeling cautiously optimistic. Jonathan Kelcher: That's good. That's helpful. And then secondly, on the outlook and -- I didn't go back, but I guess I'd have to go back a bunch of years to find out -- to find one where you didn't have a geographic diversification target. Can I -- can we take that to mean that you guys are generally happy with your geographic mix right now? Philip Fraser: I'd say for 2026, 2027, yes, because again, Atlantic Canada, I think, is going to outperform the other parts of the country, and we see a lot of strength here. But over time, depending on what happens with the trade and all the uncertainty that's in other parts of the country, eventually Ontario will start to show some good results and D.C. will start to pick up and even Alberta. I mean we still have a lot of things in Alberta as well. But what we tried to highlight as well this year for this call was the strength in basically Newfoundland, New Brunswick and especially Halifax with all the sort of planning and actual spending that's happening because of the ramp-up in defense for the country. Jonathan Kelcher: Okay. That's helpful. And then just lastly on -- you've already done the one acquisition, which sounds like very opportunistic. Is the $50 million in dispositions, should we think about it as a net number? Or is it like you plan on selling about $50 million and you'll buy what you buy? Philip Fraser: Yes. I mean there's not a lot of sort of concentration on the acquisition side at this time. So really, from a disposition point of view, we have a few deals early, early stages. I'll hopefully be able to give a lot more color in May. But again, these ones are -- for us, they're fairly good size. And -- but there's -- again, right now, there's no certainty. So I'm sure that we can hit the $50 million this year. Operator: And we have our next question from Kyle Stanley with Desjardins. Kyle Stanley: Maybe just sticking with the dispositions for a second. $50 million is a little bit below what you've done in the last couple of years. Is that a reflection of you just being happier with where you are on the capital recycling front? Or has something changed in the market where you just see transaction activity slowing a bit? Philip Fraser: It's definitely happy with the assets we have and it's taken longer to go through our portfolio and make that decision to sell. So you look at some of these assets, and I just think that from the top to the bottom, we've got a really good portfolio these days. So it's hard to find the next few. Kyle Stanley: Okay. No, that makes sense. As we think about in-suite CapEx, I mean, obviously, with the competitive leasing environment, are you having to invest more on suite turn today to just ensure that units remain competitive? Or I guess maybe looking from another way, are you seeing an opportunity to invest more in suites today, and that will allow for maybe greater rent or quicker lease up? Dale Noseworthy: I don't think it's a little bit of the opposite right now because we have continued to invest throughout the piece on those -- on lease terms, in terms of our repositioning. So now we're really looking to say when we're doing those more extensive repositionings, we have to make sure that, that incremental rent we can get justifies the capital and as if there's markets where we're completing [ pay ] with new supply, we might not be able to get the same high, high rent we could get a couple of years ago. So I would say, overall, we'll likely see a slight decrease, but it reflects that we have continued to invest throughout the piece and our units are in good shape. Philip Fraser: I mean, another way to look at that, Kyle, is that we still have -- the average rent is $1,600 across the country, there's at least 60% of all our units are below that number. And those are the ones today that are most sought after, the affordable ones. So sometimes even if somebody moves, you got to go in and look at the current condition of that unit and it might be a smaller, quicker sort of renovation getting it ready for the next tenant. And we don't want to price those units to the point where they're going to take a long time or longer to lease than they could be in this market. So the lower price point is what's being sought after right across the country. Dale Noseworthy: So we are -- and we're looking opportunity building by building, unit by unit and what makes the most sense. Robert Richardson: As well we've done over 2,000 repositionings in the last 5 years. So those assets, when they come up for renewal, don't really need that much work and we're seeing it. Kyle Stanley: Okay. No, that's very helpful and definitely encouraging in terms of your CapEx outlook for the year ahead. Just lastly, maybe sticking with the affordability angle. Clearly, the affordability in Halifax is probably the reason why you've been able to maintain such high occupancy. When you are seeing tenants move out of your assets in Halifax, what's the reason being given for the most part, that is probably one of the most affordable options in the market? Philip Fraser: It's the same reasons like pre-COVID. I mean it's household formation, moving away, going into the next level of care, whether it's a nursing home or somewhere in between. I mean they're all just the same reasons. I mean, people -- and now compared to even 2 or 3 years ago, with a little bit more vacancy in the whole marketplace right across the country, including Halifax, people have choices. It's a more balanced market. So we're almost -- we go back, we are reverting back to the norms, pre-COVID. Operator: We have our next question from Jimmy Shan with RBC Capital Markets. Khing Shan: Just in terms of the defense spending, are you actually starting to see the impact of that today? Or it sounded like when you were talking about it, it's more of a 2027 event. And I'm just curious what you're seeing on the ground. Philip Fraser: I think when you look around this town and some of these projects have actually started, I mean, if you can't -- and if you drive by, maybe there's no activity on the actual site. But all the engineering work, all the presort of construction work is being done. And even if you start to go around and look at the companies that have taken a position or open up an office in Halifax related to defense, there's a lot of new companies moving in. Khing Shan: What about in terms -- like the Department of National Defense, I think part of the budget was to increase recruitment and pay increases. Is that already starting to happen. Philip Fraser: 22% increase in pay for all military, that happened a few months ago. And I saw something in the news the other day that January was one of their best recruiting months in the last number of years. Khing Shan: Okay. And then in terms of the supply in Halifax, sort of do you know kind of where we are in terms of the delivery cycle? Like when do you expect that we'll see -- we'll be sort of past the peak in delivery? Philip Fraser: Well, I believe that this -- whatever is coming out of the ground now, which will get delivered in 3 or 4 years, it's probably a little peak because, again, from a pure just all the local developers, I mean, in the pricing, I just think they're sort of -- we're coming to the end of the big cycle, and now it's about absorption over time. So -- and again, from -- you know, in trying to anticipate this question from somebody here today, you also got to look at it about or Halifax, what submarkets do you have your biggest nodes of existing apartments and what's actually being built around that and that really can sort of -- you can almost kind of predict a little bit better when you think about that, about how we're going to be impacted with all this new supply. So I look at it, I think we're very defensive over the next 3 to 4 years, for sure. Operator: [Operator Instructions] Our next question is from Sairam Srinivas with ATB Capital Markets. Sairam Srinivas: So going back to comment on Halifax. How should we be tying that to the same property rent growth metrics? So over the last couple of -- obviously, 8 quarters, Halifax has been leading the -- leading every other city. But over the last couple of quarters, we've seen that trend down a bit. So how should we marry that with your comment on the strength in the market there? Dale Noseworthy: I think Halifax will continue to do well. But as you said, it's been trending down as has the whole country. So I think that we will follow that same trend as back to the norm, except I do think with a stronger mark-to-market and with the 5% on renewal, Halifax should be a top performer in '26 -- and yes, and likely the '27 as well, when we look at those same -- I expect that we'll be in a similar situation in '27. Operator: Our next question is from Matt Kornack with National Bank Capital Markets. Matt Kornack: Just one quick one for me. Notwithstanding a more competitive market, your turnover has been kind of -- at least for Q4, it was flat year-over-year. percentage-wise. Is that a function of you trying to keep tenants in place? Or is it that there just isn't an option for these people to go to. I would have thought with a more competitive market that turnover would have maybe increased. Philip Fraser: Well, I think it did from 20% to 22% for the year. Matt Kornack: Yes, I think it was up slightly, but Q4, I think, was pretty flat to Q4. Philip Fraser: Yes. Erin Cleveland: There is definitely a focus though on trying to maintain the tenants that we have today. Philip Fraser: But we have a pretty good leasing month too in December that kind of offset some of that. Robert Richardson: We started that in September. We know what happens in the latter part of the year, and we really did work hard and we did the year before to make sure that we can capture as much as our existing base and not have them move elsewhere. Matt Kornack: Okay. And then maybe as a follow-up, are we starting to kind of fully work through the above market or potentially above-market rents that would have been marked probably a year ago? Or is there still more of that kind of -- and is it turning in a higher propensity within your portfolio at this point? Dale Noseworthy: Yes, I think we have, and we're looking at some of those buildings that were leased up in the last couple of years where market rents were -- units were leased at the peak, and we were looking at a couple that were above 50% churn in this last year. So when you look year-over-year, yes, some of them are getting flatter, yes. Matt Kornack: And then third, last question. Can you give a sense on the Alexander, I guess that would be directly impacted by a new supplier or be competing with new supply, just how that property is performing at this point? Erin Cleveland: Yes. I think we're seeing like a little bit more turnover, but there's still lots of opportunity in that building because it was least so long ago. There's a lot of market -- or rents that are still well below market in that particular building. Robert Richardson: And it's centrally located. Matt Kornack: And a beautiful product. Operator: Our next question is from Dean Wilkinson with CIBC. Dean Wilkinson: Phil, just as you look across your opportunity set and you'll have money from recycling. It would appear to me that you can develop, you can buy assets, you can pay down debt, but the best deal in talent might be buying back your own units at an implied cap rate north of 6%. What are your thoughts on just the priority of how you're looking at that and you were active in Q4. Could we expect some more of that? Philip Fraser: I would -- yes, the answer is to expect more on the NCIB. I mean it is between that and paying down debt would be the first bucket of priorities. Operator: And thank you. There are no further questions at this time. I will now turn the call over to Mr. Philip Fraser for closing remarks. Philip Fraser: Thank you. This concludes Killam's Q4 2025 Analyst Call. Thank you for listening and participating today. We look forward to reporting Q1 2026 financial results on May 7. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. 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Operator: Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal, Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following today's presentation, there will be an opportunity to have a question and answer session. This call today is being recorded and will be available for replay once the call is over on the company's website. I would now like to turn the call over to Brian M. Chopin, Chief Accounting Officer and Controller. Please go ahead, sir. Good afternoon, and welcome, everyone, to Warrior Met Coal, Inc.'s fourth quarter and full year 2025 Earnings Conference Call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to degrees uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC, may cause our actual future results to be materially different from those expected in our forward-looking statements. We do not undertake to update our forward-looking statements whether as a result of new information, future events, or otherwise, except as may be required by law. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. We will also be discussing certain non-GAAP financial measures as defined and reconciled to comparable GAAP financial measures in our fourth quarter press release furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we will be filing our Form 10-K for the year ended 12/31/2025 with the SEC this afternoon. You can find additional information regarding the company on our website at www.warriormetcoal.com, which also includes a fourth quarter supplemental slide deck that was posted this afternoon. Today, on the call with me are Mr. Walter J. Scheller, Chief Executive Officer, and Mr. Dale W. Boyles, Chief Financial Officer. After our formal remarks, we will be happy to answer any questions. With that, I will now turn the call over to Walter J. Scheller. Thanks, Brian. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full year 2025 results. I will start by providing an overview of the quarter before Dale reviews our results in additional detail. 2025 was a transformative year for Warrior Met Coal, Inc. as Blue Creek began reshaping our production profile, cost structure, and long-term earnings potential. This performance was exemplified by our fourth quarter operational and financial results, which exceeded our expectations. As we previously communicated, the longwall operations of Blue Creek began production during the fourth quarter, eight months ahead of schedule, on budget, and funded by cash flows from operations. In continuing our trend of operational excellence throughout the entire Blue Creek project, the ramp-up of the Blue Creek longwall was remarkably smooth, especially for a project of this scale, and delivered a strong operating performance during the fourth quarter. We achieved an annualized run rate of production during the quarter that well supports our increased volume guidance for 2026. I will discuss our 2026 guidance later in my comments. Our strong performance in the fourth quarter, including a record-high quarterly sales volume, wrapped up a remarkably successful year despite weak market conditions for steelmaking coal. We achieved double-digit volume growth in both sales and production volumes for the full year 2025, which were also record-high levels of output for the company. This performance continued to reduce our first quartile cash costs, leveraging the inherently lower cost structure of the Blue Creek mine. In addition to the Blue Creek ramp-up, both Mine 7 and Mine 4 continued their high standards of strong performance, which was particularly important to the overall success of the company. Mine 4 set a new record-high output for both sales and production volume. Total sales volume for 2025 was 9,600,000 short tons, a record high and a 21% increase over the prior year. Production volume was 10,200,000 short tons, also a record high and a 24% increase over 2024. Now let me turn to more specifics on the market conditions during the fourth quarter. Before I share more detail on our operational and financial performance, the primary underlying drivers of the weak steelmaking coal markets for the fourth quarter were a continuation of the same factors we have been discussing each quarter for the past two years. In fact, Chinese steel export volumes for 2025 set a new record high of 119,000,000 metric tons, a 7.2% increase year over year. Chinese crude steel production decreased by 4.4% during the same period, prompting the country to contemplate production controls and implement export licenses. Beyond the sustained strength in key markets such as India, which grew its pig iron production by over 6% in 2025, global steel fundamentals have not shown significant improvement in the last couple of years. While global steelmaking coal markets remain challenged, a continuation of trends we have navigated successfully for the past two years, Warrior's disciplined execution and early contributions from Blue Creek allowed us to outperform despite the environment. Our primary index, the PLV FOB Australia, performed above our expectations for the fourth quarter and averaged $182 per short ton, which was the highest quarterly average in 2025 and marked the first time at that level since December 2024. The index average was 9%, or $15 per ton, higher than the third quarter of 2025 and was 1% lower than the fourth quarter of 2024. As for the main second-tier indices, the Australian LV HCC index price continued its recovery from its low point in the second quarter and averaged $154 per short ton for the fourth quarter. This was $17 per ton, or 13%, higher than the third quarter of 2025 and 1% higher than the fourth quarter of 2024. As a result, the relativity of the Australian LV HCC index price to the Australian PLV index price improved from 82% for the third quarter to 85% for the fourth quarter of 2025. In contrast to the Australian LV index price, the average East Coast HVA index price decreased $6 per ton, or 4%, in the fourth quarter from the third quarter and averaged $135 per short ton. As a result, the relativity decreased from 85% for the third quarter to 75% for the fourth quarter of 2025. We achieved a gross price realization of 75% for the fourth quarter of 2025 compared to 83% in the third quarter of 2025. While the average of both main pricing indices increased in the fourth quarter compared to the third quarter of 2025, our lower gross price realization was primarily driven by a combination of four factors. First, our sales mix of High Vol A quality was 8% higher. Second, that higher sales mix of High Vol A quality was primarily sold into the Pacific Basin. We sold 18% more volume into the Pacific Basin in the fourth quarter than the third quarter of 2025. Third, demurrage costs were temporarily higher in the fourth quarter due to longer vessel loading queues that were attributed to modernization work on a ship loader at the terminal. And fourth, we continue to experience elevated freight rates into the Pacific Basin. As we continue to ramp up Blue Creek production and sales volume, our quarterly gross price realization may be volatile depending upon the relative index price, product mix, geography, tariffs, and freight rates to the Pacific Basin. However, on a long-term basis, including Blue Creek, we expect our annual gross price realization to be approximately 80% to 85%, assuming the relativities of the Australian LV HCC index price and U.S. East Coast HVA index price to the Australian PLV index price historical averages. However, this may not be achievable in 2026 and not until the overall market fundamentals of supply and demand become more balanced across the regions of the world. While Blue Creek product mix will influence our long-term average net selling price, Blue Creek's significantly lower cost structure is expected to more than offset this and drive substantial margin expansion for the company. Strong contractual demand combined with excellent performance from our legacy mines and the additional contribution from Blue Creek enabled Warrior to achieve a record-high quarterly sales volume in the fourth quarter of 2,900,000 short tons. This result compares to 1,900,000 tons in the same quarter of 2024, representing a 53% increase. We sold 881,000 tons of Blue Creek steelmaking coal during the fourth quarter of 2025, which were contractual volumes sold primarily into Asia. Our sales by geography for the fourth quarter breakdown is as follows: 57% into Asia, 34% into Europe, and 9% into South America. Our spot volume was 6% for the fourth quarter of 2025 and was 9% for the full year. Production volume in the fourth quarter of 2025 was a record-high 3,400,000 short tons compared to 2,100,000 in the same quarter of last year, representing a 61% increase. Production from our Blue Creek mine was 1,300,000 tons during the fourth quarter and exceeded our expectations. Our coal inventory levels increased to 1,600,000 short tons at the end of December compared to 1,100,000 tons at the end of September 2025. The increase in inventory reflects the early startup of Blue Creek's longwall production. The early startup of the Blue Creek longwall was a major contributor to the higher volumes and profitability in the fourth quarter and for the full year 2025. As I noted earlier, the ramp-up of production went smoothly and has already achieved a quarterly run rate of 1,500,000 short tons. However, given the expected weak market conditions for steelmaking coal in 2026, we will start the year with an expected production level of 4,500,000 short tons from Blue Creek. We plan to sell the excess inventory that was built up in the fourth quarter before we ramp to a higher production level. We plan to ramp production in line with increases in contractual volumes to ensure we support pricing discipline while maximizing long-term value. Financially, we dedicated another $69,000,000 of capital expenditures in the fourth quarter and $240,000,000 for the full year 2025 to the Blue Creek project. That brings the total project capital expenditures to date to $957,000,000. As a reminder, this is on budget and fully paid out of cash flow without any funded debt. Our total project estimate remains unchanged, ranging from $995,000,000 to $1,075,000,000. The remaining capital to be spent on the Blue Creek project is expected to occur by the end of 2026. The remaining work is primarily related to finishing the barge loadout, finishing a third storage silo at the rail loadout, paving roads, completing storage and shop buildings, and other final project details. None of this final work should have any impact on production from the new mine. Let me take a moment to step back and summarize a few key highlights for the year 2025. First, we were able to start the Blue Creek longwall eight months ahead of schedule, remain on budget, and fund the entire project out of cash flow from operations. Second, adding Blue Creek to our production profile adds significant scale to our operations and significantly further improves the company's first quartile cost curve position, which is expected to drive margin expansion in the future. Third, we were successful in strategically expanding our total reserve base by finalizing two federal coal leases to obtain 53,000,000 short tons of additional reserves. This also created access to other additional privately owned reserves. Fourth, while we made significant investments in Blue Creek, we managed our costs and spending to meet or exceed all of our guidance targets for 2025. I will now turn the call over to Dale W. Boyles for the financial results. Thanks, Walt. Our fourth quarter results continued the sequential improvement quarter after quarter throughout 2025. As Walt discussed earlier, the steelmaking coal markets continue to be pressured in the fourth quarter by the same factors that we have discussed over the last two years. Despite these market conditions, we continue to outperform expectations for 2025 as we met or exceeded our full year 2025 guidance targets on the back of a strong fourth quarter both operationally and financially. Let me first highlight our fourth quarter financial results compared to the third quarter of 2025. Our fourth quarter adjusted EBITDA of $93,000,000 was 31% higher than the third quarter of 2025, primarily due to the following factors: First, our sales volumes were 22% higher in the fourth quarter, including an increase of tons sold from Blue Creek. Second, our average net selling price was dollars per ton lower in the fourth quarter, primarily due to a higher mix of High Vol A volume sold, and that volume was sold into the Pacific Basin on a CFR basis at elevated freight rates. In addition, demurrage was temporarily higher in the fourth quarter as Walt noted earlier. This result was offset by the increase in the average price indices quarter over quarter. Third, cash cost per ton were $7 lower in the fourth quarter and were primarily attributed to Blue Creek's inherently low cost structure, which increased our cash margin per ton. And finally, operating cash flows of $76,000,000 were $29,000,000 lower than the third quarter of 2025. This result is attributed to the increase in working capital, primarily for accounts receivable and inventory, as we ramped up the Blue Creek longwall in the fourth quarter. Our spending for capital expenditures and mine development were a combined $20,000,000 lower in the fourth quarter compared to the third quarter of 2025, primarily due to lower investments in Blue Creek. Free cash flow was about $9,000,000 lower in the fourth quarter. Now let me compare the fourth quarter of 2025 to the prior year fourth quarter results. Warrior Met Coal, Inc. recorded net income of $23,000,000, or $0.44 per diluted share, compared to net income of $1,000,000, or $0.02 per diluted share, in the same quarter of 2024. We reported adjusted EBITDA of $93,000,000 in the fourth quarter of 2025 compared to $53,000,000 in the same quarter of 2024, an increase of 75%. Our adjusted EBITDA margin grew to 24% in the fourth quarter of 2025 compared to 18% in the same quarter of last year, despite the PLV index being 1.3% lower in the fourth quarter of 2025. On a per-ton basis, our adjusted EBITDA margin grew to $32 per short ton in the fourth quarter of 2025 compared to $28 in last year's fourth quarter. The primary drivers of these improvements came from 53% higher sales volumes, lower cash cost including the low-cost Blue Creek tons sold, lower variable transportation and royalty cost, and tightly managing and controlling all other production cost. These improvements were partially offset by a 16% lower average net selling price. Total revenues were $384,000,000 in the fourth quarter of this year compared to $297,000,000 in the same quarter of last year. The total increase of $87,000,000 was primarily due to the 53% higher sales volumes impact of $154,000,000, offset by the impact of a decrease in average gross selling prices of $52,000,000 and a higher mix of High Vol A tons sold of $13,000,000. In addition, demurrage and other charges were $6,000,000 higher compared to last year's fourth quarter. This resulted in an average net selling price of $130 per short ton in the fourth quarter of 2025 compared to $155 per ton in the fourth quarter of last year. Cash cost of sales were $270,000,000, or 72% of mining revenues, in the fourth quarter of this year compared to $226,000,000, or 77% of mining revenues, in the fourth quarter of last year. Of the $44,000,000 net increase in cash cost of sales, there was a $119,000,000 increase in cost which were attributed to the 53% increase in sales volumes. These higher costs were offset partially by $70,000,000 of lower costs that were driven by leverage of lower-cost Blue Creek tons sold and lower variable transportation and royalty cost on lower average steelmaking coal price indices. In addition, we continue to rationalize and tightly manage our spending on supplies, repairs, and maintenance expenses throughout the operations to maintain our low-cost profile. Cash cost of sales per short ton, FOB port, was approximately $94 in the fourth quarter of 2025 compared to $120 in the same quarter last year. The 22% decrease was primarily related to lower overall spending at the legacy mines of $11 per ton due to tightly managing our overall spending, lower variable participation royalty cost of $5 per ton on lower steel prices, and $10 per ton from the incremental sales of low-cost Blue Creek tons. These lower costs resulted in higher cash margins per ton. Our fourth quarter 2025 SG&A expenses were $18,000,000 and were less than $1,000,000 higher than the same quarter of the prior year, primarily due to higher employee-related expenses. Depreciation and depletion expenses were $56,000,000, which was higher than the fourth quarter of 2024, primarily due to the additional assets placed into service at Blue Creek and the higher sales volumes in 2025. We recorded income tax expense of approximately $13,000,000 on pretax income of $36,000,000 in the fourth quarter of 2025. Our full-year 2025 effective income tax rate varied from the statutory federal income tax rate of 21% primarily due to tax benefits recognized for depletion expense, marginal gas well credits, and a foreign-derived intangible income deduction, which exceeded pre-tax book income, resulting in an effective income tax rate of a negative 5% for the full year. Now let's turn to cash flows for the fourth quarter of 2025. Cash flows from operating activities were $76,000,000 in the fourth quarter of 2025 and were $22,000,000 higher than the previous year's fourth quarter, despite Blue Creek's negative impact on working capital. Working capital increased by $8,000,000 during the fourth quarter as the company ramped up production and sales volumes at Blue Creek. Free cash flow was a negative $28,000,000 due to $76,000,000 in operating cash flows less cash used for capital expenditures and mine development of $104,000,000. Capital spending totaled $94,000,000, which included $69,000,000 spent on Blue Creek as previously noted. Mine development costs for Blue Creek in the fourth quarter were $10,000,000. Now that Blue Creek longwall has started production, we do not expect to incur any mine development cost in 2026. While investments in Blue Creek and other development projects drove higher capital spending in 2025, the company continued to maintain strong liquidity and delivered year-over-year improvements in cost efficiency, positioning Warrior Met Coal, Inc. for enhanced profitability as Blue Creek ramps toward full production. Our total available liquidity at the end of the fourth quarter this year was $484,000,000 and consisted of cash and cash equivalents of $300,000,000, short-term investments of $43,000,000, and $141,000,000 available under our ABL facility. And finally, let me turn to our current outlook and guidance for the full year 2026 as detailed in our earnings release. We expect steelmaking coal markets to remain generally consistent with 2025 levels. However, we enter 2026 from a position of significant strength with higher contracted volumes, record production capacity, and a structurally lower cost base driven by Blue Creek. While the assumption that prices will remain consistent with 2025 may seem conservative given the recent rally in index pricing, we believe the recent global mining production disruptions and inclement weather events may be temporary. We expect PLV prices may revert downward following the remediation of these disruptions. We anticipate total sales and production volumes to be significantly higher in 2026 than 2025 as a result of starting the Blue Creek longwall eight months early and reaching new record-high output levels. Overall, company contracted volume in 2026 is approximately 90% of total sales volume. Our sales volume guidance is approximately 0.5 million tons higher than our production volume to reduce our inventory levels to our optimal target level of just below 1,000,000 short tons. And lastly, we expect to spend the remaining construction CapEx of $50,000,000 to $75,000,000 on the Blue Creek project in 2026. From a free cash flow perspective, we expect 2026 to be free cash flow negative due to the ramp-up of sales and production at Blue Creek, increasing our working capital and spending the remaining project capital expenditures in the first quarter. We expect to be free cash flow positive in the second half of the year. Obviously, expectations are highly dependent upon the steelmaking coal markets’ actual pricing indices. I will now turn it back to Walt for his final comments. Thanks, Dale. Warrior Met Coal, Inc. is exceptionally well-positioned to deliver higher free cash flow and long-term value creation. We expect 2026 sales volumes to be more than 30% higher than 2025 and production volumes to be more than 20% higher than 2025, driven by the contribution of the new Blue Creek mine over the entire year. We expect to reduce our coal inventory levels to just below 1,000,000 tons, which has been reflected in our sales volume guidance. In addition, we have included approximately 4,500,000 tons of production from our Blue Creek mine, which could potentially be higher if we continue to be successful with the trial shipment and engage in more long-term contracts with customers. Currently, we have 90% of our 2026 midpoint sales volume under contract, including 85% of the Blue Creek volume. As we look at current steelmaking coal market conditions, pricing levels remain notably strong and well above our original expectations. We believe this elevated pricing environment is primarily due to tightness in the premium quality segment as a result of recent supply constraints stemming from Australian weather disruption and mine production-related challenges in Australia. While it is difficult to predict how quickly supply chains will normalize, we anticipate that prices will remain supported through most of the first quarter. However, we believe these disruptions are temporary, and unless global steel fundamentals significantly improve, PLV prices should retreat and continue to be impacted by the same market factors that we have seen over the last two years. As a result of the recent increase in PLV price, East Coast High Vol A price has become disconnected from the Pacific Basin indices and may weigh down overall gross price realizations due to the abundant supply of that quality of coal. While we have lots of cautious optimism, we run our company to prepare for the downside risk of weak steelmaking coal markets and hope we are conservative on our price assumptions as Dale just noted in his comments. In conclusion, 2025 marked a transformational year for Warrior Met Coal, Inc. The early startup of Blue Creek and the strategic expansion of our reserve base have strengthened the foundation of our long-term growth strategy and significantly enhanced our ability to meet sustained global demand for premium steelmaking coal. With Blue Creek now contributing meaningfully to our scale and cost structure, we enter 2026 from a position of exceptional strength, supported by expected record volumes, a stronger first quartile cost platform, disciplined capital allocation, and a clear pathway to higher free cash flow generation. Our world-class assets, operational excellence, and commitment to long-term value creation position Warrior Met Coal, Inc. to deliver stronger financial results and increase stockholder returns as we move forward. We appreciate your continued support and look forward to updating you on our progress throughout the year. With that, we will now open for questions. Operator? Operator: Thank you. At this time, I would like to remind everyone that. And your first question today comes from the line of Nicholas Giles with B. Riley. Please proceed. Nicholas Giles: Thanks, operator. Good evening, guys, and congrats on the progress. You have come out with some really robust guidance here in 2026, and costs are being guided to a range of $95 to $110, fairly wide. But just my first question was what is the PLV price assumption you are using? And then, given that costs in the fourth quarter came in below the low end of this range, what would prevent that level of cost being repeated in the first half year? Thanks. Dale W. Boyles: Good question. The PLV assumption there is a range of $185 to $215. So it is a little wider just thinking about the potential increases related to transportation and royalties with the elevated pricing here early in the year. Uncertain as to how long that will continue throughout 2026, but we do expect the PLV prices to come back down. On the cost side, good question there. Strong cost performance from the existing mines and Blue Creek—what is going to keep it that low would be prices staying this low. Right? Because if we have elevated pricing, which we will have in the first quarter, it appears, then obviously, our transportation and royalty costs go up. So the cash cost of production should be fairly steady, but transportation and royalties would be higher. Nicholas Giles: Got it. No. I appreciate that detail, Dale. Just to confirm, you said $185 to $215, that is on a short ton basis, correct? Dale W. Boyles: Correct. Nicholas Giles: Second one was I think you alluded to some of this in your prepared remarks, but how should we be thinking about working capital over the course of 2026? Is it fair to assume you will build kind of early in the year here? And then same thing on the tax side. I think you had a tax benefit in 2025, but what should we be penciling in for cash taxes in 2026? Dale W. Boyles: On the working capital side, definitely the ramp-up of accounts receivable and inventory, because we will be selling more of the Blue Creek tons this year. So expect that. But as we said in our prepared remarks too, we are going to try to take our overall inventories down 500,000 tons. That is probably going to come more evenly over the year. So the first half, the first quarter, will weigh heavily on working capital. And we should get a little relief in the second quarter, definitely in the second half of the year. From a tax standpoint, that really depends on pricing. And you know that the 45X credit kicks in in 2026, and we have said that is about a $40,000,000 benefit to Warrior Met Coal, Inc. So with these price assumptions, I would say we might not be a cash taxpayer in 2026. If prices stay at a higher level, we will be, but just not a large amount, I do not think. Nicholas Giles: Got it. Really helpful. One last one, if I could. You have been really successful in adding some federal leases here in the recent months. I think you made—there was one more tranche since we last spoke. And so I was just wondering if you could remind us what those payments look like. I think they are spread out over a number of years. Dale W. Boyles: Yeah. That is right. Total, it is four years, they are about $9,000,000 a year. So there are four payments left. Nicholas Giles: And that would be reflected in the guide or outside the scope of the guidance? Dale W. Boyles: That is all in there. Nicholas Giles: Got it. Okay. Well, guys, I really appreciate all the detail. Turn it over for now. But continue best of luck. Dale W. Boyles: Thanks. Operator: And the next question is from George Eadie with UBS. Please proceed. George Eadie: Yes, good day, gents. Can I just go back to guidance again? I mean, you came in 600,000 tons above original production of sales for 2025 and $20 a ton above the original midpoint price. These cash cost numbers, even on my estimates in putting in that PLV range you said, still seem very conservative. I mean can you talk through maybe how you came there still year on year? Like, I struggle to see, even running $195 PLV a short ton, how you can not be looking for big guidance again? Thanks. Dale W. Boyles: Okay, George. Yeah. I mean, we built into the guidance, you know, just some conservatism that we said in our comments here. And hope we are wrong on the price assumptions. So specifically, I am not really sure what you are targeting other than we tried to match the cost guidance with kind of where prices might be for the year in that range, but you may have some of that early in the year and if they do trend downward, you would have some impact. Now one of the things you have to remember, that was a PLV assumption. And if you looked at the relativities of the Low Vol HCC to the PLV, that was about 85%. And here in the fourth quarter, it has been running about 80%. So very similar to what we have seen in 2025. On the flip side though, the U.S. East Coast index is running at about 65% relativity. Anything we sell into the Atlantic is going to have, you know, some margin offset there because of that. So those are some of the factors that we have just tried to consider here and be conservative on because we do not know why the trend on the East Coast High Vol A index is so disconnected from the other indexes. So I am just trying to think about how that might trend the rest of this year. George Eadie: Yes. Okay. No. Thanks, Dale. Just your comment earlier about being free cash flow positive in the second half. I mean, to the comment from working capital before, if I assume a sort of net neutral working cap position in second quarter, hard to not see you free cash flow positive in the second quarter, obviously depends on prices as well. But is it a quite good chance even if sort of prices trending a bit lower, we could see a lot of free cash in the second half and second quarter? Dale W. Boyles: Yes, I think we could, given where the prices have been recently. If they stay that way in the first quarter, we could see the second quarter breakeven. But still too early to tell there, but I do think the second half we will be generating a lot of cash. George Eadie: Yeah. And just on that, Dale, so cash $300,000,000. Is that still a nice minimum buffer? And should we start thinking from second half all that cash growth gets given back to shareholders? And can you remind us how to think about returns from the second half? Should all that come back out the door? Or if not, why not? Dale W. Boyles: Well, I think our cash level right now at $300,000,000 plus the investments, I guess, is about $342,000,000. So that is about where we want to see it on a long-term basis, maybe slightly higher. So we might build some cash just a little bit there. But I do expect us to start returning cash to shareholders in the near future. Now is that this year in the second half? It is dependent on pricing, but I would expect that we would start returning that cash. Now in what forms, I think what we have said and been pretty consistent about, we think that will be through a higher fixed quarterly dividend because we are going to be a significantly larger company with all the volume increases, and then we would supplement that with some special cash dividends and maybe some selective stock buybacks to take advantage of opportunities there. So I think we would see a combination of those forms. George Eadie: Alright. So just on that, Dale, the share price is below 86 today. I think you and I both think that is cheap. Why not start going now with the buyback and getting ahead of that before the stock gets more expensive? I think you think also the shares are probably going to get higher; why not go early on the buyback? Dale W. Boyles: Well, it is a possibility. I am not going to commit to a particular stock price. We will just have to look at what are the cash needs of the business at the time and what is the best distribution or the best way to distribute that cash to shareholders. Thanks. Operator: And the next question is from Katja Jancic with BMO Capital Markets. Please proceed. Katja Jancic: Hi, thank you for taking my questions. You mentioned earlier that there is a big disconnect between High Vol A and the PLV markets. With more High Vol A volume coming to the market over next year, is there a risk this disconnect could actually at least stay or even potentially become wider? Walter J. Scheller: I think you are right. I think it will stay for a while. When we look at the tons that have been brought into the market with Metinvest bringing their mine back online, Leer South coming back online, and Blue Creek coming online, that is quite a few tons that need to be absorbed. That is going to take some time. So I think that we are probably looking at a market that is fully supplied for the time being. I think that will get absorbed; just over what time it takes for that to happen, I am not quite sure, but I think, given some of the things about where growth is occurring, those tons will get absorbed and we will get back to a more balanced market. Katja Jancic: And then maybe I missed this, but Dale, you talked about working capital build in the first half. How much of a build could we see? Dale W. Boyles: Well, really, it depends on prices, Katja, because that influences our receivables quite a bit, and how quickly can we bring down our inventories. But it could be upwards of $50,000,000 or better in the first half. Katja Jancic: Okay. Thank you. Operator: The next question comes from Chris LaFemina with Jefferies. Please proceed. Chris LaFemina: Hey, thanks, operator. Hi, guys. Thanks for taking my—most of my questions have been answered, but I just have maybe one or two follow-ups. So the first is back on the point of capital returns. You comment on maintaining that level of cash on the balance sheet, but you also have a net cash position. So you have financial capacity to use some debt. I understand in mining, in particular in coal mining, balance sheet is sacred, but you will be a low-cost producer and if prices fall you will be an even lower-cost producer and you can weather the storm pretty much no matter how bad it gets. So the question is, would you consider using balance sheet for buybacks in an environment where prices were a lot lower? I know it is a lot of hypothetical situations there, but would you use balance sheet? And if not, why would you not? That is my first question. Dale W. Boyles: Yeah. No. Good question, Chris. I mean, we have kind of done things a little different than the rest of the industry in the past. So if prices were to decrease quite significantly, to me, if we have that cash on the balance sheet, that would be an opportunity, a real opportunity, for us to take advantage of a buyback. So I think that would be a good situation that we will look to do that. Chris LaFemina: Okay. Good. I will leave it at that. Thanks a lot. Good luck. Operator: And the next question is a follow-up from Nicholas Giles with B. Riley. Please proceed. Nicholas Giles: Hey, thanks so much for taking my follow-up. There have been a lot of questions around the realizations, but just for the avoidance of any doubt, can you just remind us what you said on what you are assuming for the relativity as it relates to your guidance? Obviously, there is a relative assumption attached to that cost guidance. So just curious what those are. Dale W. Boyles: Yeah. In just overall gross price realizations, we are looking at about 75% for the year. So hopefully we are conservative there. But if you look at the East Coast index, it is 65 today. And so that has a big significant impact. And like I say, it has been decreasing. It decreased in the fourth quarter $66 a ton. So that went from 85 to 75%. So a big swing during the third quarter to the fourth quarter. Walter J. Scheller: Got it. But I do think we need to be careful about how we look at relativities. And remember that right now, our assumption is High Vol A is pretty well supplied, and for relativity to improve, that means the Low Vol price has to come down to it. So I prefer to see the relativity stay apart if the High Vol price is not going to increase. Nicholas Giles: Understood. No, I appreciate that perspective, Walt. And maybe just one more if I could. Looks like sustaining CapEx ticked up by maybe $20,000,000 or so. Not a huge step change just given you do have a new mine coming online. What should we be assuming in kind of 2027 and beyond for sustaining capital? Walter J. Scheller: Well, I think where we are looking at CapEx for this year, that is going to be pretty normal for where we are right now. I think we will see an uptick of $20,000,000 to $30,000,000 a year. And I do not know how quickly that will occur, but as we continue to run Blue Creek and have replacement capital for continuous miners and longwalls and things like that, we will see an uptick of $20,000,000 to $30,000,000. Dale W. Boyles: Yeah. That is right, Nick. So, sorry, I was going to add something to that. So if you factor in Blue Creek, at $20,000,000 to $30,000,000, you are probably looking at $110,000,000 to $140,000,000 somewhere roughly on a run-rate basis. Nicholas Giles: Okay. Understood. Dale W. Boyles: We can pull that down depending on the price environment. But you are going to be—each year is going to increase for a while because of Blue Creek as more and more things need to be replaced, etcetera, going forward. Nicholas Giles: Okay. Okay. And I lied. I promise this will be my last question. But just anything more to add on the contracting activity? I think you spoke to it, but where do things stand from a contracting perspective for Blue Creek? Could any incremental contracting activity limit the volatility in your realizations, or are you really at the mercy of the market, if you will? Walter J. Scheller: I do not think it is going to limit the volatility any more than we see. The High Vol A price volatility is going to be the only limit on the Blue Creek price volatility. And in terms of volumes and percentages contracted, right now we are, I think, about 80%, 85%. And as we see that number increase, and we see that inventory level come down, that is where we will start to see the opportunity to start to increase production levels because what we have seen, we can clearly do that. Nicholas Giles: Okay. Well, kudos to Charles and his team on that front and, guys, congrats again on all the progress. Thanks so much. Walter J. Scheller: Thank you. Dale W. Boyles: Thanks, Nick. Operator: Our next question comes from Nathan Pierson Martin with The Benchmark Company. Please proceed. Nathan Pierson Martin: Thanks, operator. Good afternoon, gentlemen. Question on Mine 4, running at record levels, really above its nameplate capacity, I think, the last few years. Are you guys expecting that to continue? And then related, could you break down full year sales guidance of 12.5 to 13.5 million tons by mine? I think it would be helpful when trying to understand how to think about the potential quality mix. Walter J. Scheller: Well, I think we will see Mine 4 running about the same level it did this past year and Mine 7 running about the same level it did this past year, and then we will see the 4.5 from Blue Creek. In terms of Mine 4, Mine 4 has done an outstanding job of managing their production up and at the same time their spending and their costs down, and I would expect that to continue. They achieved very, very well last year and I do not see a reason why that will change. Nathan Pierson Martin: Appreciate that, Walt. And then I noticed some questions on shareholder returns. So maybe taking a step back, how should we think about your priorities for free cash flow overall? Dale W. Boyles: Well, I think the priorities once we get past Blue Creek would be to return cash to shareholders. You know, until these markets change and demand any further growth on volumes, we would be focused on shareholder returns. Nathan Pierson Martin: Alright. Very helpful, guys. That is all I had left. Best of luck in 2026. Operator: And at this time, there are no further questions in the queue. I would now like to turn the call back over to Mr. Scheller for any final comments. Walter J. Scheller: That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior Met Coal, Inc. Operator: Thank you. This concludes today's conference. You may now disconnect your lines and have a pleasant day.
Operator: Good afternoon, and thank you for standing by. Welcome to Forrester Research, Inc.'s Fourth Quarter and Full Year 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Vice President of Corporate Development and Investor Relations, Edward Bryce Morris. Please go ahead. Thank you, and hello, everyone, for joining today's call. Edward Bryce Morris: Earlier this afternoon, we issued our press release for the fourth quarter and full year 2025. If you need a copy, you can find one on our website in the Investors section. Here with us today to discuss our results are George F. Colony, Forrester Research, Inc.'s chief executive officer and chairman, and Leo Christian Finn, chief financial officer. Carrie Johnson Fanlo, our chief product officer, and Christophe Favre, our chief sales officer, are also here with us for the Q&A section of the call. Before we begin, I would like to remind you that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. These statements are based on the company's current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Factors that could cause actual results to differ are discussed in our reports and filings with the Securities and Exchange Commission, and the company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Lastly, consistent with our previous calls, today, we are discussing our performance on an adjusted basis, which excludes items affecting comparability. While reporting on an adjusted basis is not in accordance with GAAP, we believe that reporting numbers on this adjusted basis provides a meaningful comparison and an appropriate basis for our discussion. You can find a detailed list of items excluded from these adjusted results in our press release. And with that, I will hand it over to George. Good afternoon, and welcome to Forrester Research, Inc.'s Q4 2025 and Full Year Earnings Call. I am joined by our chief financial officer, Leo Christian Finn, who will provide a detailed financial update after my remarks. I will be covering the following key themes today. One, the progress we made in 2025; two, our financial performance in Q4 and 2025; three, our focus areas for 2026. As I look back at 2025, it is now clear that our clients are operating under a new paradigm, shaped by AI. Large companies are confronted with complex buying decisions, disconnected CX journeys, and quickly changing customer behavior. At the same time, they are dealing with new technology challenges, George F. Colony: how to implement and scale generative AI, how to ensure safe data usage with AgenTeq AI, and how to maximize IT investments amidst a changing buying landscape. Complexity is growing. Forrester Research, Inc. is uniquely positioned to help large companies navigate these problems. As I have talked about on recent investor calls, we have strongly pivoted over the last three years to align our research with the AI changes, to build the AI technology for our clients, and to leverage AI technology to help us create research in new ways. Simply stated, we are guiding our clients to seize the AI opportunity to win, serve, and retain their customers and to navigate the new risk landscape. True to our long-held positioning, we are researching at the intersection of business and technology, where the battle for customers in the age of AI will be waged. Last week, we saw a disruption in equity markets as investors feared that AI would destroy the software industry. Will it? No. But it will spawn a new technology, what we call AI computing, that will rival and, in some cases, replace the old SaaS model. It is these types of market evolutions that Forrester Research, Inc. was built to analyze and research. And the more disruption, the faster our business model will grow. And we are evolving that business model. Forrester Research, Inc. has been actively embracing AI for three and a half years, and we have offered iZola, our generative model, to clients for two and a half years. We have two development teams devoted to building our AI capabilities, and we have years of experience working with the technology and testing and learning with our clients. In 2025, we launched a product based on AI, AI Access. In Q4, unique users of Forrester AI were up 55% year over year. The number of prompts was up 65% year over year. AI increases the value of our research, making it more accessible to clients and enabling them to create new and original content, like a board of directors deck, from Forrester Research, Inc.'s data and models. Having one research platform, Forrester Decisions, has given us an advantage, streamlining our AI efforts and optimizing our client experience. Companies want their executives to be using AI in their daily work Edward Bryce Morris: and this George F. Colony: increased the attractiveness of our AI products. Before I leave an overview of 2025, I wanted to reiterate the go-forward value of Forrester Research, Inc. in the AI era. We have three capabilities that public large language models cannot deliver. One, proprietary data. Two, original ideas and analysis. And three, the ability of our clients to talk to the people that created the data and ideas, and how they can be applied to the specific environments of our clients. Floating over all of this is a big word: trust. When executives work with Forrester Research, Inc., they know they are turning to trusted sources backed by human experts. Turning now to our financial performance, and in the full year. While the future holds great promise for Forrester Research, Inc., we continue to work through challenges in Q4. In Q4, CV declined 6%, while revenue declined by 7% year over year. CV and revenue declines showed improvement compared with the previous quarter. Full year revenue in 2025 declined by 8% as our research business was impacted by the final leg of our migration to Forrester Decisions. Consulting and events revenue were down 9% and 29%, respectively. We are repositioning these businesses in 2026, as I will cover in a few moments. 2025 free cash flow was $18,000,000, while retention reached 87%, up a point from the start of 2025. Client retention was up three points in Q4, and up four points from the start of 2025, reflecting the positive impact of our new AI Access Edward Bryce Morris: product. George F. Colony: Client count increased in Q4 as well, our first quarterly increase in this metric since 2021. Our ability to offer a broader portfolio of products is helping drive up client count. Additionally, the percentage of CV in multiyear deals increased, with 72% of CV made up of multiyear deals at year end, up from 69% in 2024. Finally, our new AI Access product is generating new business and showing positive forward momentum. Released in September, AI Access had over $5,000,000 in bookings for 2025, and will be a strong area of focus for us going forward. I would now like to turn to 2026. Our plan is to return to CV growth in the year as we focus on four initiatives. One, consistent execution of our retention life cycle. Operator: Introduction of more product options, including embedded Forrester AI. Three, a culture of growth within sales and improvements to our go-to-market execution. And finally, four, actionable all-seasons research and the production of more data. In 2024, we introduced the retention life cycle, a standard process for periodically checking in with the economic buyer of our research to ensure that we are delivering value to our customers. In September, we hired Julie Marringer, a former Forrester Research, Inc. executive, to run customer success at the company. She is bringing more accountability, discipline, and rigor to the life cycle process. Our data shows a double-digit improvement in seat-holder retention when we execute the steps in the life cycle. The data is clear. Julie and team are leading consistent execution which will reduce client churn and down-sell. Our second initiative is on the product front. We will do two things. One, introduce more product options to fill out the portfolio; and two, expand the capabilities of Forrester AI. In 2026, we will be adding new versions of Forrester Decisions built to enable teams of executives to work more closely together and complete corporate initiatives faster. And we will be expanding the capabilities of Forrester AI to enhance the conversational capabilities of the model and embed it within our clients’ systems. As part of this effort, we are changing the name of our flagship AI tool, iZola, to Forrester AI. This evolution reflects Forrester AI’s broad range and use cases, as we expand beyond question-and-answer applications, including future integrations into third-party workflows. Our third initiative is to continue to improve our go-to-market systems and talent. This will be led by our new chief sales officer, Christophe Favre. Christophe has been at Forrester Research, Inc. for over fourteen years. Early in his Forrester Research, Inc. career, Christophe managed our international business development team, the third-party reps who sell in countries where we do not have Edward Bryce Morris: presence. Operator: In 2016, Christophe moved from Europe to Singapore. He ran Forrester Research, Inc. sales in Asia Pacific, including India. During his time there, he tripled the size of our business in that region. In 2021, he relocated to London, where he assumed management of all of Forrester Research, Inc.'s business in APAC, and also in EMEA. Over the last three years, sales regions have showed the best performance of the company, and the highest net contract value increase. Christophe's plan is to create a culture of growth in sales and to sharpen sales execution. Christophe and I have spent a lot of time over the last decade selling to prospects and clients. I have high confidence in his ability to move our sales force back into growth. The fourth initiative of 2026 is to create research that is actionable, relevant in different business cycles, and yields more data. Our clients use Forrester Research, Inc.'s research to make decisions and to take action. Our new initiative, Blueprints, gives step-by-step guidance on how to tackle key efforts that span weeks, months, and quarters, with reports, templates, tools, and guidance sessions plotting the best path. We will increase the volume of actionable research in 2026. The second effort is what we call research for all seasons. Forrester Decisions is often used to make corporate transformations go faster and to improve their chances of success. Our challenge is ensuring that our research has increased value between transformations when companies are not in change mode. To this end, we will be creating more content to help our clients improve their personal and professional effectiveness, and to solve everyday problems that may be unconnected to broader projects. Finally, we will be investing in additional proprietary data. This will include adding new layers of B2B buyer insights and expanding the Total Experience Index. On February 9, we announced a restructuring affecting 8% of our employees. We made this move to align cost with revenue and to focus the company on expanding research contract value. As part of this effort, we are exiting the strategy consulting business. This business has been negatively affected by the ongoing instability of U.S. federal contracts and an increasingly competitive market. Our consulting business will now consist of advisory work—our analysts doing day-long engagements with clients—and our content marketing business, the custom Total Economic Impact and Market Impact reports that we produce for clients. We will continue to offer these three products as they have shown proven impact on driving NCVI. The ongoing instability of our events portfolio prompted us to make significant changes in that business. We have heard from event attendees that travel budgets have tightened, and leaders often do not have the time to commit to three- and four-day events. Accordingly, we are moving away from longer, multi-day events that require substantial travel for our clients, and we are shifting toward shorter, more intimate forums held closer to where our clients are based. In 2026, our new events format will include regional events in North America, Edward Bryce Morris: EMEA, Operator: and APAC. Our new event format will prioritize more intimate in-person connection and peer networking. So to summarize, we are planning to return to CV growth in 2026 driven by improvements to our retention life cycle, our product portfolio, how we go to market, and our research. We are restructuring the business to more intensively focus it on growing research contract value, and we are increasing our investment in AI to ensure that our evolution to the AI research company continues apace. I will now turn the call over to Leo Christian Finn to go into more detail about our financials. Chris? Leo Christian Finn: Thanks, George, and good afternoon, everyone. As George discussed, we are starting to see some meaningful areas of improvement in the business. This includes early success with our new AI Access product, which had over $5,000,000 of bookings since its launch in September, along with an increase in the portion of CV multiyear contracts from the prior year. We also saw client retention improve throughout the year, and client count increased sequentially in the fourth quarter for the first time since late 2021. Furthermore, we delivered strong free cash flow of approximately $18,000,000 for the year. We are looking to continue this momentum in 2026 with ongoing expansion of our product offering, an enhanced focus on creating actionable, all-seasons, data-centric research, and expanding Forrester AI capabilities. Despite this momentum, we are disappointed with Q4 and full year 2025 results. Continuing macro uncertainty, the impact of the U.S. government strategy consulting pullback, and the ongoing underperformance of our events business caused us to deliver full year 2025 results near the low end of our guidance. For the quarter, overall revenue was $101,100,000, representing a 6% decline from Q4 2024 revenues of $108,000,000. Overall revenue for the year came in at $396,900,000, representing an 8% decline from the $432,500,000 we generated in 2024. As we outlined earlier this week, we have taken action to focus the business on our higher-margin subscription research CV business and to better align our cost structure with our projected revenue. We believe these steps will help to accelerate our return to CV growth. I will now provide some additional details regarding these actions, mainly focused on changing the way we operate our consulting and events businesses. In consulting, we plan to sunset the strategy consulting business line in early 2026. This business line saw a major decline in its U.S. government business last year along with other ongoing macro-related challenges, which resulted in a greater than 50% decline in strategy consulting bookings in 2025. We do not foresee the business environment for strategy consulting improving in the near term. We will continue to execute our existing backlog through 2026, but we will not sell new strategy consulting engagements going forward. We are also making significant changes to how we deliver events in 2026, as George just outlined. In terms of headcount impact from these changes, along with other efficiency programs we are executing, we have reduced our workforce by approximately 8%. We expect to incur approximately $13,500,000 to $14,000,000 of cost for these actions, including $9,900,000 that was recognized during the fourth quarter. We plan to use a portion of the cost savings to fund focused investments in AI to take advantage of our unique position in this growth opportunity. In terms of segment results for the quarter, please note that we have recast our CV metric for our 2026 plan foreign currency rates; we have included the historical recast CV metrics going back to 2023 on the investor relations section of our website. For the Research segment, CV came in at $292,400,000 as of 12/31/2025. This is a 6% decline from December 2024, which is a modest improvement from the prior quarter decline of 7%. The decrease in CV was largely due to low wallet retention, primarily driven by lower enrichment numbers. Wallet retention has slowly improved throughout the year, and now sits at 87%. We have initiatives in place to accelerate this improvement in 2026. As George outlined, sales and customer success are laser-focused on the execution of the key client engagement steps needed to drive up retention. In addition, new business has seen some improvement from the prior year. We believe this improvement will continue based on the initial success of AI Access and additional product launches we have on the roadmap for 2026. We saw a four-point improvement in client retention year over year. This helped increase client count in Q4. As discussed for new business, we see AI Access and other product enhancements contributing to ongoing improvements in client retention as we continue into 2026. The steady improvement of metrics and the initiatives we have in place give us a positive outlook for CV performance in 2026. We expect CV to show modest growth as we exit the year. From a revenue standpoint, our Research business posted revenues of $76,600,000 for the quarter, and $295,600,000 for the full year. This represents declines of 4% and 7%, respectively, versus the prior year periods. For the full year, revenue from our subscription research products was down approximately 4% as growth in Forrester Decisions was offset by declines in the final remaining cohorts of our legacy research products. Our Consulting business posted revenues of $21,800,000 in the fourth quarter, and $88,200,000 for the full year, representing declines of 16% and 9%, respectively, versus the prior year periods. Despite these declines, we saw some positive trends in our consulting services in 2025. This includes consistent performance from our advisory and content marketing businesses. However, the overall performance of the consulting business was significantly impacted by the declines in strategy consulting discussed earlier. And finally, our Events business posted revenues of $2,700,000, representing a decline of 1% compared to 2024. The comparison between the prior year was impacted by the shift of an additional event into Q4 2025. For the full year, the segment declined by 29% to $13,100,000. This was driven materially by lower sponsorship revenue along with ticket sales. Continuing down our P&L, on an adjusted basis, operating expenses for the fourth quarter decreased by 2%, primarily driven by ongoing cost management. Specifically on headcount, for the fourth quarter, we were down 6% compared to the same period in 2024. On a full year basis, operating expenses decreased by 7%, largely driven by labor reductions and associated compensation and benefit savings, with additional savings from other categories, including facilities expenses related to the consolidation of our real estate footprint. Operating income decreased by 53% to $4,200,000 or 4.1% of revenue in the current quarter compared to $8,900,000 or 8.3% of revenue in 2024. On a full year basis, operating income decreased by 21% to $30,300,000 or 7.6% of revenue compared with $38,500,000 or 8.9% of revenue in 2024. We continue to be committed to aligning our cost structure with our revenue outlook. Interest expense for the quarter was $700,000, which was consistent with 2024. On a full year basis, interest expense was $2,700,000, down from $3,000,000 in 2024. Finally, net income and earnings per share both decreased 53% compared to Q4 of last year, with net income at $3,200,000 and earnings per share at $0.17 for the current quarter, compared with net income of $6,800,000 and earnings per share of $0.36 in 2024. On a full year basis, net income decreased 21% to $22,200,000 and EPS decreased 21% to $1.16. Looking at our capital structure, cash flow from operating activities for 2025 was $21,100,000, and capital expenditure was $3,000,000. The positive cash flow this year was driven by strong collections and improved vendor payment terms from our procurement team. We did not pay down any debt, nor did we repurchase any shares in the quarter. We have over $77,000,000 of our stock repurchase authorization intact. Our balance sheet remains very strong, with cash at the end of the quarter of approximately $127,700,000, and debt of only $35,000,000. Turning to guidance, starting with the top line. For 2026, we expect revenue to be $345,000,000 to $360,000,000, or down 9% to 13% versus 2025. The revenue outlook is driven by last year's bookings decline, which hampers first half growth, with better performance anticipated for the second half. As mentioned earlier, we are sunsetting our strategy consulting product line. This will have a negative impact on revenue. In addition, the reworking of our events business will pose an ongoing risk contemplated in the low end of our guidance. This guidance assumes the outlook for Research to be a mid-single-digit decline, Consulting to be a decline in the low twenties, and Events to be a decline in the high teens for the year. It should be noted that our revenue outlook pushes the Research portion of our business to be approaching 80% of total revenue. This is up from almost 75% in 2025. Given the actions we have taken to control costs, combined with the growth and AI investments we have highlighted, we would expect our operating margins to be in the range of 6% to 6.5% for 2026. Interest expense is expected to be $2,300,000 for the year, and we are guiding to a full year tax rate of 29%. Taking all of this into account, we would expect earnings per share to be in the range of $0.72 to $0.82 for the full year. In summary, we experienced positive momentum as we exited 2025. With AI Access filling a crucial role in our product offering and additional product and Forrester AI enhancements coming in 2026, we see an improved outlook for our CV business. As we reshape consulting and events this year, we believe these two businesses will provide a more consistent catalyst of retention and new business for our core research offering. Our clients continue to grapple with the ever-evolving technology and AI landscape, and Forrester Research, Inc. is uniquely positioned to meet our clients' needs because we bring a combination of proprietary ideas, data, and human experts to bear, all backed by a trusted relationship. Thank you all for taking the time today. And with that, I will hand the call back to George. George F. Colony: Thank you, Chris. To summarize, we are laser-focused on NCVI growth in 2026. Our four initiatives give us the best path to growth, and we will be diligently executing them throughout the year. The AI wave represents the biggest opportunity in the history of Forrester Research, Inc., and we are on the side and by the side of our clients as they navigate these uncharted waters. It is a very exciting time at the company. Thank you for being on the call, and I am going to hand it back to the operator for the Q&A session. Edward Bryce Morris: Thank you, sir. George F. Colony: As a reminder, to ask a question, you would need to press 11 on your telephone. To withdraw your question, Edward Bryce Morris: And I show our first question comes George F. Colony: from the line of Andrew Nicholas from William Blair. Please go ahead. Andrew Nicholas: Hi, good afternoon. I appreciate you taking my questions. First one I had, or first line of questioning, is just on the consulting restructure here. Sounds like you expect revenue to be down a little bit over 20% in 2026. Can you just kind of bucket the different pieces of the business in terms of size that you are exiting versus continuing? And Vincent Alexander Colicchio: is that kind of mid- to high-$60 million number a good base to think of for 2027 and beyond? Any more color on those decisions and those numbers would be great. Leo Christian Finn: Yeah. Hi. It is Chris. Good question. Yeah. So on the sunsetting in strategy Edward Bryce Morris: consulting, Leo Christian Finn: the revenue impact is going to be about approximately $6,000,000. And as we go forward in 2026, we have a pretty decent-sized backlog of approximately $8,000,000 that we will be servicing throughout the year. Probably going to tail off sometime Q3, maybe Q4. So that is really the size of that bucket. And I think the range that you have—high fifties into low sixties—is about right. Edward Bryce Morris: Got it. And in terms of Andrew Nicholas: just for my follow-up, in terms of contract value growth year over year, down 6%, can you just give me a sense or maybe add some color as to where you are seeing lower wallet retention, maybe what the reasons for cancellation are, or any kind of tracking that you are doing there to figure out how much of it is macro sensitivity versus, you know, lower seats at your customers or any other reason for exiting? Thank you. Leo Christian Finn: Yes. Christophe speaking. Yes. We still see some volatility Christophe Favre: and uncertainties in the area of the U.S. government, as well as in the U.S. business on the user side of the business. But we see also pockets of momentum in the international markets, where I come from, as well as the clear turnaround as well on the high-tech side. Operator: Look, government is still having an impact for us. Andrew Nicholas: Understood. Thank you. Edward Bryce Morris: Thank you. Thank you. George F. Colony: Our next question comes from the line of Anja Soderstrom from Sidoti. So, firstly, just elaborate a bit on the product pipeline you mentioned for the year. Christophe Favre: Could you repeat that? Carrie Johnson Fanlo: Yeah. Can you talk about the product pipeline? Operator: Product pipeline is for 2026. Carrie Johnson Fanlo: Yes. You mean—hi, Anja. It is Carrie. Sort of product development, upcoming product changes. Yeah. Sure. So George alluded to some of those, primarily looking to provide our clients with more ways to buy from us. And then also, when they purchase from us, more ways that we can be embedded in where they work. So a lot of exciting offerings to come that we will announce this year. I am happy to talk in-depth to you a little bit more about those. But primarily, like I said, looking to capitalize on this moment where clients need advice and trusted expertise from Forrester Research, Inc., and making sure that we are offering them ways to work with Forrester Research, Inc. and then embedded in their day-to-day work as well. Operator: Yeah. I mean, Anja, we have an AI—we call it AI surge. It is really scheduled for the first half of the year. So there is a good backlog here of product improvements and products. Carrie Johnson Fanlo: Okay. Thank you. And you talked about the conference, changes to the conference schedule. Thank you.: But I did not accept it for you taking to the conference business. Carrie Johnson Fanlo: What was the second part of your question about conferences, Anja? Thank you.: Yeah. Yeah. What other initiatives they have taken to improve their revenue stream from that. Edward Bryce Morris: Not sure we are getting the Operator: the question. But yeah. I think your question is Carrie Johnson Fanlo: around improvements that we have made to the conference and event strategy, and also the performance. So there are two key areas where we have been focused. The first, as we discussed in prior calls, is about rebuilding the sponsorship sales organization, which is a major effort of ours, and we feel that we are in a really good place there. And the second is on a new event strategy. George and Chris both here talked about really aligning our events to better align with sponsor and attendee needs. That primarily looks like smaller events closer to where our clients are, and also smaller so that folks can interact with their peers, with more engagement at those events. So smaller, more localized events essentially for the year. I think the big innovation in 2025, Anja, was about Operator: workshops at the events. And they were massively successful in 2025. You will see a lot of that in 2026. Thank you.: Okay. Great. Thank you. That was all for me. Operator: Thanks, Anja. George F. Colony: Thank you. And I show our next question comes from the line of Vincent Alexander Colicchio from Barrington Research. Edward Bryce Morris: Yeah, George. Operator: Important question here, I think. Vincent Alexander Colicchio: So why the ongoing disconnect between the value of your research versus LLM models in terms of demand? And when do you think this may change? Christophe Favre: Yes. So I would like to give you some color here. I do not see churn as a result of AI replacements. Of course, it has come up into the sales process. But we spent a lot of time over the past months to train our sales organizations to demonstrate the value of Forrester AI Access against the large language model. And what we highlight is our Forrester AI solutions provide proprietary data, proprietary ideas, supported by human experts. And when you train your sales organizations in this way, we do not see this churn as a result of that. On the contrary, what we start to see in the marketplace is a mistrust of the content provided by some of the LLMs. So we do see an opportunity for Forrester Research, Inc. that we are going to size with our new product strategy. Operator: So you said mistrust of the public models? You know, it is a fun narrative, Vince. It is an easy narrative. But your bank account is never going to end up in a public model. It is just never going to happen. And our proprietary research is never going to end up in a public model as well. And to get trusted data, to get a trusted bank account, you are going to go to a private model. Like I said on the last call, there has been a very big misallocation of capital going on right now for the public models. I believe 70%, when this is all done ten years from now, look back, 70% of all the revenue from these models will be made in private models, not in public models. So it is a fun— Vincent Alexander Colicchio: Yeah. Good. Go ahead. Thanks. Edward Bryce Morris: Thank you. Vincent Alexander Colicchio: A helpful perspective. Thanks for that. Yeah. And with the new sales leadership, will there be any change in the sales process going forward? Christophe Favre: Yes. So coming from the international sales organization where we had quite a strong H2 last year, I am applying some of the learning we had internationally to the North American sales organization. So the first thing I am doing is I will reorganize our go-to-market strategy in North America to be organized around six industries and focus on the high-potential accounts. I want also to ensure that we develop a business development mindset not only with the AE, but with the AM. And then really sharpen our execution on what we call the retention life cycle with my colleague of the customer success teams in order to improve our retentions. We have a lot of opportunities in improving our gross productivity here in North America and returning back to growth with our new AI Access services. You want to talk about the balanced scorecard? Edward Bryce Morris: Yeah. So it is also the way we measure Christophe Favre: the sales organization. So I really believe that the sales organization needs to be measured on both sides. From a quantitative side, on the pipeline, the activity that they have, but also balanced with qualitative elements like pipeline conversions, velocity of the sales, the quality of the sales. So I am implementing a new way of measuring the quality of our sales activity in order to drive faster growth in the North American business. Vincent Alexander Colicchio: Okay. And, George, how did AI Access perform versus expectations in Q4, and how is it trending in the new year? Operator: Yeah. We had a meeting in September where we— Andrew Nicholas: I think we were off by— Operator: I looked at Carrie and said, how much of this are we going to sell in Q4? Ninety percent, right? Yeah. Yeah. Carrie Johnson Fanlo: Mhmm. Operator: We were quite conservative about it, and it was really quite surprising in Q4. So it is interesting, Vince, because what we are finding is that companies want their executives using AI. That increases the AIQ, the artificial intelligence quotient, of those executives. So that is something that I did not—maybe you did, Carrie—but I never really calculated that as a benefit of AI Access. The fact that they are using AI to use us is again improving their AIQ and, obviously, if they are able to find our data and research much faster and to create something new and original from that data. So Carrie wants to say something. Maybe she— Edward Bryce Morris: No. Carrie Johnson Fanlo: No. That is exactly it. Edward Bryce Morris: Yeah. That is exactly it. We are really very pleased. Carrie Johnson Fanlo: With the performance of the product, exceeded our expectations, and a very strong pipeline coming in the year. So I think what is awesome about this, Vince, is that we have been working with this for now two and a half years. Edward Bryce Morris: Mhmm. Operator: I mean, this is like this is version 11. Edward Bryce Morris: So— Christophe Favre: Yep. Leo Christian Finn: Yeah. I would add one other thing, Vince. This is Chris. It is helping on deal cycle time as well, literally cutting it by almost 50%, which is great to see. And then the client count increase that we saw coming out of the year was really in two areas. First and foremost, it was with AI Access. Those were all—that was really all new clients. And we have a big win-back campaign coming up in the first half of the year here, which we are excited about. And then, the retention improvements, the core FD business. From the retention life cycle work, you know, the stuff that Julie is working on. Already seeing it really start to take hold, which is also exciting. And one of the other reasons we feel pretty good about the outlook for this year. Operator: Why is the velocity so much faster, Christophe, for AI Access? Christophe Favre: It is very simple. It is easier to buy and easier to sell. And I see it as an attractive value proposition not only to grow within our existing customers, to win new customers, but we feel also a very interesting change which is winning back customers we lost over the last three years. And we win them against the competition or against organizations and also against organizations that want to build skills internally, as opposed to outsourcing it to find some consulting organization. Vincent Alexander Colicchio: Is it helping you win back some new old clients, as you hoped? Christophe Favre: Yes. And they are so happy when we come back with that type of value proposition. Because what they are looking at is to get faster in the way they make decisions and to do it with more confidence. And this is the way we differentiate from large language models. So it is a very strong value proposition for Forrester Research, Inc. Vincent Alexander Colicchio: Okay. Thanks, guys, for answering my questions. Edward Bryce Morris: Thanks, Vince. Thanks. Sorry for the long answer. George F. Colony: Thank you. And that concludes our Q&A session. At this time, I would like to turn the conference back to Leo Christian Finn, chief financial officer, for closing remarks. Leo Christian Finn: Yes. Thanks, everyone, for joining us today. Once again, any follow-up questions, please reach out to myself or Ed. Thank you. Vincent Alexander Colicchio: Thank you. George F. Colony: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Wynn Resorts, Limited fourth quarter 2025 earnings call. All participants are in a listen-only mode until the question-and-answer session of today's conference. Record your name, and I will introduce you. Please limit yourself to one question and one follow-up question. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the line over to Julie Cameron-Doe, Chief Financial Officer. Please go ahead. Thank you, Operator, and good afternoon, everyone. On the call with me today are Craig Billings and Brian Gullbrants in Las Vegas. Also on the line are Jenny Holiday, Linda Chen, and Frederic Louvizuto. Please note that we have published a presentation to provide more color on the company and recent performance ahead of this call. You can find the presentation on our Investor Relations website. I want to remind you that we may make forward-looking statements under Safe Harbor federal securities laws, and those statements may or may not come true. I will now turn the call over to Craig Billings. Craig Scott Billings: Good afternoon, and as always, thank you for joining us. I would like to start today's call by taking a step back and taking a broader multiyear view of our business and talk about how the company is positioned relative to some of the broader forces shaping the world and our target customer base. We are now a little more than a year out from a meaningful milestone, the opening of Buenos Aires Islands. This development is significant for many reasons, but over the long term, its importance as a step forward in our geographic diversification stands out, especially in the context of an increasingly multipolar world. Recent actions in geopolitics, currencies, metals reinforce our view that multipolarity is not a transient trend. With it comes meaningful shifts in historical patterns of travel, trade, technology diffusion, and capital flows. Increasingly, those patterns are coalescing around a small number of global hubs, notably, the U.S., China, and portions of the Middle East. We see this in financial markets, and we see it in the travel patterns of our international customers. At the same time, we are approaching a period of significant change driven by technology and artificial intelligence. Anticipation of those changes is already fueling substantial business formation and wealth creation centered again in the U.S., China, and portions of the Middle East. That expanding wealth creation will continue to drive demand for what Wynn Resorts, Limited has always delivered: exceptional product and service for the world's most discerning customers. This brings me to two related capabilities that position us well for the long term: our relentless focus on our core customer segment, and our proven ability to develop and operate world-class assets in diverse geographies, thereby allowing us to meet the affluent customer wherever they choose to be. With the opening of Wynn Al Marjan, we are introducing a significant into a new and dynamic market. More broadly, we are moving toward a portfolio where we expect over 55% of our revenues will be generated in non-U.S. dollar denominated markets from assets we developed and operate, each meticulously designed around the most valuable consumers in these key markets. So as we begin 2026, Wynn Resorts, Limited is on track to become one of the most globally diversified companies in our industry. That diversification, combined with our brand, customer focus, and proven operating capabilities, leaves us exceptionally well positioned for the longer term. Now turning to the fourth quarter, Wynn Las Vegas delivered another robust quarter with EBITDA of $241,000,000. It is important to note that the comparable quarter of 2024 benefited from nearly 31% hold, and thus, when normalizing both periods, EBITDA in Q4 2025 was just above the prior-year comp. Demand for our product in Las Vegas remained healthy across the board with drop, handle, and ADR all up year-on-year. While RevPAR was slightly below last year, the overall results reflect our ability to balance stronger ADRs with modestly lower occupancy in order to optimize the performance of the building. We remain well positioned to do this given our strong competitive positioning and our customer base. More recently, performance in the first quarter has been encouraging with casino volumes and RevPAR both holding up well. Looking further out, we feel good about the business in 2026. The visibility that we have into forward demand is largely due to our group and convention business which continues to look strong, on pace to grow both room nights and rate relative to 2025. As I mentioned last quarter, we will begin the Encore Tower remodel in the second quarter and expect to lose about 80,000 room nights in 2026. We expect to recapture some of that impact in rate, but the remodel will nonetheless present a slight headwind for the year. Turning to Boston, Encore generated $57,000,000 of EBITDAR during the quarter with lower-than-normal table hold masking what was otherwise strong fundamental performance with RevPAR, table drop, and slot handle all up year-on-year, along with tightly controlled OpEx. More recently, demand in Boston has remained healthy into February, aside from specific days impacted by poor weather. Shifting to Macau, this quarter was all about significant volume growth but unusually low hold in both VIP and mass. The team delivered $271,000,000 in EBITDA with low VIP hold costing us a little over $16,000,000 in EBITDA. Volumes in the quarter were strong, with VIP turnover up 48% and mass drop up 18%, both year-on-year. While we do not quantify the impact of unusual mass hold, mass hold in the quarter was below our expectations. And like Las Vegas, Macau also held higher in the prior-year quarter, skewing year-over-year comparability. Momentum in Macau has persisted into the first quarter with volumes in January just above those we saw in Q4. We are also very excited about the upcoming opening of the new Chairman's Club floor at Wynn Palace, a 63,000 square foot addition dedicated to our highest value customers, featuring gaming alongside a suite of bespoke amenities. We expect to be welcoming guests into the space for Chinese New Year. Looking ahead to the rest of 2026, following sustained double-digit market-wide GGR growth in 2025, we remain optimistic about the future of Macau. The premium segment continues to lead the market, and that is a segment where we are always well positioned. The expansion of the Chairman's Club at Wynn Palace along with the refresh of the Wynn Tower rooms at Wynn Macau further strengthen our ability to capture this demand in 2026 and beyond. Turning to Wynn on Marjan Island. I would like to thank those of you who made the trip to join us for our Investor Day in the UAE in December. We hope the visit provided you with a clearer sense of both the scale of the opportunity and the broader dynamics of the region. During the fourth quarter, we reached a significant construction milestone when we topped out the tower at the 70th floor. Construction continues to progress rapidly with interior fit out underway in all guest rooms and our iconic exterior glass about 80% complete. The opening of Wynn Al Marjan and the free cash flow inflection that it will bring reinforces our confidence that our best days lie ahead. Before turning the call over to Julie, I would like to address one final item. As we announced a few weeks ago, Julie will be retiring before the next earnings call. On behalf of the company, I would like to acknowledge her accomplishments as CFO and thank her for her leadership and significant contributions over the past four years. Over to you, Julie. Julie Mireille Cameron-Doe: Thank you, Craig. It has been such an honor to serve as CFO here at Wynn. We are known for our beautiful buildings and five-star service, but what sets this company apart from all the others are its people, at all levels and across the globe. It is extremely rare to work somewhere where everyone is bringing their A-game every day. That is exactly how it is at Wynn. It is incredibly special. So before I get into the quarter, I would like to thank each and every one of our employees in Vegas, Boston, Macau, Marjan, and London for all you do to make Wynn the best in the business. Turning to the numbers. At Wynn Las Vegas, we generated $240,800,000 in adjusted property EBITDA on $688,100,000 of operating revenue during the quarter, delivering an EBITDA margin of 35%. Hold positively impacted EBITDA in the quarter by just over $8,000,000. OpEx, excluding gaming tax per day, was $4,600,000 in the quarter, up 4.1% compared to the prior year, largely due to incremental costs related to payroll, higher repair costs, and bad debt expense. Turning to Boston. We generated adjusted property EBITDA of $57,000,000 on revenue of $210,200,000 with an EBITDA margin of 27.1%. As Craig mentioned, low hold negatively impacted the quarter's results, while casino volumes and RevPAR were strong. Slot revenues were strong, up over 2%, setting a new record for Boston. We maintained our discipline on the cost side with OpEx per day of $1,180,000, up less than 1% compared to Q4 2024 despite continued labor cost pressures in the market. The Boston team has continued to do a great job of mitigating union-related payroll with cost efficiencies in areas of the business that do not impact the guest experience. Our Macau operations delivered adjusted property EBITDA of $270,900,000 in the quarter, on $967,700,000 of operating revenue, resulting in an EBITDA margin of 28%. Lower-than-normal VIP hold impacted EBITDA by just over $16,000,000 in the quarter. And though we do not report EBITDA normalized for mass hold, our mass hold in Q4 was about 250 basis points lower than the prior-year quarter, impacting our overall EBITDA margin. OpEx excluding gaming tax was approximately $2,850,000 per day in Q4, with the increase from Q4 2024 driven primarily by a full quarter of Gourmet Pavilion related costs, normal cost of living expenses, and variable costs driven by healthy business volumes. In terms of CapEx in Macau, back in Q2, we initiated two projects as Craig mentioned: an expansion of the Chairman's Club gaming area at Wynn Palace and the refresh of our Wynn Tower rooms at Wynn Macau. The impact of those projects on CapEx continues into 2026. For the full year 2026, we expect to spend a total of $400 to $450,000,000, with several concession-related projects awaiting government approval. Moving on to the balance sheet. Our liquidity position remains very strong, with global cash and revolver availability of $4,700,000,000 as of December 31. This was comprised of $2,900,000,000 of total cash and available liquidity in Macau and $1,800,000,000 in the U.S. The combination of strong performance in each of our markets globally, with our properties generating over $2,200,000,000 of adjusted property EBITDA together with our robust cash position, creates a very healthy consolidated net leverage ratio just over 4.4 times. Our strong free cash flow and liquidity profile also allow us to continue returning capital to shareholders. To that end, the Wynn Resorts, Limited Board has approved a quarterly cash dividend of $0.25 per share payable on 03/04/2026 to stockholders of record as of February 23. Our recurring dividend highlights our focus on and continued commitment to prudently returning capital to shareholders. In terms of CapEx, we spent approximately $171,200,000 in the quarter, primarily related to the Fairway Villa renovations, Zero Bond and Sartiano’s in Las Vegas, the new Chairman's floor at Wynn Palace, the hotel tower refurbishment at Wynn Macau, and normal course maintenance across the business. In addition to that figure, we contributed $79,200,000 of equity to the Buenos Aires Island project during the quarter, bringing our total equity contribution to date to $914,200,000. We also continue to draw on the Marjan construction loan with a drawn amount to date of $769,600,000. We estimate our remaining share of the required equity, including the new-to-new project, is approximately $450,000,000 to $550,000,000. With that, we will now open up the call to Q&A. Craig Scott Billings: Thank you. Operator: To ask a question, unmute your phone, record your name clearly after the prompt, and I will introduce you. Please limit yourself to one question and one follow-up question. To withdraw your question, press 2. Question comes from Daniel Brian Politzer with JPMorgan. Your line is open, sir. Craig Scott Billings: Hey, good afternoon, everyone. And Julie, congratulations on the retirement, and thanks for all the help these past few years. First question on Vegas. Some of your peers have been fairly upbeat on the path for higher-end luxury properties to grow in 2026. And I recognize, Craig, you mentioned the limited booking window and visibility outside of group and convention, as well as the Encore Tower disruption. But I guess, as we think about those puts and takes and your level of confidence in this high-end customer, the strength retaining or maintaining here, how do you think about the path to growing in Vegas in 2026? Sure. It is kind of funny because I feel like we have spent the past few years trying to convince people that we were not going to decelerate. And, you know, we have continued to hold up very, very well. If you look at the drivers in 2026, I noted the headwind of the rooms that will be out of service. Certainly, I expect that will impact us. Again, we will try to pick up some of that in rate, but the group business is doing really, really well, which, of course, in turn allows us to yield in the other segments. And so as long as the group pace plays out as we expect it will, strongly expect it will, we feel good about our ability to continue to price rooms. Gaming volumes, you can see gaming volumes in the quarter, and that gives you a sense for how tables and slots are holding up. So we feel good about our ability to perform really, really well in 2026. I mean, by any kind of historical standards, Wynn Las Vegas is absolutely crushing it. So, you know, we do not see anything at the moment that would change our view on our ability to continue to do so. Brian, would you add anything to that? No. I would say so far, our key business indicators are all positive. But as mentioned, the out-of-order rooms will certainly be a challenge in the latter half of the year. It. That makes sense. And then just in terms of the OpEx, Julie, I think touched on Macau ticking a little bit higher. In Vegas, I think there has been a little bit of increase there too. Is there any kind of parameters to which to think about the OpEx growth in Vegas as well as Macau for 2026? Operator: Yeah. I mean, I will start with I will start with Vegas and move on to Macau. Julie Mireille Cameron-Doe: So, I mean, the team in Vegas remains incredibly disciplined on OpEx. And we did raise our outlook last quarter to $4,300,000 to $4,500,000 outside of major event periods. We ended up slightly above that range at $4,600,000 in Q4. It is a very heavy event period with Formula One, Concours, New Year’s, and a busy convention calendar. You know, we also continue to see normal wage inflation in union and nonunion areas of the business. But otherwise, we are managing OpEx very tightly. And in terms of the outlook, we are not changing our expectation for OpEx to be in that $4,300,000 to $4,500,000 range outside of major event periods. If I move on to Macau, Macau, obviously, as we said on the call, we got a full quarter in of the Gourmet Pavilion. And we have had some, you know, obviously, some cost of living increases going on in there as well. We once again saw the variable impact of higher business volumes in the quarter because we had very strong volumes in the quarter. We raised our OpEx per day expectations last quarter to be in the range of $2,700,000 to $2,900,000, and, you know, we are aligned with that number. Craig Scott Billings: Got it. Thanks so much. Operator: Thank you. Our next caller is Elizabeth Dove with Goldman Sachs. Your line is open. Elizabeth Dove: Hey, thanks for taking my question. I will echo congratulations and thanks to you, Julie. Really appreciate all the help and, you know, wish you the best going forward. Sticking with Vegas, first of all, I guess, similarly kind of on that OpEx side of things. Just thinking about the margins, I think margins in Vegas are obviously up a lot versus 2019 that you have just seen such incredible strength there. And, you know, there has been a bit of a giveback over the couple of years, maybe a bit of a return to normal, whatever you want to call it. But just thinking about really a bit longer term, not just 2026, but how you think about just margin expansion, whether that is possible at some point in Vegas or if there is still a bit of a kind of normalization to go there. Craig Scott Billings: Sure. We have always been pretty explicit about the fact that we do not really manage to margin per se. Right? What we do is try to absolutely top-tick revenue, which is about taking market share in gaming and driving ADRs, pushing the right customers into the building for retail tenants, and then being absolutely judicious about managing OpEx. And we are doing both of those things. So we do not really give margin guidance, and we do not look forward in terms of margin. But philosophically, that is really how we approach it. And I think you saw that this quarter. Elizabeth Dove: Got it. And then just on the Encore renovation, you know, it is helpful to call that out. And, you know, on my math at least, the 80,000 room nights could be maybe $50,000,000 of EBITDA impact, you know, assuming that you do not get any recapturing on the rate, which you did mention. Anything that you could share there and just how you are thinking about it, particularly in the second half when you kind of fully start the renovations and also typical kind of IRR on the longer-term basis of projects like this. Craig Scott Billings: Yeah. That sounds a little bit high to me. But the way to think about it is we stage and stagger the renovations as taking out floors such that they occur in the lowest demand periods. So that is one of the ways that we mitigate the impact of those renovations, thereby allowing us to pick up the highest-rate periods. And then I think as you pointed out, we expect that we will pick up some of that in rate. Beyond that, it kind of is what it is. You know, we need to do the renovation, and it is important to the building and the brand. Brian, what would you add? Brian Gullbrants: We are starting in mid-May. So as far as impact, it starts in mid-May, and it will consume about six floors as we go through the building. But it is a twelve-month process, so this is going to linger into 2027 as well. Yeah. That is a good point as well. Craig Scott Billings: It is really split between two years. Elizabeth Dove: Got it. Thank you. Craig Scott Billings: Yep. Operator: Thank you. Our next caller is Shaun Kelley with Bank of America. Your line is open. Shaun Kelley: Good afternoon, everyone. Thank you for taking my question. Shaun Kelley: First of all, Julie, for all of your time and attention and, of course, the hospitality on the UAE trip. It was spectacular, so you will be missed. And, you know, if I could, I wanted two questions on Macau. Maybe first, Craig, if we could lead off with a little bit of color on there is concerns both about promotions in the market and competition. And then specifically, we have got some questions, just mix shift between VIP and premium mass. I know you kind of specialize in both these segments. So just kind of wanted your thought on the overall environment and then again, are you seeing any sort of notable shifts between business lines that may be impacting or changing margins in that segment? Brian Gullbrants: Sure. Thanks, Shaun. Craig Scott Billings: Yeah. Both of your questions kind of lead to margin. I guess, first of all, with respect to margins overall, margins in the quarter were really affected by three things: the significant jump in VIP volumes, but low hold; unusually low hold in mass, which we mentioned a couple times in the prepared remarks; and remember, we generally accrue reinvestment on theoretical, not actual, so that obviously suppresses margins; and then the incremental OpEx that was previously discussed from cost adjustments and a full quarter of the Gourmet Pavilion. There was not really, beyond everything that I mentioned, there was not really a fundamental shift in the business. As you know, VIP can be incredibly lumpy. It is just the nature of the business. I would not be proclaiming a market-wide shift, or at least a Wynn shift, in the sources of business. With respect to reinvestment, and again, as we have discussed on prior calls, look, it is a very short booking window in Macau. And so it is daily hand-to-hand combat, as I have said before, for customers. And we will adjust reinvestment up or down in any given period to make sure that we achieve our business goals. I cannot say that our quarter was unusually impacted by a significant jump in reinvestment. Shaun Kelley: Very clear. And then as my follow-up, you mentioned in the prepared remarks as well the excitement around the new Chairman's Club space. So just wondering if you could give us a little bit more color and detail there? I think timing sounded like open by Chinese New Year, but if you could talk about the kind of scope and scale there, what you have been investing, and potential impacts for both 1Q and maybe the full year? Brian Gullbrants: Yeah. Sure. Craig Scott Billings: Thank you for asking about it. We are waiting on, I think, one final government approval. Maybe we got it yesterday, actually. So we do expect we will be open by Chinese New Year. This is significant. We did it in record time. Amazing that the development team was able to do it. But this is a significant expansion of the Chairman's Club. So the Chairman's Club, for those of you that are not aware, is an area within Wynn Palace that is the space that is dedicated to our highest value customers. This expansion actually triples the size of the Chairman's Club to nearly 100,000 square feet. The space includes gaming areas along with a whole bunch of amenities, including several boutique food and beverage outlets, entertainment areas, cigar lounge, a bar. We honestly believe it will set a new standard for premium gaming space in Macau, in an area that already feels very, very comfortable to our best customers. So we feel great about it opening up. The impact on Q1, we will see. We are hoping to get into Chinese New Year. And, obviously, the rest of the year, we do not provide any forward guidance. Julie Mireille Cameron-Doe: Just confirming that we have the approval for opening today. Thank you. Craig Scott Billings: Yeah. So we are good to go. You can strike the word “expect” from the prepared remarks. Shaun Kelley: Thanks, everyone. Operator: Thanks, Shaun. Thank you. Our next caller is Robin Margaret Farley with UBS. Your line is open. Sorry. One moment, please. Robin? We will go to the next caller. John G. DeCree with CBRE. Your line is open. John G. DeCree: Hi, Craig, Julie. I will pile on to the congratulations and gratitude. It has been a pleasure working with you. Good luck on what is next for you. Maybe to stick with Las Vegas, kind of ask the consumer question a couple of different ways. With lower occupancy, obviously, rate was up, but I think it is impressive gaming volumes are up. We saw higher food and beverage revenue. And so, Craig, if you could talk about are you getting more foot traffic in the door from other properties not staying at Wynn, or is it really just a higher price? Anything you could say about gaming volumes and F&B revenues being up, you know, despite a little bit of lower occupancy in the hotel? Craig Scott Billings: Yeah. Thank you. First, driving rate over occupancy is an incredibly intentional strategy. It is not a strategy that we are doing because it is being hoisted upon us. Right? When we drive rate over occupancy, we can change our restaurant opening hours. We can staff the building differently, and we can really push EBITDA. On the gaming volume point, it is definitely not the mass customer that is wandering in the door and driving our incremental gaming volume. We set out, geez, three years ago now, and changed a tremendous number of things in the business, from our hosting strategies to our underlying technology to aspects of our rewards program and our reinvestment, and that has resulted in a pretty significant shift in market share in our favor. And this was another quarter where you saw the benefit of that. Brian, anything you would add? Brian Gullbrants: I would say the ops team continues to crush it on optimizing RevPAR, focused on keeping the restaurants full, and still tightly controlling OpEx. So all of those are key in our future. Craig Scott Billings: Very helpful. I think I have piled two questions in there, so I will step out of the queue. Thanks all. Julie Mireille Cameron-Doe: Thanks. Operator: Thank you. Our next caller is Brandt Montour with Barclays. Your line is open, sir. Brandt Montour: Good afternoon, everyone. Thanks for taking my question. Operator: Can you guys— Brandt Montour: I do not think you guys have talked about this yet, but the sort of the convention calendar for you guys for the year by quarter, you know, any sort of what should we think about in terms of year-over-year comparisons and what stands out to you when you look out over the year in terms of group? Craig Scott Billings: Brian, you want to take that? Sure. I think if you look at— Brian Gullbrants: Some of the citywides, and it does not impact us as much, but there is some significant change this year over last year. Q1 seems to be higher than last year. Q2, a little bit more challenged because April, you have got Passover, Easter, and then we layer in pretty nicely. There is a couple holes in the summer. We have plenty of prospects. Team is doing a great job in filling those holes and pacing nicely right now. So we will see how it goes. Operator: Okay. Great. Thanks for that. And this is a follow-up on Macau. Brandt Montour: You know, you guys already talked about margins and sort of the effect of VIP mix. But when we look at just the VIP volumes, they look incredibly strong, and you are not the only ones that have seen this. Can you just help us understand what is driving that? Are you guys doing more direct lending as part of that roll and ship business? What are sort of the supply and demand things to keep in mind when we are trying to understand those trends? Craig Scott Billings: We definitely have not changed any component of how we think about credit. Brian Gullbrants: So— Craig Scott Billings: We are not driving volumes on the back of incremental credit. As you know, in VIP, a very small number of players can drive a very large amount of turnover. So we have been making very specific investments in our VIP hosting teams and in our VIP player development, and we saw the benefit of that this quarter. Brian Gullbrants: Great. Thanks, everybody. Elizabeth Dove: Sure. Operator: Thank you. Our next caller is David Brian Katz with Jefferies. Your line is open, sir. David Brian Katz: Hi. Good afternoon, everybody. Brandt Montour: Julie, congrats and all the best. I wanted— Craig Scott Billings: To just get an updated comment on Las Vegas broadly. Brandt Montour: And— Craig Scott Billings: You know, how do we think about the opportunity for your assets to continue to grow— Brian Gullbrants: Either top line— David Brian Katz: Or bottom line. Is it—what I understand that the refurbs are necessary and helpful, you know. But how do we sort of think about your presence there growing longer term? Craig Scott Billings: Yeah. Look, the way I think about it is Vegas, if you look at Vegas over the course of the past—really since the emergence from COVID—Vegas has become a more multifaceted destination than it has ever been. And, you know, and we have talked about this before, Vegas has a long history of tacking on incremental sources of demand. The Raiders are an example of that. The Sphere is an example of that. And, really, the business is more diversified—the total business here in Vegas is more diversified than it has ever been. David Brian Katz: That— Craig Scott Billings: Next maturation of the market tends to appeal to customers that are in our customer segment. And during that same period, I would humbly say that we have continued to distance ourselves in the market and provide the best option for those high-value customers. You have seen those high-value customers hold up, even as, you know, perhaps folks who are in a different income strata have not. And I think that we have been a real beneficiary of that. So from an organic same-store-sales basis, I feel very good about our business and our position in Vegas. I mean, look at the EBITDA numbers and the return on invested capital that we are delivering out of this building. It is tremendous. David Brian Katz: Then— Craig Scott Billings: Beyond that, of course, we have a pretty significant land bank here. You have to choose the right time to flex that land bank. If you look at the last two openings in the market, they have had to be share takers because the market visitation did not change with those two openings. But over the very longer term, you know, particularly as, again, as I was saying in my prepared remarks, you have incremental wealth creation, everything that is going on in technology and AI. We think that demand for our products will allow us to take advantage of that expansion. It is just a question of when. So, again, I do not really think—candidly, I do not really think “will 2026 be greater than 2025?” I think “where will we be in 2030 and 2032?” And what will our business look like? And I feel very good about it. Okey doke. David Brian Katz: Thank you. Sure. Operator: Thank you. Our next caller is Chad Beynon with—your line is open, sir. Benjamin Nicolas Chaiken: Hi, good afternoon. Thanks for taking my question. And— David Brian Katz: Julie, congrats on all your accomplishments as well. Wanted to ask unfortunately, maybe more of a near-term question, just around 2026. I know a lot of the lodging companies and event centers are talking about the World Cup impact. I know it is making its way through Boston for a couple weeks and then obviously in Los Angeles and other cities, where international customers could be here and maybe frequent your properties. I guess my question is, do you think there could be an impact or maybe a spark that we have not seen from maybe some international customers coming back into the market and then frequenting your properties? Thanks. Craig Scott Billings: Sure. It is a good question. In Boston, for sure, the direct impact there I would expect would be on ADR. In Vegas, we have an entire strategy that we have developed to take advantage of the proximity of the World Cup. That is a very targeted strategy because, you know, we do not need kind of the mass volume to make their way here. And so, certainly, we will take advantage of that and make sure that we are able to ghost on the event, if you will. Does it impact how we think about 2026? Maybe on the margin. But I do not think I would be calling it out as a specific driver of the year. David Brian Katz: Okay. Thanks, Craig. And then as it relates to AI, you talked about just the wealth effect that could improve your customers’ wealth over the next couple of years and then drive business to your properties. But what about internally in terms of tech that you guys are using, either in-house or with certain vendors to help whether it is, you know, search or content, kind of product on the floor? Do you think we will see an improvement in 2026 versus 2025 that could either help on the revenue or margin side? Craig Scott Billings: Great question. How much time do we have left on the call? Okay. So first of all, we are already seeing the effect of that wealth creation. We already have customers that are spending time with us that have had wealth created through everything that is going on with artificial intelligence. So this is not something that I am just kind of forecasting out of my head. I mean, we can see it. And in the long run, I do not anticipate that it will just be here. I anticipate that it will be in Wynn on Marjan Island, where you have the UAE being extremely aggressive in terms of AI infrastructure and AI model development. And so I think that that will benefit us there as well, and I think it will benefit us in Macau as a new generation of wealth is created in China. On the internal side, our approach to date—we worked under the presumption initially that anything that was focused on OpEx efficiency would be packaged up and sold to us because that is where everybody was going to head first. And I was kind of proven to be the case. I think with respect to that, look, anybody who watches CNBC, particularly today, is going to tell you that there is a general feeling that we are finally at a tipping point with respect to the models. And I believe that to be true. And so I think from an OpEx efficiency perspective you will start to see gains over the course of the next several years. What I think is underappreciated in the enterprise is the amount of plumbing that goes into how all the systems that we utilize, the data, the databases that we utilize are connected. So that plumbing does not change overnight, and so that takes time. But I am certain that that will happen. So if we were not focused on the OpEx side, what were we focused on? We were focused really on customer delight. And so that really comes down to personalization, where we have rolled out several things. I will not get into the details on this call for competitive reasons, but we have rolled out several things that have had a meaningful impact, we believe, on retention. We focused on improving the underlying machine learning and modeling for our reinvestment. That is true here and in Macau. And that has certainly had an impact. I believe you can see that showing up in gaming volumes. So, you know, it is a little bit of everything. Oh, and then the last piece I would say, I think if you are watching the markets, you may have seen TripAdvisor trading off heavily today, citing the impact of what is called GEO, generative engine optimization, on a business that is very SEO, search engine optimization, dependent. So we have been on that for probably about a year now, making sure that our discoverability—that is from a hotel sales perspective, primarily food and beverage as well, but mostly hotel sales—that our discoverability would be absolutely top notch as GEO starts to take over SEO. So there is really—there is a hundred things that will ultimately come out of all of this. I am not going to put us in a position where we are talking about impact on—well, never put us in a position where we are talking about impact on margins. But it certainly will show up. Brian Gullbrants: Thanks, Craig. Appreciate it. You got it. Operator: Thank you. Our next caller is Steven Moyer Wieczynski with Stifel. Your line is open, sir. Steven Moyer Wieczynski: Hey, guys. Excuse me. Good afternoon. And congrats, Julie. Hope you have a great retirement. Not sure if I missed this or not, Craig or Julie, but, you know, if we think about Macau margins in the fourth quarter on a more normalized basis, meaning hold normal in VIP and mass, OpEx is— Operator: Based on our quick math, is it safe to say those margins would have been pretty close to the 31.5% margin that was posted in 2024? Am I kind of thinking about that the right way? You are a little above where we would put them. We would probably put them somewhere around 30. Okay. 30.5. Yep. Okay. Thanks, Craig. And then I am not sure how much you will say, Craig, or not, given we are kind of in the first quarter, but Chinese New Year obviously starting up in the next couple days. Would you give any kind of high-level view on where you guys are booked at this point or what you think demand is going to look like? Yeah. Booking pace is good. Julie Mireille Cameron-Doe: We feel very, very good about where we are. And with the opening of Chairman's Club at Palace, we feel like we have something new and shiny that will delight our best customers. So we are feeling good about Chinese New Year. We do—and we call this out, I think, kind of ad nauseam now—but we do run into capacity constraints around these peak periods based on table count. That does not affect our best customers, obviously. But on the more base mass side, we do. But we feel great. Operator: Okay. Gotcha. Thanks, Craig. Appreciate it. Sure. Craig Scott Billings: Thank you. Our next caller is Trey Bowers with Wells Fargo. Your line is open. Julie Mireille Cameron-Doe: Hey, guys. Thanks for the question. Great to see you on the trip a couple months ago. I guess I will be the first to ask an Al Marjan question, but as we progress through the year, could you guys just give us any kind of signposts to think about? Be it even when the rooms will go on sale as we look towards just strength of the opening. And then a second part of that question would be one question I get is just it feels like the only hindrance in that market is supply constraint. And can you just give us a sense for when you look around the property, how long it is going to take for that area to kind of be fully built out and how necessary that is to hit some of the targets that you guys are looking for? Thanks so much. Julie Mireille Cameron-Doe: Sure. Elizabeth Dove: The signposts along the way, we will release them in press releases. I mean, we put out construction updates every now and again, and then we update folks on this call. With respect to when rooms will go on sale, that is the subject of discussion right now. But if I had to spitball it at this point, it would be late Q3, early Q4. Elizabeth Dove: You are correct that it would be great to have a bunch of incremental room capacity. We are not dependent on that incremental room capacity to meet our base case. I want to be very, very clear about that. What we said when we were in the UAE was that meeting the outperformance numbers or beyond would certainly require incremental hotel capacity. Those of you that were there saw that construction happening. So the construction is absolutely happening. I do not expect a material uptick in the room count prior to our opening. I mean, we are but a year and a few months out at this point. But shortly thereafter, I would expect incremental rooms to come online. Our strategy to deal with that in the short run and ultimately the long run is to have a very, very strong transportation program and effectively utilize adjacent cities as a source of day-to-day visitation. And so we are being very, very thoughtful on the transportation side. So just to reiterate, base case unaffected, but we certainly would like incremental hotel rooms to come up, and they are coming up. Elizabeth Dove: Great. Thanks. And I guess just a quick follow-up just to ask about my town. We saw in some of the trade rags that maybe a hotel expansion here in Boston was back on track. I did not see anything in the slide deck in reference to anything planned for Boston, but could you guys just walk through any expectations around anything you want to do in this market? Julie Mireille Cameron-Doe: Thanks. Sure. Thank you for that. Yeah. There was a bit of misreporting in a number of those articles, so let me clarify. We are not developing hotels on our balance sheet. Rather, we own some 16 acres of land adjacent to Encore, and we are contemplating providing a portion of that land under what is effectively a land lease. So to that end, we entered into an MOU with the City of Everett outlining certain things that we would each do to facilitate that development. And, really, this is part of a broader vision for the neighborhood, including a potential rail stop and, of course, a possible Major League Soccer stadium very, very close to Encore Boston Harbor. So to be clear, we are not developing those hotels. We would be a land-lease lessor. The hotels themselves would drive benefit to Encore Boston Harbor, and we would be excited about that. But that is what we are up to. Thanks, guys. Craig Scott Billings: Thank you. Our next caller is Ben Chaiken with Mizuho. Your line is open, sir. Benjamin Chaiken: Hey, thanks for taking my questions. And just wanted to echo the previous comments. Benjamin Chaiken: Maybe just follow-up on UAE. Recognizing you have provided us with a high-level financial framework, can you give us your latest thoughts on the mix of F&B, entertainment versus gaming? And then some of the swing factors as you see it today? Thanks. Operator: Sure. Julie Mireille Cameron-Doe: I mean, we have outlined our expectations for the market in a base, low, and upside case. Beyond that, obviously, on the gaming side, the market is extremely supply constrained. We are kind of it for quite some time. I think we have said in the past we expect that market to have many attributes that are consistent with Las Vegas, which is very, very strong nongaming demand. So the balance there really is how we utilize our room base. You know, Vegas, where the vast majority of our revenue is nongaming; Macau, where the vast majority of our revenue is gaming; I would not expect it to be at either of those poles, but it will really come down to the tension of how we utilize those rooms. Elizabeth Dove: So— Julie Mireille Cameron-Doe: You will see in the numbers that we provided very healthy gaming revenues, representing the productivity of the casino and also supply-constrained nature of the market, but you will also see a healthy balance of nongaming revenues reflecting substantial ADRs and a substantial willingness to spend in that market for food and beverage. Helpful. Thank you. Craig Scott Billings: Thank you. Our next caller is Steven Donald Pizzella with Deutsche Bank. Your line is open, sir. Steven Donald Pizzella: Hey, good evening, and thank you for taking our question. And also wanted to say congrats to Julie. Brian Gullbrants: Maybe just following up on Al Marjan as we get closer to the opening. Can you share how your database continues to shape up and the efforts to build the pipeline to get the right people to the property when it opens? Elizabeth Dove: Sure. On the hosting side— Julie Mireille Cameron-Doe: We started building our hosting infrastructure a year and change ago when we started bringing on very senior folks with regional experience. So the kind of one-to-one relationship marketing has been well underway. And I would say that general awareness among high-value players regionally is extremely high. I mean, we have been getting approached by people in pretty far-flung places asking when the property will be open. Elizabeth Dove: On the mass market side, we have begun, primarily through digital, building a database and creating awareness. We are communicating with those folks regularly in anticipation of the opening. And I think that will be additive. Honestly, so we are doing a lot, long story short, to build the database. But the awareness among people who are both gaming customers and nongaming customers in the market—the unaided awareness—is actually quite high. So I do not want to be flippant about it and say, you know, we do not need to build a database because we absolutely, positively do. But we are feeling pretty good about people showing up the day we open doors. Brian Gullbrants: Okay. Great. Thank you. Craig Scott Billings: Operator, the next question will be the last. Thank you. Robin Margaret Farley with UBS. Your line is open. Robin Margaret Farley: Great. Hopefully, you guys can hear me. I wanted to circle back to your comment about Macau and reinvestment. I know you said there was not a significant jump, I think that was in your reinvestment spend. Can you talk a little bit more broadly about what you are seeing in the environment? Others are talking about, you know, how much more competitive it has gotten. Are you seeing that stabilize in terms of what others are doing even if your own reinvestment rate has not had a jump? Thanks. Elizabeth Dove: Sure. Julie Mireille Cameron-Doe: I mean, I will not specifically comment on others’ perception of others’ reinvestment rates. I would say that there has been at least one operator in the market who has publicly stated that they are driving incremental reinvestment. I think you naturally get responses to that. I think you are really talking about a band market-wide. You are talking about a band of 200 basis points in reinvestment, you know, when you talk about reinvestment moving up and down. So as we have said before, I do not view the market as being in some all-out promotional war by any means. But like I said in my prepared—or in a response actually to another question—it is a short booking window, and it is a competitive market. And that is the way it is. So all I can really do is speak to what we do, and that is move reinvestment up, down, do what we need to do in order to drive EBITDA-positive incremental visits. And lastly, as I mentioned on prior calls, we have a to-the-basis-point, day-by-day view of what our reinvestment is, and so we are able to modulate it on the fly far better than we ever have, which really relates to some human capital and technology improvements that we made several years ago so that we can really bring it up, bring it down, and do whatever we need to do at any given moment. Craig Scott Billings: Okay. Thank you. Robin Margaret Farley: And then just a quick follow-up on Vegas. Craig, in your comments when you were sort of talking longer term about demand and growth in 2030 and all of that, you kind of wrapped it up by saying you were making the point that you think about growth longer term. But you made a comment about, you know, 2026 maybe not being greater than 2025, and I did not know if that was just like a theoretical making the point that you were not as focused near term. And I know you do not guide, but is the expectation, given the room remodel disruption, it would be reasonable to think that EBITDA would be down year-over-year? Is that sort of a takeaway that we should have from that comment? Julie Mireille Cameron-Doe: My comment was purely theoretical. I am simply pointing out that, look, we do not—this is true in Macau, this is true in Vegas—right? We do not control the market. We control our share of it. And so everything we do every day is designed to be a share taker, hold share and be a share taker. That manifests itself in two ways: gaming volumes and ADR. And by all measures, I think we have shown that we are very successful in that strategy. And so opining on 2026 for us is actually opining on the market. And I am not going to opine on the market. In fact, you all spend a lot more time analyzing market-level trends, quite frankly, than we do per se, because we are thinking about how to deliver the absolute best product so that we can top tick our own EBITDA. But my comment was purely designed to illustrate the fact that we are thinking about an arc that is, you know, five to seven years out. Robin Margaret Farley: Okay. Great. Understood. Thanks. Operator: Sure. Well, thank you for joining the Wynn Resorts, Limited Q4 earnings call, and thank you for all the kind words. We appreciate your interest in the company, and the team looks forward to talking to you again next quarter. Thank you, everybody. Craig Scott Billings: And thank you for participating on today's conference call. You may disconnect. Have a nice—
Operator: Good day, and thank you for standing by. Welcome to Cohu, Inc.'s Fourth Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that I would now like to hand the conference over to your speaker today, Jeffrey D. Jones, Chief Financial Officer. Please go ahead. Jeffrey D. Jones: Good afternoon, and welcome to our conference call discussing Cohu, Inc.'s Fourth Quarter 2025 Financial Results and our outlook for 2026. I am joined today by Luis Antonio Müller, Cohu, Inc.'s President and CEO. If you need a copy of our earnings release, it can be found on our website at cohu.com, or by contacting Cohu Investor Relations. A slide presentation accompanying today's call is also available in the Investor Relations section of the website. Replays of this call will be accessible via the same page after the conclusion of the call. During this call, we will be making forward-looking statements that reflect management's current expectations concerning Cohu, Inc.'s future business. These statements are based on the information available to us at this time, but they are subject to rapid and sometimes abrupt changes. We encourage everyone to review the forward-looking statements section of our slide presentation and the earnings release as well as Cohu, Inc.'s filings with the SEC, including the most recently filed Form 10-Ks and Form 10-Q. Our comments are current as of today, 02/12/2026, and Cohu, Inc. does not assume any obligation to update these statements for events occurring after this call. Additionally, we will discuss certain non-GAAP financial measures during this call. Please refer to our earnings release and slide presentation for reconciliation to the most comparable GAAP measures. I will now turn the call over to Luis Antonio Müller, Cohu, Inc.'s President and CEO. Luis? Good day, everyone. Thank you for joining our Q4 2025 earnings call. I am pleased to share our latest results Luis Antonio Müller: as we close the year and highlight the continued momentum across the business. First off, let us talk about some highlights. Recurring business remained strong, representing about 60% of total revenue in the fourth quarter. Recurring bookings were up 34% sequentially, driven by stronger demand across service contracts, interface solutions, and handler-related spares business. Systems demand increased 47% quarter over quarter driven by higher equipment orders from major global customers, specifically increased activity from a leading analog and mixed-signal semiconductor customer, renewed investment from a top automotive and industrial semiconductor manufacturer. Ten customers accounted for approximately 63% of Q4 bookings, a healthy level of diversification for this stage of the cycle. For the full year 2025, orders increased 29% year over year. Now let us dive into the detailed results. Fourth quarter revenue of $122 million is 30% year over year and split 40% systems and 60% recurring. Recurring revenue grew 4% quarter over quarter and 25% year over year. We believe the strong recurring business reflects the value of our installed base and customer reliance on Cohu, Inc. across their production environment. Our recurring model continues to provide stable performance, particularly over the past two years of soft equipment demand. Full-year revenue of $453 million is up 13% year over year, confirming the trajectory of the market recovery and initial design win successes. We estimate higher test sterilization trends from September through December among both OSAT and IDM customers, with revenue improvements most pronounced in markets tied to computing and automotive applications. Estimated test serialization is up a point to 76% at December, with computing segment the strongest at 78% and automotive at 75%. We believe this improved utilization during an otherwise slow seasonal quarter underscores a broader positive market dynamic. While some long-standing customers strengthened their installed base support as utilization levels gradually improved, others have engaged with us on new programs. There is a clear change in customer engagement, reflecting both new program ramps and renewed investment in back end test infrastructure, with expansions across automotive ADAS. Design win activity was strong in Q4, analog and power devices, compute-related applications, and predictive maintenance use cases. More specifically, we secured a key transition win for Cohu, Inc. test interface products at a leading analog and mixed-signal customer. We closed the first order for a high-performance thermal configuration of the Eclipse handler supporting a customer's AI device roadmap. We booked a multiunit order for a new handler still in development targeting automotive and physical AI device test. We will be shipping an initial qualification system this summer and follow-on units later in the year. We received a new order for HBM inspection at a customer's engineering lab supporting development activity of next-generation memory devices. We won the first mixed-signal tester order at an analog and connectivity business unit of a large semiconductor manufacturer, broadening the Diamondx tester penetration beyond earlier wins. We secured an order for the Krypton inspection metrology system for production of automotive ADAS processors. This order continued to demonstrate the success of Krypton, and it included the subscription component for PACE inspection software that uses machine learning to improve yield. We secured booking for tri-temperature handlers across multiple customer sites to support growing power module test demand. Jeffrey D. Jones: Across markets, Luis Antonio Müller: customers consistently emphasize quality, yield and productivity, and cost of test efficiency, areas where Cohu, Inc. solutions continue to be highly differentiated. As global trade dynamics remain fluid, our low direct exposure to China and strong customer across North America, Europe, and the rest of Asia provide a solid risk balance profile. We remain confident in our ability to navigate regional shifts while staying aligned with customers investing in critical long-term technology transitions. To conclude, Q4 reflected continued market recovery across end markets, with a balanced mix of recurring and system revenue, improving customer engagement, increasing design win traction, expanding AI data center opportunities, and strengthening market signals across several strategic verticals. We enter 2026 with a solid foundation and positive momentum. Thank you for your continued support. I will now turn the call over to Jeffrey D. Jones for a deeper review of our financial results. Jeff? Jeffrey D. Jones: Thank you, Luis. Before reviewing the fourth quarter results and providing first quarter guidance, please note that my comments refer to non-GAAP figures. Details about non-GAAP financial measures, including GAAP to non-GAAP reconciliations and other disclosures, are included in the earnings release and investor presentation on our website. For Q4 2025, revenue was in line with guidance at $122.2 million. Recurring revenue, which is primarily driven by consumables and is more stable than systems revenue, accounted for 60% of total revenue for the quarter. Revenue for the full year 2025 was $453 million and 13% higher year over year. During the fourth quarter, two customers, one in the mobile segment and one in the automotive segment, each represented more than 10% of our total sales. For the full year 2025, no customer represented more than 10% of our total sales. The Q4 gross margin of 40.8% was lower than guidance due to one-time inventory charges resulting from discontinuing certain product lines and consolidating offerings, which better align our engineering and support resources with customer requirements. By streamlining our offerings, we are better positioned to respond quickly to market changes, and focusing our resources on high-performance computing, HBM memory, and AI-related high-growth opportunities. Operating expenses for Q4 were in line with guidance at $49.8 million. Net interest income, after accounting for interest expense and a small foreign currency loss, was approximately $1.9 million for Q4. The Q4 tax provision was higher than guidance due to a $5 million increase in tax reserves against tax assets. The reserves had no impact on the future benefit of the tax assets or cash taxes. Therefore, while the accounting rules require an increase in reserves, this does not change our expectation of using these assets in the future or affect our cash flow. Moving to the balance sheet. Cash and investments increased by $286 million during Q4 to $484 million at year end. This was due to the net proceeds from the convertible debt and cash generated by operations. No stock repurchases were completed during Q4. Total debt is $305 million and includes $288 million from the Q4 convertible debt offering. Q4 capital expenditures were $3.4 million, mainly for facility improvements. Capital expenditures for full year 2025 were $21 million, including $9 million for the purchase of our Malaysia factory in Q1. In late Q3, we announced a strategic convertible notes offering. Early in Q4, we completed the upsized offering, raising gross proceeds of $287.5 million at attractive rates, including a 1.5% interest rate, 32.5% conversion premium, and a five-year term. We purchased a 100% capped call to limit shareholder dilution until the stock price doubles and exceeds $41 per share. The repayment structure of the notes is net share settlement, meaning Cohu, Inc. will repay the principal of $287.5 million in cash. The banks cover the capped call up to $41 per share, and thereafter, Cohu, Inc. has the option to settle any in-the-money amounts in cash, shares, or a combination of both. This structure limits shareholder dilution. The net proceeds will provide additional liquidity to strengthen our balance sheet and support strategic initiatives. Looking ahead, we expect Q1 revenue to be seasonally flat with Q4. Our recurring revenue is forecasted to represent about 60% of total Q1 revenue, while systems offset the typical seasonality of the first quarter and account for 40% of total Q1 revenue. Our guidance for Q1 revenue is approximately $122 million plus or minus $7 million. The gross margin for Q1 is projected to return to corporate average at approximately 45%. The unique inventory charges that occurred in Q4 are not projected to continue in Q1. Operating expenses are expected to be flat compared to Q4 at about $50 million. Q1 interest income, net of interest expense and foreign currency impacts, is projected to be approximately $1.9 million at current interest rates. The Q1 tax provision is expected to be about $5.5 million, and the diluted share count for Q1 is projected to be approximately 48.5 million. We are targeting total capital expenditures to be about 2% of revenue in 2026. The company is well positioned now to support the business ramp, and we anticipate normal maintenance CapEx each quarter this year. Our focus for 2026 will be to support R&D investments that are enabling several design wins in the compute market, including AI data center infrastructure, HBM memory, and physical AI applications, along with progressively increasing our cash flow generation. This concludes our prepared remarks. We will now open for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Craig Andrew Ellis from B. Riley Securities. Luis Antonio Müller: Thanks for taking the question. Jeffrey D. Jones: Luis, I wanted to go back to the order activity in the fourth quarter. Craig Andrew Ellis: It looked very strong in both systems and recurring. Can you just talk about what you are seeing with those orders? How much of that converts in the first quarter versus being pipelined for later in the year? Appreciate any insight on that. Luis Antonio Müller: Okay. Hi, Craig. Yes, I can make some comments on the orders here. I am going to need a little bit of help from Jeff on the timing of the conversion to revenue. So just to recap, right, we had systems orders were up 47% quarter on quarter. So that really sort of bucked the trend on the seasonality. That really affected, Craig Andrew Ellis: primarily handlers, Jeffrey D. Jones: thermal subsystems, Luis Antonio Müller: which we typically sell for mobile processor test in SLT. And, you know, some testers for mixed-signal and RF/M device. On the recurring side, orders were up 34% quarter over quarter. There was actually a couple of large service contracts Craig Andrew Ellis: involved on that recurring business. Luis Antonio Müller: That renew annually. And so that obviously is going to spread out throughout 2026. But we also saw an increase in bookings on interface products and handler spares that typically go along with utilization improvement. And, Jeff, I know if you have better comments on the timing Jeffrey D. Jones: Yes. I think, well, you are absolutely right about the recurring orders, Luis, and the portion that is going to be longer term, multiple quarters. The systems, we have about 70% of our guided revenue in backlog coming into Q1, with a majority of the balance being shipped in Q2. So it is really the system shipments showing up in Q1 and Q2, Craig. Craig Andrew Ellis: Got it. Thanks for that, Jeff. And then the follow-up question is related to revenue and then with a clarification on gross margin. So Neon, high bandwidth memory has been a sharp focus through the year in 2025. Luis, can you tell us where the business exited with revenue in that product group? And remind us what your expectations are in 2026? And then the clarification is on your end, Jeff, and it relates to gross margin. Is it fair to say that that one-time end of manufacturing charge in the fourth quarter was about 400 basis points or the variance between guidance and what was reported? Or were there other things at play? Jeffrey D. Jones: That was the majority of it, Craig. I would say about 350 of it was 150 basis points. Was due to that one-time charge. There was some mix that accounted for the balance. Luis Antonio Müller: And to your comment about the Neon revenue, we did exit 2025 at $11 million on the HBM market. We already booked three more systems here in we booked the system in Q4. January for Q1. Obviously, that is next quarter, but it is booked and we are forecasting revenue this year in HBM between $15 and $20 million. Craig Andrew Ellis: That is helpful, guys. Thank you. Operator: Our next question comes from the line of David Duley from Steelhead Securities. Jeffrey D. Jones: Yes. Thanks for taking my question. David Duley: I was wondering if you could just recap what you said about Eclipse activity during the quarter. I think there was a couple of mentions of that. And then maybe help us understand how that product line should ramp throughout 2026. And do you have the capacity to meet demand? Luis Antonio Müller: Hi, Dave. Yes. So we booked a first configuration of a I I I guess, can say super high power, but probably a year from now, there is going to be another super high power. So let us just say an even higher power David Duley: version of our TCORE thermal control Luis Antonio Müller: on an Eclipse handler. We booked that system in Q4. It is a system that we have been working with a customer on qualification. We shipped a first unit, the real production unit here already in the late January time frame. I do not think I can really sort of disclose what the volume projections are for the year for the Eclipse handler, but, fair to say that we have, you know, we have forecast for ramping production, and we do have the capacity. Yes. We do have the capacity to ship systems this year based on the forecast that we have received so far from David Duley: more than one customer actually for that system. Operator: Okay. And then David Duley: when you think about 2026 and just whatever revenue profile, you know, it is obviously going to grow. But I am just kind of wondering how you might think about the first half versus the second half. And, you know, it seems like you have strong order momentum, and, you know, you kind of buck seasonal trends in the first quarter here. Craig Andrew Ellis: And so I suspect that, you know, we are kind of starting our recovery period through the balance of the year. Maybe you could just make some comments on that. Luis Antonio Müller: Yes. We were certainly seeing an increase in order momentum across our traditional customers in auto and industrial space. David Duley: With that said, I think we are a lot more excited really is about Luis Antonio Müller: the high-performance computing opportunities that we see with the Eclipse handler David Duley: we should be increasing shipment rate of Eclipse in the second quarter going into third quarter. A little too soon to talk about what it looks like in the fourth quarter, perhaps, so Luis Antonio Müller: more of a typical seasonality. I do not know. But right now, what we are seeing is sort of a ramp heading to the middle of the year. David Duley: Okay. Excuse me. Jeff, if you could just comment Craig Andrew Ellis: on how the gross margin profile should look throughout the year with the higher revenues expected in Q2 and Q3. David Duley: Yeah. Absolutely, Dave. So just go back to my Jeffrey D. Jones: model here and kind of reference. Maybe I will just reference the analyst consensus as well, which let us just call it roughly $130 million Q2 and Q3. So at that level of revenue, $130 million a quarter, gross margin should be driven to the high 46% range, 46.7%, 46.8%, that range. David Duley: And then as we get into, you know, Jeffrey D. Jones: range of $150 million per quarter that starts to breach the 48% gross margin number, so just under 48%. David Duley: And then when we get back to what we believe at the moment is Jeffrey D. Jones: sort of our normalized run rate, sort of normalized business conditions, would be about $160 million a quarter, and that would be 48% gross margin. Craig Andrew Ellis: Okay. And then final thing for me is if you could just comment Jeffrey D. Jones: you know, I think Operator: many Craig Andrew Ellis: companies have seen an increase in customer activity and, you know, customer forecasts increasing. And, you know, maybe you could just describe how your customer activity has changed over the last month or so as we are moving into an upturn year. Luis Antonio Müller: Well, I think it goes along with what I said initially here, Dave, that we are seeing an increase in demand for our systems from traditional Cohu, Inc. customers, you know, the traditional automotive, industrial IDMs. But we are else, but more importantly, we are seeing a strong pull or should say a forecast for the Eclipse product line going into David Duley: compute and mobile Luis Antonio Müller: applications. So, yeah, the situation is improving. I think it is visible on the utilization rate that in a seasonal fourth quarter went up instead a point to 76%. Operator: Added about how we are answering 2026. It should be should be a good year. We are definitely projecting another growth year. We did have 13% revenue growth in 2025. And we are modeling another growth in 2026. Just to add to that, Dave, in terms of a market indicator, recurring revenue now has increased sequentially four quarters in a row. And so that, as you know, is a sign of some of market recovery. And so we couple that with utilization and it looks like it is all headed in the right direction. Alright. Thank you. Thank you. One moment for our next question. Jeffrey D. Jones: Our next question comes from the line of Robert Mertens from TD Cowen. Operator: Hi. This is Robert on behalf of Chris. Thanks for taking my questions. I just wanted to clarify in terms of the high bandwidth memory inspection, you secured a new Luis Antonio Müller: win for that to use in the engineering lab. Is that working with the same customer, or is that a new customer Operator: that you have worked with? That is hi, Robert. That is the same customer. Same customer, but going into the lab for future HBM development. Luis Antonio Müller: Okay. Got it. Thank you. And then just in terms of just making sure I heard correctly, though. Multiunit order for the new handler in the under development. With the qualification shipment later in the summer. Is that revolving around your Eclipse handler and the GPU opportunity, or is that separate from the commentary? Operator: That is separate from that commentary. That is targeting auto, primarily automotive ADAS and physical AI type devices. So a different type of application, different product altogether. Luis Antonio Müller: Okay. Got it. Thank you. Jeffrey D. Jones: Thank you. One moment for our next question. Our next question comes from the line of Brian Edward Chin from Stifel. Operator: Hi, this is Daniela Talia. I am on for Brian Chin. Thank you for your questions. My first question is around HBM inspection to continue on that. Is your customer the same customer doing a 100% inspection with your Neon platform, and how does that inspection intensity for this step change moving to HBM4? Luis Antonio Müller: Hi. Yes. The customer is doing a 100% inspection with our platform. As new generation HBM devices come up, the requirement in terms of size, defects that you are looking, size of defects you are looking for, or ball pillar count that you have to measure obviously increases. And with that, so does the time it takes to do the inspection. I do not have a number to give you right now and say what percentage increase in the time of inspection and, therefore, a slowdown of the process. Certainly, those devices are getting larger and with the higher interconnect count as we move along here in newer generations. Brian Edward Chin: Okay. Great. Thank you. And then, also, I know you mentioned $15 to $20 million for that revenue base. Do you see the shipments more linear or weighted to the first half or the second half going into 2026? Luis Antonio Müller: At this point, we are seeing this fairly linear through the year. Jeffrey D. Jones: Okay. Great. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Denis Pyatchanin from Needham and Company. Operator: Great. Thanks for taking our questions. My first one was Luis Antonio Müller: about the IDM versus OSAT performance. Maybe you guys could provide some more color on what saw in the fourth quarter for IDMs or OSATs and then maybe some segment color from what you are seeing in the first quarter. And maybe beyond that if you can. Operator: Hi, Denis. I can say is from a utilization standpoint, in the fourth quarter, IDMs were a little over 76%, and OSATs a little over 75%. As we look into the first quarter here, I am starting to think that, you know, we do not typically forecast utilization, but starting to believe that that may flip. I think utilization may go up a bit. But I am thinking the OSATs may be going up faster than the IDMs, at least as an early view of the first quarter. We will see how that really ends up in March. Jeffrey D. Jones: Right. Luis Antonio Müller: And then for the second part of that question about the segments, so maybe versus auto and industrial, how are they looking from a systems perspective into the first quarter? Operator: Compute, as we exit Q4, compute was at 78%, auto 75%, industrial 77%, mobile 72%, consumer 76%. Going into first quarter, I am seeing the biggest momentum around mobile, thinking mobile is going to utilization of mobile is going to potentially cross the 75% mark. Compute should continue to rise. And I do not know much about the others at this point. Great. And then for my second question, regarding that analog and mixed-signal, could you give us some more color on that? Sure. We have won a customer a little over a year ago that is a large mixed-signal supplier into the automotive market. They are one of the top six or seven automotive semiconductor manufacturers. We have been deploying that tester into, you know, more recently here, two out of their three major business units. And they also have been diversifying their product line. So we got an order qualification from that second business unit that I just referenced. We know that their products that are going through our testers now are some digital controllers and PMIC devices that are being used in data centers. They actually, you know, shown in some news release there for data center racks and data center boards surrounding large GPUs. And we are expecting to see an acceleration at least of one of these tester design wins, particularly in the digital controller side, coming up towards the middle of the year. Luis Antonio Müller: Thank you for the color. That is it for me. Jeffrey D. Jones: Thank you. At this time, I would now like to turn the conference back over to Jeffrey D. Jones for closing remarks. Luis Antonio Müller: Hey, I would just like to say thank you for joining today’s call, and we look forward to speaking with you again soon. Operator: Have a good day. Jeffrey D. Jones: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Andre Parize: Good evening, everyone. I'm Andre Parize, Investor Relations Officer at XP. Thank you for joining us. It's a pleasure to be here with you today. On behalf of the company, I would like to welcome you to our Fourth Quarter '25 Earnings Call. Today's presentation will be delivered by our CEO, Thiago Maffra; and our CFO, Victor Mansur. Both will be available for the Q&A session immediately afterwards. [Operator Instructions] Simultaneous translation into Portuguese is available during this conference call. If you would like to activate it, please click the button below. Before we begin, please see the legal disclaimer on Page 2 of today's presentation for additional information on forward-looking statements. The presentation is available for download on our Investor Relations website, and more information is also available in the SEC Filings section of our IR website. To begin the presentation, I'll hand it over to Thiago Maffra. Good evening, Maffra. Thiago Maffra: Thank you, Andre. Good evening, everyone, and thank you all for joining us today for our fourth quarter '25 earnings call. Before delving into the numbers, I would like to comment on the recent shareholder change we have just announced in the 6-K. As announced, myself and Jose Berenguer, CEO of XP's Wholesale Bank, will become holders of XP Control LLC, alongside Guilherme Benchimol, who is still the main controlling shareholder; and Fabricio de Almeida and Guilherme Sant'Anna. This is part of the ongoing process of strengthening corporate governance, long-term alignment and the company's management model. Now to the results. In 2025, we continue investing in key areas of our business. We enhanced our core processes, scaled financial planning, deepened our segmentation strategy and launched new products. We also celebrate the fifth anniversary of our Wholesale Bank, an important milestone that demonstrates the strength and integration of the ecosystem we have built. This platform drives the evolution of service for our corporate and institutional clients in addition to create cross-selling opportunities across our ecosystem. Despite its relative short history, we have established a top-tier franchise that keeps growing in a consistent manner and contributing to our results. Alongside these structure advancements, we continued our agenda of better serving our clients. We launched a new campaign focused on empowering clients through the power of choice. We are the first investment firm in Brazil to offer transactional fee-based and RIA models. We believe there is no single ideal model. Rather, different models are best suited to different client profiles. By having these different models, complete product range, focus on excellence and the most qualified team of advisers as our main advantage, we became the largest investment network in Brazil. Today, we oversee approximately BRL 2.1 trillion across AUC, AUM and AUA, supported by a nationwide network of around 18,000 advisers serving approximately 5 million clients. Our presence spans almost 800 investment centers across 23 Brazilian states and the federal district, combining scale with local reach. We ranked #1 in traded volume on B3 and processed nearly 50,000 fixed income transactions per day. We had some challenges last year, but by strengthening our business fundamentals, we have positioned ourselves to capture future opportunities. With a robust platform, disciplined execution and a fully committed team, we are starting 2026 ready to grow whatever the market scenario. On the next slide, we will explore how our ecosystem transformed over time and how that transformation brought us to where we are today. This slide captures where XP stands today. We are entering a more mature phase, while we're retaining the disruptive DNA that has always defined our journey. Our evolution has happened in waves. The first wave was focused on democratizing access to financial products that until then were not largely offered by incumbent banks like equities and third-party funds. The education of individual investors was an important pillar in the first wave; and through that, we fostered the development of the investment advisory industry in Brazil. In the second wave, we scaled, broadened our distribution and built a comprehensive ecosystem, consolidating XP as one-stop shop financial platform. Now we are advancing to a third wave, a move that democratize the wealth services model. We are taking a holistic and agnostic approach to give clients true freedom of choice. We have always put clients' power of choice at the heart of our strategy. We remain committed to leading the market forward, guided by our long-standing belief that we play a key role in society by continuously improving the way people invest, manage and think about their money. Our ultimate goal is to help clients achieve their dreams. Now moving on to the next slide. Our transformative track record has brought us to where we are today. We have built a distinctive business that delivers profitability while maintaining a conservative capital structure, giving us the option to operate in a broad range of scenarios. We posted gross revenues of BRL 19.5 billion in 2025, up 8% year-over-year. As I mentioned last quarter, we expected double-digit growth on the second half of 2025, and we managed to achieve that level. In the second half, we grew slightly more than 10% versus second half of 2024, showing that the initiatives we implemented during the year and earlier are responding positively. Year-over-year, EBT grew 10%, reaching BRL 5.5 billion. Adjusted net income in fourth quarter '25 was BRL 1.3 billion and BRL 5.2 billion for the full year, representing a 15% expansion year-over-year. Regarding balance sheet and profitability, we achieved 23.9% ROE in 2025, representing a 94 basis point expansion versus 2024. Our year-end BIS ratio was 20.4%, a very comfortable level even after the payment of BRL 500 million in dividends and BRL 1.9 billion in share buybacks executed in 2025. Finally, our adjusted diluted EPS increased by 18% during the year. Now that we covered our platform, our disruptive profile and the highlights of the financial results, I would like to go in more detail on our business strategy. We have spent the past 2 years developing our service excellence agenda. At first, we focused on building the foundations, systems, incentive models and sales force training. In 2025, we took the next step and began to scale this model. At the same time, we refined our client segmentation, offering tailored servicing models and value propositions for each segment. supported by multiple pricing structures. It's worth mentioning that today, approximately 23% of our retail AUC is already under a fee-based model. We continue to adopt this approach, recognizing that there is no single best model but rather, the most appropriate model for each client. We have also developed different ways to objectively track adherence to this way of serving. One of the most important tools we have is the XP Service Model Index. It incorporates metrics such as financial and wealth planning, quality of client relationships, and adherence to recommended asset allocation. Initial results are tangible. Clients above the index target show meaningfully better financial outcomes with 21% higher revenues and more than double the net asset inflows. As we roll out this agenda, different KPIs will move accordingly. Currently, clients above the index target make up 39% of our AUC, and we expect this number to continue expanding. We will cover this topic in more detail on the next slide. Two important pillars of our foundation are financial and wealth planning and our expert allocation model. We support our clients with a holistic approach based on financial and wealth planning. We help clients navigate complex and highly personal decisions with clarity and confidence. Our work goes beyond investments, encompassing succession, state and tax planning, always tailored to each client's objectives, family structure and long-term vision. We offer financial planning for our clients with at least BRL 300,000 in AUC and comprehensive wealth planning for clients with invested assets above BRL 3 million. We were truly pioneers on democratizing access to these services in Brazil at a time when they were largely restricted to a small group of very wealthy individuals. Additionally, we developed in-house technology that allow us to go beyond and scale the offering of financial planning while maintaining governance and quality. And this is something no other player in Brazil can do. Our second pillar is the expert allocation model, which is a proprietary tool based on algorithmic intelligent design to propose a smart asset allocation. The use of this technology goes hand in hand with our advisory capabilities and considers multiple variables such as available products, liquidity, client profile, the structure of the current portfolio, among others. Through it, we combine the best of both human and technological capabilities, data intelligence, complemented by the depth of human knowledge and strong client relationships built by our advisers. To track the development of our agenda, we measure how usage of these tools evolves over time. Currently, 21% and 12% of targeted clients track their financial and wealth planning with an adviser. Additionally, adherence to the expert allocation tool has been rapidly growing across all segments, and December 2025 was a record month for allocation using this tool. Besides the fact that we are democratizing this service, we can also see on the right-hand side of this slide, we are delivering positive performance to clients. Looking at the number of advised clients' portfolios, 39% achieved returns of more than 110% of the SELIC rate. 23% had returns between 100% and 110%, and 28% obtained returns between 80% and 100% of the SELIC rate. This means that 90% of the advised client base is registering returns of 90% and higher than the SELIC rate. Given that technology is a key component of our business, we will explore in greater detail on the next slide. Technology is a core pillar of XP's growth strategy. Our proprietary platforms and AI-driven capabilities enable scalable expansion while maintaining strong governance and improving adviser productivity. We believe in what we call an augmented adviser, which is an adviser whose capabilities are enhanced by AI. This improvement can be seen in different aspects. First, relationships. We are now able to monitor the frequency and quality of advisers' interactions with clients, providing us with data and intelligence that will ultimately be used to make the advisers better equipped to serve their clients. Second, asset allocation. Technology and AI play a central role in asset allocation supporting portfolio reviews and personalized recommendations aligned with our expert allocation framework. Third, automation. By reducing the operational workload of advisers, automation allows them to focus on higher-value client relationships. By augmenting advisers with AI across relationship management, operations and allocation, we can increase account load and adviser productivity while improving client satisfaction. By monitoring and scoring client interactions, we ensure strong governance, consistent service quality and scalable growth. To close this section of the presentation, I would like to talk about a core part of XP, our adviser network. XP basically created the modern investment advisory role in Brazil, and that role has continued to evolve over time. What began with education and access to equity products has grown into a highly professional, scalable adviser model that supports increasing complex client needs. While we offer a unique value proposition to clients, we also have a differentiated value proposition for our advisers. We equip them with proprietary tools, data and intelligence that enhance their productivity, improve advice quality and strengthen client relationships. This combination of technology, training and incentive alignment is something no other platform offers at scale in Brazil. By continuously investing in the development of more than 18,000 advisers, we reinforce the strength of our distribution network, enhance client relationships and the quality of the service delivered while ensuring the long-term sustainability of our model. Finally, this powerful combination of service excellence, strong client relationships and financial performance together with a sales force that has aligned incentives and robust capabilities corroborates our conviction that disciplined execution backed by governance and technology will drive the performance of our segments towards our strategic objectives. Now let's move on to the next slide to explore our retail investments strategy. This slide summarizes the results we are achieving across our core segments and shows how our strategic investments are producing concrete outcomes. Starting with retail. This segment continues to represent a significant opportunity for us. While we have faced market share pressure and margin compression over the last 2 years, we have taken decisive action to redesign the way we serve these clients with the objective of improving efficiency. The current scenario already reflects early signs of progress with a new value proposition grounded in goal-based investing and managed portfolios. We already see strong initial improvements with margin accretive dynamics. Our strategy now is to expand these initial tests to other client layers, using technology, process and governance as key enablers to scale in a profitable way. In high income, our core segment, fundamentals remain very strong. We have folks most of our investments here. And it's where our competitive advantage stand out the most. We continue to see solid growth supported by our multi-model service approach. As previously shown, financial planning, wealth planning and expert allocation remain at the center of this strategy, reinforcing client engagement and long-term value creation. In Private Banking, we are seeing the results of our recent investments. The segment is transitioning into a full wealth management model, covering both individuals and corporate clients' needs, supported by a robust product platform and a highly skilled team. Growth has resumed with market share gains and expansion in credit and cross-selling within the XP ecosystem. We are still investing in this segment, and we expect to see further market share gains accompanied by margin expansion. On the next slide, we will share our consolidated client assets figure. In the last quarter of 2025, our total client assets combined with AUM and AUA totaled BRL 2.1 trillion, representing a 22% growth year-over-year. This was an important milestone for XP, crossing the BRL 2 trillion threshold. On the right hand of the slide, we show how net new money related to client assets evolved during the last quarter of the year. In 2025, one of the most frequently asked questions for XP was around net new money. To clarify some of the questions we received, we'd like to exceptionally give a little more color on this metric. This quarter, we once again achieved BRL 20 billion in retail net new money and BRL 12 billion in corporate and institutional, totaling 32 billion for the period. As we have been saying in the previous quarters, retail net new money has been impacted by the dynamics of SMBs. In the fourth quarter of 2025, small and medium enterprise withdrew BRL 3 billion in investments from our platform. On the other hand, inflows from individual clients in all our segments totaled BRL 23 billion. While we posted positive figures this quarter and met our soft guidance, we still face a challenging environment for 2026. We are investing in different initiatives to support our future growth. But for now, we remain expecting retail net new money reaching BRL 20 billion per quarter. Retail cross-sell has been one of our focus to diversify revenue streams over the last few years. In 2025, we achieved important milestones in this business vertical. As a result, we have observed higher engagement from our clients across different products, across insurance, cards, consortium, retirement plans and new loans are driving market share gains and record contributions. For 2026, we will continue to innovate and expand our offering, improving the integration of these products in financial planning and enhance the customer journey through a better digital experience. For instance, insurance, we will launch new products, travel, home and credit line insurance. And in life insurance, we will expand our product range with new coverage. Taking cards into consideration, the new loans we had during the year made it possible to increase the share of spending while increasing penetration among target clients. In 2026, we also be launching new products to enhance our cross-sell offering. In the first half of 2026, we are rolling out a proprietary dollar-backed stablecoin, targeting clients who seek to diversify or hedge against FX volatility while providing true 24/7 liquidity. This stablecoin launched Clear proprietary digital currency strategy, and we will expand the portfolio over time. Finally, we will reintroduce crypto service that are fully integrated into our platform with XP operating as a virtual asset brokerage. This ensures a seamless and a trusted experience, fully embedded within our broader investment ecosystem. Overall, this stead evolution in cross-sell products strengthens client relationships, increased share of wallet and diversifies recurring revenue. Let's move ahead to the next slide and review some KPIs from our cross-sell products. Let's start with credit card, where TPV rose 11% year-over-year to BRL 14.6 billion in fourth quarter '25. In 2025, we launched new products, offering unique value propositions for high income and private banking segments. Life insurance written premium grew 25% year-over-year in fourth quarter after we enhanced our offering, including new coverage. In retirement plans, our client assets posted 17% growth year-over-year in fourth quarter, reaching BRL 95 billion. Cross-channel campaigns and client initiatives led to positive inflows. In 2025, we had, for example, record inflows in the defined contribution pension plan with 17% growth year-over-year. Other new products, which include FX, global investments, digital account and consortium collectively grew 21% year-over-year, generating BRL 258 million in revenue this quarter. It's worth noting that these products were built from the scratch only a few years ago and already account for more than BRL 1 billion in revenues per year. On the next slide, we will cover the evolution of our Wholesale Bank. We are operating a complete ecosystem where our Wholesale Bank has become a key pillar of our strategy. Just a few years after we started our wholesale banking activities, we have grown into one of the -- Brazil's largest players. As our retail platform scaled, it generated increased flow and liquidity demand, enabling us to grow our Wholesale Bank by leveraging our global markets and market-making capabilities. What started as a client facilitation has evolved into a sophisticated wholesale banking franchisee, integrating investment banking, institutional access and other capabilities. Through the combination of strong retail distribution with wholesale and market-making capabilities, we have built a powerful ecosystem that improves execution quality and liquidity for clients. In fact, we are leaders in equities, futures, options and ETFs, representing roughly 50% of these markets. Additionally, we have created a complete investment banking, offering a full range of capital market solutions to our corporate clients. This robust structure benefits us in several ways as it not only diversifies our revenue streams but also generates multiple synergies with our investment business. We have been gaining relevance in DCM, for example, and we will continue to invest in strengthening our franchise in the coming years. Finally, in credit agribusiness receivables, we are a leader in distribution as well as in real estate funds. Our Wholesale Bank has posted strong results over the past few years, and there is much more to come as we keep investing in our franchise. Now let's move on to the next slide and see more details on our progress agenda. Looking ahead, over the coming years, we will continue working on different business opportunities. At this stage, we understand that XP is ready to address and capture share in new markets being credit and SMBs, the main prospects in the long-term agenda. In SMBs, we will leverage Brazil's largest adviser network to expand our reach and deepen relationships. Moreover, we will broaden our product portfolio beyond investments and FX to generate more engagement and address SMBs' day-to-day financial needs more holistically. When it comes to credit, we see opportunities for both individuals and corporates. For individuals, credit acts as a catalyst for our investment business, helping us move toward greater primacy. Expanding our tailored solutions, particularly for high-income segments, will be central to our agenda. For corporate clients, we remain focused on structured solutions and expanding our corporate product offering to improve competitiveness, including receivables, government-sponsored funds and real estate solutions. Overall, our strategy is to expand our credit offering while maintaining the conservative, prudent approach that has long defined our business. These opportunities are once again medium to long term. I will now hand the presentation over to Victor, who will discuss the quarter and full year financial results. Thank you. Victor Mansur: Thank you, Maffra, and good evening, everyone. Before I start, I would like to do a quick recap of some achievements and commitments for the past 2 years. First, corporate restructuring. We are now entering into the final phase of our corporate restructuring, in which we will further concentrate activities in XP Bank, materially improving our capital and funding costs. The new structuring has increased our competitiveness, optimizing our warehouse strategy during the year. We already captured part of these benefits in 2025 with reduction in funding costs, plus the reduction in cost of [ which ] to do the emission of subordinated notes. And we expect to have another positive impact in 2026 and the following years. As a result, we see the expansion of both our financial margin and EBT margin for 2025, and we expect to keep this pace for 2026. Second, our balance sheet management. In 2025, both our EPS and net income grew faster than our total assets and total risk-weighted assets. Combined with our disciplined capital allocation and distributions, this drove our ROE expansion of approximately 90 basis points, even though our BIS ratio is higher than 20%. Third, efficiency. Our continued technology investments are delivering operational leverage across many business fronts, allowing us to keep our investment pace, while we keep a stable efficiency ratio year-over-year. So now starting with total gross revenue. In our fourth quarter, total gross revenue reached BRL 5.3 billion, representing a 12% increase year-over-year and 7% sequentially. For the full year of 2025, total gross revenue was BRL 19.5 billion, growing 8% compared to 2024. The performance highlight was Corporate & Issuer Services with a strong second half of 2025. When we compare to gross revenue breakdown on the right-hand side of this slide, in 2025, retail maintained 75% of total revenues and Corporate & Issuer Services gained in this space. Now let's move on to the next slide with more details on the different business. In the 4Q '25, retail revenues totaled BRL 3.9 billion, up 8% year-over-year and 4% sequentially. For the full year, retail gross revenue reached BRL 14.6 billion, increased 8% versus last year. Retail revenue growth in 2025 was supported by float for both investments and checking accounts, new verticals with credit card, retirement plans and insurance leading the way; and as a new initiative, international investments; fixed income performance, with a strong first half of 2025 and decent figures for the second half, supported by warehousing strategy. So now let's turn to Corporate & Issuer Services. In the fourth quarter, revenues reached BRL 895 million, representing a 49% increase year-over-year and a 23% increase sequentially. This was the strongest performance in our history for this business, both in Corporate & Issuer Services. The strong performance was driven by a robust activity in the DCM space, reaccelerating from a softer first half. In addition, our ability to cross sell and deliver a broader set of solutions to our corporate clients, such as derivatives and credit continued to support revenues, leveraging on our strong distribution capabilities across the platform. For the full year of 2025, Corporate & Issuer Services revenue totaled BRL 2.7 billion, up 19% compared to 2024, making a new level of corporate revenues and consolidating this segment as an important business line for XP. And now let's move to our SG&A and efficiency ratios. SG&A in the fourth quarter amounted BRL 1.7 billion, growing 10% year-over-year and 4% quarter-over-quarter. For the full year, SG&A totaled BRL 6.3 billion, reflecting continued investments in technology such as AI and CRM and also our expansion of our adviser network. As I mentioned earlier, it is the operational leverage capture from technology and innovation developments that will allow us to keep our elevated investment pace in different areas of the business while keeping the same efficiency level. Additionally, the efficiency ratio in 2026 should remain broadly in line with 2025 levels without any material change. As we can see on the right hand of this slide, our last 12-month efficiency ratio for the fourth quarter stood at 34.7%, stable compared to 2024. Our adjusted EBT reached BRL 1.5 billion in the 4Q '25, increasing 20% year-over-year and 16% quarter-over-quarter with an adjusted EBT margin of 31.3%, an up 252 basis points year-over-year and to 271 basis points quarter-over-quarter. That means that we have reached the range of our guidance margin during this quarter. For the full year of 2025, adjusted EBT totaled BRL 5.5 billion, growing 10% versus last year with an EBT margin of 29.6%, expanding 52 basis points year-over-year. On the next slide, we will see our adjusted net income. Adjusted net income for the quarter was BRL 1.3 billion, up 10% year-over-year and stable sequentially. Our net margins were 26.9% in the 4Q '25, 9 basis points lower year-over-year and 166 basis points lower sequentially. For the full year, adjusted net income reached BRL 5.2 billion, growing 15% compared to 2024 with 28.3% net margin, 173 basis points expansion in the period. Let's move to the next slide to talk about capital management. Starting with capital returns. In 2025, we returned BRL 2.4 billion in capital to shareholders through dividends and buybacks. We also continued to have our BRL 1 billion share buyback program currently open. On the right-hand side of this slide, you can see the evolution of our payout ratio over the years, including last year, we had a close to 15% payout, considering both buybacks and dividends. Now talking about earnings per share and ROE. Once again, we would like to highlight that our earnings per share continues to grow faster than net income, driven by our consistent buyback execution just like we explored in the previous slide. Adjusted EPS in the fourth quarter was BRL 2.56, growing 15% year-over-year and 4% quarter-over-quarter. For the full year, adjusted EPS reached BRL 9.81, increasing 18% versus last year. Only in 2025, we have retired more than 24 million shares, approximately 4% of the total share outstanding. Now looking at our profitability, ROAE and ROTE. We see our adjusted return on equity for 2025 reached 23.9% and 94 bps expansion, while return on tangible equity was 29.5%, a 78 basis points expansion versus 2024. This reflects our capital disciplines that allow us to consistently return capital to shareholders while simultaneously growing and investing the business to further differentiate ourselves from our peers. Finally, on capital ratio and risk-weighted assets. We closed the quarter with a BIS ratio of 20.4%, with the CET1 ratio at 17.3%. In 2026, we operate the business with a high BIS ratio during the year. We are comfortable with getting our BIS ratio to our target range of 19% to 16% toward the end of the year for capital distributions while still maintaining a comfortable capital buffer. Additionally, we ended the year with a CET1 ratio of 17.3% compared to our peer average of 12%. If we were running the business at the same CET1 of 12%, ROAE would have been above 13%. Now looking at the right-hand side of this slide, you can see our RWA breakdown by category. Risk-weighted assets totaled BRL 119 billion, growing 13% year-over-year and 11% quarter-over-quarter. As we expected and communicated in certain occasions, total RWA growth was lower than our net income and EPS for the year, even with a strong performance from the wholesale business. In parallel, our total assets adjusted for assets under management from retirement plans grew 8% versus 2024, also less than our bottom line. More specifically, during the quarter, we increased the warehousing of fixed income securities, mainly corporate credit, aligned with strong DCM activity, our growing capacity to originate corporate deals and market timing opportunities. Lastly, because of this increase in warehousing, our value at risk from which important companies' credit risk spread went to BRL 39 million or 17 basis points of [ equity ], stable on a year-over-year perspective and 4 basis points higher sequentially but still in a very conservative level. We expect to distribute a portion of these assets at the beginning of 2026. This level of warehousing capability was only possible due to the development of XP Bank's funding structure, as previously highlighted. With that, I end my presentation and hand it over to Maffra, so he can make his final remarks. And then we'll go to the Q&A. Thiago Maffra: Thanks, Victor. Before the Q&A, I would like to quickly go over the strategic foundations directing our priorities for 2026. Excellence is our main growth pillar. Over the past years, we have invested heavily in scalable process, governance and technology. And in 2026, we begin to see these investments maturing and is starting to translate into results. This is reinforced by a skilled and well-trained sales force with aligned incentives ensuring consistent execution across the organization. We continue to invest in a highly disciplined manner, particularly focused on wholesale banking and the B2C channel while refining our segmentation to ensure a clear and accurate value proposition for each client profile. This will enable us to grow with quality in a profitable and sustainable manner. On the capital front, our priority is to sustain strong and consistent returns backed by a conservative capital structure. This discipline provides the flexibility to operate across different market scenarios, maintaining resilience and readiness to capture opportunities. Together, these foundations ensure that we enter 2026 with a solid business structure and disciplined capital allocation. Lastly, before starting the Q&A, I would like to address an ongoing topic within the financial system. First of all, we would like to express our deep concern regarding everything that has been reviewed in recent months involving Banco Master and the extent of irregularities identified. We also want to acknowledge the important and diligent work carried out by the Central Bank as well as the responsible media coverage that has helped Brazilian society better understand with greater transparency what has occurred through ABBC and FEBRABAN, we are actively supporting structural improvements aimed at preventing situations like this from happening again in our financial system. The Central Bank has been advancing in the right direction over the past years, although we understand some relevant adjustments are still necessary. That said, this change must be implemented responsibly so that Brazil does not risk reversing the significant progress achieved in recent decades in terms of competition and a broader and more efficient access to financial products and service. We should be careful not to adopt measures whose unintended consequence would be to reestablish excessive banking concentration or to enable business models built on consumers' lack of information or as Director Galipolo rightly pointed out some months ago, products that function as a reversing Robin Hood. For more than a decade, the Central Bank has consistently pursued an agenda to increase competition and improve both quality and the cost of financial service through initiatives such as BCPs. Digital banks and investment platforms have played a central role in this transformation, expanding access to banking service without fees and reducing long-standing asymmetries in traditional investment products, such as Poupanca saving accounts, [ PIC ] and titulos de capitalizacao. 25 years ago, we helped transform the system by building the first open platform in Brazil, giving clients across all income levels access to financial education and high-quality investment products. Over time, we have contributed to reshaping the market by fostering competition, improving product quality, reducing costs and ultimately, delivering better outcomes for our clients. We do offer proprietary products, but we have always distributed third-party solutions, including from competitors. Choice, transparency and alignment with the client always come first. We do not charge abusive or opaque fees, and clients pay nothing to open or maintain an account with us. Our mission is simple: to improve people's life by helping them invest better. This principle guides every decision we make and remains the foundation of our work as we continue to support Brazilians in managing their money, investing responsibly and planning for their future. Andre Parize, we will now start our Q&A session. Andre Parize: Thank you, Maffra. Now we're going to start the Q&A. The first question is from Eduardo Rosman from BTG. Eduardo Rosman: I have 2 questions for Maffra. The first one is regarding the ambition to become Brazil's leading investment platform by 2033. Can you provide a little bit more detail why 2033? What's the metric that you use to define that, that being a leading firm? Is that market share? Do you see revenue client base or something else? And do you believe that doing more of the same but better will be enough to reach this goal? Or would you require more powerful banking and credit capabilities? That would be the first one. And the second one, regarding your entry into the controlling group. Practically speaking, what does that change mean to you? Thiago Maffra: Thank you for your questions, Rosman. The first question is when we say that we want to be leaders in investments in 2023, it's about market share. Okay? So that means that we have our internal plans here. Our long-term view is to become leaders in 2033 in market share, and that's the -- it's '33 because our plans -- every plan that we have gives us that we can get there in 7 years. Okay? So that's the number -- the reasons when we look how much money, net new money we have to bring in the next years by different channels, by different segments. The plans, they point out that we can get there in '33. How we get there, first, with the third wave. Okay? So as we mentioned in the past earnings call, in all the conference, we have been investing a lot on the third wave, on democratizing wealth planning for retail clients in Brazil, so democratizing the service that only private banking clients or even multifamily, obviously, clients have in Brazil. So that's the main point here. It's -- a lot of people don't get how big is the change here because most of the financial companies in Brazil and banks, they still have like the model of pushing products. Okay? It can be a basket of products and investment portfolio, but it's a product-driven approach. We have been changing that for the past 2 years. We have changed incentives. We have changed the way of serving clients. We have done a new segmentation in the company, new value propositions, and we are seeing big improvements in all the numbers, churn, EPS and all -- a lot of other metrics here. So we are very excited with the next years when we look at everything we have been doing on foundations and changing -- almost changing the business model in the past years for the future. Of course, we have different strategies for different segments. We have been investing a lot on the private banking platform in the past 3 years. We have been gaining market share in the past 2 years; and last year 2, 2025 it accelerated. And we believe that we can grow faster here on private banking. On the middle, the affluent clients, it's more of the same with more intensity, with more technology, with more process with the new value proposition of more services, more wealth planning. And when we go to the retail clients, we have found a new way of serving more goal-based, low human touch, so a completely different value proposition. That is becoming a reality, I would say, in the last year and that we are very confident that we can accelerate in the next years. So different strategies for different segments but all based on the third wave here. So of course, as you mentioned, the full ecosystem, the banking part, insurance of that reinforce the value proposition for investor clients. And as you have seen in the past quarters and past years, we are, like every quarter, every year, like better on the cross-sell products, and we have a big road map for the next quarters here, so -- but we are ready to accelerate in the future. Okay? About the second question, the control, being 100% honest with you, for myself, nothing changed. I've been with the company for 11 years. I was a partner in a different way, but I was a partner. I have always acted as owner of the company, so nothing changed on the way I behave or the way I see the company. But I believe it's even a stronger alignment between the executives that are running the company, Jose Berenguer and I, alongside Fabricio Almeida and Guilherme Sant'Anna, so 4 executives that run the company on a daily base, and of course, Guilherme. So I believe it's a stronger alignment for the long term, but nothing changed the way we manage the company here. And besides that, Gabriel, Bruno and Bernardo, they continue to be a shareholder in the company. They continue on the Board. So it's a natural evolution here, a natural process, so there is no big change here on the company. Andre Parize: Okay. Next question is from Thiago Batista, UBS. Thiago Bovolenta Batista: Hear me? Andre Parize: Yes. Thiago Bovolenta Batista: I have one question regarding the recommendation that CVM released yesterday about the internalization of orders. In my understanding, this should be a little bit positive for your RRP business. But do you have any view if this really positive or not for XP? And the second question on the taxes. We normally complain when the taxes were low. Now we're complaining when the tax increased. But my question on the taxes is trying to understand if this hike in the taxes in this quarter is related to the change in the quality of structure and also, if this is linked with the consumption of the tax on tax losses carryforward. You reduced by BRL 700 million, BRL 800 million of those tax credits only in 1 quarter, if all those things are correlated. Thiago Maffra: It's Thiago here, so I will take the first question. It's a very positive news for us. Once you don't have the cap and you can include other assets, so it's very positive. Okay. You remember that we were the first company back in 2015, I remember it was the one responsible for building RRP back in '15 here for XP and until 2019 was, I would say, a big journey to make the product regulated. So -- and today, seeing the product like evolving, not having cap, going to other assets or other type of instruments, so that's very positive because we are the largest market making in Brazil for retail clients. So it's positive for a business. It's positive for the market, for the clients, so -- and of course, we'll generate more revenues and more results for our market making. So it's positive. Victor Mansur: Thiago, this is Victor. First, about taxes. I think we talked a lot about that in the past. Our base tax rate is something near 15%. If the business is more toward the banking activity, investment banking, DCM and broker dealer, we're going to pay a bit more. And if the business is more towards market making, we're going to be a bit less. If you look at the revenue mix for the quarter, the main highlights was issuer services and corporate banking, both, of course, made in the -- inside the bank and the broker dealer, and that's why we are paying more taxes. Also, those revenues are less heavy in terms of commission. Those assets were not distributed to retail clients. So the EBT margin associated to those revenues are also higher. Talking about the quality of structure, this change will only happen in 2026. It did not happen yet in 2025. So it has nothing to do with the taxes. The taxes are an effect of the revenue mix. I'm sorry, what was the other question? Thiago Bovolenta Batista: Was if this was -- the higher tax was the cause of the reduction in the tax losses carry forward. Victor Mansur: It's not because of that. It's the revenue mix that explain both revenue, tax and EBT. Andre Parize: Okay. Next question is from Gustavo Schroden from Citi. Gustavo Schroden: I'm going to do 2 questions as well. So the first one is regarding the reimbursements by the FGC to the depositors of Banco Master, so estimated in BRL 40 billion. So how has XP been performing? So I believe that the company has designed a strategy to capture these volumes -- part of this volume. So any color on that would be great, if you should expect any positive impact in the first quarter '26 regarding it. And my second question is regarding the NPS. We saw a decline in NPS to 65 points from plus 70 points baseline. So could you elaborate on this? What's behind this decline and how the company is addressing this decline in NPS? Thiago Maffra: Okay. Thank you for the question. I will start with the NPS question. It's -- the drop is related to 2 events that we had on the fourth quarter. We had the Ambipar structured notes, and we had a lot of news and noise about Banco Master back especially in December. So there is a selection bias for clients who were impacted by these 2 events. They are more propensed like to respond the NPS than clients that were not impact by the events that happened. So when we look at margin, we see the NPS improving again. So we believe it's going to be temporary affected by the 2 events that I just mentioned. And to give a color that the impact is not that material, usually, when we have big maturing of fixed income, for example, inflation, government bonds or like big corporate maturing bonds in Brazil, usually, we retain 70%, 75% of the amount because usually people take the liquidity to pay bills or to do something outside of XP, so give or take is 70% the retention rate. Okay? And when we look, Banco Master today is above 85%. Okay? So it's higher than a regular maturing event. So I'm not sure how we are going to disclosure the net new money for Q1, but somehow, we will have like to show these numbers. So there's a huge inflow of money from Banco Master as we are keeping more than 85%. But not sure yet how we're going to disclosure, but we'll disclosure between net new money and the retention. Andre Parize: Okay. Next question is from Guilherme Grespan from JPMorgan. Guilherme Grespan: My question is just on the outlook for 2026, and this is the environment that we are seeing. Fourth quarter still showed similar trends, right? Issuer services, very strong. Corporate solutions, very strong. Fixed income, a little bit weaker. Equity is recovering a little bit but still timid. But my question is more going forward. Like question maybe, one, do you think this performance of Corporate Solutions & Issuer Services is sustainable in the beginning of this year? And question #2, if this environment that we are seeing year-to-date, it's a good performance of risk assets but it's mostly led by foreigners, right, we don't see a huge change on the local dynamics, if you believe you're benefiting much from this environment or, no, you don't benefit as much because it's mostly foreigner-driven, this good performance? Victor Mansur: Guilherme, thank you for your question. Victor here. First, talking about corporate, I think our corporate business is in another [ part there ]. We evolved a lot in terms of product, cross-sell, clients and do so. I think we can -- we are able to keep this pace over 2026. And talking about the performance of the other risk assets, as you said, it's still too soon to say that this will reflect in take rate. If you see volumes both in fixed income and acquisitions from retail clients, they are not going up. The movement is mainly driven by foreign clients. I think if the performance keep this way over the year, we may see a bit of trading activity coming from individuals. And of course, they will be reflecting in actual revenues, but it's still too soon to talk about that. Also, in terms of fixed income, I think we need to see the Central Bank delivering the cuts that we have in the interest rate curve. If that happened, we may see the compression of the duration in fixed income, or something that we talk a lot about over the last 2 quarters. But again, we need to see the marketing going in this direction, both in equities and fixed -- and rates to be able to see something reflecting on revenues. Andre Parize: Great. Next question is from Marcelo Mizrahi from BBI Bradesco. Marcelo Mizrahi: Congratulations for the results. Two questions. First is regarding the guidance. So if you guys plan to update the guidance to 2026 with the environment that we are talking now, first, second, the guidance of revenues and the guidance of margins. Second question is regarding the perspective to have -- I think it's better just to talk about the guidance, please. Thiago Maffra: Mizrahi, yes, the guidance holds. We have no reason today like to change the guidance. We believe 2026 is going to be a stronger year than 2025. As we have been talking in the past quarters, we are projecting to get very close to the guidance. Margin is there already. Okay? And when we look revenues, if you project, we are very close. So there is no reason to change the guidance right now. Marcelo Mizrahi: I remember my question. So my question is regarding the RWA. So we saw an increase of this -- the leverage, so definitely because of the offers. So looking forward, how much this leverage, so the RWA could increase? So you guys have some cap on that or some targets that you can share with us? Victor Mansur: Thank you. Thanks for your questions. First, as usual, we bought assets for our warehouse book in the fourth quarter to have assets to sell to our clients in the first. That is exactly what is happening. I think what we can say about RWA is the same we said last year. We are very confident that net income will grow faster than the risk, and that will be the case for 2026. Marcelo Mizrahi: Any perspective of adjustments on the payout policy to increase payouts or to reduce the payouts with that? Victor Mansur: We have our BIS ratio guidance for the end of the year. We -- as we said during the presentation, we're going to pass the year of more strong capital base, but we are confident that we're going to be inside the guidance by the end of 2026. Andre Parize: Next question is from Tito Labarta from Goldman Sachs. Daer Labarta: Following up on Mizrahi's questions on the guidance just so I'm clear, make sure I didn't miss anything. The guidance you had given was back at the Investor Day where you guided for gross revenues of BRL 22.8 billion to BRL 26.8 billion. I mean, even at the low end, that would imply almost 20% revenue growth year-over-year. Just to make sure that's the guidance we're talking about. And that would be a big acceleration from the 8% growth that we're seeing here this year. And you also mentioned net inflows, you expect to remain around BRL 20 billion, so we don't see an acceleration there. Just to make sure that I'm understanding the guidance on the revenues that we should be thinking about. Thiago Maffra: Thank you, Tito. Yes, we are talking about the same guidance. So the number to get at the bottom of the guidance this year is 17%, the growth for revenues for 2026. So as we have been talking, it's not going to be easy, but if we miss, it's going to be by a small percentage. So there is no reason like to change guidance for 3 years if we miss by a very small amount. So -- and again, we believe we -- it is possible to get there. Okay? So -- and about net new money, we don't see any reason today to change the -- it's not a guidance, but we have been talking about the BRL 20 billion level. It's what happened in the past 3 quarters. So there's no reason to change for the next quarters. But again, for the -- our ambition to get to 2033 as a leader in investments, it will have to accelerate at some point in the future, but we don't see that happening on Q1 or Q2 for all the reasons we are -- and numbers we are seeing here. Daer Labarta: Okay. No. That's good. Good to hear as well. And I guess the driver of the acceleration, I mean, you're saying first Q, 2Q, maybe you don't see it, so second half of 2026 as interest rates come down, I think -- I mean, equity and fixed income are still like the biggest portion of your revenues. You think that should accelerate, I guess, as rates come down? Is that the right way to think about that? Thiago Maffra: No, we're not considering like a better take rate here or like a market improvement to get there. They are like all levers that we control. So we are confident that we can grow this year at higher pace than 2025. Daer Labarta: Okay. But it is back-end loaded, right, more second half of the year, if I understood the comment earlier? Thiago Maffra: We always have seasonality. This year was lower than the past years, but usually, we do 40 -- 45 and 55 of our results on the first [ half ]. It was a little bit more flattish in 2025. But yes, usually, we accelerate more on second half of the year. Andre Parize: Next question is from Pedro Leduc from Itau. Pedro Leduc: First question on SG&A. Here, you grew for the full year about 8%. I understand you're going through an investment cycle. So here, I'd like to hear your thoughts on what the priorities will be in 2026. What are the pains that you're trying to solve with investments? And you mentioned in the call, I believe, stable efficiency for 2026. Now we're talking about high teens revenue growth. So help us reconcile that SG&A, really understand what priorities you are doing and where we should look for signs of success of these investments. Victor Mansur: Thank you for your question. I think our main investments will be, as always, in our core business. So we're going to be investing in adviser expansion over the year the same as the last years. We're going to be investing in technology. So we have a lot of technology investments in AI. Those technologies will be used to customer relationship management and adviser productive. Both focus on having more account load with more quality and more NPS. And I think that's the way that we're going to measure that. And also, we have some investments in our international platform and our [ PME ] platform, cash account, bank account, every product around the companies, the companies that we're going to provide over 2026 and '27. And I think that mostly those are the big chunks of investments that we're going to do in 2026 the same as we did in 2025. Pedro Leduc: Okay. And with the efficiency level, you mentioned flattish that talks with the mid-teens revenues. Victor Mansur: Yes. As Maffra said, we are confident that we are going to pursue our guidance level, and that implies the efficiency ratio and the expenses we're going to grow. And of course, we have some kind of maneuverability here in the number if the revenue doesn't come, if they are faster than what we expect. But the number is around that. Pedro Leduc: Okay. And sorry, just to be picky on this part on the revenues, we understand you're going to go through some structured changes that would change also income tax and revenues. So when we talk about mid-teens, high teens revenues, that's excluding any accounting changes that will happen as you transfer these operations, correct? So be comparable. Victor Mansur: If you look at 2025, we did a lot of restructuring over the group. When we send some companies through the bank and we start changing the way we look at indebtedness in the company, we lost something around BRL 500 million in revenues over 2025 that went through the net interest margin. And we said nothing about that. So I think the growth of the revenues in the area, we're going to have a lot of mix the same as we have in 2025. If other companies going to the bank, we're paying some corporate debt and changing for banking debt, then therefore, going to reduce their revenues, and we're going to have some positive effects also. And I think in the net, we're going to be delivering the numbers that Maffra said. Pedro Leduc: Okay. No, that's very clear. The overall message is very clear. Andre Parize: Okay. Next question is from Antonio Ruette from Bank of America. Antonio Gregorin Ruette: I have 2 questions on my side. The first one is a follow-up on taxes. I understood that you should have an average tax rate of close to 15% and higher than that if revenues are more skewed to banking. And now if I'm looking here in your tax withholding in funds line, I see a very sharp decline Q-on-Q and this line very below your historical average. And it does not look related to the revenue mix. So if you could please explain what's related for. And thus also a second one, AI. I think it's an important topic, particularly when you are shifting between business models. So you are looking towards migrating towards B2C model. I understand that this is an opportunity to grow in the B2C with lower expenses, lower investments. But also it's a trap, right, because it's a model without in-person interaction, and that could be mimicked by AI, by another player. So how do you see your strategic shift right now considering AI? Victor Mansur: Antonio, I'm going to take the first question here. First, it's very hard to talk about the results of individual entities in the group. And as we said before, it's -- you cannot explain the performance of one business or another looking at the [ guidance ] or the quality of performance. Also, after 2026, if the restructuring of the group, we're not going to have [ default ] tax anymore, and we're not going to disclose this number. So I think the important thing here, if you look at the mix, if you look at the accounting levels, you're going to see the same things we are looking at the managerial level. You're going to see the banking revenues, banking fees, credit fees, fees from DCM offerings, and that was the strong part of the quarter, and that's why we are paying higher taxes than before. Thiago Maffra: The second one, so I'm not sure if it was clear on the presentation, but we do not believe in taking the financial adviser, the human out of the equation here. Okay? So it's always using technology, using AI to improve, to make the adviser better. Okay? So we have different AI agents here to help the adviser to have more relationship with the clients, to take the operational workload out of -- from -- out from the adviser. We have a lot of tools that we have been creating in the past 2 years to help the advisers to perform better, to increase the account load, to increase productivity, to increase the level of service that we deliver to customers. But it's always how to improve the human. Of course, when we talk about the -- remember that I said we have 3 big segments here. Of course, we have some other in between segments but 3 big ones. Of course, for the BRL 0 to BRL 100,000 segment, here, we can do 100% digital. Okay? But we don't believe or we don't -- we don't like the idea of having like a BRL 1 million client or BRL 10 million clients going only through like an AI. It doesn't help. It doesn't happen because it's a trust business. Okay? So people like to tell to people when they are talking about their lives, their dreams, so they want to talk to someone. So the whole idea here is how we use AI to improve the performance, to improve the service that we deliver to our customers. So we have been developing a lot of initiatives here. It's -- some of them are very promising. For example, today, we listen. We read. So we have governance over all the interactions that our B2C internal advisers have with customers. We classify 100% of them. So we know everything that's happening. We give advice for the internal advisers about what they are doing right or wrong. We give broad advice. We give advice of interactions with customers. So we are very excited with the results that we are getting from AI on the company, and -- but again, it's not about replacing the human or the human adviser. It's about enhancing the adviser. Okay? So that's the idea. Andre Parize: Okay. Next question is from Daniel Vaz from Safra. Daniel Vaz: I want to try to understand the aftermath of Banco Master, right, episode, both for XP internally and for your client base. So trying to break this down in 2 parts. First, for you, any way -- any changes in the way you filter your products to distribute? I mean how did that episode was discussed in your Board of Directors? So are -- is it -- got to the point that you discussed like are we going to distribute these types of products again? So how is the filter that you want to do after it or if there is any that you want to put additionally? And to your client behavior such as the ones that were involved probably, you mentioned, I think it was in the past presentation, about clients going to more risk-averse CDs. Kind of 50% of your marginal allocation in fixed income was little more to high liquidity products and less yields. So I want to try to understand like what has changed into the third quarter so far to the fourth quarter so far in terms of investment decisions by your clients and mainly on the aftermath of the episode of Banco Master. Thiago Maffra: It's important to remember that our clients, they -- 99.9% of them, they're like under the FGC, the FGIC -- Brazilian FGIC coverage. So our clients, they didn't lose any money. On the opposite, they made an investment that had a good return. Okay? So our clients, they didn't lose any money. We don't recommend Banco Master over FGC, as we don't recommend for any bank below a certain threshold of our internal rating. Okay? So of course, every time that something like that happened, we look for our internal controls, our credit analysis to see what we can improve, and we are improving. Okay? It's part of the journey. But remember that we have more than 50% of market share of all middle-sized and small-sized banks in Brazil, so -- because remember that the traditional incumbent banks, they don't rebuild third-party CDs. So it's basically only the independent investment platforms. And we are the largest one in the market. So for -- and remember that, in some other cases, [ Gicaza ], [ Bejica ], we didn't distribute the Portocred. We didn't have the products on our platform. Okay? So our credit analysis was good in some events in the past. When you have frauds or the kind of events that everyone is raging on the news right now, it's almost impossible. Otherwise, no one would lose money on credit. No one would have lost money on Lojas Americanas or Eike Batista companies or other frauds. Okay? So when you have this type of problems, it's hard to get. But of course, we have to look inside, see what we have to improve in our controls. But again, we have only distributed products that we believe they are suitable for our clients on the right risks for the right customer profile. We have internal controls today that we cannot allocate more of any type of fixed income products with credit risk above the threshold for that rating for that type of client. Okay? So we are very strict on controlling that. And again, our clients, they didn't lose any money here on Master. Okay? So that's important. About the changing mix after the event, we don't see any big change, okay, to be honest. We don't see -- of course, you have one other name that we're involved on the same problem. For those names, they are not even on our platform for a few months or even years. Okay? So -- but besides that, we don't see big change for other type of small or mid-sized banks. Andre Parize: Okay. Our earnings call is coming to an end. Thank you for your time. We see that there are more people who want to make questions, so IR team will be more than happy to attend to you. Just contact us, and see you soon. Thank you very much.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the 10x Genomics, Inc. Fourth Quarter and Full Year 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Cassie Corneau, Senior Director, Investor Relations and Strategic Finance. Please go ahead. Thank you. Good afternoon, everyone. Earlier today, 10x Genomics, Inc. released financial results for the fourth quarter and full year ended 12/31/2025. If you have not received this news release, or would like to be added to the company's distribution list, please send an email to investors@10xgenomics.com. An archived webcast of this call will be available on the investors tab of the company's website at 10xgenomics.com for at least 45 days following this call. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the press release 10x Genomics, Inc. issued today, and in the documents and reports filed by 10x Genomics, Inc. from time to time with the Securities and Exchange Commission. 10x Genomics, Inc. disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Joining the call today are Serge Saxonov, our CEO and Co-Founder, and Adam Taich, our Chief Financial Officer. We will host a question and answer session after our prepared remarks. We ask analysts to please keep to one question so that we may accommodate everyone in the queue. With that, I will now turn the call over to Serge. Serge Saxonov: Thanks, Cassie, and good afternoon, everyone. Today, I will start with an overview of our Q4 and 2025 performance. I will then talk about some of the key trends driving our business and how they position us well for future growth. Adam will then talk through the financials in more detail. We delivered $166,000,000 in revenue in the fourth quarter, exceeding the high end of our guidance range, and closed the year with $599,000,000 in revenue, excluding $44,000,000 of upfront revenue related to patent litigation settlements. In the fourth quarter, the operating environment remained largely unchanged from Q3. Customer spending remained subdued and capital equipment purchases remained particularly constrained. Uncertainty in research funding dynamics continues to impact customer timing of purchasing decisions. Despite this challenging backdrop, we saw a modest budget flush towards the end of the quarter and we continue to be encouraged by the solid underlying demand for our solutions. As I reflect on 2025 overall, I am extremely proud of how the team executed throughout the year. While 2025 was challenging and at times highly unpredictable for our customers and the broader life sciences ecosystem, the team delivered consistently quarter after quarter. We made steady progress across the fundamental drivers of the business, advanced our product roadmap, and strengthened our financial position. First, we saw strong momentum in key metrics that are driving the fundamentals of the business. Single cell consumables volumes grew at a double-digit rate each quarter, driven primarily by adoption of our newer lower cost products including FLEX and on-chip multiplexing. These products have expanded access, enabled new applications, and supported increased experimental volume. In spatial, we delivered double-digit consumables revenue growth for the year, driven by Xenium momentum. Strong demand for Xenium translated into meaningful customer expansion throughout the year. At the same time, existing customers, including the earliest and largest users, continue to ramp their utilization. We are encouraged to see customers exploring new applications, running more Serge Saxonov: Delivered multiple product launches across both single cell and spatial. Compared to even just two years ago, we have vastly expanded the capabilities of our platforms through continuous innovation. Within single cell, the launch of our next-generation FLEX assay in 2025, now branded as FLEX APEX, represents a meaningful step change in the capabilities of the Chromium platform. FLEX APEX combines exceptionally high performance with flexible inputs, including compatibility with FFPE and fixed whole blood. It supports both small exploratory experiments as well as ones with high sample counts and large numbers of cells, making it well suited for massive-scale studies. FLEX APEX delivers these features at a lower cost per experiment, thus enabling expanded access to single cell, driving increased reaction volumes, and supporting broader adoption across our customer base. Over a short time, we believe FLEX has become a foundational assay for several of the most important growth areas in the field, including large-scale AI and virtual cell efforts, translational cohort studies, and biopharma discovery and development workflows. As a result, FLEX became our most popular single cell assay by volume in the fourth quarter. We continue to hear strong feedback from customers on its ability to enable larger, more ambitious studies that were previously impractical. We look forward to seeing what our customers will accomplish as these studies progress. We also had meaningful launches across our spatial platforms in 2025. Within Visium, we launched Visium HD 3', enabling researchers to conduct whole transcriptome analysis across a broader range of applications and sample types. We also launched HD cell segmentation to address a key challenge in spatial analysis, helping customers visualize tissue structure in more precise detail. Within Xenium, we launched RNA and protein, enabling multimodal analysis on the same tissue section in a single integrated workflow. Together, these launches significantly expand the capabilities of our spatial portfolio. As I mentioned last quarter, when it comes to spatial, we have seen a strong and growing preference among our customers towards Xenium over other approaches. This trend has continued and will likely accelerate going forward. It is a reflection of both how well the technology works as well as the abundance of insights that scientists are gaining from the platform. Based on the feedback from our customers, it is becoming clear Xenium is the best choice for the vast majority of customers interested in spatial. And finally, we meaningfully strengthened our balance sheet over the course of the year. We grew our cash balance by more than $100,000,000 year over year, reflecting disciplined cost management and focused execution across the business. We intend to continue to effectively manage costs and strategically invest in innovation and long-term growth. As we look ahead to 2026 and beyond, we believe we are well positioned to build on the progress we have made with several strengths propelling growth going forward. First, there has been rapid parallel progress in AI and in the technologies used to measure biology. These two trends are highly complementary. Advances in single cell and spatial technologies have increased scale, lowered costs, and made it possible to generate very large, high-quality biological datasets, while advances in AI are creating new demands for that data. Importantly, this represents a shift in how research is conducted, with AI increasingly acting as a driver of data generation rather than just a downstream analysis tool. We are seeing growing interest in large, well-controlled studies, including perturbation-based experiments designed to capture complexity and resolve causality in biological systems. The partnerships we have announced over the past year exemplify and validate these trends. We are supporting the Chan Zuckerberg Initiative’s billion cell project, which is generating unprecedented volumes of single cell data to fuel AI-driven biological discovery. We are also working with the Arc Institute on the Virtual Cell Atlas, using large-scale perturbation data generated on our platforms to train and validate next-generation models of cell behavior. In addition, our collaboration with the Cancer Research Institute is focused on building high-quality, well-controlled datasets to better understand immune responses and accelerate progress in immuno-oncology. Together, these efforts illustrate how our platforms are becoming foundational for AI applications in biology. Another area that has become increasingly important for us and one we see as a meaningful growth driver going forward is translational research. We are seeing growth in translational research for three fundamental reasons. First, in multiple therapeutic areas like oncology and autoimmunity, we have an increasing number of therapies, but only a limited understanding of which therapies are appropriate for which patient. Second, there is increasing evidence from literature that single cell and spatial are very promising approaches for discovering actionable biomarkers and signatures of response. Third, our platforms have made big advances in scale, cost, and robustness, as well as in compatibility with critical clinical samples, most importantly FFPE and whole blood. It is now straightforward to run large-scale cohort studies, and this is precisely what many of our customers have been doing. We announced a number of initiatives last year with academic medical centers and with industry partners to undertake large-scale translational studies. Translational research is also an important driver of biopharma adoption. Single cell and spatial technologies have relevance across the drug development continuum, but the largest opportunity lies in later translational stages, where biomarker strategies are essential to understand patient response and potential toxicity. This is where our solutions can meaningfully improve the probability of success and where we expect to increasingly focus our efforts. And finally, as this translational work has been picking up, we are hearing growing interest from customers in applying our technologies to patient care. Based on that, as well as a growing body of scientific literature, we believe there is significant potential for single cell and spatial biology in diagnostic applications. Realizing the potential will require the generation of robust clinical evidence and deployment of these technologies in the clinical setting. To enable clinical applications of single cell and spatial analysis, we are pursuing two parallel paths. First, we are continuing to support our customers in generating clinical evidence and will collaborate with them to enable clinical deployment in the future. In parallel, we believe we ourselves are in a unique position to accelerate the arrival of some of the highest impact diagnostics given our technology leadership, understanding of application, and strong position in the research ecosystem. As part of the strategy, we recently announced two collaborations with leading academic medical centers to support clinical evidence generation. With Dana-Farber Cancer Institute, we are focused on tissue-based spatial profiling to support biomarker discovery and therapy selection in oncology. With Brigham and Women’s Hospital, we are pursuing blood-based monitoring approaches to enable longitudinal assessment of disease activity and treatment response in autoimmune disease. We expect to expand this set of collaborations over time as we continue to build programs across various indications. We are also building out a CLIA laboratory to enable clinical deployment of the resulting tests. Stepping back and setting aside the current macro environment, it is hard not to be excited by our position as a company. We believe we are at the nexus of some of the most important trends our industry has ever seen. We have a powerful innovation engine, a high-performing organization, and a strong balance sheet. We are focused on delivering continued innovation across our platforms and believe 2026 will be a particularly exciting year as we advance our roadmap and bring new capabilities to our customers. I feel incredibly privileged by the position we are in, and optimistic about the opportunity ahead. With that, I will now turn the call over to Adam. Thanks, Serge. Before reviewing the fourth quarter results, Adam Taich: I want to take a moment to reflect on 2025 as a whole. Despite a highly volatile external environment that drove some variability in quarterly revenue, we exited the year in a strong financial position. We remained disciplined on spending, strengthened our operating foundation, and meaningfully increased our cash balance, positioning the company for a strong future. With that, I will now focus my commentary on our fourth quarter financial results and the related drivers. Details of our full year results can be found in today’s press release. All growth rates referenced reflect year-over-year comparisons unless otherwise noted. Revenue for the fourth quarter was $166,000,000. This represents 1% growth over the prior year, and exceeded the high end of our guidance range. Our fourth quarter results reflected a challenging operating environment, balanced by continued momentum in the business. As mentioned during our remarks at a recent investor conference, we also saw some unanticipated budget flush late in the quarter which partially contributed to performance in the period. Total consumables revenue was up 6%, with growth in both single cell and spatial. Single cell consumables revenue was up 3% supported by double-digit growth in reaction volumes, in part due to our lower priced 14% driven by Xenium consumables. Total instrument revenue declined 36%, with Chromium instrument revenue down 44% and spatial instrument revenue down 30%. Consistent with the patterns we saw throughout 2025, instrument revenue in the fourth quarter remained under pressure given ongoing funding challenges for capital equipment, though we did see a sequential uptick due to year-end capital spending. Looking at revenue by geography, Americas revenue declined 6%, while EMEA and APAC grew 79% respectively. While the Americas region remained muted amid continued softness in the U.S. academic and government funding environment, EMEA performed better than expected, driven by some late quarter orders as customers worked through year-end spending. APAC had a solid quarter consistent with our expectations. Turning to the rest of the P&L, gross margin was 68% for 2025, as compared to 67% for the prior year period. The increase was primarily driven by lower inventory write-downs, as well as lower royalty and warranty costs, partially offset by higher manufacturing costs. On the operating expense side, we continue to execute with a strong focus on operating efficiency and cost discipline. Cassie Corneau: Consistent with this focus, Adam Taich: total operating expenses decreased 18% in the fourth quarter, primarily driven by lower outside legal expenses and lower personnel costs. We ended the year with $523,000,000 in cash, cash equivalents, and marketable securities, up $130,000,000 from 2024. Turning to our outlook for 2026, while the funding environment continues to be muted, it has reached a measure of stability that we believe supports reinstating full-year revenue guidance. We expect 2026 revenue to be in the range of $600,000,000 to $625,000,000. Excluding upfront revenue related to patent litigation settlements in 2025, this represents 0% to 4% growth over full-year 2025. At the midpoint, our guidance implies a continuation of the trends we saw throughout 2025, including double-digit growth for both single cell consumables reactions and spatial consumables revenue. The guidance range also assumes CapEx funding remains constrained, which will continue to put downward pressure on instrument revenue. We expect the overall environment to be consistent with 2025, with customers remaining cautious in their purchasing decisions. We were encouraged to see the recent NIH budget approval, as well as decisions on both indirect funding and multiyear funding as part of the bill. Notwithstanding this improved clarity, there is still significant systemic turbulence in research funding dynamics that continue to impact customer sentiment and timing of purchasing decisions. Additionally, as we think about the cadence of the year, we anticipate first quarter revenue to be a larger percent of full-year revenue as compared to prior years. This is partially driven by orders received late in the fourth quarter that were shipped in January. Moving to the rest of the P&L, we expect our overall financial profile to further strengthen in 2026. The cost discipline we have embedded over the past year has translated into tangible operating efficiencies. Moving forward, we expect to sustain these productivity gains while continuing to drive improvement across the business and advancing a strong slate of product introductions. With that, Serge Saxonov: I will turn the call back to Serge. Thanks, Adam. Before we turn it over for questions, I would like to acknowledge just how tough 2025 was for our customers and take a moment to thank the 10x team. Despite all the turbulence you stayed focused on our work, our customers, and our mission. It has not been easy, but the progress you have made on multiple fronts is nothing short of remarkable. As a company, we are stronger than we have ever been. We are entering 2026 with great momentum and the landscape of profoundly important opportunities ahead of us. Thank you for everything you do. With that, we will now open it up for questions. Operator? At this time, I would like to remind everyone, in order to ask a Operator: question, press star then the number one on your telephone keypad. We ask that you limit your questions to one. Your first question comes from Tycho Peterson with Jefferies. Hey. Thanks. Serge, just wondering, you know, a month and a half or so into the year here, if you can maybe just comment on anything on ordering patterns that that Serge Saxonov: seeing right now, and then give us a quick walk on, you know, what you are baking in for academic and Tycho Peterson: pharma in particular on some of these larger, you know, perturbed seq type studies. And then also clinical, you know? I mean, you are not the first company today to mention single cell and spatial in clinical. So I am just curious how you think about the timeline of that opportunity. Thanks. Serge Saxonov: Thanks, Tycho. Yes, several questions inverted in there. So first of all, just the general kind of sentiment out there and the customer orientation. Yes. We would say that, you know, it has been the environment has been similar, is similar to what it has been for the past couple of quarters. You know, 2025 is pretty similar to what we are seeing now and what we expect to see kind of throughout the rest of the year. Certainly, it has been gradually improving, certainly compared to 2025. But there is a lot of uncertainty still remaining, and caution among our customers. There are a number of issues that are going on in the academic sphere. U.S. academic funding, when it comes to staffing, when it comes to the timing of disbursements, criteria by which grants are reviewed and judged, universities are uncertain around their budgets, multiyear funding, pocket decisions, things like that. So overall, I think the environment, like Adam mentioned, is generally pretty steady, and not as bad, again, as it was the first half of last year. But there is still a lot of uncertainty remaining. On, you know, as far as this year is concerned and kind of the drivers going forward, certainly, we are excited. As I mentioned earlier in my remarks, there is a big wave of AI-driven projects for perturb-seq type applications, and our products, especially FLEX, are incredibly well suited for the purpose. And you could actually see that now coming out in the preprints, other publications, validating the premise. And so we certainly have a lot of excitement that we see around this application, around these trends. They were meaningful, relatively small percentage of our business last year, and we expect it to keep growing going forward. And I think what is particularly exciting to us is that there is, as you look to the future, the upside is enormous. There is, like, really no credible ceiling to how much data people are looking to generate, how much data would be useful to generate for these AI models. Operator: Your next question comes from Douglas Schenkel with Wolfe Research. Douglas Schenkel: Questions. Adam Taich: First, Adam Taich: on pricing, it sounds like single cell consumable revenue grew and reaction volume was up. What I am having a hard time figuring out is was volume growth enough to offset pricing? I guess a long-winded way, what I am trying to get at is, you know, how should we think about how volume and price trended into year-end, and then how are you contemplating those factors in guidance? Douglas Schenkel: Yes. Sure. Adam Taich: Yes, so let me take that one, Doug. So yes, I think maybe starting with Q4. So, you know, when we think about the full year, full year 2025 reaction growth was 22%, in part due to the launch of, in Q4, FLEX APEX, we had 30% plus volume growth. So really nice trend sort of rounding out the year. So when we are thinking about that balance for 2026, the best way to think about it is premium consumables, if you think about the midpoint of our guide, it is flat. Right? So essentially, at about flat, and there are a bunch of different combinations and permutations that could get you there, you know, depending sort of the mix of product and various volumes. That is the way that we are thinking about the guide and the components of the guide. We talk Operator: about Adam Taich: continued pressure as it relates to CapEx. We talked about double-digit, you know, ongoing strength in our spatial consumables. And if you sort of think about the Chromium consumables business at 0% growth, Adam Taich: that is sort of roughly where we are. There is a bunch Adam Taich: of different ways you can probably get there, you know, based on product uptake, you know, particularly around the FLEX franchise. But that is really where we are thinking about 2026. Operator: Your next question comes from Puneet Souda with Leerink. Puneet Souda: Yes. Hi, guys. Thanks for the Serge Saxonov: questions here. Let me ask mine on FLEX APEX. Serge, it appears that FLEX V2 is rebranded as APEX. Maybe just a quick clarification there. What was the mix of FLEX V1 versus V2 in the fourth quarter? And I am wondering if you can take a minute and talk about how you are thinking about FLEX, I mean, the APEX product playing out throughout 2026, how pricing is going to be impacted as the adoption for that grows. And how should we think about the 3' 5' GEM-X Puneet Souda: kits switching over to potentially to APEX and how to think about the, you know, the pricing headwind from that because that could be fairly meaningful. So just want to understand those drivers and sort of the timing of how that plays out. Thank you. Serge Saxonov: Yes, Puneet. Thanks. Thanks for the question. Yes, so first of all, yes, I mean, FLEX APEX, we launched it last quarter in Q4, and it was really strong out of the gate. It is, yes, it is too early to talk about sort of the breakdown of the different versions of FLEX within the larger assay category. But obviously, it did really, really, really well, and also now getting great feedback, as customers are actually running through the experiments, generating data, and looking forward to ramping and to increasing their usage. So all kind of great trends. Again, I would emphasize that it is still very early. You know, it was only partially available in Q4, and so still, you know, we are still very much in the early part of that adoption curve. Now, as we think about going forward, I think it is kind of important to delineate the different buckets of single cell use, kind of going back to your question around where FLEX is going to Puneet Souda: get adoption for. So first of all, Serge Saxonov: there is a lot of new use cases, and it is an unambiguous trend here when we, what we hear from customers, that this FLEX APEX is now opening up new opportunities, new experiments, new studies that they were not contemplating before. And so that is purely additive, and that is where our commercial team is focused, on is driving these applications, enabling these new use cases, enabling all this additional volume. Also, yes, there is a large fraction of single cell use where people are just not going to switch. Back to your question about universal 5', 3', you know, we have lots of other products that are uniquely necessary for the use cases that researchers are using them for. Also established workflows where they are not looking to switch. And then finally, there are people that are going to switch either from the earlier versions of FLEX or from some of the other products like 3'. And, you know, what we are hearing is that some of them will just spend the same amount of the same budgets that they have but just run more samples. And some will run the same number of samples but pay less per sample. It is definitely kind of a headwind that we are watching carefully. But, you know, one thing I just want to emphasize, that Puneet Souda: it is important to appreciate Serge Saxonov: that it is not just single price drop across the board. There are multiple dynamics here and multiple categories of customers. And our focus is fundamentally on driving additional extra volume. And clearly, that was a good trend that we saw in Q4. As Adam mentioned, out of the gate, there was greater than 30% reaction volume growth, Puneet Souda: and, and Serge Saxonov: you know, it is not an unreasonable kind of anchor point to think about 2026. Operator: Your next question comes from Daniel Arias with Stifel. Serge Saxonov: Serge, can you maybe just talk about the push into the clinical translational space Daniel Arias: It sounds like it is going to get going with these institutions that you talked about last month. What are your expectations when it comes to those types of customers using single cell and spatial products? And then how broad is that push going to be this year? Is it sort of meant to be a pilot program of sorts with those hospitals, Daniel Arias: or is it Adam Taich: part of a larger commercial effort? Serge Saxonov: Thanks. Thanks, Dan. Yes. So there are actually two separate sort of categories of efforts that we have. There is a future-looking set of initiatives that we are undertaking to stand up future clinical applications for diagnostics in the future using single cell and spatial technologies. We are super excited about them. A lot of it is driven by just the interest we see from customers and from physicians that are out there. And as I mentioned earlier, our goal here is to kind of pursue a hybrid strategy where we enable our existing customers to develop clinical evidence and to ultimately deploy these technologies in clinical settings. And we are also undertaking our own efforts to build up clinical evidence and build up a CLIA lab to deploy these tests. We believe we can do this particularly efficiently, leveraging our existing assets. I am very excited about these efforts. They are future-looking. That said, they are also synergistic with our current business because they provide a measure of validation to where this technology is going. They give customers comfort in adopting single cell and spatial in research, in the current research applications, and in drug development applications. And then kind of the second category of effort are more near term around, again, translational research. This is where our products are already being used and, you know, there is potential for a lot more. Again, there is a fair amount of our single cell products and spatial being used on patient cohorts to look for biomarkers to drive drug discovery. But the promise here is to really scale this up and make it routine and go to more customers with much larger volumes. I would say that the opportunity there is at least as big as what we have seen in basic science, and our products now are in a place where they can support these kinds of applications, these kinds of efforts, and it is a big focus for our commercial team this year as well. Operator: Your next question comes from Kyle Mikson with Canaccord. Kyle Mikson: Hey, thanks for taking the questions. Puneet Souda: The comments on consumables and Kyle Mikson: reaction growth were helpful. But on instruments and this guidance here, just could you talk about which franchise you think will experience the largest impact from the CapEx headwinds in 2026? And then secondly, just on translational revenue with the new biopharma-focused commercial team, were there any like proof statements in 2025 that give you confidence that biopharma can break through, you know, like 30% of revenue in 2026, get to on behalf of revenue over, thanks. Serge Saxonov: So yes. So let me pick up that second question first, Kyle. So yes, we are very excited about the for translational research. I would say that both in academia and medical centers, academic medical centers, and in biopharma, you know, our eventual goal, you are right, is to drive to a place where, at some point, half of our revenue is driven by biopharma. We are not making a claim about, you know, doing this this year, clearly, but we expect to take steps in that direction this year. We, you know, we talked about adoption in large-scale translational research projects last year. Quite a few of them publicly announced. Even this year, we have already announced a number of them. And I think it is pretty clear that this is just the beginning. When we talk to biopharma customers, there is clearly potential for single cell use and spatial use all across the drug development continuum. We have been very much kind of historically focused on the early discovery stage, and now there is potential to expand downstream into translational use cases, into biomarker programs, and both the dollars that are spent there and the size of the cohorts, size of the experiments, is just much larger. And so that presents a really great opportunity for us, for which there is, you know, tangible yet at this point early evidence of potential. And like I said earlier, our products are now at a place where they are perfectly suited for those applications. Adam Taich: I can take the second piece of the question, Kyle, around CapEx. I mean, what we are seeing broadly is that, and anticipating in our guide, that CapEx funding environment just broadly remains constrained. That said, there is typically more pressure on the higher-end, you know, side of CapEx. You know, we actually grew Chromium instruments on a unit basis year on year from 2024 to 2025. We did that in large part, and we will continue to do so as needed in 2026 here, by working with our customers, trying to ensure that we are getting any of the capital barriers they may have sort of out of the way. And if we can get package-type deals where there is a consumables commitment, it ends up working out well given the margin profile in our consumables. So we will continue to do that into 2026. Operator: Your next question comes from Daniel Brennan with TD Cowen. Daniel Brennan: Great. Thank you. Thanks for the questions. Serge Saxonov: Maybe one on the price/volume again for Chromium. So is it fair to think that in the flat Chromium consumable guide, it is kind of a similar math, maybe, volumes up Daniel Brennan: 20, price down 20. Serge Saxonov: You know, the price is kind of a tricky thing because it is not like-for-like, but I guess that is the first question. The second one is just while NIH is still under pressure, albeit hopefully getting better, you know, you Adam Taich: put up Serge Saxonov: good numbers overall in China and EMEA. So I am wondering if you could speak a little bit to how you are thinking about the outlook, what is baked into the guide between the different academic customer groups in different regions. So even if U.S. is weak, like, if there are other regions, could they pick it up? And then final one is just the balance sheet. Really strong. Great cash generation. What are the plans with the cash that you are building as we look at 2026? Thank you. Well, yes, maybe I will start with that last question. Yes. Like, we are very happy to focus for us last year for multiple reasons. You know, a big one just to give us a cushion. The environment was highly, highly unpredictable, and we wanted to make sure that we can execute on our priorities regardless of what happens to the macro environment. And so as part of that, as a consequence, you know, the team has done a great job of increasing efficiencies and driving really tight cost management and are in a good place now. Also, it gives us a really strong position and ability to deploy capital as we, as necessary, as we look at the landscape of opportunities out there. We are always looking at and evaluating the landscape. Do not have any hard rules around where we might invest. Always driven by fundamentally the strategy, looking to where the world is going, what are the big opportunities, what are the big questions that need answering, and then determining what technology needs to be built, what products need to be built in the service of that, and that is what drives our investment, and again, good to be in a place where we have the resources to pursue our strategies. Okay. I can take the, or at least give you some thoughts, Dan, on the price/volume as it relates to Chromium, and again, we thought, Adam Taich: kind of coming back to our guidance philosophy and trying to provide information that we think is useful, you know, for modeling and understanding our business. The reason that we provided, kind of at the midpoint, we are thinking about Chromium consumables as flat, there are a bunch of different combinations and ways that you can get there. I guess what I would share with you, you know, sort of again is in Q4, 30% reaction growth and the Chromium business grew 3%. We are not suggesting, you know, obviously, what I am telling you at the midpoint, that the Chromium business on the consumables is flat. Not suggesting that, you know, it is going to be, you know, plus 30, down 30. There are a bunch of different ways we can get there, and given the underlying complexity of the portfolio, we certainly have been trying to do our best to communicate that. You know, FLEX APEX just came out. You know, we had fairly a stub of a quarter, you know, in Q4. Good trends here early in Q1, and a lot of that, both on the price side given the mix of product and product price, as well as the volume, is really going to play out during the course of the year. And even on an internal basis, we can see sort of how that could play out. That is, you know, really part of the range of the guide that we have provided. Operator: Your next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Great. Thank you guys for taking the questions. Adam Taich: Adam, maybe some for you just on the guidance. Can you just talk about the confidence on the spatial piece? It sounds like you guys are talking about, you know, good growth there. Just that shift with Xenium and Visium, it sounds like Xenium is picking up a little bit. So yes, if you could just talk about that, it would be really helpful. Then you did mention the cost profile kind of strengthening up. If you could put anything around the margins, that would be helpful. Appreciate it. Sure. Yes. Let me start sort of on the spatial side. Yes. We had a very strong year on spatial consumables in 2025, driven entirely, you know, by the Xenium franchise. So, you know, Visium, just full disclosure, in 2025 did not grow. So all of the growth that you are seeing in the spatial consumables side of things comes, you know, and more, from the Xenium side of the business. Customer sentiment is incredibly strong. Utilization rates, you know, are fantastic. I think as we have discussed before, we have got customers that, you know, run them around the clock and have to go, you know, sort of expand their fleet. Still got new customers buying in even in a CapEx-constrained environment. You know, we have been able to do an admirable job. Sales team is doing a really good job getting instruments out there. So feel confident where we are on the spatial consumables number, you know, that we can hit double-digit growth again here in 2026. I think just broadly to your question on cost, yes, it is really important for us just to ensure that we are deploying the resources wisely. We spent a lot of time in 2025 really ensuring that we are making moves to strengthen our balance sheet. You know, we were successful in that regard with cash up $130,000,000 from 2024 to where we are right now. And you will continue to see that type of cost discipline, you know, here in the company as we move into 2026. Operator: Next question comes from Mason Carrico with Stephens Inc. Adam Taich: Hey, guys. Last year, you gave full-year reaction numbers for Chromium, Visium, and Xenium. It seems like you guys chose to not give that this year. Could you just give some color on Xenium reaction growth in 2025? It would be helpful to gain some insight into the utilization trends there. And then you guys have answered a handful of questions on FLEX, but if you talked about the adoption cadence, I mean, are you expecting the transition to be a more gradual migration or more front-end loaded this year? Serge Saxonov: Basically, yes, let me just take the first question first. So, I mean, the short answer is, like, it is a little too early to tell. Like I said earlier, like, I just said, we did not even have a full quarter in Q4 of FLEX APEX adoption. Clearly, there is a lot of pent-up demand, and that has been really great to see. There has also been great feedback coming back from customers who are actually adopting it and using it, and there is a lot of interest in ramping up, and especially ramping up new kinds of experiments that people were not contemplating before. Again, it is just too early. All the early signs are encouraging, but it is too early to talk about, like, the various specifics of the cadence. Adam Taich: And, yes, you will see when the 10-K hits why the reactions, to your question there, and I think it was specific around Xenium. So Xenium reactions were 14,500 for the year, and that was up about 34% over the prior year. And like I said, that will be in the K. Operator: Next question comes from Subhalaxmi Nambi with Guggenheim Securities. Looking ahead to AGBT, how are you thinking about competitive dynamics from some other players launching solutions this year? And what levers can you pull to stay ahead from a share perspective? Are there any competitive pressures baked into guidance at this point? Serge Saxonov: Yes. So, like, look, we feel really good about our position in the business, both in spatial and single cell. We have, you know, as you look at what has been happening recently, the last several quarters, it has been kind of a similar story pretty consistently, where not much when it was spatial, but really not much impact on our business. Clearly, Xenium is growing really fast, much faster than sort of other offerings out there, from a much higher base. We, you know, as we go forward, feel really good about our competitive position both with respect to current competition and as well as any potential competition that is out there. We have been innovating continuously over the past several years and extending the gap between us and other potential offerings. And we certainly, again, we keep a pretty good pulse about what is happening out there in the market and various products and launches, and feel quite good about where we are relative to the field. Operator: Your next question comes from Daniel Leonard with UBS. Great. Thank you for taking my questions. This is Lu Li on for Dan. I think one question on Visium. Given that it did not grow in 2025, can you just update us in terms of the go-forward strategy on the platform? Any plan to put it back to positive growth? Thank you. Serge Saxonov: Yes. So, yes, Visium is a good platform for quite a number of applications for our customer use cases, and we have been very diligent in making sure we support those customers and drive those applications. And we absolutely will continue to do that. But that said, like I said earlier, we are learning more and more, like, with pretty strong definitiveness, that Xenium is really the best choice for spatial analysis for the vast majority of use cases. And we have been investing in the Xenium platform. We expect to keep doing that in the future. And, yes, that is kind of how it is going to, I think, balance out going forward. A lot of growth going forward in Xenium, and Visium will have its place. Operator: Your next question comes from Michael Ryskin with Bank of America. Michael Ryskin: Great. Thanks for taking the question, guys. Adam Taich: Maybe a boring one, but your comments about the timing shift or the pacing through 2026, then you called out Q1 to be larger compared to prior years because of the orders late in the fourth quarter. Could you just expand on that a little bit? Like anything in particular that stood out there? Just relative to your comments on budget flush with one customer and to your product line? Just a little bit unusual if you got such a meaningful swing. Michael Ryskin: Just kind of want to get a sense of what that is attributed to. Maybe was there any additional price you gave to capture those orders? Just color on that would be helpful. Thanks. Sure. Adam Taich: I can take that one, Mike. Yes. I guess, to the last part, it was not really a pricing dynamic. We did mention, I think, at an investor conference in January that we did see some unanticipated budget flush, which is, you know, part of the reason that we ended up, you know, beyond the guide that we had set. Some of those orders that came in late in December, we were not able to fulfill until January. So that was a couple million dollars that essentially carried over and spilled into Q1. So that is, you know, part of what gives us confidence, you know? And then, again, we are, you know, a good way into Q1. Although it is a fairly small number for Q1. So the way we are thinking about the quarter is, Adam Taich: historically, Adam Taich: we have been, you know, 23% or so in Q1. If you think about sort of the full year, probably about a point higher than that, so closer to 24%, you know, as we think about Q1 as a percent of where we are if you are thinking about that at the midpoint of the guide. Operator: Next question comes from Luke Sergott with Barclays. Salem Salem: This is Salem Salem on for Luke. Thanks for taking our questions. Puneet Souda: Just wanted a quick update on the timing of the Scale Bio technology integration. Are the expectations to kind of retain roughly the same throughput that Scale on its own can achieve while retaining the same quality of the legacy 10x technology, and are you able to kind of use the proposition of this new sort of integration to win over these new AI customers now with kind of the promise of providing something even higher throughput down the line? Thanks. Salem Salem: Yes. Serge Saxonov: Yes. So first of all, on the question of sort of AI customers and those applications, predominantly, the right solution there is FLEX APEX. That is resonating really, really well for a number of reasons. It is incredibly scalable. It has huge sensitivity, like really, really good sensitivity. It is really robust, works across many different cell types and tissues. There are a lot of kind of technical reasons, but it is just a really, really great product. And, again, there have been papers, and there have now been preprints that have been coming out just validating that it is really perfectly suited for that. As far as the Scale technology is concerned, so what is currently in the market, as we have said before, like, on the spectrum of our overall revenue, it is not really material. And we are obviously excited about the technology that Scale brings to us and incorporating it into future products. We have not yet talked about what those future products are, but there is definitely great potential, and in due time, we will talk about it. Operator: Your next question comes from Casey Woodring with JPMorgan. Puneet Souda: Great. Casey Woodring: Thank you for taking my questions. Maybe first one, I wanted to dig into your plan to set up a CLIA lab. Can you maybe talk more about which indications you plan to target first, and timing of, excuse me, generating clinical evidence for these diagnostics applications and, you know, actually standing up the lab and going through all the certifications and all that? And then how should we think about the CapEx required to build out the lab and that return on investment over time? And maybe just as a follow-up to that piece, you know, how should we think about potential impact from diagnostics customers that are seeing 10x enter as a competitor? Serge Saxonov: Yes. I mean, good questions. So these are, yes, very good thematic questions here. One, maybe just to step back. I just want to emphasize how excited we are about this direction. A lot of it is driven by, again, the interest from our customers and just generally physicians out there. We believe there is huge potential in clinical applications of single cell and spatial. We are starting to make some initial investment and efforts along this direction. They are early. They are really for the future. One great thing is that we have a lot of assets, both in terms of technology, in terms of our position in the research market, in terms of the infrastructure we have here. Building up clinical evidence is actually really, really efficient for us, and we can do this in a way that does not materially impact our P&L. Casey Woodring: Our Serge Saxonov: strategy is a hybrid strategy where we absolutely are going to enable customers to develop clinical tests in the future. We are working with quite a number of them right now, help them generate clinical evidence, help them deploy those tests, the necessary tests in the future. But, again, we also believe we are in a unique position for some applications to really accelerate their arrival and to drive impact sooner and faster than otherwise would have been possible because, again, we have all these assets that we can deploy in a really, really cost-effective manner to do that. We talked about two big applications specifically for tissue-based tumor profiling to guide therapy selection for all these new generations of therapeutics that are now coming online that are targeting different expression markers. And also blood, we talked about application of using single cell from blood to guide monitoring and treatment selection for autoimmune diseases. Another really, really big and exciting application. So, again, these are efforts all aimed towards the future. We have set out to build a CLIA lab, and we are targeting early next year to stand it up. Again, we believe we can do it very, very efficiently, make use of a lot of the assets we already have, and in that sense, it is going to be very minor, if any, impact on our P&L. Operator: Your final question comes from Matthew Larew with William Blair. Hi. Good afternoon. Serge Saxonov: Wanted to follow up on AI, and one is Daniel Arias: for Adam, which is if you could quantify at all either revenue orders related to AI in 2025 or the expectation in 2026. The second part, Serge, for you, which is, I guess, a bit higher level. You know, it sounds like demand right now is in service of, you know, larger projects, virtual cell foundation models. I guess I am curious if you expect that demand to be iterated over time where customers are constantly building models, you know, based in part on large perturbation sets rather than sort of a one-and-done. That is kind of the first part. And, you know, last year there were some papers out around the idea of in silico perturbation. So I am curious how you see that complementing or competing. And then the third, I guess, higher level one, Serge, is, you know, you have a network of CRO partners around the world, and certainly 10x can, you know, you are an expert user of your own products. So just as you have some of these more non Daniel Arias: traditional Daniel Arias: companies or groups of people entering the space and building models, you know, maybe if the customer group might shift at all for your products and maybe if that alleviates, you know, the capital constraints that some smaller customers might face if it becomes more outsourced. So I understand there is a lot there, but I guess one on the near-term opportunity and then the bigger one is just how you see the space playing out over time. Serge Saxonov: Yes. So maybe I will start there. First of all, in terms of kind of providing potential service offerings to customers that want to generate very large datasets, that is really something that has been on our minds and that we have certainly had people come to us about. And we do have some service offerings that could potentially play a larger role in the future as we think about it. Stepping back, you know, the bigger part of your question around potential for AI and how it will evolve. Yes, I think very much like kind of your first framing, where we feel the continuous kind of growth in demand and scale. I do not think there is anyone who thinks that we are anywhere near the scale we need, and that there is going to be any less usefulness to generating more and more data where we currently are. So I think we are just at the very early stages of the sort of the scaling revolution for generating AI. It is sort of very analogous to what has happened in other domains where AI has been applied. There are good reasons to think why it might be even more relevant and powerful for these kinds of biological datasets where the complexity is just enormous. And then the second kind of part of your framing there was whether in silico experiments can, at some point, replace the sort of biological data generation. And I, yes, I think a very strong view. I think it is very hard to argue with the fact that biology is just insanely complex, and we are very, very far from understanding it. If we start getting close to the point where, you know, we are actually solving biology, then okay. But we are, like, very, very far away from it. And so the runway here is enormous. We need to generate lots and lots of data, and I do not think there is anyone who would materially disagree with that Serge Saxonov: premise. Serge Saxonov: And maybe I will just pick up that last, that first bit of the question. In terms of how much demand is driving right now. I kind of mentioned earlier, I mean, it is meaningful. You know, we talked about very large projects last year that have been running, that have been gearing up. Still relatively small percentage of the business. We do expect all this to grow, and a lot of it is actually being driven by FLEX APEX. It is the perfect assay for all these projects, for driving perturbation screening, for doing it across many different cell types and tissues. But it is still very, very early days. And like I said earlier, what is particularly exciting here is that as we look to the future, there is really no cap to the upside here. Operator: There are no further questions at this time. With that being said, we will conclude today’s conference call. We thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the CVRx, Inc. Q4 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, as a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Vallie of ICR. Please go ahead. Good afternoon. Thank you for joining us today for CVRx, Inc.’s fourth quarter and full year 2025 earnings conference call. Mike Vallie: Joining me on today's call are the company's President and Chief Executive Officer, Kevin Hykes, and Chief Financial Officer, Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. These statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company's SEC filings. I would now like to turn the call over to CVRx, Inc.’s President and Chief Executive Officer, Kevin Hykes. Thanks, Mike. Good afternoon, and thank you for joining us for our fourth quarter and full year 2025 earnings call. We delivered fourth quarter revenue of $16,000,000 and full year revenue of $56,700,000, representing growth of 410%, respectively. 2025 was a year of important and necessary investment in our commercial foundation. We strengthened our sales organization, refined our go-to-market approach, and advanced critical initiatives that position us for growth ahead. As we reflect on the year, it is important to remember what drives our work. Heart failure affects 6.7 million Americans, many of whom remain symptomatic despite optimal medical therapy. These patients, often referred to as the walking wounded in the heart failure community, suffer with significantly diminished quality of life, including limited mobility, chronic fatigue, and the inability to perform basic daily activities. Operator: While guideline-directed medical therapy has demonstrated survival benefits, Kevin Hykes: when taken compliantly, it does very little to improve how patients actually feel on a day-to-day basis. Operator: In fact, Kevin Hykes: multiple studies in this population have consistently shown that these patients would trade longevity for better quality of life. They do not want to simply live longer, they want to live better. To play with their grandchildren, to walk their dog, and to maintain their independence. Barostim addresses this critical unmet need. Unlike medications that primarily target survival, it demonstrably improves exercise capacity and quality of life, giving patients back the ability to engage in the activities that matter most to them. When we talk about our market opportunity, it is important to consider our indicated population not just in terms of the annual incidence, but also the prevalence pool. While approximately 76,000 patients are newly diagnosed each year and enter our indication, Operator: heart failure is a chronic disease state. Kevin Hykes: Patients are not only eligible for Barostim therapy in the year that they are diagnosed. They can live four, five, or six years within our indication as their disease progresses, and benefit from treatment throughout that time. When considered on this prevalence basis, there are 339,000 patients today who are indicated and who could benefit from Barostim therapy, representing a $10,500,000,000 market opportunity that remains well less than 1% penetrated. Our focus remains on making this therapy widely available to all patients who can benefit. Operator: In 2025, we built Kevin Hykes: the foundation necessary to reach more of these patients by executing on our three strategic priorities: building a world-class sales organization, driving deep adoption in targeted centers, and reducing the barriers to adoption. Starting with our progress on the sales force, we undertook a deliberate transformation of our commercial organization to build the right team for our next phase of growth. We are pleased with the quality of talent that we have attracted and the progress that we are seeing in their development. By year-end, we had expanded to 53 territories with 252 active implanting centers, up 10% and 13%, respectively. This expansion positions us with the capacity to drive meaningfully higher growth as our reps mature. While integrating these many new representatives has created some near-term impact on growth, we are increasingly confident in the team's ability to execute our program-focused selling approach as they gain experience. We have also implemented several important changes to accelerate the productivity of our sales team. We have optimized our field leadership structure, added dedicated training resources, and focused our representatives on a narrower set of high-potential accounts, typically three to five, where they can drive deep adoption and truly change clinical behavior. Our second priority is creating sustainable Barostim programs that demonstrate deep adoption and consistent utilization. We are starting to see the validation of this approach, as evidenced by higher and more consistent utilization at the account level. The path to creating a sustainable program starts with the intentional targeting of high-potential centers. This is followed by the development of an aligned and redundant stakeholder network that includes not just a clinical champion, but administrative support, multiple prescribers, and multiple implanters. The final necessary element is a defined Barostim workflow that ensures effective and efficient patient identification, referral, screening, and implantation. Where we see these three elements in place, we see deeper adoption and consistent utilization, creating a flywheel effect. Barostim becomes part of how heart failure is routinely managed, rather than an episodic consideration. Importantly, in the accounts where this flywheel effect is beginning to take hold, we are seeing significant additional runway for much deeper penetration. For example, the top 20% of centers had an annualized implant rate of about 19 implants in Q4. We believe each of these top centers has approximately 300 patients who are currently indicated for the therapy. Operator: This demonstrates the substantial opportunity Kevin Hykes: that we have through continued program development in our existing account base. Our third priority is our continuing focus on addressing the three fundamental barriers to the adoption of Barostim therapy. Operator: Patient access, therapy awareness, Kevin Hykes: and clinical evidence. Operator: As it relates to patient access, Kevin Hykes: the most significant and impactful development is our transition to Category I CPT codes, which took effect on 01/01/2026. This major milestone is an important validation of Barostim therapy from the perspective of physicians, hospitals, and payers. The Category I code will improve patient access by eliminating the automatic prior authorization denials associated with Category III codes, improving reimbursement predictability, and formalizing the implanting physician payment at a national average of approximately $560. We believe that this change will meaningfully reduce friction in the prior authorization process going forward. We are also seeing encouraging progress in our ongoing efforts to improve coverage. Our 30-day Medicare Advantage prior authorization approval rate reached 46% in 2025, up from 31% in 2024. This represented remarkable progress for a therapy with a Category III code, and with the Category I code now in effect, we are optimistic that these approval rates will continue to improve. On the awareness front, we significantly expanded our medical education programs in 2025. We completed over 150 local, regional, and national educational events targeting physicians and advanced practice providers who manage heart failure patients in the community. Our focus on APPs, the nurse practitioners and physician assistants who see these patients far more frequently than physicians, has become a key leverage point in building sustainable referral networks around our targeted centers. Finally, regarding clinical evidence, we recently announced the initiation of the landmark BENEFIT HF trial following CMS approval of Category B IDE coverage last month. This prospective randomized controlled trial will evaluate impact on all-cause mortality and heart failure decompensation events in an expanded population with ejection fractions up to 50% and NT-proBNP levels up to 5,000. The trial is expected to be one of the largest therapeutic cardiac device trials ever performed in heart failure, randomizing 2,500 patients at approximately 100 centers in the United States and Germany. If successful, this trial would expand our prevalence-based addressable market from approximately 339,000 patients to over 980,000 patients, effectively tripling our market opportunity to approximately $30,000,000,000. Importantly, patients with higher ejection fractions and NT-proBNP levels are already being seen by these same clinicians that we work with today, making this an easily accessible adjacent population. The CMS approval of Category B IDE coverage is critical, as it ensures Medicare coverage for patients enrolled in the trial, reimbursing hospitals at approximately $45,000 per procedure, consistent with current commercial reimbursement rates. Operator: With CMS coverage secured, Kevin Hykes: we expect to begin enrollment in 2026. The net cash impact from the trial is expected to be $20,000,000 to $30,000,000 spread over five to seven years, with the majority coming in the later years. Operator: Beyond this randomized controlled trial, Kevin Hykes: we continue to develop real-world evidence and to support investigator-initiated research demonstrating positive patient outcomes, including reductions in hospitalization, improved ejection fraction, and improvement in cardiac function. We also strengthened our balance sheet in early January through an amendment to our debt facility that extends the maturity date to 2031 and provides access to additional capital as we achieve certain milestones. In summary, 2025 was a year of building the right foundation for sustainable growth. Operator: Transformed our sales organization with high quality talent, Kevin Hykes: validated our program selling strategy with proof of Operator: deeper adoption, Kevin Hykes: and made significant progress in reducing the barriers to adoption, including significantly improving patient access to Barostim therapy. Importantly, we also secured approval and coverage for a landmark randomized controlled trial, which has now been initiated with first enrollments expected in 2026. While our growth rate reflected the natural ramp period for our newer sales reps, we made meaningful progress on the strategic elements necessary to drive improved performance. We believe these initiatives will support our accelerated growth and make Barostim therapy more accessible for heart failure patients in 2026 and beyond. Operator: Before Jared discusses the financials, Kevin Hykes: I am excited to announce that Greg Morrison was appointed as our new Chief Human Resources Officer and will be joining CVRx, Inc. in March. He will succeed our current CHRO, Tanya Austin, who is stepping back due to personal reasons. Greg brings over 30 years of leadership experience in medical devices, serving as the senior HR officer in seven different medical device companies. We are grateful to Tanya for her significant and impactful role in the Jared Oasheim: transformation of our commercial team, and appreciate her continued support through the transition period. Now I will turn the call over to Jared for a detailed financial review. Kevin Hykes: Thanks, Kevin. Unless otherwise stated, year-over-year comparisons are for the three months ended 12/31/2025 compared to the three months ended 12/31/2024. In the fourth quarter, total revenue generated was $16,000,000, an increase of $700,000, or 4%. Revenue generated in the U.S. was $14,900,000, an increase of $600,000, or 4%. Revenue units in the U.S. totaled 478 and 404 for the three months ended 12/31/2025 and 12/31/2024, respectively. The increase was primarily driven by continued growth because of the expansion into new sales territories and new accounts, as well as increased physician and patient awareness of Barostim. We ended the year with a total of 252 active implanting centers as compared to 223 at the end of 2024, and 250 as of 09/30/2025. We had 53 sales territories in the U.S. at the end of the year compared to 48 at the end of 2024 and 50 on 09/30/2025. Revenue generated in Europe was $1,100,000, an increase of $100,000, or 10%. Total revenue units in Europe increased to 49 from 41 in the prior-year period. The number of sales territories in Europe remained consistent at five for the three months ended 12/31/2025. Gross profit was $13,800,000 for the three months ended 12/31/2025, an increase of $1,100,000, or 8%. Gross margin increased to 86% compared to 83% a year ago. Gross margin was higher due to an increase in the average selling price and a decrease in the cost per unit, primarily due to an increase in manufacturing efficiencies. R&D expenses increased $200,000, or 7%, to $3,000,000 compared to the prior-year period. This change was primarily driven by a $300,000 increase in compensation expenses, mainly as a result of increased headcount, partially offset by a $100,000 decrease in clinical study expenses. SG&A expenses increased $1,800,000, or 9%, to $22,000,000 compared to the prior-year period. This change was driven by a $1,300,000 increase in compensation expenses, mainly as a result of increased headcount, a $500,000 increase in advertising expense, and a $300,000 increase in travel expense, partially offset by a $300,000 decrease in consulting expense. Interest expense decreased $100,000 to $1,400,000 from a year ago. This decrease was driven by the lower interest rate on the levels of borrowings under the term loan agreement with Innovatus Capital Partners. Other income, net, was $700,000 compared to $1,100,000. This decrease was primarily driven by less interest income on our interest-bearing accounts. Net loss was $11,900,000, or $0.46 per share, for 2025 compared to a net loss of $10,700,000, or $0.43 per share, for 2024. Net loss per share was based on 26,200,000 weighted-average shares outstanding for 2025 and 24,700,000 weighted-average shares outstanding for 2024. As of 12/31/2025, cash and cash equivalents were $75,700,000. Cash used in operating and investing activities was $40,800,000 for the year ended 12/31/2025, compared to $40,500,000 for the year ended 12/31/2024. Regarding our balance sheet, in January, we amended our term loan agreement with Innovatus Capital Partners to increase the existing facility by $50,000,000 to an aggregate principal amount of up to $100,000,000, subject to achieving certain milestones. At closing, we borrowed an additional $10,000,000, bringing our total outstanding principal to $60,000,000. The interest-only period is extended four years from the closing date and is extendable to five years upon achieving certain revenue milestones. Jared Oasheim: The term loans mature in May 2031. Now turning to guidance. For the full year of 2026, we expect total revenue between $63,000,000 and $67,000,000. We expect full year gross margin between 84% and 86%. We expect operating expenses to be between $103,000,000 and $107,000,000. For Q1 2026, we expect to report total revenue between $13,700,000 and $14,700,000. With that, I will now turn the call back over to Kevin for closing remarks. Kevin Hykes: Thank you, Jared. As we look ahead, we have several catalysts in place that we believe will drive improved performance. The Category I CPT codes represent the culmination of years of work on the reimbursement front. We expect to see the benefits build throughout the year as prior authorization processes adapt to the new coding structure. Our sales organization is increasingly experienced and productive, with our transformation now largely behind us. Operator: Finally, Kevin Hykes: the initiation of the BENEFIT HF trial represents one of the most significant developments in our company's history. While this trial will not have material impact on our 2026 revenue results, it will create significant visibility, credibility, and goodwill in the heart failure community. On a long-term basis, if successful, BENEFIT HF positions us for meaningful long-term growth and will roughly triple our addressable market. We remain focused on our core mission, to positively impact the standard of care for heart failure and address a significant unmet need for hundreds of thousands of patients. We are confident in our ability to execute against that mission in the year ahead, and to reach significantly more patients in the years to come. Now I would like to open the line for questions. Operator? Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. And the first question comes from the line of John Young with Canaccord Genuity. Please proceed. Kevin Hykes: Hi, Kevin, Jared, congratulations on the strong end to the year. And thank you for taking the questions this evening. First, on BENEFIT HF. John Young: On the strategy, can you talk about the initial sites? Will these be new or existing commercial sites? And what is the overlap in the current indication too? Will there be any revenue generation from the cases? Thank you. Kevin Hykes: Sure. I will take that one, John. I appreciate the question. So there Operator: we are early Kevin Hykes: in the recruitment of centers. As we suggested, there will be about 150 centers in the U.S. with a handful in Germany. We are approaching these centers on the basis of their interest John Young: in the therapy and their impact within the heart failure community. So there is a mix of centers that are already using Barostim in today's indicated population, and some that have not yet begun commercial implantation. And so I presume as we proceed through the site activation process, we will have a blend of centers even as we reach 150, but a significant number that have some experience already commercially with the therapy. Do you want to handle the revenue question, Jared? Sure. Jared Oasheim: Hey, John. Yes. So right now, the trial design is set up where they are expecting 2,500 randomizations. It is set up where two-thirds of them will be randomized to the device arm and would require an implant. And each one of those units, we are expecting to be reimbursed by Medicare or Medicare Advantage plans for hospitals, so we would be selling those devices. So in total, we would be selling somewhere around 1,600 or 1,700 devices as a result of this trial. John Young: Okay. That is helpful. Thank you. And then just the growth of active accounts in Q4, the sequential growth was a bit low. I am sure it is reflective of the sales strategy of going deep, but how should we expect that to trend through 2026? Again, thanks for taking our questions. Jared Oasheim: Yes, great question. Yes. And we have always pointed this out, it is a net basis. Right? So we added more than the two, but we also sunset quite a few accounts here in the fourth. As we go into 2026, the guidance is still assuming that we are going to be adding around three territories on a quarterly basis. And as you know, John, our expectation is each one of those territories would be managing between three to five active implanting centers. So based on that growth alone, we are continuing to expect to be adding high single-digit account adds on a net basis each quarter in 2026. John Young: Thanks so much. Jared Oasheim: Thank you. Operator: The next question comes from the line of Brandon Vazquez with William Blair. Please proceed. Max Smock: Hey, Max on for Brandon. Thanks for taking the questions. Kevin, just on BENEFIT HF, just to double down on it. You know, you gave some good color in your prepared remarks, but I was just curious, do you guys see any scenario where, you know, some of the chatter around the trial can actually be a tailwind for the core business, Operator: while the trial is going on. Max Smock: Yes. Thanks, Max. I think that is a good question. The short answer is yes. While we do not Kevin Hykes: expect significant revenue contribution from trial sites in this next year, there certainly will be a goodwill effect and a credibility effect Operator: from the trial. This is, as we have said, the largest therapeutic device trial ever conducted in heart failure. We believe it is a landmark trial on that basis. It is a signal that we believe and have great confidence in this therapy. Kevin Hykes: And I think we are starting to see some of that already. Positive feedback from the community. They are pleased at the scientific rigor and the scale of this trial, and they are excited to be part of it. Operator: So the short answer is yes. From a goodwill standpoint, absolutely. Kevin Hykes: That is helpful. And then, you know, I know we are only, call it, a month and a half into the year. But Category I code went into effect January 1. And I was just wondering if you guys could Max Smock: share any, you know, anecdotal examples you have heard thus far on how that has helped lower barriers to treatment? I mean, maybe how you see that tailwind building throughout the year? Operator: Thanks. Max Smock: Sure. Thanks, Max. Yes, I would say we are still very much in transition mode. Kevin Hykes: But it is progressing as we had expected. Right now, our focus is really on making sure that those codes are updated Operator: with each of the payers, Kevin Hykes: resubmitting prior auths that were in process in late 2025 that were sort of now caught Operator: in the gap. So resubmitting them with the new codes and ensuring that all new submissions are using the new code. So it will take us Kevin Hykes: some number of quarters likely to get through this transition, but we are in fact seeing payers who have historically rejected 100% of our prior auths now beginning to approve them. Operator: We have also seen some of the Medicare Advantage payers approving at a higher rate and more quickly than they have historically. So early days, but certainly some positive signals. Great. Thanks for taking the questions. The next question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed. Anna: This is Anna on for Matt. Thanks for taking our questions. I guess I just wanted to ask on the guide at a high level. I know you have guided to 11% to 18% top-line growth. That is an acceleration from what we saw this year. So I was just wondering, you know, what gives you the confidence and what is contemplated in the low end and the high end of the guide. Jared Oasheim: Yes, appreciate that question. So I think as we look back to 2025, we did go through a bit of a reset after the first quarter, understanding that we had cut a little bit deeper than initially anticipated within the sales organization. After that reset was done in 2025, we have seen pretty nice sequential growth from Q1 all the way through Q4 as we have continued to watch those new reps that we hired in 2024 and 2025 get further up the productivity curve. Now we do expect a bit of a seasonal dip from Q4 to Q1 as reflected in our guidance. But after that seasonal dip going from Q4 to Q1, we do expect to see that return to sequential growth throughout the rest of the year. So it is what we are seeing within the sales reps and their productivity to date that is giving us the confidence to be able to see a reacceleration of growth in 2026. Operator: Great. Thanks so much. Jared Oasheim: Thank you. Operator: The next question comes from the line of Robbie Marcus with JPMorgan. Please proceed. Lily: Hi, this is Lily on for Robbie. Thanks for taking the question. There has been a lot of focus on building out and getting the salesforce to be more efficient. So can you talk a bit more about what you have been seeing lately in getting reps up the productivity curve and how we should be thinking about the pace of improvement over the course of 2026. Jared Oasheim: Yes. Happy to dive in a little bit deeper on that one, Lily. So throughout 2025, we spent the first quarter making sure we had the right team members in place, maybe getting a few more of them hired in during the second and third quarter of the year. We have continued to see those reps go through the onboarding process, the training process, and more of them reaching the activation state, seeing that total number of active territories grow to 53 by the end of the year. We also saw the number of revenue units per territory continuing to increase as we went throughout 2025. And, you know, I think we have mentioned, you know, some of the metrics at the account utilization level, but we are seeing more of our accounts achieving that point of one implant a month here in the fourth quarter. And so as we get more and more of those reps up that productivity curve, the expectation is they are going to be working on those workflows at those centers to build those flywheels to see more centers treating one a month. And so I think it is all of that positive momentum we saw throughout 2025 that gives us confidence to be able to continue to see growth in sales productivity as we go into '26. Lily: Great. That is helpful. And then just as a follow-up, you have had a few nice quarters of gross margin in the 86% plus range. I see the guidance for 84% to 86% for 2026. Is there any reason this should go backwards? If you could highlight some of the key drivers we should be keeping in mind for gross margin this year, that would be helpful. Jared Oasheim: Yes. I would say we were really happy with the results we saw in gross margin in 2025, both from the price standpoint and also the cost per unit standpoint. So in '25, we exceeded expectations on ASPs in the U.S., getting north of a $31,000 ASP. I think as we think about 2026, we do not want to get over our skis and start setting that as the expectation. So in our base case, in the guide, we are setting the expectation on the U.S. side of the business for ASPs of around $31,000. On the cost side, again, we continue to see manufacturing efficiencies throughout the year driving that cost per unit down. We also understand that we have significant capacity at our manufacturing facility here in Minnesota to produce more and more units. So there is an opportunity to see that cost per unit come down further as we continue to produce more units. However, we are not baking that into the initial guide here for 2026. Lily: Great. That is helpful. Thanks so much. Operator: Thank you. The next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed. Frank Takkinen: Great. Thanks for taking the questions. Frank James Takkinen: I was going to start with one more on the BENEFIT trial. I am just curious on kind of how to think about how you expect this cohort of patients to react to the technology. And I think we have talked about this before and just making sure you get to patients prior to that disease state advancing to a more severe state. And if you are getting to them earlier, are you seeing a more durable response? Is that the expectation? Maybe it is less on absolute terms, but it is getting them closer to kind of pre-disease state. Just curious if you are treating some of these earlier-stage patients what your guys' expectation would look like. Sure. Thanks, Frank. I will try to answer that. Operator: You know, the Frank James Takkinen: HFrEF population, those are patients between 35 and 50 ejection fraction, have not been widely studied historically. We have a decent sense of the event rates in that group, Frank Takkinen: which you would expect to be a little bit lower than the event rates in the sicker Frank James Takkinen: 35 below, the proper HFrEF population. Kevin Hykes: But it is very much the same disease. Unlike HFpEF, which is a different disease, both HFmrEF and HFrEF are neurohormonal disorders. It is the same disease, Frank James Takkinen: with differing degrees of severity. So we expect that they will respond to Barostim in a very similar fashion that the HFrEF patients do. Beyond that, obviously that is why we are running the trial, Operator: it is a large trial because the event rates in that mrEF population are lower, so statistically, you need to study more patients to generate more events. But we would expect to see very similar responses from that population, whether it is on the primary endpoint of survival and of heart failure hospitalization or the secondary that relate to quality of life and other important clinical consideration. Frank James Takkinen: So too early to tell, but we are confident that we have defined the trial in such a way and empowered it in such a way Operator: that we can prove a difference in both of those populations. Kevin Hykes: Whether we catch them earlier, slightly earlier in their disease, Operator: or when they are properly below 35 as we do today. Hope that helps. Little complicated. Yes. Frank James Takkinen: No. That is perfect. I appreciate it. And then just for my follow-up, going to ask maybe once more on kind of the center activation and strategy to go deeper. If you were to think about the guide, low end versus high end, what is more important? Is it the activation of the right centers, or is it more a same-store sales proposition? Jared Oasheim: Yes. Appreciate that question, Frank. Yes. I mean, our goal here is to drive deeper adoption. And so that is priority number one for all of our sales reps, is make sure you have the right accounts activated first, but then second, to really start to build that network effect around those centers to make sure all the referral physicians and APPs know about this therapy and what types of patients it will help. And so it is all about driving deeper adoption and seeing that same-store sales number increase in 2026. In addition to that, we will be adding new territories, as I mentioned, so about three or so per quarter. And each of those new territories are also going to be activating centers. So we will still see new center adds throughout 2026, but we believe the majority of the growth is going to come from deeper adoption at the existing centers. Operator: Perfect. Frank James Takkinen: Thanks for taking the questions. Kevin Hykes: Yep. Operator: And the final question will come from the line of Chase Knickerbocker with Craig-Hallum Capital Group. Please proceed. Chase Knickerbocker: Good afternoon. Kevin, I just wanted to start on Chase Richard Knickerbocker: some of those top accounts that you mentioned that exited the year at a pretty stark run rate from a device implant perspective. I mean, what do they have in common? I think particularly kind of around the stakeholders of those accounts, I would be interested to hear as far as kind of what resonated with them that made them, you know, such high-volume adopters fairly quickly. And then maybe kind of the characteristics and the approach of the salesperson as well. That would be helpful. Max Smock: Sure. Thanks, Chase. I presume you are referring to the comment about the top 20% of our accounts are doing basically 19 units per year, about one and a half per month. Yes. So it is a great question, and it is Frank James Takkinen: exactly what has—the insights from those accounts are what led us to refine and optimize our go-to-market strategy. And what we see in those accounts Operator: are places where you have not just a single champion, Frank James Takkinen: but in fact a supportive CEO or CFO that understands the profitability. You have multiple heart failure specialists that understand which patients can benefit. Operator: You have a pool of cardiologists in the community who are screening patients and sending them in for evaluation. And you have redundancy at the surgeon level. Frank James Takkinen: So that you can continue to consistently implant even when a surgeon goes on vacation or sabbatical or changes roles, etc. So it is sort of as simple as that. That is what we think good looks like. Operator: And that is exactly how we are now incentivizing our sales team. We are paying them a premium for units that come from centers that have those very characteristics. Because we know when you have that sort of redundancy and you have that repeat utilization, that is sort of the flywheel that starts to turn, and that is what causes them to continue treating patients on their own. Frank James Takkinen: Whether or not you remind them or not. So that is really the fundamental insights that drove our revised go-to-market strategy. Chase Richard Knickerbocker: If you kind of take that cohort, Kevin, that 20%, what is the age of those accounts? Are there some that are, you know, fairly short? Maybe you kind of initiated them in '25 or early 2024. Or are those some of your accounts that have been implanting Barostim for the longest? It is probably across the board, but just some thoughts there as far as kind of Max Smock: sure. How long it takes some of these accounts to get there. Kevin Hykes: Yes. And what I can say definitively, it takes more than six months. Right? Because that Operator: scenario that I described takes time to establish. Frank James Takkinen: But I think beyond that—so there are none that are brand new, but there is a pretty wide spectrum, some of whom have been with us in developing that resilience and that flywheel for a number of years. There are some that are as new as nine months or even twelve months. So, again, some of that stems from us learning more Operator: about the kinds of centers that can be successful and being more intentional Frank James Takkinen: and disciplined about where we engage. Right? That network I described does you no good if the baseline Operator: characteristics in the account are suboptimal. So you want to start with the right account, then you want to establish that network, Frank James Takkinen: and then you want to get the flywheel turning. So it is a little bit of everything, thankfully. Chase Richard Knickerbocker: Got it. Maybe just one on BENEFIT for me. What portion of the enrollment do you expect to be OUS? And, you know, we should not be thinking that there is, you know, revenue recognition there. I mean, that is something—it will just be expense. I mean, just kind of talk me through how much it will be OUS and then how you expect to treat it. Kevin Hykes: That is a great question. It will be a very, very small number of centers. Operator: For a number of the reasons you pointed out and some others. Kevin Hykes: So this will very much be a U.S.-focused trial, a Medicare-focused trial, again with the benefit of the Category B Frank James Takkinen: reimbursement sitting behind it. Chase Richard Knickerbocker: So a very—a very small. And then just last, Jared, any thoughts on kind of path to profitability? You know, obviously, we have got some net expense from the trial. You know, just overall thoughts there. And if at some point, there is a decision to, you know, eventually kind of slow down the territory adds or just kind of help me think about how you expect to manage the business to profitability over the medium term? Jared Oasheim: Yes. Appreciate the question. So right now, we had $75,000,000, $76,000,000 at the end of the year. We noted in our preannouncement in early January that we added $10,000,000 from the debt amendment, so up to $86,000,000 to start 2026. With the guide, you know, we are expecting to burn somewhere around $30,000,000 to $35,000,000 in 2026. But what we do know is we have at least two years of cash on the balance sheet today. We also have access to an additional $40,000,000 of nondilutive capital through the debt amendment, and those are triggered based on us hitting certain revenue milestones over the next couple of years. So we have access to plenty of capital today. There is no need to go out and raise additional capital at this point in time. I also know there were some questions around the filing of the shelf and ATM in late 2025, early 2026. And that was purely good corporate housekeeping. Our old shelf had expired in 2025, so we needed to refresh the shelf and put a new one up this year. So with $86,000,000 in the bank, two-plus years of cash available to us, there is no need to go out and raise any additional capital at this point. As to the path to profitability, it is all about generating leverage. Right? We hired a whole bunch of really good reps. It is now pushing them up that productivity curve to drive a faster growth rate on the top line than we are seeing on the SG&A line. And that is our plan—is that we are going to continue to drive them up that product curve and continue to add new heads to see that growth rate. We will in the coming years. But with $86,000,000 of cash, it is not a concern for us. Operator: Understood. Thank you. Thank you. This concludes the question-and-answer session. I would like to turn the call back over to Kevin Hykes for closing remarks. Kevin Hykes: Thank you, operator, and thanks to everyone for joining today. We appreciate your continued support and look forward to updating you on our progress next quarter. Operator: Thanks. This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Good day, and welcome to the Vertex Pharmaceuticals Incorporated Fourth Quarter 2025 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead. Susie Lisa: Good evening, everyone. My name is Susie Lisa, and as Senior Vice President of, I would like to welcome you to our fourth quarter and full year 2025 financial results conference call. On tonight's call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertex's CEO and President, Charlie Wagner, Chief Operating Officer and Chief Financial Officer, and Duncan McKechnie, Chief Commercial Officer. We recommend that you access the webcast slides as you listen to this call. The call is being recorded, and a replay will be available on our website. We will make forward-looking statements on this call that are subject to the risks and uncertainties discussed in detail in today's press release and in our filings with the Securities and Exchange Commission. These statements, including, without limitation, regarding Vertex's marketed medicines for cystic fibrosis, sickle cell disease, beta thalassemia, and moderate to severe acute pain, our pipeline, and Vertex's future financial performance are based on management's current assumptions; actual outcomes and events could differ materially. I would also note that select financial results and guidance that we will review on the call this evening are presented on a non-GAAP basis. I will now turn the call over to Reshma. Reshma Kewalramani: Thank you, Susie. Good evening all, and thank you for joining us on the call today. 2025 was marked by excellent progress across the business: disciplined commercial execution in CF and the new product launches, meaningful pipeline progress, and robust financial performance. Fourth quarter results wrapped up another strong year with 10% total revenue growth, and for the full year 2025, total revenue growth was 9%. As we executed on our plans for commercial diversification, full year '25 results included KASJEVY revenue of $116,000,000 and Gernamix revenue of $60,000,000 in the eight months since launch. Building on the momentum of our Q4 and full year 2025 results, in 2026 we are focused on increasing the number of patients we serve and further diversifying our revenue base. 2026 priorities include expanding leadership in CF, accelerating adoption of Kashyabi, growing Jurnavics both in prescriptions and revenue, and advancing the emerging renal franchise starting with POBI in IgAN. We are entering an exciting period, and Vertex is well positioned to deliver on the significant opportunities in front of us and drive sustained growth over the long term by combining commercial execution with serial innovation and rapidly advancing the pipeline across multiple serious disease areas. With that overview, I will focus my R&D comments tonight on cystic fibrosis and the renal franchise. Reshma Kewalramani: Beginning with cystic fibrosis, Elliptrex is a next-generation 2.0 CFTR modulator and is the fifth approved CF therapy in our portfolio. Aliftrex brings many important benefits for patients: once-daily dosing, regulatory approval in additional mutations, and the best CFTR protein function restoration in our CF portfolio. As continued evidence of this, I am pleased to share the top-line results from the recently completed Elephtrak Phase 3 trial, this one in two- to five-year-olds. All patients in this study were on TRIKAFTA and switched to ElefTrex on entry into the study. A Liftrec was safe and well tolerated, and the sweat chloride data showed a mean reduction of 9.6 millimoles from a TRIKAFTA baseline. Importantly, 65% of these AlifTrac patients achieved levels of sweat chloride below the normal or carrier level of 30 millimoles when treated through 24 weeks. This compares to 37.5% of patients at normal levels of sweat chloride at baseline on TRIKAFTA. This magnitude of sweat chloride reduction is unprecedented for this age group in cystic fibrosis. We are on track to initiate global regulatory submissions for AlifTrex in the two- to five-year-old age group in the first half of this year. And as we continue the march down to younger age groups, I am also pleased to share that the AlifTrek one- to two-year-old study has already initiated and enrollment and dosing are underway. Reshma Kewalramani: Turning now to our next wave of CFTR modulators, or NextGen 3.0 medicines. In this class, VX 828 is the most efficacious corrector we have ever studied in vitro and advanced studies in patients. The VX 828 proof-of-concept study is on track to complete enrollment and dosing in 2026. VX 581, another corrector from this 3.0 class, is currently in a Phase 1 healthy volunteer study. And beyond these two assets, we are advancing additional CF regimens. Shifting to the VX 522 program for the approximately 5,000 patients who do not make any CFTR protein and, therefore, cannot benefit from our CFTR modulators, our Phase 1/2 study of VX-1522 is on track for readout in the second half of this year. And we are not stopping there. We are poised to continue to expand our CF leadership position driven by more than 20 years of serial innovation, an enduring goal that if it is possible to do better for CF patients, we are committed to doing so. An unmatched 200,000-plus patient years of real-world data and a proven ability to extend the benefits of our medicines to the youngest patients. Reshma Kewalramani: Moving next to our renal pipeline, which is emerging as our fourth vertical alongside CF, heme, and pain, as a key engine for Vertex's next decade of growth. Povatacept, a dual BAFF/APRIL inhibitor, is the most advanced asset in our renal pipeline, with the first expected indication in IgA nephropathy, or IgAN. IgAN is a progressive kidney disease with high unmet need that affects 330,000 people in the U.S. and Europe, and more than a million people in Asia. We see Povi's dual BAFF/APRIL inhibition as key to interdicting the underlying cause of IgA nephropathy, because this is a disease driven by B cells, and BAFF and APRIL are the key cytokines that play distinct roles in B cell proliferation, differentiation, and survival. In addition to mechanism of action, Povi's biophysical characteristics enable a differentiated profile. Povy was specifically engineered to achieve improvements in binding affinity, potency, pharmacokinetics, and tissue distribution. This protein engineering translates to two key areas of downstream advantage. First, in terms of efficacy, through Phase 2, Povi has delivered substantial reductions in proteinuria and stabilization in GFR, supported by significant reductions in Gd-IgA1 and hematuria. As importantly, Povi's meaningful advantages in dosing. Povi is administered as a once-monthly small-volume subcutaneous dose delivered via an auto-injector, a noteworthy consideration in the chronic biologics market where ease of use has repeatedly been shown to influence product choice. Povi is progressing through the BLA regulatory pathway where FDA has granted Breakthrough Therapy designation as well as rolling review. We used the Priority Review Voucher to ensure an expedited timeline for regulatory review and initiated our rolling BLA submission by submitting the first module in December '25. We remain on track to complete the BLA submission in the first half of this year, if the Phase 3 interim analysis results are supportive. Reshma Kewalramani: Switching to Povi in membranous nephropathy, a disease that affects approximately 150,000 patients in the U.S. and Europe, and over 400,000 patients in Asia, where we partnered with Zai and Ono for these markets as we did in IgAN. Membranous nephropathy, like IgAN, carries significant morbidity and lacks disease-modifying therapies. Accordingly, Povi has FDA Fast Track and EMA PRIME designations and was recently granted Orphan Drug designation in the U.S. The OLYMPUS Phase 2/3 adaptive study of Povi in membranous is enrolling and dosing patients. I am pleased to share we remain on track to complete the Phase 2 portion of this study and advance to Phase 3 this summer. Reshma Kewalramani: Before updating you on the two other renal programs in mid- and late-stage clinical development, let me shift focus briefly to neurology and Povi's potential as a pipeline-in-a-product with our plans in generalized myasthenia gravis. The rationale to study Povi in myasthenia is compelling. First, it is a serious disease with high morbidity. Second, there are approximately 175,000 patients with myasthenia in the U.S. and Europe, and an estimated 300,000 patients globally. Third, current therapies have limitations in terms of mechanism of action, specificity, or the need for cyclical administration. This need for cyclical administration is particularly challenging, as it can lead to disease relapse and progressive damage to neuromuscular junctions. In contrast, Povi is dosed chronically and does not require cycling on and off. Lastly, recent human clinical pharmacology results provide strong evidence for dual BAFF/APRIL inhibition as a transformative approach. Putting this all together, we believe Povi's mechanism of action and specifically engineered protein format provide best-in-class potential in myasthenia. I am pleased to share that we are on track to initiate a proof-of-concept Phase 2 dose-ranging study of Povi in myasthenia in 2026. Reshma Kewalramani: Now returning back to renal and enaxaplin for APOL1-mediated kidney disease, or AMKD, where we completed enrollment in the interim analysis cohort of the AMPLITUDE pivotal study last fall. We anticipate several key upcoming enaxaplan milestones. Operator: First, Reshma Kewalramani: completing enrollment in the AMPLITUDE full clinical trial cohort in the second half of this year. Second, results from the AMPLITUDE interim analysis cohort either late this year or early next. And if the results are positive, to file for U.S. Accelerated Approval thereafter. Finally, in the AMPLIFIED study of enaxaplin in patients with AMKD and moderate proteinuria, or patients with AMKD and type 2 diabetes, patient groups we did not study in AMPLITUDE, we expect results in mid-2026. Reshma Kewalramani: The last program in renal to cover tonight is VX 407, which is being studied in a Phase 2 proof-of-concept trial for autosomal dominant polycystic kidney disease, or ADPKD. This disease affects 300,000 patients in the U.S. and Europe with no available disease-modifying treatments. VX407 is a small-molecule protein-folding corrector that targets the underlying cause of disease in up to 10% of people with ADPKD. The VX 407 Phase 2 proof-of-concept study is up and running, and we expect to complete enrollment this year. This study will evaluate the effect of VX407 on height-adjusted total kidney volume, an important efficacy measure given that it is an FDA-accepted surrogate endpoint in ADPKD. Reshma Kewalramani: I will close with two quick updates on a couple of other R&D programs. For KASJEVY, we remain on track to file for U.S. approval in patients ages five to eleven in the first half of this year. Recall, this has been granted a Commissioner's national priority voucher and thus, we expect an expedited review. For Gernavix in acute pain, a pair of single-arm Gernavix Phase 4 studies have been recently completed and will be presented at medical conferences this spring, one in aesthetics and reconstructive procedures and another in arthroscopic procedures. In both studies, Gervix was used as part of multimodal pain therapy. The first study in plastic surgery procedures showed approximately 90% of patients remained opioid-free versus less than 10% opioid-free rates in the literature with standard of care for similar procedures. In the second study, which included arthroscopic knee and shoulder procedures, as well as laparoscopic procedures, 76% of Gernavix patients remained opioid-free versus less than 50% opioid-free rates in the literature with standard of care for similar procedures. And in chronic neuropathic pain, our two sicetralgene Phase 3 studies in patients with diabetic peripheral neuropathy remain on track to complete enrollment by the end of this year. With that, I will turn the call over to Duncan to review the commercial highlights. Operator: Thanks, Reshma. The focus of the commercial Duncan McKechnie: organization in 2025 was to drive multiple successful launches fueled by clear strategic intent, disciplined execution, and targeted investments. We launched a lift truck in the U.S. and Europe, built momentum behind the launch of Kasjevi in the U.S., Europe, and the Middle East, and successfully executed on the first year of launch for Genavix here in the U.S. We are pleased with the progress we are making to diversify our revenue growth and treat patients in four diseases around the world. Duncan McKechnie: In cystic fibrosis, our goal has been to help patients get to carrier or normal levels of CFTR function as measured by sweat chloride. We have made incredible progress against this goal for patients with all mutations, all age ranges, and all geographies. We now have five approved CFTR modulators, a decade plus of real-world evidence, over 77,000 patients on one of our CF therapies, and access agreements in over 60 countries across six continents. We continue to drive growth from new patients, new launches, new geographies, and new reimbursement agreements, all supported by an underlying 3% annual increase in the CF population over the last five years. Duncan McKechnie: Focusing now on Elephtrak. The rollout in the U.S. and Europe continues to progress well. The vast majority of treatment-naïve patients in countries where we have reimbursement are already on AlifTrex. We also see continued ongoing transitions from TRIKAFTA to AlifTrex and the majority of AlifTrek scripts continue to come from switches. ElefTrex’s improved sweat chloride profile and once-daily dosing versus TRIKAFTA are resonating with the clinical community, even as we observe strong patient loyalty to TRIKAFTA. In Europe, we have already secured reimbursed access for ElefTrek in key countries, for example, England, Ireland, Germany, Denmark, and Norway. We also recently announced reimbursement for Eleftrac in Australia, New Zealand, and Italy, the latter enabling access for 1,500 patients to a CFTR modulator for the first time. Additionally, we continue to make excellent progress expanding geographic reach with meaningful contributions in 2025 from Brazil and Turkey. Overall, 2025 was another year of strong execution and growth in CF, and we will continue these efforts into 2026. Key drivers of growth for CF in 2026 include continuing the launch of AlifTrek globally, treating younger patients, expanding to additional geographies, securing access for patients, and maintaining our comprehensive patient support programs. Duncan McKechnie: Turning now to Kashyvi. Where we successfully moved from a foundational year in 2024 to a year of building significant momentum in 2025. You can see the evidence of this acceleration in our excellent Q4 2025 results, where Casjevi had 111 new patient initiations, 37 patients with first cell collections, and 30 patients receiving infusions, driving $54,000,000 in quarterly revenue. We also reached some notable reimbursement agreements for KASJEVY in Q4 2025. In the U.S., more than 30 states have joined the CMS Cell and Gene Therapy Access Model. There is now approximately 90% access for both Medicaid and commercial KASJEVY patients with the remainder having case-by-case access. In Europe, all countries in the UK are now providing reimbursed access, and a recent landmark coverage decision by the Italian reimbursed body represents about 5,000 eligible TDT patients, half of Europe's beta thalassemia population. We anticipate seeing continued quarter-to-quarter variability in JEVY infusions in 2026 based on the duration of the patient journey and given the fact that patients themselves dictate when they wish to receive their infusion. We anticipate this will smooth out in 2027 and beyond as the number of patients at all stages of the treatment journey continues to build. Overall, we are very encouraged by the robust flow of patients in the U.S., in Europe, and the Middle East moving from referral to cell collection and infusion as we drive towards realizing KASJEVY's multibillion-dollar potential. Duncan McKechnie: Moving to pain. I am pleased to report that Genavix achieved our 2025 launch objectives of first securing broad payer access, secondly, ensuring extensive hospital adoption, and thirdly, creating a broad prescriber base across both the hospital and retail segments. This launch strategy was designed to create a strong long-term foundation for years of growth with Genavix. More than 550,000 Genavix prescriptions were filled in 2025, with a roughly 50/50 split between hospital and retail channels. There were as many prescriptions written in 2025 as there were in the prior three quarters cumulatively. Although I would note that Q4 revenue growth does not yet fully reflect this strong prescription growth given the continued utilization of our patient support programs. Importantly, more than 35,000 physicians wrote prescriptions for Genavix in 2025, including orthopedic surgeons, general surgeons, anesthesiologists, pain specialists, dentists, and general practitioners. Over 200,000,000 lives now have access across all three national PBMs. In addition, 21 states now provide unrestricted access for Medicaid recipients without prior authorization or step-edit requirements. Genavix has also been incorporated into formularies, order sets, and/or discharge protocols across more than 950 hospitals and over 100 integrated delivery networks, a significant accomplishment in a short period of time and an indicator of the unmet need in this space. Perhaps most importantly, we estimate that about 420,000 Americans benefited from the inclusion of in their treatment journey as an effective, well-tolerated non-opioid option for moderate to severe acute pain. Duncan McKechnie: Looking ahead, given the strong adoption of Genavix by hospitals and physicians, and the progress we have made in securing payer coverage, we plan to double the size of our field force in Q2. We will also continue with a range of consumer engagement activities to drive meaningful prescription and revenue growth in 2026. This includes the recent launch of our first Vertex connected TV campaign in January, which we are piloting in select markets. In 2026, we expect to more than triple the number of Genavix prescriptions compared to the approximately 550,000 written in 2025. As we work to finalize access and gain coverage with additional payers, including Medicare Part D plans, we have made the strategic decision to maintain the patient support program for those patients not covered by their insurance. As this PSP program sunsets and gross-to-net in late 2026, early 2027, we expect prescription growth to increasingly drive meaningful revenue growth, especially in the latter half of the year. Our expectation is that Genavix gross-to-net will ultimately settle at levels comparable to other branded medicines. We are excited to continue to drive a transformation in the management of the 80 million Americans with moderate to severe acute pain each year by offering a safe and effective non-opioid treatment option and to build another multibillion-dollar franchise for Vertex. Duncan McKechnie: Turning now to our emerging renal business. We are partnering with and investing in the nephrology community for the long term, and povitacept is the first in a series of potentially transformative medicines that tackle the underlying cause of several renal diseases: IgAN, PMN, AMKD, and ADPKD. We anticipate that the renal franchise will ultimately rival the of our CF business, and we are seeking to bring the best elements of our success in CF to these kidney disease areas. These best practices include intense focus on the patient, an unrelenting commitment to serial innovation in R&D, a clear high-science sell to specialist physicians, and disciplined execution in securing reimbursed access here in the U.S. and around the world. We will also offer comprehensive patient support programs for eligible patients to remove access challenges and enable them to more seamlessly obtain the medicine that HCPs prescribe. We believe our experience, focus, and capabilities equip us to win in renal and deliver substantial value to both patients and healthcare providers. Duncan McKechnie: Povatacept's potential best-in-class profile enables us to clearly distinguish it within the IgA nephropathy landscape, setting it apart from other therapies. As Reshma detailed, Povi is an engineered fusion protein designed specifically to address B cell–mediated autoimmune diseases with a strong clinical profile that is further supported by an easy-to-use small-volume auto-injector administered at home every four weeks. The importance of this insight has been borne out in our recent research with nephrology who highlight the importance of payer access and for an auto-injector versus prefilled syringe in their treatment decisions. This market research with nephrologists reinforces what we have seen in the biologics space many times over. Commercial excellence combined with patient convenience and ease of use of the medicine are critical drivers of market share. We began preparing for povitacept's launch last year by building a commercial team for renal and engaging payers to ensure broad access. We are completing the staffing of our teams, and the first contingent of our field team is already trained and actively engaging customers and providing disease education. As noted above, we are also developing a renal patient support program based on our decade plus of experience supporting cystic fibrosis patients. In summary, each of our commercialization areas reflects a clear strategic intent and an ambitious approach to both established and future launches. Our 2025 performance positions the portfolio for continued revenue growth, deeper market penetration, and most importantly, broader patient impact across cystic fibrosis, hematological disorders, moderate to severe acute pain, and potentially, in the future, renal diseases. I will now turn the call over to Charlie for our financial results and outlook. Operator: Thanks, Duncan. Charlie Wagner: I am pleased to share the details of Vertex's strong financial performance in the fourth quarter and for the full year 2025, which stands as a testament to our market leadership, the strength of our product portfolio, and our disciplined approach to investment and operational. In the fourth quarter, total revenue reached $3,200,000,000, a 10% increase compared to Q4 2024. For the full year, total revenue was $12,000,000,000, an increase of 9% versus 2024. These results reflect our consistent commercial execution, durable CF franchise strength, and expansion into new, high-value disease areas. Our cystic fibrosis therapies remain the foundation of our revenue and cash flow with full year 2025 growth of 7% globally. CF revenue in the U.S. grew 11% year over year, largely due to pediatric uptake, ongoing strength in TRIKAFTA and ELEFTREC, higher realized net prices, and a modest benefit from channel inventory in the fourth quarter. Internationally, CF revenue grew 2% year over year, reflecting the ongoing penetration of Calf Trio in established markets and contributions from AlifTrek in countries where reimbursed, partly offset by the previously communicated $200,000,000 decline in Russia sales for the year. Charlie Wagner: Kaschevy achieved $54,000,000 in revenue in Q4 and $116,000,000 for the full year 2025, and during Q4 demonstrated continued momentum in patient and first cell collections. Dronavix delivered $27,000,000 in sales in the fourth quarter and $60,000,000 for the full year, with substantial growth in quarterly prescriptions since its launch in 2025. Note that Gernavix gross-to-net was significantly impacted by our patient support program in 2025, and that impact will diminish over the course of 2026. Our increasingly diversified commercial portfolio, now spanning four disease areas, is driving new revenue streams and adding to our near- and long-term growth profile. Our fourth quarter gross margin of 85.7% reflects this product mix as well as investment in manufacturing optimization for our diversifying portfolio. I would add that Q4 gross margin is a reasonable proxy for what to expect in 2026. Charlie Wagner: Turning to operating expenses, Q4 2025 combined non-GAAP R&D, acquired IPR&D, and SG&A expenses totaled $1,400,000,000, up 5% year over year, and reflect our strategic investments in product launches, principally in pain, and late-stage pipeline programs. Fourth quarter non-GAAP operating expenses included $56,500,000 of AIPR&D expense, or approximately $0.22 per share. This fourth quarter BD activity included an exclusive global license agreement with WuXi Biologics to develop and commercialize a tri-specific T cell engager for B cell–mediated autoimmune diseases. This asset is currently in preclinical development. For the full year, combined non-GAAP R&D, acquired IPR&D, and SG&A expenses totaled $5,100,000,000, consistent with our previous guidance. Excluding acquired IPR&D, the increase versus prior year was primarily driven by the acceleration of late-stage clinical programs in renal medicine and ongoing expansion of commercial and marketing activities to support the launch of Gernavix and upcoming launches in renal. The fourth quarter 2025 non-GAAP effective tax rate was 13.5%, reflecting increased utilization of one-time tax credits, and our full year 2025 non-GAAP effective tax rate was 17.3%. Q4 2025 non-GAAP net income was $1,300,000,000, up 24% year over year, delivering $5.30 of earnings per share, up 26% versus the prior year. Full year 2025 non-GAAP net income of $4,700,000,000 resulted in $18.40 of EPS. Vertex ended 2025 with $12,300,000,000 in cash, cash equivalents, and marketable securities. Our strong balance sheet positions us to continue investments in both internal and external innovation. During 2025, we increased our repurchase activity, buying approximately 4,800,000 shares for roughly $2,000,000,000. This reflects our ongoing commitment to returning value to shareholders while maintaining the flexibility to act on growth opportunities. Charlie Wagner: Let me now turn to guidance for 2026. We expect full year 2026 total company revenue to be in the range of $12,950,000,000 to $13,100,000,000, representing 8% to 9% growth versus the prior year. This outlook anticipates continued solid performance from our CF franchise and a $500,000,000 or greater revenue contribution from non-CF products, including greater volumes of patient infusions for CasGevi and a ramp of Gernavix. In Q1 2026, we anticipate year-over-year total revenue growth of approximately 7% with growth accelerating thereafter and building towards our full year guidance. Additionally, we expect combined non-GAAP operating expenses to be in the range of $5,650,000,000 to $5,750,000,000 as we continue to invest in our late-stage clinical pipeline and commercial buildouts in support of new launches and revenue diversification, particularly for generics in acute pain, and for renal. We anticipate our non-GAAP effective tax rate to be in the range of 19.5% to 20.5% for 2026, as we do not expect a repeat of the one-time tax benefits we experienced in 2025. In addition, based on our understanding of current rules, we do not expect a material impact from tariffs given our diversified supply chain and large U.S. manufacturing presence, but this outlook is subject to change. In summary, 2025 was a year of very strong performance, continued execution on our commercial priorities and clinical programs, and further strengthening of our robust financial foundation. As we turn to 2026 and beyond, Vertex remains well positioned to continue expanding our impact for patients, investors, and all stakeholders. We look forward to updating you on our progress on future calls, and I will now ask Susie to begin the Q&A period. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, press star then 2. And our first question will come from Cory Kasnov with Evercore ISI. Please go ahead. Great. Good afternoon. Thanks for taking my question. Probably not surprising that it is on Povi. Cory Kasnov: Curious how you view the risk of potential hypogamma adverse events and how this could ultimately impact the label, if at all? Thank you. Operator: Cory, this is Reshma. Let me take that one. Reshma Kewalramani: On hypogammaglobulinemia, that is to say low IgG levels, the way BAFF/APRIL inhibitors work, you are going to see dips in IgG. It is part and parcel of the mechanism of action. But the important question you are asking is, what does that mean, if anything, on safety? So the data that we have shown is RUBY-3, the 80 mg RUBI-3 cohort that we showed at ASN in November. What you see there is there were actually no SAEs, none of infection. It does not matter what IgG level you look at. There were simply none. That is good news. There was a single patient with IgG levels of less than 300 milligrams. That was a threshold we used. It was not associated with any serious infection, and there was no severe infection either. And on average, when you look at the IgG levels from the RUBY-3 IgAN study, the average value was within the normal range. So let us say around 700 mgs. So when I look at that, I do not really see anything there. And I think that when you look at the overall benefit-risk including IgG levels, but look at everything as a whole, it looks really very good. Operator: I hope that helps. Very helpful. Cory Kasnov: Yeah. Very helpful. Thank you, Reshma. Operator: You bet. The next question will come from Salveen Richter with Goldman Sachs. Please go ahead. Salveen Richter: Good afternoon. Thanks for taking my question. With regard Salveen Jaswal Richter: to the guidance here, is there any way you could help us understand what is baked into the guide for the CF component relative to Alevtrex and and on Alevtrek in particular, you had a strong quarter. So walk us through the contributing factors here as we think of the trajectory for 2026? Thank you. I will be happy to split that question and ask Reshma Kewalramani: Charlie to go first on the guide, and then I will ask Duncan to comment on the market dynamics that led to the Ali numbers we shared. Operator: Yes. So I mean, additional color on the guidance. Charles F. Wagner: Obviously, total revenue guidance of $12.095 to $13.01. So 8% to 9% for the year. Within that, a contribution, a non-CF contribution of $500,000,000 or more. Within CF, we are not going to break it down further in terms of Ali versus other products. Maybe Duncan could comment on the dynamics in Ali that we are seeing right now. Sure. Thanks for the question, Salveen. So I would say the fourth quarter was buoyed by the international launch Duncan McKechnie: so we, as you know, secured reimbursement in Europe, in countries like the UK, Germany, Denmark, Ireland, Norway, in 2025. So that really helped drive some of the numbers that we saw in the latter part of 2025, and we expect that to continue obviously into 2026. Reshma Kewalramani: Next question, Operator: Thank you. The next question will come from Geoff Meacham with Citibank. Please go ahead. Geoffrey Christopher Meacham: Hey, guys. Thanks for the question. Just have a couple. First one, you guys seem really excited about Povi's potential as well as the renal space. Guess the question is, is there work to do on the payer side when you think about access and reimbursement and maybe cost-benefit? When you look historically, Reshma, renal has not been a category where you get higher realized value, but obviously, Geoffrey Christopher Meacham: a new MOA can help that. Then just a follow-up on Ali. Is there more interest in the U.S. in using sweat chloride as a disease biomarker? And you mentioned the European launch. I mean, would you characterize Geoffrey Christopher Meacham: maybe the awareness and willingness to switch Geoffrey Christopher Meacham: to Ali compared to the U.S.? Thanks. Reshma Kewalramani: Alright. Jeff, I am going to ask Duncan to comment on both, but we will take it in two parts. Let us do Ali first. Duncan, how do folks, how do the community think about sweat chloride U.S. versus ex-U.S.? How do you see the uptake? And then let us get to Povi. Jeff, you are absolutely right to detect a a of enthusiasm in our voice on Povi. It is not just about Povi in IgAN, but it is Povi in membranous and in myasthenia. And it is getting close to the time where we think we are going to have the results to share and close to the time where think we are going to be able to file. So enthusiasm is certainly building internally. Ducking on the Povi question, it was about reimbursement and how you are seeing that. Duncan McKechnie: Yep. So Ali first. Yeah. Thanks for the question, Jeff. So as far as the interest in sweat chloride is concerned, in general terms from a physician level, the level of sort of understanding and interest in the connection between sweat chloride and CFTR function is by and large similar in the U.S. to Europe. There are no major differences in that regard. In terms of your question about willingness to switch, there are some different dynamics with regard to the labeling between the U.S. and Europe, meaning that there are fewer liver function and liver monitoring requirements in Europe. So that has an impact on the dynamic. The other comment I would make as well is we always see more rapid uptake in naïve patients, and as per the prepared remarks, there are, for example, 1,000–1,500 naïve patients in Italy that have just been reimbursed for CFTR modulator for the first time ever, so we would anticipate rapid uptake in that particular patient population. On the first part actually of your question, povitacet and our engagements with payers and the payer community, I would make just a couple of comments. Firstly, we started engaging with the payers in July. We have, at this point, had 74 engagements with multiple payers that cover over 210 million lives. And I would say those conversations are going extremely well. They are very well educated on IgAN, and they are very interested in the products that are coming to the market. So we feel really good about where we are at with our engagements with payers so far and where those will go in the future. Operator: The next question will come from Tazeen Ahmad with Bank of America. Please go ahead. Tazeen Ahmad: Hi, guys. Good afternoon. Thanks for taking my question. Reshma Kewalramani: With relation to Povi, can we talk about what you are expecting to show on proteinuria? Like what results do you think would provide your mind Tazeen Ahmad: medically, clinically differentiated data versus competitors? Thanks. Reshma Kewalramani: Sure. Magnitude of proteinuria response, I think we have talked about this before, but in every study that we have done, the depth of proteinuria response, the greater the depth, the better it is in terms of long-term outcomes, long-term outcomes being defined as death, dialysis, or time to transplantation. In this particular interim analysis, I would point you to the RUBY-3 80 mg IgAN results. I think it is the best analog to look at to sort of get a sense for what we could see from the RAINIER trial. I say that because it is very similarly designed in the inclusion and criteria. The proteinuria threshold, the GFR thresholds for entry, it is the same exact dose, 80 milligrams, and the endpoint is exactly same. And in RUBY-3, the 36-week proteinuria data was 56% reduction in proteinuria. I think it is important to also note that the proteinuria reduction is something that I believe will have, think you could think of it as compounding effect over time. Even a little bit more improvement in proteinuria, better proteinuria reduction, is going to be important because these patients are going to be on the for their whole life. It takes something like 20 years for a person to develop end-stage renal disease from when they start having their GFR drop or proteinuria starts to become heavy. So over that course of time, improvements in proteinuria could really be very important. So if we see something like we saw in RUBY-3 Phase 2, that would be incredibly important. Very meaningful from a clinical perspective. Thanks, Krishna. Yeah. See you next. Operator: Question will come from Evan Seigerman with BMO Capital Markets. Please go ahead. Evan David Seigerman: Hi, guys. Thank you so much for taking my question. I would love for you to expand on the rationale to study Povi in gMG. Just seems to be a more crowded rare disease. I would love for you to just touch on differentiates this asset, what you saw potentially kind of in earlier studies, and how you think it would compare to both assets that have been approved and are under investigation for the indication? Yep. Sure thing, Evan. Reshma Kewalramani: I will repeat a couple of things I said in my prepared remarks. It is a sizable population, right, nearing 200,000 patients in the U.S. and Europe. It is clearly, like, one of the best examples of a B cell–mediated disease. That is how this disease happens. It is autoantibodies largely against the acetylcholine receptor. And the available treatments have some real limitations. One of the big limitations is for some of the treatments, you have to cycle on and cycle off. During the time where you cycle off the treatment, where you are not taking the treatment, obviously, if you are not on the medicine, what happens is the autoantibodies come back and that can lead to the disease returning. Now what I am about to tell you next is cross-study comparisons, so you have to take it with a grain of salt. But there has been a study in China, China-based study, using a wild-type tacky. And using a wild-type tacky, if you do a side-by-side comparison of what is called the myasthenia gravis ADL score, that is the endpoint, it is remarkable what the wild-type PELI test is that this is the wild-type tacky, was able to accomplish. Again, these are cross-study comparisons, so take it with a grain of salt. But what that wild-type tacky tells me is that by mechanism of action, it is something to really hold close. So then you translate that to Povi. Povi is not a wild-type tacky. Povi is this engineered fusion protein. Better potency, better binding affinity, better pharmacokinetics, better tissue distribution. So I look at the wild-type tacky, and then I think about what Povi could bring to the table. And that is the reason I am so excited about this. I think this is going to be a really important indication for Povi. First things first, we have to get through Phase 2. That study should be up and running shortly. That is a dose-ranging study, so we are going to study 80 and 240. Then we can take it from there and go to pivotal development. But it is one of the ones that I am excited about. Operator: The next question will come from Michael Yee with UBS. Please go ahead. Hello. Thank you. Two questions. First on Ovi, can you remind us how to think about what rates of ADA are possible, either absolute rates or neutralizing rates? And do you expect that to be of any material number given it is a chronic drug that could be something to think about? And then I do not think anyone has asked on AMKD, but obviously you have a very potent drug there and that data could be in about a year or so. And just wanted to think about how you expect those results to play out and, given you have a more population rather than just FSGS, expect essentially the same results from the Phase 2? Thank you. Yeah. Mike, let me Reshma Kewalramani: take the AMKD results first, and I will come back to Povi and ADA. So in AMKD, when I was listening to Duncan talk about AMKD, ADPKD, Povi in IgAN, Povi remembrance, it really is a renal franchise that is emerging. The bottom line, I do expect that our results from the AMKD Phase 3 AMPLITUDE study will be very similar to what we saw in the Phase 2 AMKD study. Recall, though, Mike, that the readout, the primary endpoint for the Phase 3 study is GFR slope. Of course, we are going to measure proteinuria, but you will recall that the FDA pathway to Accelerated Approval for ANKD is based on 48-week GFR. So there is that difference. And if you ask me, well, why do you think that? Even though the group that we studied in Phase 2 was something we called FSGS, which is a histologic diagnosis. It is what you see on biopsy. The and the group that we studied in Phase 3 is AMKD, two APOL1 allele. They are the same disease. It is just whether or not the patient with two APOL1 alleles, depressed renal function, and proteinuria was sent to get a biopsy or not sent to get a biopsy. If you do not go to get a biopsy, you will never be able to see FSG because that is simply a histological diagnosis. So net-net, I expect the results to be in line with Phase 2. And I will reaffirm the timelines for data sharing, tail end of this year, beginning of next. Reshma Kewalramani: On Povi and ADA and NAb, just to set this stage, and I know you know this, in biologics, ADAs—anti-drug antibodies—are to be expected. If it does not have a consequence on efficacy—so you would know that by neutralizing antibodies, you would see it on the endpoint of interest, in this case proteinuria—it is not something to be concerned about. And, of course, on the other side, it could be an antibody that causes safety, but based on how this particular drug works, I do not have concerns in that domain. So it is really about a specific subset of anti-drug antibodies, neutralizing antibodies, that have an impact on outcomes. Based on everything that we saw in RUBY-3 that we shared with you in November, I do not expect that to be something of consequence. Tazeen Ahmad: 80 is that is. Operator: The next question will come from Io Muir with Barclays. Please go ahead. Eliana Merle: Hey, it is Elly. Thanks for taking my Reshma Kewalramani: just on TERNAVEX, how do you see the mix between retail and Eliana Rachel Merle: hospital setting evolving over the course of the year? And how should we think about how that mix could impact gross-to-net as well as treatment duration? Thanks. Reshma Kewalramani: Duncan, do you want to take that one? Operator: Yeah. Sure. Duncan McKechnie: So as far as the mix is concerned, I would say that we did see it evolve over the course of 2025. We concluded the year at around about 50/50 between retail prescriptions and hospital prescriptions. And I would say that in the future, we anticipate that that will move more towards the retail space proportionally compared to where it is right now. In terms of the impact on gross-to-net, there are a number of dynamics to that. Obviously, the length of the prescription in hospital is usually shorter than the duration of the prescription in retail. But it also depends on the type of patient, for example, whether they are a commercial patient, whether they are a patient or a Medicaid patient, and indeed whether they are going through our patient support program, or whether they are a self-pay patient. There are a number of dynamics in terms of how this sort of prescription balance affects gross-to-net. Operator: Your next question will come from William Pickering with Bernstein. Please go ahead. William Pickering: Hi, thank you for taking my question. I was wondering—this is a Povi one—if you could discuss how you expect the baseline GFR to impact the observed effect size. I think your Phase 2 patients had an average GFR about 10 mL higher than the competitor Phase 2 or Phase 3 trials. And so if we were to see a Phase 3 baseline for Povi that is more similar to those competitor trials, Operator: just wondering directionally which way, if at all, that would influence effect size? William Pickering: Thank you. Reshma Kewalramani: Yeah. Well, I think you are asking about what the impact of baseline GFR could be on proteinuria. Did I understand that correctly? Charles F. Wagner: Yeah. That is right. Reshma Kewalramani: Okay. In general, when you are in the range of proteinuria where we are studying—so you have to be somewhere between 30, and I think the entry criteria is, like, 30 to 90 or something like that—when you are not at the very tail end close to dial—so what we would call a burnt-out kidney—in the range that we are studying, it should not have any great impact on proteinuria. When you have a burnt-out kidney, proteinuria could seemingly decrease because you do not have any renal function left. But in the range that we are talking about, it should be fine. It does no real big impact there. Operator: Thank you. I hope that helps. Yeah. Your next question will come from Brian Abrahams with RBC Capital Markets. Please go ahead. Hey, good afternoon, and thanks so much for taking my question. Another one on Povi. Just recognizing there are similar inclusion/exclusion criteria between RUBY-3 and RAINIER. I was just wondering if there were any differences such as proportion of patients from China or their degree of patients on SGLT2 inhibitors that might impact proteinuria response to povitacicept. And then also, is there any reason as we sort of think about a proxy for the potential magnitude of what we might see not to include the blend of UCPR reductions from both the 80 and 240 mg doses from RUBY-3, just to, I guess, get to a higher end? I am just wondering if there is any reason 240 might have conferred lesser activity mechanistically. Thanks. Eliana Merle: Okay. Reshma Kewalramani: On the differences between Phase 2 RUBY-3 and the Phase 3 RAINIER, I think the most important one is that the Phase 2 study was not placebo-controlled. The Phase 3 study, obviously, is placebo-controlled. In all the other dimensions— inclusion criteria, the dose of the study, the endpoint—there are either exactly the same or very, very similar. The difference is the placebo arm. So you do have to think about that. And at the ASN event, there was a question to one of the thought leaders who has worked in this space for a long time about, well, what do you think the placebo protein response could be over this period? And they said between 0–5%. I think that is about right. So I think that is the big one. I do not have baseline characteristics, Brian, to share with you from the RAINIER study. Obviously, we will have that for you when we share the results. I think there was another question about 80 and 240. We did not study 240 any further. After RUBY-2 and all of the 240 data that we had, we shared with you at the ASN, and it did look on average about the same as 80 milligrams. Brian Abrahams: Thanks so much. Reshma Kewalramani: Yep. You bet. Operator: The next question will come from Terence C. Flynn with Morgan Stanley. Please go ahead. Terence C. Flynn: Hi, thanks for taking the question. Maybe two for me. First one, unsurprisingly on Povi. I was wondering, Reshma, if you can comment at all about the blinded serious data you are seeing from the RAINIER study at this point. And then the second one was on the WuXi deal. I know you mentioned you are developing this TCE for B cell–mediated autoimmune conditions. Wondering how you think about differentiation there on the portfolio in terms of where you might carve out those indications relative to Povi? Thank you. Reshma Kewalramani: Yeah. Yeah. On the data for RAINIER, as you may know, there is an independent data safety monitoring committee that monitors that study. And maybe the most helpful thing I can share is that they review the data in an ongoing fashion, and of course, they review blinded and unblinded data. They review everything because they are the DSM. They have not asked us to change anything in the study. And they have given the study a clean bill of health as it goes through. Maybe that is the most helpful thing I can say to you with regard to what the ongoing data is. With regard to WuXi and indication, we specifically did not share, so I am going to keep that information under wraps for a little bit longer. I will say that the idea of having a medicine like Povi, a pipeline-in-a-product for multiple B cell–mediated diseases, is exciting. And our interest in serial innovation stands. And you put those two together, it is probably unsurprising to you that we are interested in these kind of tri-specific engagers, because they would work for a variety of diseases, not just the ones that we talked about—IgAN, membranous, myasthenia—but other B cell–mediated diseases that we are interested in. But I will keep the specifics under wraps for a little longer. Operator: Your next question will come from Debjit D. Pattijay with Guggenheim. Please go ahead. Hi. This is Morris on for Debjit. For taking our questions. I have two about Povi. First, looking at the RUBY-3 UPTR data, Povi had a much larger Morris: standard error than the test receptors in their comparable studies. Any comment on what may have caused this variability? And, second, as I said, in cipaprevimab's Phase 3 studies showed very different placebo rates in their UPCR interim analysis. What is your assumption for the placebo rate in the RAINIER interim? Reshma Kewalramani: Yeah. I do not have much more to add about the placebo rate other than what I said. When this question was asked at ASN, the physician who had been involved in a number of trials and is a real IgAN expert offered that his idea was 0% to 5% for placebo. I think that is probably about right, and that sounds right to me. So I would keep that. On the idea of standard error, I have not looked at, I have not looked at their data. I do not know that I have anything particularly helpful to say. As you know, the standard error is impacted by sample size, so I do not know exactly which datasets you are looking at, but that is one thing I would look at. And it also matters what lab tests you use, whether you are using 24-hour urine or you are using spot urine. So I could offer multiple explanations, but, unfortunately, I have not looked at the data looking at. But if you send it to Susie, I am happy to look after the call. Morris: Thanks. And, just to be specific, the 0–5%, is that increase or decrease given that in the competitor Phase 3 study one of them showed a placebo increase and the other showed a decrease in UPCR? Reshma Kewalramani: I was thinking about the placebo group potentially having proteinuria improvement of somewhere between 0% to 5%. Obviously, if the proteinuria in the placebo group—if there was more proteinuria—it would be incrementally beneficial to Povi because it is a comparison versus placebo. Of course, the placebo is equal opportunity, could go up or down. We will take one more question, thank you so much. You bet. Operator: And the next question will come from Phil Nadeau with T.D. Cowen. Please go ahead. Good afternoon. Thanks for taking our question. Philip Nadeau: Want to ask about the $500,000,000 guidance for products outside of CF. First, could you give us some sense of the breakdown between KESJEVRI and Genomics in that number? And then second, that is a big increase, a threefold increase over 2025 and an approximate doubling versus the Q4 run-rate. What gives you confidence in that level of growth? Is it KASJEVY infusions, KASJEVY self-harvest that are happening? Visibility from payers on Genrex? Can you give us some sense of what you are seeing to put that number out there? Thanks. Reshma Kewalramani: I will ask you to take that one. Sure. Yes. Charles F. Wagner: So the guidance includes a contribution from non-CF products of $500,000,000 or more. We do feel very confident about that number and have great line of sight to the year for some of the reasons that you touched on. I will not break it down further in terms of Kasjevi or Gernabix. But you will see the Kasjevi and Gernavix results in our quarterly reporting as it has occurred. So you will have a sense of where the contribution is coming from. With KASJEVY, we had a strong year with over—with 300 or so patients initiating, 150 or so having first cell collections. Given the length of the patient journey, that gives us great visibility into the year. So we are very confident that KASJEVY will ramp up nicely compared to 2025. And then similarly, you have seen our previous commentary about Jornavik's prescriptions tripling in 2026 compared to 2025. And with greater access in 2026 versus 2025, the revenue conversion on those prescriptions will be greater as well. So feeling confident about both. We have a nice trajectory heading into 2026 versus 2025, and look forward to reporting out on the results each quarter as we go forward. Philip Nadeau: That is helpful. Thank you. Eliana Merle: Thanks, Jeff. If you could wrap it up first, please. Operator: Yes, ma’am. This concludes our question and answer session, as well as the conference call. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call concludes by dialing 704-0529 or 8 using replay access code +1 000026104. Again, that replay access code is 10206104. Thank you for participating today. You may now disconnect.
Operator: Welcome to the Fourth Quarter 2025 Arista Networks, Inc. Financial Results Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If you need to reach an operator at any time during the conference, please press the star key followed by zero. As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section on the Arista website following this call. Rudolph Araujo, Arista's VP of Investor Advocacy, you may begin. Thank you, Regina. Rudolph Araujo: Good afternoon, everyone, and thank you for joining us. With me on today's call are Jayshree Ullal, Arista chairperson and chief executive officer, and Chantelle Breithaupt, Arista's chief financial officer. This afternoon, Arista Networks, Inc. issued a press release announcing the results for its fiscal fourth quarter ending 12/31/2025. If you want a copy of the release, you can access it online on our website. During the course of this conference call, Arista Networks, Inc. management will make forward-looking statements, including those to our financial outlook for the 2026 fiscal year, longer-term business model and financial outlook for 2026 and beyond, total addressable market and strategy for addressing these market opportunities, including AI, customer demand trends, tariffs and trade restrictions, supply chain constraints, component costs, manufacturing output, inventory management, and inflationary pressures on our business, lead times, product innovation, working capital optimization, and the benefits of acquisitions, which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically in our most recent Form 10-Q and Form 10-K, and which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. Undertake no obligation to update these statements after this call. This analysis of our Q4 results and our guidance for Q1 2026 is based on non-GAAP and excludes all non-cash stock-based compensation impacts, certain acquisition-required charges, and other non-recurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release. With that, I will turn the call over to Jayshree. Jayshree Ullal: Thank you, Rudy, and thank you everyone for joining us this afternoon for our fourth quarter and full 2025 earnings call. Well, 2025 has been another defining year for Arista. With the momentum of generative AI and cloud and enterprise, we have achieved well beyond our goal at 28.6% growth driving a record revenue of $9,000,000,000, coupled with non-GAAP gross margin of 64.6% for the year and a non-GAAP operating margin of 48.2%. The Arista 2.0 momentum is clear, as we surpassed 150,000,000 cumulative ports of shipments in Q4 2025. International growth was a good milestone in both Asia and Europe, growing north of 40% annually. As expected, we have exceeded our strategic goals of $800,000,000 in campus and branch expansion as well as $1,500,000,000 in AI center networking. Shifting to annual customer sector revenue for 2025, cloud and AI titans contributed significantly at 48%. Enterprise and financials recorded at 32%, while AI and specialty providers, which now includes Apple, Oracle, and their initiatives, as well as emerging Neo Cloud, performed strongly at 20%. We had two greater than 10% customer concentration in 2025. Customer A and B drove 16–20% of our overall business. We cherish our privileged partnerships and expand 10 to 15 years of collaborative engineering. With our ever-increasing AI momentum, we anticipate a diversified customer base in 2026, including one, maybe even two additional 10% customers. In terms of annual 2025 product lines, our core cloud AI and data center products built upon a highly differentiated Arista EOS stack is successfully deployed across 10 gig to 800 gigabit Ethernet speeds, 1.6 terabit migration imminent. This includes our portfolio of 7000 Series platforms for best-in-class performance, power efficiency, high availability, automation, agility, for both the front and back end compute storage, and all of the interconnect zones. Of course, we interoperate with NVIDIA, the recognized worldwide market leader in GPUs, but also realize our responsibility to broaden the OpenAI including leading companies such as AMD, Anthropic, Arm, Broadcom, OpenAI, Pure Storage, and Vast Data to name a few, that create the modern AI stack of the twenty-first century. Arista is clearly emerging as the gold standard terabit network to run these intense training and inference models processing tokens, at teraflop. Arista's core sector revenue was driven at 65% of revenue. We are confident of our number one position in market share in high-performance switching according to most major industry analysts. We launched our Blue Box initiative, offering enriched diagnostics of our hardware platforms dubbed NetDI that can run across both our flagship EOS and our open NOS platforms. We saw an excellent uptick in 800 gig adoption in 2025, gaining greater than 100 customers cumulatively for our Etherlink products. And we are co-designing several AI rack systems with 1.6 switching emerging this year. With our increased visibility, we are now doubling from 2025 to 2026 to $3,250,000,000 in AI networking revenue. Our network adjacencies market is comprised of routing, replacing routers, and our cognitive AI-driven AIVA campus. Our investments in cognitive wired and wireless zero-touch operation, network identity, scale and segmentation, get several accolades in the industry. Our open modern stacking with SWAG switched aggregation group and our recent VESPA for layer two and layer three wired and scale are compelling campus differentiators. Together with our recent VeloCloud acquisition in July 2025, we are driving that homogenous secure client to branch to campus solution with unified management domains. Looking ahead, we are committed to our aggressive goal of $1,250,000,000 for 2026 for the cognitive campus and branch. We have also successfully deployed in many routing edge coarse spine, and peering use cases. In Q4 2025, Arista launched our flat 7800R4 spine for many routing use cases, including DCI, AI spine, with that massive 460 terabytes of capacity to meet the demanding needs of multi-service routing, AI workloads, and switching use cases. The combined campus and routing adjacencies together contribute approximately 18% of revenue. Our third and final category is the network software and services based on subscription models, such as A-Care, CloudVision, observability, advanced security, and even some branch edge services. We added another 350 CloudVision customers a day Jayshree Ullal: Per day and deployed an aggregate of 3,000 customers with CloudVision over the past decade. Arista's subscription-based network services and software revenue contributed approximately 17%, and please note that it does not include perpetual software licenses that are otherwise included in core or adjacent markets. Arista 2.0 momentum is clear. We find ourselves at the epicenter of mission-critical network transactions. We are becoming the preferred network innovator of choice for client to cloud and AI networking with a highly differentiated software stack and a uniform CloudVision software foundation. We are proud to power Warner Brothers distribution network streaming for 47 markets in 21 languages in the pan-European win Winter Olympics that is happening as I speak. We are now north of 10,000 cumulative customers and I am particularly impressed with our traction in the $5,000,000 to $10,000,000 customer category as well as the $1,000,000 customer category in 2025. Arista's 2.0 vision resonates with our customers who value us leading the transformation from incongruent silos to reliable centers of data. The data can reside as campus centers, data centers, WAN centers, or AI centers regardless of their location. Networking for AI has achieved production scale with an all Ethernet-based Arista AI center. In 2025, we are a founding member of the Ethernet-based standard for both scale up with ESUN as well as completing the Ultra Ethernet Consortium 1.0 specification for scale out AI networking. These AI centers seamlessly connect the back end AI accelerators to the front end of compute storage, WAN, and classic cloud networking. Our AI accelerated networking portfolio consisting of three families of EtherLink Spine Leaf fabric are successfully deployed in scale up, scale out, and scale across networks. Network architectures must handle both training and inference frontier models to mitigate congestion. For training, the key metric is obviously job completion time, the amount of time taken between admitting a job training job to an AI accelerator cluster and the end of a training run. For inference, the key metric is slightly different. It is the time taken to a first token, basically, the amount of latency it takes for a user submitting a query to receive their first response. Arista clearly developed a full AI suite of features to uniquely handle the fidelity of AI and cloud workloads in terms of diversity, duration, size of traffic flow, and all the patterns associated with it. Our AI for networking strategy based on AIVA, autonomous virtual assist, curates the data for higher-level functions. Together with our published, described state foundation in EOS, NetDL, or network data lake, we instrument our customers' networks to deliver predictive and prescriptive features for enhanced security, observability, and agentic AI operations. Coupled with the Arista validated designs for simulation, digital twin, and validation functionality, Arista platforms are perfectly optimized and suited for network as a service. Our global relevance with customers and channels is increasing. In 2025 alone, we conducted three large customer events across three continents, Asia, Europe, and United States, and many other smaller ones, of course. We touched 4,000 to 5,000 strategic customers and partners in the enterprise. While many customers are struggling with their legacy incumbents, Arista is deeply appreciated for redefining future of networking. Customers have long appreciated our network innovation and quality demonstrated by our highest net promoter score of 93% and lowest security vulnerabilities in the industry. We now see the pace of acceptance and adoption accelerating in the enterprise customer base. Our leadership team, our newly appointed co-presidents, Kenneth Duda and Todd Nightingale, have driven strategic and cohesive execution. Tyson Lamoreaux, our newest senior vice president, who joined us with deep cloud operator experience, has ignited our hyper growth across our AI and cloud titan customers. Exiting 2025, we are now at approximately 5,200 employees, which also includes the recent VeloCloud acquisition. I am incredibly proud of the entire Arista team and thank you all employees for your dedication and hard work. Of course, our top-notch engineering and leadership team has always steadfastly prioritized our core Arista Way principles of innovation, culture, and customer intimacy. Well, I think you would agree that 2025 has indeed been a memorable year. And we expect 2026 to be a fantastic one as well. We are amid an unprecedented networking demand with massive and a growing TAM of $100+ billion. And so despite all the news on the mounting supply chain allocation, rising cost of memory, and silicon fabrication, we increased our 2026 guidance to 25% annual growth accelerating now to $11,250,000,000. And with that happy news, I turn it over to Chantelle our CFO. Thank you, Jayshree, and congratulations to you and our employees on a terrific Chantelle Breithaupt: 2025. As you outlined, this was an outstanding year for the company, and that strength is clearly reflected in our financial results. Let me walk through the details. To start off, total revenues in Q4 were $2,490,000,000 up 28.9% year over year and above the upper end of our guidance of $2,300,000,000 to $2,400,000,000. It was great to see that all geographies achieved strong growth within the quarter. Services and subscription software contributed approximately 0.1% of revenue in the fourth quarter, down from 18.7% in Q3, which reflects the normalization following some nonrecurring VeloCloud service renewal in the prior quarter. International revenues for the quarter came in at $528,300,000 or 21.2% of total revenue, up from 20.2% last quarter. This quarter-over-quarter increase was driven by a stronger contribution from our large global customers across our international markets. The overall gross margin in Q4 was 63.4%, slightly above the guidance of 62% to 63%, and down from 64.2% in the prior year. This year-over-year decrease is due to the higher mix of sales to our cloud and AI Titan customers in the quarter. Operating expenses for the quarter were $397,100,000 or 16% of revenue, up from the last quarter at $383,300,000. R&D spending came in at $272,000,000 or 11% of revenue, up from 10.9% last quarter. Arista continued to demonstrate its commitment and focus on networking innovation, with a fiscal year 2025 R&D spend at approximately 11% of revenue. Sales and marketing expense was $98,300,000 or 4% of revenue, down from $109,500,000 last quarter. FY 2025 closed the year with sales and marketing at 4.5%, representative of the highly efficient Arista go-to-market model. Our G&A cost came in at $26,300,000, 1.1% of revenue, up from $22,400,000 last quarter, reflecting continued investment in systems and processes to scale Arista 2.0. Fiscal year 2025 G&A expense held at 1% of revenue. Our operating income for the quarter was $1,200,000,000 or 47.5% of revenue. This strong Q4 finish contributed to an operating income result for fiscal year 2025 of $4,300,000,000 or 48.2% of revenue. Other income and expense for the quarter was a favorable $102,000,000 and our effective tax rate was 18.4%. This lower-than-normal quarterly tax rate reflected the release of tax reserves due to the expiration of the statute of limitations. Overall, this resulted in net income for the quarter of $1,050,000,000 or 42% of revenue. It is exciting to see Arista delivering over $1,000,000,000 in net income for the first time. Congratulations to the Arista team on this impressive achievement. Our diluted share number was 1,276,000,000 shares, resulting in a diluted earnings per share for the quarter of $0.82, up 24.2% from the prior year. For fiscal year 2025, we are pleased to have delivered a diluted earnings per share of $2.98, a 28.4% increase year over year. Now turning to the balance sheet. Cash, cash equivalents, and marketable securities ended the quarter at approximately $10,740,000,000. In the quarter, we repurchased $620,100,000 of our common stock at an average price of $127.84 per share. Within fiscal 2025, we repurchased $1,600,000,000 of our common stock at an average price of $100.63 per share. Of the $1,500,000,000 repurchase program approved in May 2025, $817,900,000 remain available for repurchase in future quarters. The actual timing and amount of future repurchases will be dependent on market and business conditions, stock price, and other factors. Now turning to operating cash performance for the fourth quarter. We generated approximately $1,260,000,000 of cash from operations in the period. This result was an outcome of strong earnings performance with an increase in deferred revenue offset by an increase in accounts receivable driven by higher shipments and end-of-quarter service renewals. DSOs came in at 70 days, up from 9 days in Q3, driven by renewals and the timing of shipments in the quarter. Inventory turns were 1.5 times, up from 1.4 last quarter. Inventory increased marginally to $2,250,000,000, reflecting diligent inventory management across raw and finished goods. Our purchase commitments at the end of the quarter were $6,800,000,000, up from $4,800,000,000 at the end of Q3. As mentioned in prior quarters, this expected activity mostly represents purchases for chips related to new products and AI deployments. We will continue to have some variability in future quarters, due to the combination of demand for our new products, component pricing, such as the supply constraint on DDR4 memory, and the lead times from our key suppliers. Our total deferred revenue balance was $5,400,000,000, up from $4,700,000,000 in the prior quarter. In Q4, the majority of the deferred revenue balance is product related. Our product deferred revenue increased approximately $469,000,000 versus last quarter. We remain in a period of ramping our new products, winning new customers, and expanding new use cases, including AI. These trends have resulted in increased customer-specific acceptance clauses and an increase in the volatility of our product deferred revenue balances. As mentioned in prior quarters, the deferred balance can move significantly on a quarterly basis independent of underlying business drivers, reflecting the timing of inventory receipts and payments. Accounts payable days were 66 days, up from 55 days in Q3. Capital expenditures for the quarter were $37,000,000. In October 2024, we began our initial construction work to build expanded facilities in Santa Clara and incurred approximately $100,000,000 in CapEx during fiscal year 2025 for the project. As we move through 2025, we have gained visibility and confidence for fiscal year 2026. As Jayshree mentioned, we are now pleased to raise our 2026 fiscal year outlook to 25% revenue growth, delivering approximately $11,250,000,000. We maintain our 2026 campus revenue goal of $1,250,000,000, and raise our AI centers goal from $2.75 to $3,250,000,000. Jayshree Ullal: For gross margin, we reiterate the range for the fiscal year 62% to 64% inclusive of mix and anticipated supply chain cost increases for memory and silicon Chantelle Breithaupt: In terms of spending, we expect to continue to invest in innovation, sales, and scaling the business to ensure our status as a leading pure play networking company. With our increased revenue guidance, we are now confident to raise the operating margin outlook to approximately 46% in 2026. On the cash front, we will continue to work to optimize our working capital investments with some expected variability in inventory due to the timing of component receipts on purchase commitments. Our structural tax rate is expected at 21.5% back to the usual historical rate, up from the seasonally lower rate of 18.4% experienced last quarter Q4 2025. With all of this as a backdrop, our guidance for the first quarter is as follows. Revenues of approximately $2,600,000,000, gross margin between 62–63% and operating margin at approximately 46%. Our effective tax rate is expected to be approximately 21.5% with approximately 1,275,000,000 diluted shares. In closing, at our September Analyst Day, we had a theme of building momentum, and we are doing just that. In the campus, WAN, data, and AI centers, we are uniquely positioned to deliver what customers need. We will continue to deliver both our world-class customer experience and innovation. I am enthusiastic about our fiscal year ahead. Now back to you, Rudy, for Q&A. Jayshree Ullal: Thank you, Chantelle. Operator: We will now move to the Q&A portion of the Arista earnings call. To allow for greater participation, I would like to request that everyone please limit themselves to a single question. Thank you for your understanding. Regina, please take it away. Operator: We will now begin the Q&A portion of the Arista earnings call. Keypad. If you would like to withdraw your question, press star and the number one again. Please pick up your handset before asking questions to ensure optimal sound quality. Our first question will come from the line of Meta Marshall with Morgan Stanley. Please go ahead. Great. And congratulations on the quarter. I guess in terms of kind of the commentary you had, Jayshree, on the one or Meta Marshall: two additional 10% customers. I guess, digging more into that, what are the puts and takes of is it bottlenecks in terms of their building? Is it like, what would make or break kind of whether those become two new kind of 10% customers? Thank you. Jayshree Ullal: Thank you, Meta, for the good wishes. So, obviously, if I did not have confidence, would not dare to say that, would I? But there are always variables. It may be sitting in deferred, so there is an acceptance criteria that we have to meet. And there is also timing associated with meeting the acceptance criteria. Some of it is demand that is still underway, and in this age of all the supply chain allocation and inflation, we have to be sure we can ship. So we do not know it is exactly a 10% or high single digits, or low double digits, but a lot of variables will decide that final number. But, certainly, the demand is there. Meta Marshall: Great. Thank you. Jayshree Ullal: Thank you. Operator: Our next question will come from the line of Samik Chatterjee with JPMorgan. Please go ahead. Operator: And Jayshree, Samik Chatterjee: congrats on the quarter and the outlook. I do not want to sort of say that the 25% growth is not impressive, but since you are doing 30% is what the guidance is for Q1, maybe if I could understand what is maybe sort of leading to somewhat of a cautious terms of visibility for the rest of the year? Or is it these sort of one to two new customers and their ramps that you are sort of more cautious about, or is it availability of supply in some of the components or memory that is sort of giving you maybe a bit more nervousness about the visibility for the remainder of the year, if you could understand the drivers there. Jayshree Ullal: Thank you for that. Thank you. Thank you, Samik. First, I do not think I am being cautious. I think I went all out to give you a high dose of reality, but I understand your views on caution given all the capital numbers you see from customers. That is an important thing to understand that we do not track the CapEx. The first thing that happens in the CapEx is they have to build the data centers and get the power and get all of the GPUs and accelerators. The network lags a little. So demand is going to be very good, but whether the shipments exactly fall into 2026 or 2027, Todd, you can clarify when they really fall in. But there are a lot of variables there. That is one issue. The second, as I said, is a large amount of these are new products, new use cases, highly tied to AI, customers are still in their first innings. So, again, I am giving you the greatest visibility I can, fairly early in the year, on the reality of what we can ship, not what the demand might be. It might be a multiyear demand that ships over multiple years. So let us hope it continues, but, of course, you must understand that we are also facing a law of large numbers. So 25% on a base of now $9,000,000,000 when we started last year at $8.25. It is a really, really early and good start. Jayshree Ullal: Thank you. Operator: Our next question will come from the line of David Vogt with UBS. Please go ahead. Operator: Great. Thanks guys for taking my David Vogt: Maybe, Chantelle and Jayshree, can you help quantify sort of both the revenue impact and potential kind of gross margin impact embedded in your guide from the memory dynamics and the constraints? I know last quarter, and you even mentioned it this quarter, obviously, supply chain does have some constraints. When you think about I think, Jayshree, you just said kind of the real outlook that you see. Maybe can you help parameterize what you think could hold you back if that is the way to phrase it, and just give us a sense for what upside could be, in a perfect world effectively, if you could share that. Jayshree Ullal: I am going to give some general commentary, Chantelle, if you do not mind adding to it. Our peers in the industry have been facing this probably longer than we have, because the server industry probably saw it first because they are more memory intensive. Add to that that we are expecting increases from silicon fabrication that all the chips are made, as you know, essentially with one Taiwan Semiconductor. So Arista has taken a very thoughtful approach being aware of this since 2025 and, frankly, absorbed a lot of the cost in 2025 that we were incurring. However, in 2026, the situation has worsened significantly. We are having to smile and take it just about at any price we can get. And the prices are horrendous. They are an order of magnitude exponentially higher. So, clearly, with the situation worsening and also expected to lap multiple years, we are experiencing shortages in memory. Thankfully, as you can see reflected in our purchase commitments, we are planning for this, and I know that memory is now the new gold for the AI and automotive sector. Jayshree Ullal: But Jayshree Ullal: be easy, but it is going to favor those who plan and those who can spend the money for it. Chantelle Breithaupt: So yes. And I think the only other thing I would add to your question, David, and thank you for that, is that we are comfortable in the guide, and that is why we have the guide and why we raised the numbers that we did. So we are comfortable we have a path to there within the numbers we provided. The range of 62 to 64, I think we are pleased to hold despite this kind of pressure coming into it. This has been our guide since September at our Analyst Day, so we are pleased to hold that guide and find ways to mitigate this journey. Now whether it ends up being 62.5 versus 63.5 in the guide in that range, that is where we will continue to update you, but the range we are comfortable with. Operator: Understood. Thanks, guys. Jayshree Ullal: Thank you, David. Operator: Our next question comes from the line of Aaron Christopher Rakers with Wells Fargo. Please go ahead. Operator: Yes. Congrats as well on the quarter and the guide. I guess when we think about the $3,250,000,000 guide for the AI contribution this year, I am curious Aaron Christopher Rakers: Jayshree, how much you are factoring, if any, from scale up networking opportunity, how do you see Jayshree Ullal: Yes. Aaron Christopher Rakers: Is that more still of a 2027? And Aaron Christopher Rakers: and, also, can you unpack, like, ex the AI and ex the campus contribution it appears that your guiding is still pretty muted. Low single-digit growth on non-AI. Just curious to how you see the non-AI, non-campus Jayshree Ullal: Okay. Well, a rising tide rises all boats, but some go higher and some go lower. But to answer your specific question what was it on? Aaron Christopher Rakers: How much scale up? Scale up. Oh, how much scale up? We have consistently Jayshree Ullal: described that today’s configurations are mostly a combination of scale out and scale up. We are largely based on 800 gig and smaller radix. Now that the ESUN specification is well underway, and Ken Duda, you can, I think the spec will be done in a year? Or this year for sure. So Ken and Hugh Holbrook are actively involved in that, need a good solid spec. Otherwise, we will be shipping proprietary products like some people in the world do today. And so we will tie our scale up commitment greatly to availability of new products and a new ESUN spec, which we expect the earliest to be Q4 this year. And therefore, majority of the we will be in some trials with a lot of, you know, Andy Vetishan and the team is working on a lot of active AI racks with scale up in mind. But the real production level will be in 2027. Primarily centered around not just 800 gig, but 1.6T. Chantelle Breithaupt: I think that thank you. Regarding Operator: oh, okay. Chantelle Breithaupt: Thank you, Aaron. Our next question will come from the line of Amit Jawaharlaz Daryanani with Evercore ISI. Please go ahead. Amit Jawaharlaz Daryanani: Yep. Thanks a lot, and congrats from my end as well for some really good numbers here. Jayshree, if I think some of these model builders like Anthropic that I think you folks have talked about, they are starting to build these multibillion dollar clusters on their own now. Can you just talk about your ability to participate in some of these buildouts as they happen, be that on the DCI side or maybe even beyond that? And by extension, does this give you an opportunity to ramp up with some of the larger cloud companies that these model builders are partnering with over time as well as they build out TP or training clusters. Love to just understand how that kind of business scales up you folks. Thank you. Yeah. No. Amit, that is a very Jayshree Ullal: thoughtful question, and I think you are absolutely right. The network infrastructure is playing a critical role with these model builders in a number of ways. If you look at us initially, we were largely working with one or two model builders and one or two accelerators, NVIDIA and AMD and OpenAI was the primarily dominant one. But today, we see that there is really multiple layers in a cake where you have the GPU accelerators. Of course, you have power as the most difficult thing to get. But Arista needs to deal with multiple domains and model builders and appropriately whether it is Gemini or xAI or Anthropic Cloud or OpenAI and many more coming. These models and the multiprotocol, algorithmic nature of these models is something we have to make sure we build an effort correctly for. That is one. And then to your second point, you are absolutely right. I think the biggest issue is not only the model builders, but they are no more in silos in one data center. And you are going to see them across multiple colos and multiple locations and multiple partnerships with our cloud titan customers that we have historically not worked with this. So I think you will see more Copilot versions of it, if you will, with a number of our cloud titans. So we expect to work with them as AI specialty providers. We also expect to work with our cloud titans, and bringing the cloud and AI together. Amit Jawaharlaz Daryanani: Thank you. Thank you, Amit. Operator: Our next question comes from the line of George Charles Notter with Wolfe Research. Please go ahead. Operator: Hi, guys. Thanks very much. I was just curious about the product deferred revenue and how you George Charles Notter: see that coming off the balance sheet ultimately. Obviously, it has just been stacking up here quarter after quarter after quarter. So a few questions here. Does that come off in big chunks that we will see in different quarters in the future? Does it come off more gradually? Does it continue to build? What does the profile look like for that product deferred coming off the balance sheet and pulling through the P&L? Then also, I am curious about how much product deferred do you have in the full year revenue guidance to 25%? Thanks a lot. Chantelle Breithaupt: Hey, George. Thanks for the questions. Not much has changed in the sense of how we have this conversation. What goes into deferred is new product, new customers, new use cases. The great new use case is AI. The acceptance criteria for that for the larger deployments is 12 to 18 months. Some can be as short as six months, so there is wide variety that goes in. Deferred has balances coming in and out every quarter. We do not guide deferred, and we do not say product specific. What I can tell you in your question is that there will be times where there are larger deployments that feel a little lumpier as we go through. But, again, it is a net release of a balance, so it depends what comes in at that same quarter time. Operator: Got it. Okay. Any sense for what is in the full year guide then? I assume George Charles Notter: not much. Is that fair to say? Jayshree Ullal: It is super hard, George. It is when the acceptance criteria happens. If it happens December, it is a different situation. If it all happens in Q2, Q3, Q4, that is a different. So that is something we really have to work with the customer. So thank you. Sorry that we are not able to be clairvoyant on that. Operator: Makes sense. Thank you. Jayshree Ullal: Thank you. Thank you. Operator: Our next question comes from the line of Benjamin Reitzes with Melius Research. Please go ahead. Operator: Hey, thanks a lot, and I guess my congrats to you guys. You Benjamin Reitzes: this execution and guide is really something. So I wanted to ask you you are welcome. I wanted to ask about two things that I just was wondering if you could talk a little bit more about your Neo Cloud momentum and what that is looking like in terms of materiality, and then also, if you do not mind touching on AMD, with the launch, we are kind of hearing about you getting a lot of networking attached to the 450 type product or their new chips. Wondering if that is a catalyst or not as you go throughout the year. Thanks so much. Jayshree Ullal: Yes. So Ben, as you can imagine, the specialty cloud providers have historically had a cacophony of many types of providers. We are definitely seeing AI as one of the clear impetuses. It used to be content providers, tier two cloud providers, but AI is clearly driving that section. And it is a suite of customers, some of who have real financial strength and are looking now to invest and increase and pivot to AI. So the rate at which they pivot in AI will greatly define how well we do this. And they are not yet titans, but they want to be or could be titans, the way to look at it. And we are going to invest with them, and these are healthy customers. It is nothing like the dot-com heroes. We feel good about that. There are a set of neo clouds that we watch more carefully, because some of them are oil money converted into AI or crypto money converted into AI. And over there, we are going to be much more careful because some of those neo clouds are looking at Arista as the preferred partner. But we would also be looking at the health of the customer, or they may just be a one-time Jayshree Ullal: We do not know the Jayshree Ullal: exact nature of their business, and those will be smaller. And they do not contribute in large dollars, but they are becoming Jayshree Ullal: increasingly Jayshree Ullal: plentiful in quantity even if they are not yet in numbers. I think you are seeing this dichotomy of two types in that category. Or three types. The classic CDN and security specialty providers, tier two cloud, the AI specialty are going to lean in and invest, and then the neo cloud in different geographies. Benjamin Reitzes: And the AMD? Jayshree Ullal: Yes. The AMD question. A year ago, I think I said this to you, but I will repeat it. A year ago, it was pretty much 99% NVIDIA. Today, when we look at our deployments, we see about 20%, maybe a little more, 20 to 25%, where AMD is becoming the preferred accelerator of choice. And in those scenarios, Arista is clearly preferred because they are building best-of-breed building blocks for the NIC, for the network, the I/O, and they want open standards as opposed to full-on vertical stack from one vendor. So you are right to point out that AMD, and in particular, it is a joy to work with Lisa and Forrest and the whole team, and we do very well in that multivendor open configuration. Operator: Our next question will come from the line of Timothy Long with Barclays. Please go ahead. Operator: Thank you. Yeah. Appreciate all the color. Timothy Long: Jayshree, maybe we could touch a little bit on scale across. It is obviously gotten a lot of attention, particularly on the optics layer from some others in the industry. Obviously, you guys have Operator: been in DCI, which is kind of a similar type technology. But curious what you think as far as Arista's participation in more of these next-gen scale across networks? And is this something that would be good for, like, a Blue Box type of product, or would that more be in the scale up? So if you can give a little color there, that would be great. Jayshree Ullal: Right. So most of our participation today, we thought would be scale out. But what we are finding is due to the distributed nature of where and they can get the power and the bisectional bandwidth growth where it is the throughput, scale out or scale across is all about how much data you can move. As the workloads become more and more complex, you have to make them more and more distributed because you just cannot fit them in one data center, both from a power, bandwidth, throughput, capacity. Also, these GPUs are trying to minimize the collective degradation, so as you scale up or out, the communication patterns become very much of a bottleneck. And one way to solve it is to extend this across data centers both through fiber and, as you rightly pointed out, a very high injection bandwidth DCI routing. And then there is a sustained real-world utilization you need across all of these. So for all these reasons, we are pleasantly surprised with the role of coherent long-haul optics, which we do not build, but we have worked in the past very greatly with companies that do, and they are seeing the lift. And the 7800 spine chassis as the flagship platform and preferred choice that has been designed by our engineering team now for several years for this robust configuration. So it is Blue Box there and much, much more of a full-on Arista flagship box with EOS and all of the virtual output queuing and buffering to interconnect regional centers with extremely high levels of routing and high availability too. So this really lends into everything Arista stands for coming altogether in a universal AI spine. Timothy Long: Okay. Excellent. Thank you, Jayshree. Jayshree Ullal: Thank you. Operator: Our next question will come from the line of Karl Ackerman with BNP Paribas. Please go ahead. Operator: Yes. Thank you. Karl Ackerman: Agentic AI should support an uptick in conventional server CPUs where you have where your switches have high share within data centers. And so getting your upwardly revised Operator: outlook of 25% growth for this year, could you to the demand process you are seeing for front end Karl Ackerman: high-speed switching products that address agentic AI products? Operator: Thank you. Chantelle Breithaupt: Yeah. Jayshree Ullal: Exactly, Karl. I think in the beginning, let us just go back time and history. It is not that long ago. Three years ago, we had no AI. We were staring at InfiniBand being deployed everywhere in the back end. And we pretty much characterized our AI as only back end just to be pure about it. Three years later, I am actually telling you we might do north of $3,000,000,000 this year and growing. That number definitely includes the front end, as it is tied to the back end GPU clusters, and it is an all Ethernet all AI system for agentic AI applications. Now a lot of the agentic AI applications are mostly running with some of our largest cloud AI and specialty providers. But I do not rule out the possibility. You could see this in our numbers. With north of 8,800 gig customers many of that is going to feed into the enterprise as well as agentic AI applications come for genomic sequencing, science, automation of software. I do not think any of us believe that AI is eating software. AI is definitely enabling better software. And we are certainly seeing that and Ken can see them as well in our adoption of that. So the rise of agentic AI will only increase not just the GPU, but all gradations of XPU that can be used in the back end and front end. Jayshree Ullal: Thank you. Jayshree Ullal: Thank you, Karl. Operator: Our next question comes from the line of Simon Matthew Leopold with Raymond James. Please go ahead. Operator: Thank you very much for taking the question. I wanted to come back on the issue around sort of what is going on with the memory market. So two aspects to this is one, I am wondering how much of a tool has been price hikes, you raising your prices to customers, and or whether or not within the substantial amount of purchase commitments you have whether there is a significant aspect of memory in there so you pre-purchased memory effectively at much lower prices than the spot market today. Operator: Thank you. Chantelle Breithaupt: Thank you. Okay. I wish I could tell you we did Jayshree Ullal: purchase all that memory that we needed. No. We did not. But while our peers in the industry have done multiple price hikes already, especially those in the server market or memory intensive switches, we have clearly been absorbing it. And memory is in our purchase commitments. But so is everything else. The entire silicon portfolio is in our purchase commitments. Due to some of the supply chain reactions, Todd and I have been reviewing this, and we do believe there will be a one-time increase on select especially memory-intensive SKUs to deal with it, and we cannot absorb it if the prices keep going up the way they have in January and February. And I would tell you that all the purchase commitments I have in my current, in Chantelle's current commitments are not enough. We need more memory. Operator: Thank you. Operator: Our next question will come from the line of James Edward Fish with Piper Sandler. Please go ahead. Operator: Ladies, great quarter, great end of the year. Jayshree, are hyperscalers getting nervous now at all in ordering ahead? What is your sense of pull-in of demand potentially here, including for your own Blue Box initiative? And, Chantelle, for you, just going back to George's question, are you, I know it is difficult to answer, but are you anticipating that product deferred revenue is going to continue to grow through the year? Or it is way too difficult to predict and you have got customers that could just say, you know, we accept, ship them all now, and so we end up with a big quarter, but product deferred down. Jayshree Ullal: I am going to let Chantelle answer this difficult question over and over again. Sure. Go ahead, Chantelle. Happy. Thank you, James. I appreciate it. Chantelle Breithaupt: So I think for deferred, generally, we do not guide deferred, but to try to give you more insight, there will be, back to George's question, there will be certain deployments that get accepted and released. But the part that is difficult is what comes into the balance, right James, so I cannot guide that. That would be a wild guess on what is going to go in, which is not prudent, I think, from my perspective. So we will continue to mention what is in it. We will continue to guide you through the balances. We will talk about it in the script in the sense of the movement. But that is probably as much as I can tell you with the responsible answer looking forward Jayshree Ullal: James, this is one of those times, no matter how many times you advocate discussion in several different ways, the answer does not change. Jayshree Ullal: It is okay. I mean, well and then James Edward Fish: insanity is doing the same thing over and over again. Yes. I know. I know. Jayshree Ullal: On the hyperscaler, are they getting nervous? I do not think they are getting nervous. You have seen what a strong business they had, how much cash they put out, and how successful they are. But I do think they are working more closely with us. Typically, we had a three to six month visibility. We are getting rid of this. Operator: Our next question will come from the line of Tal Liani with Bank of America. Please go ahead. Operator: I almost had the same question to you what I asked you last quarter. Because you group you increased the guidance, Jayshree Ullal: We have changed the thousand ninety. Yeah. No. I will Operator: explain. You increased the guidance, but the entire increase in the guidance is basically the cloud. And if I look at Operator: it is very simple Operator: to Operator: dissect your numbers. If I remove campus and I remove cloud and you provide these two numbers for both 2025 and 2026. The rest of the business, which is 60% of the business, you guide it to grow zero. And in previous years, it was, I can make estimate, it was anywhere from 10% to 30% growth. So the question is, why are you guiding this way that 60% of the business is not going to grow Operator: is it because Operator: the Tal Liani: Okay. Can I can I Jayshree Ullal: No? Can I pause you there? Because I know you like to dissect our math several different ways and come up with conclusions. We are not guiding that our business is going to be flat or we are not going to grow here or grow there. But, generally, when something is very fast-paced and growing, then other things grow less. And exactly whether it would be flat or grow double digits or single digits, Tal, it is February. I do not know what the rest of the year will be. Okay? Tal Liani: So I Jayshree Ullal: No. But that is the question. Tal Liani: The question is, are there allocations here? Meaning, if you, let us say you have only set number of, you know, memory slots so you allocate it to cloud and then the rest of the business does not get it. Or is it just conservatism and lack of ability to. It is either Jayshree Ullal: it is neither of the above. We do not allocate to our customers. It is first in, first served. And in fact, the enterprise customers get a very high sense of priority as do our cloud. Customers come first. But allocation of memory may allow us to be in a situation where the demand is greater than our ability to supply. We do not know. It is too early in the year. We are confident that we could guide, six months after our Analyst Day, to a higher number. We do not know what the next four quarters will look like to the precision you are asking for. Tal Liani: Got it. Thank you. Chantelle Breithaupt: Thank you. Jayshree Ullal: Our next question comes from the line of Atif Malik with Citi. Chantelle Breithaupt: Please go ahead. Operator: Hi. It is Adrienne Colby for Atif. Thank you for taking my question. I was hoping to ask for an update on the Arista four large AI customers. I know that that fourth customer you talked about was a bit slower to ramp to 100,000 GPUs. Just wondering if you can update us on their progress there and perhaps what is next for the other few customers that have already crossed that threshold. And lastly, is there any indication that that Chantelle Breithaupt: fifth customer that ran into funding challenges might come back to you? Jayshree Ullal: Okay. Jayshree Ullal: Adrienne, I will give you some update. I am not sure I have precise updates, but we are in all four customers deploying AI with Ethernet. That is the good news. Three of them have already deployed a cumulative of 100,000 GPUs, and are now growing from there. And clearly, migrating now into beyond pilots and production to other centers, power being the biggest constraint. Our fourth customer is migrating from InfiniBand. So it is still below 100,000 GPUs at this time. But I fully expect them to get there this year, and then we shall see how they get beyond that. Operator: Our next question will come from the line of Michael Ng with Goldman Sachs. Please go ahead. Operator: Hey, good afternoon. Thank you for the question. I just have one and one follow-up. First, I was wondering if you could Operator: talk a little bit about the new customer segmentations that you guys Michael Ng: unveiled with Cloud and AI and AI and specialty. What is the philosophy around that? And does that kind of signal more opportunity in places like Oracle and the Neo Clouds? Michael Ng: And then second, Michael Ng: with cloud and AI at 48% of revenue and A and B, I think, combined 36, you have 12% left over. Is that a hyperscale customer? Does it kind of imply that you have a new hyperscaler that is approaching 10%? Because, obviously, we thought that the next biggest one would have been Oracle, but that is moved out of cloud now. So thoughts there would be great. Thank you. Yeah. Yeah. Sure, Michael. So Jayshree Ullal: well, first of all, my math is 26 to 16, so it is 42. So I do not have 12%. Unless you had 58. It is really only 6%. So on the cloud and AI titans, the way we classify that is it is significantly large scale customers with greater than a million servers, greater than 100,000 GPUs, an R&D focus on models and sometimes even their own XPUs, and this can, of course, change. Some others may come into it. But it is a very select few set of customers, less than five or about five. That is the way to think of it. On the change on the specialty cloud, we are noticing that some customers are really, really focused solely on AI, with some cloud as opposed to cloud with some AI. So when it is a heavily set AI-centric, Operator: we Jayshree Ullal: especially with Oracle's AI, Acceleron, and multitenant partnerships that they have created, they have naturally got a dual personality. Some of which is OCI, the Oracle Cloud, but some of it is really AI, fully AI-based. So the shift in their strategy made us shift the category and bifurcate the two. Michael Ng: Thank you, Jayshree. Jayshree Ullal: Thank you. Todd Nightingale: Regina, we have time for one last question. Operator: Our final question will come from the line of Ryan Boyer Koontz with Needham and Company. Please go ahead. Operator: Great. Thanks for squeezing me in. Jayshree, in your prepared remarks, you talked about your telemetry capabilities. I am wondering if you could expand on that and discuss where you are seeing that differentiation, what sorts of use cases you are able to really seize upper hand competitively with your telemetry capabilities. Thank you. Jayshree Ullal: Yeah. I am going to say some, and I think Ken, who has been designing this and working on it, will say even more. Kenneth Duda, our president and CTO. So telemetry is at the heart of both our EOS software stack as well as our CloudVision for enterprise customers. We have a real-time streaming telemetry that has been with us since the beginning of time, and it is constantly keeping track of all of switches. It is not just a pretty management tool. And at the same time, our cloud customers and AI seeking some of that visibility too, and so we have developed some deeper AI capabilities for telemetry as well. Over to you, Ken, for some more detail. Kenneth Duda: Yeah. No. Thanks for that question. That is great. Look. The EOS architecture is based on state orientation. This is the idea that we capture the state of the network and we stream that state out Operator: from the system database on the switches into whatever the telemetry or whatever system can then receive it. Kenneth Duda: And we are extending that capability for AI Operator: with a combination of Kenneth Duda: in-network data sources related to flow control, RDMA counters, buffering, congestion counters, and also host-level information including what is going on in the RDMA stack on the host, Operator: going on with collectives, latencies, any flow control problems or buffering problems in the host NIC, then we pull those Kenneth Duda: information altogether in CloudVision and give the operator a unified view of what is happening in the network and what is happening in the host. And this greatly aids our customers in building an overall working solution because the interactions within the network and the host can be complicated and difficult to debug when it is different systems collecting them. Jayshree Ullal: Great job, Ken. Operator: That is right. I cannot wait for that product. Really helpful. Operator: Thank you. This concludes Arista Networks, Inc. fourth quarter 2025 earnings call. We have posted a presentation that provides additional information on our results, which you can access on the investor section of our website. Operator: Thank you for joining us today and for your interest in Arista. Operator: Thank you for joining, ladies and gentlemen. This concludes today's call.
Operator: Good afternoon, everyone, and welcome to the Arteris, Inc. fourth quarter and full year 2025 earnings call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris, Inc., with all rights reserved. For your opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Thank you, and good afternoon. With me today from Arteris, Inc. are Karel Charles Janac, Chief Executive Officer, and Nicholas Bryan Hawkins, Chief Financial Officer. Karel Janac will begin with a brief review of the business results for the fourth quarter ended 12/31/2025. Nicholas Hawkins will review the financial results for the fourth quarter and full year of 2025, followed by the company's outlook for the first quarter and full year of 2026. We will then open the call for questions. Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appear in the press release or materials issued today and in the documents and reports filed by Arteris, Inc. from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 12/31/2025. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, and remaining performance obligations, please see the press release for the quarter ended 12/31/2025. These key performance indicators are presented for supplemental information purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors. Listeners who do not have a copy of the press release for the quarter ended 12/31/2025 may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the fourth quarter 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Karel Charles Janac. Thank you, Erica. And thanks Karel Charles Janac: to everyone for joining us on our call today. In 2025, we achieved many company records and milestones, including yet another record annual contract value plus royalty of $83,600,000, which represents a 28% year-on-year increase. This success was driven across our major vertical markets with the largest impacts in enterprise computing, automotive, and consumer electronics markets, but also across other applications, including communications, industrial, and aerospace and defense. Overall, we are seeing expanding proliferation of AI-driven semiconductor designs from data center to the edge as well as physical AI, which in turn drives increased deployment of Arteris, Inc. technology. Given the combination of the rising demand for efficient data movement in semiconductors in the AI era and our expanding set of innovative products that successfully meet the growing needs of our customers, I am proud to announce that our customers have now shipped over 4,000,000,000 chips and chiplets incorporating Arteris, Inc. network-on-chip IP as the underlying interconnect. This continues to positively impact our royalty revenue stream. Operator: On January 14, we closed the acquisition of Cycuity, Karel Charles Janac: a leading provider of semiconductor cybersecurity assurance products. Cycuity brings a rich history of strong collaborations with major commercial semiconductor companies as well as companies in the national security sector such as Booz Allen Hamilton and National Laboratories. The addition of Cycuity’s technology and expertise strengthens the Arteris, Inc. product portfolio, enabling chip designers to analyze and improve security in IP blocks, chiplets, and SoCs. Cycuity products enable the early detection of cybersecurity risks in the semiconductor hardware and firmware that serve as the foundation for all application software. The Cycuity products enable customers to uncover hardware security weaknesses and potential vulnerabilities and help to reduce associated security risks during the design phase prior to silicon manufacturing and end device production deployment. According to the National Institute of Standards and Technology, or NIST, newly reported cybersecurity silicon vulnerabilities grew by over 15 times in the last five years, with the unreported number likely much higher. The Cycuity acquisition will help us to address market concerns about the rapidly increasing volume of sophisticated cyberattacks targeting the vast amounts of data moving through semiconductors, from AI data centers to networks and a broad range of devices across the digital ecosystem. There is a growing need for cybersecurity domain expertise and proven technology which the Cycuity acquisition brings to Arteris, Inc., enabling us to proactively help customers address cybersecurity in processors and other silicon devices. We believe this product line can be used by all of our existing customers as well as others in a broader semiconductor and systems ecosystem that are not current customers. Our vision is to bring improved hardware security and advanced vulnerability testing to all SoCs, thereby extending our Arteris, Inc. reach meaningfully in terms of new customers and new entry points for every design regardless of complexity. Moving on to our organically developed products, all of which experienced strong customer adoption in 2025. FlexNoC, our AI-driven smart NoC IP product announced a year ago, saw a strong uptick in customer adoption and has now been licensed for over 30 production device deployments across each of our vertical end markets with customers including AMD for AI chiplet designs, DreamChip for automotive, and NanoXplore for aerospace applications. FlexNoC’s initial success reflects the growing need for optimized chip designs for lower power usage and latency combined with accelerated development cycles. This is particularly true for complex SoCs and chiplet designs in today's AI era, which have high performance and low power goals, and tight market windows in which to deliver silicon. Accordingly, we expect FlexNoC momentum to continue in 2026. In 2025, we also saw strength in the licensing of our cache-coherent interconnect IP product, Ncore, across various edge and server applications. For example, in early fourth quarter 2025, Altera selected Ncore and FlexNoC products from Arteris, Inc. to advance intelligent computing from cloud to edge applications. This significant order underscores Arteris, Inc.’s ability to support large customers across multiple of their product generations, an ability that drives our 90%+ customer retention rate. We continue to see growing adoption of our product portfolio by top technology companies and large enterprises. An example of this is NXP, which delivers purpose-built, rigorously tested technologies that enable devices to sense, think, and act intelligently. We recently announced that NXP has expanded its use of Arteris, Inc. products to accelerate edge AI efforts. NXP is deploying Arteris, Inc. more broadly across its AI-enabled silicon solutions including for intelligent vehicles, advanced industrial systems, and secure, seamless customer experiences on the edge. This includes our Ncore and FlexNoC network-on-chip IPs, CodaCache last-level cache IP, and Magillem SoC integration software. NXP is using these products to develop the latest AI-driven silicon designs including SoCs, neural processing units, or NPUs, and microcontrollers, or MCUs, with safe and secure high-performance data movement. Another example of a recent win is Black Sesame, which also licenses both cache-coherent and non-coherent interconnect IPs for their devices' dual needs with Ncore and FlexNoC being used to address the automotive industry's demand for automated driving silicon. Black Sesame develops a broad range of automotive semiconductors that spans from high-performance SoCs for AI autonomous driving to cross-domain SoCs used in a broad range of vehicles. Our Arteris, Inc. technology provides the high-performance network-on-chip connectivity with safety that is critical for designing tomorrow's complex automotive SoCs and achieving time-to-market requirements. Power consumption is a key factor in new SoC designs, particularly those supporting AI workloads. In the fourth quarter, Blaize deployed Arteris, Inc. system IP for their scalable, energy-efficient AI silicon. The Blaize AI platform delivers a programmable, energy-efficient foundation for hybrid AI deployment models spanning edge and cloud infrastructure, which enables users to build multimodal AI inference for smart vision, sensing, acoustic monitoring, and real-time language understanding at the edge for industrial, transportation, and smart surveillance applications. By using our Arteris, Inc. interconnect IP, they can ensure efficient data movement along with reduction in power consumption. AI is also increasingly driving chiplet projects. The number of chiplet projects incorporating Arteris, Inc. technology more than tripled over the past two years. All of these projects require state-of-the-art Arteris, Inc. technology and close collaboration with multiple ecosystem partners, which has been a major focus for us over the years. In the fourth quarter, we announced that Arteris, Inc. is a founding member of the CHASSIS program which aims to create an open automotive chiplet platform. Led by Bosch, this initiative includes automotive OEMs such as BMW, Renault, and Stellantis as well as automotive suppliers, semiconductor companies, EDA and software providers, and research entities Operator: with Arteris, Inc. providing Karel Charles Janac: network-on-chip expertise and chiplet and multi-die SoC interconnect technology. Arteris, Inc. is also part of Cadence’s recently announced strategic collaboration with Arm, Samsung Foundry, and other IP partners to deliver pre-validated chiplet solutions. The goal of this initiative is to reduce engineering complexity and accelerate time to market for mutual customers developing chiplets targeting physical AI, data centers, and high-performance computing, or HPC, applications with Arteris, Inc. interconnect IP enabling the underlying data movement. Our customers continue to innovate in exciting growth areas such as AI-enabled chips and chiplets from data centers to edge devices. The same is true for physical AI, which is based on foundational silicon combining computing, sensing, and data movement to interact with the real world. Physical AI requires a combination of quality, high performance, energy efficiency, functional safety, and cybersecurity, among others, which is supported by our products. Overall, Arteris, Inc. is in a strong position to support semiconductor applications in the AI era across enterprise computing infrastructure, autonomous vehicle decision making, advanced communications, smarter consumer electronics, industrial automation, and aerospace and defense use cases. With the addition of Cycuity to our product offering, we have the opportunity to become a leader in SoC security solutions for our existing customer base, as well as a door opener to other companies who design SoCs, thereby helping us to realize our mission of enabling every design with leading-edge Arteris, Inc. technology. With that, I will turn it over to Nicholas Hawkins to discuss our financial results in more detail. Thank you, Karel. Nicholas Bryan Hawkins: And good afternoon, everyone. As I review our fourth quarter and full year results for 2025 today, please note I will be referring to GAAP as well as non-GAAP metrics. Please note that our reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 4Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong fourth quarter, beating our guidance on all financial measures. The Cycuity acquisition closed in January 2026. Therefore, the Cycuity financial performance is not included in any of our reported results for 2025. However, our guidance for the first quarter and the full year 2026 incorporates the expected financial results of the Cycuity business from 01/14/2026 onwards. Turning to slide five of the presentation. Total revenue for the fourth quarter was $20,100,000, up 16% sequentially and 30% year over year, and above the top end of our guidance range. For the full year 2025, total revenue was $70,600,000, 22% higher year over year. Notably, variable royalties were 50% higher year over year with the fourth quarter setting a new record. Our royalty stream today is fueled by a balanced mix of customers across all our vertical markets, with the number of large royalty reporters tripling in the last two years. At the end of the fourth quarter, annual contract value plus royalties was $83,600,000, up 28% year over year, above the top end of our guidance range, and at a new record high. Remaining performance obligations, or RPO, which is our contracted future revenue, at the end of the fourth quarter totaled $117,000,000, representing a 32% year-over-year increase, another record high for the company. As disclosed in the notes to our financial statements, we expect approximately half of our RPO will be recognized as revenue in 2026. This projection excludes cancelable and non-cancelable FSA. Non-GAAP gross profit in the quarter was $18,500,000, representing a gross margin of 92%. GAAP gross profit in the quarter was $18,300,000, representing a gross margin of 91%. For the full fiscal year, non-GAAP gross profit was $64,800,000, representing a gross margin of 92%. GAAP gross profit was $63,700,000, representing gross margin of 90%. Now turning to slide six. Non-GAAP operating expense in the quarter was $20,800,000. We continue to reinvest a portion of our top-line growth into technology innovations, customer solution support, and our global sales team. Total GAAP operating expense for the fourth quarter was $26,700,000, which included acquisition-related expenses of $1,400,000 in the fourth quarter. For the full fiscal year, non-GAAP operating expense, which excludes the Cycuity acquisition expenses, was $77,200,000, representing an increase of 14% from the prior year. This was broadly in line with our long-term goal to manage the rate of increase in non-GAAP operating expense to around half that of the rate of increase in revenue. GAAP operating expense for the year was $96,800,000. We believe that our ongoing investments will help accelerate our top-line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over three years. This has resulted in eight percentage point year-over-year improvement on non-GAAP operating margin. Non-GAAP operating loss in the quarter was $2,200,000, also above the top end of our guidance range. For the full 2025 fiscal year, non-GAAP operating loss was $12,500,000, representing a $2,400,000 improvement over the result for the prior year, and at the top end of our guidance range. GAAP operating loss for the fourth quarter was $8,500,000 compared to a loss of $7,100,000 in the prior-year period. For the full year, GAAP operating loss was $33,100,000. Non-GAAP net loss in the quarter was $2,300,000, or diluted net loss per share of $0.05 based on approximately 43,700,000 weighted average diluted shares outstanding. GAAP net loss in the quarter was $8,500,000, or diluted net loss per share of $0.19. For the full fiscal year, non-GAAP net loss was $14,100,000, or diluted net loss per share of $0.33 based on approximately 42,300,000 weighted average diluted shares outstanding. GAAP net loss for 2025 was $34,700,000, or diluted net loss per share of $0.82. Moving to slide seven and turning to the balance sheet and cash flow. We ended the year with $59,500,000 in cash, cash equivalents, and investments, and we have no financial debt. Free cash flow, which includes capital expenditure, was positive $3,000,000 for the fourth quarter and positive $5,300,000 for the full year, close to the top end of our guidance range. I would now like to turn to our outlook for the first quarter and full year 2026, and refer now to slide eight. For the first quarter 2026, we expect ACV plus royalties of $85,000,000 to $89,000,000, revenue of $20,500,000 to $21,500,000, with non-GAAP operating loss of $3,500,000 to $2,500,000, and non-GAAP free cash flow of negative $1,500,000 to positive $1,500,000. For the full year 2026, our guidance is as follows: ACV plus royalties to exit 2026 at $100,000,000 to $104,000,000; revenue of $89,000,000 to $93,000,000, including approximately $7,000,000 from the Cycuity business, noting that the majority of revenue derived from the Cycuity business we expect to be ratable; non-GAAP operating loss of between $9,000,000 to $5,000,000, approximately $1,000,000 of which we expect to be related to the Cycuity acquisition; and non-GAAP free cash flow of positive $5,000,000 to positive $9,000,000. Building on the strong deal execution in 2025, illustrated by the 32% year-over-year growth in RPO exiting the fourth quarter, and incorporating the anticipated growth in Cycuity’s semiconductor cybersecurity assurance software business, we continue to believe that Arteris, Inc. is on a path to profitability. We expect to report a non-GAAP operating profit for a period as early as 2026. With that, I will turn the call back to the operator for the Q&A portion of our call. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. We have a question from Kevin Garrigan from Jefferies. Your line is open. We have a question from Madison DePaula from Rosenblatt Securities. Your line is open. Can you help us size the cross-sell opportunity by outlining which customer segments you expect to engage first and expand on how Cycuity changes your ability to increase content per customer over time? Karel Charles Janac: Yes. So, hardware security assurance is becoming a major issue. As we said on the earnings call, there is about 15x growth in hardware security attacks on semiconductors. So hardware security is becoming a major issue. And because of that, we are very excited about the Cycuity hardware assurance software because it not only can be used by our substantially larger customer base, but it can be used by essentially any semiconductor company, and those chips have to be protected regardless of the complexity. So we think that it opens up a significant opportunity to enhance the system IP value that we provide, but also to address basically any semiconductor out there. So we are very excited about what we have been able to accomplish, and we look forward to keeping you updated on our progress. Operator: Okay, great. Thank you. Again, if you would like to ask a question, please press star then 1. Our next question is from Kevin Garrigan from Jefferies. Your line is open. Kevin Garrigan: Yes. Hey, guys. Sorry about that. Congrats on the great results and outlook, and thanks for taking my questions. Your NXP announcement—so NXP is now using four of your solutions, which I think is probably up from one or maybe two. Are you seeing more interest from customers to deploy an entire suite of solutions? And I would imagine that if you do get customers that are deploying the entire suite, that puts your licensing ASPs well above the $1,000,000 that you were targeting a couple years ago? Karel Charles Janac: Yes, absolutely. And if you use everything from us prior to the Cycuity acquisition, you are going to be well north of $1,000,000. And with Cycuity, it is going to be higher than that. So we basically have more to sell to our customers. And cybersecurity is a big issue now. A lot of markets such as automotive and aerospace, and even data center, are requiring ISO 21434 certification for cybersecurity protection. And so we think that this certainly helps drive the ASP significantly above the $1,000,000 average project size. And also, the other thing that is helping to go above the $1,000,000 is that the chiplet projects—you are dealing with multiple pieces of silicon where essentially every chiplet is a license and every chiplet is a royalty—also helps that trend. So we are very positive about the dynamics of our business. Yes. Kevin Garrigan: Got it. That makes a ton of sense. And then, Nicholas, just a question for you. Can you talk a little bit more about the strength in royalties that you saw? Was there a specific end market that saw surprising strength, or was it more just about your customer diversification strategy? Nicholas Bryan Hawkins: It is a little bit of both. And hi, Kevin. Thanks for joining the call. You may have seen that the number of major reporters has grown from one five years ago to three about two years ago to nine today. So there are big reporters of the six-figure-plus per quarter royalty reporters. That is a really important metric to us. And one of the issues that we look at there is the spread across geos and also across market verticals. Of those nine large reporters today, they are spread across several segments. There are several in the automotive segment, and that remains our largest single vertical. But we do have now very rapidly emerging consumer, enterprise, and even now aerospace large reporters. So I am very happy that it is a broad spectrum of strength and look forward to some further growth in the future. Kevin Garrigan: Yes. Got it. Okay. Perfect. Thanks, guys, and congrats on the results. Karel Charles Janac: Thank you. Thanks, Kevin. Operator: Once again, if you would like to ask a question, please press star then 1. Our next question is from Gus Richard from Northland. Your line is Gus Richard: Yes. Thanks for taking the question and congratulations on the results. In Q4, the royalties had a significant quarter-on-quarter step up. Is there any catch-up royalty in that number, or should we expect that to be the run rate going forward, with a seasonal bias? Nicholas Bryan Hawkins: Yes. No. That is an excellent question, Gus, and welcome to the call. There was a single royalty pickup which was reasonably sized. It was less than half $1,000,000, but that is a decent pickup, which we saw in the fourth quarter. So it did get a bit of a boost from that. So the 50% variable increase includes that. If you exclude that, the growth rate year over year was still in the low 40s percent, which is above our trajectory and our longer-term guidance CAGR for the next five years. So we are very happy that it is already growing at that rate. Audits—you can never guarantee when they are going to produce a positive result for the company. When they happen, they are great, but you cannot bank on them. Gus Richard: Got it. And then, just a little bit about Cycuity and its impact on the P&L. My top line went up at the midpoint of guidance about $7,000,000. How much of that was Cycuity for the full year? And can you talk a little bit about the impact on the P&L in terms of step up in OpEx going forward? Nicholas Bryan Hawkins: Yes. That is another excellent question, Gus. So of the $91,000,000 midpoint guide—it is $89,000,000 to $93,000,000 is the range for revenue in 2026—of that $91,000,000, approximately $7,000,000 is Cycuity. So $84,000,000 is the Arteris, Inc. original business. And that represents about a 19% year-over-year growth. As far as the rest of the financial impact from Cycuity, we do expect them to be a slight contributor to the loss for the year, so about $1,000,000 worth of loss. By the fourth quarter, we expect them to be roughly at breakeven, which is in line with the pre-Cycuity Arteris, Inc. business. As far as free cash flow is concerned, we are also expecting them to be something like $1,000,000 to the negative over the full year and about $1,500,000 negative in the first quarter. This often happens in acquisitions, as I am sure you have seen before. There is a little nuance around gross margins. Some of the government work that they do actually involves subcontractors. The GAAP accounting for subcontractors is that those expenses are not OpEx; they are treated as cost of revenue. So there is something like a one to two percentage point drop in gross margin intensity, but that is literally a flip between OpEx and gross margin. Gus Richard: Okay. Got it. That was helpful. And then my last one is, when you did the Cycuity acquisition, you guys announced an ATM and you were going to use that to replace the cash that you used for the acquisition. Where are you in that equity-raising effort and when can we expect that to conclude? Nicholas Bryan Hawkins: We are in the process of going through the activation, Gus. We cannot activate during a quiet period, as you probably know, because we have MNPI during that period before we announce our results. We will be going through the activation process shortly. We then are going through a process of setting up the traditional guardrails. We have a pricing committee on the board, and they will agree guardrails in terms of pricing and quantum. You can expect maybe some small amounts to dribble through in the first quarter. It really depends on how the market moves and so on. We have no intent at the moment to utilize anything close to the full amount that is available there. Gus Richard: Got it. Well, that was a buzz kill. Thanks for the help. Operator: There are no questions at this time. I would now like to turn the conference back to Karel Janac for the closing remarks. Please go ahead. Karel Charles Janac: Okay. Thank you for your interest in Arteris, Inc. We look forward to meeting with you at the upcoming non-deal roadshow and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Good afternoon, everyone, and welcome to the Arteris, Inc. fourth quarter and full year 2025 earnings call. Please note this call is being recorded and simultaneously webcast. All material contained in the webcast is the sole property and copyright of Arteris, Inc., with all rights reserved. For your opening remarks and introductions, I will now turn the call over to Erica Mannion of Sapphire Investor Relations. Please go ahead. Thank you, and good afternoon. With me today from Arteris, Inc. are Karel Charles Janac, Chief Executive Officer, and Nicholas Bryan Hawkins, Chief Financial Officer. Karel Janac will begin with a brief review of the business results for the fourth quarter ended 12/31/2025. Nicholas Hawkins will review the financial results for the fourth quarter and full year of 2025, followed by the company's outlook for the first quarter and full year of 2026. We will then open the call for questions. Before we begin, I would like to remind you management will make statements during this call that are forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appear in the press release or materials issued today and in the documents and reports filed by Arteris, Inc. from time to time with the Securities and Exchange Commission. Please note, during this call, we will cite certain non-GAAP measures, including, among others, non-GAAP net loss, non-GAAP net loss per share, and free cash flow, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the nearest GAAP measure can be found in the press release for the quarter ended 12/31/2025. In addition, for a definition of certain of the key performance indicators used in this presentation, such as annual contract value, confirmed design starts, and remaining performance obligations, please see the press release for the quarter ended 12/31/2025. These key performance indicators are presented for supplemental information purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors. Listeners who do not have a copy of the press release for the quarter ended 12/31/2025 may obtain a copy by visiting the Investor Relations section of the company's website. In addition, management will be referring to the fourth quarter 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. Now I will turn the call over to CEO, Karel Janac. Karel Charles Janac: Thank you, Erica, and thanks to everyone for joining us on our call today. In 2025, we achieved many company records and milestones, including yet another record annual contract value plus royalties of $83,600,000, which represents a 28% year-on-year increase. This success was driven across our major vertical markets with the largest impacts in enterprise computing, automotive, and consumer electronics markets, but also across other applications, including communications, industrial, and aerospace and defense. Overall, we are seeing expanding proliferation of AI-driven semiconductor designs from data center to the edge as well as physical AI, which in turn drives increased deployment of Arteris, Inc. technology. Given the combination of the rising demand for efficient data movement in semiconductors in the AI era and our expanding set of innovative products that successfully meet the growing needs of our customers, I am proud to announce that our customers have now shipped over 4,000,000,000 chips and chiplets incorporating Arteris, Inc. network-on-chip IP as the underlying interconnect. This continues to positively impact our royalty revenue stream. On January 14, we closed the acquisition of Cycuity, a leading provider of semiconductor cybersecurity assurance products. Cycuity brings a rich history of strong collaborations with major semiconductor companies, as well as companies in the national security sector such as Booz Allen Hamilton and National Laboratories. The addition of Cycuity’s technology and expertise strengthens the Arteris, Inc. product portfolio, enabling chip designers to analyze and improve security in IP blocks, chiplets, and SoCs. Cycuity products enable the early detection of cybersecurity risks in the semiconductor hardware and firmware that serve as the foundation for all application software. The Cycuity products enable customers to uncover hardware security weaknesses and potential vulnerabilities and help to reduce associated security risks during the design phase prior to silicon manufacturing and end device production deployment. According to the National Institute of Standards and Technology, or NIST, newly reported cybersecurity silicon vulnerabilities grew by over 15 times in the last five years, with the unreported number likely much higher. The Cycuity acquisition will help us to address market concerns about the rapidly increasing volume of sophisticated cyberattacks targeting the vast amounts of data moving through semiconductors, from AI data centers to networks and a broad range of devices across the digital ecosystem. There is a growing need for cybersecurity domain expertise and proven technology which the Cycuity acquisition brings to Arteris, Inc., enabling us to proactively help customers address cybersecurity in processors and other silicon devices. We believe this product line can be used by all of our existing customers as well as others in a broader semiconductor and systems ecosystem that are not current customers. Our vision is to bring improved hardware security and advanced vulnerability testing to all SoCs, thereby extending our Arteris, Inc. reach meaningfully in terms of new customers and new entry points for every design regardless of complexity. Moving on to our organically developed products, all of which experienced strong customer adoption in 2025. FlexNoC, our AI-driven smart NoC IP product announced a year ago, saw a strong uptick in customer adoption and has now been licensed for over 30 production device deployments across each of our vertical end markets with customers including AMD for AI chiplet designs, DreamChip for automotive, and NanoXplore for aerospace applications. FlexNoC’s initial success reflects the growing need for optimized chip designs for lower power usage, and latency combined with accelerated development cycles. This is particularly true for complex SoCs and chiplet designs in today's AI era, which have high performance and low power goals, and tight market windows in which to deliver silicon. Accordingly, we expect FlexNoC momentum to continue in 2026. In 2025, we also saw strength in the licensing of our cache-coherent interconnect IP product, Ncore, across various edge and server applications. For example, in early fourth quarter 2025, Altera selected Ncore and FlexNoC products from Arteris, Inc. to advance intelligent computing from cloud to edge applications. This significant order underscores Arteris, Inc.’s ability to support large customers across multiple of their product generations, an ability that drives our 90%+ customer retention rate. We continue to see growing adoption of our product portfolio by top technology companies and large enterprises. An example of this is NXP, which delivers purpose-built, rigorously tested technologies that enable devices to sense, think, and act intelligently. We recently announced that NXP has expanded its use of Arteris, Inc. products to accelerate edge AI efforts. NXP is deploying Arteris, Inc. more broadly across its AI-enabled silicon solutions including for intelligent vehicles, advanced industrial systems, and secure, seamless customer experiences on the edge. This includes our Ncore and FlexNoC network-on-chip IPs, CodaCache last-level cache IP, and Magillem SoC integration software. NXP is using these products to develop the latest AI-driven silicon designs including SoCs, neural processing units, or NPUs, and microcontrollers, or MCUs, with safe and secure high-performance data movement. Another example of a recent win is Black Sesame, which also licenses both cache-coherent and non-coherent interconnect IPs for their devices' dual needs with Ncore and FlexNoC being used to address the automotive industry's demand for automated driving silicon. Black Sesame develops a broad range of automotive semiconductors that spans from high-performance SoCs for AI autonomous driving to cross-domain SoCs used in a broad range of vehicles. Our Arteris, Inc. technology provides the high-performance network-on-chip connectivity with safety that is critical for designing tomorrow's complex automotive SoCs and achieving time-to-market requirements. Power consumption is a key factor in new SoC designs, particularly those supporting AI workloads. In the fourth quarter, Blaize deployed Arteris, Inc. system IP for their scalable, energy-efficient AI silicon. The Blaize AI platform delivers a programmable, energy-efficient foundation for hybrid AI deployment models spanning edge and cloud infrastructure, which enables users to build multimodal AI inference for smart vision, sensing, acoustic monitoring, and real-time language understanding at the edge for industrial, transportation, and smart surveillance applications. By using our Arteris, Inc. interconnect IP, they can ensure efficient data movement along with reduction in power consumption. AI is also increasingly driving chiplet projects. The number of chiplet projects incorporating Arteris, Inc. technology more than tripled over the past two years. All of these projects require state-of-the-art Arteris, Inc. technology and close collaboration with multiple ecosystem partners, which has been a major focus for us over the years. In the fourth quarter, we announced that Arteris, Inc. is a founding member of the CHASSIS program which aims to create an open automotive chiplet platform. Led by Bosch, this initiative includes automotive OEMs such as BMW, Renault, and Stellantis as well as automotive suppliers, semiconductor companies, EDA and software providers, and research entities with Arteris, Inc. providing network-on-chip expertise and chiplet and multi-die SoC interconnect technology. Arteris, Inc. is also part of Cadence’s recently announced strategic collaboration with Arm, Samsung Foundry, and other IP partners to deliver pre-validated chiplet solutions. The goal of this initiative is to reduce engineering complexity and accelerate time to market for mutual customers developing chiplets targeting physical AI, data centers, and high-performance computing, or HPC, applications with Arteris, Inc. interconnect IP enabling the underlying data movement. Our customers continue to innovate in exciting growth areas, such as AI-enabled chips and chiplets from data centers to edge devices. The same is true for physical AI, which is based on foundational silicon combining computing, sensing, and data movement to interact with the real world. Physical AI requires a combination of quality, high performance, energy efficiency, functional safety, and cybersecurity, among others, which is supported by our products. Overall, Arteris, Inc. is in a strong position to support semiconductor applications in the AI era across enterprise computing infrastructure, autonomous vehicle decision making, advanced communications, smarter consumer electronics, industrial automation, and aerospace and defense use cases. With the addition of Cycuity to our product offering, we have the opportunity to become a leader in SoC security solutions for our existing customer base, as well as a door opener to other companies who design SoCs, thereby helping us to realize our mission of enabling every design with leading-edge Arteris, Inc. technology. With that, I will turn it over to Nicholas Hawkins to discuss our financial results in more detail. Nicholas Bryan Hawkins: Thank you, Karel. And good afternoon, everyone. As I review our fourth quarter and full year results for 2025 today, please note I will be referring to GAAP as well as non-GAAP metrics. Please note that our reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website. Also, as a reminder, I will be referring to the 4Q 2025 earnings presentation which can be found in the Investor Relations section of the company's website under the Events and Presentations tab. We had a strong fourth quarter beating our guidance on all financial measures. The Cycuity acquisition closed in January 2026. Therefore, the Cycuity financial performance is not included in any of our reported results for 2025. However, our guidance for the first quarter and the full year 2026 incorporates the expected financial results of the Cycuity business from 01/14/2026 onwards. Turning to slide five of the presentation. Total revenue for the fourth quarter was $20,100,000, up 16% sequentially and 30% year over year and above the top end of our guidance range. For the full year 2025, total revenue was $70,600,000, 22% higher year over year. Notably, variable royalties were 50% higher year over year with the fourth quarter setting a new record. Our royalty stream today is fueled by a balanced mix of customers across all our vertical markets, with the number of large royalty reporters tripling in the last two years. At the end of the fourth quarter, annual contract value plus royalties was $83,600,000, up 28% year over year. Above the top end of our guidance range and at a new record high. Remaining performance obligations, or RPO, which is our contracted future revenue, at the end of the fourth quarter totaled $117,000,000, representing a 32% year-over-year increase. Another record high for the company. As disclosed in the notes to our financial statements, we expect approximately half of our RPO will be recognized as revenue in 2026. This projection excludes cancelable and non-cancelable FSA. Non-GAAP gross profit in the quarter was $18,500,000, representing a gross margin of 92%. GAAP gross profit in the quarter was $18,300,000, representing a gross margin of 91%. For the full fiscal year, non-GAAP gross profit was $64,800,000, representing a gross margin of 92%. GAAP gross profit was $63,700,000, representing gross margin of 90%. Now turning to slide six. Non-GAAP operating expense in the quarter was $20,800,000. We continue to reinvest a portion of our top-line growth into technology innovations, customer solution support, and our global sales team. Total GAAP operating expense for the fourth quarter was $26,700,000, which included acquisition-related expenses of $1,400,000 in the fourth quarter. For the full fiscal year, non-GAAP operating expense, which excludes the Cycuity acquisition expenses, was $77,200,000, representing an increase of 14% from the prior year. This was broadly in line with our long-term goal to manage the rate of increase in non-GAAP operating expense to around half that of the rate of increase in revenue. GAAP operating expense for the year was $96,800,000. We believe that our ongoing investments will help accelerate our top-line growth in the coming years. At the same time, we are delivering operating leverage by controlling G&A spending, which has now remained broadly flat on a non-GAAP basis for over three years. This has resulted in eight percentage point year-over-year improvement on non-GAAP operating margin. Non-GAAP operating loss in the quarter was $2,200,000, also above the top end of our guidance range. For the full 2025 fiscal year, non-GAAP operating loss was $12,500,000, representing a $2,400,000 improvement over the result for the prior year, and at the top end of our guidance range. GAAP operating loss for the fourth quarter was $8,500,000 compared to a loss of $7,100,000 in the prior-year period. For the full year, GAAP operating loss was $33,100,000. Non-GAAP net loss in the quarter was $2,300,000, or diluted net loss per share of $0.05 based on approximately 43,700,000 weighted average diluted shares outstanding. GAAP net loss in the quarter was $8,500,000, or diluted net loss per share of $0.19. For the full fiscal year, non-GAAP net loss was $14,100,000, or diluted net loss per share of $0.33 based on approximately 42,300,000 weighted average diluted shares outstanding. GAAP net loss for 2025 was $34,700,000, or diluted net loss per share of $0.82. Moving to slide seven and turning to the balance sheet and cash flow. We ended the year with $59,500,000 in cash, cash equivalents, and investments. And we have no financial debt. Free cash flow, which includes capital expenditure, was positive $3,000,000 for the fourth quarter and positive $5,300,000 for the full year, close to the top end of our guidance range. I would now like to turn to our outlook for the first quarter and full year 2026, and refer now to slide eight. For the first quarter 2026, we expect ACV plus royalties of $85,000,000 to $89,000,000, revenue of $20,500,000 to $21,500,000, with non-GAAP operating loss of $3,500,000 to $2,500,000, and non-GAAP free cash flow of negative $1,500,000 to positive $1,500,000. For the full year 2026, our guidance is as follows: ACV plus royalties to exit 2026 at $100,000,000 to $104,000,000. Revenue of $89,000,000 to $93,000,000 including approximately $7,000,000 from the Cycuity business, noting that the majority of revenue derived from the Cycuity business we expect to be ratable. Non-GAAP operating loss of between $9,000,000 to $5,000,000, approximately $1,000,000 of which we expect to be related to the Cycuity acquisition and non-GAAP free cash flow of positive $5,000,000 to positive $9,000,000. Building on the strong deal execution in 2025, illustrated by the 32% year-over-year growth in RPO exiting the fourth quarter, and incorporating the anticipated growth in Cycuity’s semiconductor cybersecurity assurance software business, we continue to believe that Arteris, Inc. is on a path to profitability. We expect to report a non-GAAP operating profit for a period as early as 2026. With that, I will turn the call back to the operator for the Q&A portion of our call. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. We have a question from Kevin Garrigan from Jefferies. Your line is open. Operator: From Madison DePaula from Rosenblatt Securities. Your line is open. Madison DePaula: Can you help us size the cross-sell opportunity? By outlining which customer segments you expect to engage first and kind of expand on how Cycuity changes your ability to increase content per customer over time? Karel Charles Janac: Yes. So, you know, hardware security assurance is becoming a major issue as we said on the earnings call, there is about a 15x growth in sort of hardware attacks, security attacks on semiconductors. So hardware security is becoming a major issue. And because of that, we are very excited about the Cycuity hardware assurance software because normally it can be used by our substantially larger customer base, but it can be used by essentially any semiconductor company, and those chips have to be protected regardless of the complexity. So we think that it opens up a significant opportunity to enhance the system IP value that we provide, but also to address basically any semiconductor out there. So we are very excited about what we have been able to accomplish, and we will look forward to keeping you updated on our progress. Madison DePaula: Okay, great. Thank you. Operator: Again, if you would like to ask a question, please press star then 1. Our next question is from Kevin Garrigan from Jefferies. Your line is open. Kevin Garrigan: Yes. Hey, guys. Sorry about that. Congrats on the great results and outlook, and thanks for taking my questions. Your NXP announcement—so NXP is now using four of your solutions, which I think is probably up from one or maybe two. Are you seeing more interest from customers to deploy an entire suite of solutions? And I would imagine that if you do get customers that are deploying the entire suite, that puts your licensing ASPs well above the $1,000,000 that you were targeting a couple years ago? Karel Charles Janac: Yes. Absolutely. And if you use everything from us, prior to the Cycuity acquisition, you are going to be well north of $1,000,000. And with Cycuity, it is going to be higher than that. So we basically have more to sell to our customers. And cybersecurity is a big issue now. A lot of markets such as automotive and aerospace, and even data center, are requiring ISO 21434 certification for cybersecurity protection. And so, you know, we think that this certainly helps drive the ASP significantly above the $1,000,000 average project size. And also, the other thing that is helping to go above the $1,000,000 is that the chiplet projects where you are dealing with multiple pieces of silicon where essentially every chiplet is a license and every chiplet is a royalty, also helps that trend. So we are very positive about the dynamics of our business. Yes. Kevin Garrigan: Got it. That makes a ton of sense. And then, Nicholas, just a question for you. Can you talk a little bit more about the strength in royalties that you saw? Was there a specific end market that saw surprising strength, or was it more just about your customer diversification strategy? Nicholas Bryan Hawkins: It is a little bit of both. And hi, Kevin. Thanks for joining the call. You may have seen that the number of major reporters has grown from one, five years ago to three about two years ago to nine today. So there are big reporters of the six-figure-plus per quarter royalty reporters. That is a really important metric to us. And one of the issues that we look at there is looking at the spread across geos and also across market verticals. Of those nine large reporters today, they are spread across several segments. There are several in the automotive segment, and that remains our largest single vertical. But we do have now a very rapidly emerging consumer, enterprise, and even now aerospace large reporters. So I am very happy that it is a broad spectrum of strength and look forward to some further growth in the future. Kevin Garrigan: Yes. Got it. Okay. Perfect. Thanks, guys, and congrats on the results. Karel Charles Janac: Thank you. Kevin Garrigan: Thanks, Kevin. Operator: Once again, if you would like to ask a question, please—our next question is from Gus Richard from Northland. Your line is Gus Richard: Yes. Thanks for taking the question and congratulations on the results. In Q4, the royalties had a significant quarter-on-quarter step up. Is there any catch-up royalty in that number? Or should we expect that to be the run rate going forward, with a seasonal bias? Nicholas Bryan Hawkins: Yes. No. That is an excellent question, Gus. And this is Nicholas, by the way. There was a single royalty pickup which was reasonably sized. It was less than half $1,000,000, but that is a decent pickup which we saw in the fourth quarter. So it did get a bit of a boost from that. So the 50% variable increase includes that. If you exclude that, the growth rate year over year was still in the low 40s percent, which is above our trajectory and our longer-term guidance CAGR for the next five years. So we are very happy that it is already growing at that rate. Audits—you can never guarantee when they are going to produce a positive result for the company. When they happen, they are great, but you cannot bank on them. Gus Richard: Got it. And then, just a little bit about Cycuity and its impact on the P&L. My top line went up at the midpoint of guidance about $7,000,000. How much of that was Cycuity for the full year? And then can you talk a little bit about the impact on the P&L in terms of step up in OpEx going forward? Nicholas Bryan Hawkins: Yes. No, it is another excellent question, Gus. So, yes, of the $91,000,000 midpoint guide—it is $89,000,000 to $93,000,000 as the range for revenue in 2026—of that $91,000,000, approximately $7,000,000 is Cycuity. So $84,000,000 is the Arteris, Inc. original business. And that represents about a 19% year-over-year growth. As far as the rest of the financial impact from Cycuity, we do expect them to be a slight contributor to the loss for the year, so about $1,000,000 worth of loss. By the fourth quarter, we expect them to be roughly breakeven, which is in line with the pre-Cycuity Arteris, Inc. business. And as far as free cash flow is concerned, we are also expecting them to be something like a $1,000,000 to the negative over the full year and about $1,500,000 negative in the first quarter. This often happens in acquisitions, as I am sure you have seen before. And there is a little nuance around gross margins. Some of the government work that they do actually involves subcontractors. And the GAAP accounting for subcontractors is that those expenses are not OpEx. They are treated as cost of revenue. So there is something like a one to two percentage point drop in gross margin intensity. But that is literally a flip between OpEx and gross margin. Gus Richard: Okay. Got it. That was helpful. And then my last one is, when you did the Cycuity acquisition, you guys announced an ATM and you were going to use that to replace the cash that you used for the acquisition. And I am just wondering where are you in that equity-raising effort and when can we expect that to conclude? Nicholas Bryan Hawkins: So we are in the process of going through the activation, Gus. We cannot activate during a quiet period, as you probably know, because we have MNPI during that period before we announce our results. So we will be going through the activation process shortly. We then are going through a process of setting up the traditional guardrails. We have a pricing committee on the board, and they will agree guardrails in terms of pricing and quantum. So you can expect maybe some small amounts to dribble through in the first quarter. It just really depends on how the market moves and so on. We have no intent at the moment to utilize anything close to the full amount that is available there. Gus Richard: Thanks for the help. Operator: There are no questions at this time. I would now like to turn the conference back to Karel Janac for the closing remarks. Please go ahead. Karel Charles Janac: Okay. Thank you for your interest in Arteris, Inc. We look forward to meeting with you at the upcoming non-deal roadshow and investor conferences in the quarters ahead and updating you on our business progress. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to the Applied Materials, Inc. earnings conference call for the latest reporting period, 2026Q1. All participants will be in a listen-only mode. After today’s prepared remarks, we will open the call for questions. As a reminder, this call is being recorded. I will now turn the call over to Michael Sullivan. Michael Sullivan: Thank you, and good afternoon, everyone. Welcome to Applied Materials, Inc.’s 2026Q1 earnings conference call. Joining me today are Gary Dickerson, our President and CEO, and Brice Hill, our CFO. Before we begin, please note that today’s discussion contains forward-looking statements. Actual results may differ materially from those discussed. For more information, please refer to our SEC filings and the investor relations section of our website at investors.appliedmaterials.com. I will now turn the call over to Gary Dickerson. Gary Dickerson: Thank you, Michael. Good afternoon, everyone, and thank you for joining us. Applied Materials, Inc. delivered solid results in 2026Q1, driven by strong demand across AI, foundry-logic, and memory. Our customers continue to accelerate node migrations and new 3D scaling approaches, which is expanding the opportunity for our differentiated materials engineering portfolio. We are executing well on our roadmap and investing to support our customers’ long-term capacity plans. I will now turn the call over to Brice Hill for the financial results. Brice Hill: Thank you, Gary. In 2026Q1, we delivered strong revenue, margins, and cash flow. We are focused on operational discipline and supply chain execution to meet customer demand while advancing our technology leadership. We returned capital to shareholders through repurchases and dividends, and we continue to invest in R&D and capacity to support long-term growth. We will now open for questions. Operator: We will now open for questions. Our first question comes from Vivek Arya. Vivek Arya: Thank you. Could you discuss the sustainability of AI-related demand into the next few quarters and how it influences your WFE outlook? Gary Dickerson: Thank you, Vivek. AI demand remains robust and broad-based, supporting sustained WFE strength. We see continued investment in leading-edge foundry-logic and in advanced packaging, as well as improving trends in DRAM and NAND. Our pipeline and customer engagements give us confidence in demand durability over the coming quarters. Operator: Our next question comes from Stacy Rasgon. Stacy Rasgon: Thank you. How should we think about gross margin trajectory given mix and any supply constraints? Brice Hill: Thank you, Stacy. Gross margin will reflect product and customer mix, as well as continued improvements in productivity and cost. We are managing supply constraints proactively, and we expect margins to trend favorably as mix normalizes and our cost actions take hold. Operator: Our next question comes from Timothy Arcuri. Timothy Arcuri: Thanks. Can you comment on the cadence of orders in foundry-logic versus memory and any color on regional trends? Gary Dickerson: Thanks, Timothy. Foundry-logic remains healthy with strength at leading nodes, while memory is improving, led by DRAM and HBM-related investments. Regionally, we see continued momentum in the U.S. and Taiwan, with activity also picking up in Korea. Operator: Our next question comes from Atif Malik. Atif Malik: Thank you. What are you seeing in advanced packaging, and how does Applied Materials, Inc. differentiate? Gary Dickerson: Thank you, Atif. Advanced packaging is a strong growth vector driven by heterogeneous integration and AI. We differentiate with a comprehensive toolset across wafer-level packaging, hybrid bonding, and inspection/metrology, enabling customers to scale performance and power efficiently. Operator: Our next question comes from Yu Shi. Yu Shi: Thanks. Could you update us on your capacity expansion plans and lead-time improvements? Brice Hill: Thank you, Yu. We continue to expand capacity in critical product lines and are investing in supply resiliency. Lead times are improving as we qualify additional suppliers and streamline our operations. Operator: Our next question comes from Joseph Quatrochi. Joseph Quatrochi: Thanks. How are you approaching capital returns and balance sheet priorities this year? Brice Hill: Thank you, Joe. Our priorities remain consistent: invest in the business for long-term growth, maintain a strong balance sheet, and return excess cash to shareholders through buybacks and dividends. We expect to continue repurchasing shares at a steady pace while funding strategic investments. Operator: Our next question comes from Harlan Sur. Harlan Sur: Thank you. Any update on China demand and export controls impact? Gary Dickerson: Thank you, Harlan. We continue to comply with all regulations. Demand in China remains mixed by segment, with mature nodes steady and certain leading-edge areas impacted by restrictions. Our global footprint and broad portfolio allow us to support customers across regions within the regulatory framework. Operator: Our next question comes from Krish Sankar. Krish Sankar: Thanks. On services, can you talk about growth drivers and attachment rates? Brice Hill: Thank you, Krish. Services growth is supported by our expanding installed base, higher attachment to performance-based agreements, and analytics-driven optimization. We are investing in automation and remote capabilities to enhance uptime and yield for our customers. Operator: Our next question comes from Brian Chin. Brian Chin: Thank you. How are you positioned for gate-all-around and backside power transitions? Gary Dickerson: Thanks, Brian. We are well positioned with a broad suite of deposition, etch, CMP, and inspection/metrology solutions. Gate-all-around and backside power introduce new materials and integration challenges where our leadership in materials engineering and co-optimization is a key differentiator. Operator: Our next question comes from Christopher Caso. Christopher Caso: Thank you. Any color on equipment pricing and competitive dynamics? Gary Dickerson: Thank you, Chris. Pricing remains rational, reflecting the value of performance and total cost of ownership. Competitive dynamics are stable, and we continue to win based on technology differentiation, productivity, and service. Operator: Our next question comes from Toshiya Hari. Toshiya Hari: Thanks. Can you discuss EUV-related process steps and opportunities for Applied Materials, Inc. as customers scale HVM? Gary Dickerson: Thanks, Toshiya. EUV scaling increases requirements for patterning adjacencies, hard mask engineering, clean, and metrology/inspection. Our integrated solutions help customers improve line-edge roughness, CD control, and defectivity, which are critical as EUV moves deeper into HVM and to higher NA. Operator: Our next question comes from CJ Muse. CJ Muse: Thanks. What is your outlook for NAND versus DRAM WFE into the next few quarters? Gary Dickerson: Thanks, CJ. DRAM WFE is leading the recovery, particularly with HBM-driven investments, while NAND is improving at a slower pace as supply/demand rebalances. We expect both segments to grow through the year, with DRAM outpacing NAND near term. Operator: Our next question comes from Mehdi Hosseini. Mehdi Hosseini: Thank you. Can you update us on your long-term model and OpEx trajectory? Brice Hill: Thank you, Mehdi. We continue to target a balanced long-term model with operating leverage as revenue scales. OpEx will grow at a measured pace focused on R&D and customer enablement, with discipline on overhead. Operator: Our next question comes from Srini Pajjuri. Srini Pajjuri: Thanks. Any updates on HBM-specific tools and demand visibility? Gary Dickerson: Thanks, Srini. We are seeing strong pull for tools supporting HBM, including patterning, dielectric deposition, and advanced packaging steps like hybrid bonding and TSV-related processes. Visibility extends through multiple quarters given customers’ capacity plans. Operator: Our next question comes from Charles Shi. Charles Shi: Thank you. How is your metrology and inspection business trending? Gary Dickerson: Thank you, Charles. Metrology and inspection are growing as process complexity increases. Our e-beam and optical platforms, along with computational products, are gaining traction to address challenging use cases in leading-edge logic and memory. Operator: Our next question comes from James Schneider. James Schneider: Thank you. What is the status of your supply chain localization and resiliency initiatives? Brice Hill: Thank you, James. We have made progress diversifying suppliers, increasing dual-sourcing, and localizing critical components. These actions improve resiliency, reduce lead times, and support compliance with evolving trade regulations. Operator: Our next question comes from Vijay Rakesh. Vijay Rakesh: Thanks. Could you comment on CFIUS or regulatory developments that could impact your outlook? Brice Hill: Thank you, Vijay. We closely monitor regulatory developments, including CFIUS-related matters. Our outlook reflects the current regulatory environment, and we have incorporated appropriate assumptions. We will continue to engage with authorities and customers to ensure compliance. Operator: Our next question comes from Timm Schulze-Melander. Timm Schulze-Melander: Thank you. What are you seeing in mature nodes and ICAPS-related demand? Gary Dickerson: Thank you, Timm. ICAPS demand remains healthy, supporting power, automotive, and industrial applications. While growth is moderating from peak levels, our broad portfolio across deposition, etch, and inspection positions us well in mature and specialty nodes. Operator: Our next question comes from Joe Quatrochi. Joe Quatrochi: Thanks. Any update on your backlog and book-to-bill? Brice Hill: Thank you, Joe. Backlog remains elevated with a book-to-bill around unity. We are working through the backlog as supply improves and expect stability as demand broadens across segments. Operator: Our next question comes from Chris Caso. Chris Caso: Thanks for the follow-up. Are you seeing any pushouts or cancellations? Brice Hill: Thank you, Chris. We have seen some timing shifts typical for the industry, but no material cancellations. Overall demand signals remain constructive. Operator: Our next question comes from Brian Chin for a follow-up. Brian Chin: Thank you. Can you discuss your R&D priorities over the next year? Gary Dickerson: Thank you, Brian. Our priorities include gate-all-around, backside power, advanced packaging, EUV adjacencies, new materials for scaling, and expanding our metrology/inspection capabilities with AI-driven analytics. Operator: Our next question comes from Harlan Sur for a follow-up. Harlan Sur: Thank you. Any updates on services margins and mix? Brice Hill: Thank you, Harlan. Services margins are stable to improving, supported by higher attachment, software content, and productivity initiatives. Mix continues to shift toward performance-based contracts. Operator: Our next question comes from Stacy Rasgon for a follow-up. Stacy Rasgon: Thank you. How should we think about OpEx growth versus revenue in the near term? Brice Hill: Thank you, Stacy. Near term, OpEx will grow modestly, below the pace of revenue, as we drive operating leverage while prioritizing R&D and customer support. Operator: There are no further questions at this time. I will now turn the call back to Michael Sullivan for closing remarks. Michael Sullivan: Thank you for joining us today and for your continued interest in Applied Materials, Inc. A replay of this call will be available on our investor relations website at investors.appliedmaterials.com. This concludes today’s call. Have a great day.
Operator: Good afternoon, and welcome to Flux Power Holdings, Inc.'s fifth fiscal second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, 02/12/2026. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead. Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal second quarter 2026 earnings conference call. Joel Achramowicz: I am Joel Achramowicz, Managing Director of Shelton Group, Flux Power Holdings, Inc.'s investor relations firm. Joining me today are Krishna Vanka, Flux Power Holdings, Inc.'s CEO, and Kevin Royal, Chief Financial Officer. Before I turn the call over to Krishna, I would like to remind our listeners that during the course of this conference call, the company will provide financial guidance projections, comments, and other forward-looking statements regarding future market developments, future financial performance of the company, new products, or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC. Specifically, our 10-K and our most recent 10-Q identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-Ks, which can be found in the Investor Relations section of Flux Power Holdings, Inc.'s website www.flexpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. I will now turn the call over to Flux Power Holdings, Inc.'s CEO, Krishna Vanka. Krishna, please go ahead. Krishna Vanka: Thank you, and welcome everyone to our second quarter conference call. As we announced in our press release earlier today, we achieved profitability for the first time in the company's history. I am very pleased that we have been able to achieve this milestone within a year since I joined Flux Power Holdings, Inc. The discipline we built internally to optimize our expenses along with the sequential increase in revenue made this happen. I do want to thank all our employees, partners, and customers for contributing to this achievement. Also, during the quarter, our product development team made significant progress on innovations and roadmap. I will walk you through these recent developments as I deliver updates to the five strategic initiatives that we have established to guide our execution and performance here at Flux Power Holdings, Inc. As a reminder, these initiatives include profitable growth, operational efficiencies, solution selling, building the right products, and integrating value-added software to generate recurring revenue streams. Let me provide you with an update on our recent efforts as they relate to these key initiatives. To begin, as I mentioned, we have achieved net profitability. I can now say we achieved the first goal of this key initiative. Our focus will be to continue this trend while growing the business. The results also demonstrate benefits from the multi-quarter restructuring decisions we made to improve our operational efficiencies. These efforts included rightsizing our headcount, as well as all other cost optimizations we took to streamline the organization. I can say that we looked carefully at all levels of the company to find and optimize spending where possible. This right-sizing process has led to a solid financial structure offering high operating leverage. Today, we have a much lower cost structure, higher margins, and a lower breakeven point than we had a year ago. Also, we have started using AI-driven tools in our engineering design, software development, and day-to-day operations to further improve operational efficiencies and productivity. We hope to see benefits from these internal AI initiatives as we deploy them across the organization. Before I talk about our new products, I do want to touch on our third strategic initiative, which is solution selling. Our ongoing product development efforts reflect our close engagement with customers and partners to gain greater insights into the evolving product needs. These partnerships enable Flux Power Holdings, Inc. to provide complete solutions to our customers. We refer to this powerful collaboration process as solutions-based selling. As I have said in the past, we are not just selling batteries. We are selling energy management solutions. Our customers are using these solutions to manage their fleets for greater operational results. The quality and depth of our sales team have to be superb to work so closely with customers on their key internal goals. In this regard, we recently hired an experienced OEM Director with more than 20 years of experience working for a material handling OEM and their dealer networks. We believe his experience can help us reach new customers and provide additional opportunities for the company products. Krishna Vanka: We are also expanding our executive sales leadership by hiring a Vice President of Sales for material handling. Moving on, our focus to build the right products for our customers continues to bear fruit. We released our next-generation SkyLink telematics device with significant advancements to complement our own Flux-designed battery management system. SkyLink delivers a competitive advantage in high performance and sensing. It is powered by a quad-core 64-bit processor enabling onboard analytics and machine learning directly within each battery system. The algorithms can be run locally, which helps to build AI-driven features in the near future. It also includes integrated Wi-Fi, Bluetooth, worldwide cellular and GPS, a three-axis accelerometer, gyroscope, and temperature sensing to provide continuous visibility and control. That means we will have four times the sensors compared to the current generation. This is a big achievement. These new capabilities align with our intelligence roadmap and provide our customers with powerful real-time features. These real-time features include user-defined geofencing with advanced health and performance analytics that can be automated via AI. Using the machine learning locally on the device helps predict fall detection, usage and trend analysis, energy optimization, and lifecycle forecasting. The SkyLink telematics units are currently in beta at multiple customer sites, and we are receiving great feedback. We plan to make SkyLink Telematics available to all customers in a couple of months. Also, during this quarter, we released a new GA315 battery in response to the GSE customer demand. This will help us continue to dominate this key market for us. We now have four product lines with multiple configurations that support the GSE segment. Our last key initiative is integrating value-added software across our battery portfolio. For Flux Power Holdings, Inc., this creates the opportunity to generate high-margin recurring revenue streams from sales of advanced software features and applications. As I mentioned earlier, our customers want more than a battery. They are looking for an energy management system to manage their assets, improve productivity, and reduce cost. Our Sky EMS software addresses all these needs and was recently upgraded to include multiple new features. First, intelligent alerting. This is a new feature that uses AI to fundamentally shift fleet management from being reactive to proactive. These new intelligent AI alerts proactively notify customers of potential battery issues and recommend the appropriate corrective action right on the screen. They also give fleet managers full visibility into their dynamic fleet conditions enabling faster response. Our initial observations lead us to believe our customers can gain 10% to 30% uptime by using intelligent alerts with corrective actions. Second, to further improve our customers' productivity, we also released a new mobile interface to our Sky EMS platform. This gives customers on-the-go monitoring for faster decision-making. For example, they can know when to charge their fleets and how long charging sessions can take right from their handheld devices. With data always in hand, equipment operators and supervisors now have what they need in real time. Operator: Mobile access Krishna Vanka: can reduce the time it takes to recognize an issue by 15% to 40% by putting key battery and alert data in users' hands during operation. This also helps them charge their batteries on time with minimal downtime in their operation. Before turning the call over to Kevin, I want to summarize our progress and provide more color around our outlook for the third quarter. Joel Achramowicz: First, Krishna Vanka: through our product and operating cost reduction efforts, we have reported net income for the first time in the company's history. We are extremely happy with this progress that we have made in all areas of the business. We have demonstrated that we have the discipline to make changes that allow the company to be profitable and generate cash. We were able to do this even in the face of increasing costs from tariffs which are completely out of our control. In nearly all respects, the business is performing well, and we have set the stage for continued profitable growth. However, recently, our most significant customer has conveyed to us that they are implementing a capital freeze. We are not certain how long this freeze will be in effect but anticipate it may impact a significant portion of calendar year 2026. That said, our partnership remains strong, and we expect our business with this valued customer to resume in the future. As a result, we expect materially lower revenue in our third quarter. We continue to believe in the markets we serve, that we are well positioned to work through this slowdown and restore the company to profitable growth. We have proactively moved to further decrease our expense run rate and completed an additional cost reduction action during the current quarter. Despite this short-term market pressure, the lithium-ion forklift battery segment is projected to grow at an 8.8% CAGR through 2035 demonstrating the strong long-term market we have ahead of us. With our capable management team, strong relationships in the market, and additional resources targeting OEMs, along with a focused effort on what we can control, we are prepared to respond to customer needs. I will now turn the call over to our CFO, Kevin Royal, to discuss our second quarter financial results in more detail. Kevin, please go ahead. Kevin Royal: Good afternoon, everyone. Revenue for the 2026 fiscal second quarter was $14,100,000, up from $13,200,000 in the prior quarter and down from $16,800,000 in the same quarter last year. Gross margin in the second quarter was 34.7%, compared to 28.6% in the prior quarter, and 32.5% in the prior year period. The 610 basis point sequential increase in gross margin is largely due to improved product mix, our recent cost-saving initiatives, and lower warranty costs. Operating expenses in the 2026 fiscal second quarter were $4,100,000 compared to $5,900,000 in the prior quarter and $900,000 in the 2025 fiscal second quarter. The approximately 31% sequential decrease in operating expenses primarily reflects the benefits from our cost reduction initiatives. Also, during the quarter, we recorded an approximately $500,000 reversal of previously accrued employee bonus awards. Net income for the second quarter was $600,000, or $0.03 per share, compared to a net loss of $2,600,000 or $0.15 per share in the prior quarter. Rob Brown: And a net loss of $1,900,000 or $0.11 per share in the 2025 fiscal second quarter. Excluding legal costs associated with the multiyear restatement of previously issued financial statements and stock-based compensation, second quarter non-GAAP net income was $1,000,000 or $0.04 per fully diluted share compared to a net loss of $2,000,000 or $0.12 per share in the prior quarter and a net loss of $1,900,000 or $0.11 per share in the prior year period. Adjusted EBITDA for the second quarter was positive $1,500,000 compared to an adjusted EBITDA loss of $1,400,000 in the prior quarter and positive adjusted EBITDA of $130,000 in the same quarter a year ago. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $900,000 compared to $1,300,000 on 06/30/2025. The significant capital we raised recently has been used to reduce outstanding balances on our line of credit and to a lesser extent to reduce our accounts payable balances. Our current borrowing capacity under the Gibraltar line of credit is $16,000,000, subject to available collateral as defined by the credit agreement and satisfaction of certain financial covenants. I will now turn the call back to Krishna for his final remarks and then we will open it up for questions. Krishna? Thank you, Kevin. Krishna Vanka: We have made a great deal of progress this past quarter across all of our strategic initiatives. Our battery product line and energy system software have been enhanced measurably using AI and the company is now operating much more efficiently. And with the lithium-ion battery market that continues to offer great opportunities, I believe we remain well positioned to capitalize on them in the long term. Flux Power Holdings, Inc. has made the necessary investments to remain in a leadership position in this industry by serving our customers for years to come. We remain focused on making continued progress across our business while managing through these current business conditions in order to return to growth. With that, let us open the call to questions. Operator? Operator: We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. Our first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: And congrats on all the progress. First, on the capital freeze and the customer commentary, is this unique to this customer, or are you seeing maybe signs of this across this industry segment or vertical, or is this unique to the customer? Operator: It is one. Rob, this is Krishna. Thanks for the question. Krishna Vanka: We lost you for a quick second, but you are asking about the customer on the capital freeze. This is one individual customer. Operator: Okay. Got it. Got it. Rob Brown: And then, in general, how is the demand environment looking in the market? Are you seeing sort of stable demand, or how would you characterize the overall demand? The environment has been a little bit mixed, but how would you characterize the broader environment? Krishna Vanka: The tariff effects, I would say, are still lingering to a little bit extent. There was some change in the percentages of the tariffs, for example, starting January 1 and so on. So a lot of key customers are still cautiously watching what it means for tariffs and whatnot. All that said, we know that customers need to buy these batteries to run their businesses, so they are, in certain ways, moving forward, in that they need this equipment to continue their business operations. Operator: Okay. Thank you. And then Rob Brown: in the SkyLink product, I think you said some pretty good customer feedback, and you are rolling it out more broadly. Could you give us a sense of, as you roll that out, do you go certain verticals, or do you just offer Joel Achramowicz: kind of across the customer base, and what is the Rob Brown: in terms of driving some new business? Krishna Vanka: Sure. The SkyLink Telematics, which is really our next-generation product, as I mentioned, is significantly powerful, comes with the chip for machine learning and even implementing some AI. It is nicely connected to our battery management system. The customers are now asking us greater questions like, can we know when the battery leaves certain geofence? Can we be alerted proactively for our operators to take some actions? The SkyLink Telematics will solve these problems whether there is connectivity or not because it is a powerful system, and it can make decisions literally along with the battery management system. So this will be offered across our product line for all of our batteries in a couple of months. The initial feedback has been pretty positive. And this will also honestly open doors for us to be able to offer more telematics solution-based solutions to our customers in the future. We are really looking forward to deploying this with every battery we sell. Joel Achramowicz: Okay. Great. Thank you. I will turn it over. Operator: Our next question comes from Saimir Joshi with H.C. Wainwright. Please go ahead. Joel Achramowicz: Hey. Good afternoon, Krishna and Kevin. Congrats on the Saimir Joshi: good performance and positive net income despite the headwinds. So getting into that, the gross margins 610 basis point improvement, really good. I think you mentioned product mix, cost-saving initiatives, as well as lower warranty costs. So going forward, maybe the product mix may vary, but the cost savings and the warranty costs, are those expected to stay low and support a better gross margin profile going forward? Rob Brown: Yes. We are taking continued steps to lower our product cost. We continue to experience positive trends as it relates to warranty and the repair costs associated with our warranty obligations. So, quarter to quarter, depending on the mix, if the mix were to stay the same, you will see improvements quarter to quarter. But there will be times when you have a decline, times when you have an increase, and that is solely related to mix. Saimir Joshi: And, I guess, spreading of cost overheads over a different revenue profile as well, I guess. Rob Brown: That is correct. Leverage will also have an impact. Joel Achramowicz: Right. Right. And then just following up on a couple of Saimir Joshi: things that Rob asked, from where you sit and where you have your pipeline at, is it more from any one particular, say, material handling or some other sector? And how do the prospects look over the next six to twelve months? I mean, this one customer, I think you would have to sort of replace or get additional customers to make up that revenue. So Krishna Vanka: You answered the question towards the end. We are putting every effort possible to fill the gap. That is our first focus. As I mentioned, we hired a new OEM Director. Very happy with the progress that he is making here. We are adding a couple more salespeople, one in California and one in Texas. These were advertised; these are already on the LinkedIn boards. We are also putting more focus on the material handling. We are looking for a VP Sales-level position as well. So that is our focus. We are making every effort. We are seeing some definitely an increase in the adoption of lithium. I would say we are seeing some trends when we speak with OEMs where they are saying they are expecting some greater adoption of lithium in the coming years, literally short term, one to two years. So we are getting ready for that. Saimir Joshi: Understood. And then just the last one. These new SkyLink features, the RFP is going to be sold at a premium pricing or rather, I should say, incremental pricing, and how does that, in turn, improve your gross margin? Because I guess these will have really high gross margins. Krishna Vanka: That is the plan. We just tiered our software into a standard and a professional version, I would say. We are yet to provide all the details and the naming of it. But our expectation is the standard package comes standard with the SkyLink, and it creates an option for us to sell the premium package, which comes with some AI-based features. So we are literally wrapping up all the packaging, and we will bring the software solutions together. And you are spot on. The gross margin on some of this software-based sales will be significantly higher. The key is that we have 30,000-plus batteries in the market. How do we go back to the existing customer base and get some extra, you know, from the existing customer base versus moving forward? So that is the puzzle we would love to solve. We have solved it two times. We would love to figure out how to solve it with the existing battery base as well. Saimir Joshi: Got it. May I squeeze in one more? On the state of health patent, can you elaborate on it, and what is the revenue potential from this? I guess this is also going to be an incremental feature that customers can pay you for. Krishna Vanka: Thank you. Yes. We got the full patent last quarter on the state of health. I am pretty impressed when I looked at the scope of the patent, what it does. It includes not only how to do it locally on the battery with the BMS and the SkyLink, but also how to write that algorithm, the scope of the algorithm. So the patent is pretty broad. We already took that patent, the algorithm, and we implemented it on the software side. This will be included in that premium package I mentioned. The real advantages of that state of health is customers are getting insights into the next stage of the batteries. When do I need to repurchase the battery? How long life do I have? What is the right time to start thinking about my capacity planning? Can I actually reduce some capacity? So we will start answering these high-level business decisions. We are putting an AI engine as we speak into the Sky EMS software, which can derive some forward-looking knowledge based on the state of health algorithm. So it is one thing for companies to get the patents; it is another thing to actually put them into use and generate revenue. I think we are going to be able to do that as part of the process here. Saimir Joshi: Sounds good. Thanks a lot for taking my question. You are welcome. Operator: Our next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead. Joel Achramowicz: Hi, good evening, and thanks for taking my questions. So Craig Irwin: the only question I have at this point is the accounting for your half-million-dollar reversal of incentive comp in the quarter. Can you maybe clarify for us how much of that was included in cost of sales versus SG&A? And is there anything else you can share to clarify whether or not this could impact the current quarter, or if you will be restoring those incentive bonuses in the near term? Kevin Royal: Yes. Sure, Craig. So that amount was the incentive compensation that we had accrued through our first quarter. When we got into the second quarter, and we neared the end and we evaluated the objectives for the incentive compensation against our forecast and realized that they would not be achieved, especially given the significant customer announcement disclosure that we have made, GAAP required that we reverse that estimate, and so we did. That was an amount, again, that had been accrued through Q1 and was reversed in Q2 and will not have an impact on the upcoming quarters. Craig Irwin: Okay. So my question is, was that recognized in cost of revenue or SG&A or in combined places on the P&L? Kevin Royal: In all three, but primarily in SG&A and R&D, with a slight amount, say around $50,000, in COGS. Craig Irwin: Understood. Thank you very much. Congrats on the profitable quarter. Kevin Royal: Thank you. Thank you. Operator: Please press star then 1. This concludes our question and answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks. Krishna Vanka: Thank you again for joining us on the call today. We look forward to reporting our continued progress throughout the quarter on our next earnings call in mid-May. Operator, you may now disconnect. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us and welcome to the Expedia Group, Inc. Q4 2025 financial results webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. For opening remarks, I will now hand the call over to Rob Bevegni, VP of Investor Relations. Please go ahead. Rob Bevegni: Good afternoon, and welcome to Expedia Group, Inc. fourth quarter 2025 earnings call. Rob Bevegni: I'm pleased to be joined on today's call by our CEO, Ariane Gorin, and our CFO, Scott Schenkel. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. Unless otherwise stated, all growth rates are on a year-over-year basis, and any references to expenses exclude stock-based compensation. We will also be making forward-looking statements during the call, which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-K, 10-Q, and other filings with the SEC. Except as required by law, we do not undertake any responsibilities to update these forward-looking statements. This call is being webcast on the Investor Relations section of our website at ir.expediagroup.com. A replay will be archived on our site. A slide deck containing financial highlights has also been posted on our IR website. For today's call, Ariane will begin with a review of our fourth quarter results and update on our progress against our strategic priorities. Then Scott will provide additional details on our fourth quarter financial performance and guidance. After our prepared remarks, we will turn the call over to our operator to begin the Q&A portion of the call. And with that, let me turn the call over to Ariane. Ariane Gorin: Thank you, Rob. Ariane Gorin: Thank you all for joining us today. Ariane Gorin: We accelerated both bookings and revenue growth and expanded margins by over two points. We returned Vrbo and Hotels.com to growth, while sustaining the performance of Brand Expedia, B2B, and advertising. Looking ahead, we are well positioned to build on our momentum as we execute our strategy and capitalize on the opportunities created by AI. In the fourth quarter, we exceeded our expectations, growing bookings and revenue by 11%, and expanding our margins by four points. Booked room nights were up 9%, including high single digits in the U.S., and low double digits in EMEA and the rest of the world. Consumer spending remained healthy, with longer booking windows and lengths of stay relative to 2024. Our B2B and advertising businesses had stellar quarters. We grew B2B bookings by 24%, and advertising revenue by 19%. Our consumer brands bookings were up 5% overall, and double digits outside the U.S. We grew loyalty members by mid single digits, with faster member growth in our Silver tiers and above. And for the second consecutive quarter, all three core brands delivered year-over-year bookings growth, reflecting sharper brand positioning, product improvements, and ever better execution. Turning to our three strategic priorities, I'll begin with our first: delivering more value to travelers. On product, our sites and apps are 30% faster than they were a year ago. We have upgraded our checkout path and added new payment options, giving travelers more flexibility and making booking even easier. We are using AI to deliver more personalized experiences across all our On brand Expedia, for example, our refined recommendation models drove our best fourth quarter attach rates ever. This is a strong signal, as travelers who buy multiple products spend more and return more often. We also know how important it is to give travelers confidence throughout their journey, including when plans change. Our ability to meet this need is an important competitive advantage. Last quarter, we expanded VrboCare, strengthening Vrbo's differentiation and giving travelers peace of mind when booking their trips. Across our brands, we enhanced our help center and servicing capabilities so travelers can effortlessly modify their bookings or get support if things go wrong. This resulted in record traveler self-service levels. And for more complex issues that require a live agent, our advanced agent tools are contributing to materially reduced wait times, even during peak call periods. All of that translates into more satisfied travelers. On supply, we continue to broaden our inventory to give travelers more choice and better value. In the fourth quarter, we grew our lodging property count by more than 10% compared to 2024. We are sourcing more promotional rates, up more than 10 points from the third quarter, and partner-funded promotions were over 30% of bookings in Q4. Nearly 70% more properties participated in our Black Friday sale than ever before. These trends demonstrate the strength of our flywheel, as deeper partner participation increases traveler value and drives incremental demand back to our partners. Turning to our second priority, investing where we see the greatest opportunities for growth. B2B had another fantastic quarter, with double-digit growth across all regions. We gained share with existing partners and benefited from increased marketing activity from some of our largest partners. We added new partners and had more active travel agents than any prior fourth quarter. We continue to invest in new lines of business, extending capabilities from our consumer business into B2B. Last quarter, we launched a cancel for any reason assurance product. And in December, we announced our intent to acquire Tickets to broaden the activities we offer to our partners and their travelers. B2B is a great business, and we will continue to invest to drive future growth. On advertising, we reaccelerated revenue growth and finished the year with a record number of active partners. We continue to expand placements of new ad formats, and after launching video ads in our search results in early 2025, last quarter, we introduced video ads on Expedia's homepage. We are a high return channel for our partners. And as we inject AI into both our ads and our ad targeting tools, our ads are becoming more relevant, in performance. Finally, as Gen AI changes how travelers do trip discovery, it opens up new growth opportunities for us. We are working with all the major platforms to capture traveler demand, ensuring our brands show up prominently in GenAI searches, and function effectively with the agentic browser. We are experimenting aggressively and while volume is still small, every additional integration gives us data and learnings about how to better surface our brands and how consumer behaviors are evolving. These learnings coupled with insights from our own brands, in turn informing the development of AI experiences in our own products. And that is important because while third-party AI experiences are a new way to attract travelers and turn them into loyal members, our biggest long-term opportunity remains direct engagement. Today, two thirds of our bookings come from travelers who begin their planning journey directly with our brands. And those direct bookings are growing faster than bookings from indirect channel. We are confident that our work to make our products even more personalized and intuitive along with our work on supply, customer service, and loyalty, will deepen our competitive advantage. Moving to the third pillar of our strategy, driving operating efficiencies and margin expansion. We expanded margins by nearly four points in the quarter, thanks to our continued operational discipline, and volume leverage. I am particularly pleased with the work we have done to get marketing leverage in our consumer brands. We have improved our targeting and measurement capabilities, reduced our least efficient spend, and reallocated dollars to where we see the highest incremental return. We also continue to optimize our organizational structure for speed and effectiveness, ensuring we have the right skills and velocity to execute on our strategy. At the same time, we are deploying AI internally to give our team superpowers and make our offerings to travelers and partners even more competitive. This is already delivering tangible benefits. Our product and tech teams are using AI to design and build products, improving quality while shortening cycle time. Our supply teams are leveraging AI to speed up inventory onboarding team. And our service team is using AI to resolve traveler issues faster and more effectively. As we grow our business, and increase our use of AI, we are keeping a close eye on cost, and we have been able to optimize our cloud spend through technology improvements, and a more disciplined cloud operating model. In closing, I want to thank our teams for their hard work and our partners for their continued trust in us. We enter 2026, our thirtieth year as a company, well positioned to extend our momentum. Looking ahead, we are confident in our strategy and our ability to execute to drive long-term value for all stakeholders. With that, I will turn it over to Scott. Scott Schenkel: Thank you, Ariane, and good afternoon, everyone. I'm pleased to share our fourth quarter 2025 performance Scott Schenkel: which exceeded the high end of our guidance range with bookings and revenue up 11% and EBITDA margin expansion of nearly four points. As Ariane mentioned, our outperformance was driven by sustained market strength through year end and disciplined execution across the company. We grew share in the U.S. for both hotel and Vrbo, and held lodging share globally. We also saw continued strength from B2B, which was a meaningful driver to our overall performance in the quarter. Our booked room nights were up 9%, driven by continued strength in the U.S., and sequential acceleration in EMEA, where B2C once again saw its fastest growth in nearly three years. Growth in rest of world slowed as issues in Asia weighed on growth in multiple quarters. Gross bookings and revenue grew 11% to $27,000,000,000 and $3,500,000,000 respectively. The impact from foreign exchange was roughly in line with expectations, adding slightly over one point to bookings growth and about two points to revenue. Moving to our segment performance. B2C gross bookings of $18,300,000,000 grew 5% driven by sustained momentum both domestically and internationally. B2C revenue of $2,200,000,000 grew 4%, Scott Schenkel: consistent with last Scott Schenkel: quarter, bookings growth exceeded revenue growth primarily due to book-to-stay timing, as the majority of our revenues are recorded at the time of stay. B2C EBITDA margins were 31.5%, up approximately six points from last year, driven by significant marketing leverage. Margins were further supported by disciplined overhead management as well as continued growth in our high-margin advertising revenues. B2B gross bookings grew 24% to $8,700,000,000 with continued double-digit growth across all regions. Rapid API was again the largest contributor to growth, and benefited from increased marketing activities with some of our largest partners. B2B revenue grew 24% to $1,300,000,000, while B2B EBITDA margins were 24%, down approximately a point. As we have stated previously, we will continue to prioritize investments to future growth, which may modestly weigh on near-term margins. Moving to our cost structure where we again leveraged meaningfully across all our categories. Cost of revenue is $342,000,000, up 3% but leveraging one point as a percentage of revenue driven by continued efficiencies in payments and customer service. Total direct sales and marketing expenses were $1,700,000,000, up 10%. We saw significant leverage in our B2C business with direct sales and marketing down 5%, leveraging half a point as a percentage of B2C gross bookings. This was offset by growth in B2B expense, which reflects partner commissions and is recognized at the time of stay. Overhead expenses were $640,000,000, roughly flat versus last year, while leveraging over two points on revenue. As a reminder, last year, we implemented a series of cost reductions which had a meaningful impact on the margin in the back half of the year, and expect those actions to favorably impact 2026. Additionally, we have already taken action in January with our product and technology organizations to simplify and become more efficient. While we will be using much of the savings to strategically rehire in key areas like AI and machine learning, these type of actions will favor margins as well. Turning to profitability. We delivered fourth quarter adjusted of $848,000,000 with a margin of 24%. The nearly four points of adjusted EBITDA margin expansion was driven by revenue growth, expense leverage and cost out, particularly within B2C direct sales and marketing. Adjusted EPS of $3.78 grew 58%, outpacing EBITDA growth due to share repurchases and a lower tax rate. Moving to our cash position. We ended the quarter with $5,700,000,000 of unrestricted cash and short-term investments, and we remain committed to maintaining debt levels consistent with our investment grade rating. Free cash flow for the year was $3,100,000,000 and reflects the strength of our operating model and disciplined execution of our strategic priorities. In Q4, we utilized $255,000,000 to repurchase 1,100,000 shares of our common stock, and since 2022, we have repurchased over 45,000,000 shares, reducing our share count by 22% net of dilution. We remain committed to returning capital to shareholders. We intend to continue opportunistic share repurchases at a pace similar to recent years and today are raising our quarterly dividend by 20% to $0.48 a share. Turning to our outlook. Our guidance reflects strong bookings momentum as we enter Q1, while remaining appropriately cautious given ongoing macro uncertainty. For the first quarter, we expect gross bookings growth to be between 10% to 12% with revenue of 11% to 13%. At current exchange rates, this assumes foreign exchange tailwinds approximately three points to bookings, four points to revenue, and implies stability in growth at the upper end of the range. For EBITDA, we expect EBITDA margins to be up three to four points. As a reminder, the first quarter is our lowest EBITDA quarter, so the benefits of our prior cost actions will have an outsized impact in Q1 relative to other quarters. For the full year, we expect gross bookings growth to be between 6% and 8% and revenue of 6% to 9%, including one and two points of FX tailwind, respectively. Similar to our Q1 guidance, the upper end of our range implies stability and growth on an FX-neutral basis, while the lower end of the range reflects a more cautious view given the dynamic macro environment. We experienced variability in bookings during 2025 and our 2026 outlook assumes a more seasonal cadence similar to what we saw in 2024. Regarding EBITDA margins, we noted last quarter we expect a more moderate pace of expansion in 2025, as we lap the benefits from our 2025 headcount reductions and marketing optimization. With this in mind, we do expect full-year margins to expand by 100 to 125 basis points as we maintain cost discipline while selectively reinvesting in growth initiatives. In closing, I am proud of the progress the team delivered in 2025, driving faster site performance, a leaner cost structure, and more efficient marketing, all of which strengthen our confidence in the outlook shared today. With clear momentum across our strategic priorities, we are well positioned for long-term profitable growth and remain confident in our ability to and create shareholder value in 2026 and beyond. With that, we will now open the call for questions. Operator: We will now open for questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Mark Mahaney with Evercore ISI. Please go ahead. Mark Stephen Mahaney: Thanks. I wanted to ask two questions, please. One, Ariane, could you just talk about the product or the features that you would want to try to roll out or are rolling out in order to really enhance the travel planning process on Expedia. It is always known as a booking site, but what can you do to kind of capture more people up the funnel and to just kind of keep them there? And then secondly, Scott, you know, a lot of leverage being shown in B2C marketing. Just talk about how much more leverage there is there going forwards, or are there other sources of leverage that are just as big as what you have been able to get out of that so far? Thank you. Ariane Gorin: So I would start my answer saying it is not just what we are doing in the product. It starts with marketing, and we are doing a lot of work to make sure we know travelers. We are targeting them. We are personalizing our marketing to them so that when they are doing discovery, whether it is in social channels or anywhere else, and when they are seeing our brands, they see messages that resonate with them. And then when they land on our brands, we are giving them relevant relevant context so that they then convert. Again, it starts with the marketing, knowing our travelers, having messages that resonate with them, so we are top of mind. Then in the product, obviously, we do a very good job when people land in converting them, but there are things that we can do, whether it is agents of you know, that can help look at if you have a certain budget then, you know, how do we give you ideas? If you want to search by destination, you know, if you want to work search by themes, I think there is a lot of exciting things can come both in the existing flows, but also in natural language flows. You know, right now, we have got an agent, sort of the AI agent in Hotels.com. What works the best is actually the point solutions like AI filters or property Q&A. And what the team is working on, and we will have more to share later this year, is how we can use natural language and sort of AI to allow people to go from the trip planning all the way into the booking. Again, I just reemphasize it is not just when they land with us. It is also how are our brands known and what is the work we are doing in marketing. Scott Schenkel: Mark, to your question on the marketing, maybe a few thoughts and then some context. We have leveraged about 50 basis points as a percentage of GBD in B2C. And we have done that through strong marketing discipline, improving efficiency, by holding the teams accountable, and having a strong point of view about return levels, incrementality, detailed analytical insights, and then reallocation. And I think we have done some really nice work Scott Schenkel: to Scott Schenkel: cut costs sharply accurately. And then as think, redeploy where we see upside between channels. And the improved targeting and measurement capabilities I think have allowed us to be more dynamic in terms of how we manage our direct B2C sales and marketing. And I think the reduced spend on lower performing channels and reallocating has really helped kind of cut costs, take some leverage, and then also reinvest for growth in other channels. So it feels very good. And as we look forward to the rest of 2026, think you can expect more of the same. Ariane Gorin: And just to add to that, I would say at the highest level, we are taking a more disciplined and data-driven approach to our marketing. And it is even more grounded in customer insights. Scott and I challenged the team to improve the returns and they have done a great job. We have significantly stepped up the measurement capabilities we have, our testing velocity, and our understanding of incrementality, and that sits behind a lot of what Scott described. Also, the work that we have done to sharpen our brand value propositions with stronger creative makes our spend more effective. So last year was a big year for relaunching Hotels.com with the Bellboy, and we were able to move awareness and consideration numbers. For Brand Expedia, just last week with the Super Bowl, we launched a new campaign, which is the one place you go to go places. It was actually the most watched ad on YouTube with over 200,000,000 viewers. So that, you know, as the creative is good, that also helps our efficiency. And finally, the product and tech improvements that I talked about in my prepared remarks, the fact that our sites are faster, that they are converting better, that also makes our marketing dollars go further because when we bring traffic into our brands, they are converting better. Mark Stephen Mahaney: Thank you, Ariane. Thank you, Scott. Operator: Your next question comes from Eric James Sheridan with Goldman Sachs. Please go ahead. Scott Schenkel: Part of the answer to Mark's Eric James Sheridan: question. How would you characterize the current competitive positioning of your consumer facing brands? And how much of them have been realigned for where you want them to be in the marketplace today or to the degree level of work still needs to be done to sort of have them operating on a more normalized level from a growth standpoint as we go deeper into 2026. Thanks so much. Yep. Ariane Gorin: I feel very good about we are where we are in the positioning of each of the three brands, and that has been a lot of work over the last twelve to eighteen months. So positioning Expedia as the one stop shop where you go to find everything. Positioning Hotels.com as the hotel pure play with a great loyalty value proposition. And, you know, Savior Way, which we launched at the end of last year, was a key part of that. For Vrbo, positioning it as the trusted pure play vacation rental marketplace, know, last year when we finally launched our promotion suite, that allowed us to, you know, basically expand our supply. In November, when we expanded VrboCare, it gave travelers more trust. So I would say sort of the positioning, I feel good about. We have done a lot of work that are just the basics of the marketplace around supply, around, you know, faster speed, all of those things are great. And now there is really just a lot of growth potential growth as our marketing becomes more effective. There is international growth. As I shared in my prepared remarks, room nights were growing faster outside of the U.S. than in the U.S. So there is always work to be done. But I feel like especially relative to a year ago, we are in a good place for those brands and a healthy place to be able to grow. Scott Schenkel: Great. Thank you. Operator: Your next question is from Jed Kelly with Oppenheimer and Co. Please go ahead. Eric James Sheridan: Hey. Great. Thanks for taking my Jed Kelly: question, and good job. I guess, Ariane, since you have been here or taken over, you have really done a nice job making the business a pretty consistent EBITDA compounder, and you considered generate consistent margin growth. And I do not want to get you too take you too far out, but can you just give us a vision on where you potentially see the margin trajectory of this business could go over the medium term? Thank you. Ariane Gorin: Thank you, Jed. Look. All I what I will tell you is there is more to come. Obviously, you can see in our full-year guide that we see more margin expansion. And it is not only us executing more effectively. It is our marketing executing more effectively. It is us being able to deliver more from the teams that we have. And, of course, the beauty of this business is as we grow, as we get more scale, I think the margins will come. So, you know, I would just say my confidence in the growth comes from the fact that we have got a lot of potential on B2C like I just talked about. Know, B2B there is always more opportunity to get more partners. We are making investments in new lines of business, which know, again, gives us positions us even better to be the one stop shop for our partners. There is more supply. We grew the number of lodging properties in the fourth quarter by 10%, and there is still a lot to go. There are some where we do not have the coverage that we would like. We can get more promotions. Obviously, last year, we added Southwest. We added Ryanair. So that gives me a lot of confidence in growth. And then the ads business, you know, I see a lot of potential especially in using AI to make those ads even more effective. So, yeah, I again, I see growth on the horizon. I am excited about the opportunities, and AI just gives me even more confidence. Scott Schenkel: Yeah. I think just a couple of quick points. I think the dynamic that we are looking at is a really strong quarter for outlook for Q1 as well. So an extra three to four points on margin rate expansion for Q1. But for the rest of the year, as I pointed out in my prepared remarks, to be somewhat muted in the context of versus a 3% to 4% number. Just as we have taken a number of actions I want to come back to that, but a number of actions last year had not only on headcount but also on marketing costs, on cloud costs, those have kind of had a compounding effect over the course of the year and are hitting Q1 strongly. But I think the way Ariane operates is she challenges everyone on the team to get more for less. And so there is a constant drumbeat in the business of do we think about operating smarter, do we do it with less money, and how do we do it in a way that then favors growth as we think about reinvesting some of those funds as well as dropping some of that through to the bottom line. So as we look out over the course of 2026 for certain, and I do not anticipate that culture to change as well. Yeah. Just to ask that, you know, I talk a lot about being brilliant at the basics. Ariane Gorin: And also about making every dollar count. And it is important that we all look whether it is in our cloud spend, whether it is in our marketing spend, whether it is just where we are allocating our time, are we doing it where we can have the highest returns and make the most impact? Jed Kelly: Thank you. Operator: Your next question comes from Conor T. Cunningham with Melius Research. Please go ahead. Scott Schenkel: Hi, everyone. Thank you. Just a helpful comment on the 10% supply growth that you gave for the fourth quarter. Curious on how that is actually trended into 1Q. Mean, obviously, there is a lot of debate around Conor T. Cunningham: hotels going more direct with large language models and so on. And then maybe if you could just parse out branded hotel growth versus ones that are not, I think that would be a helpful outline. Thank you. Ariane Gorin: Sorry. Can you repeat? I missed the first part of the question. You said 10% hotel growth, and I missed the end of it. Can you repeat, please? Scott Schenkel: Just yeah. Sorry. So just on you talked about 10% supply growth. Conor T. Cunningham: I am curious on how that has progressed into 2026. Obviously, there is this debate around hotels going more direct with large language models and so on. So just curious on that. Versus you know? And if you could parse it out a little bit between branded hotels versus ones that are not would be that would be helpful. Thank you. Ariane Gorin: Sure. Okay. Thank you. Look. We continue to add more properties. We, you know, we have added airlines last year. There is even if we have a very good assortment, especially as we are growing internationally, there will be opportunity to do more. And in fact, some of the work we did on AI has sped up the time it takes to onboard properties. It is 70% faster than it was before. So you know, I expect we will continue adding supply. We will continue adding rate plans. And as for the talk about, you know, large language models and what that can do, what we are seeing is our business continues to grow. We are doing work with the large language models and with this, with whether it is ChatGPT or Google and the like to make sure our brands are showing up well there. We are doing work in answer engine optimization, in native integrations, work with agentic browsers, and all of the work that we do there benefits our suppliers because we are doing the complicated work to help them drive demand to them through our business. Obviously, you know, in the same way that they could always get business direct through Google and the like, that will continue to be the case. But as long as we do the job of making sure that our brands have very strong value propositions, that travelers know them, they trust the value they are going to get coming to us, the same thing in our B2B business that we are adding value to the B2B partners, I think the pie will expand. Thank you. Operator: Your next question is from Kevin Campbell Kopelman with TD Cowen. Please go ahead. Scott Schenkel: Hi. This is Jacob in for Kevin. Thanks for taking question. I have two questions. Is Expedia seeing any changes on traffic from Google as they continue to roll out more advanced AI features within travel? Jacob Seed: And then on B2B direct sales and marketing costs of 27% year over year, can you talk about key drivers Scott Schenkel: and how you see that playing out this year? Ariane Gorin: Sure. I will take the first one and then hand it to Scott. Look. We were not seeing material changes right now. We are experimenting aggressively. We are working closely with Google and others as they are adapting their interfaces, making sure that our brands show up well, as I said, through many ways, whether it is answer engine optimization, native integrations, and browsers. I actually think that AI search opens up even more possibilities to reach more travelers, and as there is more context in those searches, there is an opportunity for us to better target and then as we bring those travelers into our ecosystem to better convert. So I think it is an exciting time right now. Again, it is a fast moving time. We are clear eyed about where we all are, but, you know, our strategy is to be in early, to partner deeply, to get learnings from these early integrations, and to find opportunities. Because one thing we have always been good at is figuring out how to surface our brands in third-party experiences and then convert travelers that come to us and we will continue doing that. Scott Schenkel: And for B2B marketing, it really was more aligned with the revenue number, so 24%, versus anything else. Because the dynamic is we book that with the time of stay. And it is more a commission model than it is a rev share model than it is a marketing spend. So it is pretty straightforward. Jacob Seed: Got it. Thank you. Conor T. Cunningham: Yep. Operator: Your next question comes from Kenneth Gawrelski with Wells Fargo. Please go ahead. Scott Schenkel: Thank you so much. Could I want to stick on the B2B side. You talk about any kind of concentration or any specific drivers that is driven that continues to drive the robust growth you see there? And as you look throughout 2026, any factors we should be thinking about on the top line? And then maybe, say, on B2B, you touched upon the margins and perhaps some temporary investment pressure on margins. Could you talk a little bit about the kind of the key factors driving that potential pressure early this year? And then maybe the longer-term outlook is should we think about these the 25% B2B margins as kind of the right place to think about the long-term outlook for the B2B business on the margin side? Thank you. Scott Schenkel: Yes. Ken, I know you work from the bottom up there. First off, on margins, and we talked about this last quarter as well. As we are redeploying a portion of the savings that we are delivering in other parts of the company, we are investing in B2B initiatives that will weigh in the short term on our near term, will be weighing on those on our margins there. But we will continue to do those investments because that is one of the that we see as strong growth opportunity for the company, and I will let Ariane jump in on that in a second. That is factored into our Q1 and our 2026 guide. And so without getting into guiding by business unit or talking about specific numbers, we have had, what, 18 quarters now of strong double digit growth in B2B. So I think it has been relatively consistent and strong double growth. And as we invest in the new products, new lines of business, we feel like we can make that continue going forward. Ariane Gorin: And I would just add, we took actions to win wallet share with existing partners. The B2B business benefited from the supply work that I was referring to earlier. You know, the fact that we had more partners participating in Black Friday. We had an increase in the number of properties. All of that flows through into B2B. Plus, you know, some of our large partners made investments in marketing in the fourth quarter, which we then benefited from. Our travel agency platform, which we call TAP, performed very well. We expanded the loyalty program. We grew the number agents that were active in the fourth quarter. On our template, which a number of partners use, we have improved the configurability. I mentioned we launched our first assurance offering. So it is really the team is innovating across the product and technology, adding supply. We are deepening our partner relationships. And that has been a formula that has worked for us. As I always tell the team, it is a competitive industry. We are going to win some deals. We are going to lose some deals. The important thing is that we keep on adding partners. We keep on innovating. I think the work that we are doing in the new lines of business is going to be very exciting for the years to come. And, you know, we really believe in this business. Operator: Your next question is from Deepak Mathivanan with Cantor Fitzgerald. Please go ahead. Scott Schenkel: Hey. Thanks for taking the questions. Eric James Sheridan: Ariane, can you talk a little bit more about the development efforts on the AI experiences side? Are you approaching it know, generally using the current LLM architecture and your cloud partners, or do you think you need to Scott Schenkel: fundamentally Harshit Vaish: build new AI capabilities specific to travel, maybe with Expedia data in a unique way. And then if I can ask one for Scott, how should we think about the tech and infrastructure investments that required to build and support some of the AI experiences? The platform currently already well positioned to a trade on AI capabilities? Or do you anticipate potentially making some investments on this front? Thank you so much. Ariane Gorin: Sure. So in the product, I think of AI in a couple ways. One is just in the existing flows, how do we use AI to make a better travel experience? So that is, you know, personalization. It is better recommendations. Better ranking models. It is more personalized content. So you know, if someone has always goes to properties that have spas, how do I make sure that that is what they are, you know, that we are highlighting on properties? So that is one sort of real area of, I think, potential product improvement and performance. The other is everything related to natural language engagement with the product, which I talked about earlier. How do you introduce natural language? How do you make it both sort of typing and also spoken? I would say it is earlier days on that, but that is also sort of a vector that we are going down. You I will just give you an example, though, of why I believe both things need to live side by side. Think about something like servicing, you can go into our app and you can go through the native flow and, you know, make changes, cancel, change your room type, in a few clicks. You can also do that in the servicing agent, and we want to make sure that we give people the choice of which of those makes most sense to them. In terms of the question about sort of the architecture and the technology, I would start by saying it is grounded in our data. So a lot of the work we have done the last couple of years has been about making sure that, you know, we have clean data. We have got, you know, customer data, destination data, and the like. And our tech teams are looking at the architecture. They are learning. They are obviously staying on the front foot on how things are evolving. And in fact, some of the partnerships that we are doing, whether it is around agentic browsers and the like, really does keep us on the forefront. And that is true both for our consumer business and for our B2B business. Scott Schenkel: You want to talk briefly about the platform and kind of how you see that, and then I will pick up on the numbers? Ariane Gorin: Sure. I mean, look. The platform, I mean, anybody who tells you their platform is done is not truthful. At the same time, I do not foresee some kind of big platform transformation like we had in the company a few years ago. At all. I think it is about understanding where the technology is evolving, understanding where are the pieces that we need to shift, where are the new architectures that we need to look at. But, you know, I would say it is not on one end of the spectrum or the very other end of the spectrum. Scott Schenkel: Yeah. I think that is well said. I think the dynamic is not a majority of our spend, but it is a continual spend to make sure that our platform contemporary and continues to evolve. I think the other thing I would point to how we are thinking about it, and I think in the spirit of your Conor T. Cunningham: question, Scott Schenkel: we think about reshaping the product and technology teams, what we are trying to do is, you know, look at do we operate smarter, how do we operate in a way that is more efficient and effective, simplify the organization and our decision making and speed? And at the same time, bring new talent in around AI and machine learning that can develop our help develop our product in ways that Ariane just talked about. Ariane Gorin: So Scott Schenkel: while there will be some net benefits to that, I think in the margin rate, overall, I think that is cut cost to invest and grow strategically. Ariane Gorin: And I said in my prepared remarks that even though we are using AI more, we are growing the business, you know, we have optimized our cloud spend and from our technology spend. And going back to the whole theme of discipline and making every dollar you can just count on the fact that the way we are looking at the technology work, it is how do we make sure we have the platform that we need and we are doing it with sort of the cost also in our mind. Harshit Vaish: Very helpful. Thanks, Ariane. Thanks, Scott. Operator: Your next question is from Naved Ahmad Khan with B. Riley Securities. Please go ahead. Great. Harshit Vaish: You very much. Adrian, I have one question on alternative lodging. So you have had alternative lodging on Brand Expedia for some time, and I am curious if you can provide any color on what the uptake is for what the mix looks like for alternate lodging versus hotel today versus maybe a couple of years ago or just last year. Is that growing or are you still trying to get more adoption there? And then for Scott, maybe, you know, can you just maybe talk a little bit about CapEx for 2026 and how should we be thinking about that? Thank you. Ariane Gorin: Sure. It is definitely growing. It is to me, it is not where it is, it is not at its maximum potential, and that is why I believe that there is a real opportunity there. But we made great progress in 2025 on selling vacation rentals on Brand Expedia. We changed the UX. So if you go onto lodging, you now see sort of there is all lodging and then hotels and vacation rental. We brought on inventory. We made sure the servicing experience was great. So there was a lot of work that we did to drive more vacation rentals on Brand Expedia to support our one stop shop value proposition, and there is still upside there. Scott Schenkel: Yeah. On CapEx, it will be roughly in line with 25. I would not anticipate a material change one way or the other. Harshit Vaish: Thank you. Operator: Question is from Deutsche Bank. Your line is open. Please go ahead. Conor T. Cunningham: Great. Thanks for taking the questions. I guess, one, as you think about your 2026 outlook, can you comment at all if it assumes your B2C business accelerates relative to 5% you delivered this year? And how you are thinking about the challenges you may face in terms of delivering acceleration while simultaneously bringing down the intensity of your ad spend. And then maybe just on AI topic of the day, topic of the week, if are you thinking about the potential urgency to invest more aggressively into loyalty in your B2C business as some of these general purpose chatbots take on more of the customer relationship in travel funds. Thank you both. Ariane Gorin: I will take the first. I will take the last of the question, and Scott can take the first. Look. We always feel a sense of urgency to make sure that we are delivering more value and more trust to our travelers. And travel is a high stakes purchase. Know, it or it can be. It is complex. It is high stakes. It is not like a T-shirt, where, you know, if you choose the wrong one, you can send it back. Is it there is something that happens in your trip, you never get your time back. And that is why we are investing a lot in making sure that not only we have a great selection and price and assortment, and the ability to, you know, add trip elements after you bought one, but also building trust. You know, we have got proprietary verified reviews, and we know that 70% of travelers check reviews before they make a booking. So the fact that, you know, when they if they make their booking with us and they do their shopping, they are going to have that trusted information is really important. Or the fact that if something goes wrong in the trip, they are going to be able to, you know, either deal with it in our app or call us is important. You know, I will just add that during the winter storms and government shutdown, we were able to answer our calls on average between one to three minutes. Was the best in the industry, we believe. And, you know, travelers want to know that we have got their back. So, of course, continuing to enhance the loyalty program is one piece of our offer. But there is a lot of different parts that we believe, you know, make travelers want to continue a deep relationship with us. Harshit Vaish: Yeah. Maybe to try and be helpful, I am not going to get into Scott Schenkel: by BU guide for 2026, but maybe just some thoughts around guidance overall. First off, for Q1, we exited Q4 with strong, clear momentum. Think we are all encouraged by our strong start to the year. And we expect our first quarter bookings growth of 10% to 12%. That, of course, includes three points from an FX tailwind, but we expect to be able to deliver that. I would not expect a material difference in growth rates amongst the BUs, but obviously, it does oscillate up and down a bit even in 2025. For 2026, at the high end, our full-year guide of 8% reflects stable healthy growth on a constant currency basis at the high end again. As we will update each quarter as we go along. But again, I would not expect a material shift Scott Schenkel: in Scott Schenkel: an overall growth rate between business units if you look at the last couple of years average. Last year's average, I should say. Scott Schenkel: Understood. Thank you both. Scott Schenkel: Yeah. Operator: Our last question will be from Trevor Young with Barclays. Please go ahead. Conor T. Cunningham: Great. Thanks for fitting me in. You spoke to supply growth earlier in your comments. Was that largely a B2B dynamic outside of the U.S.? Or are you seeing some of that in B2C domestically? We have got a few major hotel supply partners speaking to pushing more inventory to the OTAs in Q3 and Q4 and being sharper on pricing and so forth. And so we were just wondering if that was the tailwind for your U.S. room night growth, contributing to that coming in at high single digits again. And then my second question is on the Tickets acquisition, it appears to be more positioned on the B2B side. Scott Schenkel: Is there an opportunity to leverage that on the B2C side as well to push Conor T. Cunningham: into experiences more broadly across your customer base? Thank you. Ariane Gorin: Sure. So on the first question, the supply, it works on both parts of the business, B2C and B2B. When I talked about 10% growth in number of properties, and then also the promotions, that flows through to both. And that is just the way the platform works, and that is the way our business model works. And it is a value that we deliver to our supply partners is they have one connection, and they can get access to all of the demand. In terms of Tickets, yes, I did talk about as part of our B2B business because it is going to be run by the person who is leading B2B. And we think it is a great value proposition to be able to extend what we are offering in B2B. But, obviously, it is going to, you know, that their expertise is going to have an impact in B2C. So while we are, you know, we will keep our B2C product, when you bring in some expertise like that, it can only help us do even better. Scott Schenkel: Great. Thank you, Ariane. Operator: The Q&A is now over. I will now turn the call back to CEO, Ariane Gorin, for closing remarks. Ariane Gorin: So I just want to thank you all for joining our call today. We closed 2025 strong, and as we enter 2026, we remain focused on executing our strategy to deliver value for all of our stakeholders. So thank you all. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to Alliance Entertainment Holding Corporation’s Second Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I will now pass the call over to Paul Kuntz, a member of Alliance Entertainment Holding Corporation’s IR team at RedChip. Paul? Pardon me one moment while we reconnect. Hi, everyone. This is the operator. We are still reconnecting. Thank you, everyone, for your patience. Paul Kuntz: Thank you. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent the company’s current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect the company’s opinions only as of the date of this presentation. Please keep in mind that the company is not obligating itself to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today’s discussion, management will attempt to present some important factors relating to the business that may affect predictions. You should also review the company’s Form 10-K filed 09/10/2025 for a more complete discussion of these factors and other risks, particularly under the heading Risk Factors. During this conference call, management will discuss non-GAAP financial measures, including a discussion of adjusted EBITDA. Management believes non-GAAP disclosures enable investors to better understand Alliance Entertainment Holding Corporation’s core operating performance. Please refer to the investor presentation or today’s earnings press release for reconciliation of each non-GAAP measure to the most directly comparable GAAP financial measure. Your hosts today, Jeff Walker, Chief Executive Officer, and Amanda Gnecco, Chief Financial Officer, will present the results of operations for the 2026Q2 ended 12/31/2025. Bruce Ogilvie, Executive Chairman, is also on the line and will participate during the Q&A session. At this time, I will now turn the call over to Alliance Entertainment Holding Corporation’s CEO, Jeff Walker. Jeff Walker: Thank you, Paul, and good afternoon, everyone. We appreciate you joining us today. I want to begin by framing the second quarter in very clear terms because the most important takeaway this quarter is the continued strength and durability of our earnings profile. During the second quarter, Alliance delivered another period of meaningful profitability. Net income increased year over year to $9.4 million, adjusted EBITDA rose to $18.5 million, and gross margin expanded by 210 basis points to 12.8%. These results reflect continued execution against the profitability baseline we established last quarter. What is important is not just the level of earnings we deliver, but how we delivered them. The margin expansion we are seeing is not driven by short-term actions; it is the result of structural improvements in product mix, disciplined operating execution, and the leverage we built into our infrastructure. When we spoke last quarter, we described fiscal 2026 as a year where Alliance would operate from a new baseline, one defined by higher-quality revenue, stronger margins, and more consistent earnings power. The second quarter demonstrates that this is not a one-quarter phenomenon. Margin expansion continued, operating leverage remained intact, and our cost discipline held even as we continue to invest selectively in areas that support long-term growth. The performance this quarter reflects several themes that have been consistent across the business. We continue to see a shift towards higher-value products, particularly in premium physical media and collectibles. Our exclusive content partnerships are contributing to better pricing, stronger sell-through, and improved visibility with retail partners. And our distribution and fulfillment infrastructure continues to scale efficiently, allowing us to support growth while maintaining tight control over costs. Taken together, the second quarter reinforced that Alliance is executing against a clear strategic plan that prioritizes earnings quality, margin durability, and disciplined growth. We are building a business that generates sustainable profitability and positions us well for long-term value creation. With that context, I would like to walk you through the key drivers behind this performance, starting with how our content strategy and category focus are shaping results across the portfolio. One area I want to spend a few minutes on is physical media because it is important to be clear about how we think about this category today. At Alliance, we do not view physical media as a legacy business. We view it as a collectible category driven by enthusiasts, premium formats, and exclusivity. That distinction matters because it explains both the performance we delivered this quarter and strategic decisions we are making going forward. During the second quarter, physical movie revenue increased 33% year over year to $114 million. Growth was driven by continued strength in premium formats, including 4K Ultra HD and collectible steelbook editions, where consumer demand remains strong and highly engaged. These products are not purchased as substitutes for streaming; they are purchased because of their quality, packaging, scarcity, and connection to the underlying franchise. The Paramount Pictures exclusive agreement, which went live on 01/01/2025, is a good example of how this strategy works in practice. That partnership significantly expanded our access to high-quality catalog and new release content, improved retail visibility, and supported both higher average selling prices and stronger sell-through on premium format. Just as importantly, it reinforces Alliance’s role as a trusted, full life-cycle partner to major studios. We are applying that same playbook with our new exclusive partnership with Amazon MGM Studios, which became effective 01/01/2026. While it is still early, we expect this agreement to further strengthen our premium physical media portfolio by adding highly recognizable franchises and curated releases that naturally lend themselves to collectible formats. Over time, this expands not only revenue opportunity, but also the quality and predictability of that revenue. What underpins all of this is studio trust. Studios partner with Alliance because we can manage the entire physical life cycle, from manufacturing and distribution to retail execution and inventory discipline, while preserving brand integrity and collector value. That trust leads to exclusivity. Exclusivity leads to differentiation, and differentiation supports both margin expansion and long-term demand. Physical media continues to perform because it has evolved into a collectible-driven category. Our focus is not on chasing volume for volume’s sake, but on curating the right products at the right price points for an audience that values ownership, quality, and authenticity. That approach is central to how we are building a structurally stronger and more profitable business. Building on that foundation, our collectibles business continues to be an area where we see both meaningful growth opportunity and attractive margin expansion. During the second quarter, collectibles revenue increased 31% year over year, reflecting continued momentum across our premium and licensed offerings. Growth was supported by a combination of expanded sourcing activity, higher-value product launches, and improving mix within the category. That mix shift is the result of deliberate choices we have made to emphasize licensed, differentiated collectibles over more commoditized products. Licensed collectibles benefit from stronger brand relevance, deeper collector engagement, and greater pricing power, and they align naturally with Alliance’s long-standing relationships across film, music, and entertainment. As we continue to expand this portfolio, we see opportunities to grow both scale and profitability by introducing products that resonate more deeply with fans and collectors. A key contributor to that progress has been the continued integration of Handmade by Robots. Since transitioning from a distributed brand to an owned brand last year, Handmade by Robots has expanded its retail footprint, broadened its licensing pipeline, and contributed meaningfully to both revenue growth and margin improvement in the collectibles segment. More importantly, it gives us direct control over product design, sourcing, and life-cycle management, all of which are critical to building a scalable, premium collectibles portfolio. As we look at collectibles holistically, we view this category as margin-accretive, brand-enhancing, and strategically expandable. It strengthens our relationship with licensors, deepens engagement with collectors, and complements our physical media business by extending the same principles of scarcity, authenticity, and quality into adjacent product categories. That evolution sets the stage for the next phase of our collectibles strategy. With the acquisition of Endstate, and the launch of Endstate Authentic, Alliance is extending beyond products and traditional distribution into a platform-driven model. Endstate Authentic adds a technology-enabled layer to Alliance’s existing strengths. Through NFC-enabled authentication and digital product identity, it allows physical products to be verified, tracked, and authenticated throughout their entire life cycle, from the initial sale through the secondary market. This capability expands Alliance’s role from simply moving products to supporting long-term value creation around those products. Endstate matters now because the collectibles market is increasingly defined by authentication, provenance, and trust. As products become more premium and more valuable, collectors, licensors, and retailers all require greater confidence around authenticity, ownership history, and resale integrity. That need is especially pronounced in categories like vinyl, limited edition collectibles, and other high-value physical goods. Importantly, this initiative is not about chasing near-term revenue. It is about building platform optionality. Endstate enables life-cycle monetization opportunities that did not previously exist in physical collectibles, including authenticated resale, brand protection, and deeper engagement between collectors and content owners, while reinforcing pricing discipline and margin quality. Alliance Authentic represents the first commercial application of this platform within our portfolio. By applying authentication, certification, and individually numbered releases to premium vinyl collectibles, we are demonstrating how this technology can be integrated into products we already source and distribute at scale. Over time, we believe this platform has the potential to enhance margins, strengthen relationships with licensors, and further differentiate Alliance in the market. Collectibles and authentication represent a natural extension of our strategy, building a higher quality, more defensible business by combining premium products and technology-enabled trust. With that, I will turn it over to Amanda to walk through the financial results in more detail. Amanda Gnecco: Thanks, Jeff. I will start by walking through our financial performance for the second quarter, beginning with the income statement. For the quarter ended 12/31/2025, net revenue was $369 million, compared with $394 million in the prior-year period. The year-over-year comparison reflects continued softness in certain lower-margin categories, most notably game and hardware, and a deliberate shift in mix toward higher-value products across physical media and collectibles. That mix shift is a key driver of profitability this quarter. Gross profit increased to $47.1 million, up from $42.3 million a year ago, and gross margin expanded by 210 basis points to 12.8%. That margin expansion was driven by a more favorable product mix, increased contribution from premium and exclusive offerings, and continued operational discipline. Net income for the quarter increased to $9.4 million, or $0.18 per diluted share, compared with $7.1 million, or $0.14 per diluted share, in the prior-year period. This improvement reflects higher gross profit as well as operating leverage from a cost structure that continues to scale efficiently. On an adjusted basis, EBITDA increased to approximately $18.5 million, up $2.4 million year over year. Adjusted EBITDA margin improved to approximately 5%, compared with 4.1% in the second quarter of last year. That expansion reflects the durability of our cost structure, including stable distribution and fulfillment costs as a percentage of revenue and ongoing benefits from automation that allows us to manage complexity without proportionate increases in labor or overhead. Jeff Walker: Overall, the second quarter demonstrates Amanda Gnecco: that Alliance is generating stronger earnings and expanding margins, even as we continue to manage through category-level revenue variability. The quality of earnings this quarter reflects deliberate execution, not short-term actions, and provides a solid foundation as we move through the balance of fiscal 2026. Turning to the six-month results, which provide additional perspective on the underlying momentum in the business. For the six months ended 12/31/2025, net revenue was $623 million, essentially flat compared to the prior-year period. While category performance varied within the portfolio, the overall revenue profile reflects a continued shift towards higher-value products and premium formats. That mix shift translated into a significant improvement in Paul Kuntz: profitability. Amanda Gnecco: Gross profit for the six-month period increased to $84.3 million, compared with $67.8 million a year ago, and gross margin expanded by 260 basis points to 13.5%. The improvement was driven by increased contribution from premium media and collectibles, improved pricing and mix from exclusive content, and continued discipline across distribution and fulfillment. Net income for the six months increased to $14.3 million, or $0.28 per diluted share, compared with $7.5 million, or $0.05 per diluted share, in the prior-year period. This nearly doubling of earnings reflects the operating leverage inherent in the business as margins expand and the cost structure remains controlled. Adjusted EBITDA for the six-month period increased to approximately $30.7 million, up from $19.5 million last year, representing a year-over-year improvement of more than $11 million. That performance underscores the consistency we are seeing in margin expansion and earnings generation as higher-quality mix and infrastructure leverage compound across multiple quarters. Our six-month results reinforce that the improvement we are delivering is not isolated to a single quarter. They reflect a structurally stronger earnings profile, driven by better mix, exclusive content, and disciplined execution, and provide a solid foundation as we continue to invest selectively and scale the business. Before I turn it back to Jeff, I want to touch briefly on our balance sheet and liquidity position. We ended the quarter with approximately $74 million in working capital, reflecting disciplined management of both inventory and payables. Inventory levels increased modestly during the quarter, consistent with seasonal patterns and the timing of inbound product, but remained aligned with current demand and our focus on higher-value, faster-moving products. Our balance sheet also benefited from the refinancing of our credit facility earlier in the quarter. We replaced our prior asset-based lending agreement with a new $120 million senior secured revolving credit facility with Bank of America. The new facility reduces our borrowing cost by up to 250 basis points, extends the maturity to five years, and provides greater flexibility to support working capital needs and strategic initiatives. Jeff Walker: Importantly, Amanda Gnecco: this refinancing strengthens our financial position without changing our approach to capital management. We continue to operate with a disciplined view towards leverage, and our focus remains on maintaining liquidity, funding premium inventory and exclusive partnerships, and preserving optionality as we evaluate opportunities across the business. Overall, we believe our balance sheet is in a strong position. It provides the flexibility to invest where returns are attractive and positions Alliance to navigate both near-term operating needs and longer-term growth opportunities. I will close with a brief comment on how we are thinking about capital allocation. Our approach remains straightforward and disciplined. We prioritize investments that directly support the strategy Jeff outlined earlier and that enhance the quality and durability of earnings. Jeff Walker: First, Amanda Gnecco: we continue to allocate capital to premium inventory and exclusive content partnerships where demand visibility is strong and returns are attractive. These investments support higher-value products, improve mix, and reinforce our position with licensors and retail partners. Second, we invest selectively in technology and infrastructure that improves scalability and efficiency. This includes automation, systems that support exclusive partnerships, and capabilities that strengthen fulfillment and inventory management. These investments are targeted and are evaluated based on clear operational and financial returns. Throughout all of this, maintaining flexibility and discipline is central to our approach. We are not pursuing growth for growth’s sake, and we remain focused on preserving liquidity, managing risk, and ensuring that capital deployment aligns with long-term value creation. That discipline has been an important contributor to the margin expansion and earnings growth we have delivered, and it will continue to guide our decision-making as we move forward. With that, I will turn it back to Jeff for closing remarks. Jeff Walker: Thank you, Amanda. Before we open the call for questions, I want to spend a few minutes on how we are thinking about the remainder of the year and the long-term trajectory of our business. As we look ahead, we are not providing formal guidance, but we are confident in the durability of the margin profile we are building. The progress we have made over the past several quarters reflects deliberate changes in mix, stronger exclusive content relationships, and disciplined execution across the organization. We continue to see a growing pipeline of premium and exclusive content across physical media, collectibles, and owned brands, and we believe that pipeline supports continued earnings quality as we move through the back half of fiscal 2026. From an execution standpoint, our priorities for the remainder of the year are clear. We are focused on scaling Alliance Authentic in a thoughtful and controlled way. The initial rollout is designed to prove the operational and economic model, and we will expand deliberately as we validate use cases across additional products and partners. We are executing against our new exclusive partnership with Amazon MGM Studios. This agreement builds on the momentum we have established with Paramount and further strengthens our position in premium physical media. Our focus is on execution, retail visibility, and ensuring these releases reinforce our strategy around collectible formats and higher-value offerings. We will continue to expand our collectibles portfolio and owned brand. Handmade by Robots is a strong example of how we can grow both scale and value by controlling design, licensing, and distribution, and we see additional opportunities to apply that model across new products and partnerships. We also see significant long-term opportunity with Endstate Authentic. As adoption increases, we believe digitally verifiable authentication will become increasingly important across premium physical goods, not only with our own collectibles initiatives, but across third-party brands, licensors, and marketplaces. Our focus in the back half of the year is on deepening integrations, advancing external partnerships, and building the infrastructure necessary to support authenticated primary sales and secondary resale at scale. Over time, we believe this capability can enhance differentiation, strengthen relationships across the ecosystem, and contribute to margin expansion through higher-value, technology-enabled offerings. Across all of this, profitability discipline remains central. We are committed to maintaining the operating rigor that has driven margin expansion while investing selectively in areas that support long-term growth. Stepping back, what is most important is how Alliance is evolving. We are moving from a traditional distributor towards a platform that supports premium products across their full life cycle. We are shifting emphasis from volume-driven outcomes to value-driven returns, and we are building an ecosystem that connects content owners, retailers, and collectors through trusted infrastructure, exclusive offerings, and technology-enabled capabilities. That evolution is deliberate, and it is already showing up in the quality of our earnings and the strength of our balance sheet. We believe it positions Alliance well to create durable, long-term value for our shareholders. Before we turn to questions, I want to take a moment to thank our employees across every division. Their hard work, creativity, and execution are what drive our success. I would also like to thank our customers, partners, and shareholders for their continued support and trust in Alliance Entertainment Holding Corporation. We are proud of the momentum we have built and committed to delivering on the opportunities ahead. Operator, we are ready to open the line for questions. Operator: Thank you. We will now be conducting a question-and-answer session. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question is from Thomas Forte from Maxim Group. Please go ahead. Jeff Walker: Great. Thanks. I have three questions. I will go one at a time. Thomas Forte: So congrats on the MGM Amazon deal. Can you talk about your ability to sign additional exclusive deals with studios, and then obviously, it seems like it would be beneficial to Alliance Entertainment Holding Corporation if Paramount won Warner Brothers, but any thoughts on Warner Brothers in general, in addition to your ability to sign additional studios beyond Paramount and MGM? Yeah. Jeff Walker: Thank you for the question. This is Jeff Walker. On the active conversations with small and large studios, there is a lot of activity in it, and you know, once we have had Paramount on board and now, you know, MGM coming on board, I think those studios are definitely looking at Alliance as the premier solution when the time comes that a studio wants to move into a licensing model on their physical DVD product. It is very difficult for me to comment on the Warner and Paramount Netflix saga that is going on there. There are a lot of different aspects to it. I do not think either different way, what will happen is when a transaction happens, everybody looks at what is happening in the businesses, and they start to make decisions. So I think just companies making decisions instead of staying status quo is a good thing for Alliance overall within this space. Thomas Forte: And then for my second question, on the gaming hardware front, can you talk about to what extent are we seeing external forces that are driving your revenue performance versus to what extent is it an internal emphasis on other categories? Yeah. So Jeff Walker: gaming hardware right now, you have really got some differences between Nintendo, Microsoft, and Sony. We were pretty heavy Microsoft house and Nintendo distribution. So we have pretty good numbers here in 2025 with Nintendo and the new Slaves that is out, and, you know, that has really helped our physical hardware sales. On the other side, Microsoft has been very short on supply with consoles and so forth there. So that has hurt us on the hardware side. It is not necessarily a shift in the Alliance strategies. It is just a matter of availability on allocation. And then we also do consider the arcade business that we were doing with Arcade1Up in the hardware category of gaming. And that business just in this last quarter was down $34 million from where we were a year ago. And right now, that business is going through a transition from Arcade1Up. The ownership there got transitioned over to Basic Fun, and we are in conversations with them about how we can help distribute. The arcades are now going to be coming through Basic Fun. So we are going to start to see some products there as we move into 2026. Thomas Forte: Okay. Great. And then my last one, you talked about your recent strategic M&A as it relates to essentially authenticated or verified collectibles, but stepping back, what are your thoughts on just the strategic M&A opportunities in front of you today broadly. Jeff Walker: Broadly, there is a lot. As you know, we are in a lot of different categories, and there are a lot of different opportunities in M&A. We are constantly in many robust conversations and Thomas Forte: you know, Jeff Walker: when we look at mergers and acquisitions, it is not a shortage of opportunities. It is trying to find the right opportunities at the right time with the right financial metrics to it and all those dynamics. So we constantly stay in a lot of acquisition conversations ongoingly. And sometimes something that does not click, you know, this quarter or this month might turn around in a year from now and be something that makes sense at that time because our business, as well as, you know, the acquired business, everybody has a lot of different initiatives and strategies and things that people are working on, and they are all in different stages. So the acquisition aspect, especially when you are a strategic buyer, you are in a lot of strategic acquisition conversations on an ongoing basis. And so I am pretty optimistic about opportunities on the acquisition side, and we just continue to evaluate them in different aspects and see what financially fits and what, you know, has to financially be accretive to Alliance Entertainment Holding Corporation. That is our intention. So we are always in a lot of conversations there. Thomas Forte: Great. Thanks for taking my questions. Thank you. Jeff Walker: One. Operator: Next question is from Michael Kupinski from Noble Capital Markets. Please go ahead. Jeff Walker: Thank you for taking my questions. Good afternoon, everyone. I am going to go back to the gaming division again, just to kind of clarify a couple things, Jeff. You mentioned that the business had a $34 million swing in the quarter. Is that correct? Correct. Okay. And in terms of just the cadence of how the gaming business looks like in terms of the second half of the fiscal second half of the year, should, just based on what you are telling us in terms of the arcade business and then I would assume in terms of the hardware portion of the business, it should start to show some moderating trends, would Operator: think. Jeff Walker: Should we see some moderating revenue trends going into the second half of the year? Is that what your expectation might be? Yeah. I think if you look at our numbers for the last quarter, our overall revenue was down $25 million overall. Our gaming hardware was down $24 million, and our arcade sales were down $34 million. So those Thomas Forte: two represented a $58 million down number just for the quarter. Jeff Walker: And overall, outside of that, the company and the sales were a growth year over year. I will say that both of these categories, the arcade business and the gaming hardware, calendar 2024 we really had some significant strong sales in both of those, arcades and gaming hardware. And then really, as we rolled into calendar 2025, we have been impacted with that, really all of 2025. And so as we move to 2026, our comps in gaming hardware and arcades, we do not have high comps from 2025 rolling into 2026. So we are not going to see as much of an impact of the gaming hardware changes. We are still in conversations with trying to get more allocation, and Thomas Forte: and I think, ultimately, Jeff Walker: you know, next holiday season our arcade business will be up again because we had virtually no arcade business this Christmas or this holiday season, and we will be getting some stock back in for next season. So that is kind of the flow on that. That is great color. And then going back to your licensing deals, obviously, you set the stage with the Amazon MGM coming fairly quickly after your Paramount deal. Do you have any color in terms of the timing? You know, I know that you said that you are in discussions with several studios now. Do you have any sense of how quickly maybe some of these licensing deals might Thomas Forte: come to fruition. I mean, Jeff Walker: I am just kind of trying to get a sense of how long the tail is in terms of trying to structure and how these licensing deals might take to come about. Thomas Forte: Well, I Jeff Walker: think first off, you have to realize they are complicated transactions. To move a whole business of physical product sales, marketing, the odds and odds and patience aspect of all of the creation of the product, it is a big transaction to move one of those. And we have done a really good job with Paramount moving that over, and now we know how to do it. And, you know, we are running quickly on the Amazon MGM side. As far as time frame, that is really not something that I can discuss, and we just really do not know. It is a timing, it is complicated. And, you know, I think at the end of the day, I do not know when the end of the day is, I think the studios see that Alliance is a great solution at the time that it makes sense for each studio to move into a licensing agreement on their physical DVD. So I think I have to leave it at that. We are seeing some smaller studios in conversations as well right now. So those are not as big of a project to switch over as these major studios are. But I think we are well positioned to be the licensing partner that the studios use for physical media in the future. Thomas Forte: Good. Jeff Walker: And then, yeah, I was just wondering if you can provide a little bit more color on your launch of Authentic. I know that you indicated that you have been in talks with some studios which found this idea of great interest to them and that you thought that there might be some other specific business opportunities that could be forged with the studios and so forth. I was just wondering if there are any more thoughts that have been kind of forged with those discussions, if some things have gelled with them and how those discussions have gone. Thomas Forte: Well, there is Jeff Walker: a lot of opportunities right now with the technology that we have with Endstate with the NFC digital chips, and also authentication, and then the marketplace technology that they have as well. We are looking at conversations with music labels, with video studios, and even with our own products that we are doing with Paramount and MGM as examples. Gaming companies have special edition box sets and limited edition collectibles. We see all of those type of products as big opportunities that should have an NFC digital chip in the packaging in a particular special edition product that is made. When you look at that and you go, okay, now somebody can scan that. If you take it one step further, and you put a digital chip in a very nice collectible movie box set or music box set or gaming box set, and you put that chip in there working with the manufacturers, and they put that in, then you can also enhance additional content through the blockchain because you own that piece of a physical collectible. And so working with the labels and the studios and the gaming companies, you think of a collectible, a box set of something as the ultimate collectible. Well, then what else can you do to add content to it? Can you add an unreleased interview with the artist or the actor or something like that that attaches to that collectible that you own? So we are looking at how we now can provide some really incredible solutions through the labels, to the studios, and the gaming companies, and collectible companies to really enhance what these collectibles can be. Yep. And I know this is, Nathan. Times for this segment, but I was just wondering, do you have any time frame when you might, or milestones that you might want to provide investors, when we might start to see revenues kicking in for Authentic? Well, we went live with the vinyl. We have got Jeffrey Smith on board. We have a couple other people joining his team next Monday, experienced people that will help us to focus on the marketing there. We have engaged the PR department to help us with the PR with respect to Alliance Authentic. So those are some of the things that are happening to get the word out of the product that we have. I think consumers really like the product that we have created with the vinyl and the ultimate vinyl collectible, and so we should start to see some traction on that pretty quickly here. And final question. I know that you made a nice tuck-in acquisition on the technology side. I was wondering what your current appetite might be for further M&A? Thomas Forte: Well, we Jeff Walker: always have a pretty big appetite on that, Michael. You know that. As I mentioned earlier on the call, we are always in a bunch of conversations, and there is Thomas Forte: there is Jeff Walker: acquisitions that are accretive or consolidation stuff. Those are fairly easy and straightforward. And then there are acquisitions that get us into new opportunities and expansion of skill sets and things that we have. So I think the Endstate Authentic was a great acquisition for us. It really opens the doors to a lot of different aspects. And you also have to realize the more that we can use that technology to do products and offerings with our vendor partners, our music, video, and gaming partners, the more integrated Alliance gets with each of them, and that is a big win for us. So we are looking at how we are important to the music, video, and gaming industry, and we are continuing to build that strength. And I think they are looking at us that way, and that is why we are seeing these strong agreements coming with all these partners we work with. Great. Thanks for taking all my questions. I appreciate it. Thank you. Operator: There are no further phone questions at this time. I will now turn it over to Paul Kuntz for any webcast questions. Paul Kuntz: Thank you. Jeff Walker: One of our first questions Paul Kuntz: you did not speak on music sales. Can you provide an update on vinyl and CD trends and how you are thinking about the music category within the broader premium physical strategy? Jeff Walker: Music is great. We are super excited right now on the music side. I know we did not put a lot of that in our communication for this quarter, but our vinyl and CD sales are extremely strong right now. This particular quarter that we are in, it is not that typical to have major new releases, but, you know, Q1, coming up at February, we have the new Bruno Mars coming through. And then we have a big Harry Styles new release and a BTS release this quarter, as well as lots of other releases. But those three tempo ones are pretty significant releases that are already showing up with some good online preorder sales. And you are definitely seeing the labels really focused on these artists right now, and the music industry is significantly strong. I do want to throw out a little stat that I was kind of shocked on. For 2025, Alliance sold over 16 million vinyl records, and we sold over 13 million CDs. So some people that say CDs are dead, who buys CDs anymore? We still sold 13 million CDs last year. We are seeing some pretty strong sales on the CD side, and there is definitely a lot of communication along social media right now on physical music, vinyl, CD, and as well DVD right now too, as far as people wanting to collect their favorite artist music and so forth. And all of this is still happening while everybody can listen to the music on a digital platform and so forth, but collectors want to have a collection of their favorite artists at their house. And so we are looking at how we are continuing to work with the labels to create more and better product for the fans there. Thank you, Jeff. Another question you had, could you please expand on the gross margins for this Paul Kuntz: quarter? It seems like the market was expecting a number around 15% in line with past rebasing margin profile Jeff Walker: The margins for this—say that again. Can you repeat the question there? Paul Kuntz: Absolutely, yes. Could you please expand on the gross margin for this quarter? It seems like the market was expecting a number around 15% in line with past rebasing margin profile comp. Jeff Walker: Yeah. I think we had some pretty good growth in our margin this quarter compared to last year. Margin ends up being somewhat product-mix driven, and we, you know, we do sell more—even though our hardware and gaming and so forth was down overall, we still sell quite a bit of hardware and so forth in the holiday quarter. I think overall, we are pretty happy with where our margin is trending right now, but we tend to see it a little bit lower in Q4 than the other three quarters of the year. It is a typical trend for us. Paul Kuntz: And our next question, as you look at Endstate Authentic longer term, do you see the greatest strategic opportunity in internal applications within your own portfolio, third-party adoption, or authenticated resale, and how should investors think about its role in the broader platform strategy? Jeff Walker: I will tell you that Bennett and Stephanie on the Endstate team are extremely busy right now with all the opportunity conversations that just opened up with them joining with us here at Alliance. So obviously, there are some really big opportunities within our own portfolio. They are in conversations—obviously, we are doing Alliance Authentic, and then also they are working with our home entertainment team to see what we can do on some video product as well. So there is a lot going on internally. And then the second into the third-party aspect, we communicate with all the top record labels, the top studios, the top gaming companies. And so the question is how their application of NFC chips in the products and so forth—there is just a lot of opportunities, a lot happening where our technology can now help with things that artists and studios are looking to do going forward. So we are pretty bullish on their opportunities right now. There also are grading companies, authentication companies, and so forth that are interested in the authenticated resale as well as NFC chips there. So they have a very, very packed new-account conversations right now for Endstate. Thank you, Jeff. Paul Kuntz: And we have one more question. Can you provide—I think you already touched on this a little bit with Michael—but can you provide an update on Alliance Authentic and what you learned from the initial rollout? How should we think about the pace of expansion from here? Jeff Walker: Yeah. I think the pace of expansion is going to ramp up pretty quickly here. We have got, as I mentioned earlier, we have got Jeffrey on board. We have got two other great people to come in next week to assist him that are joining the Alliance team, and the PR that we are launching. We are also launching—so we are at Toy Fair this weekend. On the Authentic side, we are also launching Funko Authentic, and also Handmade by Robots Alliance Authentic product. And what those are are Funko Pop or Handmade by Robots character encapsulated in a case similar to what we are doing on the vinyl. They have the NFC digital chip in it. They are 100% authentic because we know we bought it direct from Funko, or on Handmade we are the manufacturers. And then they are uncirculated, and they are encapsulated as a collectible. Those are getting launched this weekend at Toy Fair, and we will be able to start shipping on those with orders towards February here. We have already got them into production and into the facility. And, you know, this business is not an easy one to start up. There is a lot of work in perfecting the encapsulation cases and all the aspects that go to create that. But you also have the opportunity there where now we will have an encapsulated Funko Pop into the marketplace, and I think there is going to be a lot of great opportunity for sales. So all of those three categories are Paul Kuntz: are Jeff Walker: are in place. We do have cases on the way right now for encapsulating video steelbook, as well as video games, so Xbox, PlayStation, and Switch. So there are people that want to collect those and want to have one encapsulated as a piece of history for those games as well there. So that is all going to roll out. Those other ones will roll out this quarter as well and start to get into the marketplace. Thomas Forte: Excellent. Paul Kuntz: That was actually our last question. Operator: Great. Thank you. And I would like to turn the floor back over to Jeff Walker for any closing comments. Jeff Walker: I just want to say that everybody works with all the new opportunities we have here for 2026. And, you know, as an entire company, we are having a great time working with Bennett on the Endstate side and Jeffrey on the Alliance Authentic. Those big initiatives for Alliance are going to make a big difference here in 2026. And I think if you look at it a year from now, where is Alliance Authentic and Endstate Authentic going to be? It is going to be significantly better and different a year from now. And that is what we are very, very heavily focused on right now. Thank you, everybody, for joining the call. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.