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Operator: Greetings. Welcome to the Materion Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press. Please note this conference is being recorded. I will now turn the conference over to your host, Kyle Kelleher, Director of Investor Relations and Corporate FP&A. You may begin. Kyle Kelleher: Good morning. Kyle Kelleher: Thank you for joining us on our Fourth Quarter 2025 earnings conference call. This is Kyle Kelleher, Director, Investor Relations and Corporate FP&A. Before we begin our remarks this morning, I would like to point out that we have posted materials on the company’s website that we will reference as part of today’s review of the quarterly and full year results. You can also access the materials through the download feature on the earnings call webcast link. With me today is Jugal K. Vijayvargiya, President and Chief Executive Officer and Shelly M. Chadwick, Vice President and Chief Financial Officer. Our format for today’s conference call is as follows. Jugal will provide opening comments on the quarter and full year. Following Jugal, Shelly will review the detailed financial results in addition to discussing expectations for 2026. We will then open up the call for questions. Let me remind investors that any forward-looking statements made in the presentation, including those in the outlook section and during the question and answer portion are based on current expectations. The company’s actual performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release we issued this morning. Additionally, comments regarding earnings before interest, taxes, depreciation, depletion, and amortization, net income and earnings per share reflect the adjusted GAAP numbers shown in Attachments 4 through 8 in this morning’s press release. The adjustments are made in the prior year period for comparative purposes and remove special items, noncash charges, and certain discrete income tax adjustments. Kyle Kelleher: And now I will turn over the call to Jugal for his comments. Jugal K. Vijayvargiya: Thanks, Kyle. Jugal K. Vijayvargiya: Good morning, everyone. Jugal K. Vijayvargiya: It is great to be with you today to discuss our fourth quarter and full year 2025 results and to provide an overview of our growth expectations for 2026. Our fourth quarter sales were impacted by a quality event with our largest customer. Excluding this event, we delivered very strong financial results led by outperformance on both top and bottom line, in our Electronic Materials and Precision Optics businesses. Jugal K. Vijayvargiya: This performance, combined with new business growth, Jugal K. Vijayvargiya: and the momentum we are seeing across our markets, Jugal K. Vijayvargiya: and in our order rates, Jugal K. Vijayvargiya: are entering 2026 with confidence. Let me first address the quality event. In Q4, our large Precision Clad Strip customer alerted us to a performance issue with our material during their production process. Our team responded swiftly and decisively, collaborating closely with the customer to identify the root cause. To thoroughly assess and address the situation, we temporarily idled our two Precision Clad Strip facilities allowing us time to implement corrective actions. We conducted a comprehensive evaluation of the issue scope, made targeted modifications to our processes and procedures, and introduced enhanced quality control measures designed to minimize the risk of any future occurrences. Both facilities came back online toward the end of the quarter and are ramping production, supported by additional resources and oversight. We are determined to deliver quality product to our customer and not impact 2026 planned volumes. The foundation of our company is built upon the strong partnerships we have cultivated with our customers by consistently providing high-quality, critical materials to help solve their most complex technical challenges. We take our role as a trusted partner and supplier very seriously. Moving beyond this issue, I am excited to share that we delivered 7% year-on-year organic growth in the fourth quarter, excluding Precision Clad Strip. Our outgrowth initiatives, coupled with strong end market dynamics are contributing to this level of growth and building our order backlog to continue the trajectory into 2026. Electronic Materials experienced its strongest sales quarter in nearly three years, with a 20% increase in VA, driven by accelerating growth in the semiconductor market. This growth is fueled by the rapid expansion of AI technologies, and the rising need for high performance computing and data storage solutions. EBITDA was up an impressive 50% with 470 basis points of margin expansion, as the power of the work our team has done to streamline and strengthen that business is magnified by increasing volumes and a strong mix. Precision Optics continued its transformation journey, delivering a 26% increase in sales, marking the third consecutive quarter of top line improvement. The business is tracking ahead of plan, led by new business wins in semiconductor, space, defense, and automotive. This level of growth combined with an improved cost structure, and operational efficiencies, allow the business to reach nearly 16% EBITDA margin. Performance Materials sales were impacted by the Clad Strip quality event. The business delivered strong margins on a lower sales base, while focusing their energies on getting Clad back online and building a strong pipeline of new business for 2026. Reflecting on 2025, I am extremely proud of the significant progress we made while navigating some turbulent times particularly in the first half, with the uncertainty around tariffs, and the related impact to our China business. Let me highlight some significant accomplishments that will directly contribute to 2026 performance. Our Electronic Materials business delivered record results with nearly 23% EBITDA margins, up 300 basis points year on year. The transformation of Precision Optics achieved 7% year-on-year sales growth, reaching nearly 10% EBITDA margins up almost 800 basis points. And our Performance Materials business reached 25% plus EBITDA margins for the third consecutive year. Jugal K. Vijayvargiya: Our specialized Jugal K. Vijayvargiya: comprehensive materials portfolio resulted in new business wins which combined with improved market dynamics have led to a 7% year-on-year increase in backlog. More importantly, backlog in the second half of the year improved 12% versus first half. We have seen a significant uptick in order rates, led by our semiconductor business, up 6% year on year, 14% excluding China. And we completed acquisition of Conasol’s semiconductor manufacturing footprint in Korea, which will position us to deliver local to the leading semiconductor manufacturer. Our focus on growing in the new energy market in support of accelerating energy needs resulted in more than doubling sales year on year. For this market, we signed a multiyear supply agreement with Commonwealth Fusion Systems, a leading developer of fusion energy solutions. We surpassed $100,000,000 in defense sales for the second consecutive year, and have delivered 10% yearly growth since 2020. New business bookings reached nearly $140,000,000, highest ever, with another $35,000,000 booked so far this year. And we have approximately a $200,000,000 pipeline of new business RFQs. These demand levels are aligned with the record levels of global defense spending while the U.S. and allied nations are prioritizing replenishment and modernization. In support of our accelerating growth in the defense market, we secured a $65,000,000 investment from a major U.S. defense prime to expand our beryllium capacity. This investment will not only enhance our capacity, it strengthens our strategic partnership with this customer, setting the stage for long-term growth in defense. While we will support meaningful near-term growth with our existing capacity, the new investment will enable us to support continued double-digit growth in the out years. Looking ahead to 2026, we expect to deliver approximately 15% earnings growth on a strong top line sales growth. New business wins and continued market recovery will further expand our order book, particularly in markets like defense, semiconductor, energy, and space. We anticipate continued progress toward our mid-term EBITDA margin target of 23%, supported by top line growth, ongoing operational improvements, disciplined cost management, and the benefits of our portfolio transformation. Free cash flow generation is expected to strengthen as we optimize working capital, make thoughtful investments, and realize higher levels of profitability. The transformation of Precision Optics will advance further, unlocking additional growth and margin expansion opportunities. Electronic Materials will continue to benefit from the proliferation of AI and data center demand, driving sustained outgrowth. In Performance Materials, we expect marked operational improvements and top line growth led by the defense, energy, and space end markets. We remain focused on delivering value for our customers, and shareholders through innovation, operational excellence, and strategic investments. I want to thank our global team for their dedication, hard work, and unwavering focus on execution. Their commitment to innovation, quality, and customer service is the foundation of our company. I also want to thank our customers and shareholders for their continued trust and support. With that, turn the call over to Shelly to review the financial details. Shelly M. Chadwick: Thanks, Jugal, and good morning, everyone. During my comments, I will reference the slides posted on our website this morning starting on Slide 13. In the fourth quarter, value-added sales, which exclude the impact of pass-through precious metal costs, were $253,900,000, up 7% organically from the prior year excluding Precision Clad Strip. All in, value-added sales were down 14%. This decrease is largely attributed to the quality event we experienced during the quarter that limited sales to our largest customer. Electronic Materials experienced 20% growth led by strength in semiconductor, and Precision Optics was up 26% driven by overall market improvement and new business wins. When looking at earnings per share, we delivered quarterly adjusted earnings of $1.053, up 9% sequentially. Moving to Slide 14, adjusted EBITDA was $57,000,000 or 22.5% of value-added sales in the quarter, down 7% year over year but up 170 basis points from a margin perspective. The decrease was attributable to the Clad Strip volume decline, partially offset by higher volume, strong price/mix, and improved performance in Electronic Materials and Precision Optics. Moving to Slide 15, let me review fourth quarter performance by business segment. Starting with Performance Materials, value-added sales of $132,400,000 in the quarter, down 32% year over year. This decrease was driven primarily by lower Precision Clad Strip sales, partially offset by strength in energy, and telecom and data center. Adjusted EBITDA was $35,800,000 or 27% of value-added sales, down 33% compared to the prior year. This decrease was driven by the lower Clad Strip volume, partially offset by strong price/mix. Looking out to 2026, we expect to see strong top line growth led by space, defense, and energy initiatives. We also expect improved operational performance as we continue to execute on a number of initiatives aimed at increasing uptime and yields across our facilities. Next, turning to Electronic Materials on Slide 16. Value-added sales were $94,100,000, up 20% from the prior year and up 18% sequentially. EM delivered 8% organic growth for the year with sales increasing sequentially each quarter, driven by the strengthening semiconductor market. The top line growth, strong mix, and an improved cost structure delivered $22,000,000 in adjusted EBITDA or 23.4% with nearly 500 basis points improvement year over year. Looking ahead to 2026, we anticipate another year of strong top line growth fueled by the semiconductor market strength and contributions from new business initiatives alongside continued strong margin performance. Turning to the Precision Optics segment on Slide 17, value-added sales were $27,400,000, up 26% compared to the prior year. This year-over-year increase was driven largely by new business wins and growth across several end markets, marking the strongest quarter since 2022, and the third consecutive quarter of top line growth. EBITDA excluding special items was $4,300,000 or 15.7% of value-added sales in the quarter, with significant year-over-year margin expansion. The increase was driven by higher volume, favorable price/mix, improved performance, and the impact of structural cost adjustments. This marks the fourth consecutive quarter of improved bottom line results and the second straight quarter of double-digit margin performance. Looking out to 2026, we expect both the top and bottom line to continue to grow as new business initiatives advance and the transformation continues to unfold. Now let me recap the full year results on Slide 18. Value-added sales were approximately $1,050,000,000, up 4% organically, excluding Precision Clad Strip, driven by strength in semiconductor, energy, and telecom and data center. All-in value-added sales saw a 4% decrease organic from prior year, as a result of the lower Precision Clad Strip volume. This was a meaningful year-on-year headwind. Many parts of the business saw strong growth, with Electronic Materials up 8% organically, and Precision Optics up 7% for the year. Despite the slight decline in VA sales, we delivered our fifth consecutive year of higher adjusted EBITDA margins at 20.7% of value-added sales, which was up 50 basis points from 2025. We are very pleased to have delivered our second straight year of 20 plus percent adjusted margins for the full year. And we are making good progress towards our new 23% midterm objective. Adjusted EBITDA was $217,000,000, down 2% from the prior year driven by the lower Precision Clad Strip volume, partially offset by higher volume across the rest of the company, favorable price/mix, and strong operational performance in Electronic Materials and Precision Optics. Adjusted earnings per share was $5.44 for the year, up 2% as compared to the prior year. Lower interest expense and the benefit of tax initiatives contributed to the uptick. Moving now to cash, debt, and liquidity on Slide 19. We ended the quarter with a net debt position of approximately $445,000,000 and $224,000,000 of available capacity on the company’s existing credit facility with leverage slightly below the midpoint of our target range at 2.1 times. The Clad Strip quality event impacted our cash flow performance in the quarter, as inventory and cash receipts related to this business came to a temporary halt. Lastly, let me transition to Slide 20 and address the full year outlook for the company. As we move into 2026, expect to continue the momentum we built in 2025, to deliver strong organic top line growth and higher earnings, while continuing to make progress towards our midterm EBITDA margin target of 23%. We also expect a marked improvement in free cash flow performance with higher cash earnings, improved working capital, and thoughtful capital investments. The first quarter will be a slower start to the year, normal seasonality and the ramping of Clad Strip production that comes along with some additional costs we are incurring to ensure a smooth and efficient restart. For the year, we expect to deliver earnings in the range of $6 to $6.50 adjusted earnings per share, an increase of 15% from prior year at the midpoint. This concludes our prepared remarks. We will now open the line for questions. Operator: Thank you. At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star 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. One moment please while we poll for questions. And the first question today is coming from Michael Joseph Harrison from Seaport Research. Mike, your line is live. Hi. Good morning. Congrats on, Michael Joseph Harrison: nice finish to the year and and sounds like some nice momentum into next year. Jugal K. Vijayvargiya: I wanted to start Michael Joseph Harrison: with a couple of questions just on the Precision Clad Strip situation. I guess, first, any any additional detail you can provide on on the quality issues that occurred and and, I guess, some of the actions that were required to address that and what that means for the business going forward. And then second, can you talk about, that that key customer PMI and maybe what you have heard from them about their expectations for FDA or other approvals for their device and what that could mean for growth expectations in PCS for next year? Jugal K. Vijayvargiya: Yeah. Mike, let me start with the first one, which is, the quality event. Give a little bit more color on it. In our production process, in one of the steps, we had a control failure. We were not able to detect the control failure through our quality system that we have. So the nonconformity that was produced as a result of that reached the customer. The customer actually discovered it in their manufacturing process. And in working, of course, closely with the customer, that is where we halted the production. We went through, and we thoroughly looked at the situation, investigated, determined the root cause, we implemented fixes for the root cause. But more importantly, we implemented a very much robust, revised quality system across the entire plant that I think makes us a much stronger company and a much stronger supplier to our customer. And that is important. We want to make sure that we are producing good product for them and supply for them. So we feel good with where we are at now. We certainly did not have the necessary means in the system to be able to catch the nonconformity that happened earlier. So we are actively, working with them, ramping, production here in the first quarter. The customers actually visited our facility. They have looked through the changes that we have made. We have got the right, I would say, quality leadership and quality resources at the facility. And in general, additional resources to make sure that the changes that we have made are being are being worked and doing the right things for producing good quality product for our customer. So that is that is the issue that occurred. We feel good about, I think, the changes we made, and I would say where the, where the product is going. We are fully prepared to support them, as they go through, their ’26 volumes. We expect our ’26 volumes to be better than ’25. Of course, we are going to go through a ramp here in Q1. But then higher production in Q2 and beyond to ensure that we can support them in the right way. As for the other items that you mentioned, like, for example, the FDA approval, I mean, they are working through it. We do not have any other new information that we can communicate with you. I am sure, you know, if whenever it is that they reach that, you know, they will share that with us. And then we will see what the impact may be to our delivery, you know, that they want. So I I think, you know, this is a is certainly a situation that occurred in Q4 that we dealt with, but I feel good with where we are coming out, and I feel good with the the quality systems that we have placed and, and making us a stronger supplier to this customer. Michael Joseph Harrison: All right. Very helpful. And then my my second question is on the Electronic Materials business. Obviously, nice to see some recovery happening in value-added sales. I was a little bit surprised to see that sequentially, value-added sales were up about $15,000,000, but it it does not really seem like sequentially that contributed to much EBITDA growth. So I am just curious, why did not we see better leverage on the strong sequential top line growth in Electronic Materials? And maybe if you could take it a step further and talk a little bit about how we should think about margin performance in Electronic Materials in a growth environment in 2026? Jugal K. Vijayvargiya: Yeah. Jugal K. Vijayvargiya: So first of all, let me just talk about the top line growth. I mean, we are very excited with where things are at. You know, we have talked about our product portfolio. So let me just talk a little bit about that. Right? We have a very good diverse portfolio that cuts across pretty much all parts of semiconductor. Whether it is logic, memory, power, communications, data storage. I think we are seeing the power of that. We are seeing the fact that our sales growth that you mentioned sequentially, highest in nearly three years, it is really cutting across all those areas. So as the proliferation of AI is happening, high performance computing is coming in place, data storage is increasing, high performance memory is increasing. I think it is giving us a good backdrop to be able to say that not only do we have a good Q4 increase, sequential increase that you are mentioning, which is nearly the best quarter in the last three years, but it also speaks to the incoming order rate that we have which is up, sizable, you know, on a year-over-year basis and kind of I would say, how we feel about, ’26. We expect that ’26 will continue to improve, and we are looking forward to be able to capitalize on that improvement. So I think from a top line perspective, we are feeling we are feeling very good. I think from a margin perspective, we have to keep in mind that this business, along with our other businesses, there are significant mix factors that go into play from a quarter-to-quarter standpoint. Right? So we look at a margin profile from a more of an on a on a larger sort of sample size, you could say, sort of sort of longer time frame. So, you know, more like a two, three, four quarters on a full year basis. Up 300 basis points on a year-over-year basis. We had some onetime items in Q3. We have some mix issues in Q4. So when you put that together, we do not have the same level of, let us say, percent performance in Q4. But we feel really good about the overall improvement that this business has made through the cost actions, the operational efficiency actions, and we expect those to carry through into ’26 as well. So I think, yeah, with where I see EM in total, I feel good about how we finished the year. And I feel good about, I think, where this business is going to go in terms of the top line, in terms of bottom line. Continued progress. I think from where we were in in ’25. Michael Joseph Harrison: All right. Thank you for that. My last question is is just on kind of where we stand on beryllium capacity. I know you called out the $65,000,000 investment from a defense prime. Sounds like that additional capacity is going to be coming on ’27. But there is a lot of talk out there about building up strategic mineral reserves in the United States. I am curious, do you expect beryllium to be among the minerals that the government would want to add to that reserve and what does that mean for potential further investments that might be needed in capacity? What does that mean for supply and demand of beryllium and maybe some of the products that you have within the Performance Materials segment. Jugal K. Vijayvargiya: Yeah. So let me, number of different topics. Right, on beryllium there. Let me just first start with the strategic reserve part of it and and just say that I am not able to talk about that in in any level of detail. We work very with the government in a number of different areas. And we have been doing that for for, obviously, a number of years. And and and there is a, you know, longstanding relationship that we have in in ways the mining CapEx, I would say it is just a a normal part of a what we are seeing. Right? We indicated that we have had 10% plus CAGR of the business over the last five, six years. We have crossed in the defense side, over $100,000,000 for for the second, consecutive year. We have got new defense orders, $140,000,000. We have got a long pipeline. Of course, beryllium is not only used in defense, but it is a it is a good part of our business. And so as we move forward, we would expect that we are using more beryllium to be able to support some of the growth not only in only in defense, but we have talked about energy. Right? Energy is a big part, and we are looking at beryllium applications in energy. We are looking at applications in other parts of our markets as well. So that that is definitely a a a, I would say, general business growth is is a contributing factor to, you know, our mining CapEx. Thank you. And just wanted also just some Operator: clarification, if you could, on the first quarter in terms of what you are anticipating from an earnings perspective maybe relative to last year? And then just a second part in terms of the modeling for the year. I wanted to confirm, you said you expected the sort of the China semi sales to be relatively stable? Thanks. Shelly M. Chadwick: Yes, I will take that one. Hi, Phil. So the first quarter, as I mentioned in my remarks, will start off a little slow. That typically happens for us. Part of that is some normal seasonality. Defense and semi tend to be softer in Q1. We are also going to have the additional cost around the ramp. So as Jugal talked about, all of the resources and changes that we have put in place we are being extra careful during this ramp period and are going to bear some additional costs to make sure that this is a flawless execution. So going to see a little bit of a lower Q1. Still a step up from last year, probably roughly 10% higher than last year is what we are thinking right now. And then we will have sequential step ups in earnings all year. Jugal K. Vijayvargiya: Yeah. Let and and let me talk about China and and semiconductor. I think, you know, so we have highlighted this over the last year or so in particular that that we saw a decrease in our sales in China just based on all the the geopolitical issues, tariff issues, etcetera. We do not anticipate and we are not assuming a further decrease from ’25 to ’26 in our China business. At the same time, we have highlighted that we are very much focused on making sure we are growing our business globally. You know, China is one component, and we do not want to let that be a determining factor for where our growth rates are. And so I am very excited about where the semiconductor business is, the growth rates that we are seeing. I indicated, I think, in our remarks that, excluding China, our order rates for semiconductor are up 14% on a year-over-year basis, so ’24 to ’25. And, we continue to see good order rates, and we anticipate good order rates, you know, as we as we go forward. With our new business activities, we have talked about, for example, atomic layer deposition or ALD products. And at the same time, with existing business that is seeing, really good growth in areas like data storage and high performance computing, high performance memory, all being driven through many of the things that are going on through AI. So, you know, certainly, China is an important market for us, and we are very much focused on it. But we are not letting that market sort of drive what we think our growth rates are going to be. We we are really, really focused on making sure we are driving global growth across all of our businesses. Operator: Thanks so much. Shelly M. Chadwick: Thanks, Phil. Thanks. Operator: The next question will be from Daniel Joseph Moore from CJS Securities. Operator: Dan, your line is live. Operator: Hi. This is Will on for Dan. Hi, Will. In industrial, are are you seeing any green shoots or signs of recovery entering 2026? Or is it more of the same? Jugal K. Vijayvargiya: Yeah. So, you know, in in industrial, we have a couple of, things that we typically talk about. One is we have a beryllium nickel spring business, which is something that has seen recovery. It was at a low point in the ’24 time frame. Saw good recovery in in ’25, and we expect to see continued, recovery going into ’26. So that part of the business, we expect it to be good. I would say the rest of industrial is is at this stage, our expectation is about, you know, GDP type of a a a growth. Nothing nothing too exciting, but but I think our overall industrial business I expect it to move forward, based on, particularly, based on our beryllium nickel spring business. Operator: Thank you. That is helpful. And you have given a lot of great color on the momentum in defense. Can you talk about energy and space and the momentum in each of those end markets as we head into 2026? Jugal K. Vijayvargiya: Yeah. I mean, energy has been an exciting market for us. You know, especially over the last last year or so. We have been a strong player in what I call more of the traditional energy, oil and gas area, but we have really focused a lot over the last two, three years on developing partnerships of that area into more of the new energy space. You are all aware of the partnership that we announced with, with Kairos on on new energy solutions. Last year, we announced a partnership with Commonwealth Fusion Systems again on new energy solutions. I think this area is quite exciting for us. We all know from a market standpoint that the demand for energy is increasing almost sort of at a exponential rate. And we want to make sure that we are working with all the leading players and and providing materials for them and enabling them so that they can they can participate in that. Our new energy business was the order rate was up 50% or over 50%. Our new energy business, I should say, doubled more than doubled on a year-over-year basis. So we are very excited about where I think overall energy market can go for us in the next three to five years. On space, we have had very good success on a number of different programs, on the space side. We have one large customer, but we have been working very diligently on gaining other customers. Certainly, those customers are smaller customers. We have also been working very diligently on making sure that more of our products are are being sold at the large customer, but also at the more emerging customers. So, we are expecting to see continued improvement in our in our space market over the next over the next three to five years as well. Operator: Thank you. Operator: Thank you. And once again, it will be star one if you wish to ask a question on today’s call. The next question will be from David Silver from Freedom Capital. David Silver: Okay. Hi. Good morning. Thank you. Morning, David. Yeah. So I admit I I have a bit of a scatter of questions. But the the first question would would generally be, you know, just David Silver: checking on potential bottlenecks that might prevent you from achieving, you know, your targeted growth in 2026? So for instance, in Electronic Materials, you know, you have made recent in both, you know, Newton and, Milwaukee. And, you know, if if growth was to continue at the the recent trend rate, 20% or so, I mean, is are you comfortable with the idea that you will not be running into bottlenecks during 2026 from, you know, is the capacity you have in place, the the spare capacity sufficient, you know, to handle, you know, expected demand. And then just along with those lines, you know, you did purchase the facility in Korea about middle of last year. So has that unit been completed? And is that currently contributing, or will that be a contributing, asset in 2026. I will I will kinda stop there for now. Thank thank you. But just kinda how do you feel about your spare capacity or your ability to meet, you know, based on your order book, what looks to be, you know, a meaningful surge in new orders or or demand. David Silver: Yeah. Jugal K. Vijayvargiya: David, I I would say in general, I think we are well positioned to be able to support our customers’ needs in in in all of our facilities for, look. Shelly M. Chadwick: Materials. We Jugal K. Vijayvargiya: are seeing good order rates, across a number of different areas. And the investments that we have made, the operational improvements that we have made over the last few years, I think, position us well to be able to support to to be able to support their needs. We are continuing to, of course, look at other, ways that we increase our capacity. One of the ones that you just mentioned is is an acquisition that we made in the the middle of, you know, in the middle of last year, where we, acquired a facility in in Korea. We are in the process of of getting that qualified. We expect the the qualification of that to be back half of this year. And I would say, really, any meaningful sales would be into next year and maybe some sample and and qualification sales, you know, can be can be at at the end of end of this year. But but I I expect we are going to be able to support our customers at the at the levels at the the level that they are looking for. David Silver: Okay. Great. And I apologize if I missed this, but just a clarification. I think one of Mike’s, questions earlier regarded the status of the next stage of Precision Clad Strip for your key customer there. It did you discuss the timeline or your latest thoughts about when that customer might be, you know, requiring production from that that new Precision Clad Strip capacity? Jugal K. Vijayvargiya: Yeah. I we we did not specifically discuss a timeline along that. But what I can tell you is that we are very much focused on making sure that we are ramping up for in our facility this quarter. Getting the facilities back up in a way that is producing good quality product and delivering to our customers. And we are we are positioned to support them on a year-over-year volume improvement, which we will do. And certainly, if they have more need due to, you know, U.S. approval or other, needs, we are we are prepared to to support them in that way, in that way as well. David Silver: Okay. And David Silver: unusual topic for me, but I did want to ask about your working capital needs. David Silver: So David Silver: if I have this right, I mean, 2025 was the fifth consecutive year where, you know, if you look at the cash flow statement where the change in assets and liabilities was a a net use of capital and fairly significant one in most years. I was just wondering, I mean, certainly, you are in a growth mode, so some of that is, you know, self-explanatory. But is there anything unusual along those lines that we should think about? In other words, is working capital growing in line with kind of the growth in your business? Or is it, you know, is there a buildup due to, you know, you have some certain parts of your business are especially working capital intensive or maybe, you know, in the back half of 2025, have you purposely been building, you know, working capital to meet what you anticipate to be kind of, you know, stronger demand in 2026? Shelly M. Chadwick: Yes. So let me start on that one. So you are correct. With the growth trajectory that we have been in and the new pieces of business that we have been on, there have been step ups especially in inventory. You know, when we bring on an acquisition, like, the HCS Electronic Materials, when we, you know, ramped the business for Clad Strip, those took pretty big step ups with the inventory. Certainly, we look to manage that efficiently and get the turns in line, but, you know, it does create an increase. So sort of a onetime step up. When I think about, you know, other new business that we have brought on, the beryllium business, as you know, is vertically integrated. So when beryllium grows, that inventory cycle is pretty long. So that does require a bit more inventory. But we do identify this as an area of opportunity. Number one, you know, there was an issue. The the quality issue did impact working capital at the end of the year. As I mentioned in my comments, inventory did not move. The receipts did not come in. So that was really a temporary pause that caused us to be high at the end of the year. And even from that, we have got a number of working capital initiatives to manage inventory specifically, but also AR and AP to keep looking to bring that number down as a percent of sales and both and in days, to to keep it more efficient and generate cash. David Silver: Okay. And then thank you for that. And and I yeah, I should have accounted for, you know, the fourth quarter issues in Precision Clad Strip. Just just one more question. And this has to do with metals or your your procurement needs or or maybe some contract terms. But, you know, whether it is precious metals or other critical materials, I mean, the pricing and and in certain cases, availability issues have been, you know, topics, you know, across the industries that you serve. I am just wondering. I this is purely speculative. I do not know. But are any of your contracts, you know, contingent David Silver: on David Silver: metals prices not topping a a certain amount. In other words, is any of your business at risk because of, you know, where copper or gold or silver or other critical materials that you require, you know, are, you know, currently priced? I mean, availability, I guess, is a separate issue. But but, you you know, is there any kind of risk or uncertainty to your order book, you know, based on the the procurement prices of the critical materials that your customer’s products utilize? Jugal K. Vijayvargiya: Yeah. I would say in general, the answer is no. We do not have those types of contracts, with our customer. I think, you know, we have a very good transparency with our customers on what our materials prices are and how we handle that with them. Certainly, if there is materials that a customer is using and those materials are now much more costly than perhaps other materials that may be available out there, the customer can consider substitution. But that substitution requires a requalification, you know, developing a solution that actually works for them, and then requalification, which in most cases is is unlikely because these things can be temporary in nature. So I would say in general, that is really not a a a topic for us that that, you know, that we look at. David Silver: Okay. Great. I appreciate all the color. Thanks very much. Shelly M. Chadwick: Thanks, David. Operator: Thank you. And the next question is coming from David Joseph Storms from Stonegate. Dave, your line is live. David Joseph Storms: Morning. For taking my questions. This is Shelly M. Chadwick: Morning, John. Jugal K. Vijayvargiya: Thanks. I just wanted to ask a David Joseph Storms: quick one on David Joseph Storms: the energy end market. I was hoping to clarify. The new contribution from the CFS shipment, it was mentioned in the David Joseph Storms: slides that that is an initial shipment. Just trying to think about, can we is that David Joseph Storms: a nonrecurring shipment, or is this kind of the new normal David Joseph Storms: for energy given the the start up of that contract? Jugal K. Vijayvargiya: Yeah. We we announced, you know, last year that we had signed an agreement with them. And then as part of that agreement, we had received an initial contract that goes over a couple of years. And as part of that, we made the first shipment, into Q4, and we will continue to do that, this year. And what happens, I would say, really beyond that, we will continue to work with them on what their needs are and and support appropriately. David Joseph Storms: Understood. Very helpful. Thank you. David Joseph Storms: And then also, just thinking about your order book and backlog, David Joseph Storms: with the new $65,000,000 defense contract having about a two year burn rate, this is maybe just a little bit longer than your traditional burn rate that you have mentioned in your 10-Qs of about eighteen months. Are you seeing that be maybe the new normal for your backlog burn rate, or is this maybe more of a onetime, you know, thing? Jugal K. Vijayvargiya: Yeah. Let me let me just talk first about the $65,000,000 investment. That is actually an investment into increasing our capacity for being able to produce beryllium and beryllium-related products. So that is a capital project. And that will be done over this year and next year. So approximately about a 24-month time frame is when we will get that implemented and and and and put that in place. What we have indicated is that that will give us more capacity to produce product and certainly whatever, then we are able to supply to our customers in the out years with that, that will happen. The orders and the and the and the new orders that we are talking about, which is, you know, $140,000,000 of orders that we have talked about, that we booked, the the $35,000,000 that we booked already this year. Those can be within the quarter delivery. They can be within the year delivery. In some cases, they actually go a little bit into the into the following year, you know, maybe maybe over a six-quarter, you know, time frame or something. So that is a I am sure the eighteen, you know, months or something that that that you may be referring to is is that. Those those that come in. If we get new orders, because of the increased capacity in beryllium, you know, those will be negotiated over let us say, the rest of this year. And because those will go into effect, you know, then in the in the ’28, and sort of year ’28 and beyond beyond time frame. David Joseph Storms: Understood. Thank you for that clarification, and good luck in 2026. Shelly M. Chadwick: Thank you. Thanks, Dave. Operator: Thank you. There were no other questions at this time. I would now like to hand the call back to Kyle Kelleher for closing remarks. Kyle Kelleher: Thank you. This concludes our Fourth Quarter 2025 earnings call. Record playback of this call will be available on the company’s website, materion.com. I would like to thank you for participating on this call and your interest in Materion Corporation. I have you available for any follow-up questions. My number is (216) 383-4931. Thank you again. Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Kelly Services, Inc. Fourth Quarter and Full Year Conference Call. All parties will be on listen-only until the question-and-answer portion of the presentation. Today’s call is being recorded at the request of Kelly Services, Inc. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Scott Thomas, Kelly’s Head of Investor Relations. Please go ahead. Good morning. Scott Thomas: And welcome to Kelly’s Fourth Quarter and Full Year Conference Call. With me today are Kelly’s Chief Executive Officer, Chris Layden, and our Chief Financial Officer, Troy Anderson. Before we begin, I will remind you that the comments made during today’s call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risks that could influence the company’s actual future performance. In addition, we will discuss certain data on a reported and on an adjusted basis. Discussions of items on an adjusted basis are non-GAAP financials designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release, presentation, and, once filed, 10-Ks, all of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I will turn the call over to Chris. Thank you, Scott, and good morning, everyone. Before I discuss Kelly’s performance in the fourth quarter, I would like to reflect on the recent developments that mark an important moment on the company’s journey. On January 30, we announced that Kelly had entered an agreement with Hunt Companies related to its purchase of the controlling stake of our Class B common stock. In conversations with Hunt, it is clear they see many of the same opportunities I saw Chris Layden: as I considered joining the company as CEO. An iconic brand to build upon, a strong balance sheet with consistent free cash flow, a clear pathway to accelerate growth, and significant value to be unlocked. I welcome their support as we pursue these opportunities and realize Kelly’s full potential. As part of the agreement, our board has been reconstituted and four new board members have been appointed. Our new directors bring extensive experience which positions them to be strong contributors to the board as we drive progress on Kelly’s strategic journey. I look forward to engaging with them and continuing to work with the entire board to create lasting value for all of our stakeholders. Now let us review the highlights from our performance in the fourth quarter. Starting first with the broader macroeconomic environment, the dynamics that shaped our results through the third quarter persisted in the fourth quarter. Employers continue to take a cautious approach to hiring amid a mixed labor market. At the same time, we capitalized on positive trends in each segment which were reflected in our performance in the quarter. Kelly delivered revenue at the top end of our expectations as we doubled down on our commitment to stabilize the company’s performance and enhance how we are going to market as one Kelly enterprise. We achieved continued year-over-year growth in Education, driven by solid demand for K-12 and therapy specialties. In SET, we delivered top-line growth on a year-over-year basis in our telecom specialty and sequential revenue stability in Life Sciences. In ETM, we achieved stable sequential revenue performance in our staffing, MSP, and BPO specialties, excluding Contact Center Solutions. Across the enterprise, we continue to align resources with demand and maintain a disciplined approach to expense management. These results also reflect our deliberate shift towards customer centricity. My time in the field with our customers and talent has reinforced how this approach unlocks value for employers and for Kelly. Recently, I visited with the CEO of a consumer technology company that is designing and building some of the world’s most advanced audio solutions. I had the opportunity to see firsthand how Kelly has helped evolve their workforce as they scaled advanced manufacturing capacity in the U.S. to meet growing demand. When our relationship began eight years ago, they produced 10,000 units a year. Today, that number has grown to 4,000,000, with our team supporting key workstreams from R&D to final production and distribution. As they have invested in advanced robotics and capital equipment, our workforce has evolved alongside them, learning new skills, adapting to new processes, and helping them scale production in the U.S. As more manufacturers ramp up domestic capital investments and reshore operations, Kelly is well positioned to capitalize, leveraging our differentiated solutions, a customer-centric delivery model, and market leadership in North America. Parallel to these efforts, we reached a significant milestone in our technology modernization initiative that will power our growth well into the future. In December, our acquisitions in SET successfully completed the cutover from their legacy technology stack to the modernized platform Kelly acquired through our acquisition of MRP. This marks the first of a multiphase strategy to move our enterprise from a fragmented and outdated mix of front, middle, and back office technologies to a unified best-in-class platform. With our SET acquisitions fully operational within the platform, the business is now benefiting from deeper data and insights, AI and automation at scale, and enhanced productivity. These benefits will extend across SET and the enterprise as we execute on our phased approach, with the majority of Kelly’s businesses and functions slated to be operational within the platform in 2027. With our technology modernization gaining momentum, we also accelerated the integration of AI across the enterprise. In the fourth quarter, we launched a proprietary internal AI platform, Grace Boost, to every employee at Kelly. This is the latest iteration of Grace, a standalone GenAI tool which we initially deployed nearly two years ago to simplify sales and recruiting workflows. With Boost, we have taken its capabilities a step further, including directly integrating AI into the applications our people use every day. This integration eliminates swivel chair that limited adoption while improving its ability to learn users’ workflows, provide contextual assistance, and ultimately enhance productivity. As we continue to double down on customer centricity, we are also leveraging AI to enhance the customer and talent experience directly. During the quarter, we deployed a tailored AI recruiting solution enabling us to rapidly staff with a large multinational manufacturing customer a key assembly line. The AI agent calls, screens, and answers questions from applicants, helping our recruiters hone in on top candidates and accelerate the hiring process. And the results have exceeded our expectations. Talent feedback has been overwhelmingly positive, customer satisfaction has improved meaningfully, and we are meeting their needs faster and at a lower cost. The solution is highly configurable and scalable, and we are pursuing opportunities to deploy it to additional customers. These examples reflect Kelly’s focus on practical applications that put AI directly in the hands of our employees and our customers to solve real business challenges, leveraging the combined power of people and technology to deliver results with clear alignment to our strategy. We are also aligning our leadership team to accelerate growth. Yesterday, we announced the appointment of Pat McCall as Kelly’s Chief Growth Officer. Pat brings 30 years of sales and operations experience and a proven track record accelerating profitable growth and leading global staffing and IT services firms. In this newly created role, he will help bring to bear the full strength of Kelly’s portfolio, working across the enterprise to strengthen large enterprise account management and expand new customer acquisition. We are pleased to welcome him to the team and we look forward to his contributions towards Kelly’s growth strategy. Additionally, we announced in the fourth quarter the initiation of a comprehensive search for the next President of SET. Kelly has engaged a nationally recognized firm to conduct a search for a proven leader with significant experience enhancing go-to-market strategies, capitalizing on opportunities created by AI, and driving profitable growth. I am excited about the caliber of candidates we are speaking to and I look forward to sharing an update soon when our process concludes. The positive momentum we generated in the fourth quarter has set Kelly on the right path entering 2026. As we carry forward this momentum, we remain confident in our strategy, underpinned by a strong balance sheet, healthy cash generation, and a balanced approach to capital allocation. In a moment, I will share more on our priorities for the year. Scott Thomas: First, Chris Layden: I will turn it over to Troy to provide more details on the results in the quarter for the full year. Thank you, Chris, and good morning, everybody. For the fiscal year, revenue totaled $4,250,000,000, which was down 1.9% overall and roughly flat excluding acquisitions and discrete impacts from reduced demand from the federal government and three top customers, which we have discussed in prior quarters. Scott Thomas: For the 2025, Troy Anderson: revenue totaled $1,100,000,000, a decrease of 11.9% versus Q4 of last year, or down 3.9% on an underlying basis excluding the discrete impacts. As a reminder and brief update regarding these impacts, federal government demand largely stabilized in Q3, with a modest sequential decline in Q4 mainly due to seasonality. For the three top customers, one stabilized at the current reduced demand levels beginning in Q3, one fully ran off in August, and the largest one remains one of our top customers and saw continued demand reductions throughout Q4 and could see some further reduction in 2026. At the segment level, Education grew 1.3%, reflecting continued fill rate improvement. SET’s underlying revenue declined 5.4% in the quarter and was modestly better than our expectations, and reflects demand pressure within information technology and other key specialties, partially offset by growth in telecom. Underlying ETM also declined 5.4% and was modestly better than our expectations, with varying levels of declines across the primary specialty areas. On an absolute basis, underlying ETM revenue has been relatively consistent across the quarters throughout 2025. Scott Thomas: For Q4 revenue by service type, Troy Anderson: staffing services reflects modest growth in our Education business Scott Thomas: and pressure from government, Troy Anderson: large customer and macro environment impacts in SET and ETM. Our outcome-based offerings, excluding Contact Center Solutions, were down year over year, reflecting timing of project demand and new business within SET and ETM. Talent Solutions was down year over year, reflecting a mix of performance across the individual specialties. Scott Thomas: Perm fees represented approximately 1% of revenue, Troy Anderson: which was consistent with the prior year. Reported gross profit was $197,000,000, down 18.4% versus the prior year quarter, reflecting the lower revenue performance along with increased employee-related costs and business mix changes in the quarter. The employee-related costs were driven primarily by healthcare and workers’ compensation claims expense as well as certain impacts related to the large customer runoffs. The gross profit rate was 18.8%, a decrease of 150 basis points compared to the prior year quarter. Education’s GP rate held flat at 14.2%, while SET at 24.2% declined 130 basis points and ETM at 18.1% declined 220 basis points. Scott Thomas: We made significant progress improving our and A expense profile in the quarter, Troy Anderson: with reported SG&A expenses of $198,500,000, a decrease of 8.7%. On an adjusted basis, SG&A expenses decreased 11.1% year over year, reflecting the momentum we are gaining on structural and volume-related cost optimization efforts. Expenses decreased across all the segments, as we continue to drive durable and sustainable efficiencies in our operating model through technology enhancements and process efficiencies, including leveraging AI. Reduced incentive compensation expenses also contributed to the decline in the quarter. Existing initiatives like the continued realignment within the ETM segment and integration of MRP and other acquisitions within SET are progressing well and will drive increased go-to-market and cost efficiencies going forward. In connection with our various efforts, we recognized $9,800,000 of charges in the quarter, Scott Thomas: These included costs associated with improving technology and process Troy Anderson: processes across the enterprise, as well as severance expenses and executive transition costs. We expect to incur certain of these expenses through 2026 as we make continued progress and expand upon our various optimization efforts, including our technology modernization initiative. As a result of the overall business performance and a $127,900,000 increase to the tax valuation allowance, our reported loss per share was $3.69 for the quarter. On an adjusted basis, we delivered earnings per share of $0.16 compared to $0.79 in the prior year, with the decline over the prior year primarily due to lower profitability and discrete tax items. Scott Thomas: For the full year, Troy Anderson: the reported loss per share was $7.24, including $7.61 of noncash negative impacts from goodwill impairments and tax valuation allowance. Full year adjusted earnings per share was $1.26 Scott Thomas: Adjusted EBITDA was 21,000,000 with an adjusted EBITDA margin of 2%. Troy Anderson: Which was down 170 basis points versus the prior year quarter, and below our expectations. The revenue and gross profit declines I previously noted drove the decrease versus the prior year, while incremental GP rate pressure drove the shortfall versus expectations. Education margin expanded by 30 basis points year over year, driven by the revenue growth and expense optimization efforts. ETM and SET saw margin pressure due to the elevated revenue and gross profit declines, despite substantial SG&A reductions. Scott Thomas: Moving to the balance sheet and cash flow. Troy Anderson: We generated strong operating cash flow this year, with $122,600,000 through the fourth quarter, up significantly versus the prior year. Total available liquidity as of the end of the quarter was $288,000,000, comprising $33,000,000 in cash and $255,000,000 on our credit facilities, leaving us ample capital allocation flexibility. Total borrowings of $102,000,000 decreased $16,000,000 versus the prior quarter and $137,000,000 versus the prior year-end. Our debt to EBITDA leverage ratio was less than one at the end of the fiscal year. In addition to the debt repayment during the quarter, we completed $10,000,000 of Class A share repurchases, leaving us with $30,000,000 remaining on the current Class A share repurchase authorization. We also maintained our quarterly dividend of $0.075 per share. Total capital deployed across these three areas was $30,000,000 in the quarter and $158,000,000 for the fiscal year. These actions reflect our confidence in Kelly’s strategy and cash flow generation, and our commitment to opportunistically deploying capital in pursuit of attractive returns for shareholders. Scott Thomas: As we look ahead to 2026, Troy Anderson: we are assuming no material change in the macroeconomic or industry dynamics. Scott Thomas: Consistent with what we discussed last quarter, Troy Anderson: during 2026, we will still be experiencing the larger year-over-year effects of the discrete impacts from the federal government and the three large ETM customers, with some residual impact into the third and fourth quarters. Given that, we expect Q1 to look very similar to Q4, Scott Thomas: with revenue declining between 11–13% year over year, Troy Anderson: or an underlying decline of 3% to 5% excluding discrete impacts. Scott Thomas: And adjusted EBITDA margin of approximately 1.5%, Troy Anderson: which steps down from Q4 primarily due to payroll tax resets. Scott Thomas: As we progress through the year, Troy Anderson: assuming no new material impacts, we expect to see relative improvement in our year-over-year performance each successive quarter for both revenue and adjusted EBITDA margin. That should translate to modest revenue growth in the second half of the year and a roughly mid-single-digit decline on a full year basis. For adjusted EBITDA margin, we expect to see measurable year-over-year margin expansion in the second half of the year and a modest increase on a full year basis. We are excited about the momentum we are building and the many opportunities that lie ahead in 2026. I am grateful to all of the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhanced profitability over the long term. I will now turn the call back to Chris for his closing remarks. Thank you, Troy. The path to improved year-over-year performance becomes clear as we move through 2026 and the discrete impacts we have discussed begin to anniversary. The actions we are taking today are designed to ensure we capitalize on that inflection. Let me share more about our priorities for 2026 which build on the strategic pillars we discussed Scott Thomas: last quarter. Chris Layden: First and foremost is growth. Our focus on growth is reflected in the formation of a growth office, which under Pat’s experienced leadership will work across our businesses to enhance how we go to market as one Kelly enterprise. And having identified organic growth drivers in each business, we have a clear path to improve top-line performance as we progress through the year. In Education, our pipeline of net new K-12 staffing opportunities remains strong. We are well positioned to continue to gain share in this growing market as more schools seek to improve fill rates with our industry-leading offering. In districts where we already have strong relationships, we are driving penetration of our higher-margin pediatric therapy services to meet growing demand. In SET, we are sharpening our focus on high-growth areas, including data centers, AI, and cybersecurity, where our scale and expertise are uniquely suited to meet customers’ evolving needs. We are also continuing to capitalize on the shift towards higher-margin statement-of-work and consulting engagements. As an example, in Life Sciences, where Kelly is already the second-largest staffing provider in the U.S., we are capturing growth in the clinical trials market through our differentiated Functional Service Provider solution, or FSP. Our outsourcing model provides sponsors with specialized, scalable expertise to more efficiently manage specific functions in clinical trials, from data management and biostatistics to pharmacovigilance. With new deals coming online, including a multiyear contract with a global pharmaceutical company, we expect FSP will continue to be an important contributor to Kelly’s top and bottom line going forward. Scott Thomas: In an ETM, Chris Layden: we have several MSP and enterprise staffing wins slated to go live in the first quarter. This includes a new MSP program with a global financial services firm, one of the largest MSP deals Kelly has ever won. Our scale and capabilities, which contributed to this win, are reflected in our recent recognition by HRO Today as the number one global provider of total workforce solutions, encompassing MSP, RPO, and staffing. As we build on this momentum and enhance how we go to market as an enterprise, I expect our new business pipeline to continue to grow and our conversion of these opportunities to accelerate. Let me talk next about our second strategic priority, efficiency. We will continue to align resources with demand while reengineering our cost base to drive further structural efficiencies and enhance profitability. Our SG&A trajectory reflects the momentum we are building, and our technology modernization initiative is central to this effort. And our enterprise AI strategy reflects a targeted approach to unlocking productivity and growth across the business. And finally, culture. Culture remains fundamental to how we will achieve our growth and efficiency ambitions, with an emphasis on customer centricity, visibility, and accountability. We will continue making it easier to do business with Kelly, spending time in the field to better understand the needs of our customers and talent, and holding ourselves to the highest standard of execution across every part of the business. As we enter 2026, the investments we have made in our portfolio, our technology, and our people have positioned us to emerge stronger on the other side. There is much work to be done, but I am confident in our plan, our team, and our ability to execute. I want to thank our shareholders for their support and trust at this important moment on Kelly’s journey. I also want to express my gratitude to the Kelly team for their perseverance and resilience as we closed last year. The fourth quarter was a sprint, and we ran through the tape. Now it is time to carry our momentum forward and deliver on the promise of 2026. I look forward to working alongside our team to realize our collective ambition and create long-term value for our stakeholders. Operator, you can now open the call to questions. Operator: Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press. Our first question will be coming from Joseph Gomes of Noble Capital. Your line is open, Joe. Joseph Gomes: Good morning. Thanks for taking the questions. Chris Layden: Good morning, Joe. Good morning, Joe. Chris, I appreciate your comments on Hunt and then Scott Thomas: trying to dig a little deeper here and see maybe you could provide a little more insight. You know, we have gone from a Chris Layden: a passive Scott Thomas: owner of control of Kelly to an active shareholder here. Chris Layden: And you know, trying to get a better handle on what Hunt is bringing to the table. Do they have expertise in the staffing business? Scott Thomas: You know, maybe you can talk some more about that. And then what does this mean for the A shareholders? You know, if we look here Chris Layden: you know, the B shares Scott Thomas: have risen in price where they have now diverged fairly significant Chris Layden: from A. And, you know, historically, they have pretty much traded in Scott Thomas: tandem. I mean, obviously, there have been periods where they have diverged, but Chris Layden: it is just trying to get a better handle of what all this Scott Thomas: can mean here for the A shareholders and what they could Chris Layden: see here going forward. Thank you. Yeah, Joe. Great question, and thank you for it. We are really excited to welcome the Hunt team and, as you heard in my prepared remarks and what we shared even last week, you know, Hunt Companies continue to express their support of our team and the focus that we have in accelerating growth. They saw a lot of the same opportunities that I have highlighted over my first five months and the opportunity to unlock a lot more value here at Kelly. Now we continue to maintain a market-leading position across this diversified portfolio, the deep client that continue to allow us to support global employers as their needs evolve. And we know that the Hunt team is committed to that. We are not expecting any or anticipating any changes to our business, our client relationships, our strategic initiatives. And we remain committed to continue to create lasting value for our shareholders and we look forward to working with our new directors on that. There really is an opportunity for value for all shareholders, and interests are aligned in that regard. Now specifically, maybe to the second half of your question on just some of the protections that were secured. The agreement that we have with the Hunt Companies does include some governance protections, and those governance protections, we think, really align to all shareholders and give us a benefit for our Class A and our Class B going forward, where we know there is a tremendous opportunity to unlock value. Joseph Gomes: Great for that. Appreciate it. And on the SET business, you know, the underlying revenue Chris Layden: trends have worsened the last three quarters. Troy R. Anderson: And maybe you could speak a little bit more to that. And, you know, what do we see here in that business that could change those trends here? Chris Layden: Yeah. No. As you indicated and other 5.4% in the quarter, but this was modestly better than our expectations. The decline reflects some continued demand pressure in the technology space, but we also saw that offset with really nice growth out of our telecom segment. As we indicated, Life Sciences, our Science segment where we are number two, continues to show a lot of positive momentum. Large pharma companies leveraging our Functional Service Provider offering, which leads the market. And we expect to continue to see a demand for customers needing a more flexible outcome-based solution in the Science space. And in IT, right, that is our largest segment. We continue to see some headwinds from AI-driven productivity increases, reducing some demand for roles like programmers or areas like quality assurance. But we are also seeing an increase and an uptick in roles directly related to the development and deployment of AI solutions. We expect that pipeline to continue to grow as well. And as we go throughout the year, continue to see sequential quarter-on-quarter improvement. Troy, anything else you want to add? Sure. Yeah. Thanks, Chris, and Joe, for the question. The underlying has actually been—we did have a little bit of an uptick here, two points or so relative to what we saw in the last two quarters. We were in the low threes in Q2 and Q3 and around four in Q1. And similar to some comments we had offered last quarter, you know, last year in the fourth quarter, we grew 4% organically overall. And a lot of that growth was in, at the time, the P&I segment, but SET held pretty firm as well, and we did not see some of the normal seasonality we would see there, where it does trend down a little bit in the fourth quarter given how, you know, they are professional roles, and so you tend to see some holidays and the like. So I think it is really more a function of a compare with SET and ETM as well versus anything really changing in the business per se. Troy R. Anderson: K. Great. Thanks for that. Thanks for taking the questions. I will get back in queue. Chris Layden: Thank you. And our next Operator: question will be coming from Kartik Mehta of Northcoast Research. Your line is open. Kartik Mehta: Hey, good morning, Chris. I think you addressed a little bit of this Scott Thomas: question in the previous answer you gave, but I am interested, you know, so much talk about AI and the impact it is having on many companies. And you have talked about using AI at Kelly. I am wondering if you kind of sit back and look, do you think the net impact of AI has been positive, negative, or neutral Kartik Mehta: for Kelly as far as demand for services, Scott Thomas: compared to maybe what you have been able to do from AI from an efficiency and cost perspective? Chris Layden: Hi, Kartik. Yeah. No. Absolutely. We remain confident that AI presents a net positive opportunity for Kelly. Employers continue to be increasingly focused on leveraging the power of AI to drive productivity improvements and accelerate growth. You know, the AI-enabled recruiting solution I discussed in our prepared remarks is just one demonstration of the way that we are bringing that to market and differentiating. You know, our unique solutions also continue to provide employers, particularly big employers, global employers, with the flexibility and the scalability that they need to bridge their workforces into a more AI-enabled workforce. And in that way, it unlocks really the power of people and technology, and we think will unlock a lot of value for Kelly. Scott Thomas: And then, Chris, as you kind of look at the trends for 2026, especially on the permanent hiring or the fee business, I would be curious as to kind of what you are seeing in terms of demand from your customers and if that is giving you any kind of look forward into what 2026 could bring? Chris Layden: Yeah. It is a good question, and we are really not seeing a significant change. It continues to be stable in that regard. Perm represents about 1% total GP, and we continue to see stability there. Scott Thomas: Perfect. Thank you very much. I really appreciate it. Chris Layden: Thanks, Kartik. Yep. Thanks, Kartik. Operator: Thank you. And our next question will be coming from Kevin Steinke of Barrington Research Associates. Your line is open, Kevin. Chris Layden: Thanks. I just want to Kevin Steinke: start out by Chris Layden: exploring kind of the margin trend here in the fourth quarter and as you move into 2026, specifically to the fourth quarter, where adjusted EBITDA margin came in relative to your expectations. I think you mentioned incremental gross margin pressure. Was that the primary reason for the variance versus expectations? And can you just dig a little bit more into the drivers of that? I know you called out the higher employee-related costs and also business mix, but maybe a little bit more detail on how those Kevin Steinke: affected the margin relative to your expectations. Chris Layden: Yeah. That sounds good. I will talk a little bit about the EBITDA margin performance, and I will have Troy provide a little bit of color on the discrete impact on the GP side with some of the healthcare-related costs. You know, as you know and as we have talked about, our strategy continues to be centered around driving profitable growth. And EBITDA margin expansion has been and is going to continue to be an important part of that. Our EBITDA margin expansion in the fourth quarter and on a full-year basis fell short of our expectations. Troy talked in his prepared remarks. I know we talked over the last couple of quarters about some of the discrete customer impacts. But with this in mind, we continue, as we have shown, our focus on aligning expenses with demand is a real lever for us. And this is reflected in the SG&A and cost management reductions you saw both in the third quarter and the fourth quarter, and we will continue to be very focused there. We also recognize the need to address longer-term opportunities to reengineer our cost base, shifting our business mix to higher-margin markets, solutions, and offerings, and that is a big part of our growth story. And I would say, just as I turn it over to Troy to talk a little bit about the discrete GP impacts, some of this margin and the incremental expansion that we have talked about, it will play out as we move and anniversary some of those discrete impacts the first half of the year, where we are going to see margin expansion in 2026 with a modest increase on a full-year basis. But I will have Troy give you a little bit more color on the GP impact. Yeah. Thanks. Good coverage there, Chris. And, Kevin, yeah, certainly, the 150 basis point decline on the GP rate was incremental to what we expected. And you see the largest portion of that hitting ETM, both at the GP level and at the EBITDA level, and a little bit on SET as well. And we had some of this in Q3 also around the employee-related costs. We just had escalations and some changes as we pivot from ’25 to ’26 that drove some outsized utilization against the healthcare coverage. And then workers’ comp is largely driven by healthcare costs, especially older claims that are still open. And so, periodically, we do have adjustments to those based Kevin Steinke: upon Troy Anderson: the third-party estimates around those. So it is just a combination of factors as we came into the back part of the year here that put pressure on those two items that we expect will reset as we get into ’26. And we put some processes in place to have better visibility and better management there as we go forward. Okay. That is helpful. Yeah. Thank you for all the color there. And, you know, when we look ahead to 2026 here, just wanted to Scott Thomas: explore a little bit more, you know, the outlook you discussed in terms of Kevin Steinke: successive Scott Thomas: improvement in quarterly performance as you move throughout 2026 on both Chris Layden: I guess, revenue and adjusted EBITDA margin. I guess obviously comparisons get easier as you move throughout the year. But can you talk about the other factors that you expect to drive that progressive improvement, say, in terms of Kevin Steinke: organic growth drivers, business mix, etc.? Troy Anderson: Yeah. Sure. So I will take that, and Chris, certainly add any color as I go through it. But just, you know, Q4 to Q1, not a whole lot going to change in the business, still about an eight-point impact on those discrete items. The margin profile will not change dramatically. We will have the payroll tax reset, which is common across all the companies. And so that puts some incremental pressure on Q1 margins. But as we work through the year, the various growth—Pat coming on board, some of the things that Chris has talked about as far as our organic growth drivers, opportunities we have to bring full Kelly to our customers and to the market, along with the work we are doing from a technology modernization perspective and the benefits we expect to continue realizing there through ’26 and ’27, along with just other efficiency and optimization initiatives that we have planned throughout the year. That should all be accumulating as we go through the year, in addition to the easier comps, as you indicated, as we get into the back half of the year. But net, returning to growth on an organic basis, again assuming no new major material impacts, assuming no major change in the macro environment, returning to organic growth and measurable margin expansion in the back half of the year. And, look, if we get some positive tailwinds out of the economy, we would expect to take our fair share of that as well. Kevin Steinke: Great. Thank you. I just wanted to follow up there. Scott Thomas: You mentioned again bringing on a Chief Growth Officer and Chris Layden: you know, maybe you can just delve a little bit more into the Scott Thomas: opportunities Kevin Steinke: you see Chris Layden: by bringing on that role and, you know, what sort of initiatives you can execute relative to maybe, you know, what the company had left on the table before? Yeah. Exactly. You know, growth, as you have heard me say, is the single most important value-creation lever at this stage of our journey. We are excited to welcome Pat. In this new role, a newly created role, and he is going to have a clear mandate and that is really to bring the full strength of Kelly’s portfolio to the market. And we have to go win more market share with our large customers in particular. We have to build a much more unified, client-centric go-to-market model, reduce some of the access points as you have heard us talk about, and he is going to help us drive organic growth. We know how much opportunity there is, particularly with these large customers, to do more with them. We have really an unmatched product portfolio now and product mix, and we have to make sure we are bringing that to all of our customers, both in the traditional ways where we do staffing, but also in more outcome-based and solution work. And so it will be focused also on driving acquisition of new customers, driving pipeline acceleration across the enterprise, and we are excited to bring him into the leadership team starting this Monday. Kevin Steinke: Great. Great. Lastly, I just wanted to ask about—Chris, you talked about in your prepared remarks a real-world example of an internal AI recruiting solution you built out Chris Layden: I think, for one particular customer, and I think you talked about looking to deploy that more broadly. What would that mean for Kelly from an efficiency and cost-efficiency perspective? Kevin Steinke: And Chris Layden: do you think that is something that could be meaningful in terms of, you know, the number of recruiters you employ or any other metrics that it could help on your Kevin Steinke: journey to continue improving margins? Chris Layden: Well, you know, we really see a lot of customer impact. And what I will start with is really to say that we believe that we can really deliver AI at scale, helping us provide deeper data and insights, AI and automation at scale. And some of that productivity is really a little borne out in the EBITDA margin expansion as you see us growing throughout the year, and particularly in the second half of the year as we have the benefits of the program that I mentioned before, the impact of products like Grace Boost that are now deployed across all of our customer base and our employee base. And finally, you know, our industry-leading talent management platform, Kelly Helix, continues to lead the market, helping customers with deep workforce insights around their workforce mix, integrating AI-based chatbot to drive faster workflows and workforce decision-making. We really see that continuing to drive increased productivity and efficiency for us. And, again, we are showing some of that in the step-up you will see throughout the year. Kevin Steinke: Okay. Thanks for the comments. Appreciate it. I will turn it back over. Thanks, Kevin. Thanks, Kevin. Operator: And I would now like to turn the conference back to Chris Layden for closing remarks. Chris Layden: Great. Well, thank you all. We look forward to seeing you next quarter. Operator: And this concludes today’s program. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karyopharm Therapeutics Inc. fourth quarter and full year 2025 financial results conference call. There will be a question and answer session to follow. Please be advised that this call is being recorded at the company's request. I would now like to turn the call over to Brendan Strong, Senior Vice President, Investor Relations. Please go ahead. Good morning. Brendan Strong: And thank you all for joining us on today's conference call to discuss Karyopharm Therapeutics Inc.'s fourth quarter and full year 2025 financial results and recent company progress. We issued a press release this morning detailing our financial results for the fourth quarter and full year 2025. This release, along with a slide presentation that we will reference during our call today, are available on our website. For today's call, as seen on Slide two, I am joined by Richard Paulson, Reshma Rangwala, Sohanya Cheng and Lori Macomber who will provide an update on our results for the fourth quarter and full year 2025 and discuss recent clinical developments. Before we begin our formal comments, I will remind you that various remarks we will make today constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 as outlined on Slide three. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-Q or 10-Ks on file with the SEC, and in other filings that we may make with the SEC in the future. Any forward-looking statements represent our views as of today only. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any later date. I will now turn the call over to Richard Paulson. Please turn to Slide five. Thank you, Brendan, and good morning, everyone. Thank you for joining us today. Here in 2026, Karyopharm Therapeutics Inc. is in a defining phase marked by important late-stage clinical milestones, continued disciplined execution, and the opportunity to meaningfully expand the impact and scale of our oncology franchise. Today, selinexor has an established durable, commercial foundation of multiple myeloma within a highly competitive treatment landscape. That business continues to support the company and provide important experience as we advance into new treatment areas. Looking ahead, we see the most significant near-term driver of value in myelofibrosis, with endometrial cancer representing a subsequent opportunity to further expand the franchise. In myelofibrosis, we remain on track to share top-line data from our Phase III SENTRY trial in March. SENTRY was designed to address a clear unmet need by evaluating selinexor as part of a combination approach in a setting where treatment options remain limited. Over time and through clinical experience, we have meaningfully optimized how selinexor is used, including dose refinement and proactive supportive care, resulting in a more manageable and predictable tolerability profile. As we approach this important data readout, our organization is energized and well positioned to deliver on this opportunity. In endometrial cancer, we remain on track to report top-line data from our Phase III EXPORT EC042 trial in mid-2026. This biomarker-driven program targets a defined patient population with limited effective treatment options and represents an important opportunity to expand the long-term commercial profile of the franchise beyond hematological malignancies. From a financial perspective, we continue to manage the business with discipline. As previously disclosed, our cash runway extends into the second quarter, which aligns with key near-term clinical milestones. We have been deliberate in how we sequence spend across the portfolio and we are actively evaluating a range of financing and strategic options to maintain flexibility and align capital decisions with value creation. With that context, I would like to first turn the call over to Reshma Rangwala, our Chief Medical Officer, who will provide a detailed update on our clinical programs and upcoming milestones. Following Reshma, Sohanya Cheng, our Chief Commercial Officer, will discuss how we are preparing from a commercial and go-to-market perspective. Then Lori Macomber, our Chief Financial Officer, will review our financial results and discuss our financial guidance for 2026. After those updates, we will return for additional discussion and Q&A. Operator: Reshma? Reshma Rangwala: Thank you, Richard. I am incredibly excited by the near-term opportunity to read out two Phase III trials that could establish new standards of care in two areas of high unmet need. Start with myelofibrosis where we will have data next month. As seen on Slide eight, I would like to emphasize substantial need for new treatment options for patients with myelofibrosis. JAK inhibitors are the only approved therapies, and while they may decrease burden and lead to very modest spleen reduction, relevant JAK inhibitors including ruxolitinib, the standard of care in frontline myelofibrosis, do not target all of the relevant pathways implicated in myelofibrosis, including NF kappa beta, p53, and fibrosis-inducing pathways. As a result, frontline treatment with monotherapy JAK inhibitors do not adequately address the relevant drivers of pathogenesis in myelofibrosis. On Slide nine, our confidence in selinexor’s potential in myelofibrosis is based upon a substantial body of preclinical, nonclinical, translational, and clinical efficacy as well as safety datasets. These data suggest XPO1 inhibition is a key mechanism that may facilitate potential synergy with ruxolitinib and other drugs relevant in myelofibrosis. This multi-targeted approach enables treatment of the underlying mechanisms that lead to myelofibrosis and we believe may lead to meaningful efficacy across the key treatment drivers as well as the generally safe and manageable side effect profile. As seen on Slide 10, while JAK inhibitors directly inhibit the JAK-STAT pathways, multiple other pathways downstream of JAK-STATs support malignant clone proliferation and survival, bone marrow fibrosis, cytokine storms, and proliferation of abnormal megakaryocytes. These pathways include NF kappa beta, PI3 kinase, AKT mTOR, and TGF beta. A multifaceted approach with dual XPO1 and JAK inhibition simultaneously target upstream and downstream effectors of the JAK-STAT pathway, enabling apoptosis or cell death of the malignant clones. Let us now focus on the key treatment drivers in myelofibrosis, as seen on Slide 11. Spleen reduction, symptom improvement, and lower rates of grade 3+ anemia. First, spleen volume reduction. Note that only approximately one third of patients achieve a spleen volume reduction of greater than 35% with ruxolitinib alone. In contrast, our Phase I data suggests that the combination could more than double the SVR35 rate at 79%. Second is symptom improvement. Data from this trial also showed an average 18.5 improvement in absolute TSS at week 24 relative to baseline, which suggests that combination could provide a meaningful improvement over the 11 to 14 points achieved by patients on ruxolitinib as observed in the Phase III II and TRANSFORM-1 trials. Keep in mind that our 18.5 improvement excludes fatigue, whereas the numbers from the other trials include fatigue. So in reality, the difference could be even greater. Third is lower rates of grade 3+ anemia. The data that we presented in June at EHA from our Phase II, 35 monotherapy trial showed lower rates of all grade and grade 3+ anemia for the selinexor arm as compared to physician’s choice, in myelofibrosis patients previously treated with JAK inhibitor therapies. Our initial blinded safety data from the first 61 patients enrolled in SENTRY also suggests lower rates of grade 3+ anemia when selinexor is combined with ruxolitinib compared to historical ruxolitinib data. Meaningful improvement of these treatment drivers require disease modification or elimination of the underlying mechanisms leading to development of an enlarged spleen, constitutional symptoms, and worsening cytopenias. Data observed from selinexor monotherapy studies in a pretreated myelofibrosis population, as well as our Phase I combination data in JAK inhibitor naïve myelofibrosis, suggests meaningful reductions in key cytokines critical to myelofibrosis pathogenesis, symptom development, and anemia, as well as improvements in bone marrow fibrosis, increased mutational burden. Improvement in these markers of disease monster alone and in combination may lead to improvement in the key hallmarks of the disease including enlarged spleen, cytopenias, and symptoms. Turning to Slide 12, we are eagerly awaiting the readout from our Phase III SENTRY trial next month. Everything within our control to optimize SENTRY for success. As we have previously discussed, we believe that we have, including focusing on the relevant symptom domains and the analysis of PFS can be most accurately evaluated in a randomized trial analyzing TSS by estimating in approximately 350 patients approximately 22.5 which could be the highest baseline TSS observed in a frontline myelofibrosis Phase III trial. Depending on the outcome of our data in myelofibrosis, we also have a significant opportunity to expand into other myeloproliferative neoplasms as outlined on Slide 13. This includes the potential to expand into polycythemia vera and essential thrombocythemia with eltenexor, our leading next-generation XPO1 inhibitor. Let us now turn our attention to endometrial cancer on Slide 15. Reshma Rangwala: In the Phase III EXPORT EC042 trial, the number of PFS events observed to date are consistent with our projections giving us confidence in our ability to share top-line data in mid-2026. In light of the near-term proximity of these data, I wanted to go back and remind everyone about the treatment landscape, our data from our last trial, and recap our current trial design. Our Phase III trial is recruiting patients with p53 wild-type endometrial cancer. Given that checkpoint inhibitors are entrenched in the treatment landscape for patients with dMMR tumors, the trial has been updated to first evaluate the primary endpoint of PFS in patients with p53 wild-type pMMR tumors or p53 wild-type dMMR tumors but medically ineligible to receive a checkpoint inhibitor. If positive, PFS will then be evaluated in all with p53 wild-type tumors. As discussed previously, the long-term follow-up data from our Phase III SIENDO trial indicated that women in the exploratory subgroup with p53 wild-type endometrial cancer and pMMR tumors, roughly half of all patients, experienced a progression-free survival with selinexor as a maintenance therapy following chemotherapy, which exceeds the overall survival that inhibitors have demonstrated in the same population. Let us review some of our long-term follow-up data from our last Phase III trial in endometrial cancer. Slide 16 shows a very encouraging signal in the p53 wild-type subgroup with a hazard ratio of 0.44, and a median PFS benefit of 28.4 months largely due to the early separation of the curves. These data have only strengthened with time and suggest a similar trend may be observed in our ongoing Phase III trial. These results were even more impressive in the subgroup of patients with p53 wild-type pMMR tumors, as shown on Slide 17, the long-term follow-up data from this prespecified exploratory subgroup showed a hazard ratio of 0.36 and a median PFS benefit of 39.5 months. Similar to the broader 18 shows the safety profile at the time of the long-term follow-up, which is something that we will expect to improve when we report data from our ongoing Phase III trial. As you look at these data, keep in mind that SIENDO was evaluating 80 mg of selinexor once weekly. And while antiemetics were used at time, the mandated use of dual antiemetics during the first two cycles of therapy was not part of the clinical trial protocol. This is a key difference when you think about the design of our current Phase III, where we are using a lower dose of selinexor at 60 mg once weekly, and dual antiemetics are mandated during the first two cycles of therapy. That takes us to Slide 19, which contains the trial design of our Phase III EXPORT EC042 trial where selinexor 60 mg is being evaluated as a maintenance therapy in patients with p53 wild-type endometrial cancer. The primary endpoint for the trial is progression-free survival as assessed by the investigator. As I mentioned earlier, event accrual is consistent with our projections, and we remain on track to share top-line data in mid-2026. I am incredibly excited by the opportunity presented by both of these Phase III trials to establish new standards of care in two areas of high unmet need. I will now turn the call to Sohanya. Thank you, Reshma. As shown on Slide 21, our commercial organization executed well in 2025 within the highly competitive multiple myeloma market. XPOVIO net product revenue grew to $32.1 million in the 2025 and $114.9 million for full year 2025. We expect to continue to deliver revenue growth this year and are guiding towards $115 million to $130 million of XPOVIO net product revenue in 2026. Demand for XPOVIO was consistent year over year in 2025 with the community setting continuing to drive approximately 60% of total U.S. sales. XPOVIO continues to be positioned in both the community and academic settings as a flexible therapy with a differentiated mechanism of action oral convenient option. Additionally, given the emergence of new T-cell engaging therapies, and our growing body of evidence around the role of selinexor in potentially preserving the T-cell environment, XPOVIO continues to be utilized in the peri T-cell engaging therapy setting. Let us turn to Slide 23. As we work to expand beyond multiple myeloma, let us now focus on myelofibrosis, where selinexor has the potential to play a very different role where the patient populations, competitive dynamics, the dose of selinexor, and potential impact on patients are fundamentally different. This is why our commercial opportunity in myelofibrosis is so much greater. Taking a closer look at dosing and patient population differences between the two diseases, it is important to recognize that the side effect profile often associated with XPOVIO stems largely from its use at higher doses in multiple myeloma following our initial approval. Those historical concerns accurately reflect how selinexor is expected to be used at a lower dose with dual antiemetics in frontline myelofibrosis if approved. The other fundamental difference between the two diseases is the unmet need and competitive landscape. In myelofibrosis, the only treatment options that patients currently have are JAK inhibitors, with ruxolitinib monotherapy being the standard of care for the past 15 years and only about one third of patients that receive ruxolitinib volume reduction of 35% or more with two thirds of patients not adequately responding. As Reshma outlined, our data highlights offer opportunity to meaningfully improve patient outcomes by increasing the proportion of patients that achieve rapid, deep, and durable spleen volume reduction, as well as symptom improvement and lower rates of grade 3+ anemia while also potentially modifying the underlying disease. Slide 24 provides an overview of our opportunity to be the new market leader with the first ever frontline combination therapy as we combine with the current market leader to offer better outcomes for patients. As you look at the overall prevalent market there are 20,000 patients living with myelofibrosis in the U.S., which represents a multibillion dollar marketplace, with approximately 6,000 newly diagnosed patients each year. Our commercial efforts will focus on the approximately 4,000 newly diagnosed patients with intermediate to high risk myelofibrosis that have a platelet count above 100,000. Based on the market research that we have conducted, 75% of physicians expressed intent in treating patients with a combination therapy. For duration, we are assuming that we can improve upon the 13-month real-world duration of treatment for ruxolitinib. Taking all of this into account, we believe that our peak revenue opportunity may approach $1 billion annually in the U.S. alone. Turning to Slide 25. We have the capabilities in sales, market access, marketing, and medical affairs to support a launch in myelofibrosis. The team that we have assembled has deep experience in hematological oncology and rare disease launches. This group plus the robust teams that support them will allow us to launch rapidly. Our current sales organization has deep relationships and experience with accounts that will be key to our launch. As outlined on Slide 26, 70% of myelofibrosis patients are treated in the community setting. The majority of these patients are treated at five large community networks, such as U.S. Oncology and Florida Cancer Specialists, and approximately 200 other large community accounts. Academic institutions represent the other 30% of patients and more than 70% of these patients are treated at the top 50 academic institutions. Importantly, a majority of the top 50 academic institutions are participating in SENTRY and/or SENTRY-2. So the clinical care teams that work with myelofibrosis patients in these institutions are already very familiar with selinexor plus ruxolitinib for frontline myelofibrosis patients. As we focus on the concentrated group of accounts outlined on this slide, we believe this will allow us to launch rapidly. Turning now to Slide 27. We are energized by the opportunity to reshape frontline myelofibrosis treatment by pairing selinexor with the current standard of care. Today, two thirds of patients still fail to reach SVR35 on ruxolitinib, an unmistakable unmet need. Our selinexor–ruxolitinib combination is a convenient all-oral regimen. Our teams are already engaging the key accounts, positioning us for a fast, efficient launch. Just as importantly, selinexor fits seamlessly into existing workflows. No new testing. No operational hurdles. No disruption to how patients receive care. That simplicity makes adoption far easier. With positive data and regulatory approval we will be ready to drive rapid meaningful uptake and deliver a therapy with the potential to change the trajectory for patients. Now I will turn the call over to Lori. Good morning, everyone, and thank you, Sohanya. Turning to our financials on Slide 29. Total revenue for the 2025 was $34.1 million, an increase of 11.8% compared to the 2024. For the year, total revenue was $146.1 million, a slight increase from 2024. U.S. XPOVIO net product revenue for the 2025 was $32.1 million, an increase of 9.6% compared to the 2024. For the year, U.S. XPOVIO net product revenue was $114.9 million, an increase of 1.9% from 2024. Gross-to-net provisions for XPOVIO were 26.9% in the fourth quarter and 31.2% for the calendar year 2025. License and other revenue was $2.0 million in the fourth quarter and $31.2 million for the full year 2025. Keep in mind, our full year revenue included $15.0 million of R&D reimbursement from Menarini, and 2025 was the last year we will receive this reimbursement. Remaining $16.2 million in 2025 was related to royalties, or milestones earned from our international partners including Menarini. Turning to expenses. We remain disciplined in managing operating expenses and allocating capital to our pipeline. This focus continues to translate into solid quarterly and full year financial performance. Research and development expenses for the 2025 were $27.7 million, a decrease of 17% from the 2024. For the full year, research and development expenses were $125.6 million, a decrease of 12% from 2024. These decreases were driven largely by lower personnel following previously implemented cost reduction initiatives and focused clinical trial expenses as we prioritize capital allocation to our Phase III myelofibrosis and endometrial cancer programs. Selling, general, and administrative expenses were $22.8 million for the quarter, a decrease of 16% compared to the 2024. For the full year, SG&A expenses were $105.2 million, a decrease of 9% from 2024. These decreases primarily reflected the continued benefits of our cost reduction initiatives. Lori Macomber: Taken together, our law firm operations improved by approximately 43% in the 2025 compared to the 2024. And improved 24% in the full year 2025 compared to 2024. Interest expense was $12.6 million in the fourth quarter and $45.8 million for the full year. Both amounts were an increase from the comparable periods in 2024 reflecting higher outstanding debt, and higher interest rates as part of our refinancing in October. Other expense was $10.0 million in the 2025, compared to $10.1 million of other income in the 2024. For the full year, other income was $0.2 million compared to $28.4 million of income in the full year 2024. This nonoperational item is primarily driven by reoccurring noncash fair value remeasurements of embedded derivatives and liability-classified common stock warrants related to the refinancing transactions completed in the 2024 and the 2025. This, combined with the $62.4 million loss on the extinguishment of debt in 2025 compared to the $44.7 million gain on the extinguishment of debt in 2024, were the primary contributors to the higher net loss and lower earnings per share in 2025 versus 2024. Importantly, both items are noncash and nonoperational in nature. As a result, we reported a net loss of $102.2 million, or $5.71 per share on a GAAP basis in the 2025, and a net loss of $196.0 million, or $17.93 per diluted share for the full year 2025. More than half of the full year loss was driven by below-the-line items including the loss on extinguishment of debt, and interest expense, which are largely noncash in nature. Excluding these items, our underlying operating performance continues to demonstrate meaningful improvement. Finally, we ended the year with $64.1 million in cash, cash equivalents, restricted cash and investments compared to $109.1 million as of December 31, 2024. Based on our current operating plans, our guidance for the full year 2026 is as follows: total revenue of $130 million to $150 million consisting of U.S. XPOVIO net product revenue and license, royalty, and milestone revenue expected to be earned from our partners, primarily Menarini and Antengene. U.S. XPOVIO net product revenue to be in the range of $115 million to $130 million. R&D and SG&A expenses to be in the range of $230 million to $245 million. We expect our existing liquidity including the revenue we expect to generate from XPOVIO net product sales, as well as revenue generated from our license agreements, will enable us to fund our current operating plans into the second quarter of this year. I will now turn the call back to Richard for some final thoughts. Thank you, Reshma, and Lori. As we have discussed today, Karyopharm Therapeutics Inc. is well positioned as we approach pivotal data that will inform the next phase of the company. We have a durable commercial foundation of multiple myeloma, and we are approaching pivotal data from our late-stage clinical programs that have the potential to significantly expand the role and impact of our oncology franchise, beginning with myelofibrosis in March, and extending into endometrial cancer in the middle of this year. We have continued to refine how our programs are developed and executed, applying clinical experience, optimizing how our therapies are used, and ensuring our Phase III programs reflect what we believe is the right balance of efficacy and tolerability for the settings we are targeting. From a capital perspective, we remain disciplined and deliberate. We are managing the business with a clear focus on near-term value-creating milestones, while maintaining flexibility and optionality as we consider financing and longer-term strategy. Ultimately, our priorities are straightforward. Execute well, generate high-quality data and allow these results to define the next phase of the company. We believe this approach best serves patients, investigators and shareholders alike. We will now open the call for questions. Operator? Operator: Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star followed by the number two. And we kindly ask you to please limit yourself to one question and one follow-up. With that, our first question comes from the line of Colleen Margaret Kusy with Baird. Please go ahead. Colleen Margaret Kusy: Great. Good morning. Thanks for taking our questions, and congrats on all the progress. Very excited for the upcoming data we will see next month. Maybe we can start there. Obviously, the 60 mg data has yeah. That we have seen so far is invest in class. I think as a lot of people are doing a little bit more work ahead of the readout, there have been some questions coming up from investors on just on the 40 mg dose and data we have seen there. So maybe just can we start there? Just any notable difference in exposure? Anything else you think is driving that difference in activity that you have seen for the 40 mg versus the 60 mg in the Phase I? Richard Paulson: Yes. Thanks, Colleen. I think, obviously, our dose is focused on the 60 milligrams and looking at our Phase III trial. But I will let Reshma maybe just talk to that broadly, but I think people should be very focused on the data. Efficacy, safety, and tolerability we have with the 60 milligram in combination with rux. Reshma Rangwala: Yeah. Thank you, Colleen and Richard. So it goes back to our Phase I data in which we evaluated both the 60 mg as well as 40 mg. When you look at the efficacy and safety, there is a clear benefit risk in favor of the 60 milligram cohort as compared to the 40, largely due to the fact that efficacy, both from an SVR as well as TSS, was maximized in the 60 milligram group as compared to the 40 milligram group. Now, when you look at the safety, though, you do not see as stark of a difference. Numerically, yes. Both the heme and non-hemes are slightly higher with the 60 milligram as compared to 40, but you do not see that substantial dose response as compared to, again, what I described in the efficacy. So in total, again, when you look at the efficacy and safety data, it really is in favor of that 60 milligram group. Then layer in the pharmacokinetic data and, therefore, exposures are higher with that 60 milligram group as compared to the 40. So really, the totality of the data from the clinical efficacy, safety, ClinPharm, and then, of course, we have got multitude of preclinical data, translational PD markers that really suggest that 60 milligrams is the right dose in myelofibrosis. Hence, the reason that we have taken that forward in our Phase III. And then, obviously, you are the first potential combination in frontline MF, which is a exciting opportunity. Novartis, a potential competitor potentially just kind of announced some new plans moving forward in MF. Just kind of curious your thoughts on the read through there. Would think, obviously, follows your strategy of enrolling highly symptomatic patients but just curious your thoughts on the read through there. Richard Paulson: Yeah. Thanks, Colleen. Yeah. I think you highlighted it. It really it does talk to the importance of having the right patient population in the trial, which I think we have delivered very well. And overall, really, the continued investment in myelofibrosis space really talks about the unmet need and the significant value that that is seen in myelofibrosis market. So you know, I think as we look at it, you know, regarding the EU and Novartis has indicated they may be moving forward and filing there. That may indicate that the EU regulatory agencies are more focused on 35 and potentially showing you know, more regulatory flexibility, less focus on symptoms. But you know, given our top-line readout data is going to happen in March, we would look to be filing rapidly with our data, obviously engaging in both the U.S. and globally. And so I think this really gives us the opportunity to establish ourselves pending positive data as a standard of care in myelofibrosis, you know, given the fact that Novartis has indicated that they would run another trial for the U.S. And that trial would not read out for a number of years and gives us a significant amount of time to establish ourselves well and become the standard of care in frontline myelofibrosis. Colleen Margaret Kusy: Awesome. And then one more quick one if I can. Just, if you could the comments a little bit about the strategy for eltenexor and other MPNs if MF is positive? Just strategy would look like there and and what the IP is. Could you remind us for eltenexor versus onixor? Reshma Rangwala: Yeah. I will take the first question, and then I will pass over the IP to Richard. But yes, eltenexor is a second-generation XPO1 inhibitor. So just like selinexor, it too is going to inhibit XPO1. It has a couple of differentiating properties, lower IC50s as well as lower penetration through the blood-brain barrier. That has opportunities to lower the dose, potentially dose more frequently, also have a better safety profile, profile. Eltenexor has already been evaluated in a Phase III trial, so we do have some, you know, very encouraging preliminary data, albeit in other tumors outside of the MPNs. I think where we look at the next opportunity is to go beyond MF. Right? We know that MF is just one of multiple MPNs. We have got some really interesting preclinical data that also suggests that XPO1 may be relevant in other MPNs, including PV as well as and so that, I think, would be our next opportunity. Is to expand again beyond MF and start to look at some of these other more chronic diseases like the ones that I just mentioned. Richard Paulson: Yeah. And from a patent perspective, obviously, it is early days yet with regards to our overall strategy there. But you know, right now, with eltenexor, the patent, it goes into mid-2034. But as a reminder, we have not yet yet applied for any patent term extension or patent term adjustment which would extend it, you know, into 2039. So lots of opportunity for us as we continue to move forward and develop in that in that space. Colleen Margaret Kusy: Great. Thanks so much for taking our questions. Six here for the data next month. Richard Paulson: Thanks, Colleen. Operator: Thank you. And the next question comes from the line of Yichun Qian with Cantor. Please go ahead. Yichun Qian: Hi, folks. Appreciate the updates here. Greatest progress in timelines remain intact. Just had a question with regards to the blinded safety data. And just given that you have been able to provide baseline characteristics on a blinded basis with the trial now fully enrolled, curious if there has been an opportunity to kind of refresh that look and if there has been any kind of material change there with regards to discontinuation rates or other AEs like the nausea and anemia and thrombocytopenia. Reshma Rangwala: Hey, Yoni. Thanks for the question. So, no, we have not updated anything beyond what we have publicly disclosed in the past. So, you know, what we have said in the past is, you know, the baseline demographic is disclosed in the ASH abstract, included approximately 320 patients, was very consistent with our expectations for population to be enrolled in a frontline myelofibrosis. With that said, though, we did have an opportunity to update the TSS in approximately 350 patients. Again, you know, something that I have commented before in the past. And that TSS evolution, that baseline TSS evolution without fatigue is, again, really nice. Approximately 22.5 potentially could be the highest baseline TSS, which is something that we were actively striving for. In terms of the blinded safety data, no, we have not done a refresh. We are looking forward to the data next month where we can definitively look at the data across the two arms. Those two, I think, are very encouraging and potentially suggest that patients treated with a combination could have lower grade 3+ anemia. This is, again, based upon extrapolations relative to historical ruxolitinib data, as well as very manageable non-heme toxicities including the GI toxicities, nausea, as well as elaborate there. What is kind of the general. Yichun Qian: Protocol? And if there is any kind of high level view that you can provide with regards to rux dosing and and how in line it is with the label. Reshma Rangwala: Absolutely. So the SELE dose can be reduced. So it can go from 60 to 40 to 20, and then, yes, you know, of course, if the AEs persist, it can be discontinued. Those dose modification guidelines are well specified within the protocol. The ruxolitinib dose modifications are really based upon the country’s local label, right, which by and large are very consistent with the U.S. USPI. So the starting dose is going to be based upon the patient’s baseline platelet count, and then any kind of dose modifications, including reductions, interruptions, and even discontinuations, again, should be followed per the U.S. So we are very strict about that in our protocol. Now given the fact that this is a combination therapy, what we suggest to our investigators is to modify based upon what I call the flavor of the AEs. So if a patient first experiences a hematologic toxicity, for example, anemia, thrombocytopenia, very well described for ruxolitinib, we guide them to modify the ruxolitinib dose first, again, per the U.S. If they experience a non-heme toxicity, then we suggest that they modify selinexor dose. So we try to keep it very easy for the investigator just based upon the kind of AE that the patient experiences. Yichun Qian: Got it. Okay. And one one last quick one. Just with regards to SENTRY-2, could you comment there a little bit on kind of the strategic thought there and kind of utility of that data and what you are hoping to show and how that might tie in with future label extensions within MF? Richard Paulson: Yeah. I can talk to that. Yeah. Mean, overall, obviously, enabling trial is our Phase III frontline combination with ruxolitinib. But really importantly, when we look at the overall efficacy and I think the activity of selinexor, we have seen in a number of our trials really strong monotherapy data. And also, we do know that it is important to be able to expand beyond ruxolitinib in the future. Potentially with selinexor to really play a foundational role across myelofibrosis first and potentially across other MPNs. So our Phase II is really one where we are letting patients start at the platelets greater than 50,000. The 50,000 and above is we just modified the protocol. And within that, it is starting with selinexor as a treatment monotherapy. And then you have the opportunity for patients to be able to add on other JAK inhibitors depending on the need, so they may not need to. But if they do need to, they can add on their JAK inhibitors. And we do know that selinexor is a drug that is able to be partnered with many other drugs. So I think, you know, pending positive data with our Phase III frontline combination with rux, our view would be, you know, to read out the Phase II data, and look at that as an opportunity to really expand from a guideline perspective and enable physicians much more flexibility and the opportunity to establish, you know, selinexor in combination with multiple JAK inhibitors and/or selinexor to be able to treat patients potentially as a monotherapy. But, again, that is an opportunity to expand in the future. An area that I think we are quite excited about and is moving forward well. Anything you would add on to that, Reshma? Reshma Rangwala: No. Nothing. That is great. Yichun Qian: Perfect. Alright, guys. Really appreciate the updates, and best of luck here in the near in near term. Brendan Strong: Thanks, Yoni. Operator: And the next question comes from the line of Brian Corey Abrahams with RBC Capital Markets. Please go ahead. Brian Corey Abrahams: Hey. Good morning. Thanks for taking my question, and look forward to an exciting next couple of months. You reported the Phase III baseline characteristics at the ASH conference in an abstract. And it looks like if you look at the risk status, if you look at spleen volume, the baselines the baselines the patient population looks somewhat milder than what was in the Phase I/II. And then while the I think you pointed out that the TSS score is actually substantially higher, there is a pretty wide range, including patients going down to scores as low as two. So can you maybe talk about what some of those similarities but also differences might mean with regards to, you know, the potential to show as why the delta in the in the Phase III? Reshma Rangwala: Thanks. Sure. Thanks, Brian. You are correct, right? Sort of like if you compare the patient populations in the Phase III, Phase I, I would agree. It is a little bit milder. I think the other aspect that is different is even the baseline hemoglobin. Right? So it was approximately 10 grams. Median was 10 grams in the Phase I. It is approximately 11 grams in the Phase III. So I think by and large, right, yes, this potentially could be a less sick patient population. You know, with that said, though, I do not think it is going to have any impact on the efficacy. Right? And I say that because even when we look at the subgroups, from our Phase I from an SVR perspective, there really is a very nice consistency, including across all of the dips. From INT-1 all the way up until high risk. And even by hemoglobin. So I think it really suggests that there can be meaningful benefit across all of the different subsets of patient populations to, of course, people that are going to have far more difficult to treat disease versus those that are have a little bit more mild disease. Brian Corey Abrahams: No. That is really helpful. Thanks. And then do you have any sort of updated feedback from either KOLs or from regulators on that is maybe shaped your view on what might be a reasonable threshold for symptomatic improvement just in the in the case that you show statistically significant spleen reductions, but do not quite show, get to statistical significance on symptoms. What would be the bar to still potentially proceed with the filing, assuming there are not any safety surprises or anything like that? Reshma Rangwala: Sure. You know, so our goal is to really show statistical significance for both SVR as well as absolute TSS. Right? You know, those are the bars that are included in our statistical analysis plan as well as discussed with the FDA. We think that profile again statistically significant improvement both for the SVR, TSS, in the context of a very manageable safety profile, is really the ideal profile for a new combination therapy, the only combination therapy that would be available for these patients with MF. Even take it one step further, when we talk to our KOLs, right, they do emphasize that SVR is going to be their primary treatment driver, largely because there are, you know, multiple datasets, multiple meta-analyses, that really suggest that the deeper, the more rapid, the more durable the SVR that can be achieved, the more that it may correlate with long term. They are very focused on that spleen volume reduction, and while they say, yes, symptoms are important, you are really, for them, they just want to see some kind of benefit. Benefit above and beyond ruxolitinib. So, again, I think even if you have that outcome in which SVR is positive, TSS is numerically improved, that is a profile that they would be very happy with and clearly would even advocate for the NCCN guidelines to adopt. So you know, I think that is very encouraging from their and a very important voice, right, in the MF space. From a regulatory perspective, they have never commented. Right? They have never commented on what that minimum delta would be. I think, again, I think statistical significance is what we are, you know, striving to achieve here. Got it. That is super helpful. And then maybe one more if I could squeeze it in. Brian Corey Abrahams: Could you just remind us on the regularity of, I guess, DSMB or interim safety looks here and whether or not you would expect that would pick up on any imbalances in the transformation. Thanks. Reshma Rangwala: Yes. So the DSMB does evaluate the data on a regular basis, approximately every four to six months. It is something that we do across all of our clinical trials. And, yeah, they would. You know, they get the totality of the safety data from all AEs, grade 3, 4, SAEs, and, of course, transformations as well. So far, they have not, you know, mentioned anything. And as I mentioned previously, even with the futility analysis, they did suggest that this study continues without modification. Brendan Strong: Thanks again. Richard Paulson: Thank you, Brian. Operator: And the next question comes from the line of Maury Raycroft with Jefferies. Please go ahead. Maury Raycroft: Hi, good morning. Thanks for taking my questions. Maybe as a follow-up to one of the earlier ones, for the 61 patients in the futility analysis group in SENTRY, what can you say about dose reductions you saw for selinexor and/or ruxolitinib? And even though you have been clear that we should not rely too much on extrapolating based on these patients, can you contextualize how the dose reductions compared to your Phase I? And how the rux dose reductions could compare to other myelofibrosis Phase III studies. Reshma Rangwala: Sure. Great question, Maury. I have not commented on the dose reduction from the first 61 patients, specifically for the ruxolitinib, largely because, you know, as you know, the starting dose is going to be very variable again based upon the patient’s baseline platelet count. Extrapolating, you know, the rux dose intensity and the dose reductions in the context of a blinded safety data where that starting dose is very variable, again, can be very challenging. And so, again, it is not meaningful output at this time. You know, let us just wait until the top-line data. With that said, though, we have mentioned that the selinexor dose intensities, whether selinexor or placebo, does look really good. Amongst the 61 patients, the mean relative dose intensity was greater than 95%. Maury Raycroft: Got it. Okay. That is helpful. And maybe just two quick clarification questions. For the first 61 patients, is there anything more you could say about where those patients were recruited from, which regions they came from? Reshma Rangwala: Sure. They were globally. So they were they were going to they are globally recruited. Primarily North America as well as EU. And probably a few more. I do not have the exact numbers, will say, but I anticipate more patients coming from North America just because those were the first sites activated. But, yeah, just assume that this is going to be a population largely recruited, again, within Europe as well as North America. Maury Raycroft: Got it. Okay. And for knowing that the date is going to be in March is really helpful. Just wondering if you are saying whether it is going to be earlier or later in March. Richard Paulson: No. We think guiding to March is pretty strong. So we feel very good about that and continue to progress well, and then we will read the data out in March. Maury Raycroft: Got it. Okay. Thanks for taking my questions. Richard Paulson: Thanks, Maury. Operator: And your next question comes from the line of Wei Ji Chang with Leerink Partners. Please go ahead. Just one. Hi, guys. Thanks for taking my question. Wei Ji Chang: What are the key reasons for confidence in hitting on the TSF endpoint of the SENTRY study? Thank you. Reshma Rangwala: Sure, Jonathan. Great. Great question. I think there are multiple different aspects that give us confidence. So you know, I go back to, you know, the studies the Phase I study’s original secondary endpoint was TSS-50. Right? When we have the opportunity to look at TSS-50 amongst that ITT, numbers were quite strong at approximately 59%, relative to historical ruxolitinib data that have read out, you know, sort of in the mid-40s. So a really nice improvement there. We then looked at absolute TSS, or the observed mean change at week 24 relative to baseline. These are going to be the actual values, not estimated, which is what is going to be coming from the Phase III. Those numbers too, very strong with an 18.5 improvement. The size get it from the Phase I population, which was naïve treated with the combination, or even from our monotherapy study in which we evaluated selinexor as a monotherapy in that previously treated population, you really see very meaningful and rapid reductions in those substantially better than what is again been described for ruxolitinib where the improvement was only 11 to 14 points. So from a clinical perspective, you really have evidence of meaningful TSS improvement from both TSS-50 as well as absolute TSS. Now, the other part that really should be taken into consideration is cytokine levels as early as week four. So the fact that you see that cytokine decrease again explains why you also see that associated clinical benefit. So I think, like, really, those are going to be the key reasons why I have that confidence. I think the other aspects that we cannot lose sight on is the FDA gave us the to change out the endpoint, right, from TSS-50, which we know is very crude measurement of symptom benefit, to a much more sensitive methodology in absolute TSS, which is, again, going to look at that mean change over time. And then the last part that I will just emphasize is that we are looking at TSS without fatigue, and the reason we are doing that is again, there is precedence with evaluating without fatigue. It was established by both ruxolitinib as well as fedratinib, but we also know that fatigue, it is just a very, very difficult domain to meaningfully evaluate. So I think again, being able to incorporate absolute TSS without fatigue as the key measure of improving symptoms is really a significant opportunity to be able to show that significant improvement relative to ruxolone. Richard Paulson: And then, Jonathan, I will just close that because I think as Reshma talked to, we feel very good about that. And then as we have said, feel very pleased with the patient population we have enrolled. It is consistent with the population we had planned, and as we set our targets to ensure we had, you know, a meaningful baseline TSS, we have delivered on that with the TSS scores, you know, appear to be higher than MANIFEST and substantially higher than TRANSFORM, which, again, is what we intended to do. So I think we have set up the trial as well as we could and are extremely excited about reading this out next month in March. Wei Ji Chang: Understood. Thank you. Richard Paulson: Thanks, Jonathan. Operator: And we have no further questions at this time. I would like to turn it back to Richard Paulson for closing remarks. Richard Paulson: Thank you, operator, and thank you, everyone, again for your time and your continued interest in Karyopharm Therapeutics Inc. As you just heard, we are extremely excited to be reading out our top-line Phase III data in the frontline myelofibrosis with selinexor in combination with rux. And we look forward to engaging with you in March as we read that out. You for joining us today. Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.
Operator: At this time, I would like to welcome everyone to the International Flavors & Fragrances Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in a listen-only mode until the formal question and answer portion of the call. To ask a question at that time, if you would like to remove your name from the queue, please press 2. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Thank you. Michael Bender: Good morning, good afternoon, and good evening, everyone. Welcome to International Flavors & Fragrances Inc.'s Fourth Quarter and Full Year 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live, and will be available for replay. During the call, we will be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today, and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement risk factors contained in our 10-Ks and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures which exclude items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Jon Erik Fyrwald, and our CFO, Michael Deveau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Jon Erik Fyrwald. Thanks, Mike, and hello, everyone. Thanks for joining us today. International Flavors & Fragrances Inc.'s fourth quarter and full year 2025 results reflect a continued focus on disciplined execution and improvements across the business to further strengthen our position in the market. I will start today's call by briefly summarizing the progress we continue to make in executing our strategic priorities, followed by a few highlights of how this translated to our 2025 financial results. I will then turn the call over to Michael Deveau, who will provide more details on fourth quarter segment performance and our outlook for 2026. Turning to Slide 6. In 2025, our team focused on strengthening our ability to drive profitable growth while also strengthening our balance sheet. We continue to reinvest in a disciplined way across our high-value core businesses, increasing R&D, commercial capability, and manufacturing capacity, investments that will pay off for years to come. And we did this while we delivered the full-year financial commitments we set out for 2025. And while there is a lot more to do, I am proud of how our global team continues to strengthen our ability to serve our customers with leading innovations and deliver productivity even in a challenging, volatile economic environment. Our strengthened balance sheet reflects our more disciplined capital allocation strategy, with our net debt to credit-adjusted EBITDA down to 2.6. Our increased investments in innovation and commercial capabilities and CapEx and productivity initiatives are delivering today and making us stronger for the future. We have also taken strategic action to sharpen our portfolio so we can focus on high-value, innovation-driven businesses. To recap, we completed the divestitures of Pharma Solutions, nitrocellulose, and René Laurent businesses and also announced an agreement to sell our soy crush concentrates and lecithin businesses to Bunge, which we expect to happen by April. Most recently, we officially launched the sale process for our Food Ingredients business. As we communicated in August, we began exploring strategic options for our Food Ingredients business as part of our portfolio optimization. And following several months of extensive preparation by our team, we formally launched a disciplined and competitive sale process and, as of two weeks ago, are officially in the market. And I am very pleased with the progress we have made and believe this is the right next step for both the Food Ingredients business and for our Taste, Scent, Health, and Bioscience divisions. We are very encouraged by the depth and quality of interest from strategic and financial sponsors and are confident in our ability to execute this process thoughtfully and in the best interest of our shareholders. We will provide additional updates as appropriate. We are confident that the strength of our people, strategy, and execution positions us to deliver on our priorities for 2026 and beyond. We have the right leadership team in place, an engaged and supportive board, and an incredibly talented team of International Flavors & Fragrances Inc. colleagues. Now while macroeconomic uncertainty will continue to persist through 2026, I am pleased how we are entering the year and have strong conviction in our ability to achieve consistent, profitable growth and create long-term value for our shareholders. Turning to Slide 7. We achieved solid sales growth in 2025 against this Jon Erik Fyrwald: strong 6% year-ago comparable in a tough macroeconomic environment. Over the last two years, we delivered average sales growth of 4%. Our 2025 performance was led by Taste, which grew sales by 4% and grew EBITDA by 10%. In Health and Biosciences, sales improved 3% and the team delivered a 7% increase in EBITDA. Scent sales grew 3% against a strong year-ago comparison of 12% and increased EBITDA by 2%. The double-digit sales growth in Fine Fragrance was partially offset by negative growth in Fragrance Ingredients, where we saw double-digit declines in the commodity ingredients sales. In Food Ingredients, the team has done a great job continuing to drive margin improvement. And while sales were down, partly due to soft demand and partly due to the strategic exit of low margin business, we achieved 10% EBITDA growth and 150 basis points of EBITDA margin expansion. And on a consolidated basis, our overall profitability improved in 2025 as we delivered 7% EBITDA growth with 100 basis points of margin expansion through volume and productivity gains as well as favorable net pricing. Now with that, I will pass the call over to Michael to offer a closer look at this quarter's consolidated results. Michael? Michael Bender: Thank you, Erik, and thanks, everyone, for joining. In the fourth quarter, International Flavors & Fragrances Inc. generated revenue of nearly $2,600,000,000 with growth in nearly all divisions. Performance was led by mid-single-digit growth in Health and Biosciences and Scent as well as low-single-digit growth in Taste. Jon Erik Fyrwald: Our sales grew 1% for the quarter, Michael Bender: against the 6% year-ago comparable, and were up approximately 4% on a two-year average basis. EBITDA totaled $437,000,000 for the fourth quarter, a 7% increase, primarily Jon Erik Fyrwald: driven by volume growth and our ongoing productivity initiatives. Our EBITDA margin also increased by 90 basis points to 16.9%. On Slide 9, I will provide a closer look at our performance by Michael Bender: business segment. In Taste, sales increased 2% to $588,000,000 with growth in all regions, including high-single-digit growth in North America driven by new wins. The segment also recorded a very strong quarter of profitability Jon Erik Fyrwald: with EBITDA of $94,000,000, a 17% increase. Michael Bender: Profitability gains driven primarily by favorable net pricing and cost discipline. Food Ingredients sales of $802,000,000 were down 4% as softness in Protein Solutions and Emulsifiers and Sweeteners offset growth in Systems and Inclusions. Michael Deveau: It is worth noting that a part of our top-line decline in the fourth quarter and on a full-year basis for Food Ingredients was driven by a proactive exit of low margin business as well as lost sales due to sanctions in Russia in Emulsifiers. Profitability for Food Ingredients declined 11% in the quarter to $82,000,000 stemming from the volume declines and unfavorable net pricing. Our Health and Biosciences segment achieved sales of $589,000,000, an increase of 5% with growth across nearly all businesses. The standouts in the quarter were Food Biosciences and Animal Nutrition, both growing double digits. Home and Personal Care also continued to be strong, increasing high single digits. As we shared last quarter, Health, while improved sequentially from Q3, was down low single digits. Under new leadership, the team has started to execute their improvement plan. We continue to believe trends will improve over the course of 2026. From a profitability standpoint, Health and Biosciences delivered EBITDA of $155,000,000 in the fourth quarter, an increase of 20% due to volume growth and productivity gains. Lastly, our Scent segment delivered sales of $610,000,000 representing 4% growth. Performance in the fourth quarter was driven by continued strength in Fine Fragrance, which increased 10%, and mid-single-digit growth in Consumer Fragrance. Fragrance Ingredients remained under pressure due to continued market softness and price competition on the commodity portion of our portfolio. EBITDA for this segment increased 1% to $106,000,000 as benefits from volume growth and productivity gains were partially offset by unfavorable net pricing specifically in Fragrance Ingredients. Turning to Slide 10, cash flow from operations totaled $850,000,000 for the full year, and CapEx totaled $594,000,000, or approximately 5.5% of sales. Our free cash flow position for the full year totaled $256,000,000. Included in this number is approximately $300,000,000 of Reg G-related charges primarily driven by our divestiture activities, which accelerated in the second half of the year due to the potential sale of Food Ingredients. Working capital also represented an outflow of approximately $166,000,000, reflecting higher inventory levels in strategic areas along with changes in accounts receivable and accounts payable. We made meaningful progress improving inventory in the second half of the year, and as we look ahead, disciplined execution across all elements of working capital will be a key priority for us in 2026. Year to date, we returned $409,000,000 to our shareholders through dividends, and an additional $38,000,000 through share repurchases, as we started our repurchase program in the fourth quarter. As a reminder, at minimum, we expect to offset annual share dilution of approximately $80,000,000 to $100,000,000 per year. Our cash and cash equivalents finished at $590,000,000 and our gross debt at the end of the year was approximately $6,000,000,000, which is a decrease of nearly $3,000,000,000 compared to 2024. Our trailing twelve-month credit-adjusted EBITDA totaled $2,100,000,000. Our net debt to credit-adjusted EBITDA ended 2025 at 2.6 times, improving from 3.8 times at 2024. Before turning to our outlook for 2026, I would like to briefly reiterate a point Erik made earlier on Food Ingredients. We believe pursuing a sale for the Food Ingredients business remains the right path forward. With our capital structure now strengthened, and improving operational performance, and margin expansion ahead for Food Ingredients, we are under no pressure to sell. The business has a strong operating plan. We are confident we can continue to create value whether a transaction occurs or not. This potential sale is about capturing full value for our shareholders, doing what is right for both Food Ingredients and our broader portfolio. Throughout the process, we remain focused on long-term shareholder value, and taking actions that make the most strategic sense. Now on Slide 11, I would like to share our outlook for 2026. We believe we are well positioned for the year ahead and we are cautiously optimistic that we can deliver growth, margin improvement, and cash flow generation this year. As we navigate the volatile geopolitical landscape and uncertain market conditions, the strength of our pipeline and the benefits of our reinvestment efforts give us confidence moving forward. We believe our outlook reflects the balanced consideration of both current market conditions and the potential for unforeseen opportunities and challenges throughout the year, hence the ranges we are providing. Coming off a solid year we had in 2025, we expect to continue to drive financial performance across the company. For the full year 2026, we expect sales to be in the range of $10,500,000,000 to $10,800,000,000, representing comparable currency-neutral growth of 1% to 4%. We believe Taste, Health and Biosciences, and Scent will continue to drive our top-line growth supported by new wins and our innovation pipeline. We expect that growth will primarily be driven by year-over-year improvements in volume. From a profitability standpoint, we expect to deliver full-year 2026 EBITDA between $2,050,000,000 and $2,150,000,000, representing comparable currency-neutral growth of 3% to 8%. It is important to note that we will also continue to selectively reinvest in the business while maintaining a disciplined focus on near-term profitability. We expect our productivity and efficiency gains will fully fund our ability to reinvest in innovation and commercial capabilities across our highest-value businesses. We believe these investments will continue to enhance performance, strengthen our competitive position, and deliver attractive returns over time. For the full year, we expect FX will have approximately one percentage point positive impact to sales and a negligible impact on EBITDA. From a calendarization perspective, our year-over-year comparisons are strongest in the first half, particularly in Q1, where we have certain favorable one-time items from last year, including the contribution of divested businesses. As a result, we expect sales and EBITDA will be more muted in the first quarter of 2026. More specifically, we expect modest EBITDA growth in the first quarter versus our like-for-like first quarter 2025 base of approximately $55,000,000 adjusting for divestitures. As we move through the year, comparisons will ease, and we expect performance to improve supported by our pipeline and ongoing productivity actions. We expect that this will drive improved leverage across the P&L and year-over-year growth should progressively improve each quarter. As I said earlier, operating cash flow will be a key priority for 2026. We expect overall cash generation will improve year over year excluding Reg G and one-time costs, which will most likely be higher than 2025, as we pursue a potential sale of Food Ingredients. Teams across the businesses are driving working capital improvements across inventory, payables, and receivables, and when combined with profitability growth and lower incentive compensation payouts, we should see a meaningful cash flow improvement versus 2025. CapEx is expected to be around 6% of sales and will be carefully managed, focused on highest-return opportunities, including capacity expansion, network optimization, and innovation to support long-term growth. To further embed disciplined cash management, we have introduced an incentive compensation metric for 2026 tied to operating cash flow conversion, defined as EBITDA minus CapEx minus the change in net working capital. We are also evaluating additional cash flow metrics for our long-term incentive program to strengthen alignment on cash flow generation, particularly for 2027. With that, I would now like to turn the call back over to Erik. Jon Erik Fyrwald: Thanks, Michael. As we look ahead to 2026, I see considerable opportunities for us to continue strengthening International Flavors & Fragrances Inc. with even more competitive, innovative, and customer-focused businesses amid a continued challenging macro environment. Innovation is the key driver for us in 2026. Our investments in enzyme capacity, naturals, health, and new molecules powered by our biotechnology and AI capabilities will increase our ability to compete and win with our customers across key business segments. We also remain focused on enhancing our competitiveness in our Health business by strengthening commercial execution through the steps we discussed before. In Fragrance Ingredients, we continue to shift our portfolio toward higher growth and higher value-added specialties by leveraging R&D, naturals, chemistry, and biotech for new molecule and delivery system development. At the same time, we are committed to continuing to drive significant productivity, furthering our digital transformation, and advancing our AI-enabled operational excellence to fund reinvestment and improve margins. And we will drive cash flow as a priority over the next eighteen months and are committed to a very large reduction in below-the-line or Reg G costs over that time period. Michael Deveau: Lastly, we will continue the sale process for Food Ingredients Jon Erik Fyrwald: and we will ensure the right outcome for this terrific business and be able to achieve our end goal of having three high-value and growth innovation-driven businesses with Taste Operator: Scent, Jon Erik Fyrwald: and Health and Biosciences powered by nature and biotechnology. To close, I want to reiterate that the International Flavors & Fragrances Inc. businesses are strong and performing well. We are doing exactly what we said we would do, and we have a clear path forward that aligns and motivates our people to continuously improve our service to customers and deliver for International Flavors & Fragrances Inc. The progress we have made in strengthening the foundation of our business, balance sheet, and innovation and commercial pipelines is significant and motivates us to do even more. And while I am very proud of what our team has accomplished, there is more we will do as we will be laser focused in 2026 on driving profitable growth, cash flow improvement, and maximizing value creation over time. We are investing for the future, and we have a great team to execute for today. Michael Deveau: Thank you, Jon Erik Fyrwald: we will now open the line for questions. Michael Deveau: Thank you. Operator: If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove your name from the queue, please press 2. Again, to ask a question, please press 1. We do ask that you please limit yourself to asking only one question. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. And the first question will go to the line of Kristen Owen with Oppenheimer. Kristen, your line is open. Hi. Good morning. Thank you for the question. So I wanted to ask about your assumptions around price and volume in 2026. And we are hearing from a lot of the CPGs this shift migrates toward a greater emphasis on volume. I am just trying to think about how that might upstream to you all. And just as a related question, can you remind us the incremental margin on volume versus price? Thank you. Michael Deveau: Yes. Thank you, Kristen, for that question. I will take it. Jon Erik Fyrwald: First of all, our expected growth for 2026 is volume driven. Michael Bender: And as you mentioned, CPG companies shift Jon Erik Fyrwald: shifting emphasis to more volume growth, that is a good thing for International Flavors & Fragrances Inc. and the industry as a whole. So we like seeing that trend as you mentioned. And then finally, incremental margins are roughly 30% to 35% on volumes depending on the business segment. Operator: Thank you, Kristen. Our next question will go to the line of Nicola Tang with BNP Paribas. Nicola, your line is open. Hi, everyone. I am sticking with a question on top line. I was wondering if you could provide some color on your assumptions behind the top and bottom end of your 1% to 4% currency-neutral sales outlook. Do you expect all of your divisions to grow within that range? And also, I noted in Q4 that currency-neutral sales came in better than expected in the three core divisions. And I was wondering if we should read this as a signal of improving underlying market trends or whether there were specific drivers to be aware of, I do not know, new wins or timing of orders? Unknown Analyst: Or anything like that? Michael Deveau: Thanks. I will take this one. Nicola, thank you for the question. As I think about 2026, I think we would say we are cautiously optimistic going forward, really driven by a strong pipeline, the reinvestment we made over the last eighteen months. In addition, as Erik just said, a good thing for us as well, we are hearing customers talk more about volumes for 2026, which is positive. So when you think about our 1% to 4% guidance range, it assumes essentially the current market conditions that we see today and as we exited the fourth quarter. For us to achieve the higher end, or the 4% range, I think we would need to see volumes at the end market improve more broadly, kind of return to what I would say is more normalized levels in terms of market growth. And the opposite is probably true on the lower end of the guidance range, or the 1%. To your point on Q4 2025, it was marginally better than we expected from a top-line perspective with good improvements in Taste, Scent, and H&B. This was primarily driven by new wins, which is a positive signal. But it is only one quarter. So as I think about, again, 2026 overall, we do believe that the three businesses will grow in 2026 within the sales guidance range. To a lesser extent overall, but we also do expect Food Ingredients will also grow, maybe just a little bit. Fortunately, we have a very diverse business with balanced region, category, and customer exposure. And that gives us our confidence that we are resilient and that we believe we can grow as we go into 2026. Operator: Thank you, Nicola. Our next question will go to the line of Patrick Cunningham with Citigroup. Michael Bender: Patrick, your line is open. Hi. Good morning. Thank you. In Food Ingredients, could you comment on any early interest in the sale? Were there any inbounds prior to the formal process? And then any details on timing and deployment of proceeds would be greatly appreciated as well. Jon Erik Fyrwald: Sure. Thank you for the question, Patrick. Michael Deveau: As I said on our last call, we Jon Erik Fyrwald: did have early interest from both strategics and private equity firms, and all of those firms continue to show strong interest. And then two weeks ago, we officially launched the sale process and have had additional firms express interest. So I am very optimistic about the process. But as Michael said, Michael Deveau: the Food Ingredients business is performing well, had double-digit Jon Erik Fyrwald: EBITDA growth last year. We continue to see solid earnings growth for this year, so we will only sell the business if it creates value, but I am very optimistic we can make it happen. Now as for proceeds, we will use them to buy back shares to offset as much dilution as possible and we will pay down debt to stay about where we are on debt to EBITDA ratio, ensuring that we stay below the 3.0 target. Operator: Thank you, Patrick. Our next question will go to the line of John Roberts with Mizuho. John, your line is open. Jon Erik Fyrwald: Thank you. Price was down in the Scent segment. Higher-price fragrance outperformed, Fine Fragrance outperformed Consumer Fragrance. You are shifting the Scent Ingredients towards higher-priced products. So I would have thought mix alone would have improved price. What is going on with price there? Michael Deveau: No. Thanks, John. You are correct that the Fine Fragrance business is our highest-margin business, so that was a positive contribution to mix overall. Pricing, actually, in the quarter was flat year over year, and so really, the margin pressure came on the input cost side where, as you know, there is a bit of a lag in terms of overall price. This was primarily related to some of the index pricing agreements that we have, and so similar to previous years, as we move forward, we expect to fully recover this over time. One of your points on just the Fragrance Ingredients business overall, that shift from more commodity to more captive or proprietary ingredients, we started that migration, but it will take some time. And so as we go through 2026, we will make continuous progress. But I do want to just level set to make sure something that will be a theme as we go through 2026 and as we get through the second half, when we will start to see some stuff come online overall. But it is a process that will take somewhat of all of 2026 to make that migration overall. Operator: Thank you, John. Our next question will go to the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is open. Michael Bender: Yes. Jon Erik Fyrwald: Thank you very much, and good morning. I thought your Health and Biosciences business Michael Bender: finished on a somewhat stronger note. Can you elaborate on what drove the margin uplift there of 160 basis points year over year as the Health business Jon Erik Fyrwald: starting to stabilize and come back at all, and maybe you could comment on the margin outlook for 2026 in that segment, what kind of benefits you might see from volume growth and productivity? Jon Erik Fyrwald: Sure. Thanks for the question, Kevin. First of all, our Health and Biosciences did deliver strong fourth quarter performance. And that was due to both strong volume growth and productivity that enhanced the margins. What I would say is the team is very focused on strengthening our commercial and innovation capabilities and pipelines and delivering those pipelines. And I am very proud of the progress that they are making. More to do, but making progress. As Michael mentioned in the Michael Deveau: beginning comments, Michael Bender: the Health business still has some Jon Erik Fyrwald: decline, less decline than in the third quarter in the fourth quarter. We see that business flattening out in the first half of this year and then starting to grow in the second half of this year. So outside of the Health business, very robust growth. The Health business is starting to turn, and we expect to see positive results from that by the second half. Operator: Thank you, Kevin. Our next question goes to the line of Josh Spector with UBS. Josh, your line is open. Josh Spector: Yeah. Hi. Good morning. I wanted to ask on free cash flow. I think previously, you thought for 2025 you would do a little bit less than $500,000,000. That came in a couple $100,000,000 short. You talked about some investments in inventory. So can you talk about why you did that? Is that structural? Then how do you think free cash flow evolves into 2026? Michael Deveau: Thanks, Josh. Great question. Yes. We expected the free cash flow to be modestly lower than $500,000,000 for the full year. Essentially, the difference of where we ended versus our commentary in the second and third quarter really relate to three things. One, we did see a little bit of an increase in what I would say one-time Reg G-related cost. As we start to move forward with the Food Ingredients potential sale, we have actually seen some step-up in costs associated with that potential transaction. Number two, exactly what you said, working capital came in a bit higher than we expected. Part of this is driven by inventory. Now while the team had a really good effort and progress in terms of where we were in the first half of the year to the second half improving inventory, we are being strategic on some elements where we are taking advantage of supply and potential pricing to making sure we keep adequate inventory that as we grow our business into 2026, we are in the best possible position. And so that was a little bit of a build. But in addition to that, we also had some payables that are really just timing issues. I think as we go through 2026, we will see that come back. Now overall with respect to AP, as I explained in our prepared remarks, cash flow improvement for us in 2026 is a key priority. And while we do expect the Reg G cost will remain high, we are being very disciplined in terms of cash management now. Point I made earlier in my prepared remarks, we even added the compensation metric in there to drive this. So for 2026, I do expect to see a meaningful improvement driven by profitability growth, working capital, lower interest expense, and a lower payout relative to what we had in 2025 with respect to incentive comp overall. And so that meaningful progress will occur. I am going to refrain on giving a specific target at this point, only because I want to get a little bit more clarity on the Food Ingredients potential sale. I think once we have the visibility there, we will come back and we will give more formal guidance on a cash flow number. But I will tell you that what I can confidently say is that we are doing everything we can in our power to making sure we drive cash flow performance in 2026. Jon Erik Fyrwald: Yeah. Let me just add quickly that I am not as proud about the management of inventories. In the first half of the year, we let inventories get higher than we had targeted. Michael had us put a lot of emphasis in the fourth quarter on driving down inventories, which is never a good thing to do quickly at the end of the year. But we did it, and we have put in, Michael has driven with the business unit presidents a much better disciplined process to ensure that we manage inventories well throughout 2026 and for the future. Operator: Thank you, Erik, and thank you, Josh, for your question. The next question will go to the line of David L. Begleiter with Deutsche Bank. David, your line is open. Michael Bender: Thank you. Good morning. Jon Erik Fyrwald: Erik, just on the R&D effort, where do you stand on this journey to reinvigorate the R&D pipeline Josh Spector: and your innovation efforts? And are there any metrics that you are tracking that Jon Erik Fyrwald: you can share with us on this progress? Thank you. Thanks for the question, David, and it gets right to the heart of the key strategy of the company, which is to drive innovation. So as you remember, we invested about $100,000,000 in 2025 into our innovation capabilities and high-growth, high-margin categories across the company. And we have made a lot of progress across Scent, Health and Bioscience, and Taste innovation pipelines. And as I also mentioned earlier, we will start to see the benefits of that in 2026 and more into 2027. And I think we are really pleased with the progress that we are making. I think our customers are very pleased with it. I just came back from ACI, the American Cleaning Institute, where we engaged with many of our large CPG company customers and it was really great to have those engagements and hear about the progress that our teams are making. And it was also a very big honor to get awards from two of the largest CPG companies for our innovation together with them. I think that bodes well for the future. So making good progress, David, and you will see it come to more fruition in terms of real results starting in the second half of this year and then much more into 2027. Thanks. Operator: Thank you, David. Our next question goes to the line of Ghansham Panjabi with Baird. Ghansham, your line is open. Michael Bender: Yeah. Thanks, Operator. Good morning, everybody. Just going back to the Taste segment for the fourth quarter and the performance in North America specifically, I think you called out high-single-digit growth. Can you just give us a bit more color as to what drove that? And then was that the component that drove margins to the degree that it did just from favorable mix specific to North America? Thank you. Michael Deveau: Thanks, Ghansham. This team is doing a really good job overall in terms of their overall performance. Looking at it from a regional perspective, all regions in Q4 grew. Contributions from both volume and price. When we look at the drivers of growth, really what stood out is North America. That is really driven by new wins. So the team has been really, really focused on making sure they grow their pipeline and increase their win rate, and what you are starting to see materialize was some of the success that they had on some of those launches overall. In addition, Latin America was strong. And then when I balance it out, I think about EMEA and Greater Asia. They grew to a little bit of a lesser extent. And so when I think about the margin performance, the largest contributor was really productivity. And so when you actually look across COGS and SG&A, the team did an excellent job of really trying to drive that cost management and making sure we are driving productivity within the system of their business. So that was a big, big success to the overall performance and profitability. In addition, they also did have some positive contribution from favorable net price to input cost. And so when you shape this up between volume growth, plus good productivity, and some favorability with respect to price to input cost, it shaped up to a really nice quarter from a profitability perspective overall. Operator: Thank you, Ghansham. Our next question will go to the line of Lisa De Neve with Morgan Stanley. Lisa, your line is open. Hi. Thank you for taking my question. I had a question on what is International Flavors & Fragrances Inc.'s view on the GLP-1 theme where we have seen a little bit of a resurgence of the theme post the oral dosage approvals. Can you share about what you believe the GLP-1 uptake will mean for International Flavors & Fragrances Inc. solutions demand? And then more broadly, following on from that, across all your divisions, what would you consider to be the key market trends that will drive your growth over the coming years? Thank you. Jon Erik Fyrwald: Thank you for the question, Lisa, and being on the board of Eli Lilly, I have a front row seat to the GLP-1 dynamic. And I am very proud of how our International Flavors & Fragrances Inc. team has responded to this both challenge and opportunity. What I would say is we are creating it into an opportunity. We have had an alliance across our business units putting together how our products can help our customers develop great products for GLP-1 consumers, and we have put together an innovation seminar that was very well received and have many projects with customers around products for GLP-1 users. And as you can see in our Taste and our Food Biosciences performance, they are both growing very nicely, and some of that is due to the GLP-1 Michael Deveau: dynamic, and I will give you an example. Jon Erik Fyrwald: We have a large business today in yogurts. Michael Bender: We have Jon Erik Fyrwald: developed some new yogurt technology both in biosciences and in flavors. Michael Deveau: And Jon Erik Fyrwald: by taking advantage of that, we have been able to grow nicely in the yogurt category, helping our customers grow nicely and address the desire for GLP-1 patients to have really great-tasting foods that are good for them. But it has also gone beyond that in the protein dynamic. And the ability for us to flavor products with high protein and help with the biosciences to enable those products has also been a positive. And then when you talk about ultra-processed foods or reformulation generally, reformulation, when customers reformulate, that is also a good thing for us. So yes, there will be some challenges with reduced caloric intake for a section of the population. We are leaning into it with innovation to make sure that it is not an overall negative for us, that it is a neutral or a positive. Michael Deveau: Thank you, Lisa. Operator: Our next question goes to the line of Fulvio Cazzol with Berenberg. Fulvio, your line is open. Michael Bender: Thank you, and thank you for taking my questions. Fulvio Cazzol: My question is on the cost inflation outlook for 2026. I was just wondering if you can give us a bit of a summary of what you expect both on the input costs, any tariff-related cost inflation, wage inflation, and how you expect to mitigate that. Thank you. Michael Deveau: Thanks, Fulvio. For 2026, we do expect some modest input cost inflation for our divisions. This really includes raw material and costs, which includes the impact of tariffs, plus logistics, energy, and packaging costs. More broadly, as a very high-level macro statement, we are seeing inflation across all those key elements. The team today is collaborating with customers to mitigate this. And in the end, we will recover it through reformulation, productivity, and pricing over time as we go forward. And so when we think about our guidance for 2026, taking a step back, our 1% to 4% is really all driven by volume. We do expect pricing to be slightly down, which is primarily related to the commodity portion of our Fragrance Ingredients, which I mentioned earlier on a different question, and some residual carryover pricing impact in Food Ingredients specifically. But the team is really focused on making sure as we think about our business going forward, we are working with customers so that where there are inflationary pressures, we do offset that from a direct cost perspective. More generally, there is a general increase in terms of overall working costs—so merit increases, inflation. Now we have done a very good job at looking to productivity to make sure that we are fully offsetting that as part of our plan. So that is embedded in our gross productivity plan to make that a net number more favorable as we progress through the year. Operator: Thank you, Fulvio. Our next question will go to the line of Laurence Alexander with Jefferies. Laurence, your line is open. Michael Deveau: Good morning. Just want to circle back to the Laurence Alexander: the outlook, the lower end of the outlook Fulvio Cazzol: range, Laurence Alexander: what are you assuming for destocking risk this year compared to the last couple of years? And then I guess related to that, it looks as if the range is not yet seeing much benefit from the shift in mix and innovation capabilities and sales force reinvigoration. Do you think you should see the bottom end of the range start materially improving? Jon Erik Fyrwald: Thanks for the question, Laurence. Of course, the 1% to 4% Michael Deveau: does include Food Ingredients. Jon Erik Fyrwald: And while we expect Food Ingredients to return to positive growth on top line this year, Michael Deveau: it will be modest. And as Michael mentioned, it is still a tough Jon Erik Fyrwald: macroeconomic environment, especially in the first half with difficult comparisons. But we expect the second half to be better as our innovation further kicks in and builds to 2027. And hopefully, market dynamics improve. What I would say is we cannot predict geopolitics and market dynamics at the end of the year. So any potential destocking at a reasonable level to the end of the year is built into our guidance, and we expect to achieve somewhere in the range of 1% to 4%. Of course, we are driving for as best as we can, but that is the range that we are confident we can deliver. Operator: Thank you, Laurence. Our next question will go to the line of Salvator Tiano with Bank of America. Salvator, your line is open. Jon Erik Fyrwald: Thank you very much. Laurence Alexander: You know, Fulvio Cazzol: you mentioned a lot of things about, you know, essentially Harris Fine: product inflation being offset by productivity and etcetera. And generally mitigating a lot of the headwinds that you may face, say, on the cost side, I am just wondering, though, when we look at 2025 on your incremental margin, you have 2% organic growth and 7% like-for-like EBITDA growth. This year, the guidance is calling for quite high organic growth, and the range is not—you know, the midpoint of EBITDA growth is much lower, say 5% to 6%. So based on all this, what is actually driving lower incremental margins this year versus 2025? Laurence Alexander: Sal, great question. Erik, I will take this one. Michael Deveau: Yeah. This is, again, real specific on just the incremental margins. As we think about the guidance range, take a step back. I always think that the quality of this business is that as you grow your business, you do have nice leverage within the P&L. And so when I think about falling from sales to EBITDA, it is usually around two times. So if I grow 4, I can get 8 in terms of leverage within my P&L. Obviously, the higher we grow—we start moving towards the 4, 3, 4, or 5 range over time—that is when we will see the best leverage within the P&L overall. When you are at the lower end of that, then it becomes a game of how do we actually continue to drive productivity to making sure we are supplementing some of the lack of what I would say is volume fixed cost absorption overall. And so as we think about the range for next year, the 1% to 4%, obviously, if we are at the lower end of that range, really we need to think about stepping up the productivity even more so, making sure we get that leverage to fit within the portfolio, and we do have opportunities to do that. Then as we get to the higher end of the range, then I think we have a little bit more flexibility. What is built into the guidance range, very candidly, are two things. One, it is a bit of reinvestment we are funding through productivity overall, which normally some of that productivity could help support and drive bottom line. But we are being conscious, and we are being smart about how we want to continue to reinvest in the business as we make the migration towards 2026 and then into 2027. So that is a little bit of what I would say is the offset when you think about the flow-through from the incremental margin piece. It is really the volume growth that is critical. Productivity is driving and supporting depending on if you are at the lower end of the range or at the upper end of the range. And then the third point is really around how do we take a step back and make sure the reinvestment is balanced to how our performance is overall. So those are the three levers that we are managing. Harris Fine: For 2025. Michael Deveau: And then the one thing I would just add to that is that one of the reasons for our Jon Erik Fyrwald: heavy focus on innovation is that as that innovation pipeline comes through, we do expect margin benefits from that. So that is a really important part of it as well. Michael Deveau: Thank you, Salvator. Operator: Our next question comes to the line of Lauren Rae Lieberman with Barclays. Lauren, your line is open. Lauren Rae Lieberman: Great. Thanks. Hi, everyone. Thanks so much. I wanted to talk a little bit about reformulation opportunities in particular and just what you are seeing in the marketplace in terms of customer demand specifically around reformulation to be more ingredient-profile, health and wellness concerns, etcetera. And then also, how equipped your portfolio is today to meet those demands should they be there, and then how much that is also fitting into your innovation and R&D plan. Thanks. Michael Deveau: Thanks for the question, Lauren. First of all, we are seeing continued Jon Erik Fyrwald: reformulation happening, but it has not picked up as much as some people have talked about—the importance of ultra-processed foods and some of the dynamics that you are hearing about. But as it does, or if it does, I think that is all positive upside to what we have been talking about. Because every time Josh Spector: customers reformulate, Jon Erik Fyrwald: whether it is for lower sugar, lower salt, lower fat, cleaner label, Michael Bender: whatever it is, Jon Erik Fyrwald: that is the opportunity for International Flavors & Fragrances Inc. So we welcome that and hope to see it increase from here. But as of now, it is out there. It is happening. We are working with customers to create healthier products, great-tasting products, more sustainable products. I think you will see some really sustainable products coming out with some of the CPG companies we have been working with—outside of food, but also in food. So I think there is still a dynamic everywhere of wanting more innovation to bring consumers what they want, whether it is great-tasting food or laundry products that clean the clothes really well with room temperature water and less water and less plastic and many of the dynamics that you hear about out there Michael Bender: that Michael Deveau: consumers Jon Erik Fyrwald: desire, and CPG companies are trying to drive innovation to meet those desires to profitably grow their business. We are there to help. Harris Fine: Thank you, Lauren. Operator: Our next question will go to the line of Michael Sison with Wells Fargo. Michael Deveau: Mike, your line is open. Josh Spector: Hey. Good morning, guys. I guess with the sale of Food Ingredients pending, how do you pivot the company to more of a growth mode? Historically, International Flavors & Fragrances Inc. has slightly underperformed to F&F peers, but if you think about the portfolio going forward, Health and Biosciences and Scent and Taste, how do you get that growth rate to match the peer group or maybe even outperform the peer group? Jon Erik Fyrwald: Thanks for the question, Mike. Harris Fine: Very excited about the future of International Flavors & Fragrances Inc. Jon Erik Fyrwald: I think as we finalize our portfolio optimization and focus all of our efforts on Scent, Taste, and Health and Biosciences—very R&D heavy, very Harris Fine: innovation Michael Deveau: heavy. Michael Bender: Really attractive businesses. Jon Erik Fyrwald: That have a major impact on consumer goods whether it is food or others—home and personal care, etcetera—and represent a small part of the cost but a big part of the superiority. And so as we focus all of our energy on that and have finished the work on portfolio optimization, I think we will go from strong to stronger. Michael Deveau: And I am absolutely convinced that Jon Erik Fyrwald: we have got the right team in place, that they are strengthening our capabilities. You can see it in our performance. We are doing what we say we are doing. We see the commercial pipelines increasing. We see the innovation pipelines increasing. We see the quality of the projects with our customers improving. And that is why we are very confident in the future. And also, the other element here that is really exciting is we have got a very healthy Health and Biosciences business with really strong capabilities in biotechnology. That is important for all the segments that we play in Health and Biosciences. It is also starting to impact beneficially technology in our Scent business and our Taste business. So I will just give you a couple of quick examples. In 2025, we launched EnviroCAPS. It is a biodegradable encapsulation technology for our Scent business. It is commercial now. Several very big customers have been using it and say that it is working extremely well, and they are very pleased with it, and that is growing. We have other Scent technologies that are using biotechnology that are now in the pipeline and are coming. We have a number of Taste products that we have developed with our biotechnology capabilities. And more in the pipeline. I will give you one example of one that is commercialized now. It is called Super Carrot, where you take the residue of carrot production and you ferment it with our enzymes, and you create an umami flavor that is healthy and replaces umami flavorings with something that food companies and consumers really like. And so we will see more of that. So I just fundamentally believe as we get to be a focused, high-value, R&D, innovation-driven company with a stable portfolio that we are investing in, you will see us accelerate our growth. Operator: Thank you, Mike. Our next question will go to the line of Jeffrey John Zekauskas with JPMorgan. Jeff, your line is open. Jon Erik Fyrwald: Thanks very much. Your Food Ingredients Michael Bender: EBITDA and operating income Jon Erik Fyrwald: dropped off pretty sharply in the fourth quarter. And I think you said that the price trends are negative. So Michael Bender: given a slow volume growth environment, is it the case that operating income and EBITDA for that business next year is Jon Erik Fyrwald: higher or lower? And can you speak generally to the tax basis of that asset? Michael Deveau: So I will start, and then Michael can add Jon Erik Fyrwald: the tax basis. The fourth quarter was not a great quarter for our Food Ingredients business. They did not deliver what they expected to deliver. There are a number of reasons for that. All I can say is the first quarter looks like it is off to a solid start. Andy and his team, Andy Muller and his team, are highly confident that they can get back to top-line growth—although it will be low single digit, it will be top-line growth—and continue significant earnings growth. They have got the projects to do that. There is a lot of excitement with some launches that they have made recently and some exciting areas. So what I would say there is that the fourth quarter was not what we expected, was not what they expected. But the full year was still very solid with, although it was negative revenue growth, double-digit EBITDA growth. And we expect to get back to positive revenue growth and continued strong EBITDA growth in 2026. Operator: Thank you, Jeff. Our last question will go to the line of Chris Parkin—oh, go ahead. Laurence Alexander: Sorry, Megan. Michael Deveau: Just, I think, Jeff, you had a question on the tax base if we had a potential deal for Food Ingredients. And we are still, obviously, working through that process. So we have got to kind of see where we are landing, where we are heading from that perspective. Fortunately, we are in a good position with respect to tax attributes that could be leveraged to minimize some of the tax leakage that we have now. And so the team is fully focused on making sure the net cash number maximizes its value for shareholders. And so that is what the team is focused on overall. But more to come as we progress from here. Operator: Thank you. Our last question will go to the line of Christopher S. Parkinson with Wolfe Research. Chris, your line is open. Michael Bender: Great. Thank you so much. Just circling back as a corollary to a couple Josh Spector: questions on the H&B segment. You clearly had solid results across volumes in the Biosciences segment as well as a better margin. When we take a step back and look at some of the Health and probiotics, I think you are alluding to it before. Last year, we were talking a lot about, obviously, market share, investments in the business that were necessary overall for the intermediate to long term. Is it safe to say that you are still investing in that business? And then you already mentioned the half-on-half trends, which I appreciate. But can you just talk about how much we should think about spending in that business in the context of the productivity gains you are gaining? And then also, if you still believe you are going to gain share in the second half of 2026, 2027, 2028. So any updates there in terms of moving parts would be particularly helpful. Thank you. Jon Erik Fyrwald: Sure. Thanks for the question, Chris. First of all, overall, Health and Biosciences business is doing very well. Leticia Goncalves has been in the job almost a year now, and she and the team have a great team with a great strategy and are executing it well. Health is the only area that has not delivered strong growth in 2025. Interestingly, outside of North America, growth was solid. It was inside North America where the challenges were. There are a number of reasons for it. But what I can tell you is Leticia has brought in new leadership. The team is strong. We believe in the business. We have got great capability. We have got a very attractive pipeline coming that I believe, with the capability that we now have, will start to deliver growth again in 2027. But I firmly believe in this business. I just think it is a really important thing for the world, and we have got the capability to succeed. We took our eye off the ball for a while in North America. We have got our eye back on the ball, and you will see the results come. Like everywhere where we have seen challenges, we get the right leadership in place, the right teamwork, the right support, and we get it on the right track, and that is going to happen in Health as well. Michael Deveau: Thank you, Chris. Operator: That will conclude our question and answer session. I will now turn it back over to you, Erik, for closing remarks. Jon Erik Fyrwald: Well, thank you all for joining today's call. We are working hard to unleash the great potential of this company. As we have talked a lot about, we have done a lot of portfolio optimization following the Frutarom and the DuPont Nutrition and Biosciences deal. We are getting closer to exactly where we want to be. I think we will make really good progress on that in 2026. And then we will still deliver strong results in 2026, I believe, firmly. But we will be very, very well set up for 2027 and beyond as we move through this finalization of the portfolio optimization and really drive the innovation aggressively across Scent, Taste, and Health and Biosciences. We have got a terrific team. We have got a clear direction, and we are going to make it happen. Thank you. Operator: That concludes today's call. Thank you for your participation, and enjoy the rest of your day.
Operator: Good morning, and welcome to the NetSol Technologies, Inc. Second Quarter and Six Months Ended December 31, 2025 Earnings Conference Call. On the call today are Founder and Chief Executive Officer of NetSol Technologies, Inc., Najeeb Ghauri, Co-Founder and President, Naeem Ghauri, Chief Financial Officer, Sadar Abubakar, and Senior Vice President, Legal and Corporate Affairs, General Counsel, and Corporate Secretary, Patti McGlasson. I will now hand the call over to Patti, who will provide the necessary disclaimers regarding forward-looking statements made during today's call. Patti, please go ahead. Good morning, everyone, and thank you for joining us today. After we review the company's business highlights and financial results for the second quarter and six months ending December 31, 2025, we will open the call for questions. Before we begin, I would like to remind you that our remarks today may include forward-looking statements within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied. We encourage you to review the cautionary statements and risk factors contained in NetSol Technologies, Inc.’s press release issued earlier today, as well as in our filings with the Securities and Exchange Commission, including our most recent Form 10-Ks and quarterly reports on Form 10-Q. I would also like to note that today's discussion will include certain non-GAAP financial measures. A reconciliation of these measures to their most direct comparable GAAP figures can be found in the press release issued earlier today. Lastly, please remember that this call is being recorded and will be available for replay on our website at netsoltech.com and through a link included in today's press release. At this time, all participants are in listen-only mode. Following their prepared remarks, we will open the call for a Q&A session. I will now hand the call over to our Founder and CEO, Najeeb Ghauri. Najeeb? Najeeb Ghauri: Thank you, Patti. Good morning, everyone, and thank you for joining NetSol Technologies, Inc.’s call to review our results for the second quarter and six months ended December 31, 2025. We delivered a strong 2026. Total net revenues increased 21% year over year to $18,500,000, driven by higher services revenues and growth in our recurring subscription and support revenues. Services revenue grew 41% primarily from new implementations from major customers. As these implementations move through go-live and expansion phases, we believe they can support recurring subscription and support revenues over time. I am pleased with a strong balance sheet. Our current ratio of 2.3 reflects strong liquidity, giving us substantial flexibility for growth initiatives. I would like to highlight the strategic progress we made during the quarter across product innovation, customer momentum, and leadership. Firstly, on product and innovation, we launched our loan origination platform, our Check, our AI-enabled credit decisioning engine. Check is designed to modernize Operator: credit Najeeb Ghauri: underwriting by combining deep reasoning, intelligent automation, and agentic workflows to support faster, smarter, and more consistent credit decisions. It is an important extension of our Transcend platform and reflects our focus on building high-margin products that expand long-term revenue opportunities. Second, on customer momentum. We strengthened a key relationship with a $50,000,000 four-year contract extension with a tier-one global auto captive and longstanding partner. This extension reinforces customer trust, provides meaningful revenue visibility, and validates the scalability of our platform. In addition, Transcend Retail continued to gain traction in the U.S. market, with new dealer groups and franchised dealerships signing on during the quarter. Demand for digital automotive retail solutions remains strong, and these wins support our strategy to expand recurring revenue while increasing our footprint in a high-potential growth market. Finally, we continue to strengthen our leadership team to support our next phase of growth. During the quarter, we appointed Sadar Abubakar as Chief Financial Officer, with Roger Almond transitioning to serve as Chief Accounting Officer. Together they bring deep financial expertise and will help maintain strong governance, discipline, and transparency as we continue to scale globally. Overall, these milestones reflect solid execution across innovation, customer expansion, and leadership. We remain focused on sustainable growth, deepening customer partnerships, and advancing our position as a trusted technology partner helping OEMs, dealerships, and financial institutions sell, finance, lease, Operator: and manage Najeeb Ghauri: assets end to end. Looking ahead, our pipeline, multiyear contracts, and recurring revenue base provide visibility into near and long-term performance. We remain focused on disciplined execution and continued progress on growth and profitability. I will now turn the call over to our President, Naeem Ghauri, who will share an update on NetSol Technologies, Inc.’s journey and latest developments with AI and how we are leveraging this transformative technology in both our products and across our operations. Operator: Naeem, Najeeb. Naeem Ghauri: And good morning, everyone. I would like to share a brief update on our AI strategy and progress. Over the past year, our focus has been to embed AI into the Transcend platform and our internal operations horizontally, not as a stand-alone feature, but as workflow capabilities that drive measurable outcomes for our customers. We have built a shared AI layer with reusable components and governance built in, so we can deploy AI consistently across products while maintaining reliability, auditability, and human oversight. Our teams work closely with customers to integrate AI into real-world workloads, so we can adapt general models into domain-specific capabilities tied to ROI and operational Operator: impact. Naeem Ghauri: AI at NetSol Technologies, Inc. is now integrated into our product development lifecycle, supported by dedicated teams, shared tooling, and an integrated roadmap that helps us scale AI in a repeatable way, with evaluation and monitoring designed in from the start. A good example, as Najeeb mentioned, Operator: is Check. Naeem Ghauri: Our AI-enabled credit decisioning capability within our loan origination product. It combines reasoning, automation, and agentic workflows to help underwriting teams move faster with greater precision while keeping humans in the loop. In parallel, we are applying AI internally, horizontally, to streamline delivery and improve productivity. We are also exploring value-based pricing approaches for select AI-enabled capabilities. Overall, we believe this strengthens differentiation, supports operating leverage, and positions us to scale AI value responsibly across our business. With that, I will turn the call over to our CFO, Sadar Abubakar, to review the financial results. Abu? Thanks. Thank you, Naeem, and good morning, everyone. I will begin with our financial results for 2026, followed by results for the six months ended December 31, 2025. For 2026, total net revenues increased 21.1% to $18,800,000 compared with $15,500,000 in the prior-year period, driven primarily by higher services revenues and higher subscription and support revenues. On a constant currency basis, total net revenues were also $18,800,000. Subscription and support revenues increased approximately 5.1% to $9,100,000 compared with $8,600,000 in the prior-year period. On a constant currency basis, subscription and support revenues were $9,200,000. Service revenues increased 40.9% to $9,600,000 compared with $6,800,000 in the prior-year period. Total service revenues on a constant currency basis were $9,600,000. Gross profit was $9,000,000, or 48% of net revenues. On a constant currency basis, gross profit was $9,000,000, or 47.8% of net revenues. Cost of sales was $9,800,000, or 52% of net revenues, compared with $8,600,000, or 55.5% of net revenues in 2025. On a constant currency basis, cost of sales was $9,800,000, or 52.2% of net revenues. The increase primarily reflected increased salaries and travel costs, even though the margin has improved. Income from operations was $1,300,000 compared with a loss from operations of $500,000 in 2025. On a constant currency basis, income from operations was $1,300,000. Operator: Dollars. Foreign currency movements contributed a gain Sadar Abubakar: of $50,000 in the quarter, compared with a $700,000 loss for the prior-year period. Moving to non-GAAP, EBITDA for the quarter was $1,700,000 compared with a loss of $800,000 in 2025. Eric Wagner: Overall, the quarter reflected strong top-line growth driven by implementation activity, along with continued subscription and support performance. We also delivered meaningful profitability improvement versus the prior year, supported by gross margin expansion and improved operating leverage. Turning now to the six months ended December 31, 2025, total net revenues were $33,800,000 compared with $30,100,000 in the prior-year period. On a constant currency basis, total net revenues were $33,500,000. Recurring subscription and support revenues increased 7.2% to $18,000,000 compared with $16,800,000 in the prior-year period. On a constant currency basis, recurring subscription and support revenues were $17,900,000. Service revenues increased 17.9% to $15,600,000 compared with $13,200,000 in the prior-year period. On a constant currency basis, services revenues were $15,500,000. Gross profit was $14,900,000, or 44.2% of net revenues, compared with $13,500,000, or 44.8% of net revenues in the prior-year period. On a constant currency basis, gross profit was $14,600,000, or 43.5% of net revenues. Cost of sales was $18,900,000, or 55.8% of net revenues, compared with $16,700,000, or 55.3% of net revenues in the prior-year period. On a constant currency basis, cost of sales was $18,900,000, or 56.5% of net revenues. GAAP net loss attributable to NetSol Technologies, Inc. for the six months totaled $2,100,000, or $0.18 per diluted share, compared with a GAAP net loss of $1,100,000, or $0.09 per diluted share in the prior-year period. On a constant currency basis, GAAP net loss attributable to NetSol Technologies, Inc. was $2,500,000, or $0.21 per diluted share. Non-GAAP EBITDA for the six months ended December 31, 2025, was a loss of $100,000 compared with a non-GAAP EBITDA loss of $500,000 for the prior-year period. Turning to the balance sheet, cash and cash equivalents were $18,100,000 at December 31, 2025, compared with $17,400,000 at June 30, 2025. Working capital was $26,400,000 compared with $26,600,000, and NetSol Technologies, Inc. stockholders' equity was $35,900,000, or $3.04 per share. For 2026, we delivered continued revenue growth across both recurring and services businesses while maintaining a solid balance sheet and liquidity position. I will now hand over the call back to Najeeb. Najeeb Ghauri: Thank you, Abubakar. Looking ahead, we remain confident in our ability to capitalize on opportunities across our markets. We will continue investing in our product portfolio, including AI-enabled capabilities across the Transcend platform, while expanding our global footprint and enhancing our solutions to meet evolving client needs. Our focus on long-term customer relationships, supported by a strong pipeline of recurring and services engagements, positions us well for continued progress. With that context, we have increased our full-year fiscal 2026 revenue growth guidance to nearly $73,000,000 or better, supported by our current pipeline and continued investment in go-to-market initiatives and our unified AI-enabled Transcend platform. While macroeconomic and currency dynamics remain a consideration, our diversified business model, execution discipline, and resilient customer base provide a solid foundation for the remainder of the fiscal year. Overall, our first-half performance reinforces our view that NetSol Technologies, Inc. is well positioned to achieve our full-year objectives and continue creating value for our customers and shareholders. With that, operator, please open the line for question and answer. Thank you. We will now be conducting a question and answer Operator: session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. 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 key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Todd Felte with Stonex Group. Please proceed with your question. Najeeb Ghauri: Hey, congratulations on a great quarter. I think the $18,800,000 may be an all-time record for quarterly revenues, so Todd Felte: that is great to see. I wanted to ask about your margins. You had some recent hires and some travel expenses. But as those new hires get up to speed, do you expect continued margin improvement, and where do you think your margins will stabilize? Najeeb Ghauri: Thank you, Todd. Absolutely. We are anticipating improving margins in the coming quarters and the next fiscal year. As you said rightly, we are continuously investing in our growth strategy. It means travel, new employees, building new platforms, and so forth. So I think the gross margin will improve, absolutely. And I think I can have your name, and Naeem will jump in to add further. Yeah. I will just add a little bit more color. So, essentially, the new hirings are primarily in the AI teams at heart, and we see that continuing for a period. We are also incurring some expense on cross training. What we have is a very aggressive plan to cross train our existing workforce. Eric Wagner: Across horizontally in every department from HR to Najeeb Ghauri: software engineering and testing, accounting, and admin. So, literally, we are touching every single business segment. So, internally, we are very, very confident that within the next six months, we will have a major transformation, phase one, completed. We will go on to more advanced training as we go forward in the rest of the calendar year. That will help? Operator: Yep. Yeah. If I could just add that Todd Felte: yeah. While I have you, I was also wanting to ask about the noncontrolling interest and how that is computed. I know that took a big chunk out of our earnings per share this quarter. Najeeb Ghauri: You want to answer about just talking about the Pakistan subsidiary, right? Minorities Todd Felte: just yeah. Najeeb Ghauri: Yeah. Yeah. Sure. So if I could, Todd, just go back to your previous question Eric Wagner: first, and then we will come back to this one, just to add some color. So to take on what Najeeb and Naeem said, we will continue to invest in the right areas that will propel our future growth. But margin improvement, both at a gross and at a net level, is going to be important for our profitability story and our journey going forward. You probably will see just very quickly that our GP percentage of revenues this quarter versus the preceding quarter was up 48% as compared to 44.5%. Cost of sales was down. Similarly, this quarter is 55.5% compared to the equivalent quarter of 52%. And then EBITDA, which is an important metric, of course, clocked at about a 9% margin compared to a loss in the equivalent quarter last period. I think what gives me confidence, Todd, in addition to that, is that our liquidity position is solid. The current ratio, but also our debt to equity, gives us an opportunity to continue to invest in exciting growth markets. And I think we are at the intersection of both software, financial services, and mobility. Now, coming to your second question on minority interest, noncontrolling. If I understood that question, you were saying how is that computed? That is correct. Just mention that again. Yeah. Yeah. Yeah. Just how is it computed? I know that there was a nice Todd Felte: profit for the Pakistani subsidiary. I saw you took a $715,000 loss on that noncontrolling interest. Eric Wagner: Yeah. We follow the standard definitions applied in GAAP for noncontrolling interest. So the Pakistani subsidiary is owned majority, but there is a 30% minority interest, and we follow the standard definitions as per calculation for GAAP. Roger, if you want to add to that, you can feel free to add if I have missed anything. Todd Felte: No. I think you have that correct. So, Todd, if you look at our Pakistani entity there, we own Roger Almond: almost 70%. Thirty percent is held by noncontrolling interests. So as they have, you know, recorded a very nice profit for the quarter, or for the six months, then 30% of their profit would then get allocated to the noncontrolling interest piece. Based on the consolidation, all of their revenues would be included up in our revenues and costs into our costs, etc. And then the noncontrolling interest is then calculated down at one number in the bottom. So that is, and we follow the GAAP process as Abu had mentioned. Todd Felte: Okay. That is helpful. So, basically, the better that the subsidiary does, it will add to your revenues, but if it is really profitable, you know, a third of that will have to be written off in the noncontrolling interest Roger Almond: Correct. Eric Wagner: So, Todd, yes. So as a subsidiary and not an affiliate, we will consolidate all revenues and costs, but from the profit share, you are right. Any earnings are split on a 70/30 basis between the parent and minority interests. Todd Felte: Okay. That is helpful. And then finally, to allude to your comments about the strong financial position the company is in. As a shareholder, we see the stock still, you know, trading just barely above book value. Have you thought about allocating some of that $18,000,000 in cash, you know, a small amount to either a stock buyback or maybe a small dividend? Roger Almond: I think, Todd, thank you for—go ahead. Go ahead. Sorry. Najeeb Ghauri: Todd, thank you for asking the question. We did that a couple of years ago, and we are always open to the same approach. But as soon as we can decide within the board, we will get back to you accordingly. Roger Almond: Yeah. I mean, we would definitely like to see some of the ops. Operator: Yeah. Najeeb Ghauri: But, Todd, I want to thank you especially for taking time to visit us a few months ago. It shows your commitment and belief in our company. So thank you very much for your long-term view. Todd Felte: Yeah. It was great to visit you, and I will jump back in the queue. Thank you so much. Najeeb Ghauri: Thanks, Todd. Operator: As a reminder, if you would like to ask a question, press 1 on your telephone keypad. One moment, please, while we re-poll for any additional questions. We have no further questions at this time. Mr. Ghauri, I would like to turn the floor back over to you for closing comments. Najeeb Ghauri: Thank you for joining today’s call. Sorry. Todd, do you want to come back? Yeah. Todd wanted to come back. He is going back in the queue. Is he in the queue, Alberto? Operator: Todd, if you want to hit star one again. Najeeb Ghauri: No. I think it is okay. It is fine. Okay. Yep. Operator: Well, thank you for us back today. No. I am sorry. He did jump back in. Najeeb Ghauri: Let me get—okay. Todd, your line is live. Todd Felte: Okay. I am good with that. Again, congratulations on a great quarter, and I look forward to future success. Najeeb Ghauri: And do come back again to Encino, California, Todd. Thank you for joining us today and for your ongoing interest in NetSol Technologies, Inc. We look forward to updating you on our continued progress in the coming quarters. Have a nice day. Roger Almond: Ladies and gentlemen, this does conclude today’s Operator: teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. Najeeb Ghauri: Thank you, operator.
Operator: Good morning, and welcome to the Fourth Quarter and Fiscal Year 2025 Pilgrim's Pride Corporation Earnings Conference Call and Webcast. All participants will be in listen-only mode. Please note that the slides referenced during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference call over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's Pride Corporation. Good morning and thank you for joining us today as we review our operating financial results for the fourth quarter and fiscal year ended 12/28/2025. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter and the year including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available on our website at ir.pilgrims.com along with slides for reference. These items have also been filed as Form 8-Ks and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer, and Matthew R. Galvanoni, Chief Financial Officer, present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our Safe Harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the day of this release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors has been provided in yesterday's press release, our Form 10-Ks and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri. Thank you, Andrew. Good morning, everyone, and thank you for joining us today. Fabio Sandri: So for the fiscal year 2025, we established new financial milestones, as net revenues reached $18,500,000,000 and adjusted EBITDA rose to $2,300,000,000. Our adjusted EBITDA margin was 12.3%. In the U.S., consistent execution of our strategies, along with strong chicken demand, bolstered our demand. Demand from our key customers grew significantly over the category average for the year. Our brand building accelerated as the combined retail sales of Just BARE across fresh and prepared reached $1,000,000,000, further diversifying our portfolio and resonating with consumers. Operational excellence efforts improved efficiencies in processing and live operations in Big Bird, mitigating commodity cutout volatility throughout the year. Given these efforts, the U.S. grew both in top line and bottom line. Europe completed several projects to enhance the efficiency of its manufacturing footprint, consolidated back-office support and optimized mix and innovation. Key customer partnerships strengthened as sales and volume both increased compared to last year. Our portfolio of key brands continued to grow, further diversifying our portfolio. Based on these efforts, margins and overall adjusted EBITDA continued to improve. Mexico grew sales through increased sales volumes of branded offerings across fresh and prepared, and growth with key customers despite commodity pricing volatility. Equally important, we initiated a series of investments in both fresh and prepared to drive profitable growth while reducing the volatility of our business. For 2025, we reported net revenues of BRL4.5 billion. We have adjusted EBITDA of BRL450 million and our adjusted EBITDA margin was 9.2%. Our Q4 results reflect the robust nature of our strategies to drive strong margins during changing market conditions. In the U.S., Fresh increased market share through continued focus on quality, service and innovation. Our fresh business improved efficiencies both in plant and live operations. Prepared foods continued to drive category-leading growth across retail and foodservice, further diversifying our portfolio. Investments to grow our presence in key customers, increase capacity value-added and enhance operational efficiency continue to progress as planned. In Europe, we increased overall adjusted EBITDA compared to the same quarter prior year. Our fresh operations drove the majority of the gains through improved productivity and enhanced mix. Key customer demand was stable, while our portfolio of key brands continued to grow. Mexico faced difficult circumstances given increased imports of animal-based proteins and unbalanced fundamentals in the live market. Our diversified efforts continue to gain traction as branded fresh and prepared offerings both rose compared to last year. Turning to supply, the USDA indicated that ready-to-cook production for the U.S. rose 2.1% year over year in 2025, driven by increased headcount, improved live performance and higher average live weights. Eggs were higher than 2024, giving a more productive layer flock and record hatchery utilization. Hatchability improved sequentially in Q4, with seasonality and a younger flock, but is still below the five-year average. Chick placements were higher throughout the entire quarter compared to last year. After peaking in Q3, live weights declined and ended the fourth quarter consistent with prior year levels. Looking forward, USDA reports a 1.9% year over year decline in the layer flock in January 2026, alongside the 3.1% drop in pullet placements compared to 2024. Given these factors, along with other considerations, the most recent USDA estimates suggest moderate production growth of 1% in 2026 compared to last year. As for overall protein availability, USDA projects growth of 1.5% in 2026, with challenges in the beef production partially compensated by higher beef imports. From a demand standpoint, consumer sentiment remains low given continued economic uncertainty. Inflation for food at home and away from home continues to impact consumers' available income. Nonetheless, chicken's affordability was exceptionally appealing across channels and categories. In retail, consumers continue to stretch their budgets through more frequent trips with smaller basket sizes. Within the channel, the meat department continues to lead performance as it remains a key priority for consumers. Chicken experienced volume growth across all cuts versus prior quarter. Boneless skinless breast prices decreased 1% compared to last quarter, while prices of other proteins rose, especially ground beef that is setting new all-time highs. As a matter of fact, when compared to two years ago, prices of boneless at retail were reduced by 1.7% while prices of ground beef have increased 22%. As a result, record pricing spreads emerged further strengthening demand for chicken. Similar to boneless breast, dark meat from boneless thighs also continued to experience significant growth. Deli increased slightly versus last year as velocity more than offset changes in mix distribution and pricing. Consumers also look for convenience, and in the frozen chicken category, we saw significant growth with continued strength in velocity. In foodservice, rising costs associated with dining out continued to pressure overall restaurant traffic, particularly in the full-service formats. However, growth in QSRs and non-commercial channels compensated for these declines, supported by operators' continued strategic focus on chicken through value offerings, limited time promotions and menu innovation. Chicken-centric QSRs are leveraging the protein's affordability to drive traffic and engagement, outperforming the broader dining sector. Within foodservice, boneless dark meat volumes are growing at double-digit rates across all segments. Wings are gaining momentum and tenders continue to deliver steady consistent growth. In exports, industry volumes accelerated during Q4. Within Pilgrim's demand was primarily driven from Southeast Asia and Mexico. Pricing remained high relative to historical levels and continues to be elevated in 2026. While trade disruptions have impacted certain markets given the HPAI outbreak, the overall effect has been relatively muted on both pricing and volumes as most U.S. trading partners quickly limit restrictions to either the county or specific zones. As a result, trade simply shifts from other locations outside the impacted area during the restriction period. Moving forward, we expect exports to remain strong and well diversified across markets. Turning to feed inputs, corn moved marginally higher in Q4 compared to previous quarter. However, prices moderated in January as the U.S. corn realized new records in harvest area, yield and total supply. While record demand currently exists, corn ending stocks are still expected to increase to 2,200,000,000, creating the highest stock-to-use ratio since 2019. Soybeans and soybean meal rallied in Q4 given the resumption of U.S. soybean sales to China, strong domestic interest and export demand for soybean meal. Potential upside appears limited given favorable weather in South America for soybean production and a relatively slow pace of U.S. soybean exports. Since shipments are below average, the USDA anticipates ending stocks will rise by 3,000,000 bushels, up 7% versus prior year. Global soybean stocks and processing capacity are also expected to increase, generating ample supplies of meal. Global wheat stocks continue to be well supplied and production increased by 41 metric tons versus prior year. Every major producer experienced above-average crops, reducing the risk of physical disruption in shipments. Additional tailwind may emerge from increased wheat acreage planted in the UK. Fabio Sandri: Within the U.S., our diversified fresh portfolio increased volume compared to the same period last year as consumers continue to seek affordability offerings for their meal occasions across retail and foodservice. Our higher attribute differentiated offerings in case-ready accelerated its marketplace presence. Volumes to key customers increased nearly two times the category. Sales and profitability rose compared to last year from sustained growth. Small bird also realized similar success, as volumes to QSR remain robust despite its low market for bone-in chicken and whole birds. Given continued market shift to boneless cuts, extensive key customer partnerships and growth aspirations, we will evaluate and adjust our portfolio to match demand accordingly. In Big Bird, commodity cutout values fell nearly 20% compared to last year. Nonetheless, the business was able to improve its efficiencies in live operations and in production. Equally important, we further leveraged our position as the leading supplier of NAE meat to support our robust growth of value-added offerings. To that end, Big Bird will continue to increase supplies to our internal prepared foods, reducing volatility and enhancing margins for our portfolio. During the quarter and the beginning of 2026, our team also undertook a variety of projects to strengthen our key customer partnerships and enhance operational excellence, including investments within Big Bird to increase our portioning capacity and differentiated cuts. Through these efforts, our team managed through planned downtime and adjusted production across locations accordingly to ensure sufficient availability, maintain quality and uphold service levels. Prepared foods sales grew 18% compared to the same period last year, given branded growth across retail and foodservice. Just BARE momentum continues to accelerate market share in retail; it rose nearly 300 basis points compared to the same period last year. Equally important, it has the highest velocity of any brand within frozen chicken. Further growth opportunities exist through increased distribution. Our innovation and approach to both flavors under the Pilgrim's brand also continues to receive accolades, as People’s Food Awards recognized our Cheesy Jalapeño Nugget line as a category winner. In foodservice, we continue to build our presence, giving continued growth with national accounts and schools. Investment in the new prepared facility in Georgia to meet demand for our fully cooked offerings remains on schedule. Turning to Europe, consumer sentiment continues to be relatively subdued. Nonetheless, we improved our profitability and maintained stable demand compared to the same period last year, given consistent execution of our strategies. Within retail, chill meals and fresh offerings were among the fastest growing categories. As such, our chicken business drove profitable growth, led by our differentiated Pro 3 offerings at select customers. Our added value business remains steady. Bareo’s pork experienced challenges from excess supply and animal health issues emerging in Spain, triggering export restrictions in the EU. Despite these challenges, our team maintained volume and increased profitability compared to last year. Our diversification efforts through key brands continue to progress, as overall sales and volumes rose compared to last year. Operator: UK. Fabio Sandri: Fridge increased share yet again given the effectiveness of recent changes to pricing and packaging. The momentum for the Rollover continues to accelerate from additional distribution with new customers. The Richmond brand was challenged by low-cost private label offerings, but recent investments in promotional and innovation activity have been beneficial in resuming our growth trajectory. We continue to develop our innovation pipeline in close collaboration with our key customers. To that end, we have created a variety of new platforms in chill meals, focused on diet health and ethnic offerings. To date, market acceptance has been promising given incremental distribution awards and consumer interest. In foodservice, visits fell at QSRs given concern regarding affordability. As a result, our volumes were impacted, especially during the late half of Q4. To reverse this trend, several of our QSR customers reignited promotional activity during 2026. In Mexico, challenging market circumstances arose in Q4 given increased imports of animal-based protein. As a result, the short-term supply of meat and poultry in Mexico increased to levels not previously experienced. These conditions were further amplified by weakened market fundamentals in the live commodity market, as improved growing conditions increased supply. Nonetheless, we continue to drive our strategies, growing volume in retail, QSR and foodservice channels compared to last year. We also increased volumes by double digit in our fresh branded portfolio versus 2024. Just BARE continues to be extremely well received as sales have grown more than two times compared to last year. Similarly, prepared sales volumes increased by 8% versus last year, led by key customers in foodservice and QSR. Based on these efforts, we continue to diversify our portfolio and reduce the volatility for our business. Despite these short-term challenges, we continue to have growth ambitions in Mexico given its long-term growth potential, status as a net importer of animal protein and effectiveness of our strategies. Our growth plans will further mitigate the volatility of our portfolio resulting in a higher, more resilient earnings profile. We have already begun implementation of our plans. In fresh, our efforts to build domestic supply, create national distribution capabilities and diversify our geographical presence remain on schedule, with growth in the South Region in Veracruz and in the Peninsula Region in Mérida. In prepared, we are doubling our capacity of fully cooked products through the expansion of our facility in Porvenir. We anticipate our increased capacity coming online during the second quarter, further enabling growth for the second half of the year. Our growth intentions in Mexico are not isolated, and overall prospects for chicken remain strong globally given relative affordability, emerging trends and consumer preferences and healthy attributes. As such, our growth investments previously announced in the U.S. can further capitalize on these trends, reinforce our strategies and strengthen our competitive advantage. Given this environment, our portfolio will also continue to evolve. To support key customer growth in fresh, we are converting one of our commodity Big Bird plants to a case-ready plant. We expect this conversion to become operational during 2026. To support the expansion of prepared foods, we will install equipment upgrades and modify our plant layouts in Big Bird, leveraging our internal supply of differentiated NAE portion raw materials. Regardless of these investments, we fully expect to remain consistent in our quality and service levels, given our extensive network of facilities and overall supply chain capabilities. More importantly, we will have fortified our key customer partnerships and improved operational efficiencies, which will reduce volatility, enhance margins and drive profitable growth. In sustainability, our journey continues. We have made significant headway in the reduction of our carbon-based direct and indirect emission intensity used for processing compared to last year. External agencies continue to recognize progress in environmental and social matters as our scores improved compared to last year. Improvements in team member development continue to be exceptionally well received as over 2,300 team members or their dependents have signed up for our Better Futures program, of which 780 have begun their selected academic pathway. With that, I would like to ask our CFO, Matthew R. Galvanoni, to discuss our financial results. Thank you, Fabio. Good morning, everyone. Matthew R. Galvanoni: For 2025, net revenues were $4,520,000,000 versus $4,370,000,000 a year ago, with adjusted EBITDA of $415,100,000 and a margin of 9.2% compared to $525,700,000 and a 12% margin in Q4 last year. For fiscal year 2025, net revenues were $18,500,000,000 versus $17,900,000,000 in fiscal 2024, growth of 3.5%, while increasing adjusted EBITDA by 2.5% from $2,210,000,000 in fiscal 2024 to $2,270,000,000 this year—back-to-back years with adjusted EBITDA margins greater than 12%. Adjusted EBITDA in the U.S. Q4 came in at $174,200,000 with adjusted EBITDA margins at 10.6%. Our U.S. business continued its momentum in the quarter in fresh retail and with QSR key customers, driving above-category growth in these categories. Big Bird achieved further operational improvements; however, we faced year-over-year commodity market pricing headwinds negatively impacting profitability. Our prepared foods business continued its momentum of branded product sales growth with both retail and foodservice customers, driving year-over-year profitability improvement in the quarter. For the fiscal year, U.S. net revenues were $11,000,000,000 versus $10,600,000,000 in fiscal 2024, with adjusted EBITDA of $1,630,000,000 and a 14.8% margin compared to $1,560,000,000 and a 14.7% margin last year. The U.S. business maintained its margin profile through increasing sales volumes and delivering operational efficiency. In Europe, adjusted EBITDA in Q4 was $131,400,000 versus $117,100,000 in 2024, a 12.2% increase. For the full year, Europe's adjusted EBITDA improved 11.4% to $453,100,000 in 2025, from $406,900,000 in 2024. Europe drove improved profitability with growth in poultry sales and through the impacts of the series of operating efficiencies implemented over the last few years. Our European business’s streamlined organizational structure and focus on innovative offerings has positioned it to partner more efficiently with our key customers in the region. We recognized approximately $31,000,000 of restructuring charges during the year, down from $93,000,000 in 2024. While we continue to pursue efficiency measures, we anticipate the majority of these programs are behind us. Mexico made $9,500,000 in adjusted EBITDA in Q4, compared to $36,900,000 last year. When considering the full year, Mexico made $186,700,000 in adjusted EBITDA or an 8.8% margin, falling short of last year's 11.8% margin. Mexico experienced lower market pricing in the fourth quarter driven by higher availability of imported animal-based protein. Although we did record $77,000,000 in litigation-related settlement charges, our GAAP SG&A expenses in the fourth quarter were lower than last year, primarily due to a decrease in legal settlement expenses and cost efficiencies realized in Europe. For the full year, SG&A expenses were flat to last year, with slightly lower legal settlement costs being offset by higher brand marketing investment. Net interest expense for the year was $110,000,000. Currently, we forecast our 2026 net interest expense to be between $115,000,000 and $125,000,000. Our full year 2025 effective tax rate was 27.9%. We recorded a discrete tax item in the fourth quarter related to a catch-up for U.S. state unitary taxes, which will not reoccur next year. As such, for 2026, we anticipate our effective tax rate to approximate 25%. We have a strong balance sheet and will continue to emphasize cash flows from operating activities, management of working capital and disciplined investment in high-return projects. As of the end of the year, our net debt totaled approximately $2,450,000,000 with a leverage ratio of less than 1.1 times our last twelve months adjusted EBITDA. Our liquidity position remains very strong. At the end of the fiscal year, we had over $1,800,000,000 in total cash and available credit. We have no short-term immediate cash requirements with our bonds maturing between 2031 and 2034 and our U.S. credit facilities not expiring until 2028. We finished the year spending $711,000,000 of CapEx. Included in our 2025 capital spending were the growth projects in Mexico, the Big Bird plant conversion to support a key retail customer, early progress in our new prepared foods facility in Walker County, Georgia to support our Just BARE brand growth plan and other projects that Fabio previously mentioned. The Big Bird plant conversion and the Mexican projects are on track to be completed by April. Currently, we forecast 2026 CapEx spending to be between $900,000,000 and $950,000,000 as we progress through these and the other projects to support prepared foods growth previously noted by Fabio. As mentioned in the past, our sustaining capital spend approximates $400,000,000 per year. We will continue to follow our disciplined approach to capital allocations as we look to profitably grow the company. We will continue to align investment priorities with our overall strategies: portfolio diversification, focus on key customers, operational excellence and commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions. Operator: We will now open for questions. In the interest of allowing equal access, your first question today comes from Benjamin M. Theurer with Barclays. Please go ahead. Benjamin M. Theurer: Yes, good morning and thanks for taking my question, Fabio and Matt. Two quick ones. So number one, maybe just on the current growing conditions and you have laid it out in your prepared remarks. What are the cutout levels and pricing compared to historic levels and particularly versus the last two years? So as we look into the first quarter and with hatchability coming down, how much of that would you say is related to just the genetic issue coming back up? Or is it more of the weather-related, just given the cold weather we had over the last couple of weeks, even in areas where chickens are grown? So just about the market dynamics right now and how we should think about the supply side for Q1. Yes. Thank you, Ben. Good morning. Fabio Sandri: Yes, when I look at the supply—and we always start with the breeding flock—and when you see the size of the breeding flock, we are with a total number that is down 1.9% year over year. So we have fewer breeders. But I think in terms of age, they are younger, which will generate more eggs and help on the hatchability. But nonetheless, it is a smaller number. Given that input and some other factors like the weather and the seasonality, I think USDA is projecting the growth of supply in chicken for the Q1 at only 1.2%. In total for the year, there will be only 1%. I think the hatchability issue is part of this breed that we have, and there are a lot of questions about breed. And I think the important thing for us is that we look at the overall profitability of the bird, not only one trait or another. So when we look at the profitability of the bird, we look at, of course, hatchability, but we look at conversions and we look at yields. And as of today, this bird, despite having hatchability that is below the five-year or below previous years, still has the better yield and the better performance in terms of feed conversion than other birds. So I do not expect any significant changes in the breed. Of course, there are always new breeds coming online, but it takes time for the new breeds to roll out. Okay, perfect. And then my second question just around capital allocation. Obviously CapEx—you have mentioned the $900,000,000 to $950,000,000—that is a good $200,000,000 increase versus last year and kind of brings us to the $0.5 billion investment for the year versus sustaining. So as you kind of laid the land in terms of these projects, the Big Bird conversion, things in Mexico, prepared foods, what else is in the pipeline? I know you have made some announcements in Mexico a couple of weeks ago. So just help us understand framing that CapEx for now and also how much of that CapEx carries then potentially into 2027 as you roll out more projects, just to think about the path of CapEx beyond 2026? Fabio Sandri: Oh, great point. And I think we are always looking for the trends in the market and how we can support our key customers, and we can improve our portfolio. So in that regard, we are always looking to grow our prepared foods, and I think we mentioned how outstanding we have results, especially because of the Just BARE brand. So we are building that new facility in Georgia, and that will take investments that started last year; it is going to take 2026 and will roll out to 2027. In Mexico, as we mentioned, we are also diversifying our geography. We are growing in regions where we are not in. Typically, in Mexico, we are in the Northern Region and in the Central Region. We were not present in the South Region and in the Peninsula, and we are increasing our investments in those two regions. And that is smaller and it is every year as we want to grow steady in those regions. So we will have some investments in 2027. On the conversion to increase our support to a key customer, it is going to be all done during this year. And the changes on the internal supply of meat from our Big Bird to our prepared foods will be all done this year. I think the only thing that we can have for 2027, as we mentioned, we are seeing this trend of change of bone-in small birds to more boneless—I think we all discussed about the sandwich wars many quarters ago, I have been discussing that—and we are seeing that trend. We may convert one small bird plant to a more deboning plant rather than a bone-in plant. Operator: Okay. Perfect. Thanks, Fabio. And your next question comes from Peter Thomas Galbo with Bank of America. Please go ahead. Matthew R. Galvanoni: Hey, Fabio. Good morning. And Matt, thanks for taking the question. Fabio, maybe just to pick up on Ben's question on the—I guess, the rally we have seen to start January in commodity prices. Just trying to think about the—and I know it is a hard crystal ball—but the sustainability of that given some of it is the tailwinds to category and other competing proteins being lower versus kind of the storm impact and maybe that is having an upward pressure on prices. Just how do you think about maybe the sustainability of some of the price move we have seen into what is going to be historically and even seasonally a stronger period. Fabio Sandri: Yes. Thank you, Peter, and good morning. We are seeing several trends supporting the demand for chicken. Starting with overall, we are seeing these macroeconomic indicators that show that the consumers have been watching their spending closely and have growing concerns about the inflation. So as the inflation in food away from home is outpacing the food at home, consumers are looking for ways to save and they are moving to retail. So when we go to the retail, we see that they have more frequent trips and lower baskets. And chicken demand has increased overall because, as we mentioned on the prepared remarks, compared to last quarter, prices in retail for boneless breast have gone down 1%, while we see all the other competing protein prices going up. I think that created, as we mentioned, the highest spread on record. If you look at the prices of chicken compared to the prices of beef, we have a spread of close to $2 per pound. And that is increasing the demand for chicken in retail. When you go to the foodservice, despite this lower food traffic, I think the foodservice operators are trying to attract consumers with promotional activity. I just mentioned the sandwich wars, and we are seeing the menu penetration of chicken going up in the foodservice. So we saw also a growth in the foodservice in the range of 2% to 3%. So I do not think that we are going to see a change in those big trends during 2026. And as I mentioned in terms of supply, USDA, because of the size of the breeding flock and the state where we are in terms of hatchability and the high utilization on the hatcheries, we are seeing the supply growing only 1%. So I think that the trends are very positive, especially for the grilling season. Operator: Great. Peter Thomas Galbo: Okay. Thanks for that. And Matt, maybe just a couple of cleanups. If you could help us, I think you gave the interest, tax and CapEx, but maybe anything on D&A for the year and then how you are just thinking about the SG&A levels, which continue to be pretty impressive—how we might think about that for '26. Thanks very much, guys. Matthew R. Galvanoni: Yes, no problem, Peter. Yes, good morning. So from a D&A perspective—depreciation and amortization—we are looking to track to about $520,000,000 for the year for 2026. 2025 was about $460,000,000. And then SG&A, what I would tell you is kind of think about it, sort of $140,000,000 a quarter. I think that will help get you guys pretty close, maybe just a little north of that for the full year using that $140,000,000 a quarter. Peter Thomas Galbo: Awesome. Thanks, guys. Operator: And your next question today comes from Andrew Strelzik with BMO Capital Markets. Please go ahead. Matthew R. Galvanoni: Hi, good morning. This is Ben covering for Andrew. So I will start with Mexico. Just if you could dig a little deeper on what happened there during the quarter, and then we are wondering maybe what happens moving forward in 2026. Is the supply-demand situation cleaned up there or should we expect some lingering pressure? Just trying to understand the potential cadence there. Thanks. Matt Galvanoni: Yeah. Sure. Good morning. And as we have been— Fabio Sandri: Saying, Mexico can be very volatile quarter over quarter. But on the year, we have always seen growth and very positive results there. In Q4, I think we had a series of events. Q4 typically is a good quarter for Mexico, but during this quarter, we saw some shifts in the exports market, and Mexico was the most attractive market for especially breast meat from Brazil and other locations. And we saw a significant increase in the exports to Mexico on the breast meat. We also saw a significant increase in pork exports to Mexico, which increased a lot the supply of meat. That impacted more the North Region. At the same time, in the Central Region, that includes Mexico City, we saw the growing conditions very favorable for chicken. And after a strong first semester, we saw the supply of chicken increasing in that region. So we had the two regions affected by different aspects. So we saw this increase in supply in the center impact the live market prices. And because of that, we saw the weaker Q4 than anticipated. That is why we are creating the portfolio there, creating—and we are talking about growing to different regions. So growing in the South Region, in Veracruz, and growing in the Peninsula because these areas are more insulated from the North and from the Central microdynamics. On the lingering effects, I think we are seeing now the market more into the normal seasonal patterns. We are seeing a slowdown in the growing conditions in the center. And we always mention that there are small players. When the profitability is very high in that region, they come to the market, and when the profitability starts going down, they exit that market, and we are seeing that. So we are seeing a more stable supply and demand. And in the North, as well, we are seeing that all the freezers are completely full in the North Region. So I do not think that there will be any more increase in the exports to that region. So we see the volatility in Mexico and that is why we are evolving to be a more resilient earnings— Matthew R. Galvanoni: Got it. Thank you for that color. That is very helpful. And then my last question will be about the EU, UK business. Matthew R. Galvanoni: Very strong performance during the fourth quarter there. Matthew R. Galvanoni: Over well over 6% operating margin. Matthew R. Galvanoni: Was that—how much of that was seasonally driven, I guess, is the first part of the question. And then you pointed out in the 10-K, in particular, strength in domestic demand for fresh products. So if you could kind of tie that into the volume strength and profitability strength in the EU and UK and just thinking about starting 2026—I mean, if it was not seasonally driven in the fourth quarter, would we expect 6% plus margin to sustain there? So that is my last question. Thanks. Fabio Sandri: Yeah. Thank you. Yeah, there is always seasonality in the UK, especially in the pork operation. But what we are seeing in Europe—and it is no different than other places of the earth—is the strength of the chicken business. So we are seeing the affordability, the availability and also our strategies, and we are resonating with the key customers and consumers with the differentiated offerings. So we are seeing a strengthening in the chicken business in the region. But I think there is seasonality in Q4. It is typically stronger in Europe than other quarters. I think we will see significant improvements quarter over quarter within this seasonality. So I think we will have a better quarter in Q1 than we had the same year ago in Q1. Although we are seeing some weakness in QSR that started during Q4 because of, again, the prices of especially beef, our business in the region on the QSRs was a little bit impacted on the traffic. But we are seeing some promotional activity on those QSRs. We expect an improvement during this Q1. Matthew R. Galvanoni: Thank you. Operator: And your next question comes from Pooran Sharma with Stephens. Please go ahead. Hey, this is Adam on for Pooran. Thanks very much for the question. Fabio Sandri: So obviously— Matthew R. Galvanoni: The beef environment continues to be a tailwind for chicken. In our eyes, there are two big moving pieces there. One, Mexican cattle imports and two, the pace of heifer retention. Just wanted to get your opinion on how those two factors on the two extremes—slow versus aggressive heifer retention and the resumption or lack of cattle imports—could impact chicken demand and therefore broiler margins? Thanks. Fabio Sandri: Yeah. I think when we look at the retail—and I mentioned that we saw the spreads at the highest number ever—and I think this is something that has been growing over time. And I think 2025 and 2026 have been exacerbated by the effects that you just mentioned on the price of the live animals here in the U.S. and some capacity reductions in the beef industry. I think it is very difficult to look at the sensitivity on how much that delta needs to be to trigger trade-downs, but I think what we are seeing is that the consumer is really impacted in the inflation, especially on the food away from home. And we are seeing all this demand for chicken in retail. And I think it is the same in the foodservice, as I mentioned. It is a matter of availability because when you look at the USDA for 2026 for the production of beef going down, it would depend a lot more on the imports and what type of cuts will come from these imports from South America and other regions. So we do not expect the prices of beef to reduce significantly during 2026, as you mentioned, because of the retention that has started. So I think that could be something that we will see in 2027. But I think overall, we are seeing a very strong demand for chicken both in retail and foodservice. Pooran Sharma: Thank you. That is helpful. And my follow-up, I was wondering—I think you touched on it briefly in your prepared remarks—but if you could just give a brief state of the union of the disease pressure you are seeing like in Spain. I know we have seen somewhere between a hundred to a hundred and fifty positive cases of ASF in Spain. But anything else you can add there would be great. Fabio Sandri: Yeah, of course. Our European business has been impacted before because of that. I think what we are seeing is the ASF in Spain. Spain is one of the largest producers in the world of pork. And because of the ASF, they have been banned from exporting to China. Because those exports do not go to China, they end up in the European region, typically in the UK. And that is generating a lot of supply, especially in the sausage business. And that is creating some impact in our business because our Richmond brand—it is a well-established brand in the UK—when it is competing with this external meat and all this private-label sausage, it ends up impacting prices. And that is why we mentioned that the Richmond brand was facing some challenges during Q4, but we expect some promotional activity, and the resilience of that brand is amazing. We have been growing year over year. We expect that impact to reduce. Now how long that is going to continue in Spain, and how that is going to impact long term the UK, I do not think that is something that we can foresee. But I do not believe that it is going to be a long-term impact as we are seeing the herd being reduced throughout Europe. Pooran Sharma: Okay, great. Thank you very much. Operator: And your next question comes from Leah Jordan with Goldman Sachs. Please go ahead. Matt Galvanoni: Thank you. Good morning. Wanted to go back to your comments about foodservice in the U.S. You talked about the consumer shifting to retail, which is a headwind for the channel, but you continue to grow nicely. So if you could provide more detail on the demand you are seeing there. Any nuance between QSR versus others? And how much can new business wins continue to offset any broader industry slowdown there? Or how do you think about lapping the strength that you have had over the past year in innovation and LTOs? Fabio Sandri: Yeah. Thank you, Leah. When—again, like I mentioned—the foodservice traffic is a challenge and has been challenged over the last year, and the foodservice operators are looking for promotional activity to drive traffic. When you drill down into the segments, what we are seeing is a slowdown in the full-service restaurants compensated by increases in the non-commercial, especially hospitality, schools, and growth in the national accounts. When you look at the promotional activity, even the non-chicken QSRs are doing a lot of promotions with chicken. And we saw the increase in the overall industry close to 3%. So we do not expect that to change during 2026 for the factors that we already mentioned on the availability of lean beef on the burgers, and the availability of other proteins and the affordability and versatility of chicken. Leah Jordan: Okay, great. Thank you. And then just for my second question, just wanted to ask about Just BARE a little bit more. You have shown some nice acceleration across prepared foods overall, but Just BARE has been really strong for you with the share gains that it has had. I know we are still waiting on that new plant to open. But how do you think about growth for that brand over the coming year, considering distribution and velocity? And then ultimately, longer term, do you think about continuing to increase brand awareness or household penetration there? Fabio Sandri: Thank you. It is a great point. And I think the brand awareness is still not at the levels of national expansion that we expected, but we are seeing that Just BARE is the number one in terms of velocity where we are. I think that is very important for the retailers. As we are discussing with our key customers on the distribution side, if you have Just BARE in your shelves, you can see that the shelf is turning faster than with any other segment. I think it is innovation which is going to play for us to continue to grow. I think we have a very strong core. Products we can innovate and stretch that brand to some other, different—being chopped and formed—because it is a whole muscle today, but there are a lot of opportunities in chopped and formed. And the Just BARE brand promise is exactly what the consumer is looking for today, which is a clean label, no additions of antibiotics or any other items that the consumer is looking at today at the labels and comparing. And that is why that is resonating so well with the consumer. So it is gains in distribution, because we are still not very national. We went from 1% to 13% market share in a matter of five years, but still have a lot of distribution to gain. And the velocity will continue because of how that brand and the brand promise is resonating with our consumers. Leah Jordan: Great. Thank you. Operator: And your next question comes from Thomas Henry with Heather Lynn Jones Research. Please go ahead. Matt Galvanoni: Good morning, guys. Thank you for taking the question. On Europe, could you elaborate on any trends besides the seasonality driving that strong volume performance? And any expectations of these continuing into '26? Thank you. Fabio Sandri: Yeah, I think it is a normal seasonality. We see the end of the year, a lot of promotional activity in terms of hams and bacon and other cuts. But as a long-term trend, what we are seeing throughout the year is the growth of chicken. That is more important than the seasonality. I think the consumer is facing the same challenges in Europe that they are facing in the United States on the inflation. And when you look at the breakdown of the growth in total grocery, grocery is growing 4%, but chicken is growing 8% to 10%. So there is the seasonal effects, and we saw some growth in the fresh pork, close to 5% this quarter. But the long-term trend is more growth in the chicken side. And of course, with the innovations that we are doing, the partnership that we are doing in Europe on the meals, are also creating some new lines that are generating great results. The meals are a very affordable way for a family to have their needs. So I think it is something that we are investing together with key customers on differentiating, creating better experiences for our end consumer and differentiating in terms of the ethnicity for the consumers. Operator: And your next question comes from Guilherme Palhares with Santander. Please go ahead. Matt Galvanoni: Good morning, everyone. Thank you for taking my questions. Just two quick ones. First is, where do you see today the capacity of grandparents of shipping in the U.S.? And the second one, if you could talk a bit about the new trade permit of the EU towards the Brazilian chicken, and whether this could have any impact on the business there? Fabio Sandri: Thank you. Yes, thank you. On the grandparents, the information we have is the USDA information. When we talk about the size of the breeding flock, it includes the grandparents. And when we look at the number, it is down 1.9%. And that includes the processors and includes the grandparents. So I do not see any—or we do not have any—information about significant increase in the grandparents’ size. On the impact of the Mercosur agreement, or the UK-Europe and Brazil, what we are seeing is the normal continuation of a long-term export from Brazil, which is one of the largest chicken exporters, to Europe. I think Brazil typically exports breast meat, and that breast meat goes to the foodservice. When you look at the UK consumer, they give great value to the provenance, and our chicken business and our pork business in Europe are mainly on the retail side because we are local producers. Because the standards of producing in the UK, both chicken and pork, are higher than everywhere else in the world, the consumer pays a premium and they have this important trait of provenance. So when we look at the impacts of these agreements, more on the foodservice area, we have a strong foodservice there that can benefit from cheaper raw material—being from Thailand, being from Poland or being from Brazil. I think it is a good tailwind for our foodservice production in the UK. But it does not have a big impact on the retail side. Thank you, Fabio. Operator: And your next question comes from Priya Joy Ohri-Gupta with Barclays. Please go ahead. Hi, good morning. Thank you for taking the question. Leah Jordan: Matt, for the last two years, the operating cash flow before looking at changes in working capital has been pretty consistent around $1,600,000,000 or so. Is there any reason that we should think about '26 looking different from that? And then secondly, just as we think about the working capital piece, what are some of the trends that we should keep in mind as to whether that will be a positive or negative to the cash from operations? Thanks. Matthew R. Galvanoni: Thanks, Priya. Good talking to you. Generally, I do not see a major change relative to your first question. Of course, we are increasing our CapEx spend intentions here for 2026 versus 2025 by, call it, almost $200,000,000. So that, of course, will come into play. But relative to working capital, I think when you look back to 2024, we had a lot of tailwinds for us with the large grain cost decrease in 2024 versus 2023. Of course, things flattened out more in 2025. We really saw there in the inventory side more purposeful increases in finished goods because we were able to procure some cheaper breast meat at opportune times, which increased some of our inventory levels. AR—some of that headwind was really more just higher sales pricing. So overall, I would say I do not see the repeat on the negative side on the inventory that we saw in 2025. Of course, we will have to watch and see what grain does, but kind of where grain sits today, we feel it should be more flattish. And then we will just watch and monitor AR. Hopefully, that helps. Priya Joy Ohri-Gupta: Yes, that is really helpful. And then just one follow-up on the CapEx piece. There is a headline just talking about $1,300,000,000 in investments in Mexico through 2030. So as we think going forward—and I know you gave us a little bit of context into '27—but how should we think about that $1,300,000,000 specifically related to Mexico over '26 to '30, if you could give us some directional sense? Fabio Sandri: Yeah. Thank you. I think that is a long-term vision that we have, just like I mentioned, to grow in regions where we are not and grow our prepared foods. So that includes significant growth in the South Region and in the Mérida region, as well as the duplication of our prepared foods facilities. And in that investment is included also some investments done by growers to support that growth. So it is not totally from us, but it is because of our projects, and that will help close the gap in Mexico. Mexico is a big importer of meat, and we believe that with our growth in Mexico, we can reduce the need of the imports by 35%, which helps a lot in the food security for the region. Priya Joy Ohri-Gupta: That is helpful. Thank you. Operator: This concludes the question and answer session. I would like to turn the conference back over to Fabio Sandri for any closing remarks. Fabio Sandri: Yes. Thank you, everyone, for attending today's call. Throughout 2025, we accelerated our performance through a leadership mindset, living our values and driving our methods. Given our teamwork, we delivered yet another strong year. 2026 started with several weather events that impacted many regions where we operate, and I would like to thank our team members and extend my deepest appreciation for their efforts every day and their dedication to our company and our community. Moving forward, we must continue to drive our efforts with an unwavering focus on team member safety and well-being, product quality and sustainability. When combined with our strategy and approach, we can achieve our vision to be the best and most respected company in our industry, creating an opportunity for a better future for our team members and their families. Equally important, we initiated the next chapter in our growth journey through investments across all regions. Based on these efforts, we can further drive profitable growth, reduce volatility and enhance margins throughout our entire portfolio. To that end, I look forward to strengthening our legacy in 2026 and beyond. Thank you all. Operator: The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day and welcome to the TriNet Group, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. Now I would like to turn the conference over to Alex Bauer, Head of Investor Relations. Please go ahead. Thank you, Operator. Good morning. My name is Alex Bauer, TriNet Group, Inc.'s Head of Investor Relations. Alex Bauer: Thank you for joining us, and welcome to TriNet Group, Inc.'s fourth quarter conference call and webcast. I am joined today by our President and CEO, Michael Quinn Simonds, and our CFO, Kelly Lee Tuminelli. Before we begin, I would like to preview this morning's call. First, I will pass the call to Michael for his comments regarding our fourth quarter and full year performance. Kelly will then review our Q4 and full year financial performance in greater detail and conclude with our 2026 financial guidance and outlook. Please note that today's discussion will include our 2026 full year financial outlook. Our midterm outlook, and other statements that are not historical in nature, are predictive in nature, or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs, or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties, and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information or future events. We encourage you to review our most recent public filings with the SEC, including our 10-Ks and 10-Q filings, for a more detailed discussion of the risks, uncertainties, and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for adjusted EBITDA margin and adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings, or 10-K filings, which are available on our website or through the SEC website. With that, I will turn the call over to Michael. Michael? Michael Quinn Simonds: Thank you, Alex, and thank you all for joining us this morning. 2025 was a challenging year across the SMB landscape, marked by elevated medical cost inflation and muted hiring activity. Against that backdrop, I am proud of how the TriNet Group, Inc. team stayed focused on our clients and executed with discipline against our strategy. As a result of that execution, we delivered solid financial performance. We finished the year at the top end of our earnings guidance and generated 16% growth in free cash flow. We significantly improved the quality of our pricing processes, successfully completing a comprehensive health fee renewal across our customer base, strengthening our risk position heading into 2026. And we made meaningful progress against our most important initiatives: improving client service, strengthening our go-to-market execution, and driving greater operational discipline. We are making progress on what we control, repositioning TriNet Group, Inc. for durable, long-term growth, and staying focused on our clients, and in an environment like this—health care inflation at levels not seen in more than two decades, and the slowest hiring market since 2020—our clients need us more than ever. The ASO and PEO model typically delivers a mid to high teens ROI to SMBs, by leveraging our scale and technology to lower HR and benefits expense. However, beyond cost, we help our clients manage risk while acting as a trusted adviser in a time of change, something an increasingly big number of our clients are dealing with today. For example, we worked with one technology client—a sector dealing with significant disruption—to help restructure their 160-person organization. We helped them reduce costs by more than 20%, flatten the management structure, prioritize critical skills, and implement a compensation framework aligned with their long-term objectives. This is the positive impact TriNet Group, Inc. can have on an SMB. And while we cannot control external headwinds, we are gaining momentum, adding new capabilities designed to bring in more clients and serve them longer. Michael Quinn Simonds: The growth-focused investments we made in 2025 are beginning to take hold. Sales were up nicely in January, and we expect momentum to continue through 2026. Our broker channel is a long-term build but off to a strong start. We entered 2026 with four national partners and expect to add more over time. We have improved our quoting, service, technology, and incentive alignment with our key partners. Health brokers contributed disproportionately to both our January sales growth and to our pipeline for the coming months. Second, we invested meaningfully in our sales organization in 2025 with a focus on maturing and retaining senior sales talent. We are coming into 2026 with double-digit growth in tenured reps—those with greater than four years of experience. One senior rep is more productive than four first-year reps, and as a group, they are critical for effective collaboration with successful brokers in each local market. To build a sustainable rep pipeline, we launched the Ascend program in 2025, bringing recent graduates into an immersive trainee experience in Atlanta. We are pleased with the results and excited about the first cohort entering the market aligned with the fall selling season. These new reps combined with the growth in tenured reps will result in nearly a 20% expansion in selling capacity later this year. Looking even further out, last week, we announced the expansion of Ascend to six regional hubs. This program is helping us attract motivated talent, embed our culture early, and build long-term sales capacity. We are also seeing how this influx of AI-native talent is accelerating adoption of AI across our sales processes. While it does not happen overnight, we are excited about the sustainable way our salesforce is being built. Third, we are simplifying our PEO health plan offering through benefit bundles. We are increasingly presenting prospects with streamlined geographic and risk-adjusted bundles. Early feedback has been positive, and we expect momentum to build as the year progresses. Finally, ASO is now a core growth driver in 2026. After discontinuing our SaaS-only HRIS platform at the start of 2025, conversion rates to ASO exceeded expectations. We ended the year with more than 39,000 ASO users at an average of approximately $50, roughly three times our SaaS-only offering, and stronger-than-expected new sales. Having a successful ASO offering in our portfolio gives our reps and brokers more opportunities to grow their businesses when PEO may not be a fit. Michael Quinn Simonds: Of course, another major lever for client growth is driving improved retention. For us to return to our targeted insurance cost ratio in the current medical cost inflationary environment required a significant repricing effort. For 2025, our ICR was 90.8%, slightly better than the midpoint of our guidance with year-over-year improvement in the fourth quarter. We addressed a cohort that had been significantly underpriced in 2023 and early 2024. And while the repricing resulted in an increase to client attrition, I am pleased to report that January renewals represented the final major true-up for this cohort. Remaining clients have now cycled through two renewals and are trending toward expected ICR levels in 2026. Looking ahead, barring a significant uptick in health care trend beyond already elevated levels, health fee pricing pressure will moderate. To give you some sense for this, in looking at our April 1 renewals, the percentage of clients receiving health fee increases above 30% declined by more than half versus January 1 renewals. This is a significant move closer to a normalized distribution. With these catch-up renewals behind us, retention will increasingly be driven by strong capabilities and service quality, and here we are making great progress. In 2025, TriNet Group, Inc. achieved an all-time high net promoter score. While encouraged by this progress, our ambition is higher. In the coming weeks, we will launch TriNet Assistant, an AI-powered HR tool that enables customers to receive accurate, immediate answers across a broad range of HR topics. Built on more than thirty years of curated expertise, this represents a meaningful advancement, importantly, in how we deliver value. The assistant will be expanding and improving rapidly post launch. The foundational work has been laid with the right security and compliance layers in place. Over the coming quarters, we believe TriNet Assistant will become an indispensable tool for customers. Beyond AI, we are enhancing the client experience through strategic integrations. We plan to announce new capabilities in international employment, contractor management, IT provisioning and security, and leave of absence, significantly expanding the value provided via the TriNet platform. Michael Quinn Simonds: In summary, we have built real momentum with our people, partnerships, and our platform investments. It is important to note that we are making these investments while remaining disciplined on expenses. We are exiting 2025 with expenses down 7% year over year, and expect further improvement in 2026. We laid out our medium-term strategy a year ago with a base case that called for modest improvement in the macro environment over time. We have not seen any improvement to date, resulting in pressure to our revenue expectations even as we have progressed to plan on margin improvement. Our guidance for 2026, based on our own data and benchmarked externally, does not assume any improvement on health care cost trend or hiring. Instead, we will stay focused on getting better, doing the things we can control: go-to-market execution, improved value to clients, disciplined pricing, and prudent expense management. We have made difficult decisions in response to a challenging macro environment—choices that are making us a stronger, more disciplined, more client-focused company. A company that will generate good outcomes in 2026 with building momentum. And with that, I would like to ask our new Chief Financial Officer, Kelly Lee Tuminelli, to share more details on the quarter and the outlook for 2026. Kelly is a little over two months on the job and has already made a positive impact while coming rapidly up to speed. Welcome, Kelly. Thank you, Michael. Kelly Lee Tuminelli: Our fourth quarter and full year financial performance reflected the difficult macro business environment we faced throughout 2025. Over the last two years, the U.S. economy has experienced high medical cost inflation and low job growth, and TriNet Group, Inc. could not escape the impact of these factors. Entering 2025, we committed to reprice our health fees so pricing reflected the current cost environment and TriNet Group, Inc. would return to its long-term targeted insurance cost ratio range. We took these pricing actions to address a cohort that had been significantly underpriced. Although we were measured in our health fee repricing, spreading it over multiple cycles, it still required trend-plus increases to our customers, and the impact on new sales and retention was considerable. In the face of this challenging backdrop, TriNet Group, Inc. stayed focused and disciplined in execution and delivered bottom-line financial results at the top end of our full year guidance along with strong cash flow growth on a year-over-year basis. As we look ahead to 2026, we expect the challenging SMB macro business environment to persist, new sales growth throughout 2026, and retention to improve as the year progresses. To lay out my comments, I am going to first recap Q4 and 2025, provide the rationale for our 2026 guidance, and conclude with initial thoughts on TriNet Group, Inc. two and a half months in. With that, let us dive into our 2025 financial performance and 2026 outlook in greater detail. Kelly Lee Tuminelli: Total revenues declined 2% year over year in the fourth quarter, and for the full year, total revenues declined 1% in line with our full year guidance. Total revenues in the year benefited from insurance and professional service revenue pricing. Those gains were offset by declining WSE volumes. We finished the year with approximately 320,000 total WSEs, down 10% year over year. As a reminder, total WSEs include platform users, or those users who are accessing our platform, as well as co-employed WSEs, or those users receiving the full benefit of our PEO services. We ended the year with 294,000 co-employed WSEs, down 11%. Retention dropped to roughly 80%, down five points year over year, with pricing cited most often as the reason for leaving TriNet Group, Inc. Our final outsized repricing for renewals was delivered on January 1. As we exit January, we expect our retention to improve. Regarding customer hiring, in the fourth quarter, CIE growth was in line with our forecast, and for 2025, we finished with a CIE rate in the low single digits, well below our historical average for the second consecutive year. Across our verticals, and specifically within our technology, professional services, and main street verticals, we once again saw weakness in CIE. In this macro environment, SMBs remain reluctant to grow their teams. Interestingly, in our book, gross layoffs have also declined. Hiring just has not returned. Kelly Lee Tuminelli: Professional services revenue in the fourth quarter declined 7%. For the year, professional services revenue declined 6%, landing above the midpoint of our guidance range. Professional services revenue performance for the full year was driven by a mix of factors, including, first, the impact of declining co-employed WSEs, partially offset by pricing that was in line with our expectations in the low single digits. Second, very strong growth in our ASO business, which is an exciting opportunity for TriNet Group, Inc. Third, the discontinuation of HRIS that offset our ASO growth, resulting in a net $7 million headwind. This was better than our projections, as conversion rates from HRIS to ASO were higher than expected, and more HRIS users stayed on the platform longer. Finally, we discontinued a technology fee which represented a $22 million headwind. Interest revenue in the fourth quarter was $14 million, down $1 million, a decline of 7% versus prior year, reflecting recent interest rate cuts. For the full year, interest revenue was $67 million, up 5% year over year, benefiting from the unexpected timing and size of certain tax refunds, coupled with higher-than-forecast interest rates. Kelly Lee Tuminelli: Turning to insurance, insurance services revenues declined 1% in the fourth quarter. Insurance services revenue for 2025 was flat when compared with 2024. For the year, insurance services revenue per average co-employed WSE grew 9% as we passed through average health fee increases of over 9%. Insurance costs in the fourth quarter declined by 2% year over year, impacted mostly by lower volumes. For the year, total insurance costs grew 1% as medical cost inflation outpaced the decline in WSEs. Our fourth quarter insurance cost ratio came in at 94%, a 0.6 point year-over-year improvement, and we finished 2025 with an approximately 90.8% ICR, in line with our full year guidance. In the fourth quarter, operating expenses, which exclude insurance costs and interest expense, declined 16% year over year, and for the full year, declined 7%. Operating expenses benefited from our talent optimization and automation efforts. For the fourth quarter, we had a $0.10 GAAP loss per share, and we finished the year with GAAP earnings per diluted share of $3.20. Our adjusted earnings per diluted share was $0.46 in the quarter, and totaled $4.73 for the year, at the top end of our full year guidance range. Kelly Lee Tuminelli: Despite our challenges in 2025, TriNet Group, Inc. is a durable, strong, cash-generative business. During the quarter, we generated $57 million in adjusted EBITDA and for the year, $425 million, which represented an adjusted EBITDA margin in 2025 of 8.5% within our full year guidance range. In the fourth quarter, we generated $61 million in net cash provided by operating activities and $43 million in free cash flow. For the year, we generated $303 million in net cash provided by operating activities, and $234 million in free cash flow, which represented 16% year-over-year growth. Free cash flow benefited from improvements in working capital. Our 2025 free cash flow conversion was 55%, a significant improvement when compared to our 2024 ratio of 41%, and moved us closer to our medium-term target range of 60% to 65% free cash flow conversion. Over the course of the year, we leveraged that cash generation to fund dividends, purchase shares, and reduce our outstanding debt. We paid a $0.275 dividend during the fourth quarter, and paid $1.075 per share in dividends in 2025. During Q4, we repurchased approximately 1,000,000 shares for $61 million. For the year, we repurchased approximately 2,800,000 shares for $182 million. In total, during 2025, we returned $235 million to shareholders across share repurchases and dividends. In addition to the capital return to shareholders, we paid off the remaining $90 million balance of our revolving credit facility and exited 2025 with a debt to adjusted EBITDA ratio of 2.1 times, just above our targeted 1.5 to 2.0 times range. Kelly Lee Tuminelli: Turning now to our 2026 outlook. Our guidance reflects a range of broadly held forecasts on key variables such as CIE growth and medical cost trends. We also assume economic conditions remain consistent with 2025, and the quarterly cadence of our financial performance should mirror that of 2025. For 2026, we expect total revenues to be in the range of $4.75 billion to $4.90 billion. Revenues are impacted by our lower beginning WSE base. We expect elevated attrition in Q1 due to our January renewal, the last catch-up renewal. In 2025, we ended the year with approximately 80% retention. Attrition accumulated through 2025 was driven by increasing health fees. In 2026, we expect retention to improve slightly overall. However, based on the schedule of our renewals, including our last catch-up renewal on January 1, we expect to see elevated attrition and a bigger drop in Q1 when compared to last year. With moderating health fee increases starting with our April 1 renewal, we expect improving attrition as we go through the year. Early indications from our April 1 renewal are supportive of this assumption. We expect new sales growth to positively impact volumes in 2026 as our investments in go-to-market begin to pay off and insurance pricing stabilizes in line with cost trends. The early indications from Q1 indicate that we are on track, and we are optimistic that new sales will improve year over year as we move sequentially through 2026. Kelly Lee Tuminelli: On CIE, the midpoint of our guidance assumes growth in the low single digits, similar to our 2025 experience, given persistent weakness in the SMB macro business environment. On interest income, we expect a $25 million to $30 million headwind when compared to 2025. We expect interest income to be impacted by lower interest rates in 2026 versus 2025, and by lower cash balances due to the declining amounts of certain tax refunds. The timing of the distribution of those refunds also remains uncertain. For professional services revenue, we are forecasting a range of approximately $625 million to $645 million. Here are a few drivers that are important to understand. First, our lower WSE forecast. We assume a modest single-digit price increase which will partially offset these WSE declines. Second, we expect ASO services growth of double digits. A portion of the ASO growth is being fueled by a migration from our legacy SaaS HRIS business which we expect will continue declining, posing a $10 million to $15 million headwind and offsetting the growth in ASO. Finally, there was a change in reporting methodology for state tax-related revenue we record in one state, which will represent a headwind of about a point of PSR. This change is specific to a single state. In 2026, we are tightening our ICR guidance range by 50 basis points reflecting our stronger actuarial capabilities and more stable cost trends. Underpinning our ICR guidance is our expectation for medical cost growth between high single and low double-digit rates, very similar to our 2025 experience. Pharmaceutical cost inflation remains a headwind, with growth rates expected to be in the low double digits, as GLP-1 usage continues, specialty drug utilization remains high, and cancer treatments remain elevated. Our combined insurance cost ratio is expected to be in the range of 90.75% to 89.25%. The high end signals some improvement towards our target from 2025 with health cost trends still elevated, stabilization, and the low end reflects further medical and pharma cost trend increases. As a reminder, our historical quarterly ICR performance sees our Q1 performance on average two points better than our target, and our Q4 performance two points worse. Kelly Lee Tuminelli: In 2026, we expect a reduction in reported operating expenses in the mid-single digits. I want to make one thing especially clear. Even while we drive further year-over-year decreases in operating expenses, we plan to reinvest a portion of the savings in our value creation initiative. For 2026, our adjusted EBITDA margin is forecasted in the range of 7.5% to 8.7%. We are forecasting stable adjusted EBITDA margins despite the decline in revenue due to lower ICR and OpEx discipline. GAAP earnings per diluted share are expected to be in the range of $2.15 to $3.05 and adjusted earnings per diluted share in the range of $3.70 to $4.70. Our capital return priorities remain unchanged. As we generate cash throughout the year, we will continue to deliver to our shareholders by making targeted investments in our value creation initiatives to drive profitable growth, using our cash flows to evaluate tuck-in acquisitions, fund dividends and share repurchases, while maintaining an appropriate liquidity buffer in line with our financial policy. The Board has authorized an increase in our share repurchase program, bringing the total available for repurchase to $400 million. Kelly Lee Tuminelli: Finally, I want to comment briefly on the multiple medium-term financial scenarios that the company provided a year ago. Since then, the SMB macro business environment has shown little improvement. Our CIE remains below normal levels, and medical cost trends remain high. The extent to which this weakness persists will determine how we perform vis-à-vis those financial scenarios. I will finish with a few thoughts on TriNet Group, Inc., after two and a half months as CFO. First, I am impressed with the TriNet Group, Inc. team. My colleagues at TriNet Group, Inc. are committed to putting our SMB customers at the center of everything they do. They believe in TriNet Group, Inc. and are working hard to bring our medium-term strategy to fruition, which will benefit all of our stakeholders. Second, I believe in the large untapped market opportunity. Between elevated medical cost inflation and divergent regulatory regimes across the federal government, states, and municipalities, there is a huge opportunity for TriNet Group, Inc. services. Third, capturing that market opportunity requires more work. TriNet Group, Inc. has a clear set of priorities for improving the customer experience, expanding our distribution footprint through channels and sales capacity growth, innovating and adapting our product to emerging technologies and customer needs, and executing this in a financially disciplined manner. Our results in 2025 demonstrate our financial discipline, in both the significant progress we have made in managing our insurance cost ratio and our OpEx. Stepping into this company as CFO, I believe in our future growth opportunities, and I know that our sales, retention, and business momentum will be improving through 2026 as we execute with focus and urgency. With that, I will pass the call to the Operator for Q&A. Operator? Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. And this morning's first question comes from Jared Marshall Levine with TD Cowen. Thank you. To start here, Kelly, can you discuss your guidance philosophy, including how it might differ versus your predecessor here, just given it is your first earnings and initial fiscal year guide here? Kelly Lee Tuminelli: Yes. Thank you for the question, Jared. You know, the way I think about our guidance philosophy is based on a few drivers. So let me go through it. The first is, obviously, we have to look at what is happening in the business in 2025 and how is the momentum in that business changing as we go through the year and how we exit the year, right? Because that is obviously what sets us up partly for 2026. And if you look at the results we printed, Jared, I would say to you, certainly, we have had WSE declines as we have articulated. However, if you look at the progress we have made as we have gone through the year on ICR, that is an important data point, in fact, that we have considered as we have gone into 2026. The second thing I would say is the OpEx discipline that we have shown all year is definitely something that also we are continuing to make progress on, and we can talk about the various drivers of that later on in the call, but that is also something that is informing us about guidance. And then, most importantly, there are the drivers of our revenue as we exit 2025 and go into 2026. Definitely, we have talked about the different components that are driving our revenue momentum. As we go into 2026, Jared, there is the last significant repricing that we have done in January that certainly has an impact on attrition early on in the year, therefore WSE as we roll through the year. The second, and we are pleased with our ASO growth, that will continue to show momentum. The thing that we are absolutely focusing on with urgency is around executing all of my priorities, right, whether it be go-to-market execution, whether it be retention, focus on NPS, and continuing to show pricing discipline that we have shown in 2025. So if I summarize it all, I would say the way I am thinking about the setup for guidance is around how we exit the year in terms of things we control. Second is, what are we actually doing from a perspective on our various priorities and investments, again on the controllable side. And then, of course, we have been relatively transparent with you in our guidance assumptions on exogenous factors between CIE and medical trends that candidly are informing the bookends of our guidance. So that is exogenous. We are going to continue to monitor that very carefully, but that is something that is absolutely informing our range of guidance. Jared Marshall Levine: Great. And then, Michael, in terms of bookings expectations for 2026, I did hear you call out you expect to grow capacity at some point in the year, I think around 20%. Is that a reasonable expectation for how bookings should grow for 2026 in terms of what you are targeting? Or is there any kind of puts and takes with productivity impacts to also be mindful of? Just any color there would be helpful. Michael Quinn Simonds: Yes. Good morning, Jared. Appreciate the question. We did see sales improving on a year-over-year basis as we were kind of coming through that variance, the gap for the prior year, closing as we went through 2025. And it was very encouraging to see a very good January and uptick over the prior year. That is certainly our outlook. Like Kelly said, I think on the things we control, and I would say the two that really are going to drive volume growth are new sales and retention. And we do feel like our line of sight is to growing momentum on both of those fronts. So having stronger than we have experienced in recent years retention of our senior folks—you know, we have talked about a fourth-year rep generating four first-year reps’ worth of production—and pairing those up with our Ascend graduates that are coming in, that bodes very well for us. So the exact percent growth is going to be a factor. There are going to be a lot of factors that play into that, but the direction of travel is a positive one, having already started to post some growth in 2026. Jared Marshall Levine: Great. Thank you. Michael Quinn Simonds: Thanks, Jared. Operator: Thank you. And the next question comes from Ross Cole with Needham and Company LLC. Hi, thank you for taking my question. I will be asking on behalf of Kyle David Peterson. I was wondering if you can talk a little bit more about insurance pricing and the impact of attrition in new sales. Michael Quinn Simonds: Hey, good morning, Ross. Happy to help there. So we came into 2025 knowing that we had a pretty sizable need to move health fee pricing up. And I think it is important—there are really sort of two factors there. The first, of course, is what is happening in the broader industry and health care cost trend being quite elevated. So we needed to price forward for those expected cost increases. The second, as we talked about, a pretty sizable cohort of business acquired in the 2023, early 2024 time period and knowing that we had priced that business too low and needed to catch up on that front. So those clients needed both the catch-up and the trend pricing on top of that. As we took a measured approach but worked it through in 2025, and as Kelly said, through the January 1 renewal here in 2026, we are encouraged that the health fee component in the ICR overall showed some improvement in the fourth quarter. The guidance that we put out for next year, the midpoint shows some additional improvement there. That pricing, having completed the catch-up as we look to April 1, it is more encouraging that we are sort of done with the second part, and we can focus really on just pricing for what we think the aggregate increase that the whole market is feeling. So as we communicated with clients before April 1 increases—our next big cohort that comes online—we are encouraged by the receptiveness there and the competitiveness there. We are encouraged by the retention projection we have on that April 1. Kind of much more closer to a normalized distribution of the percent increase in health fees across our WSE base. And, again, barring any sort of unusual occurrence where the already elevated macro jumps, it feels like we are in for a sort of more in-line set of outcomes and therefore improving retention through the year. Kelly Lee Tuminelli: Hey. Thank you. Ross Cole: Then, also, in terms of CIE, could you talk a little bit more about what you are seeing in terms of hiring trends? Kelly Lee Tuminelli: Yes. When it comes to CIE, what we are seeing, interestingly, is at least in our book of business, hiring continues to remain suppressed. What we are also seeing is terminations and layoffs are relatively stable. So it is those kinds of factors that are informing our CIE assumptions embedded in our guidance for 2026. It is sort of in line, low single digits, in line with what we saw in 2025. Ross Cole: Great. Thank you. Thank you. Operator: Thank you. And the next question comes from Andrew Owen Nicholas with William Blair. Hi, good morning. Thanks for taking my questions. The first line of questioning here is just on retention. I think you said from 85% to 80% this year, but I think you also mentioned that quite a bit of that was tied to the price increases. I guess, I am curious, first, were the other typical reasons for attrition relatively consistent year over year? And second, is there any way to think about retention outside of kind of that mispriced cohort from 2023 and 2024? Just curious if you are seeing moderation outside of that cohort that we might be able to attribute to industry-wide churn. Michael Quinn Simonds: Yes. Thanks. Good morning, Andrew. Yes. Exactly. I think you have got it. If you look at the attrition that we experience, you can kind of look at it on two dimensions and sort of triangulate it. One, look at the percent health fee increases that a client is seeing. When you get to some of the outsized increases that are necessary for that cohort, that is absolutely where we saw a higher percent attrition coming through. Second thing we use to get smart on reasons for termination is the offboarding survey work that we do. And we look at all those different reasons that you would expect, and health fee—sort of pretty dramatic increase in health fee—as a driver for the termination, and again correlating back to where that fee increase was more outsized. To your specific question, when you look at things like the value delivered through the platform and the service quality, we have actually, through the year, seen a very heartening and consistent decline in those “for term” reasons. And I think that correlates to survey work that we do on Net Promoter Score and being at an all-time high last year. So I actually think once you get through this catch-up component, keeping up with trend—that is absolutely a challenge, but that is a challenge that everyone in the market is experiencing right now. And it feels like again, as we look to April 1 and we look to the rest of the year, health fee will certainly be a big part of the conversation, but increasingly, the overall value proposition is coming to the fore. With the investments that we are making there and the momentum we build around service delivery, I think that the team is executing at a pace that we have not seen in a while. That is very encouraging for us. Andrew Owen Nicholas: In terms of how the back half of the year looks from a retention point of view? Kelly Lee Tuminelli: Yes. If I add one comment to what Michael just said, if we think about the drivers of attrition, it is, again, something that we monitor actually fairly granularly—what are the different reasons? You know, certainly, price was a very key factor over the last few quarters. We are already seeing encouraging signs of a significant reduction in price being quoted as the reason for dissatisfaction as we look into Q2, etcetera. And we already have some early visibility into that. So then it really comes down to the other usual factors that drive attrition, right? It is between their own business conditions, etcetera, which, as you know, are not a surprise given the macroeconomic uncertainties that persist, especially for SMBs. So I would say to you, if I think about price alone relative to all of the other factors, yes, in the surveys we do, it is showing improvement. Andrew Owen Nicholas: That is helpful. Thank you. And then for my follow-up, I wanted to ask on the ASO services growth that you mentioned—I think double-digit expectation in growth for 2026. Can you speak to the sources of that growth? How much of that is HRIS or SaaS-only clients transitioning there versus existing clients maybe upgrading into it, or, I should say, as they get larger, moving to an ASO versus a brand-new client coming into the model via the ASO channel? Thank you. Michael Quinn Simonds: Yes. So the big driver of the growth in 2025 was the conversion of that SaaS-only business. And as you always do, you have to set some set of assumptions that you put into your financial plan, and ultimately your guidance, and we were surprised to the upside on the rate of conversion into the ASO. And I think that sort of underpins the strategy here, which is really good technology with really good people providing service on top of it. As we look into 2026, we largely will have completed, very early in the year, the exit of the SaaS business. And so the growth that comes in ASO as we work through the year is going to be, obviously, good solid retention, but the growth will come from new sales. And so seeing a good strong fourth quarter from sales, we like our pipeline here in the first quarter. It is still a relatively small contributor to the aggregate picture here for us, but over time, we see this as a really good additional arrow in the quiver and a growth driver. It gives our reps a place to pivot to when the PEO may not be a perfect fit. And also, as we build out relationships in the brokerage channel, there are more chances and a broader set of opportunities to build those relationships and open that channel up as well. Andrew Owen Nicholas: Thank you. Michael Quinn Simonds: Thanks, Andrew. Operator: Thank you. And the next question comes from Tobey Sommer with Truist. Tyler Barashaw: Good morning. This is Tyler Barashaw on for Tobey. Could you discuss the assumptions that get you to the high end or the low end of your insurance ratio guidance? Kelly Lee Tuminelli: Yes. So if we think about the insurance ratios itself, first thing to note is we showed improvement in that ratio as we rolled through Q4. As we noted in our prepared remarks, our Q4 ICR, in particular, actually was more favorable on a year-over-year basis compared to 2024. As we think about how that informs 2026, we have essentially, at our midpoint of guidance, assumed a continuation of those trends, and to be crystal clear, that is testament to the capabilities that we have developed internally from an actuarial and from just a knowledge-based perspective about our book of business and about our plan. We are in a much different place today than we were in early 2025. What that means is, on the medical side, we are talking about high single-digit inflation; on the pharmaceutical side, we are talking about low double-digit inflation, and that is informed by really greater utilization of specialty and cancer-type drugs that we are seeing in our book. In terms of the range, number one, we have tightened the range, right? So again, that reflects the growing grasp and control we have on ICR, and we have tightened the range relative to what we had at the start of 2025 by 50 basis points. Where we land on that range is really dependent on how, candidly, medical trends do. If you think about the more favorable end of the range, that would assume better trends, if you will, from an inflation perspective. And if you think about the more unfavorable end of the range, it would assume that there is a degradation. Tyler Barashaw: Super helpful. Thank you. And then on WSE growth in the quarter, can you discuss how it played out on a month-to-month basis? Were any months better or worse than others? Was it consistent throughout the quarter? Kelly Lee Tuminelli: Yes. That is not something we give you more color on from a month-to-month basis. What I would generally say is, if you think about the WSEs, you would typically expect to see early in the year, in first quarter, generally more of a decline in WSEs, typically as they would offboard. But other than that, we do not really—and then, you know, we ramp back up as we go through the year. But beyond that, we do not give you any month-to-month color. Michael Quinn Simonds: And what I would add is, as we kind of took a step back and looked at the whole year, like Kelly was saying, we sort of look at the trajectory of our business from the forecasting for the plan and for guidance for 2026. It moved; it oscillated a little bit around that low single-digit number, but we did not see a discernible trend either month to month or quarter to quarter that would suggest it would be a better pick—either more favorable or less favorable—as we went into 2026. Operator: Thank you. Kelly Lee Tuminelli: Thank you. Operator: Thank you. And once again, please press— Operator: And the next question comes from Andrew Polkovitz with JPMorgan. Andrew Polkovitz: Morning, and Kelly, welcome to the earnings call. My first question, I wanted to ask about pricing. So obviously, you are done with the catch-up period post January 1. So I wanted to ask, if you look ahead and put the April cohort, how does your pricing look relative to your peers? Are there still peers that are catching up to effectively doing both parts of the reprice, the cost trend plus catch-up, or would you characterize the pricing environment as more in line with how you are approaching it? Michael Quinn Simonds: Good morning, Andrew. I think you are exactly right. So we come through that catch-up period. It is very good to have that largely behind us for those cohorts, which, to your point, I do not want to go too far and—the reality is, health care trend remains quite elevated, which is a challenge for our clients, and it is a challenge for us, and it is a challenge for the whole market. I do feel as though the investments that we have made in our insurance services group, the processes we put in place, have put us in a spot where the application of that sort of elevated set of trends to our quarterly pricing process has us moving pretty quick relative to the rest of the market. And I think you saw that in the impact on some of our volumes, but also the stabilization here in Q4 and improvement in the ICR. I think it is a reasonable thing to say, as we look forward to April 1, I feel confident we are very much in line with the market. And to the extent there are players that have a little bit more catch-up work still to do, then I would position us favorably. Andrew Polkovitz: Okay. Great. Very clear. And just for my follow-up question, I wanted to know if you could sort of characterize the drivers of the sales improvement you are expecting to see in 2026 between broker channel and improving rep tenure and then, of course, the Ascend program. Michael Quinn Simonds: Sure. Absolutely. So they are all big contributors, some a little bit more in the immediate term, some a little bit more in the longer term. But I would say the brokerage channel is a little bit of a longer burn. We got onto that pretty early, even in late 2024 and through 2025, and we are really starting to see the fruit of those investments. So in terms of the impact in January and in our pipeline for first quarter, that is kind of an outsized contributor to our growth. And, to be honest with you, I think we are just kind of getting started in terms of how deep we can go with the key partners that we have identified and then also find a few more key partners that are well aligned to the kinds of clients and the long-term relationships we are trying to build. I think there is nothing like keeping a really good, experienced rep motivated. I think the things we have rolled into the market this year—the new set of integrations that expand our capabilities, TriNet Assistant—we are putting more things in the bag here for our senior folks. They are sticking with us here, and that is a big driver. The Ascend program, the last one you mentioned, that is actually going to be a nice contributor in the championship selling season this year, but that will be the longer-term investment for us, and we would see that growing—certainly a contributor here in 2026, but more so in 2027 and years beyond. Andrew Polkovitz: Thank you, and congrats again on the results. Michael Quinn Simonds: Thank you. Appreciate it. Operator: Thank you. And the next question comes from David Michael Grossman with Stifel. Good morning. Thank you. So I wanted to just go back to the WSE dynamic. I think I understand the algebra around the deceleration in 2025 as a result of the repricing of the book, and since we have another kind of retention-below-normalized-retention dynamic in the first quarter, I guess I am just curious—I know you do not want to guide to WSEs for the year—but I am just trying to understand the magnitude of the debit that we face in the first quarter and how that impacts the year. So, for example, if CIE stays relatively constant, which is, I think, the assumption in your guidance, are we going to have the same issue in 2026 going into 2027, or are the go-to-market changes and improvements and efforts that you are making sufficient so that we would not face the same dynamic in 2027 as we are facing in 2026? Just algebraically, of course, looking at the retention dynamic around the repricing. Michael Quinn Simonds: David, yes. Thanks for the question. I just think it is really important to start with the retention dynamic and the work that we need to do to both catch up on a couple of those cohorts and then also price forward for trend. And you know this, David, really well, but we are not talking about just a little bit higher than normal, but, like, the last couple of decades—this level of sustained health care cost inflation is pretty unique. So there is real work to be done there. It absolutely has impacted retention. We have signaled that we are completing that with January 1, but I am glad you asked the question. We are not trying to signal that there was an outsized attrition event on January 1 relative to what we experienced in 2025. It is just that we had a bit more work to do to get all the way through. Then we focus on what we can control around growing new sales—the go-to-market pieces, experiencing growth in January, having a positive outlook here for the first quarter, having a lot of things coming online that give us more optimism about the back half of the year—that is certainly going to be a contributor. I do think the retention for April 1 is going to be better. I do think that, barring a big change in the macro, the health care pricing that we will be putting out will be absent the catch-up component and very in line with the market. All those things are really positive. So with a low and, I think, prudent CIE assumption, like you were saying, that gives us growing confidence that we are slowing the decline of the WSEs and working our way back toward growth. So I think what is really important, David, is working our way back to growth in a sustainable fashion. You know, putting things in place that we can go back to again and again and again, and investing in keeping our reps, growing new reps that are embedded in our culture, differentiating how we do benefits, driving that NPS. I think these are things that are going to serve us well beyond 2026. David Michael Grossman: Right. So just kind of to wrap it all together, Michael, if the macro environment does not improve, is it reasonable to assume that we will not have that rollover issue in WSEs in 2027 versus 2026? Michael Quinn Simonds: Yes. There is so much ground to cover between now and then that it is probably not a question to say exactly what is going to happen, but our confidence is really quite high that the trend in general is going to be an improving one as we go through 2026. David Michael Grossman: Got it. Alright, guys. Thanks very much. Good luck. Kelly Lee Tuminelli: Thanks, David. Operator: Thank you. Operator: This concludes our question and answer session. I would like to return the conference to Michael Quinn Simonds for any closing comments. Michael Quinn Simonds: Thanks, Keith. Appreciate it. I appreciate everyone taking the time to join us this morning. Hopefully, Kelly and I have given you a good sense for the strong, decisive actions we are taking to improve the areas that we control. I think the growing momentum we have got on this front. So Alex and Kelly and I will look forward to connecting with many of you in the coming weeks and months as we are out on the road. With that, Keith, this concludes this morning's call. Operator: Thank you. As mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Greetings, and welcome to the Piedmont Office Realty Trust, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Ms. Laura Moon, Chief Accounting Officer for Piedmont Office Realty Trust, Inc. The floor is yours. Laura Moon: Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont Office Realty Trust, Inc.'s fourth quarter 2025 earnings conference call. Last night, we filed an 8-K that includes our earnings release and unaudited supplemental information for the fourth quarter 2025 that is available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will hear from senior officers at Piedmont Office Realty Trust, Inc. Their prepared remarks followed by answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements address matters which are subject to risks and uncertainties, and therefore, actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont Office Realty Trust, Inc.'s future revenues and operating income, dividends and financial guidance, future financing, leasing and investment activity, and the impacts of this activity on the company's financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements are based upon the information and estimates we have reviewed as of the date the statements are made. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, Core FFO, AFFO, and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information which was filed last night. At this time, our President and Chief Executive Officer, Christopher Brent Smith, will provide some opening comments regarding fourth quarter and annual 2025 operating results. Brent? Christopher Brent Smith: Thanks, Laura. Good morning. Brent Smith: And thank you for joining us today as we review our fourth quarter and annual 2025 results. In addition to Laura, on the line with me this morning are George M. Wells and Alex Valende, our Chief Operating Officers, Christopher A. Kollme, our EVP of Investments and Sherry L. Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. Before I jump into the quarter, I just wanted to take a minute to reflect on 2025 and Piedmont Office Realty Trust, Inc.'s leasing accomplishments this past year. Momentum in the national office market clearly shifted in the latter part of 2025 to the point where several independent research reports state we have seen peak vacancy for this cycle. Rising office mandates and attendance have brought large space consumers back into expansion mode with a hyper focus on best-in-class assets. The number of Fortune 100 companies that require a five-day work week in the office has soared to about 55% compared with 5% reported two years ago, according to the latest JLL survey. Piedmont Office Realty Trust, Inc. has experienced this large user phenomenon as well, having completed 28 full-floor larger transactions in 2025, compared to an average of nine for the previous four years. Demand also appears to be spreading geographically. According to Cushman & Wakefield, absorption was positive for the year in 50 markets. That is up from 33 markets in 2024 and the highest number of markets with positive absorption for a full year since 2019. On the supply side, sublet availability has declined from its peak in early 2024 and just 4,000,000 square feet of new office space was delivered in the fourth quarter, the lowest since 2012. In fact, CBRE noted that 2025 was the first year that inventory removals, that being demolitions or conversion, outpaced new completions since they began tracking the market in 1988. So there is virtually no construction underway in our markets. Demand continues to be robust, and true trophy assets have little space available. This reduction in supply is beginning to rebalance markets. CBRE noted that even though 2025 net absorption was still meaningfully below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over five years. These tailwinds translated into a record amount of total leasing volume for Piedmont Office Realty Trust, Inc. in 2025. We leased 2,500,000 square feet or approximately 16% of the portfolio, the most leasing we have completed in over a decade, and 1,000,000 square feet ahead of our original 2025 leasing guidance. In fact, over the last five years, we have leased approximately 75% of the portfolio or about 11,600,000 square feet. An incredible accomplishment by the team and a testament to the fact that our Piedmont place-making strategy is working. Furthermore, over those five years, the portfolio has generated positive cash same-store NOI growth each and every year. That is an incredible operational achievement given the challenging office sector. And in 2026, this metric will accelerate as our historic leasing success translates into meaningful same-store NOI growth, driven by a material increase in commenced occupancy, which Sherry will cover in a moment. Our portfolio of recently renovated, well-located amenity-rich properties combined with our hospitality-infused service model, has also allowed us to materially increase rental rates across our portfolio. And with asking rents still ranging from 25% to 40% below rates required for new construction, Piedmont Office Realty Trust, Inc. is well positioned for sustainable earnings growth in 2026 and beyond. Turning to fourth quarter results, we completed approximately 679,000 square feet of leases, almost 70% of which related to new tenants, and contributing to a year-end lease percentage of 89.6%, an increase of 120 basis points over the course of 2025. Additionally, our out-of-service portfolio comprised of two projects in Minneapolis and one in Orlando was 62% leased as of the end of the year. A phenomenal accomplishment by the team as these projects were essentially vacant at year-end 2024. The majority of leases for these projects will commence during 2026, contributing meaningfully to FFO, and we anticipate that they will reach stabilization and rejoin the normal operating portfolio by the end of 2026 or very early 2027. Rates also continued their upward trajectory during the fourth quarter, with rental rates on leases executed during the quarter for space that has been vacant less than a year, increasing approximately 12% and 21% on a cash and accrual basis, respectively. Our backlog of uncommenced leases remains strong, with almost 2,000,000 square feet of leases representing $68,000,000 of future annualized cash rents. Substantially all of those leases will commence by the end of 2026. As George will touch on, leasing momentum remains strong, including over 200,000 square feet of leases already signed in 2026, and a robust pipeline with over 600,000 square feet currently in the legal stage. Sherry will introduce our 2026 guidance in a moment, but big picture, it is clear that the occupancy trough of Piedmont Office Realty Trust, Inc.'s portfolio occurred in 2025, and we believe the broader macro factors that I discussed along with our successful portfolio repositioning and elevated service model will drive mid-single-digit organic FFO growth in 2026 and 2027. Last point before I turn it over to George is we announced last week Alex Valente has been promoted to Co-Chief Operating Officer and will be working alongside George to lead new operations initiatives across the firm as well as oversee almost all of our Eastern portfolio. I believe most of you have met Alex at some point during his 20-year career with Piedmont Office Realty Trust, Inc., and I share my enthusiasm and congratulations for his new role. With that, I will now hand the call over to George, who will go into more details on the leasing pipeline and fourth quarter operational results. Thanks, Brent. Durable demand for Piedmont Office Realty Trust, Inc.'s modern highly amenitized workplace environments generated exceptional operating results for the fourth quarter. Leasing velocity continued at a vigorous pace with 60 transactions completed for nearly 700,000 square feet and very close to record levels which we have experienced over the past two quarters. New deal activity was the dominant theme again, accounting for 69% of total volume with 54% of that activity filling current vacancy. As Brent mentioned, large users are driving new deal activity to record-breaking levels with 10 full-floor or larger transactions executed this quarter and another six either executed or in the late stage. Nearly 90% of new leases signed will begin recognizing GAAP rent in 2026. It is also gratifying to see food and beverage operators appreciate the vibrancy and foot traffic around our well-located assets and within our hospitality-inspired common areas which this quarter attracted two more F&B deals further strengthening and differentiating our offerings. Our weighted average lease term for new deal activity was approximately nine years, and consistent with previous quarters. Longer lease terms are essential for justifying the capital investment in upgrading to today’s office suite environment. As we have experienced now for six straight quarters, expansions exceeded contractions largely to accommodate customers' organic growth. Our retention rate remained high at 63%, a positive testament to Piedmont Office Realty Trust, Inc.'s brand. Impressively, our team retained four large subtenants on a direct basis for nearly 100,000 square feet with strong NERs and a significant increase in sublet-to-direct rents of approximately 35%. Once again, Atlanta and Dallas were the driving forces behind strong lease economics as the portfolio as a whole posted a 12% and 21% roll-up or increase in rents for the quarter on a cash and accrual basis, respectively. Notably, our average accrual-based roll-up over the past eight quarters is an impressive 17%. Our overall weighted average starting cash rent of $42 per square foot was essentially unchanged from the previous quarter. We do anticipate more rental growth as our portfolio crosses into the low 90s lease percentage. Leasing capital spend was $6.12 per square foot, down $0.46 per square foot from our trailing twelve months. Net effective rents came in at around $21 a foot, in line with the previous quarter. Atlanta was our most productive market by far during the fourth quarter, closing on 23 deals for 336,000 square feet or half of the company's overall volume with new leasing transactions accounting for over half of that amount. At Galleria on the Park, our local team landed a corporate headquarter relocation requirement for 48,000 square feet and ten years of term. A new run-rate high was achieved on this transaction and along with limited vacancy at this project, served as a catalyst to push asking rents to $48 per square foot up from $40 per square foot twelve months ago. Also noteworthy was backfilling another floor, the Eversheds lease at 999 Peachtree that expires in 2026. I would like to point out that over the course of the past year, 999 has captured nine new deals for 130,000 square feet, consistently achieving some of the highest economics in our portfolio and is now 93% leased. We remain highly optimistic in addressing the last few Eversheds floors given the level of interest we are seeing. Orlando also stood out this quarter, capturing 10 deals for 125,000 square feet or 18% of company volume. Three more floors were leased at our 222 Orange redevelopment, boosting lease percentage up from 46% to 77%. Asking rates are now at $40.20 per square foot versus $37 per square foot from twelve months ago. One of those deals completed there was a headquarters relocation from the Midwest and the other, a regional office for a global construction company that moved from the suburbs. Both clients highlighted our vibrant environment as the key differentiating factor in their final decisions. Piedmont Office Realty Trust, Inc.'s other redevelopment projects both located in Minneapolis are also attracting a number of additional new clients. Our out-of-service portfolio, which is 62% leased at year end, is nearly 80% leased inclusive of legal-stage transactions with a substantial majority commencing by year end. I would also like to touch on our two largest 2026 expirations. In Dallas, we are making good progress on retaining the Epsilon and attracting new clients for almost half of that expiration. Epsilon currently leases the entirety of one in our three-building Las Colinas Connection project, which is currently 99% leased. The project is very visible and accessible at the crossroads of two major highways, much like the excellent locational qualities of our Galleria Towers. Although we do not intend to take this asset out of service in order to convert it to a multitenant environment, we intend to apply the same proven Piedmont Office Realty Trust, Inc. renovation strategy that has worked so well in our other markets. Once construction begins, we typically see a spike in interest and demand. With virtually no large, high-quality blocks of competitive space available, we are excited about our near-term leasing prospects and achieving new rental highs in that submarket. At 60 Broad, we are excited to announce that we have recently affirmed deal terms with the new administration for the City of New York lease. A deal of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed, but we are encouraged by this important split and expect we will have an executed lease by later this year. The Piedmont Office Realty Trust, Inc. formula of attracting and retaining clients worked extremely well in 2025, and we are confident of continued success in 2026. Our leasing pipeline remains robust even after three straight quarters of record new leasing activity and is now nearly 600,000 square feet in the legal stage including six single-floor or larger new deals. That said, with very few large blocks of space available, outstanding proposals have declined moderately in total at a combined 1,800,000 square feet for operating and redevelopment portfolios. Though demand is strong, the course of 2026 quarterly net space is dependent on the amount and timing of scheduled expirations. Our supplemental report shows approximately 9% of the portfolio rolling in 2026. The vast majority of the roll relates to the Eversheds, Epsilon, and New York City leases that I just reviewed, with the second quarter the most impacted. Aside from these three leases, there are negligible expirations remaining for 2026. That said, we are still projecting positive net absorption overall, ending the year around 90% for our total portfolio, including both our in-service and our currently out-of-service redevelopment portfolio. I will now turn the call over to Christopher A. Kollme for his comments on investment activity. Laura Moon: Chris? Christopher Brent Smith: Thank you, George. 2025 was a pretty quiet year for Christopher A. Kollme: Piedmont Office Realty Trust, Inc. on the transactions front. The team did close on a small disposition outside of Boston, removing an older, slow-growth, and capital-intensive asset from the portfolio. We will continue to seek ways to optimize and elevate our holdings throughout 2026. As I have mentioned, we have two land parcels under contract and both are going through very time-consuming rezoning processes, so the timing is somewhat at the mercy of the city and county officials. We are expecting to close one in the middle part of this year and the other at the end of 2026 or possibly in the first quarter 2027. If both were to close, they would generate a little over $30,000,000 in gross proceeds and will ultimately provide additional retail amenities for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. We are optimistic that we will return to a more active capital recycling program in 2026. With that, I will pass it over to Sherry to cover our financial results. Laura Moon: Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, Sherry L. Rexroad: please review the earnings release and accompanying supplemental financial information which were filed yesterday for more complete details. Core FFO per diluted share for 2025 was $0.35 versus $0.37 per diluted share for 2024, with the decrease attributable to the sale of two projects during the year ended 12/31/2025 and higher net interest expense as a result of refinancing activity during that same period. These decreases were partially offset by growth in operations due to higher economic occupancy and rental rate growth. AFFO generated during 2025 was approximately $18,700,000. Turning to the balance sheet, we completed some very important refinancing activity during the fourth quarter. We issued $400,000,000 in aggregate principal amount of new bonds and used the net proceeds to repurchase approximately $245,000,000 in principal amount of our 9.25% 2028 bonds. The remaining proceeds from the new issuance were used to pay down the outstanding balance on our revolver. Refinancing activity, combined with the open market purchases of some of our higher coupon bonds that we completed earlier in the year, will save us approximately $0.04 a year on an annual basis. As a result of this activity, we had approximately $550,000,000 of capacity on the revolver as of year end. And as we have highlighted previously, we currently have no final debt maturities until 2028. We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth. At this time, I would like to introduce our 2026 annual Core FFO guidance in the range of $1.47 to $1.53 per diluted share, an increase of $0.08 per share at the midpoint over 2025 results. To summarize, the guidance reflects an increase in property NOI in the range of $0.08 to $0.13 a share, decreased interest expense of $0.01 to $0.02 a share. Note that the $0.04 of interest savings due to the bond refinancing that I previously mentioned is partially offset by the reduction in capitalized interest as our out-of-service portfolio comes online. In addition, the guidance includes a $0.01 decrease in NOI due to 2025 dispositions, and slightly higher G&A and share count. We expect another strong year of leasing activity in the 1,700,000 to 2,000,000 square foot range, including, as Brent mentioned, stabilization of our out-of-service portfolio by year end and resulting in a year-end lease percentage of approximately 89.5% to 90.5% for the entire portfolio, and mid-single-digit same-store NOI growth on both the cash and accrual basis. It is worth noting that our projected commenced/occupied percentage will increase approximately 400 basis points from 81% at year end 2025 to 85% at year end 2026, fueling our earnings growth. Please note that this guidance does not include any acquisitions, dispositions, or refinancing activity. We will adjust guidance if and when those types of transactions occur. We have included an annual FFO roll-forward and outlined our assumptions in the earnings release section of the supplemental to assist with your modeling and analysis. And with that, I will turn the call over to Brent for closing comments. Brent Smith: Thank you, George, Chris, and Sherry. I am proud of the many accomplishments by the Piedmont Office Realty Trust, Inc. team during 2025, and I am excited to see the hard work of so many start to contribute to FFO growth in 2026. With quality space becoming harder to find and the cost of new development at all-time highs, we believe that our portfolio of recently renovated, well-located, hospitality-inspired Piedmont places provides a desirable cost-efficient alternative to new construction and will continue to drive leasing volume and rental rate increases in 2026. With that, I will now ask the Operator to provide our listeners with instructions on how they can submit their questions. Operator? Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting our question-and-answer session. To ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press 2 if you wish to remove your question from the queue. It may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Laura Moon: Thank you. Operator: Our first question is coming from Nicholas Patrick Thillman with Baird. Your line is live. Brent Smith: Hey. Good morning, and congratulations, Alex. Maybe just digging a little bit more on just leasing overall Nicholas Patrick Thillman: on the 1,700,000 to 2,000,000 square feet that is in there. I guess what is embedded in that on renewal, new leasing, obviously, the chunkier deals in there, it seems like from a retention standpoint, you are somewhere in between 25%–80% retention. So maybe thoughts on retention and then overall what is embedded there on the new lease assumption as well? Brent Smith: Good morning, Nick. George here. Thank you for joining us. I mean, the quick answer is it is roughly 50-50 between new activity and renewal activity. I think in regard—sorry. This is Brent. Good morning, Nick. In regards to retention, as we have noted before, we are going to be retaining New York City for substantially all the space. Eversheds is a vacate. And Epsilon will renew, and we have some additional tenancy to roughly mean we will get about half the space back. Think about our overall expiries for 2026, it is about 9.5% of the portfolio. And those three make up, call it, almost 6% of that. So really what we are left with is, quote unquote, unknowns. We feel very good about renewal probabilities. I would say, you know, we have been trending to, over the last year, call it, 60%–65% of retention would be expected for that remaining portion of the portfolio. To give you some perspective around that? Nicholas Patrick Thillman: That is very helpful. And then I guess if I look—good momentum overall on the leasing front. Is there somewhat of a cap you guys can do from a lease percentage? I look at some of where the vacancies—so it seems that there is a little bit more structural vacancy. I look at, like, your DC portfolio, for example, is around 25% of your vacancy in your operating portfolio. How should we think about how a lease percentage can move given there is still some select pockets that they could see and then some of your weaker markets overall? Brent Smith: Nick, yeah. That is a great question and something that we get asked frequently. We have created really unique environments that we believe we can continue to lease up what will be historically challenging space, lower in the building, maybe a few above the parking garage, etcetera. But in our, for instance, our Galleria project, the environment is so unique that we continue to feel that we are going to be able to lease those projects up beyond 95% leased, well into the high 90s. But you do point out that we do have some challenging vacant deals for the portfolio. We have a building in Boston that has been a little bit slower for absorption at 25 Mall. And DC continues to be a challenge in the district. But we are seeing more green shoots in Northern Virginia, with good activity there that we think will be an absorption opportunity. And then, of course, our out-of-service portfolio, as we have alluded to, continues to be very well received in the marketplace and will continue to drive absorption there. So if we take that aggregate perspective, we are guiding 89.5% to 90.5% leased this year. George and I see no reason why we cannot take the entire portfolio upwards of 91%, 92% leased, which is where we were prior to the pandemic. And frankly, I am of the belief that if we continue to see the momentum, we could even drive beyond that 92% level in the years ahead. It will take us some time to get there. Brent Smith: But our product is uniquely positioned, been amenitized, well located, and its price point is very compelling. And that continues to drive both large and small users to our project. Nicholas Patrick Thillman: Well, I appreciate the commentary, Brent. And then maybe just the final one for Chris on just overall transaction activity. What you guys are targeting for disposition of what type of product you would like exit in 2026 and maybe how the bidder pool on select assets has changed over the last couple of months. Brent Smith: Nick, yeah, this is Brent. Chris is a little bit under the weather, so I am going to pinch hit here on this one. As you know, we do have and have had land parcels in the market that are under contract. Those are continuing to progress well. Other than—on the disposition bucket, we did note we had a building in DC that we took and brought into the market. I would say receptivity was not strong, just because I think the challenges of that overall market as a whole. So we are going to continue to hold on to that for the near term. We do consider our Houston assets noncore, and we will continue to look to monetize those, as well as if we conclude the New York City lease—60 Broad—that would be a candidate to monetize a part of that asset here towards the back half of the year as well. Again, our guidance does not contemplate any of those potential dispositions, land sales or otherwise, and we will update accordingly. But we do see that opportunity to rotate some capital in the second half of the year. Nicholas Patrick Thillman: Very helpful. That is it for me. Thank you all. Operator: Thank you. Our next question is coming from Dylan Robert Burzinski with Green Street. Your line is live. Hi, guys. Thanks for taking the question. Maybe just touching on the demand environment. Obviously, it is very robust across your portfolio. Can you kind of talk about some of the things driving that activity? Just thinking about the job market, things still seem to be a little bit shaky. So just sort of curious what you think is causing this very robust demand environment across your portfolio? Christopher A. Kollme: Today? Brent Smith: Good morning, Dylan. George here. Look. I think some of the characteristics that we have seen for the past—I would say—two years is certainly intensifying for us in our portfolio. The decision for a lot of these users to come back and upgrade their overall office experience, that seems to be the one that is driving our large deal flow. Also, the conviction around the workplace strategy. Right? I think we have heard it earlier that the number of Fortune 500 companies that are coming back with higher mandates or actually supporting those mandates is causing additional organic growth in our respective submarket. I would say that, you know, when you look at our existing portfolio, the portfolio is quite dynamic. You have a lot of users that continue to expand from a business plan perspective. As I mentioned earlier in this conversation, we had 11 expansions per three contractions, and we are seeing it from a financial services perspective as well as insurance, accountants, and law firms just across the board. I would add, too, to that, I think as we have talked about, our portfolio is uniquely positioned in that it has been renovated, amenitized, and is in a very effective price point for a lot of businesses. So I feel like our addressable market is much wider than those that are just looking for trophy-quality space. And that trophy-quality space is very full, almost no vacancy. As we alluded to in our prepared remarks, no development—really, we will not see any new assets until the end of the decade. So we are right in the sweet spot of a lot of demand from both small and big users from across industries. And again, our buildings are also not designed heavily for tech. We have never relied on tech as an incremental lessor to provide a portion of our portfolio, and right now, given the softness in tech expansion and growth, we are not inhibited by that. And we continue to see all those industries mature to grow and need quality office space, and that is going to help us push rental rates again this year meaningfully across the portfolio, but particularly in our Sunbelt markets. Operator: I guess that is a good segue to my next question. I mean, how much do you think Christopher A. Kollme: rents can grow across the Summit portfolio over the next, call it, one, two years? Are we talking Nicholas Patrick Thillman: you know, upwards of Christopher A. Kollme: essentially 20% rent growth on a cumulative basis? Just sort of curious how we should be thinking about that, given that backdrop you just described. Brent Smith: Yeah. No. And I think, you know, I would highlight a couple of points around our growth. One, as we alluded to, we have still a lot of lease-up and commencement activity in our portfolio to drive earnings growth. We have also got a pretty incredible mark-to-market. Yes, we have continued to push rental rates, in some cases, 20% in 2025 alone. But all of those leases we did in 2023 and 2024, which was approaching almost 4,500,000 square feet, are at rates that are now 20%–25% below current signed rents in our projects, so we think there is a meaningful mark-to-market in that Sunbelt, particularly at 20% to 40%. And then just where we see rents going today with new construction costs—rents at $70–$80 gross in many of our markets now—and in-place rents in our projects anywhere from $45 to $60 gross, we think there is still a meaningful 25% movement in our own rental rates here over the next year, given it is very tight at the trophy level and new development continues to increase in cost. So we think those three legs really do provide us a unique path for growth between now and the end of the decade, from just lease-up, organic mark-to-market, and then pushing our own rental rates. Operator: That is helpful. Ditto. Thanks so much, Brent. Laura Moon: Thank you. Operator: As we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Christopher Brent Smith for any closing remarks. Nicholas Patrick Thillman: I want to thank Brent Smith: everyone who joined us today on the call. But I also particularly want to thank my fellow Piedmont Office Realty Trust, Inc. employees for an outstanding 2025 execution and really over the last five years to reposition, rebrand, and reinvent Piedmont Office Realty Trust, Inc. into the machine, the road machine that it is today. It sets us up for 2026 and beyond. For those investors who would like to meet with us and talk with management, we will be at the Citigroup Conference in Hollywood, Florida, March 2 through 4. And I want to wish everyone a Happy Valentine’s Day. Actually, Valentine’s Day is the week we have the most engagement on portfolio. We will show our clients the love, if you will. I hope everyone has an enjoyable week ahead. Thank you, and have a good day. Operator: Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings and welcome to the Conduent Incorporated Q4 2025 Earnings Conference Call. At this time, all participants the formal presentation. As a reminder, this conference is being recorded. Conference It is now my pleasure to introduce your host, Joshua Overholt, Vice President of Investor Relations. Thank you. You may begin. Joshua Overholt: Thank you, operator, and thank you for everyone for joining us today to discuss Conduent Incorporated's fourth quarter 2025 earnings. Am joined today by Harshita Agadi, our CEO and Giles Goodburn, our CFO. We hope you've had a chance to review our press release issued earlier this morning. This call is being webcast and a copy of the slides used during this call as well as the press release were filed with the SEC this morning on Form 8-Ks. Information as well as the detailed financial metrics package are available on the investor relations section the Conduent Incorporated website. During this call, we may make forward looking statements. These forward looking statements reflect management's current beliefs assumptions and expectations are subject to a number of factors that may cause actual results to differ materially from those statements. Information concerning these factors is included in conduits annual report on Form 10-Ks with the SEC. We do not intend to update these forward looking statements as a result of new information or future events or developments except as required by law. The information presented today includes non-GAAP financial measures. Because these measures are not calculated in accordance with U.S. GAAP, they should be viewed in addition to and not as a substitute for the company's reported results. For more information regarding definitions of our non-GAAP measures, and how we use them, as well as limitations to their usefulness for comparative purposes please see our press release. And now I would like to turn the call over to Harsh. Thank you, Josh. I want to welcome our investors analysts and clients as well as colleagues around the world to this call. Harshita Agadi: I am confident you will be encouraged by what you hear as we discuss where Conduent Incorporated is headed and how we intend to get there. I also want to say good morning, good afternoon and good evening to my 51,000 conduit colleagues across the globe. Over the past few weeks, I've been energized by the stories I have heard. Stories of teams serving clients with commitment, resilience and professionalism every single day. Thank you for what you do and for the pride you take in representing Conduit. Over the past three decades, I've had the opportunity to lead more than half a dozen companies across multiple sectors. Both private and public. Most relevant to conduit I have founded in the past and led a BPO that scaled globally and eventually list it on the NYSE. Through those experiences I have learned what it takes to build organizations that move with deliberate speed and purpose. Deliver measurable outcomes for clients, generate sustainable growth and free cash flow for investors, and create meaningful development opportunities for all our employees on a global scale. I'm here because I believe Conduent Incorporated can deliver those same outcomes. My expectations are simple and my objectives are clear. It is to lead Conduent Incorporated to consistent year over year revenue and EBITDA growth supported by very strong and durable free cash flow generation. In the BPO industry, these are not aspirational results. They are the natural results of a healthy business with clear strategy disciplined execution, and a relentless focus on serving clients on a daily basis. As clients focus on their business, our focus is to provide seamless BPO and KPO services to enable their daily services smoothly to their clients. Having been in the role for less than thirty days at Conduent Incorporated, it would be premature for me to present a fully detailed long term plan for conduits return to sustained growth, improved earnings and free cash flow. Ladies and gentlemen, this is a turnaround story. The work is underway and we will with you. What I can commit to today is full transparency and cadence. In addition to our normal earnings reports, we intend to host an Analyst Day in New York City where you will have the opportunity to meet our board and other members of the Conduent Incorporated executive team and hear directly about our strategy. Priorities, and execution plan. While the full plan is still being finalized, this is not my first turnaround. Having led multiple transformations in various sectors, I know there are decisive actions that must happen early. Operator: Actions Harshita Agadi: that set direction, change momentum, and create the conditions for sustainable results. Those actions are already underway and they inform the priorities I am here to outline. First, and foremost, we will move faster that means faster decision making faster execution, and faster improvement. The senior leadership team has already felt this increased pace and we will only continue to accelerate it. The tone has to be set from the top. Opportunities do not wait and neither will we. Our leaders are being empowered to act and empowerment comes with clear accountability. We must move with speed to capitalize on the opportunities before us. Second, we will apply maximum financial discipline across every major decision especially capital allocation. We will evaluate decision through multiple lenses revenue growth margin expansion, and free cash flow generation. This framework will guide how we allocate capital rationalize parts for the portfolio, manage working capital, and prioritize investments. Third, we will lower our cost structure. This includes reducing corporate overhead, particularly within SG and A and taking a hard luck at our entire technology spend and stack. However, we will not compromise quality, or client outcomes but we must be more efficient in how we deliver our At current levels, corporate overhead and technology expense as a percentage of revenue must come down. Fourth, we will continue to rationalize our portfolio. My goal for Conduent Incorporated is clear. Organic revenue growth resulting in strong free cash flow. To get there, we are reviewing every business categorizing each as either fixed sell, or grow. Businesses that are categorized as fix will operate under formal improvement plans with clear metrics timelines leadership accountability goes hand in hand with that. Businesses that are in the category of sale will be actively marketed with a focus on executing transactions efficiently and at fair value. Proceeds will be first used to reduce debt. Followed by multiple other priorities. The third is growing the businesses that are identified to grow will receive the required investments as well as be unconstrained so that they can grow. Fifth, our qualified ACV plan today stands at 3,200,000,000.0 Joshua Overholt: Our priority Harshita Agadi: is better conversion rates. Going forward, our priority is not just building pipelines, but consistently converting it. Across each of our businesses, pipeline development and execution will improve in a way that supports sustainable revenue growth. Finally, we will simplify and strengthen our organization deliver on these priorities we will become a nimbler company with fewer layers lower costs and clear accountability. We will reduce organizational complexity that slows decision making and empowers our leaders with full P&L ownership. Joshua Overholt: I Harshita Agadi: would now like to hand over to Giles to continue the update on the earnings calls as he will be giving you a very clear update on Q4 which was not under my CEO leadership. Thank you, Giles. Joshua Overholt: Thanks, Harsher. As we've done in the past, Harshita Agadi: we're reporting both GAAP and non GAAP numbers. Giles Goodburn: The reconciliations are in our filings and in the appendix of the presentation. Let's discuss our key sales metrics on Slides five and six. We signed $152,000,000 of new business ACV in the quarter, one of the highest quarters in recent years. Up 11% versus Q4 2024. Our full year 2025 new business ACV was $517,000,000 up 6% versus 2024 Each quarter can be influenced by the timing of large deals, especially in the public sector segments. However, if you aggregate the ACV on a trailing full quarter basis, you can see we're trending in the right direction. On a full year basis, our Government segment new business ACV is up 50% and our transportation segment is up 14% versus 2024. While our commercial segment is down 15% versus prior year, the encouraging signs are that our new capability ACV, selling new products to our existing clients, up again this year by 60%. Joshua Overholt: This is a cornerstone of our commercial go to market strategy Giles Goodburn: which we are optimistic continue to reap rewards. Within the quarter, we signed 14 new logos and 20 new capabilities. And on a full year basis, signed 41 new logos and 87 new capabilities. New business TCV for full year 2025 was up 16% versus 2024, driven by our Government and Transportation segments. As Harsher mentioned, our qualified ACV pipeline remains strong at 3,200,000,000.0 which is up 4% year over year. The strength here is driven by our government segment, which is up 29% year over year. With an in year 2026 qualified pipeline almost double where it was at the beginning of 2025. Let's turn to Slide seven, and review our Q4 and full year 2025 P and L metrics. Adjusted revenue for full year 2025 was 3,040,000,000.00 compared to $3,180,000,000 in 2024, down 4.2%. We ended the year with Q4 adjusted revenue growth in two of our three segments. Our Government segment grew 1.8% and our 1.9%. Both segments shown positive momentum and positioned well for growth in 2026. Adjusted EBITDA for the year was $164,000,000 as compared to 124,000,000 in 2024. And our adjusted EBITDA margin of 5.4% up 150 basis points year over year and towards the top end of our guided range. We finished the year with a Q4 adjusted EBITDA margin of 6.5%, up two fifty basis points versus Q4 2024, and a sequential improvement of 130 basis points versus Q3. Let's turn to Slide eight. Review the segment results. Full year 2025 Commercial segment adjusted revenue was $1,500,000,000 down 5.9% as compared to 2024. The volume declines in our largest commercial clients drove approximately 40% of this revenue decline, Joshua Overholt: The remaining top 10 commercial clients Giles Goodburn: grew on an aggregate basis in 2025 versus 2024. Commercial adjusted EBITDA was 154,000,000 and adjusted EBITDA margin of 10.2% was down 30 basis points year over year. While we made good progress with our cost efficiency program in this segment, it wasn't enough to offset the impact of lower revenue. The five priorities Harsher outlined earlier will significantly accelerate the desired improvement in this segment. Government segment adjusted revenue for the year was down point 3% at $922,000,000 Our new business revenue outpaced lost business revenue, with the primary driver of decline being the completion or winding down of large implementation projects which we expect to replace in 2026. As I mentioned earlier, in the fourth quarter, our Government segment grew 1.10.8% year over year, We are confident this will continue. And the team is positioned to deliver full year 2026 revenue growth. Adjusted EBITDA was $221,000,000 with adjusted EBITDA margin of 24%, up two seventy basis points versus 2024. The drivers here resulted from our AI initiatives, and efficiency programs, resulting in lower fraud, labor and telecom expenses offsetting the implementation run offs. Harshita Agadi: Transportation segment adjusted revenue was $6.00 £9,000,000 for the year, Giles Goodburn: an increase of 3.9%. While adjusted EBITDA was 18,000,000 and adjusted EBITDA margin was 3% for the year, up 300 basis points versus 2024. Both revenue and EBITDA improvements were driven by strong equipment sales and a contract amendment in our international transit business. Operator: Unallocated costs Giles Goodburn: were $229,000,000 for the year, a decrease of 10.2% versus 2024 The improvement here is driven by the cost efficiency programs our corporate functions and a recovery of legal costs. Which more than offset significantly higher U.S. Employee healthcare claims activity activity. We continue to experience. Let's turn to Slide nine and discuss the balance sheet and cash flow. We ended the year with approximately $243,000,000 of total cash on balance sheet, and adjusted free cash flow was negative 130,000,000 Adjusted free cash flow in the quarter was positive $28,000,000 a little less than we had anticipated due to the timing factors I mentioned last quarter. The updates on these timing factors are we signed the contract amendments that were delayed by the government shutdown in Q4 and build the client for the work already performed. However, we now expect to receive this cash later in Q1 or early in Q2. Which accounts for the reduction in contract assets and the increase in accounts receivable on our year end balance sheet. Our net leverage ratio decreased to 2.8 turns this quarter which was a result of the higher EBITDA and our capital expenditure for the year was 3.4% of revenue in line with our expectations. We continue to make progress with our portfolio rationalization plan and relating to our full year 2026 guidance, As Harsham mentioned earlier, given his short tenure in the CEO role, and the five priorities he has outlined, you can expect a more wholesome update on both these items with our Q1 financial results in early May. That concludes the financial review of 2025. And I'll now hand it back to Harsher. Harshita Agadi: Harsha? Thank you, Giles. I look forward to coming back on our Q1 to revisit these priorities and give you a very detailed update. Just so you're clear the initiatives would have already starting to take momentum well before our call. Next call. We will also be prepared to outline their expected impact on Conduent Incorporated's financial performance. As I continue forward, I would say Conduent Incorporated has a strong foundation meaningful client relationships, and a global team that knows how to deliver to our thousands of clients across the globe. What we are focused on now is execution. Operator: Moving faster Harshita Agadi: simplifying the business allocating capital with discipline, and holding ourselves accountable for results. Our direction is clear Our execution plan is now in motion. The actions we're taking are designed return Conduent Incorporated to sustainable revenue growth expanded margins and generate strong free cash flow that is sustainable. As we execute, we will continue to communicate transparently measure progress rigorously and earn your confidence quarter by quarter. I am truly energized by the opportunity given by the board and the support to lead from the front confidently We do have a good leadership team in place deeply committed to building a stronger more focused and more valuable conduit Operator: for our clients, Harshita Agadi: all our employees and without any doubt our shareholders. Ladies and gentlemen, that is the message for the day. And I think, if we can get the operator to open it up for questions. Operator: Thank you. Operator: Thank you. We will now be conducting a question and answer session. The first question is from Pat McCann from Noble Capital. Please go ahead. Joshua Overholt: Morning. Thanks for taking my questions. Harsh, it's great to hear. Patrick Joseph McCann: About your vision for the future of the company. I was curious when it comes to the the framework that you that you outlined of looking at business units and deciding whether to fix, or grow them I was just wondering about, you know, would you could you give any more color into what what metrics you would be looking at the various business units with to kind of make that that decision in terms of whether that's margin profile or the capital intensity of of a business unit. Anything like that that you know, any any more color you could give there in terms of how you will evaluate Harshita Agadi: Thank you very much again, for the question and actually a very thoughtful question. So, there will be multi variables at play. And I'll just name a few which you named a few but I'll start with the CEO's very important job is capital allocation. We have a lot of capital going in. Are we getting the right rate of return? And where should we place our bets. So, what we have today is an accumulation of somewhere between fifteen and twenty small businesses covering not just the commercial side, but also the government and the transportation segments. So what happens is I'm looking for does the sector have unbelievable growth metrics. As an example, healthcare will continue to grow. Second, can we have decent predictable EBITDA margins? Sometimes when EBITDA margins are high we can be taken thinking it's a great business but anything that's not sustainable you run out of steam So, also need to think through how much capital needs to be allocated and what is the free cash flow that's coming in Finally, is there a moat around the business? Can somebody come in and replace us Operator: easily? Harshita Agadi: Or not? And can the moat be breached with the number one question of the day technology that is extremely dynamic at this time. And obviously driven by AI, Gen AI and all of the other variations. So to me, these are some of the factors. So I intend as quickly as our next board meeting to actually sit down with a matrix and say here's how we're looking at the world. And by the way, a lot of the I've talked to the top 10 investors and I have to tell you all of you have given me wonderful ideas to make sure I'm covering all bases. So those would be the factors. Patrick Joseph McCann: Thank you. And I'll just ask one more question and I'll hop in the queue because I know there are others Operator: Sure. Patrick Joseph McCann: When it comes to, you know, the the company obviously has a, you know, number of different business units. Some of them are more closely related to each other. Some not as much. I was wondering what's your general is on on a a go forward basis on on which business you would keep when if you look at it from the perspective of certain businesses are have overlap or, you know, have their efficiencies because of the similarities of of where certain business units operate and that sort of thing versus the the more disparate portfolio of businesses that are you know, completely separate. I I don't if the question you know, clear, but Giles Goodburn: No. I philosophy on trying to keep it all kind of in going in one direction. Harshita Agadi: Yeah. No. No. It's actually not not only is the question clear, it's a good dilemma. And so I'll tell you what has been the case to some extent in the past and I'll move away from the past quickly. And I've seen this in other businesses that are going through a turn is let us be everything to everybody. Or let us be anything to anybody. We need to walk away from that and one of the things we as a team are doing is listing out things we will just not do. It is actually not just important what you do, you have to make a list of what you really will not do and refrain from it. It may look good. And I am off the mindset when I go to a client I will say this is what we can do and we're the best at it If you need this additional service, maybe we can do this but maybe we'll find you somebody that we might partner with. We have one big element within our company and that is very deep client relationships. We have a long list That to me is worth a huge royalty. So if I'm going to bring a partner to execute with me on a third or fourth service with a client, I may be charging for that relationship because I bring to bear the relationship management. So to me, I hopefully have answered the question but it will be case by case. But even in the case by case, we have to be very disciplined about it. We have 20, 30 different services but we're offering maybe one and a half, two services here completely different services elsewhere. That does not generate scale or efficiency. I'll go back to my previous days in another BPO We were doing tax returns only for partnerships and we got a request to do it for corporations. Operator: I actually declined the business saying we're experts. Harshita Agadi: At doing back office work for the next four big firms just for partnerships and not corporations that are public. So, you have to start having a little bit of silo mentality and actually viciously your value proposition and how you deliver it. Patrick Joseph McCann: Thank you very much, Harshal. Operator: Thank you. Operator: The next question is from Ghoshri Sri from Singular Research. Please go ahead. Harshita Agadi: Good morning, guys. Can you hear me? Yes, sure. Very clearly. Giles Goodburn: Thank you. My question is on the commercial side. I know you laid out in the last call that the top 24 to 25 accounts Gowshihan Sriharan: were growing and the and the new leadership would necessarily affect the 2026 performance As you sit here in Q4, any evidence you're seeing that revamped go to market feeding into the top of the funnel help you outrun that one client that was kinda lagging you behind? Giles Goodburn: Yes, Ghanshi, good question. So, the top top 25 and the top 10 that I talked about specifically relate to the commercial segment. As you think about 2026, as I said in the remarks, we've got some really good momentum in both our public sector businesses Government grew for the first time in Q4 1.8%. And has got an extremely strong pipeline across all components of their product offerings. And a lot of that pipeline relating to 2026 opportunities. So we feel really good about the government segment From a Transportation is somewhat in the same boat. Some good good relationships there, a good strong pipeline and work that we've got that we can achieve and continue drive year over year revenue growth in that segment. Commercial is where we've got a little bit of work to do. We've reshaped the go to market strategy and and bought the teams closer to the clients so that we can we can better serve those client bases, especially those top 10, top 25 clients where, you know, lot of them we are we are growing revenue and we are expanding our capabilities with with that client base. So, you know, we know we've got work to do in there. I wouldn't anticipate growth necessarily in 2026, but that certainly make the right trajectory as we look forward out into 2027. Operator: So Harshita Agadi: here is, I'd call it good news. We are right now examining the leadership for commercial. When you look at mid sized companies three to $5,000,000,000 range, many a time the CEO may not be as close to the client as they should be. Gowshihan Sriharan: I have this rare opportunity Harshita Agadi: to have three of the leaders reporting into me directly right now. It's an easy answer to go find somebody to run commercial and I have some candidates outside as well as some candidates inside the company. It will end up having a single leader. But at this time, I am actually getting close to the processes. I'm getting close to the clients. I have now at least one phone call a day with a client. Some not happy. Some extremely thrilled. Some wanting more services, I have been active for many years in the CEO ranks I've been very careful in cultivating relationships across the board, across sectors and I will bring it to bear for my commercial friends and colleagues so we can generate more. The other good news is that the discipline around sales force the discipline around how we're approaching sales By the way, there is now Operator: and I will not comment on the past Harshita Agadi: because we'll run out of time but there is now a weekly regimen with me sitting in at the meeting where we only focus on revenue generation as it relates to commercial, Operator: transportation Harshita Agadi: and government as nobody from the administration side They're welcome to come in if they have time, but this is purely the sales guys and gals and the line management of the company focus. And even within commercial, we may choose to focus on a few sectors. We may not just go here and there, but where we are strong where we have name recognition, where we have strong references, we're definitely going to piggyback on that. Operator: Okay. Gowshihan Sriharan: Thank you for that call. Like you said, the commercial segment healthcare has been a particularly successful side of the business. Are you deliberately choosing to go with a smaller set of payers and health plans especially with your AI offering? Or or do you still think you need more logos here? I'm trying to understand whether the the HSP and other platforms scale better via depth of breadth from here. Harshita Agadi: Yeah. I would say it's not as much as more logos. We have a lot of logos. I think it's going to be getting deeper into certain sectors where we already have a fair amount of market And so to me, you look at healthcare today, and you just look at Medicare spending, I'll just give you round numbers. It's probably a trillion. No. No. Maybe even 4 or 5,000,000,000,000. It's a large number. In fact, healthcare spending in The U.S. This I know for a fact is now the third largest economy in the world after United States and China. So to me focusing on that heavily and participating in it helping make a difference to our commercial clients and our government clients simultaneously. If you look at even the big beautiful bill, it has brought in a lot of stringency on re reclassifying changing eligibility states are a little lost and we are their solution to simplify how the big beautiful bill applies whether it's Medicaid, whether it's Medicare, whether it's social security eligibility. So I think we're going to be more focused than less focused. Operator: Thank you for that. Gowshihan Sriharan: And on the government side, talked about margin expansion from AI driven fraud cost reduction reduction and then like and you said direct expense and Medicaid as early showcases. As you scale those solutions, are you leaning more towards a gain share economics with clients or fixed price movements? What does that mean in terms of margin improvement and revenue in 2026? Harshita Agadi: Sure. So I think first of all, one risk we do have is in the world of AI, some clients may wanna take it in house. But it may not be that simple. So I'm gonna talk about a few things as it relates to let us say an AI company versus Operator: Conduent. And I'm going to say this is a small Harshita Agadi: $25,000,000 revenue AI disruptor. What we have is a strong distribution network deep client relationships, operations know how, Patrick Joseph McCann: proprietary data, Harshita Agadi: and there are large switching costs. Operator: But Harshita Agadi: the disruptor may bring a solution that might lower cost and increase accuracy. So you know, one of the mantras we have in the company is let us not behave like a large company. Let us not have a big ego. Let us partner with small disruptors who might bring the solution to increase accuracy, lower cost, and yes, we might Gowshihan Sriharan: share some of the savings with the client Harshita Agadi: in this case, the government or it could be commercial. But in addition, we may not use the same AI disruptor let us say on a healthcare client that we might use in transportation. The gentleman who runs transportation will have the leeway to partner with a different AI disruptor. What these AI companies are thirsting for is a bank of clients. Gowshihan Sriharan: They don't have that, but they have the technology. Harshita Agadi: I'm not going to sit and innovate these things from scratch we don't have that much time and leeway. Because they're going to be nimbler and faster how do you partner with them commercially and sharing the economics will be the way to go. Gowshihan Sriharan: Excellent. Thanks for that. And I'll just make this, I'll be a little cheeky at As you walk us through the 25 ACV and you expect that to expect to you've alluded to convert that into revenue with speed. Where are you most confident by segment and your exit EBITDA margins were 6.5 for Q4. Full year. As you look into 2026, should we think of it as a realistic margin once all the cost actions and portfolio moves up? Have been embedded? Harshita Agadi: Okay. So here's how I would say. Clearly, we haven't given you guidance. Which we will in Q1. But having not given guidance, I'll give you a sense first on how the businesses are growing. Second, what I believe should be steady state margins. And when I say steady state, it could be in three years, it could be in two or we might be faster, it depends. So the government sector for us is growing smartly and doing well and has come out of the gates quite strong. The transportation sector has potential and actually is also strong. Operator: And Harshita Agadi: positive. Commercial needs a turnaround job and the three individuals running it are on it like a rash. Let me assure you. Now coming to margins, in a business in our sector, which is BPO, KPO, I think at a minimum we need to start really clipping at between an 810% margin in the medium term, maybe even higher. And that potential exists. Today, I can see and I'll use Gowshihan Sriharan: a colloquial phrase Harshita Agadi: low hanging fruit that I can see maybe one of the few people because I'm new. Gowshihan Sriharan: Whenever you're new, it looks clearer. Harshita Agadi: As you get older into the company, the complexity in your mind increases. So when I don't have past memory, I'm actually at the edge of saying, oh, we can do ABC so I think there is a fair amount of cost takeout that and by the way, it's not just me, to the credit of the senior leadership team they have come to me without me challenging. Have come to me and said, there's cost here, there's cost here, there's duplication of efforts, So, think the margin should increase. And it's not just the margins, we have to convert our EBITDA and I'm not talking adjusted EBITDA, convert EBITDA to free cash flow. Which means how do you collect how fast do you collect, are you tracking DSO, are you tracking DPO, And are you converting that into eventually positive free cash At $3,000,000,000 you have scale, you should be able to. Gowshihan Sriharan: Thank you, gentlemen, for taking my questions, and good luck, Harsh. Operator: Good Thanks, Gaushi. Harshita Agadi: Thank you. Operator: The next question is from Matt Swoop from Baird. Please go ahead. Operator: Good morning, Harsh, Giles and Josh. Good morning. Joshua Overholt: Harsh, you mentioned a couple of times the sort of moat around the business Chris Sakai: Can that moat be breached by technology, AI? The impact that these AI disruptors are having? Obviously, that's been the talk of 2026 so far. Can you give us some comfort? How much of your existing revenue stream do you think is exposed to AI disruptors or other sort of technology threats Harshita Agadi: Having been here less than thirty days, inside the company, I would humbly say I cannot answer that question right now, but here's what I can tell you. That I would say safely rough guess 15% to 20% of our business may be exposed to it but here is the problem It is a moving target technology, particularly AI is dynamic. And therefore I think we're going to need to get ahead or partner with people who keep us ahead in the arms race if you will of AI. So to me is the risk today No. Can the risk keep increasing? Operator: Yes. Harshita Agadi: Therefore we're gonna need to move quickly is what I would say or else our clients will move quickly. Now the positive is I would say the commercial segment will get disrupted maybe a little faster than transportation or government. So, I'm just going to give you a tip of the iceberg. In transportation, we have a new product It's called Fairgate. It's automated It's precise. And it is safe and that is now being installed across the entire New York subway system that tests are on and we're gonna start rolling this out. And when we roll it out, and we get this right, this will also move into other geographies. So this will make a big difference. As an example. Giles Goodburn: I think as well, Matt, to add to that, you know, clearly, is right. There's probably about 15% that that at risk in the commercial space. So I think we're securing that moat a lot tighter with some of our own AI capabilities as well. Right across the platforms that we have, whether it's in commercial you know, using AI to streamline our benefit enrollment environments for our clients in there. Their employees. Harsh had touched on some of things that we're doing for for tolling as well as some of the the capabilities we've got in license plate recognition and occupancy detection. And then we've talked about all the fraud components that we've got in that government space as well. So, we're shoring up the moat of of some of the areas that we've got around the company as well. Chris Sakai: I appreciate that guys. That's helpful. Charles, maybe one for you as you sort of bridge the gap in CEOs. We've heard a lot about these 2025 exit rates We've heard a lot about the portfolio divestiture plan. Can you help us with where that stands now? For example, the 2025 exit rate free cash flow was going to be 60,000,000 to 80,000,000 Obviously, we're well, well into the negatives on free cash flow. Should we think about modeling going forward? I know you're not giving full guidance given that Harsh has just started. But vis a vis the 2025 exit rates we've heard about for a while, Giles Goodburn: Yeah. How do we think about 2026? Yeah. So I think, you know, we clearly we we set those we set those targets about you know, three years ago and they were aspirational targets. You know, we're we're making we are making progress towards some of those targets. You look at government and transportation. And, you know, we've done well and got there from a revenue growth standpoint. We've still got work to do in in some of the areas. You know, we would still I'd say we're still target a sub one time levered business as we look out into the future. And and that's gonna come from, you know, some of the divestiture activity that Harsh has alluded to. I think you'll see us accelerate with speed that some of the cost initiatives that we've got going on right across the organization, whether it's in the corporate functions, technology, or improving margins in the business. And just better discipline around our working capital. We did have a couple of large implementations out there that we didn't quite get to the place where we wanted to get to by the 2025. That had a fairly significant impact on our cash generation and given where we landed at the negative numbers that we posted for the year. Now that cash hasn't gone away. We're going to receive it in Q1 or early Q2. But we've got to have better discipline on how we're on some of these larger projects. So I guess my answer is the destination hasn't changed. We're still striving towards improving EBITDA margins on a sequential basis. We're still striving to get to profitability and free cash flow generation. I think Harsh are coming in is really going to push us to accelerate that as quickly as possible and that's the journey that we continue to be on. Chris Sakai: Do you think free cash flow can be positive for 2026? Operator: That's Giles Goodburn: a I can answer Harshita Agadi: Here's how I would answer it. We are obviously we ended '25 as Jai said negative 01/30. There's there's a fair amount of work but I'm gonna give it a shot. But again, I'm not giving guidance. And I will have guidance. I will have very precise free cash flow goals. And if you notice in my script, in my message, in my dialogue, I've mentioned the word free cash flow at least 10 times. I am fixated on it. So we're gonna try really hard but definitely the turn is coming. You you see the progression. Chris Sakai: Okay. And and and how about you guys have always historically had this portfolio rationalization slide in the deck that's obviously out for the moment. The Phase two proceeds that were targeted before were up to $350,000,000 know you I think you had that as priority number four, Harsha. Where does portfolio rationalization timing set and maybe magnitude versus what you what we've heard in the past? Harshita Agadi: Okay. So first of all, I have to thank you very much Operator: for Harshita Agadi: a statement you made. You called it priority four. I should have said those six priorities do not have a sequence you have to run and chew gum at the same time, and we have a very good leadership team that's capable of doing So having said that, portfolio rationalization is a very high priority There are some things in motion that were put in motion before I took over as CEO. I was the chairman for a very short while, I was familiar with it. Gowshihan Sriharan: If anything, as Giles alluded to, he he has hit the acceleration Harshita Agadi: on the rationalization, but what I'm also seeing is a thorough review of the entire portfolio and looks like we may have some other opportunities that we're gonna work on simultaneously. We have Gowshihan Sriharan: bankers in place Harshita Agadi: We may have maybe more bankers so that we can kind of swiftly go through this So that I'm not waiting a year from now saying, oh by the way, we're still on portfolio rationalization. The faster we get it done, the more we focus on our base business. So, the folks who are in line management they're not in the middle of portfolio rationalization exercise. They're focused every day. I have said to them, assume you own the business until that last day of transfer. We don't know if we will 100% for sure sell. Meanwhile, the group that's focused inside M and A and finance are fixated on portfolio rationalization. So, we need to do this simultaneously and to me it's not number four priority That's why I was appreciating you. To pointing that out. Chris Sakai: That that is helpful. Thanks. And just one one last quick one if I could squeeze it in. With your bonds trading down into the low 70s, would bond buybacks in the open market fit within your capital allocation? Harshita Agadi: Well, you've asked another good question. So to me, I think making sure we delever first Giles Goodburn: a little bit Harshita Agadi: and get our debt lined correctly. And I think the trading of the bonds has opened up in my opinion an opportunity that may be more Operator: lucrative Harshita Agadi: than buying our shares back. So to me, it's a touch and go, but again bankers are reasonably smart So, I'm going to have them run cross mathematics to give me an option each time as to each dollar of allocation. Right now, where it's trading the yield is rather attractive. And saying that we will go into open window fairly soon here as a typical public company So, I as an investor, I'm also in my head saying, do I buy more shares, do I buy more bonds. So that excitement is actually percolating in my little brain right now. Chris Sakai: Thank you guys very much. Giles Goodburn: Thank you. Thanks, Matt. Thanks, Matt. Operator: Next question is from David Nierenberg from Nierenberg Investment Management Company. Please go ahead. Joshua Overholt: Arsha, it's wonderful to be working with you again. Harshita Agadi: Nice to hear your voice, David. You definitely surprised me sitting in the West Coast. Patrick Joseph McCann: It's our third time together in ten years. I imagine that most David Chen: people on the call don't have the depth of experience that I've had with you. But I've already bought a million shares in in confidence because you are a a great leader. A great businessman, a great salesman, a diplomat, a tough guy, and you have a global network across multiple industries to, access to the benefit of this company. I am very excited to be back with you here. And looking forward to you. You are, making shareholders a great deal of wealth just as you have done since you succeeded me as chairman of the board of Flowtech Industries. Looking forward to working with you Grateful that you were here. Wishing you all the best. Harshita Agadi: Thank you very much, David. And I appreciate one your support not just verbally but through your pocket of backing our shares and buying Gowshihan Sriharan: I'm actually taking it in as you're saying a million shares Harshita Agadi: So I need to have more shares than you. That's pretty clear. The good news is that the board has Gowshihan Sriharan: structured my compensation heavily on share price Harshita Agadi: that dictates vesting, but doesn't doesn't stop me from buying the shares as soon as open window opens up. But I appreciate your support immensely. Thank you. Operator: My pleasure. Operator: This concludes the question and answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's fourth quarter and fiscal year 2025 financial results. After the speakers' prepared remarks, there will be a question and answer period, and instructions to ask a question will be given at that time. Today's call is being recorded, and I would now like to turn the call over to Suann Guthrie, Senior Vice President, Investor Relations. Please go ahead. Suann Guthrie: Thank you, and welcome to the fourth quarter and fiscal year 2025 earnings call. Here with me today are Randall C. Stuewe, Chairman and Chief Executive Officer, and Robert W. Day, Chief Financial Officer. Our fourth quarter and fiscal year 2025 earnings news release and slide presentation are available on the investor page of our corporate website. We will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release, and the comments made during this conference call and in the Risk Factors of our Form 10-Ks, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randall C. Stuewe. Randall C. Stuewe: Morning, everyone. As we close out 2025, I want to acknowledge our employees for continuing to execute on our vision of being the world's largest, most profitable, and most respected processor of animal byproducts. For every end, we believe there is a new beginning as 2025's performance clearly demonstrates. Our 2025 results reflected the uncertainties created by evolving renewables public policy along with the turbulent globalization related to tariffs and trade. Yet our team remained committed to the fundamentals that matter the most. We meaningfully improved our debt leverage, took steps to rationalize and improve our portfolio, and focused on our core strength and advanced our operational excellence. These actions throughout the year strengthened our platform, assisted in generating concrete results, and position us for continued growth and profitability in the future. In the fourth quarter, we delivered solid EBITDA growth and sequential gross margin improvement. Despite a challenging year for Diamond Green Diesel, our best-in-class operations led the industry in results. Darling's combined adjusted EBITDA for Q4 was $336,100,000 and our global ingredients business performed strong with $278,200,000 of EBITDA. In our Feed Ingredients segment, exceptional operational execution drove meaningful margin expansion for the fourth quarter in a row, a clear sign of the momentum our operations team continues to build as they remain laser-focused on driving efficiency and delivering strong results each quarter. The additional week in our fiscal year combined with a favorable lag in fat prices supported higher volumes and sales in the fourth quarter for the year. The U.S. demand for domestic fats remains robust as we continue to operate within agricultural and energy policy direction that is increasingly favorable to Darling Ingredients Inc., to American agriculture, and to American energy independence. Internationally, our global rendering business in Europe, Canada, and Brazil delivered solid year-over-year growth. Turning to our Food segment, global collagen and gelatin demand continues to rebound and our previously announced joint venture with PB Leiner and Tessenderlo is advancing as planned with regulatory reviews now underway. Across the business, we are seeing positive global demand trends that give us a very encouraging outlook for 2026. Our Fuel segment, Diamond Green Diesel, delivered its strongest quarter of the year with $57,900,000 of EBITDA, or $0.41 per gallon. For the full year 2025, DGD earned $1,037,000,000 of EBITDA, or $0.21 EBITDA per gallon, and sold approximately 1,000,000,000 gallons. This performance reinforces DGD's position as the lowest-cost operator with an unmatched supply chain and superior logistics. Even in an uncertain time for the industry, DGD continued to generate positive EBITDA and consistent operations, highlighting the strength of our people and the deep expertise behind our operations. Now looking ahead, we are increasingly optimistic. The policy backdrop is moving in a direction that we believe will soon enhance DGD's earning potential and create a more constructive environment for domestic renewable fuels. Now, as I mentioned earlier, we have taken steps to sharpen our portfolio and focus on our core strengths, which may result in some asset sales in the near future. At the same time, we are open to opportunities that strengthen and expand our core business where it makes sense. Darling Ingredients Inc. was identified as a stalking horse bidder in the bankruptcy proceedings for three rendering facilities from the Potense Group in Brazil, the second-largest rendering company in Brazil. Robert W. Day will share more details on the financials and timing, but these are high-quality assets with strong operational capability and fit naturally alongside our existing footprint. This is an incredibly strategic acquisition of assets that offers important synergies with the rest of our network in Brazil. Now with this, I would like to hand over the call to Robert W. Day, take us through the financials, then I will come back and discuss my thoughts on 2026. Bob? Robert W. Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, third quarter momentum continued nicely into the fourth quarter as combined adjusted EBITDA was $336,000,000 versus $289,000,000 in fourth quarter 2024, and $245,000,000 last quarter. Core ingredients improved both year over year and sequentially. For fourth quarter 2025, core ingredients EBITDA was $278,000,000 versus $230,000,000 in fourth quarter 2024, and $248,000,000 last quarter. For all of 2025, core ingredients EBITDA was $922,000,000 versus $790,000,000 in 2024. While 2025 was a 53-week year for Darling Ingredients Inc., the added week's impact added only around $20,000,000 EBITDA. So by any measure, 2025 for the core business realized significant improvement over the previous year. For the fourth quarter 2025, total net sales were $1,700,000,000 versus $1,400,000,000 in 2024. Raw material volume was 4,100,000 metric tons versus 3,800,000 tons from the fourth quarter a year ago, and for the full year, raw material volume was 15,400,000 metric tons versus 15,200,000 tons in 2024. Meanwhile, gross margins for the quarter improved to 25.1% compared to 23.5% in fourth quarter of last year. Looking at the Feed segment for the quarter, EBITDA improved to $193,000,000 from $150,000,000 a year ago, while total sales were $1,130,000,000 versus $924,000,000, and raw material volume was approximately 3,400,000 tons compared to 3,100,000 tons. Gross margins relative to sales improved nicely to 24.6% in the quarter versus 22.6% in the fourth quarter from 2024. As Randy mentioned earlier, we successfully participated in an auction to acquire three assets formerly owned by the Potense Group in Brazil. We are currently working through terms in the purchase agreement and expect to close later this quarter. The cost of acquiring those assets translates to around $120,000,000, and we expect to fund that with cash flows generated in first quarter of this year. In the Food segment, total sales for the quarter were $429,000,000, a significant increase over fourth quarter 2024 at $362,000,000. Gross margins for the segment were 27.2% of sales, compared to 25.7% a year ago, and raw material volumes increased to 350,000 metric tons versus 320,000 tons. EBITDA for fourth quarter 2025 was up significantly compared to 2024 at $82,000,000 versus $64,000,000. Moving to the Fuel segment, specifically Diamond Green Diesel, Darling Ingredients Inc.'s share of DGD EBITDA for the quarter was $58,000,000, which includes an unfavorable LCM inventory valuation adjustment of $24,000,000 at the DGD entity level. This was the best quarter of the year for DGD as confidence in policy and more disciplined market behavior led to an improved margin environment. Fiscal year 2025, Darling Ingredients Inc.'s share of DGD EBITDA was approximately $104,000,000, and included a favorable LCM inventory valuation adjustment of $140,000,000 at the entity level. Darling Ingredients Inc. contributed approximately $328,000,000 to DGD in 2025. These contributions were offset by $368,000,000 in dividends received, a significant amount of which came from $285,000,000 in production tax credit sales, $255,000,000 of which were paid during 2025 and the balance will be paid in 2026. Other Fuel segment sales, not including DGD, were $153,000,000 for the quarter versus $132,000,000 in 2024, on relatively flat volumes of around 390,000 metric tons. Combined adjusted EBITDA for the full Fuel segment, including DGD, was $85,000,000 for the quarter, versus $84,000,000 in the fourth quarter 2024. For fiscal year 2025, combined adjusted EBITDA was $192,000,000 versus $374,000,000 a year ago. As of 01/03/2026, total debt net of cash was approximately $3,800,000,000 versus $4,000,000,000 ending 12/28/2024. Capital expenditures totaled $156,000,000 in the fourth quarter 2025 and $380,000,000 for the fiscal year. Our bank covenant preliminary leverage ratio at year end was 2.9 times versus 3.9 times at year end 2024. In addition, we ended the year with approximately $1,300,000,000 available on our revolving credit facility. For the three months ended 01/03/2026, we recorded an income tax benefit of $11,000,000, primarily due to the net impact of production tax credits. We paid $6,900,000 of income taxes during the quarter. For the twelve months ended 01/03/2026, the company recorded an income tax benefit of $9,400,000. Similar to last year, the company's effective tax rate when including production tax credit sales was negative 15.3%, and we paid a total of $58,400,000 of income taxes in 2025. Overall, income was $57,000,000 for the quarter, or $0.35 per diluted share, compared to net income of $102,000,000, or $0.63 per diluted share for 2024. As we continue to evaluate each business and position the company to maximize value, we restructured and impaired some of the portfolio in the quarter, resulting in charges of $58,000,000. Adjusting for the restructuring and impairment charges, and to provide some perspective regarding earnings per share in the fourth quarters for 2025 and 2024, an adjusted non-GAAP earnings per share would have been $0.67 per diluted share in 2025 and $0.66 per diluted share in 2024. With that, I will turn the call back over to Randy. Randall C. Stuewe: Hey. Thanks, Bob. In 2025, we focused on executing for today so we can build for tomorrow. That discipline has put us in a strong position as we move into a period of meaningful opportunity. Beginning to see tailwinds forming across our markets, and public policy is on the cusp of becoming tangible and beneficial for our businesses. We believe we are at an inflection point, one where the foundation we have built and the momentum we have created will move us forward. We are excited about 2026 and believe we are well positioned to deliver long-term value for our shareholders. Now looking forward to first quarter, we estimate that DGD will produce about 260,000,000 gallons at improved margins. For the core business, when you adjust for our fourth quarter performance for the 13-week period and exclude some minor year-end cleanup, the quarter was solid. In January, severe weather in the Southeast and Eastern Shore created some moderate operational challenges. Even with that, when considering fat prices and volumes, we only expect a modest pullback relative to Q4. As a result, I am estimating our core ingredients adjusted EBITDA to fall in the range of around $240,000,000 to $250,000,000 for first quarter. Now with that, let us go ahead and open it up to questions. Operator: Certainly. If you are using a speakerphone, please pick up the handset before using the keypad. Once again, if you would like to ask a question, please press star followed by one. First question comes from the line of Derrick Lee Whitfield with Texas Capital. You may proceed. Derrick Lee Whitfield: Hey. Good morning all, and congrats on a strong close to the year. So maybe just starting with guidance. So while I why you are not guiding DGD for 1Q, it seems like to us that the margins are materially stronger than where you were in 4Q. Given the strength of recent credit prices and the softness of tallow and UCO relative to SBO, that is kind of part one. And then part two is as you guys look forward and let us assume we get a constructive RVO, would you likely then put DGD back in guidance at that point? Would love your thoughts on those two. Robert W. Day: Yeah. Hey, Derrick. This is Bob. I guess to answer the last question directly, it is going to depend. I mean, you know, I think that there is just going to depend on the kind of clarity and certainty we have. But as we look at the first quarter, you know, we first of all, we saw strong results in 2025, much better. And we, you know, we continue to see that momentum carry forward into the first quarter. But, yeah, we are not providing guidance and will reconsider that after we get a final ruling on the RVO. Derrick Lee Whitfield: Terrific. And then maybe just one follow-up, perhaps for you, Bob. When we think about the Feed business, it is clearly sensitive to the final absolute RVO. But how would you characterize your business's potential sensitivity to the half RIN concept for imported products and feedstocks? Robert W. Day: Yeah. I think it is hard to answer as it relates specifically to the half RIN concept because there are so many other factors. We have got origin tariffs on feedstocks that are already having a big impact. I mean, I think the bottom line is if policy is supportive to U.S. or even just broader North American feedstock values, that is certainly constructive to our rendering businesses in the United States and Canada. And, you know, based on what we have heard, we are likely to see it manifest in some way that is supportive like that. Operator: Thank you. The next question comes from the line of Thomas Palmer with JPMorgan. You may proceed. Thomas Palmer: Good morning, and thanks for the question. Given where you sit in the biofuels supply chain, I wondered if you might have some insight into what is happening so far in 2026 versus maybe how it might evolve here as we get clarity on the RVO? And specifically, to what extent maybe we are to see more production from biofuels operators that maybe had pulled back and to what extent you are starting to see increased pull in in terms of feedstocks from the biofuels industry? Thank you. Robert W. Day: So if I did not understand the question correctly, Tom, let me know. This is Bob again. I think, you know, we have not seen a significant increase in biofuel production yet in the United States. And, you know, despite better margins, which suggests to us that margins need to get better in order to incentivize more. And so if we have an RVO, ultimately, that results in an increase in demand, we are going to need to see, you know, better margins in order for that to happen. But let me know if I did not answer your question. Thomas Palmer: No. No. You understood it right. I was really just trying to understand if we are seeing anything kind of happening in the background versus, you know, what we are seeing with pricing so far. Second, I did just want to touch on the Food business. There was some constructive commentary in prepared remarks. This is maybe less tethered to the RVO. So I wondered if you would be comfortable maybe talking at a high level about expectations for EBITDA as we think about the coming year. Randall C. Stuewe: Yes. Tom, this is Randy. I mean, the collagen and gelatin business globally is performing very nicely. It had a really nice fourth quarter, carries that momentum into Q1 right now. You know, as we look around the world, demand, you know, a year ago today, we were talking of destocking of, you know, people that have built too much inventory. The industry had added quite a bit of capacity through new players, and the only thing the new players knew how to do was to reduce price to try to move the product and it built inventories. Those have been worked through pretty much around the world. And so ultimately, we look for it will depend on really a year similar to this year, if not better. You know, how it really comes down to trade flows again. You know, keep in mind, there are still lots of tariff issues around the world, and we are a heavy Brazilian producer. And at the end of the day, you know, we were able to navigate that with our customers and suppliers. And I think we will be in better shape as we come on into the year 2026 here. Also, our NexData product line has been launched. The GLP-1 alternative glucose moderation product is getting a lot of repeat orders now, building momentum. And then this spring, we are hoping summer to bring on our Brain Health Nex product. So we are getting momentum with the higher value products here. And then the commodity gelatin part has, what I would say, leveled off and improved from where it was a year ago. Operator: Next question comes from the line of Manav Gupta with UBS. You may proceed. Manav Gupta: Good morning, guys. My first question is going to go a little bit on the policy side first. As this RVO comes out, net of SREs, what would be looked as a constructive number from the perspective of Darling Ingredients Inc.? Like, is there an absolute number, five plus or whatever, which if it is the net number, you would say, okay, that is constructive. And then on the LCFS part, finally, things are moving in absolutely the right direction. And I am just trying to understand based on the revised, you know, the mandate going in, you actually see that carbon bank deplete, which will be a major positive for you. Robert W. Day: Thanks, Manav. This is Bob. So I will go on record saying we support an RVO for advanced biofuels that translates to 5,250,000,000 gallons or 5,610,000,000 gallons. Those are kind of the numbers that have been thrown out there. You know, we will go on record continuing to support those numbers. I think what we would add to that is just anything that resembles anything close to that is extremely supportive and, you know, we believe results in higher margins than what we see in the market today. But I guess I will leave it at that. On the LCFS question, it is an interesting situation because we have the greenhouse gas emission requirements that are, you know, more stringent than they were. We are seeing the bank come down considerably, and we expect that we will continue to see that happen. One interesting aspect about that market is over the last several quarters, we have actually seen less renewable diesel going into California despite better margins. And so that tells us that in order for California to satisfy its mandates, either LCFS credit prices have to go up or RIN prices have to go up. But it has got to incentivize more domestic production to eventually go into California so the rate at which we are drawing that bank down starts to slow down. We have not talked about it in those terms for a long time, but it is absolutely constructive what we are seeing there. Manav Gupta: Perfect, Bob. I am just going to quickly ask a question on the Food JV side. Obviously, you have highlighted multiple benefits of that JV, but you have also in the past said, look, once the JV really takes off, there could be a rerating for the stock. Right? Can you talk about the multiple expansions that can happen as the JV comes to fruition and some of those benefits, which will lead to a higher rerating for Darling Ingredients Inc.? Robert W. Day: Yes. Thanks, Manav. So I think, first of all, you know, we are in a process there. We have signed definitive agreements. We have, you know, done our regulatory filings, and we cannot predict exactly when this joint venture will close. But it is sometime, we expect, in the next twelve months or so. Once that happens, you know, we will focus on integrating plants, maximizing, you know, synergies and opportunities. And then as Randy talked about, throughout all of this, we are very focused on increasing the sales volume of the NexData portfolio of products, which really move that business into the health and nutrition and wellness segment of the market that trades at significantly higher multiples. You know, we believe this is a business that can move into a space that is trading 12 to 16 times EBITDA. And if we accomplish that, and when we accomplish that, we will have to evaluate what is the best way for us to monetize that if we are not being recognized for that kind of a multiple for that business. Operator: Thank you. The next question comes from the line of Heather Lynn Jones with Heather Jones Research. You may proceed. Heather Lynn Jones: So just thinking about the RVO and the probable impact on DAR's Feed business, which is setting up the expectations for '26. Have there been any changes in how you price the lags, etcetera, that we should be aware of as we are thinking about the potential impact later in the year? Randall C. Stuewe: Heather, just to clarify the question. So how we price the—did you say the lags or the legs? Heather Lynn Jones: The lags. So, like, in the past, it has been, like, a 60 to 90 day lag between what we say. Have there been any changes in that? Or how you pay your suppliers as far as, like, your formulas? Not to give us specifics, but just things like that that we should be aware of as we are trying to figure out the impacts for Darling Ingredients Inc. Randall C. Stuewe: No. Not at all, Heather. I mean, what we saw in fourth quarter was the team executed well. They had some forward sales on. Prices came down here, and, you know, we benefited. As the, you know, we were kind of lagging all the way up all year in '25 here, and so got a little bit of a downturn. That was kind of the reason for the guidance for Q1 here at $240,000,000 to $250,000,000. Fat prices are lower. It is wintertime. But they are going to come back sharply here as the industry powers back up. Bean oil is back showing near $0.58 on the board today. And I am starting to see, you know, sales now back of fats, FOB the plants, in a $0.50 plus range now. So, you know, it is coming back for us right now, but there is no change in how we do business there. Heather Lynn Jones: Okay. Awesome. And then I was wondering, just given the recent 45Z proposals from the Treasury, and then just, I guess, a more liquid market as far as monetizing those credits, is there any update that you would give as far as what we should be assuming for the average credit value for Diamond Green? Robert W. Day: Yeah. This is Bob. I would say, you know, we have seen a maturation somewhat of that market where there is recognition of the validity of the credit. It is making it easier to have discussions and make sales. There is some more supply on the market, so that maybe counters that a little bit. All in all, do not expect any significant change to the value of the credits that we are able to sell in 2026 versus what it looked like in '25. Operator: Thank you. The next question comes from the line of Pooran Sharma with Stephens Inc. You may proceed. Pooran Sharma: Good morning, thanks for the question. Congrats on posting some strong results here. I wanted to maybe start off and get a sense as to Q1 Fuel production. I think in the deck, you have it at 260,000,000 gallons. It seems kind of low just given your capacity utilization, and I thought you were going to have DGD 1 back online. So hoping to maybe get some color on the volume expectations for Fuel. Robert W. Day: Yeah. Thanks, Pooran. You know, I guess we are, you know, we have been opportunistic in terms of the way we have managed capacity at Diamond Green Diesel over the last several quarters. In certain cases, we have been able to run at less than full capacity and increase our distillate yields. You know, we have seen wider spreads in some cases, and so a benefit to doing that. I think that, you know, as we look at the first quarter and, you know, what we are really doing is anticipating ultimately a final ruling on the RVO, which would impact the market second quarter and beyond. So we just really want to position the business to maximize production as we get into second quarter and through the end of the year. Pooran Sharma: Okay. Makes sense. Thanks for the color there. And, in the past, I think you have given a percentage split on the core business guide. Of that $245,000,000 at the midpoint, are you able to give us a rough sense on the split between Feed, Food, and Fuel? For the core business? Randall C. Stuewe: So this is Randy. So let us, you know, let us do Randy math here. You know, if you were $278,000,000 in Q4, remember there was an extra week in there. So you have got to divide by 14 and times 13. So you come up with $250,000,000-something there, $258,000,000, $259,000,000. We had a few balance sheet cleanup items that you always do at year end. So that is where we kind of came in at the $250,000,000 mark for the quarter, $240,000,000 to $250,000,000. Remember, that does not include DGD. DGD margins are improving from Q4. Volumes are pretty steady, down a little bit here as we get ready to run harder for the balance of the year. So that is really it. But trying to split it between Food and Feed, kind of impossible at this time. You know, Food for the most part is very, very consistent. So you can kind of back into it yourself. Operator: The next question comes from the line of Conor Fitzpatrick with Bank of America. You may proceed. Conor Fitzpatrick: Good morning. Thanks for taking my question. In fourth quarter, Feed Ingredients processing volume set a record, and Feed revenue per ton and gross margin percentage were the best prints since 2023. Could you maybe break down what has been driving this momentum in the Feed Ingredients segment and help us understand which drivers are more ratable? Randall C. Stuewe: Yeah. Conor, this is Randy. And Bob, help me out here if I leave something out. I mean, clearly, tonnage around the world, raw material tonnage, is very strong. If we look at it, you know, there is no surprise. Beef tonnage in the U.S. is at a relatively low point in my career right now, but it feels like it is rebuilding. But offsetting that is very, very strong poultry tonnage in the East and Southeast. Now you go south to Brazil, beef tonnage is large, very large now. We are extremely full at all plants down there. Europe is very consistent as we look around. So tonnage is really kind of as expected and doing very, very well. Margin management is what we pride ourselves on in the business. And really spread management to try to deliver returns that reflect what it costs to both operate and replace these plants. And so, you know, it was a 2025 kind of focus for us, and it was one that it is kind of hard to talk about to get out there because there is no specific thing. It is each customer, whether it is freight, whether it is, you know, the products we are making at plants, the markets that we are selling. The 2025 year was very challenging because, especially on the protein side, you did not know, was China open, was China closed? You know? And so it becomes very difficult for some of the high-end proteins. The fats, remember, a lot of fat was moving up out of Brazil to Diamond Green Diesel. And with the Trump tariffs, that makes it pretty much impossible now at this time. So we have had to move spreads and raw material costs around there. So it is a whole bunch of little things that are out there that the team really executed well on. Conor Fitzpatrick: Okay. Thanks. And going back to the LCFS, you talked about credit prices needing to rise in order to redirect renewable diesel and biodiesel supply back into California. But maybe could you help us understand what credit price would be required for DGD specifically to redirect product toward California and away from other current end markets? Robert W. Day: Yeah. Hey, Conor. This is Bob. It is hard to answer that because all these markets around the world that we are selling into are consistently changing. And so it is really a relative question. You know, what I would say is in, I guess, a static environment, you know, how much would the credit price have to increase into California for us to sell into California? I am not really sure exactly. You know, I think that it would have to be—yeah. I cannot—it is hard to answer that exactly just because the markets are so dynamic and they are moving around so much. But, you know, what it has demonstrated is that it is going to have to be higher than where we are in order for it to happen. You know, there are better alternatives today for Diamond Green Diesel at least in order to sell into California. Operator: Thank you. The next question comes from the line of Dushyant Ajit Ailani with Jefferies. You may proceed. Dushyant Ajit Ailani: Good morning, guys. Thanks for taking my question. My first one is just wanted to touch on the Brazil rendering facility, the stalking horse bid. Can you talk about the rationale for that some more? And then maybe how do you think of deals like these going forward? Is it going to be a one-time thing that is an opportunity, or could we see more of these? And then also just one last piece on that is also how much do you think that could add to the capacity and the margin profile for the Feed segment changing going forward? Randall C. Stuewe: Yeah. Dushyant, this is Randy. The Potense Group, the Goncalves family, we have worked closely with over the years. They found a buyer that we had them acquire years ago, and it fell apart. It is somebody we have always had our eyes on. These are really first-rate, world-class facilities that, long story short, he spent too much money and was unable to maintain his balance sheet, which is the most important thing in this business, through the volatility that happened and happens in Brazil. So these three—you know, we are doing a combination of things in Brazil. As I said, the tonnage is very large. We are doing a lot of organic expansion and debottlenecking at our current facilities, and these facilities were just perfect within our footprint to bolt on and give us some arbitrage and margin enhancement opportunities. So we were excited to get these, and we are excited to get them closed and integrated. Dushyant Ajit Ailani: Awesome. Thank you. And then just a quick follow-up. I think in your prepared remarks, you talked about potential for incremental asset sales. Could you maybe talk a little bit about the magnitude of those asset sales and then from which segment we could see that? Robert W. Day: Yeah. Thanks, Dushyant. This is Bob. We are intentionally vague about that as we negotiate different options. I think that, you know, what we have said previously is that when we look back at where we have been most successful, it is clearly in areas where we have got core capabilities in our core business, and some of the peripheral areas where we are operating, you know, we can look at it a bit more opportunistically. With some of the impairment that we did, it just repositions our balance sheet so that we are really valuing things based on fair market value, and that allows us to be more agile if we choose to do so. But we are not forced to do anything in any case, and I think that is an important position that we need to have as we look at different opportunities. Operator: Thank you. Next question comes from the line of Andrew Strelzik with BMO. You may proceed. Andrew Strelzik: Hey. Good morning. Thanks for taking the questions. My first one, Randy, I appreciate you are not giving the usual guidance and certainly understand that. But so I am not looking for numbers. But I guess I am just wondering, you know, when you think about kind of a post-RVO, is there anything, any analogous year that that setup kind of feels like? Is there anything from your career in the past from a supply-demand perspective that maybe feels like the setup we could get into in a kind of a post-RVO environment? Randall C. Stuewe: Yeah. We look historically at DGD as, you know, having a first mover capability and the success that it had. I mean, I think everybody knows that the machine is capable of making 1,300,000,000 gallons plus out there. You know, as I look back at 2025, as Bob and I sat here and tried to give what we thought the business would do, you know, we looked at it and said, well, we do not think '25 could be any worse than '24. And we were very, very wrong with that belief and the assumption. We did not get an RVO soon enough. We did not get an LCFS increase guidance soon enough. You know, if we think of this time last year, to kind of give the courage in the industry. And then we had some competitors, oil company competitors out there—some have shut down now—that decided to, as I call it, run for fun. And so pretty interesting environment that we were in last year. Clearly, people are tempering their kind of behavior now, which you would expect. I mean, in all business school things, when you get below variable cost, it just takes longer for rationalization and improved behavior. You know, as we look at '26 here, you know, clearly, we can make you a case for an easy $0.50 a gallon. We can make you a case for $1.00 a gallon at that. But it all hinges on, like we said, on the RVO, which we, as Bob said, you know, 5.02 to 5.6. So we think anything with a five is very, very positive and constructive. And, ultimately, you know, you have got the drawdown in the LCFS coming back, and you have got robust world demand for RD right now. So, you know, it is a hard thing to sit here and say you can say $0.50 a gallon or $1.00 a gallon. You know, we ran $0.41 in Q4. We have said we think Q1 is better. And so, you know, that is the $0.50. And then to go on up to $1.00, we will see what happens. It is going to take, you know, behavior in the industry, and it is also going to take a very robust RVO around the world. Andrew Strelzik: Okay. That is helpful perspective. And then I just wanted to ask a capital allocation question. You have done a nice job from a leverage perspective this past year, not too far off from some of the targets. I guess, how are you thinking about the timeline to achieving the leverage targets and then capital allocation priorities once you get there? Thanks. Robert W. Day: Thanks, Andrew. Let me say first, I think capital allocation priority continues to be paying down debt. How quickly we sort of achieve our goals is going to depend in large part on how much cash DGD generates. And so we will see what that picture looks like once we finally get a final ruling on the RVO. And once that happens, I think we can be a bit more specific about what our plans are. But we sit here today, you know, we like the trend and the direction we are headed. We are going to continue to pay down debt. We will reassess as we have a little bit more clarity on what the cash flow situation looks like going forward. Operator: Thank you. The next question comes from the line of Matthew Blair with TPH. You may proceed. Matthew Blair: Thanks, and good morning. Hopefully, you can hear me okay. Had a question on the SAF market. So one of your major European competitors talks about how European SAF prices are actually below European RD prices, and they are kind of pulling back on their SAF production. You know, what is the picture like on SAF for DGD? Do you have term contracts to, I guess, essentially stabilize that SAF contribution? You know, what are you seeing on U.S. SAF prices versus U.S. RD prices? Thank you. Robert W. Day: Yeah, Matthew. This is Bob. I think, you know, to answer the first part of your question first, in Europe, we have seen SAF trade at a premium. We have seen it trade at a discount. It has fluctuated, you know, as I think everyone knows. DGD has some countervailing duties in order to get into that market, so it is not as readily accessible to us, although we do have sales into Europe, and we can be opportunistic when that market is good. And we have been able to take advantage of that. We still have sales on the books in 2026 that we had made previously. The book is healthy. The market, you know, I think it is starting to—well, is starting to rebound a bit in the United States. In the United States, it is primarily a voluntary credit market, and we have seen more and more interest materialize, and we think we are going to continue to see that as just overall demand for energy continues to increase. So, you know, our book is solid today. There is room to make more sales. We are having really good, constructive discussions about that. And, you know, I do not think that—I think we will be happy with SAF sales, you know, volumes and margins as we look at '26. Matthew Blair: Sounds good. And then regarding the contributions to DGD, I believe in 2025, Darling Ingredients Inc. sent DGD $328,000,000, which, of course, was more than fully offset by the dividends received back. I think 2025 was a pretty heavy turnaround year for DGD. But do you have an estimate in 2026 how much Darling Ingredients Inc. might be sending DGD? Would it be lower than the 2025 number? Thanks. Robert W. Day: Yeah. It is a good question. We do not have a precise estimate, but I would say, you know, we expect it will be less. And you are right. We had three catalyst turnarounds in 2025. You know, we did some design work. There were some things that—some cost items that, you know, needed to be paid for. As we look at 2026, yeah, we anticipate that the contributions will be less. It is going to depend a little bit on the market environment, but based on where we sit here today and the first quarter, we expect it would be considerably less than what it was in 2025. Operator: Thank you. The next question comes from the line of Ryan M. Todd with Piper Sandler. You may proceed. Ryan M. Todd: It is maybe just a couple follow-ups on earlier comments or questions. I mean, we are getting closer to some—well, at least, hopefully, we are getting closer to some regulatory clarity on some of the renewable fuel issues. Randy, can you maybe talk about, you know, are you hearing anything on timing of the RVO or anything you might be hearing out of Washington on some of the gives and takes that may be going on in that discussion? And then maybe on the 45Z, the preliminary rules that we talked about. Can you—you know, it is generally positive and maybe mixed in some regards in terms of that for the relative benefit to running the advantage low CI. Can you talk about kind of what you see as the pluses and minuses for you of the proposal? Robert W. Day: Hey, Ryan. This is Bob. I think, you know, first question around timing. We have spent, you know, a lot of time in D.C. I think that, you know, our perspective is that all key stakeholders had to get comfortable with what the plans and policies were. And in our view, that has happened. The EPA has a heavy administrative burden to get through as it pertains to responding to comment letters prior to them sending over a final proposal to OMB. We believe that is likely to happen soon, and so, you know, hard to say exactly what that means, but probably, you know, it has got a February date to it, in our view. As far as 45Z, and what we are seeing from that, there is really nothing that was unexpected. We expected some positive things, and we are seeing those positive things. So, you know, we have got to do our due diligence and get our legal opinions and make sure that everything is as it is perceived. But as far as it relates to Darling Ingredients Inc. and Diamond Green Diesel, you know, we are seeing what we thought there, and that is positive. I think, you know, the biggest thing that could affect us is just what determines a qualified buyer. You know, DGD was the fastest in the market to convert to producing R100 so that it was selling to qualified buyers, and that was one of the things that allowed us to sell the production tax credits faster than everyone else and at higher cents on the dollar. If we can go back to making R99 and qualify that, it just creates some flexibility that we appreciate, but we do not depend on. So all in all, you know, we see the changes as positive, but either way, not having a significant—you know, it would not have a negative impact on our business. Ryan M. Todd: Okay. Thanks. Operator: Next question comes from the line of Benjamin Joseph Kallo with Baird. You may proceed. Benjamin Joseph Kallo: Hey, guys. Thanks for taking my question. Just to follow up on a couple of things. One, in the prepared remarks, you talked about maybe M&A opportunities outside of Brazil. Could you just talk to us about kind of what your—if you have a size limit on them and, you know, how you would see a limit to adding debt on the balance sheet for that. And then you talked about SAF a bit, but could you just talk about, you know, any more you can on volumes you are seeing there and any kind of pricing trends there? Thank you. Randall C. Stuewe: Thanks, Ben. This is Randy. On an M&A perspective, I would still say we are on an M&A holiday. You know, we are working the world. We see what is out there. Nothing that really turns us on at this time per se. The Potense opportunity was one we were very, very familiar with, and given that it was a forced liquidation, it was something we could not turn down. I think more of our focus around the world is on organic expansion, whether it is in Brazil, Paraguay, China, and the U.S., with the construction of the Mount Olive new rendering plant and then some additional expansion. The poultry side continues to expand here, and we are going to have to use our capital dollars to debottleneck and expand some of our facilities here. So not much there. Bob, you want to comment on the SAF? Robert W. Day: Yeah. I think, you know, one interesting development in the SAF market in the United States is, at the end of the day, the buyers for SAF credits are large companies, often tech companies, banks. The airlines act more as a broker in that case. And so the discussions that we are having are really about how a tech company obtains Scope 3 credits through the acquisition of SAF that, you know, obviously goes through an airline. So the discussions are more strategic in nature, long term, potentially higher volume. They take longer to put together. It is harder to predict exactly when they come together. But as those discussions continue to advance, it is exciting because there is a potential for, you know, more of capacity to be dedicated towards future contracts. And it is hard to say more than that right now today other than the discussions are constructive and we are encouraged by, you know, the direction they are going. Benjamin Joseph Kallo: Thank you, guys. Operator: Thank you. Next question comes from the line of Y. Zhang with Scotiabank. You may proceed. Y. Zhang: Hi, good morning. Thanks for taking my question. I wanted to ask about expectations for core EBITDA for the rest of the year. First quarter is looking a little bit softer, but then it seems 2Q is set up to be better with fat prices recovering. What about in the second half? What could that look like? Randall C. Stuewe: Betty, this is Randy. So, you know, I did the math earlier. First quarter is not looking softer because of 13 weeks. Wintertime rendering is always a challenge in North America. And to a degree, Europe has had some challenges. South America is in the midst of a hot summer. So we are very solid for Q1. We are still trying—if you sit there, we think that the year will improve as we go forward. We are being a bit cautious because until we see that RVO, you know, it is hard to really put your finger on it. But at the end of the day, you are seeing the futures market for soybean oil really try to project a very strong, you know, RVO here. So that will only provide us tailwinds as we go forward. So, you know, hopefully, one is we build momentum through the year. And so, hopefully, we will continue to build momentum and even have a better year than we had last year. Y. Zhang: Okay. Great. And then if you could give us a bit more color on the restructuring and impairments. Does that reflect a change in your strategy? And would you say there are other businesses that could also be reviewed? Randall C. Stuewe: No. I would not say a change in operating. I would say that every so often, we look at our portfolio and say, do we deliver the returns that we want to in different businesses? Do we have the number one or two position in it? And we have a couple businesses out there where we do not have that position. And we cannot get to that position. And so the challenge in this business is always that we are the largest and biggest and best in the world, is finding then a fair price to let go of an asset we cannot be the best at. And so that just takes time, and I think, you know, I would just say stay tuned and be patient, and you will see them materialize here over the—hopefully here in the first quarter, if not very early second quarter. Operator: Thank you. The next question comes from the line of Jason Daniel Gabelman with TD Securities. You may proceed. Jason Daniel Gabelman: Yes. Hey, good morning. Thanks for taking my questions. The first one, just on CapEx, 4Q was a step up from 3Q. Wondering what drove that and then your expectations on spend for 2026. Robert W. Day: Yeah. Thanks, Jason. This is Bob. It is not unusual to see a higher spend in the fourth quarter. Some of this is just the teams wanting to make sure that they get certain things done by the end of the year and paying for the cost of doing that as bills come due. So that is really—it is really not more than that. As we look at next year, you know, we think it might be a slight increase in terms of total maintenance capital versus this year. But it would be consistent with sort of the range of normal on that. So I would call it in that ballpark of $400,000,000. Jason Daniel Gabelman: Got it. And then my follow-up is just on the international renewable diesel markets. And, you know, you mentioned there are other markets that are advantageous to sell into versus California. So wondering what you are seeing out of places like Canada and Europe and other markets that are making them more attractive at the moment? Thanks. Robert W. Day: Yeah. I think that just generally speaking, we are seeing year-on-year increases in demand in those markets. We really have not seen a lot of increase in supply and capabilities come online to compete for that. So it has just proven to be—you know, those have proven to be good markets for DGD, and we think that we will be able to continue to do that. We also think we are going to have a good market here in the United States. And we would love to supply more into that market as well. So hard to say more than that. The SMBs are balanced and strong, and that is the case for a lot of these markets outside the United States. Operator: Thank you. This now concludes the Q&A session. I would now like to pass the call back to Randy for any closing remarks. Randall C. Stuewe: Thanks to everybody for all your questions today. I think we feel very good about how we finished the year, and we feel really good about the momentum we carry into 2026. And if you have additional questions, feel free to reach out to Suann. Stay safe, have a great day, and thanks again for joining us for the call. Operator: Ladies and gentlemen, thank you for attending today's call. This now concludes the conference. Please enjoy the rest of your day. You may now disconnect.
James Doyle: Hello and welcome to the Scorpio Tankers Inc. Fourth Quarter 2025 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir. Thank you for joining us today. Welcome to the Scorpio Tankers Inc. fourth quarter 2025 earnings call. James Doyle: On the call with me today are Emanuele A. Lauro, Chief Executive Officer; Robert L. Bugbee, President; Cameron Mackey, Chief Operating Officer; Christopher Avella, Chief Financial Officer; and Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our fourth quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, 02/12/2026, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, as well as Scorpio Tankers Inc.’s SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. These slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit them to two. If you have an additional question, please rejoin the queue. Now I would like to introduce our Chief Executive Officer, Emanuele A. Lauro. Thank you, James. Emanuele A. Lauro: Good morning, everybody, and thank you for being with us today. Emanuele A. Lauro: Scorpio Tankers Inc. delivered another strong quarter, and a transformative year. In Q4, we generated $152,000,000 of adjusted EBITDA and for the full year, adjusted EBITDA reached $568,000,000. But the real story is not just earnings. The real story is structural strength. Since 2021, we have reduced net debt from $3,100,000,000 to a net cash position of $309,000,000 today. This net cash position is increasing by the day, and has accelerated sharply in Q1. We have fundamentally reset the company. Today, we hold approximately $1,700,000,000 of liquidity and growing. Our daily cash breakeven is $11,000 per day per vessel. In the current rate environment, this translates into powerful free cash flow generation. Even under stress conditions similar to the COVID levels, we remained around cash breakeven. We are structurally resilient with significant operating leverage. We have upgraded the fleet with discipline. We have sold 10 older vessels at a strong valuation, and we have been reinvesting in 10 modern newbuildings. The fleet is younger, more efficient, and positioned for higher earnings power. At the same time, we are increasing the quarterly dividend to $0.45 per share, up 12.5% year over year. We are growing the dividend because we can. Because we have the balance sheet, because the payout is supported by structural cash generation, not temporary conditions. Turning to fundamentals. Rates have improved for five consecutive quarters with momentum continuing into Q1 2026. Refinery closures are lengthening trade routes, ton-mile demand is expanding. Unprecedented strength in the crude market is tightening effective vessel supply in the product tanker space. These are structural drivers and not cyclical noise. We cannot control the market cycle but we can control our preparedness. Today, we operate a modern fleet, we have substantial liquidity, we have structurally low breakevens, we have a net cash balance sheet. This combination creates downside protection, and upside torque. Scorpio Tankers Inc. is positioned to generate significant free cash flow and deliver durable shareholder returns across the cycle. We are stronger than we have ever been, and we are positioned to capitalize on what comes our way. With that, I would like to turn the call to Robert. Thank you very much, Emanuele. Let me first begin with a broader context of the industry, especially for those new to the company. We operate in a cyclical, capital-intensive industry during a period of elevated inflation, constrained supply, and shifting global trade patterns. In that environment, asset quality, balance sheet strength, and disciplined capital allocation matter more than ever. We also operate the youngest fleet in our peer group. That really matters. Younger vessels are more efficient, more commercially flexible, and increasingly advantaged as regulatory standards evolve. Shipping will always be volatile. That is not new and it is not avoidable. What can be controlled is financial structure. Today, we have done that by materially derisking the company. Today, we operate with a net cash position and low cash breakevens. That provides resilience in weaker markets and meaningful operating leverage in stronger ones. For investors, the case is straightforward: hard-asset-backed, conservative financial structure and a platform capable of generating substantial cash flow across the cycle. In uncertain environments, preparation and discipline create opportunity. We believe we are well prepared for both the good and the bad. Just one thing just to be very clear on. As Emanuele pointed out, our newbuildings and disposal of older assets for renewal is being done in a very measured and conservative way. We will continue to ensure that Emanuele A. Lauro: if and when we Emanuele A. Lauro: order vessels, that we are generating more cash through operations and sale of older vessels than the total outlay of the vessel that we are buying. For those of you concerned about the high amount and building amount of cash on the balance sheet that we expect to continue to happen, you should not worry that we have absolutely zero acquisition thoughts of other companies or competitors or large fleets at all. And you are not going to wake up one day in the morning and find that we have made a 10-ship order. This is a very disciplined approach, balancing the arbitrage of selling the older vessels at steep prices and ordering newer vessels when we see an advantaged price to the arbitrage. And with that, I would like to pass it over to James. Thank you. James Doyle: Thanks, Robert. If we could go to slide seven, please. James Doyle: The past 12 months have brought no shortage of headlines. James Doyle: And yet quietly the product tanker market has strengthened for five consecutive quarters. Today, spot rates for LR2s and MRs are approximately $46,000 and $38,000 per day, respectively, rates at which the company generates meaningful free cash flow. And the near-term setup is positive. With a lighter refinery maintenance schedule, refinery runs should increase, supporting continued growth in export volumes. For the first time in several years, the crude market is also providing tailwinds. Elevated crude rates are pulling product tankers into crude trades, tightening effective clean supply. When we step back, three structural forces are driving this market. First, demand remains strong and refining capacity has shifted farther away from end consumers. Second, effective supply growth is constrained. The fleet is aging faster than it is being replaced. And in a capital-intensive industry, that matters. Third, sanctions and geopolitics are reinforcing both dynamics, reshaping trade flows and tightening supply. Taken together, these forces support a constructive outlook both near term and longer. Slide eight, please. Global refined product demand is expected to increase by nearly 1,000,000 barrels per day this year, and that growth is translating directly into seaborne exports. In January, seaborne refined product exports averaged 22,100,000 barrels per day, up roughly 1,000,000 barrels per day year over year. Not only have volumes increased, distances have increased as well. Slide nine, please. Over the last five years, export-oriented refineries in the Middle East have added capacity, while closures in the U.S., Europe, and parts of Asia have removed it. When refining moves farther away from the consumer, products must travel farther. That increases ton-mile demand. This is not cyclical demand growth. This is structural. Since 2019 product tanker miles have increased roughly 20%. Slide 10, please. Aframax and LR2 demand in the Atlantic Basin has strengthened meaningfully, with volumes from the U.S. to Europe nearly doubling over the last year. That alone has tightened vessel availability across the region. At the same time, developments in Venezuela present additional upside. Last year, Venezuelan crude exports averaged roughly 800,000 barrels per day, much of it directed towards China on sanctioned tonnage. Any redirection of those barrels toward the U.S. or increases in production would further increase loading activity in the Atlantic Basin. Importantly, this comes at a time when the Aframax/LR2 market is already operating from a position of strength. Slide 11, please. Today, approximately 54% of the LR2s are trading crude oil. Part of the increase is due to soaring crude rates and the other part is structural. The Aframax/LR2 crude market is roughly 14,000,000 barrels per day, compared to about 3,000,000 barrels per day for clean products. The crude market is simply much larger. The decision to build LR2s instead of Aframaxes is structurally changing the fleet. By 2028, nearly half of the Aframax/LR2 fleet will be LR2s. Given that crude accounts for roughly 80% of cargo volumes in this segment, LR2 crossover into dirty trades will persist. Slide 12, please. Since the EU ban on diesel refined with Russian crude took effect in early January, European imports from Turkey and India have already declined 300,000 barrels per day. Russian refined product exports are still moving but are traveling farther to find buyers. Before the invasion, roughly 10% of Russian exports went to Africa, South America, the Middle East, and Turkey. Today, that figure exceeds 70%. Russian crude has had a more difficult time finding buyers, especially with recent sanctions and retaliatory tariffs. Since July, Russian crude on water has increased from 121,000,000 barrels to 164,000,000 barrels in January. Much of the Russian trade has shifted towards older vessels. As you can see on the bottom right, nearly 50% of Russian crude and product exports now move on ships older than 19 years old, tonnage that is unlikely to reenter the mainstream market. Slide 13. Today, the product tanker order book is almost 19% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already over 20 years old. By 2028, it will be 30%. Sanctions also further tighten effective supply. Roughly 26% of the Aframax/LR2 fleet and 9% of the MR/Handy fleet are sanctioned, with an average age of 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited. Slide 14. When you adjust for aging vessels, sanctioned capacity, and LR2 crossover, effective clean product supply growth is materially lower than the headline order book implies. We expect fleet growth to average roughly 3% over the next three years and potentially lower. Putting this together, demand remains strong and refinery shifts are structurally lengthening trade routes. Supply growth is constrained, as the fleet ages at a faster rate than it is replaced. And sanctions and geopolitics are tightening both points one and two. In both the near term and long term, the market’s fundamentals remain supportive. With that, I would like to turn it over to Chris. Thank you, James. Good morning, good afternoon, everyone. Slide 16, please. Emanuele A. Lauro: This past year, we generated James Doyle: $568,000,000 in adjusted EBITDA, Christopher Avella: and $344,000,000 in net income on an IFRS basis. We have also made $450,000,000 in debt repayments this year, culminating with the fourth quarter prepayment of $154,600,000 of secured debt across four different credit facilities. This prepaid all of the scheduled principal amortization on our existing bank debt for 2026 and 2027. The principal and interest savings resulting from this prepayment have further reduced our cash breakeven levels, which include vessel operating costs, cash G&A, interest payments and commitment fees, and regularly scheduled loan amortization to approximately $11,000 per day over this period. We also entered into contracts to sell 10 vessels at substantial gains and exited our position in DHT. The cash gain on our investment in DHT was almost $30,000,000, or a 24% return on investment when factoring in dividends received. The chart on the right shows the progression of our net debt since 12/31/2021, which declined $3,000,000,000 to a net cash position of $124,000,000 by the end of 2025. As of today, the net cash position is $308,000,000 and we are still pending the closing of the sales of two LR2 vessels for $109,800,000 in aggregate. As Emanuele emphasized, achieving this milestone has given us the confidence to raise our quarterly dividend to $0.45 per share. Slide 17, please. The chart on the left breaks down our outstanding debt by type. Starting at the bottom is our last remaining lease financing obligation on one vessel with Ocean Yield. This obligation: This obligation Christopher Avella: is expected to be repaid before the end of this month, thereby leaving us with a debt stack consisting of secured bank debt with the lending group dominated by experienced European shipping lenders and our $200,000,000 five-year senior unsecured notes, which were issued in the Nordic bond market in January 2025. They are currently trading at around 103% of par. Further to this, $240,000,000 of our $428,000,000 of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future. The chart on the right is our debt repayment profile. With the exception of the final settlement of our last remaining lease obligation, we have no principal repayment obligations on our existing debt until 2028. Slide 18, please. As of today, we have $937,000,000 in cash, and an additional $767,000,000 in availability under revolving credit facilities for a total of $1,700,000,000 in available liquidity. Since November, we have signed contracts to purchase 10 newbuilding vessels. The charts on the right reflect our forward payment obligations on these contracts, along with our estimated drydock schedule through 2027. Note that the timing of the installment payments on our newbuilding vessels and timing of our drydocks are estimates only and subject to change. Our capital allocation decisions over the past three years have afforded us the financial flexibility to meet the obligations under our newbuilding contracts, which total slightly over $700,000,000. Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. But nevertheless, 70% of these installment payments are not due until the years 2027, 2028, and 2029. With a cash breakeven rate of $11,000 per day, we are in a position to continue to build cash over the construction period. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open up opportunities for us to further optimize our capital structure and lower our cost of capital. On top of this, our forward drydock schedule is light, having undergone the special surveys on over 70% of our fleet in the past two years. Slide 19, please. Our cash breakeven rates are at the lowest levels in the company’s history. The chart on the left shows that these expected cash breakeven rates are lower than the company’s achieved daily TCE rates dating all the way back to 2013, with the closest point being the aftermath of the COVID-19 pandemic when global oil consumption was at lows not seen in decades. To illustrate our cash generation potential, at these breakeven levels, at $20,000 per day, the company can generate up to $292,000,000 in cash flow per year. At $30,000 per day, the company can generate up to $617,000,000 in cash flow per year. And at $40,000 per day, the company can generate up to $942,000,000 in cash flow per year. This concludes our presentation for today. Thank you, everyone, for your time and attention. And now I would like to turn the call over to Q&A. Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, we will pause momentarily to assemble our roster. Our first question comes from Omar Nokta with Clarksons Platou Securities. Please go ahead. Thank you. Omar Nokta: Hi, guys. Good morning. Good afternoon. Congratulations on officially reaching the net cash milestone. Emanuele A. Lauro: I wanted to ask about the dividend. You have bumped it here Omar Nokta: after having bumped it also last quarter. Understanding your aim is really to keep the payout sustainable through the cycles, you have got plenty of free cash flow in today’s market. You have got a fortress balance sheet. How are you thinking about the dividend in the future? Is the aim to do a bump regularly as in maybe once every couple quarters or maybe revisit on an annual basis? Any color you are willing to share. Yes. Thank you very much, gentlemen. Emanuele A. Lauro: So the dividend, first, the main premise is to see if we can—what we would like to do is to grow the dividend through the cycle, pay the dividend through the cycle. That is, you know, the actual momentum of that is dependent on a lot of things. Christopher Avella: I think you have seen our Emanuele A. Lauro: let us say goodwill in the sense that, you know, immediately following the implementation of the increased dividend after the third quarter results, we immediately stepped up now. That is, as Emanuele pointed out, really a reward for all of us for the strength and finish of the fourth quarter. So apart from that, I would like to keep that on detailed. We will review everything regularly. Operator: Alright. Omar Nokta: That is fair, Robert. Thank you. And maybe just a follow-up. You exercised the option on the LR2s. Wanted to ask about the VLCCs. Definitely been a lot of interest lately in that segment, whether it is from the equity markets, charters themselves, or owners placing orders. You sort of got ahead of it a bit last year with those two orders you put in. I think it was back in October, November. Wanted to ask how are you thinking about those right now and whether you have options that came with those that you could potentially add to your tally. Emanuele A. Lauro: Sure. We had options. The VLCC market was, as we all know, a very, very hot commodity. Those options were very short lived. They were options that were valid only until December. At that time, in December, we were in the middle of the holidays, not complete. We did not have complete visibility of how we felt the cash flows were moving in the market at the time, and we did not have strong visibility because of the holidays as well related to potential sale of our own assets, etcetera. So we felt on balance that we could pass that, remain disciplined, especially as we had the LR2 options still up our sleeve. So those VLCC options have gone. They have expired. Omar Nokta: That is the answer I am going to—okay. No. Thanks, Robert. That is very good. I will pass it back. Emanuele A. Lauro: I think as a statement, I think that is a point of proof that we are not hell-bent on spending money because we feel any urge to do that or as fast as we can. We are, as we pointed out at the beginning, just going to do this in a very measured way. Operator: Our next question comes from Greg Lewis with BTIG. Please go ahead. Emanuele A. Lauro: Hey, thank you and good morning, good afternoon, and thanks for taking my questions. Robert, a lot of cash, not going to ask you about that. I did want to talk a little bit about Christopher Avella: the crude market, though, as it relates to LR2s. Emanuele A. Lauro: You know, Scorpio, since its founding, has been pretty—that the LR2s are going to primarily focus on the product side. You know, I guess it seems like the market is kind of merging as older crude Afras are retired and everyone, if you are ordering an Aframax, you are going to coat it. Does that at all change how maybe Scorpio would think about its LR2 fleet, i.e., could we see opportunities for STNG to potentially Lars Dencker Nielsen: bounce those LR2s back and forth between the crude market? Or should we just assume they are going to stay in the products? Emanuele A. Lauro: Lars—yeah. Hi, Greg. I think it is fair to say that the Scorpio approach in terms of LR2 clean or dirty switching has always remained opportunistic. We have a number of our ships in crude already. I think it is important, considering that the global approach that we have, to remain disciplined on these things. So we do not just dirty up ships unless the economics clearly justify it on a sustained basis. There has been the recent dirty outperformance, particularly in the Atlantic Basin, which, of course, we follow. We trade that element as well, and we can also see that the ability to cross-trade has increased between the LR2s and the Aframaxes. The case in point is, I think there are about 515 LR2s trading globally in the world today, and you only have 220-odd trading clean today, which is probably the lowest we have seen since 2020 or 2021. Now that can then give you the kind of thinking—do you go dirty or not dirty? It is always a tactical question. And we obviously follow all these markets. And if you normalize the periods, it has a little bit of a different picture than if you just look at one quarter. But the short answer to your question really is that, of course, we look at it, and we trade it as well. Lars Dencker Nielsen: Okay. Great. Thank you for that. And then just as—oh, man. That is funny. I forgot what I was going to ask you. Just—oh, I feel like I ask you all the time. I feel like every time I talk to you, I talk about this. But I guess I will word it this way. You know, rates continue to be strong. The winter market looks like it has legs. Is there any kind of expectations—in December, you fixed a couple multiyear time charters. Has the appetite from customers increased for multiyear term? Are we seeing more opportunities over the last month or two? Or is that something where, really, just thinking about previous cycles or previous periods of time, you know, summer is coming. Does that have any impact on the opportunity for term charters to pick up, i.e., if this strength in market continues, I imagine customers will be more amped to fix multiyear deals because they know next winter is already around the corner. Emanuele A. Lauro: I will take that as well. We are certainly seeing improving time charter rates. The liquidity in time charters overall is improving as well. It is very strong. There is depth in it, and particularly on the LR2/Aframax market. We see also markets increasing on MRs. But there is for sure an increased demand for longer-term periods. So it is for sure that the momentum is there for multiyear charter rates, and it is very interesting at the moment with that demand. Gregory Robert Lewis: Super helpful. Thank you very much. Operator: The next question comes from Ken Hoexter with Bank of America. Please go ahead. Tim Chang: Hi. This is Tim Chang on for Ken Hoexter. Lars Dencker Nielsen: Thank you for taking my question. Christopher Avella: Lot of momentum for STNG and net cash. Congrats, guys, with Tim Chang: breakevens coming down, raising a dividend. But perhaps a question for Lars, how do you see rates progressing over the next few months or 40–60 days? Been a very firm start to the year. Do you perhaps see counter-seasonal increases continuing into 2Q, pushing you further over levels booked to date, with all the tailwinds from ton-mile demand, some of the geopolitical uncertainty, and just your view there would be great. Thanks. Emanuele A. Lauro: Yeah. I think—yeah. I mean— Operator: Go ahead. I was just going to start off, Lars, just saying since that is in—look. Robert L. Bugbee: I think you very well summarized all of the factors that are almost certainly going to lead to a relatively strong second quarter. Lars, would you like to add on to that? Emanuele A. Lauro: Yeah. Absolutely. First of all, the clean market, if we look at that first, is operating with very little slack at the moment. So you could say, well, you have some headlines on geopolitical stuff. You have headlines around miles. You have headlines around all these things. But structurally, I think we have a very positive product market in front of us. You have some things around some turnarounds taking place, but that has already started in the Atlantic Basin and so on. And still, you have a lot of product moving, and you have open arms from the West to the East, perpetually on the light ends. You have the ton miles we talked about. So it is not just a cyclical spike in my view. I think we have a refining system that is operating at a very high level, and we can see that in terms of the structural support that lends itself to LRs and to MRs in multiple regions. You have had very strong Asian markets. You have had, of course, the Atlantic Basin, and that has been highly reported widely in terms of—we have seen multiyear highs in TC14, etcetera, over the last couple weeks. So today, it is not really about short-term spikes in my view. I think we are seeing a kind of a longer wavelength coming in. And the market, for sure, has proven itself a lot more resilient than probably one initially had anticipated as we moved into 2026. Tim Chang: Got it. That is very helpful. And just another quick follow-up and then I will pass it on. But more of an opportunity longer term, nevertheless, seeing any incremental uplift yet in Aframax/LR2 demand from Venezuelan exports? I know you have spoken in the past with some just kind of illustrative numbers, like an additional million barrels per day equating to roughly 23 incremental vessels. Any update there would be great. Emanuele A. Lauro: I mean, I think—that is why—yeah. Why do you not go forward? Then I can follow up afterwards. Yeah. Tim Chang: Yep. James Doyle: Tim, as you highlight, that is the math. I think so far we have seen about 300,000 barrels a day go to the U.S. The U.S. Gulf refining system is well designed for Venezuelan crude. We have the coking capacity that can turn this heavy stuff into distillate, which is good for margins and for exports. It is unclear whether all of this volume will go to the U.S. and how long production will take to increase in Venezuela. It varies, but I would say on the margin, it is very positive. Lars? Emanuele A. Lauro: That is exactly what I would say as well. At the margins, it is going to be very positive, with the ships that would not have needed to move that are not in the sanctioned fleet. Tim Chang: Appreciate it. Thanks, guys. Operator: The next question comes from Chris Robertson with Deutsche Bank. Please go ahead. Christopher Avella: Just as a follow-up on the topic of Venezuela. We have talked a bit about exports here, but what is the view around naphtha imports in terms of it being a diluent for the crude? Is that market picking up? How does that look right now with increased use of the mainstream fleet? And what did it look like beforehand in terms of those deliveries into the country? Was that on sanctioned vessels? Or what is the dynamic there now? Robert L. Bugbee: To be honest, Emanuele A. Lauro: I think, at the margin, it is not the thing that really is going to change the Atlantic Basin product market on MRs in particular. Of course, it is the way that you would normally transport your naphtha into Venezuela. I think there are other things in the Atlantic Basin that have a lot greater impact in terms of why the market is also strong. It just adds to the fire in the sense that it is an additional positive. Christopher Avella: Got it. Okay. Thank you, Lars. Turning towards just global inventory levels at the moment on the product side. James, I think you have talked about this in the past. Any update around are inventories kind of remaining low and flat? Are they starting to pick up here and grow in OECD? What is the current status there? Robert L. Bugbee: Sure. James Doyle: Thanks, Chris. Look, you always have a buildup of inventories ahead of maintenance. So we have seen that. And the most up to date numbers we have are the U.S. It is still below the five-year average. It has been declining the last few weeks. We have had cold weather, more heating oil demand, and maintenance in the U.S. Gulf is just picking up. So we expect inventories to come in. OECD looks to be relatively in line. So I think from a product perspective, we have not seen huge builds, which is great as you go into maintenance. So things are going to be tight, and so I think that is constructive. And then on the crude side, we were anticipating kind of large builds in the overall market that have not happened. A lot of that is due to a lot of the crude on water that has built up is really sanctioned. And if you recall, there have been these forecasts of up to 4,000,000 barrels crude oversupply. We have not seen that yet. There have been disruptions in Kazakhstan, but overall, we think that the crude oversupply is going to be less than anticipated. And I think that is very constructive because it speaks to how strong demand is in the global system. Operator: The next question comes from Liam Burke with Rinne Securities. Please go ahead. Christopher Avella: Yes. Thank you. One of the macro lifts in the product tanker Liam Dalton Burke: side has been the redistribution of global refinery capacity. And it has been a multiyear lift. Do you anticipate that continuing? Or is that sort of bottomed out now? James Doyle: Thanks, Liam. Well, look, we anticipate it to continue in the sense that about 300,000 barrels that are closing, or part of that has closed, in the West Coast United States—for example, a Valero refinery and a Phillips 66 refinery. And as those refineries wind down in the next few months, it is 300,000 barrels, for example, that the California market needs. And if you speak to those oil and refining companies, they have highlighted they are going to import it from foreign markets. So in many ways, we have not yet seen the benefit of those flows largely coming from Asia. We still think there are going to be more closures in developed markets as well, replacing that lost production. So this is going to continue to go on for the foreseeable future. And then at the same time, as you kind of highlight with the question, emerging markets are not building much refining capacity. It takes a minimum of five, but probably seven years to build a refinery. And that has not started yet. So I think going forward, that is very constructive from a ton-mile demand perspective for us as well. Liam Dalton Burke: Great. Thanks, James. And on the fleet management, you have had a lot of activity in 2025, both on newbuilds and divestitures. You have got a billion-dollar liquidity position. Is there any additional tweaking you need to do with the fleet or you are happy with the assets in place? And your newbuild and your liquidity. Christopher Avella: We will Robert L. Bugbee: we are at present engaged in the secondhand market, and you should fully expect that we would sell: sell Robert L. Bugbee: asset—singular or plural—over a reasonably short time. And that sale and purchase market is super strong. Perhaps, Emanuele, you might like to talk a little bit about that. sell: Sure. We Emanuele A. Lauro: as you said, we continue to engage opportunistically on inbound inquiry on the existing fleet we have. And as we have done in 2025 and before that, we positively reply to inbound requests and engage in potentially selling further assets opportunistically. We are not working at anything specifically on the buy side at present, but we do not exclude substituting and renewing in a conservative way as we have done in the past quarters as you have seen. The S&P market is very hot. There is a lot of interest for tankers. What has happened in the last six to eight weeks in the crude tanker space has definitely attracted a lot of interest into the LR2s as well as trickled down to the smaller sized vessels up to MR, I would say. And this is proven by the fact that Lars has mentioned, I think, in his remarks earlier, there are about 220 LR2s trading clean today, which, in order to see that little number of vessels trading in the clean markets, we have to go back at least five years, to 2021. So this shows the level of interest and the hype that the crude market—the long-awaited crude market momentum—has captured in the last eight weeks and continues to do so. The level of interest is super high. Liam Dalton Burke: Great. Thank you very much. James Doyle: Sure. Robert L. Bugbee: Our last question Operator: comes from Christopher Saya with Arctic Securities. Please go ahead. Emanuele A. Lauro: Hey, guys. Good morning. Good afternoon. Thank you for taking my question. Just first with regards to Q1 bookings. Can you elaborate a bit more on how your LR2s are relating—dirty versus clean? How would you think about bookings on open days here? I mean, there is a $40,000 Operator: difference now on Tim Chang: LR2s and Afra. So how do we think about that spread? Emanuele A. Lauro: Well, I think I will go back to what I said initially, which is that we look at these things opportunistically every single day. But to look at it in a very Lars Dencker Nielsen: short backdrop is probably not the right thing to do. I think when we look at these things, considering the size and the number of ships that we have, we have to look at how we want to deploy these things. And one of the things that we would like to see is that as many owners have moved into dirty, and we were talking about the number of clean ships back, I think constructively that volatility will be an opportunity that we would want to control and take advantage of. And when you say that there is a $40,000 difference, I think $40,000 difference is in a very insular market on a particular week. We do not see $40,000 being the case over time. So if we look at it on a more normalized period, I think that if you look over the quarter, it has been around maybe $10,000 a day, which does not necessarily justify large-scale switching quarter on quarter. So that outperformance that you referred to is probably something we should look at from a longer perspective. I will just say that our approach is always opportunistic when it comes to this. But considering the ships that we have, the contracts that we have as well with some of our key clients, we have to remain disciplined in terms of the— Robert L. Bugbee: So Lars Dencker Nielsen: I guess the key point is we dirty out when it is clearly justified. Robert L. Bugbee: Okay. Understand. I Emanuele A. Lauro: I am just on term rates with you now. Tim Chang: VLCCs, modern VLCCs being on two or one year at Emanuele A. Lauro: $90,000 a day. And it seems like LR2s are more or less flat versus recent points. But if VLCC rates stay at 90, what would you say is a fair level that LR2 should be at? Do you see any upside potential here? If I may, and then Lars, please jump in. I think the LR2s have not—or Aframaxes for that matter—have not remained flat. I think that today, you can fix an Aframax/LR2 for one year in the high forties. And there are the rates for three and five years and the demand for three and five years deals, which has come in strong and has been reconfirmed. We have fixed a couple of ships for five years in Q4 last year, and today, those rates would be starting with a three for a five-year deal, or comfortably with a three for a five-year deal. So definitely, the interest is there, and the rates have increased for our classes of vessels as well. Lars Dencker Nielsen: I will just add that the market on LR2/Aframax has relatively outperformed VLCCs. It is taking a while for the VLCCs to come, so we are very happy to see that the VLCC market finally is coming into its own. Good for that, and it is going to be great for the overall market. So we are happy to see that we are firing on all cylinders now. Liam Dalton Burke: Perfect. Thank you. That is it for me. Robert L. Bugbee: Yeah. I would also—It is quite interesting if you did a cash-on-cash return valuation between either where the product stocks are valuing the vessels or even where the crude are valued, their return on equity at the moment is every bit as strong as the VLCCs. And if you look in the physical side and in terms of the stock side, obviously, the returns for the product tanker are higher as their stocks are selling at less of a premium to NAVs than the crude is. Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mr. Lauro for any closing remarks. Emanuele A. Lauro: Thank you very much, operator. No closing remarks other than thanking everybody for your time and attention today, and we look forward to being in touch going forward. Thank you. Operator: Ladies and gentlemen, the conference call has now concluded. Thank you for attending today’s presentation. You may now disconnect. Goodbye.
Operator: Thank you for standing by, and welcome to the Intercorp Financial Services Inc. Fourth Quarter 2025 Conference Call. The conference will begin in a few minutes. Pardon me. Good morning, and welcome to the Intercorp Financial Services Inc. Fourth Quarter 2025 Conference Call. All lines have been placed on mute to prevent any background noise. Please be advised that today's conference call is being recorded. After the presentation, we will open the floor for questions, and at that time, instructions will be given as to the procedure to follow if you would like to ask a question. Also, you can submit online questions at any time today using the window on the webcast, and they will be answered after the presentation during the question-and-answer session. Simply type your question in the box and click submit. It is now my pleasure to turn the call over to Mr. Ivan Peill, from Inspire Group. Sir, you may begin. Thank you, and good morning, everyone. Ivan Peill: On today's call, Intercorp Financial Services Inc. will discuss its fourth quarter 2025 earnings. We are pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services Inc.; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services Inc.; Mr. Carlos Tori, Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; and Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you did not receive a copy of the presentation or the earnings report, they are now available on the company's website ifs.com.pe. Otherwise, if you need any assistance today, please call Inspire Group in New York at (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward-looking statements made during this conference call Operator: these do not Ivan Peill: account for future economic circumstances, industry conditions, the company's future performance, or financial results. As such, statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services Inc. for his opening remarks. Mr. Castellanos, please go ahead, sir. Luis Felipe Castellanos: Thank you. Luis Felipe Castellanos: Good morning and thank you all for joining our fourth quarter 2025 earnings call. Thank you for your interest in Intercorp Financial Services Inc. We appreciate your continued support. I am going to start with the macrofront. We continue to observe a macroeconomic and political environment in Peru, marked by a positive mood. The Peruvian economy maintains its growth momentum, with expected growth of 3.3% for 2025, mainly driven by dynamic consumption-related sectors, sustained private investment, and the favorable performance of commodity prices, which continues to support the country's external accounts. Although we maintain a prudent perspective amid the international context and the election period, exchange rate strength and low country risk reflect market confidence in Peru. The sol has appreciated by approximately 10% in the year, and inflation remains stable, positioning Peru as one of the most dynamic economies in the region. Looking ahead to the political transition this year, we do not expect major changes in financial stability. Sound monetary management and strong institutions related to economic resilience and prudence allow us to have a base case scenario of sustained growth, supported by the resilience of the local market and investor confidence. This provides a solid foundation for long-term decision-making, prudent risk management, and sustained investments in innovation. Moving into Intercorp Financial Services Inc. results for 2025, we delivered record net income of 1,900,000,000.0, with recovering core results and solid profitability, with our ROE of around 70% even after considering the impact of the Ruta de Lima impairment. These results confirm our ability to adapt quickly and keep generating value despite some headwinds, in a disciplined and sustained way, aligned with our long-term strategy and reaffirming our commitment to long-term profitability and sustainability. Interbank achieved a record year with 1,400,000,000.0 in net income. This was supported by a decrease in cost of risk and increasing risk-adjusted NIM. Our consumer segment is showing signs of recovery even in the face of pension funds withdrawals, although we recognize that there is still progress to be made to reach our targets. Overall, Interbank has consolidated as the third largest bank in the system, reflecting our strong performance and disciplined approach to risk and profitability management. Yape and Interbank continue to capture joint business opportunities, reinforcing our payments ecosystem, while Plin deepens user engagement, fostering more primary banking relationships and driving growth. Interseguro, our insurance company, continues to grow its core business with solid performance in private annuities and life insurance. In addition, Interseguro continues to leverage synergies with Inteligo to expand private annuity sales and to collaborate with Interbank to advance integrated bancassurance solutions that deliver greater value for our customers. It maintains leadership in regulated annuities and has achieved the leading position in private annuities. Inteligo, our wealth management segment, continues to grow double-digit, achieving a new record high in assets under management, thanks to our clients' trust and consistent engagement. In all, Intercorp Financial Services Inc. remains committed to our focus on profitable growth strategy, always placing our customers at the center of every decision we make. We continue to reinforce this approach by prioritizing digital excellence and deepening primary customer relationships through comprehensive data-driven services and differentiated experiences. Investments in technology, GenAI, and innovation are key to maintaining our competitive advantage by enabling more personalized, efficient, and secure experiences, while strengthening productivity and delivering greater value to our customers. Looking ahead, we remain optimistic about Intercorp Financial Services Inc.'s outlook. Our platform has demonstrated resilience in downturns and is well positioned to continue executing its growth strategy, maintaining profitability and reinforcing our leadership in the dynamic Peruvian market. I will now turn the call over to Michela for further explanation of this quarter's results. Thank you. Thank you, Luis Felipe. Michela Casassa: Good morning, everyone, and welcome to Intercorp Financial Services Inc. Fourth Quarter Results. We would like to start with our key messages for the year. In 2025, we delivered a solid performance across all segments. Net income reached a record 1,900,000,000.0, marking a 49% increase compared to the prior year. Our return on equity was also strong, standing at 16.8%. The second key message, higher-yielding loans continue the positive trend Operator: And Ms. Michela, we can hear you. You may proceed. Michela Casassa: Okay. Thank you very much. Sorry again, everyone, for the interruption. I am going to start again from the key messages. So in 2025, we delivered a solid performance across all segments. Net income reached a record 1,900,000,000.0, marking a 49% increase compared to the prior year. Our return on equity was also strong, standing at 16.8%. Second key message, higher-yielding loans continue the positive trend, showing an 8% growth on a year-over-year basis. Third, risk-adjusted NIM increased 50 basis points over the year, reaching 4% in the last quarter, while we maintained a low cost of risk at 2.1% and cost of funds near 3%. Fourth, we continue to strengthen primary banking relationships, and as a result, our retail primary banking customers grew 11% last year. Fifth, our insurance business continues to deliver solid double-digit growth, with written premiums growing by 661% year over year, mainly due to the growth in private annuities. And sixth, our Wealth Management business delivered double-digit growth in our core business with assets under management at new record highs. Let's start with our first key message. Let me share an overview of the macroeconomic environment. The Central Bank has raised its GDP estimate for Peru in 2025 to 3.3%, driven by stronger-than-expected performance in primary sectors such as agriculture and mining, followed by primary manufacturing, construction, and commerce. Looking ahead to 2026, Central Bank's projections have been revised up to 3%, driven by stronger private spending. Macroeconomic fundamentals remain stable, with inflation contained around 0.5% for 2025. The Peruvian sol has strengthened more than 10% this year, and the reference rate remains low at 4.25, maintaining favorable financial conditions for ongoing growth. Overall, Peru is establishing itself as one of the growing economies in the region, supported by solid domestic momentum, despite internal and external challenges. Additionally, the Peruvian economy holds positive prospects for the coming years, as it is well positioned to meet the global demand for commodities. Nevertheless, we remain cautious due to the political cycle and global market volatility. On slide five, driven by a favorable macroeconomic environment, private investment continues to expand at solid levels, growing almost 10% in the first nine months of the year and projected to reach 9.5% in the full year. This momentum is sustained primarily by the rebound in mining investment as well as the strong performance of the non-mining sectors. For 2025, we expect internal demand to expand by 5.4%, with private consumption rising to 3.6%. Looking ahead to 2026, internal demand is expected to moderate to 3.5%, with private consumption stabilizing at 3% and private investment reaching 5%. These upward adjustments reflect a resilient domestic market and continued optimism among both businesses and consumers. Business expectations remain in optimistic ranges and consumer confidence is stable, supporting domestic demand and employment generation. Private employment and wages are both increasing, fueling consumption. Additionally, a strong pipeline of mining and infrastructure projects is planned for the coming years, further supporting growth. In this context, retail lending continues to lead system-wide loan growth. Ivan Peill: On slide six, Michela Casassa: it is noteworthy that our accumulated earnings for the year have reached an all-time high, marking a relevant increase of 49%. This is reflected in our 2025 ROE of close to 17%, demonstrating strong profitability across all business lines. If we exclude the Ruta de Lima impairment, ROE would have been 18.5% for the year. This year, our three key business segments delivered exceptional growth. The bank achieved record earnings of 1,500,000,000.0, driven by a combination of lower cost of risk, reduced funding cost, increased fee income, among other factors. Inteligo reported a strong 68% increase in revenues and an outstanding ROE of 21.5%. This performance was driven by growth in core operations and solid results from the investment portfolio. Finally, Interseguro grew by 36% despite the Ruta de Lima effect, due to ongoing core business growth and higher investment results, which highlights the company's strength and resilience. Regarding Ruta de Lima, in the year, we have made 2,000,000 impairment, leaving the residual value at million or around $22,000,000. At this point, and with the information we have, we do not expect any further material impairment. On slide seven, during the last quarter of the year, we achieved an additional 11% quarter-over-quarter increase in earnings, reaching an ROE of around 15%. However, this ROE was impacted by the additional provisions for Ruta de Lima, as BRL 129,000,000 was recognized by Interseguro. Excluding this impact, Intercorp Financial Services Inc. ROE for the quarter would have reached 19.1%. Furthermore, if we set aside the effect of Ruta de Lima overall, net income would have increased by 11% quarter over quarter. On the banking side, the performance is driven not only by a lower cost of risk, but also by an improved net interest margin supported by better funding cost and robust growth in fee income. Particularly when excluding the impact of the provision reversal from Integratel ex Telefonica in the third quarter, net income has increased 6% compared to the previous quarter. The bank's ROE remains stable at 16%. Both Interseguro and Inteligo's core businesses continued to deliver double-digit growth. Interseguro achieved an ROE of 32.5%, in line with higher real estate valuations. Meanwhile, Inteligo's results this quarter were impacted by a lower return from the investment portfolio. On slide eight, we would like to highlight the positive trend of our earnings and ROE throughout the year. As mentioned before, for the full year 2025, our ROE stands at 16.8%. However, if we exclude the Ruta de Lima effect, ROE would have reached 18.5%. Overall, this has been a solid quarter and year across all Intercorp Financial Services Inc. business lines, with our core operations serving as the primary driver of profitability. Let's turn now to slide nine, where we take a closer look at Intercorp Financial Services Inc. revenues, which grew 13% year over year. At the bank level, top-line growth has increased by 6% this year. We are beginning to see a recovery in our net interest margin, which reached 5.3% in the last quarter. This improvement is mainly driven by accelerated growth in higher-yielding loans and continued optimization of our cost of funds, together with stronger fee generation and improved FX results, fully aligned with our strategy to deepen customer relationships. This year, Interseguro has demonstrated robust revenue growth of 33%, supported by an increase in insurance results of life annuities, but also by favorable investment results. Meanwhile, Inteligo grew top line 29%, thanks to a steady growth of fee income, aligned with the positive trend in assets under management. The investment portfolio has delivered a strong twelve-month return of 13.4%, marking a very good year overall. On slide 10, Intercorp Financial Services Inc. expenses increased by 11% in 2025 as we continue to make strategic investments to support our long-term growth ambition. This includes accelerated investments in technology to strengthen resilience, enhance user experience, improve cybersecurity, expand our capacity, and develop GenAI capabilities, alongside ongoing efforts to strengthen leadership within key teams, reflecting a recognition of the pivotal role talent plays in delivering our strategy. Consequently, the cost-to-income ratio stands at 36.8% at Intercorp Financial Services Inc. Now let's move to our second key message. On slide 12, we see increasing dynamism in higher-yielding loans. Our total loan portfolio expanded by 4% year over year, which would have been 6.5% excluding the FX effect. This positive momentum was driven by the acceleration in higher-yielding loans, which grew 8% over the past year. Robust macroeconomic activity is reflected in increased disbursements by 23% in cash loans and by 60% in small businesses. Overall, in retail banking, the mass market segment has grown steadily through the year, positively impacting the average yield, recovering around 20 basis points in the last six months. It is also worth highlighting our mortgage portfolio, which has expanded by more than 8% over the past year, surpassing market growth. As a result, we gained 10 basis points in market share, now exceeding 16%, firmly establishing ourselves as the third largest player in the system. On the commercial banking side, performance was strong across all segments, corporate, mid-sized, and small businesses. Notably, the small business segment stood out, achieving a solid 25% growth over the year, which means we have not only replaced all of the Impulso MyPeru maturities, but also expanded more than threefold beyond that, increasing the average yield by more than 200 basis points over the past year. Excluding FX effects, overall commercial growth reached 6%. On slide 13, we wanted to double-click on the consumer portfolio, which accelerated in the last quarter. Credit card activity continued to strengthen, supported by higher transaction volumes that reflect improved customer engagement and growing consumption trends. Overall spending increased by 8% quarter over quarter and 13% year over year, driven by more personalized communication efforts and the effective execution of targeted campaigns across key spending categories such as grocery stores, retail e-commerce, and cross border. Personal loans delivered solid balance growth alongside an improvement in profitability in the fourth quarter. Total balances accelerated in the last quarter at 2.3% despite excess liquidity in the market due to pension fund withdrawals, severance deposit releases, and the December seasonality. On a year-over-year basis, balances grew 5%, highlighting resilient demand and strong commercial execution. Looking ahead, we remain optimistic about our growth prospects. Following with the third message, we see improvement in risk-adjusted NIM. On slide 15, there is some good news to highlight in terms of this indicator. Over the past year, we achieved a substantial improvement in our risk-adjusted NIM, which rose by 50 basis points to 4% in the last quarter and accumulated 3.7% for the full year. This marks an increase of 80 basis points compared to last year's 2.9%. Notably, the last quarter contributed a 20 basis points uplift driven by lower cost of risk. On the funding side, we have positive news to share as the cost of funds further declined by 10 basis points over the past quarter. While the average yield slightly decreased this past quarter, retail rates improved by 15 basis points, supported by both mass market and affluent segments. These segments continue to build momentum and make meaningful contributions to our overall performance. Furthermore, within higher-yielding loans, we observed an increase of more than 40 basis points in the average yield during the quarter. As a direct result, our NIM increased by 10 basis points quarter over quarter. On slide 16, let me share a quick update on asset quality. Our quarterly cost of risk continues the trend to lower levels at 1.8% in the quarter, reaching the lowest level in four years, with a full-year cost of risk of 2.3%. Still, current loan mix supports a low cost of risk. On the retail segment, the cost of risk continues to decrease, now standing below 4%, representing a decline of 150 basis points compared to the prior year, still below our risk appetite. Our consumer lending portfolio is performing well, with cost of risk dropping from around 9% to below 7% year over year, supported by healthier customers, while new loans are showing a good performance in the new vintages. On the commercial side, asset quality remains strong, with performance holding steady throughout the year. On top of this, the adjustment of forward-looking parameters has enabled us to release some provisions. Overall, our nonperforming loans ratio continued to be healthy and our coverage levels remained solid at approximately 140%. Looking ahead, as our consumer and small business portfolios keep expanding, now representing 22% of our total loan portfolio, we should expect the cost of risk to gradually increase. All in all, these results underscore an improving operating environment and demonstrate that our prudent approach to portfolio management is enabling us to deliver sustainable growth. On slide 17, I would like to highlight some positive developments regarding our funding structure. Luis Felipe Castellanos: Deposits Michela Casassa: remain a key component, accounting for approximately 81% of our total funding. Over the past year, total deposits increased by 5% and by 9% when excluding the impact of FX. Retail deposits continue their positive momentum, outpacing the overall system, particularly in savings and transactional accounts, in line with the pension fund release. On the commercial side, deposit growth has been further supported by the expansion of our payment ecosystem, resulting in a 15.5% increase in efficient commercial deposits. As a result of these trends, our cost of funds declined by 20 basis points year over year and by an additional 10 basis points in the last quarter, driven by increased deposit flows that were in line with pension funds withdrawal. The cost of deposits has shown a consistent improvement with a 30 basis points reduction throughout the year. Importantly, there remains further potential for reduction as the share of efficient Luis Felipe Castellanos: funding. Michela Casassa: now at 40%, continues to grow with a positive impact on the fourth quarter of the additional liquidity coming from the market. Our loan-to-deposit ratio stands at 92%, which is in line with the industry average. Moving on to our digital strategy. Our payment ecosystem on slide 19, with Plin and Yape, is driving our growth in low-cost funding. We have continued working to generate further synergies as we drive the growth of our payment ecosystem, focusing on increasing transactional volumes, offering value-added services, and leveraging Yape as both a distribution network for Interbank products and as a source to increase growth. In particular, the commercial teams from both Yape and the bank are collaborating more efficiently, allowing us to deliver integrated solutions and maximize the value we bring to our clients. Yape continues to show strong momentum in the small business segment, with flows from Yape up 60% over the past year. This growth has contributed to the 26% in deposits, which now account for 11% of wholesale deposits or 33% of wholesale Luis Felipe Castellanos: low-cost deposits. Michela Casassa: The flow from Plin expanded by 35% in the same period, as Interbank share of Plin flows is around 40%. Over the past year, Plin transactions increased by 48% and our digital retail customer base now stands at 84%. In 2025, we further enhanced our offering by launching Plin Corredores, Plin WhatsApp, and Plin eCommerce, reflecting our ongoing commitment to continuously introduce new features that add value to our customers. We continue to drive meaningful value and strengthen primary banking relationships throughout our digital initiatives, particularly with Plin. Over the past year, on slide 20, we have grown our retail primary banking customer base by 11%, now representing more than 35% of our total retail clients. Monthly active Plin users reached 2,600,000, each completing 33% more transactions versus last year. P2M payments remain a core driver of engagement, now accounting for 60% of all transactions. Additionally, we see good trends in our digital indicators compared to last year. We remain focused on developing solutions that meet our customers' evolving needs. As a result, we have seen steady growth in digital adoption, as our retail digital customer base increased from 81% to 84%, while commercial digital clients now stand at 74%. While the latest NPS reading was 51 for retail customers and 68 for commercial clients. Advancements include the fully redesigned payments area, the launch of customizable QR codes, and the dynamic CVV for Visa credit and debit cards, as well as the integration of investment management. Additionally, the ability to perform sales directly within the app further streamlines customer interaction. These initiatives reflect our commitment to security, convenience, and innovative financial solutions, underscoring our role as a leader in shaping the future of financial services. On slide 21, in insurance, we continue to focus on enhancing the digital experience for our clients and expanding our sales from digital channels. The development of internal capabilities has allowed us to increase digital sales-service to 71% and the digital premiums to grow 25% in the last year. In wealth management, we are committed to continually improving our Interfondos app, aiming to transform it from a simple transactional tool into a comprehensive digital adviser for our mutual fund clients. This has led to a steady rise in app engagement, with the number of digital users increasing by seven points year over year. Additionally, digital transactions now represent 55% of all activity on the platform. Luis Felipe Castellanos: Moving on Michela Casassa: to the fifth message with double-digit growth in insurance. On slide 23, we continue to see an increased stock of the contractual service margin, which grew 22% year over year, mainly driven by Individual Life, which grew 23% in the last year, supported by strong new business generation that more than offset the monthly amortization of the CSM. Individual Life remains a key focus for us given its low market penetration. Although traditional channels keep growing at high rates, we have been also diversifying our distribution strategy to include new channels and adjust the product to reach new segments and keep supporting growth. Additionally, short-term insurance premiums grew by over twofold, driven by disability and survivorship premiums acquired through a two-year bidding process from the Peruvian private pension system. On the investment side, as mentioned before, solid results were impacted by additional impairment from Ruta de Lima. Despite this impact, the return on the investment portfolio reached 5.3% for the whole year and would have been 6.6% without this effect. Finally, Wealth Management continues to deliver double-digit growth. On slide 25, we highlight the strong performance of our Wealth Management business this year. Inteligo continues to show solid momentum. Assets under management have grown at a double-digit Luis Felipe Castellanos: pace Michela Casassa: reaching new highs and now totaling $9,100,000,000 including deposits. Fee income continues to improve, up 15% year over year, which would have been 18% excluding the FX effect, adding to the positive trend in results. Now let me move to the final part of the presentation, where we provide some takeaways. On slide 27, before we move on to our operating trends, we would like to summarize where we are focusing our growth efforts. In commercial banking, we have seen important growth in small businesses, which increased loans by 25% year over year. We continue to see a strong potential in this business given our current small market share. The commercial portfolio as a whole grew eight year over year when adjusted by FX, gaining 10 additional basis points of market share. This strong performance is supported by our strategy to deepen with key midsized company clients, unlocking additional cross-sell opportunities and leveraging synergies with Yape to enhance our value proposition, especially in the small business segment, where our digital and payment capabilities Ivan Peill: set us apart. Michela Casassa: The consumer portfolio has had three consecutive quarters showing growth. At the same time, the mortgage segment continued its positive trajectory, achieving a market share above 16%. Luis Felipe Castellanos: In insurance, we are maintaining our focus on long-term products Michela Casassa: as Individual Life has shown encouraging growth this year. Finally, in Wealth Management, assets under management continued to grow at a healthy pace, up 16% year over year, reaching new record levels, a reflection of both market performance and continued client engagement. On slide 28, let me give you a review of the operating trends of 2025. Capital ratios remained at sound levels, with a total capital ratio of 16% and core equity Tier 1 ratio at 12.5%. Our ROE for the year was 16.8%, surpassing our guidance for the year. For loan growth, we grew 3.7% at 6.5% if we adjust for the FX appreciation. NIM had a slight recovery over the last quarter, with a full-year ratio of 5.2%. Finally, we continue to focus on efficiency at Intercorp Financial Services Inc., as our cost-to-income ratio was around Luis Felipe Castellanos: 33–37%, sorry. Michela Casassa: On slide 29, let's go through our expectations for 2026. For 2026, we expect our ROE to be around 17%, an improvement with respect to the full year 2025 and closer to our 18% midterm target. For loan growth, we expect a high single-digit growth above 2025 growth, driven by both commercial banking and the recovery of the consumer portfolio. We expect this to be above the system, with the aim to continue gaining market share in key businesses. Finally, we will continue to focus on efficiency at Intercorp Financial Services Inc., and we expect to maintain a cost-income ratio of around 37%. Let me finalize the presentation with some key takeaways. First of all, we saw solid performance across all businesses and our core operations. Second, our higher-yielding loans continue with a positive trend in both consumer and small business financing. Third, we continue to see improvement in the risk-adjusted NIM helping profitability. Fourth, we are strengthening primary banking relationships with our retail clients. Fifth, our insurance business keeps delivering solid double-digit growth. And finally, our Wealth Management business continues to deliver double-digit growth as well. Thank you very much, and now we welcome any questions you may have. Operator: Our apologies for the technical difficulties experienced earlier on today's call. We thank you for your patience and understanding. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the webcast questions. Key on your touchtone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star then 2. Again, to ask a question, please press star then 1 now. And for the webcast viewers, simply type your question in the box and click submit question. We will pause momentarily to compile our questioners. Our first question will come from Ernesto Gabilondo with Bank of America. Please go ahead. Thank you. Hi. Good morning, Mr. Luis Felipe, Carlos, Luis Felipe Castellanos: Michela. Good morning to all your team, and congrats on the results. First question will be on Ruta de Lima. Just wondering if we should continue to see further impact in 2026, or is this almost done? Second question will be on loan growth and asset quality. So as you said in the presentation, the results, you have started to see more credit appetite towards credit cards and personal loans. So can you give us some color on what is the type of growth you are expecting for each segment, and how should that be translated into asset quality, NPLs, and cost of risk this year? Then I have a question on expenses. 2025, you have like a high single-digit growth. You have been putting efforts in terms of technology, personnel, marketing, so how should we think about OpEx growth this year? And my last question is on your sustainable ROE. I believe in the past, your ROE used to be at the same level of Credicorp, which now is targeting to be around 20%. I believe you are targeting a midterm ROE of 18%. So I was wondering if there is an opportunity to get your ROE more close to your peers at some point, or is something that you are not considering. And also, this 18% expecting it to be achieved probably likely in 2028. That will be all for me. Thank you. Luis Felipe Castellanos: Okay. Ernesto, thank you very much. And again, also, from our side, apologies for the technical difficulties. We are looking into what happened, but going back to your question on those things, thanks again. I am going to go briefly with a summary, and then we will pass it on to the team members so they can make more specific comments. On Ruta de Lima, based on the info that we have, I think this is, again, we have done close to 80% in provision or impairment. Right now, with the information we have, where the legal proceedings are, what we expect is going to happen going forward, we feel comfortable that this should be the effect, and 2026, we should not see anything else. There might be some positive developments that change this in the medium term, but for the short term, I think we feel pretty confident that this is the impact that will go through our books related to this name. In terms of loan growth, I think it is encouraging what we have seen in the last quarter. Again, especially higher-yielding loans are starting to pick up. We do expect this trend to continue through next year, and overall, if those loans start picking up as we hope, then obviously, the cost of risk related to those high-yielding loans will come with that portfolio. In terms of expenses, I think we will continue to invest. So overall, in the three businesses, we keep strengthening our teams, we keep investing in technology, and we are seeing more volume overall. So probably the trend is going to be very similar to this year. And lastly, in terms of the ROE, our midterm view is, again, 18% plus. We are not getting married to any specific number. Obviously, if the Peruvian system evolves the way we expect, we should see similar numbers to pre-pandemic, but we are taking it slowly because, again, the nature of volatility that has impacted the system because of Luis Felipe Castellanos: some Luis Felipe Castellanos: political issues has made the nature of growth in Peru not as strong as we had before. While that continues to unveil, we get kind of an optimistic conservative approach towards growth. But, obviously, if 20% ROE is achievable, we do think we have a platform that could take advantage of that. Now let me stop and I am going to pass it on specifically for your question one and two to Gonzalo, and Carlos afterwards to see if there is anything that they want to complement. First, Gonzalo, anything more that you would like to say on Ruta de Lima? You are mute, I think, Gonzalo. Ivan Peill: Yes. Hi, everybody. Gonzalo Basadre: During our last call, we mentioned that after the closing of the tolls, we will do an additional charge on Ruta de Lima in the fourth quarter, and we reviewed, and we think we have a very conservative value in what is left on investment. It is around 20%. With the information we have now, we think that there will not be any additional charges on that investment. Luis Felipe Castellanos: Okay. So that is good. Now, Carlos, can you help us with a little bit more detail in terms of loan growth and asset quality as asked by Ernesto. Gonzalo Basadre: Yeah. Thank you. Absolutely. Hello, Ernesto. Thanks for your question. Ivan Peill: So regarding Luis Felipe Castellanos: loan growth, particularly higher-yielding loan growth, which is credit cards and Carlos Tori: personal loans and SMEs. Gonzalo Basadre: We have started growing that Carlos Tori: 2025, I would say, more on the 2025. However, the market is mixed because of the AFPs' withdrawals. So a lot of the growth that we had was amortized by the clients towards November and December. That was an effect that curtailed our growth. But we still grew in personal loans and credit cards around 2.3%, 2.5% in the last quarter. We expect that to continue and accelerate in 2026, based on the things that we are doing and our risk appetite, but also on the fact that this is liquidity that Michela mentioned from the AFPs. What this will do is it would probably increase cost of risk slightly, not because we want to increase cost of risk per se, obviously, but because it is a more efficient frontier in terms of profitability and risk. So we will probably go closer. Last quarter was below 2%, our cost of risk, and we will probably get closer to 2.5 or something around historic environment. So I think that answers the question. I do not know, Ernesto, if you have any follow-up questions on that. Luis Felipe Castellanos: No. No. Yes, sir. Excellent. So cost of risk around 2.5% for this year. And in terms of loan growth, you were saying more gradual increase in these high-yield loans. What about corporate loans? I believe maybe after the election, they can start to pick up. So just wondering how you are seeing that segment. Ivan Peill: All right. Just to be clear, the cost of risk is not a target. Carlos Tori: It is probably a trend that will happen as you get higher-yielding loans. Corporate loans, as you know, we have good relationships with our main clients in Peru. We work closely with them in short term and long term. Corporate growth will depend on mainly two things: the amount of CapEx that goes on, and probably there has been good CapEx in 2025. It will probably slow a little bit until we have more vision on the elections. But there is a lot of things coming in. And then bond offerings. As long as there are more bond offerings, the bank, we foresee some growth, the banks kind of shrink, just because the economy will grow and there will be investment, but it will not be necessarily our leading portfolio. Luis Felipe Castellanos: Perfect. No. Thank you very much. Just a follow-up in terms of the ROE because the talking about the ROE was stopped, the audio, so can you repeat again how you see the evolution of the ROE and if you think at some point the 20% could be reachable? Luis Felipe Castellanos: Yes. Thank you, Ernesto. So again, the ROE, if you see the way we look at ROE, Inteligo and Interseguro are already operating at ROEs north of 20%. The one that is growing and recovering is the bank, and that pace of recovery will depend on how fast we can Operator: rebuild Luis Felipe Castellanos: more relevance of the consumer and higher-yielding book. So again, we do see an 18% plus ROE in the medium term as this book continues to evolve. And as we continue gaining efficiency and scale, the 20% plus is achievable as long as the Peruvian economy continues to perform well. And so, yes, we are not saying it is not achievable. However, in the medium term, we do need to see the higher-yielding book recover so the ROE of the bank improves, to be able to push towards north of 18% ROEs. Luis Felipe Castellanos: Perfect. Very helpful. Thank you very much. Luis Felipe Castellanos: Thank you, Ernesto. Operator: The next question will come from Daniela Miranda with Santander. Please go ahead. Luis Felipe Castellanos: Good morning. Thanks for taking my question. Two very quick ones from my side. Unknown Analyst: The first one is we noticed there was no formal guidance provided on NIM. Could you share some additional color on how you are thinking about NIM in 2026? And also, we continue to see volatility in the results of Interseguro and Inteligo in terms of running P&L due to the investment portfolio. What is your medium-term profitability outlook for these businesses? And are there any specific initiatives underway to help mitigate this earnings volatility? Gonzalo Basadre: Thank you. Okay. Thank you. I am going to start by Luis Felipe Castellanos: your question number two. Again, our medium term and our structural profitability for both businesses is 20%. Obviously, especially Interseguro is investment-related. So whatever happens with the market will have an influence in the results. That is why you see a little bit more volatility. Same happens especially with the prop book of Inteligo. We have a mixed strategy there. As you know, we do have a nice fee business growing and very stable, but then our book brings in some volatility that is dependent on the evolution of market in terms of investment results. But we do see 20% ROEs for those businesses year in, year out, and going forward, and that is the structural view that we have on it. In terms of NIM, again, I am going to let Michela go over that answer, but as long as the higher-yielding book continues to get more relevance, NIM should continue to improve. So that is what we are expecting for next year, but maybe Michela can help us with a little bit more detail on that. Michela Casassa: Yeah. Just to add that, as the higher-yielding loan portfolio grows, that should positively impact yield on loans, and we also expect an additional improvement of cost of funds, not as big as we have seen in 2025 because I guess a portion of that was also related to decreasing rates. But we still see potential for further decreasing cost of funds as we continue to improve the mix of the efficient funding, with all the things that we are doing both in retail banking but also with the payment ecosystem with Yape and commercial banking. So NIM should slightly increase during 2026. Now we saw it already in the last quarter, 10 basis points. So we should see a further improvement in NIM and in risk-adjusted NIM throughout 2026. Luis Felipe Castellanos: Thank you, Michela. Very clear. Thank you. Operator: The next question will come from Yuri Fernandes with JPMorgan. Please go ahead. Luis Felipe Castellanos: Thank you. Good morning and congrats Yuri Fernandes: for the quarter or for the year. I have a question regarding your deposits. For you to deliver a high single-digit loan growth, how do you imagine your funding also growing? And this year, deposits are growing less. They are growing, I do not know, five above loans, but I think this is not enough for a nine. Just checking here in the figures, I guess there was a good improvement in funding cost, like more expensive funding lines were reduced, you were growing your more retail deposits. So basically, you were focusing on cheaper lines. And I read the message from Michela from the past answer was that margins will expand on the asset side, on the mix. So just checking the liabilities, should we see maybe, for you to deliver the funding growth you need, a higher funding cost for you into 2026? And then just a follow-up on Ernesto's many questions just on the ROE. This was a reported 16.8% ROE. If you adjust for Ruta de Lima, that hopefully is getting over given the amount of exposure you have, why not more than 17% ROE for the next year? If insurance and the other businesses are running already at 20%, it is a better year, why not a higher ROE for this? Thank you. Luis Felipe Castellanos: Okay. Thank you, Yuri, for your questions. And let me go over the last one again. Again, it will depend on, if you see, the bank is around to continue to recover. The ROE of Interbank is the one that, obviously, Inteligo had a soft ROE quarter, very strong year. But, again, it will depend on the pace of recovery of the higher-yielding book of the bank. Carlos Tori: So Luis Felipe Castellanos: more than 17% that is achievable. It is achievable, but it depends on many situations. So that is why we are guiding at around 17%. It is an electoral year. So the pace of recovery is still to be seen. Again, we have seen that we have had releases of pension funds that is curtailing our ability to grow as strong as we want. So we are probably on the conservative side in terms of what will happen. If the opportunities for growth are there in the book, we will take advantage of that, and that should have a positive impact in ROE as well and in NIM for the bank. But, again, we feel more comfortable in looking at a smooth recovery, not an aggressive recovery. And then in terms of deposits, yeah, we are focusing very much on low-cost deposits. Our retail banking platform allows us to continue growing there, and also the strategy that we are deploying with Yape is key for that. So we do expect this to continue growing in the next year and having an impact in our cost of funds base. But let me pass it on to Carlos so he can connect this with the strategy that we are deploying so you can have a more ample picture. Carlos Tori: Yeah. Thank you, Mr. Luis Felipe and Yuri. Yes. A little more detail on what we said, but as you can see our loan-to-deposit ratio is low. The fourth quarter was 92%. We have been growing deposits, but more than focusing on overall deposits, we have been focusing on low funding or low-cost deposits, and that has grown more this year than the last. And that, as we mentioned, comes in two ways. Plin continued to grow Operator: well Carlos Tori: across the years, really. And 2025 was not an exception. Obviously, at the end of the year, helped by the pension fund, but we also get some of that in January and February. So we will continue getting that. And the other source of Yuri Fernandes: funding Carlos Tori: is the payments ecosystem. It is Plin. It is the funds that come from Yape to the accounts at the bank. Expect that to continue. So we will continue to grow low-cost funding. Maybe the overall size of deposits will continue to grow, but we are more focused on the mix. And that is what would help cost of funding and NIM. So that is the strategy. Yuri Fernandes: No. Thank you very much, Carlos and Luis Felipe, for the answers. Luis Felipe Castellanos: Thank you, Yuri. Operator: The next question will come from Carlos Gomez with HSBC. Please go ahead. Yuri Fernandes: Good morning. Congratulations and thank you for taking my questions. The first one is actually another way of asking the same thing everybody has asked too. Nicolas Riva: We are obviously in an upswing for retail and for demand. And I guess my question is, to what extent do you think this is temporary because of releases from the pension funds or other factors, or it is a permanent upturn? Essentially, how long do you think that the good times are going to last? You probably do not have an answer, but I would like to know what your best case is. Second, referring to Plin, I was trying to find some numbers, but I do not see them in the presentation. What would you say the market share of Plin is today? And what is your market share within Plin? Thank you. Okay. Luis Felipe Castellanos: We hope that good times last for many months or years. Go ahead. But, Carlos, what we think is, let us see. Again, the pension fund releases and the severance deposit releases actually are a stopper to loan growth. Because people use those funds, obviously, for some consumption and for debt activity, but also to repay debt or not get into more personal loans. So when that dries up, and we do expect that to happen starting the second quarter of this year, we are probably going to see a stronger demand for personal loans in the portfolio and in the system as a whole. So it is a little bit cumbersome, but the releases of funds actually stop a little bit the growth profile of the portfolio. Now we are seeing good macro numbers in Peru. The sentiment is positive. The confidence indexes are at high levels. The labor numbers are looking good. The consumption indexes are also stronger. So there is a structural improvement in Peru's macro front that is having a positive impact in terms of growth as well. We do expect that to continue during this year. Hopefully, it will flow through to 2027 and moving forward. Again, the big question mark is, is Peru going to have noise on the elections of April? Is this going to be something similar to what we had before? We do not think so. Our base case is that that is not going to be the situation. But, again, we know Peru, and we cannot discard that the volatility from the political situation will be there, and let us see how elections at the end evolve. There is some noise right now actually in the political front. Peru has become a surprise in terms of political instability Carlos Tori: that Luis Felipe Castellanos: is not affecting economic numbers, but obviously, given that it is an electoral year, there could be some investments being delayed, investor confidence coming down, consumer sentiment changing routes because of this potential noise. So that is the only question mark that we have, but we do see that the structural improvement of the macro front, coupled with the strong commodity prices, position Peru to continue having a strong currency, low inflation, and accelerated growth. In that backdrop, the financial system and Intercorp Financial Services Inc. and Interbank itself should continue to benefit from that environment. And then regarding Plin, let me pass it to Carlos, who has a little bit more detail on that. Carlos? Carlos Tori: Excellent. Yeah. The reason we do not disclose market shares in Plin and Yape is because there is no official source for market shares. We build an estimation based on what our competitors say in the market. So we believe Plin currently has about 15% of the P2P and P2M market. So P2P is person to person, and then also using Plin to pay at a merchant. We believe Plin is somewhere around 15%. And Interbank is a little bit over half of that. That is our estimation. I think it is well founded, but there is no definite source on it. We do see growth above 40%, 50% per year. We continue to see very healthy growth in terms of users and in terms of transactions per user. So it has been growing and it is contributing to our ecosystem. So, I think that is as much as I can share. I do not think I can share more, but that should give you a sense Yuri Fernandes: of where we are at. Nicolas Riva: Could you remind us, I mean, no other piece of information, but as far as we know, there are two of you and you have your numbers. So as long as Yape gives theirs, you should have a full picture, or are we missing somebody? Are we missing some other operator? And over time, is the market share of Plin increasing or decreasing? How do you see this market evolving? Carlos Tori: Okay. So yes, there are a few, like, there are other banks that are not part of Plin or Yape. That is one. And they go through the CCE and we are all interconnected. So that is one part. It is a small part. The main area is sampling. What I do not get to see, and I only get to see on the reports, is when Yape sends to another Yape user. We do not see that. We only see when Yape sends to Plin and when Plin sends to Yape. That is the reason we do not see the exact share. So there is a mix of the players that are not Plin or Yape, and then there are on-us or on-them transactions. And then, in terms of share, yes, we are growing. It is still small, so we think there is a lot more potential to grow faster and to continue to grow. But, yeah, we are growing. Yes. And I think that something very positive is that we do see that our Luis Felipe Castellanos: customers that use Plin have much more activity with us, more principality, now we become a principal bank, NPS is higher, and obviously churn is smaller. So the numbers are adding up nicely in terms of building up on the strategy that the bank is deploying. Nicolas Riva: Absolutely. Thank you. Carlos Tori: Thank you. Luis Felipe Castellanos: Thank you, Carlos. Operator: The next question will come from Alonso Aramburu with BTG. Please go ahead. Nicolas Riva: Yes. Hi. Good morning, and thank you for the call. I wanted to maybe double-click on the performance on consumer loans. Dynamics clearly are better than in the last couple of quarters. Yuri Fernandes: If you look at your market share, you have been losing market share, Nicolas Riva: roughly one point in the last twelve months. So maybe you can comment on the competitive dynamics. What are you seeing? Who is gaining share? Is it related to payroll loans where you have seen negative growth over the past twelve months? And have you seen any change in this trend for 2026? Thank you. Luis Felipe Castellanos: Yeah. Thank you. Thank you, Alonso. Yeah. I think payroll-deductible loans to public sector employees, that is a market that for us is not growing that much. You have identified it well. And it obviously has an impact. And then I think that we have been digesting what happened in 2023/2024. So we are coming back to market probably a little bit later than some of the competitors, but again, we have been in this business for many years. We know how cyclicality can be, and we have been working in making sure that the equation adds up. And so we are returning with a little bit more of risk appetite, but, obviously, we have been strengthening our underwriting standards and working through our models in order to make sure that we do not face any issues in the near term or medium term. That is probably, adding all up, you will see the results that we have seen, especially in the first half of the year. But as Carlos mentioned, we have seen acceleration in the third and especially in fourth quarter in terms of velocity of growth. But I am going to pass it to Carlos so he can complement a little bit more on that specific competitive dynamics that we are seeing. Carlos? Oh, absolutely. I think there are two different Carlos Tori: so convenience, not payroll loans. They have their own environment. We are the leaders there. Obviously, it is a good market, but it grows slower than the rest of the market. As the leader, we are looking at keeping the relationship with our clients, the economics, and that has a much different performance compared to loans and credit cards. So where we stopped in 2023/2024 was loans and credit cards. And as Luis Felipe mentioned, we started to grow again and increase our risk appetite in 2025. We will continue to do that, but we want to do it in a very responsible way. As you know, in the consumer book, big spikes in growth never end up well. So we have been doing it well. We have been growing. You would have seen a lot more growth if it was not for the AFP withdrawals. I think that is something that set us back a little bit in terms of growth, but not in terms of usage of our credit card, usage of our payment solutions. We continue to see growth and engagement there. So we are very positive that over the next couple of months, we will have growth and recuperate some market share. As we mentioned earlier, we are at the beginning of this cycle. It is early, and we know how to do this, and we feel comfortable that the engagement and our value proposition is working well. And it is a matter of increasing the risk in the portfolio slightly, and you will see the growth. So that is the way we are looking at it. The convenience portfolio has a whole different environment that should be more stable. The other portfolio that is growing is SMEs. And that is higher-yielding as well. And that kind of, at the end of the day, brings in a little bit of the yield that is not growing with the payroll loans portfolio. Nicolas Riva: Great. Thank you for the color. Luis Felipe Castellanos: The next question Operator: The next question will come from Daniel Mora with Credicorp Capital. Please go ahead. Hi, good morning and thank you for the presentation. I have just Yuri Fernandes: one follow-up question. Luis Felipe Castellanos: The normalized ROE in 2025 was Yuri Fernandes: close to 18.5%. So I am wondering now, or I would just like to clarify, what is stopping Intercorp Financial Services Inc. from reaching a similar figure and achieving an 18% ROE besides the Ruta de Lima, in which we do not expect more additional impairment. What will be those factors that you expect will not repeat this year and that favored 2025 results? And thus, what will be the ROE expectations for each company in the 17% ROE scenario for this year? Thank you so much. Luis Felipe Castellanos: Thank you, Daniel. Yeah. Well, I am going to go again. So it was a very strong year for some of our investments, especially Inteligo, and also some investments we have at a holding company level that is closer with the SCTR. So that was very positive. And, again, the more stable, sustainable higher ROE will have to come from the continued recovery of the bank. While the consumer and higher-yielding loans book recover in stance, if you see that last quarter ROE for Interbank itself was around 16%. So that needs to continue into a more positive way. And that will come again as a result of a higher-yielding loans building up in our portfolio, and that is a process that Carlos just explained. So that is what is holding us back a little bit in terms of how fast we can achieve that medium-term objective. So I hope that answers your question. Ivan Peill: Yeah. Perfect. Thank you so much. Very good. Thank you. Operator: At this time, we will take webcast questions. I will now turn the call over to Mr. Ivan Peill from Inspire Group. Ivan Peill: Thank you, operator. The first question comes from Shane Matthews of White Oak Investors. Hello, congratulations on the results. As you increase the share of higher risk loans, do you expect to maintain the same level of coverage of 2025? Luis Felipe Castellanos: Okay. Thanks for your question. I am going to pass it on to Michela. I am assuming, yes, the coverage comes in line with higher provisions due to the cost of risk increasing because of those loans. But that mathematics in terms of coverage, Michela, maybe can help me. Michela Casassa: No. Yes. Not much to add, actually. Yes. As Carlos mentioned before, as we are increasing the high-yielding loan portfolio, we should see an increasing cost of risk. And the levels of coverage, we should remain very similar to the ones that you see in 2025. Luis Felipe Castellanos: Okay. Ivan Peill: The next question comes from Anand Bavnani, also of White Oak Investors. Given it is an election year, what are the key risks that you would watch out for? Luis Felipe Castellanos: Okay. Thanks very much for that question. I guess I am going to put it in two fronts. Yes, it is an election year. Again, we do not see big disruptions coming into the market. Our base case is of continued stability, true growth. What we have seen in previous elections is some candidates that are not market-friendly start to rise up in terms of the polls. And then people start losing confidence and investments start getting delayed. So that is a risk that we see to growth in the coming months. That something changes in terms of the political environment, and some radical proposal or not market-friendly type of disruption becomes a risk in the political scenario. So that is the election period itself. And people will delay and companies will delay some decisions because of this. And then the second front is what actually happens. Who gets elected? And, again, the risk is for someone that is not market-friendly being elected, trying to change certain things that support growth, stability, the currency being stable, or issues that will come with inflation. So basically, that is the reason. It is a political risk of somebody changing the rules of the game. The probability is not high, but, again, we are in Peru and we have gone through some volatility because of this before. So that is the way we see it. So we need to see what happens in elections and what happens with the actual candidate being elected as president. Now, again, our base case is of continued stability, continued growth, continued strength. I guess Peru has proven that their economic-related institutions are very solid, very well respected. They do their work pretty well even under the previous election, and when President Castillo was elected, that was not touched. That was not changed. So we feel very, very confident on that continuing to work it out. Strong Superintendency, strong Central Bank, strong Ministry of Economy and Finance. But, again, those are the political risks that we are looking at. So I hope that answered your question on that front. Ivan Peill: We have a follow-up question from Anand Operator: Bavnani. Ivan Peill: of White Oak Investors. Given the boom in copper and lower price of oil, do you anticipate GDP growth to have upside risk and inflation to have downside potential, both of which could be a tailwind to help you do better? Luis Felipe Castellanos: Yes. Obviously, those are positive factors that could influence stronger performance of the Peruvian economy. Obviously, that would help the currency to continue in its strength. It is a strong pattern. As Michela mentioned, the Peruvian sol has appreciated 10% this year. We do not foresee, if the commodity prices continue to be strong, probably the sol will continue to follow that path. Inflation will continue under control. And having good export results and low cost of energy would help improve some productivity, and that should have positive winds towards our economic performance as a whole. The Peruvian financial system should be a multiplier of that, and again, Interbank and Interseguro and Inteligo, we have a platform that can definitely look at the opportunities that that positive situation approaches. So there is an upside risk on that front that we are prepared to take advantage of, and we are looking very carefully at those opportunities. Now again, the big question mark can be the political situation, but that is going to clear up in a couple of months. So we will have a more clear picture probably for the next quarter. Ivan Peill: At this time, there are no further questions. I would like to turn the call over to the operator. Operator: Thank you. And we are not showing any audio questions as well. I would like to turn the floor back to Ms. Casassa for any closing remarks. Michela Casassa: Okay. Thank you very much, everyone, for being with us today. Sorry again for the inconvenience, and we hope to see you all on the next quarterly conference call. Thanks again. Nicolas Riva: Bye, everybody. Operator: This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the BGC Group, Inc Fourth Quarter and Full Year 2025 Earnings Call. All participants at this time are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Chryssicas, Head of Investor Relations. Thank you. You may begin. Hello, everyone. Jason Chryssicas: Good morning. We issued BGC Group, Inc’s fourth quarter and full year 2025 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the 2025 with the prior year period, unless otherwise stated. All references to record and/or strongest results are compared to BGC Group, Inc’s stand-alone financial results excluding Newmark prior to the spin-off in November 2018. We will be referring to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA. Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results, and how, when, and why management uses them, as well as relevant industry and economic statistics. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political, and/or other factors. Information on this call contains forward-looking statements including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements, and a complete discussion of risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within these SEC documents. With that, I am now happy to turn the call over to Sean A. Windeatt, Co-Chief Executive Officer of BGC Group, Inc. Sean A. Windeatt: Thank you, Jason. Sean A. Windeatt: Good morning, and welcome to our fourth quarter and full year 2025 conference call. With me today are my fellow Co-Chief Executive Officers, John Joseph Abularrage and Jean-Pierre Aubin, along with our Chief Financial Officer, Jason Williams Hauf. BGC delivered record-breaking revenues in both fourth quarter and full year 2025, with increases of 32% and 30%, respectively. This strong growth extended across all asset classes and geographies, driven by double-digit organic growth and our acquisition of OTC. We achieved the strongest annual results in our history, with revenues approaching $3,000,000,000 and EPS growing by 24% under GAAP and 19% for adjusted earnings. We significantly expanded our market share, completed our second largest acquisition, and became the world's largest energy broker. We completed the first phase of our cost reduction program that will realize $25,000,000 of annualized savings in 2026, with further cost savings targeted throughout the year. FMX produced another record year with our FMX UST business ending 2025 with a 40% market share. Our FMX futures exchange continued its rapid growth with SOFR futures average daily volumes and open interest increasing 8% and 297%, respectively, from the previous quarter. This strong momentum has continued into 2026 with volumes, open interest, and market share all setting new daily highs. Three years ago, on our fourth quarter 2022 earnings call, we declared BGC a growth company once again. Since then, we produced 13% revenue growth in 2023, 12% in 2024, 30% in 2025, and have now guided 34% growth for 2026 at the midpoint of guidance. Our revenues have increased from $1,800,000,000 in 2022 to nearly $3,000,000,000 this year. Over the same period, our adjusted EPS has risen by 71% to $1.18 per share. We have become the largest ECS broker globally, diversified our customer base, and introduced competition to the U.S. interest rate futures market. We believe our company is stronger than ever and perfectly positioned for continued success as we move into 2026, with the year already off to a record-breaking start. Sean A. Windeatt: With that, I would like to turn the call over to John to go over the quarterly results of the business in more detail. John Joseph Abularrage: Thank you, Sean. John Joseph Abularrage: We delivered record fourth quarter revenues of $756,400,000, a 32.2% increase versus last year. John Joseph Abularrage: Excluding our acquisition of OTC, revenues were $641,900,000, up 12.2%, which also would have been a fourth quarter record. Our total brokerage revenues grew by 34.6% to $694,600,000, driven by growth across all asset classes. Our ECS revenues grew by 92% to $257,500,000, driven by OTC and strong organic growth across the broader energy complex and our shipping business. Excluding OTC, ECS revenues grew by 10% versus last year. Rates revenues increased 16.4% to $197,400,000, reflecting strong double-digit growth in G10 interest rate products, emerging market and repo products. Foreign exchange revenues were up 9.8% to $102,800,000, primarily due to strong growth in emerging market currencies and G10 FX forward volumes. Credit revenues increased by 3% to $64,300,000, driven by higher emerging market and European credit volumes. Equities grew by 29% to $72,700,000, reflecting global equity volatility and strong market share gains. Data, network and post-trade revenues grew by 14.2% to $36,700,000 excluding Capitalab, which we sold in 2024. This growth was driven by Lucera and Fenics market data. Including Capitalab, data, network and post-trade revenues grew by 12.5%. Now turning to Fenics. In the fourth quarter, Fenics revenues increased by 15.4% to a fourth quarter record of $163,900,000. Fenics Markets generated revenues of about $136,700,000, an increase of 15.1%. This growth was primarily driven by higher electronic volumes across rates products, and increased Fenics market data revenues. On 12/31/2025, we sold our KACE business for up to $119,000,000, or 28 times post-tax profits. Fenics Growth Platform's revenues grew to $27,200,000, an 18.9% increase excluding Capitalab, driven by strong revenue growth in FMX and Lucera. Including Capitalab, which we sold in the fourth quarter last year, Fenics Growth Platform's revenues increased by 16.5%. FMX UST generated record fourth quarter average daily volume of $58,700,000,000, more than 12% higher compared to last year and outpacing all electronic U.S. Treasury platforms. This strong growth drove market share to a record 39% for the fourth quarter, up from 37% last quarter and 30% a year ago. FMX UST market share has increased sequentially in 12 of the last 13 quarters, more than doubling over the same period. FMX futures exchange saw record volumes and open interest in the fourth quarter, with ADV and open interest increasing 8% and 297%, respectively, versus the third quarter. This momentum has carried into 2026, where ADV was approximately 40,000 contracts in January, exceeding 1% market share for the first time, and open interest ended with approximately 200,000 contracts, an all-time record. We remain ahead of where we were with our FMX UST platform, which today has approximately 40% market share. In our experience, achieving the first 1% market share is the hardest. We are increasingly excited about the progress we are seeing with our FMX futures exchange. FMX FX ADV increased by 40% to a fourth quarter record $15,500,000,000, driven by strong growth across spot FX and non-deliverable forward volumes. The benefits of having 10 world-class partners in FMX are demonstrated by ADV more than doubling since the completion of the FMX transaction. Portfolio Match ADV grew by 68%, driven by stronger U.S. and European credit activity, greater adoption of algorithmic trading, and larger average trade size. Our Portfolio Match business has seen tremendous growth since its launch, and today, we estimate it represents nearly 20% of the credit sweep market in the United States. Lucera, Fenics’ network business, providing critical real-time trading infrastructure to the capital markets, grew its revenues by 24.1%. This strong growth was driven by increased demand for Lucera's FX and rates solutions, continued international expansion, and onboarding of new clients. Lucera's client pipeline continues to expand and we plan to launch additional fixed income products in 2026. And with that, I would now like to turn the call over to Jason. Thank you, John, and hello, everyone. BGC generated record fourth quarter revenues of $756,400,000, reflecting growth across all of our geographies. EMEA revenue increased by 39.2%, Americas revenues increased by 25.7%, and Asia-Pacific revenues increased by 24.2%. Jason Williams Hauf: Turning to expenses. Jason Williams Hauf: Compensation and employee benefits under GAAP and for adjusted earnings increased by 71.8% and 40.1%, respectively. The increase in compensation and employee benefits under GAAP was related to charges due to the cost reduction program, the acquisition of OTC, higher commissionable revenues, loan forgiveness, and the weaker U.S. dollar. The increase in compensation and employee benefits for adjusted earnings was driven by OTC, higher commissionable revenues, and the weaker U.S. dollar. Charges related to the cost reduction program and loan forgiveness are excluded from adjusted earnings. Non-compensation expenses under GAAP and for adjusted earnings increased by 25.5% and 27.1%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 13.5% and 14.7%, respectively. We completed the first phase of our cost reduction program during the fourth quarter, which will realize $25,000,000 of annualized cost savings in 2026. Further cost efficiencies are expected to be realized throughout the year. Jason Williams Hauf: Moving on to our record fourth quarter adjusted earnings. Jason Williams Hauf: Our pretax adjusted earnings grew by 24.5% to $161,300,000, representing a pretax margin of 21.3%. Excluding the impact of OTC, our pretax margin would have been 23.2%. And excluding both OTC and the weaker U.S. dollar, our pretax adjusted earnings margin would have been approximately 23.7%. Post-tax adjusted earnings increased by 21.1% to $149,600,000, resulting in a post-tax adjusted earnings per share of $0.31. Our adjusted EBITDA decreased by 0.8% to $190,600,000 due to charges related to the execution of the cost reduction program. GAAP income from operations before income taxes decreased 8% to $25,000,000. This included $54,800,000 of charges from the cost reduction program, the cash impact of which was $28,100,000. Jason Williams Hauf: Turning to share count. Jason Williams Hauf: BGC's fully diluted weighted average share count for adjusted earnings was 490,400,000 shares during the period, a 0.8% decrease compared to 2025 and a 1% decrease compared to a year ago. As of December 31, our liquidity was $979,100,000 compared with $897,800,000 as of year-end 2024. With that, I would like to turn the call back over to Sean to go over our first quarter outlook. Sean A. Windeatt: Thank you, Jason. I am pleased to provide the following guidance for 2026. We expect to generate revenues of between $860,000,000 and $920,000,000, as compared to $664,200,000 in 2025. The midpoint of our guidance would represent approximately 34% revenue growth. Excluding OTC, we expect our first quarter revenues to grow around 15% at the midpoint. We anticipate pretax adjusted earnings to be in the range of $202,000,000 to $222,000,000 versus $160,200,000 last year, which at the midpoint of guidance would represent over 32% earnings growth. We expect our adjusted earnings tax rate to be between 11% and 14% for the full year 2026. With that, operator, we would like to open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Patrick Malcolm Moley with Piper Sandler. Please proceed with your question. Patrick Malcolm Moley: Yes. Good morning. Thanks for taking the question. Wanted to ask about the first quarter guide. It came in much better than we were expecting, and it appears like the organic revenue growth is stepping up there. So I was hoping you could dissect that a little more for us. How much of the step-up in growth is driven by just a strong trading environment year-to-date versus maybe some more sustainable fundamental growth drivers across the business? Thanks. Sean A. Windeatt: Thanks, Patrick. Sean here. Look. I think as I said in the prepared remarks, we have grown our core revenue, if you like, our same-store revenue 13%, 12%, 15% each year. And in the implied guidance, it is 15% again. You will remember that we said with the introduction of interest rates, the market itself was regrowing again. And you have seen that for the past three years, and now you are seeing it in our guidance this time. Sean A. Windeatt: It is driven not just in ECS, but where we have gained market share, and I think we also have the benefit of becoming the number one player within that business. And then we have also had strong growth and strong market share gains due to the various hirings that we have done over the past year or so in both rates and in foreign exchange. And you have also seen across the board, you have seen that in FX and equities as well. Patrick Malcolm Moley: Okay. Great. Thanks for that. And then a follow-up. You sold KACE. Just wondering how you are thinking about the portfolio of businesses today within Fenics. What drove the decision to sell that business? Was it just opportunistic, or should we maybe expect future divestitures? Thanks. Sean A. Windeatt: Look. I think we have sold two businesses that were sitting within Fenics now. In the last year, they had revenues of around about $27,000,000, and we sold those for just under $165,000,000. And our view has always been the same, which is it is all about shareholder value. And if someone is prepared to pay something that is an appropriate value for our shareholders, then that is great. Both of those businesses were lower-growth businesses for us. I think they will do fantastically well in the hands of their new owners. And what it allows us to do is to focus on those higher-growth things that you mentioned within the Fenics portfolio. I mean, you saw, I think, in John’s prepared remarks, he said that Lucera grew 24% again this quarter. Our Portfolio Match business growing again at strong double digits. So the answer is we always remain open for if it is not getting the value within our company, but it is all about shareholder value. Patrick Malcolm Moley: Okay. Sean A. Windeatt: Thanks, Sean. Operator: Thank you. Our next question comes from the line of Elias Noah Abboud with Bank of America. Please proceed with your question. Good morning. Thanks for taking the question. John Joseph Abularrage: I wanted to follow up on Elias Noah Abboud: Patrick’s energy segment question and still trying to unpack, I guess, what is structural from what is cyclical growth here. And to that end, could you maybe talk about the extent to which you are seeing new logo growth in the energy space? Or are there firms who maybe two years ago did not think it was necessary to hedge their energy exposure, but now with all of this volatility are revisiting that decision and maybe becoming clients of BGC Group, Inc’s ECS segment for the first time. John Joseph Abularrage: Hey. Morning, Eli. It is John. So, yes, the answer is that in the ECS business, there is a proliferation of new players in that asset class, both when you talk about hedging, what is real risk, and new players who are entering on the traditional buy side. So we are definitely seeing the benefit of that. Of course, there is some cyclical growth, but I think if you look at our market share and where I would say we are outperforming the market, those are based mainly on areas where we chose to invest and to enter into those markets over the last couple of years. So we are seeing across the board good performance in our ECS business. At the moment, you are seeing really great performance from the biggest asset classes that we have invested in, so oil, refined products, power, natural gas, and, of course, our shipping business. So the market environment is good, but I would say we continue to expand our client base and continue to gain market share. Elias Noah Abboud: Got it. And has your ECS market share yet exceeded the, I guess, the combined market share BGC Group, Inc and OTC Global as stand-alone entities? I know you had in the past couple of calls said there would be situations where maybe one plus one equals three as you go to integrate those businesses. Are there any proof points, any evidence yet of that that you can share with us? John Joseph Abularrage: So I am not—we do not think we are breaking it out, but what I will say is without question, the answer to that is yes. So the benefits of acquiring OTC have become evident in the products that I just mentioned. So our number one positioning in oil, in gas, in refined products has been augmented certainly in a greater way than just one plus one. And so we are seeing the benefits of that. And we are also seeing strong benefits where we have combined parts of the traditional BGC business with the existing OTC business to create, as you know, Elias, you and I have discussed historically, very, very strong global brands under the BGC umbrella. Elias Noah Abboud: Got it. And I think to some extent, the pushback that we hear from investors is does your over-the-counter, your block, like, bread and butter, does that grow structurally slower than listed energy volumes? So I think maybe it would be helpful, like, if we kind of take as a given that listed energy volumes grow, let us just say, 15% per year over the next five years, does BGC Group, Inc’s volumes grow more, the same, less? How should we think about the delta? Jean-Pierre Aubin: Hey, Eli. JP here. So the block business is a growing part. Right. And we have a very—as you know, 2025, the markets were very volatile. The beginning of 2026 is no different. Jean-Pierre Aubin: So one, volatility remains the best friend of BGC business. Jean-Pierre Aubin: Second, we are the largest listed broker in the world. And the block part, the OTC part of that business is growing, and BGC is benefiting largely. I would like to mention something. We are a client of multiple exchanges. As an example, we are one of the CME’s biggest clients. So we noticed exchanges’ share price are always up in very volatile days. We should not be different. We benefit from that extra business, and we are the client of the exchanges. So we feed them in a way every day. So we consider we definitely benefit from volatility and the extra blocking business. Elias Noah Abboud: Got it. And maybe for my last one here, I know we actually have not hit on FMX futures yet. So now that market share is picking up and you guys have some momentum, what is the timetable for recognizing some revenue related to FMX futures? I think there were some fee holidays maybe in the past couple of quarters. Is there any timeline for those rolling off? And then just a follow-up, any update on Treasury futures? I think open interest there is still de minimis, and maybe that has been on the back burner. When is that going to move to the front burner for you guys? John Joseph Abularrage: Yes. So the changes in the fee structure happened two years after the deal was signed. So that is kind of the beginning of this summer when you will see the change for the early adopters—change the fee structures. I think we have said before for the futures businesses, and in general comment, we will continue to consider where that stands to make sure that it is more than competitive in the marketplace. So that was the first part of your question, and the second part of your question was on Treasury futures. And Treasury futures will come on the back of success of SOFR, meaning that we are at 1%, and we do not take the 1% lightly. But we are still on that journey, and we believe very strongly that focusing on SOFR at the moment is the right thing to do, both for building that marketplace, but also in conjunction with daily conversations with our partners. That is how we make those decisions. So the launch of Treasury futures will follow shortly behind where we get to the end of our journey in onboarding and getting SOFR to where we need it to be. Got it. Thanks, guys. That is it for me. Thanks, Eli. Jean-Pierre Aubin: Thanks, Eli. Operator: Thank you. Our next question comes from the line of Patrick Malcolm Moley with Piper Sandler. Please proceed with your question. Patrick Malcolm Moley: Yes. Thanks for taking the follow-up. I wanted to hit on something you said in your prepared remarks about launching additional fixed income products in 2026 within Lucera. Could you maybe just help us and get us a better sense for what those could be and how additive it could be to overall growth within Fenics. John Joseph Abularrage: Yes. Sure. So Lucera has got a dominant position in the FX market, as you would imagine, because that is where it started. They then rolled into rates, and you are seeing the benefits of Lucera’s fantastic position in that market and the service that they provide for clients, both in the robustness of what they do on the electronic side. And now they are moving into credit markets to bring that connectivity into an increasingly electronic world in credit. So hard to define in terms of a number because it is nascent. It is just starting. But one would guess that if they are successful in credit as they have been in the first two asset classes, that over a period of time, hopefully, it will represent a third of their revenue. Patrick Malcolm Moley: Okay. Elias Noah Abboud: Great. Thanks again, guys. John Joseph Abularrage: Thank you. Operator: Thank you. And we have reached the end of the question-and-answer session. I would like to turn the floor back to Mr. Sean A. Windeatt for closing remarks. Sean A. Windeatt: Thank you very much. And just to say thanks for joining us today on our fourth quarter and full year 2025 conference call. Look forward to speaking to you soon. Have a great day. Operator: Thank you. And this concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Welcome to Watts Water Technologies, Inc. Fourth Quarter and Full Year 2025 Earnings Call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Diane M. McClintock, Chief Financial Officer. Please go ahead. Thank you, and good morning, everyone. Joining me today is Robert J. Pagano, President and CEO. Before we begin, I would like to remind everyone that during this call, Diane M. McClintock: We may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts Water Technologies, Inc.’s publicly available filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Today’s webcast is accompanied by a presentation, which can be found in the Investor Relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. With that, I will turn the call over to Bob. Robert J. Pagano: Thank you, Diane, and good morning, everyone. Please turn to slide three where I will recap 2025 and outline the key drivers for our 2026 outlook. I want to begin by expressing gratitude to the entire Watts Water Technologies, Inc. team for their dedication and meaningful contributions which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the fourth quarter and the full year. Organic sales rose 8% and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5% and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities. We generated a record $356,000,000 in free cash flow for 2025, up 7%, reaching a conversion rate of 100%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth. Our capital allocation continues to focus on strategic M&A, high-return organic investments, competitive dividends, and steady share buybacks. Operator: Since our last earnings call, we completed two acquisitions. Robert J. Pagano: Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire tube and water tube for commercial, institutional, and industrial uses. Superior’s mission-critical heating and hot water solutions expand our customer offerings. Superior has about $60,000,000 in annual sales. Saudi Cast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for nonresidential and industrial markets. This acquisition grows our footprint in the fast-developing Middle East region. Saudi Cast annual sales are around $20,000,000. Both acquisitions are expected to be accretive to adjusted EPS in 2026 after accounting for added interest expense and normal purchase accounting adjustments. Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80/20 model within the One Watts performance system. Through this ongoing evaluation, we have identified $10,000,000 to $15,000,000 of European sales and $25,000,000 to $30,000,000 in The Americas, mainly in lower-margin retail and OEM channels that we intend to eliminate during 2026. We anticipate these changes will be neutral or potentially margin accretive in 2026. An overview of what will drive our 2026 outlook. We expect that pricing along with continued repair and replacement activity will fuel further growth in 2026. Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets. In The Americas, indicators for nonresidential new construction present a mixed picture. The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in nonresidential projects. Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses, and recreation. We also anticipate a soft single family and multifamily residential construction market through 2026. Lastly, Europe’s new residential and nonresidential construction is expected to remain sluggish. Uncertainty surrounding inflation, trade policies, interest rates might continue to hamper new construction projects. Overall, we foresee market conditions similar to those experienced in 2025. We expect to benefit over $130,000,000 in incremental revenues from the acquisitions of EasyWater, Hawes, Superior, and Saudi Cast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the One Watts performance system and realize synergies. Now let me highlight a few strategic growth initiatives including our data center and M&A strategy. On slide four, you will see examples of solutions we have developed for both air cooled and liquid cooled data centers. Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers. Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling. Other important offerings include strainers, drainage, and our Cool Vault thermal storage tanks, which serve as emergency backups during chiller restarts. Our data center initiative spans the globe, and we estimate the addressable market exceeds $1,000,000,000. In 2025, sales from this sector represented just over 3% of total company sales and are growing at a double-digit rate. We will keep investing in new products and technologies to meet evolving customer needs and believe this market will continue expanding for years. Slide five covers our acquisitions over the past three years. We finalized eight deals deploying about $660,000,000 in cash and adding around $450,000,000 in annualized revenue. These acquisitions have broadened our product range, expanded channel access, and increased our geographic reach. Just as importantly, they diversified our end market exposure and shifted our mix toward higher-growth, higher-margin, nonresidential, institutional, and industrial segments. By leveraging the One Watts performance system, driving value through successful integration, synergy realization, and improving margins. Despite the typical early-stage margin dilution from acquisitions, we have expanded adjusted operating margin by 320 basis points in three years. We are proud of our performance and pleased to add such quality brands to our portfolio. With that, I will hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026. Diane? Diane M. McClintock: Thank you, Bob. Let us now turn to slide six, which outlines our fourth quarter results. Sales reached $625,000,000 reflecting a 16% increase on a reported basis and an 8% increase organically. The Americas region delivered strong organic growth of 10% and reported growth of 17%, exceeding our expectations. This performance was supported by favorable price and volume, including the benefit of one additional shipping day and growth from data center sales. Acquisitions accounted for an additional $27,000,000 in sales, contributing seven percentage points to The Americas reported growth. In Europe, organic sales rose by 1% while reported sales increased 10%. Organic growth stemmed from favorable pricing and the extra shipping day, while reported sales also benefited from positive foreign exchange effects. In APMEA, organic sales grew 9% with acquisitions adding 6% for total reported sales growth of 15%. Adjusted EBITDA totaled $134,000,000, an increase of 28%, with an adjusted EBITDA margin of 21.4%, up 210 basis points year over year. Adjusted operating income of $119,000,000 increased 31% and adjusted operating margin improved 220 basis points to 19%. These improvements were primarily driven by favorable pricing and productivity gains, more than offsetting inflationary pressures, volume deleverage in Europe, tariffs, and acquisition dilution. Segment margins were as follows. The Americas increased by 150 basis points to 23.3%. Europe increased by 490 basis points to 15.1%, while APMEA decreased slightly by 20 basis points to 17.3%. Adjusted earnings per share equaled $2.62 representing a 28% year-over-year increase, with operational performance, acquisitions, and foreign exchange gains outweighing higher tax and net interest expense. Turning to full year results, please refer to slide seven. As previously noted, we achieved record operating results for 2025. Total company sales were $2,400,000,000, up 8% on a reported basis and 5% organically. Organic growth in The Americas and APMEA reached 8% and 5%, respectively, partially offset by a challenging year in Europe where organic sales declined by 5%. Acquisitions contributed $52,000,000 or 2% of incremental sales growth, and favorable foreign exchange added another 1%. Adjusted EBITDA for the year was $534,000,000, up 18%, and adjusted EBITDA margin improved by 180 basis points to 21.9%. Adjusted operating income rose 19% to $477,000,000 resulting in 19.6% operating margin, up 190 basis points. These increases reflect the benefit of price, volume, and productivity gains which more than compensated for inflation, European volume deleverage, tariffs, and acquisition-related dilution. Segment margin in The Americas increased to 24.5%, up 190 basis points. Europe increased to 13.3%, up 160 basis points. And APMEA remained flat at 18.3%. Adjusted EPS was $10.58, up $1.72 or 19% compared to prior year, with benefits from operations, acquisitions, favorable foreign exchange, and lower net interest expense exceeding higher tax costs. For GAAP reporting, after-tax charges of $22,300,000 were recorded related to restructuring and acquisition-related costs, partly offset by an $8,300,000 tax benefit from the reversal of a prior year tax liability. Free cash flow reached $356,000,000, a 7% increase from 2024, setting a new company record. This was primarily driven by higher net income, lower tax payments due to changes in U.S. tax regulations, and contributions from acquisitions, which more than offset higher inventory investment and capital expenditures. Free cash flow conversion was 105%. Our balance sheet remains strong and continues to support our disciplined approach to capital allocation. In 2025, we returned $83,000,000 to shareholders through dividends and share repurchases, increasing our annual dividend payout by approximately 20%. On slide eight, we will review our outlook for the first quarter and full year 2026. The outlook for 2026 is based on the anticipated market conditions discussed earlier. For the full year, we anticipate reported sales growth of 8% to 12%, and organic sales growth of 2% to 6%. Excluding the impact of product rationalization, our organic sales growth would be approximately 2% higher. Organic sales in The Americas are expected to increase by 3% to 7% driven by price and volume, especially within data centers, more than offsetting anticipated product rationalization headwinds of $25,000,000 to $30,000,000. Price contribution will be higher in the first half, particularly Q1, due to carryover effect of prior year tariff-related price increases. In Europe, organic sales are projected to range from a 4% decline to flat as favorable price is offset by lower volume, partly due to $10,000,000 to $15,000,000 in product rationalization. APMEA is expected to achieve organic growth between 4% to 8%. Additionally, we anticipate incremental sales from acquisitions of between $110,000,000 and $115,000,000 in The Americas and between $18,000,000 and $20,000,000 in APMEA, with foreign exchange favorability estimated at $18,000,000. We expect adjusted EBITDA margin to be in the range of 21.5% to 22.1%, and the adjusted operating margin between 19.1% to 19.7%. Margin expansion from price, volume leverage, and productivity and restructuring savings is expected to be partially offset by inflation and 50 basis points of acquisition dilution. Regionally, The Americas segment margin is anticipated to decrease by 50 to 110 basis points mainly due to approximately 100 basis points of acquisition dilution. Europe segment margin is expected to be down 30 basis points to up 30 basis points and APMEA is estimated to increase by 30 to 60 basis points. This guidance assumes no changes to the current tariff environment. We expect free cash flow conversion at or above 90% of net income for 2026 reflecting planned investments in automation in our core operations and with our new acquisitions, investments in our data center capabilities, and investment in our SAP implementation. Key considerations for Q1. Reported sales are expected to increase 12% to 16% with organic sales up 4% to 8%. We anticipate high single-digit growth in The Americas, low single-digit decline in Europe, and low single-digit growth in APMEA. These estimates incorporate a negative impact from product rationalization of approximately $1,000,000 in Europe and $6,000,000 in The Americas. Incremental sales from acquisitions projected at $25,000,000 to $30,000,000 for The Americas, and around $5,000,000 for APMEA, with a foreign exchange benefit estimated at $13,000,000. First quarter EBITDA margin is expected to be between 21.1% to 21.7%. Operating margin is expected to be between 18.6% to 19.2%. Price and volume leverage in The Americas and APMEA are anticipated to be offset by volume deleverage in Europe and acquisition dilution of approximately 70 basis points. Additional key assumptions for the first quarter and full year are available in the appendix of the earnings presentation. With that, I will turn the call back over to Bob before moving to Q&A. Operator: Bob? Robert J. Pagano: Thanks, Diane. Let us move to Slide nine, where I will summarize before taking questions. In 2025, we posted strong outcomes across the board: record Q4 and full year sales, operating income, EPS, and free cash flow. We continue investing in strategic growth and productivity programs including data center solutions, our Nexa digital strategy, and factory automation for enhanced efficiency. Five strategic acquisitions in 2025 further diversified our business and market reach. Our broad portfolio is resilient, and our teams are positioned to capitalize on growth opportunities, including institutional and data centers. Our model, driven largely by repair and replacement, ensures steady revenue and cash flow. Our balance sheet remains strong and provides flexibility to support our balanced capital strategies. The M&A pipeline is active, and we plan to pursue appealing opportunities to expand our solutions and global presence as we aim for sustainable profitable growth. With that, operator, please open the line for questions. Operator: We will now open for questions. To ask a question, press star then the number one on your telephone keypad. We ask that you please limit your questions to one and one follow-up. Our first question will come from the line of Nathan Hardie Jones with Stifel. Please go ahead. Robert J. Pagano: Good morning, everyone. Morning. Morning, Nathan. I am going to start with a question on M&A. Obviously, the level of M&A that you have done over the last couple years has picked up. And it looks to be something that is going to be a little more serial. Nathan Hardie Jones: And a little more of a contributor to the earnings growth over the next several years. So I am just interested in hearing a bit more about your philosophy around M&A, kind of, you know, on average over the next few years, what percentage of revenue you would like to be able to acquire, leverage targets that you would be comfortable going to. Just any more color you could give us around that given it is becoming a bigger piece of the value driver for Watts Water Technologies, Inc. Thanks. Robert J. Pagano: Thanks, Nathan. But as you can imagine, we certainly have a healthy balance sheet that does that. We cultivate acquisition targets for many, many years and sometimes they break. And certainly, this year, you know, five of them broke, which is exciting. So M&A has always been a key part of our strategy. It has to make strategic and financial sense, obviously, and it also has to fit our culture. And making sure the cultures work together. So we will continue to be active as we always have been. The teams are focused on this. Where it makes sense and where it makes financially attractive. But certainly, we would like to deploy capital. You know, we look at small, medium, and large acquisitions. Certainly, in this environment, we would not want to leverage more than two, two and a half at this point in time. But, again, it just depends on how fast cash flow, you know, drives repayment of debt. So anyways, those are philosophically what we are looking at, but team is focused on it where it makes sense. Nathan Hardie Jones: And do you need things that are going to be, yeah, accretive to earnings in the first year? Return on invested capital 10% by year three or year five, or what are the kind of hurdles that you are looking at when you are looking at these kinds of deals? Diane M. McClintock: Yeah, Nathan. Those are our key criteria. We like to have the acquisitions be accretive to EPS in year one. Try to get our EBITDA margins up to Watts Water Technologies, Inc. level between year three and year five. We have been pretty successful at that with the acquisitions we have had so far. You know, it is not, there are opportunities sometimes where you may not get your EPS accretive in year one, but those are certainly our key criteria. Nathan Hardie Jones: I will just sneak one in on data center seeing as you highlighted it in the deck. 3% of sales is a meaning amount. Bob, you talked about it growing double digits, which is a pretty wide kind of range. Any more color you can give us on what kind of a bit more narrow range for double digits and potentially what you think that business could get to over the next few years? Thanks, and I will pass it on. Robert J. Pagano: Yeah. I mean, it is the higher end of the double digits, would say. And certainly, it is a key focus of ours. You know, Asia Pacific was the leader of that several years ago. Now America is taking that, and America is over half of that. And, you know, as long as they continue to build, we will continue to be there and provide our products to support them. So it is our fastest growing initiative that teams are focused on. Nathan Hardie Jones: Very much for taking the questions. Robert J. Pagano: Thank you. Operator: Our next question will come from the line of Michael Halloran with Baird. Please go ahead. Michael Halloran: Good morning, everyone. Good morning, Mike. So first question, just want to make sure I understand moving pieces in the organic guide. I think the 80/20 revenue is included Robert J. Pagano: In that organic number? Just want to confirm. And then, how I think about price versus volumes. At the midpoint, are volumes roughly flattish embedded in the guide? Diane M. McClintock: Yeah, Mike. That is right. The 80/20 is included in the organic guide. So the organic growth would be two points higher excluding that 80/20. And from a price volume perspective, from a full year, we kind of expect price to be low single digits. There will be a little bit of volume. Maybe more in The Americas than in Europe. And most of that volume is going to be offset by the 80/20 efforts. Michael J. Pesendorfer: Great. Appreciate that. And then and then staying on the 80/20 piece, kind of a twofold question here. Maybe just discuss what you saw this year that gave the opportunity. I think Bob, you said it was retail. Robert J. Pagano: And then secondarily, I mean, I think it was a little more than I was expecting, probably more in The Americas at this point. How much opportunity do you see broadly over the next chunk of years here to continue to push on this type of thing to streamline the organization, products, etcetera. You know, I know Europe has always been a focal point for this more consistently. So I suppose the question is a little geared to The Americas on that side. Yeah, Mike. So we are always looking for productivity through the One Watts performance system. And certainly with tariffs and all the adjustments and refocus on more, let us call it faster growing, higher margin type businesses. So we make profit on some of this retail OEM business, but really it is about focus, keeping our team focused on the growing more types of business and reallocating resources in the organization. So we will keep looking at it and keep driving it. But certainly, you know, our expectations are to gain higher returns, higher margins, and we will continue to look at it. It presented an opportunity where our team said, hey. Let us focus more on data centers and on retail. And that is what we are doing. Thank you. Thank you. Operator: Our next question comes from the line of Jeffrey David Hammond with KeyBanc Capital Markets. Please go ahead. Robert J. Pagano: Hey. Good morning. Good morning, Jeff. Jeffrey David Hammond: So, Bob, we should put you down for 99% growth in data center. Is that Robert J. Pagano: That is a little high, Jeff. Jeffrey David Hammond: Just on maybe just a quick one on data center. One, if you look at that billion dollar TAM, I am just wondering, like, how much that really has expanded as we have shifted from just air cooling to liquid cooling. Just the liquid cooling opportunity, which seems, you know, early and nascent. And then as you shift to stainless, can you talk about how that impacts price mix within data center? Robert J. Pagano: Yeah. So certainly, the stainless steel is growing faster as you are seeing the shift there, and we are moving towards that. And stainless steel, because of its metallurgies and properties, is more of a solution. So it has higher margins. So the teams are focused on that. Driving that, and, you know, that will be accelerating our growth into the market. And we took that into consideration when we did develop the basically $1,000,000,000 plus market. Jeffrey David Hammond: Okay. And then I was at your HR booth, and a lot of excitement around Nexa, but also this EasyWater, which I know is small, but it seems like the technology is pretty disruptive and seems like they could benefit from your scale and manufacturing expertise. Maybe just talk about uptake on Nexa as you roll it out. And maybe a little more on this EasyWater deal and the opportunity there? Robert J. Pagano: Yeah. Well, Nexa is, you know, you certainly see the focus, the buzz is, you know, it is getting out there. We are excited about it. We are making very good progress. We completed the installation of a very large real estate investment group in their house with their hospitality properties and we are gaining, they have gained significant insights and benefits. And we are also growing in other hospitality and stadiums and multifamily. So we are excited about the growth. A lot of potential there. But I think as I have told many of you, that also supports selling our core products. And that is where we are focused on. In EasyWater, what they are known for is their salt and chemical free treatment solutions, which, you know, they are offsetting a lot of places that use chemicals. And certainly, you know, using less chemicals is obviously more environmentally friendly, etcetera. So that is an opportunity. It was something we had smaller versions of that in our portfolio, and now we are expanding that. So, yes, we are really excited about that. There are many opportunities. There are some new codes out there in the health care industry that are on things like medical device cleaning, etcetera, which should be a nice fit for that, you know, because there are no chemicals. So yeah, the teams are excited, and I am glad you saw the momentum inside the booth. Jeffrey David Hammond: Great. Thank you. Michael J. Pesendorfer: Thank you. Operator: Our next question comes from the line of James Kho with Jefferies. Please go ahead. Robert J. Pagano: Good morning. Thanks for taking questions here. I wanted to touch on the data center. Good morning. Yeah. I wanted to talk about the data center here again. You kind of talk about like, competitive landscape for cooling valves? And who are the main competitors, and what share do you estimate you have today? And what are kind of the risk if new competitors kind of enter into the market? Well, certainly, you know, we do not talk about competitors usually in general, but I would say there is a handful of competitors. In this market, it is about quality, delivery, and reputation and standing by the product. So we are, you know, I would say we are in the top three competitors in this area based on the products we sell. And I would say we have gained a great reputation based on our performance in the industry. And so different people can enter it, but you have to make sure you have the reputation. With our 151-year history, I think that gives us credibility, and we have been delivering on time and having great results with our customers. So that is a key area of focus for us, and, you know, we will continue to grow, and we believe it is a great opportunity in more working with the general contractors, the architects, and the entire value chain. And, you know, penetrating more into the hyperscaler. So it, you know, that just does not happen. It takes time to do that. And our multiyear effort here is starting to really pay off. Great. Thanks for the color. And I guess touching on the Europe margin here, Shashank Patel: Obviously, it improved pretty meaningfully this quarter in 2025. Looking at 2026, I think you are guiding for roughly flattish. So, does that kind of suggest that restructuring benefits are largely done, or are there still more margin opportunities remaining in that region. Diane M. McClintock: Yeah. Hi, James. Q4 really benefited from that extra shipping day and some of the volume leverage in Q4. We expect volume to be muted in 2026. We do expect to continue to get some of the restructuring savings, primarily really in the first quarter. And in the second quarter, it will trail off after that. But we are expecting to have some headwinds with the 80/20 as well and with volume deleverage. Also, a little bit of the mix is at play there. Michael J. Pesendorfer: So Diane M. McClintock: But we expect margins will be flat. As you know, we are always a little bit cautious on Europe when we are starting the year, and we will see how things go as we go through the year. Shashank Patel: Great. Thanks for taking questions. Robert J. Pagano: Thank you. Operator: Our next question comes from the line of Jeffrey Hammond with RBC Capital Markets. Shashank Patel: Good morning. Thanks for all the detail thus far. Andrew Jon Krill: It is really great to see the data center opportunity highlighted. I was hoping, can you just walk us through your go-to-market model in data centers? Are you selling through distribution directly to liquid cooling OEMs? Are you engaging with hyperscalers? And also, how customized are your solutions here versus more standardized? Robert J. Pagano: We are playing with all of those. We are leveraging our distribution chain as well as working with general contractors all the way through the value chains. We have to hit all of them for various reasons, and it depends on what type of product. I would say, for the most part, these are more standardized products. We are starting to work with them on more technical finite solutions on that, and that is as we grow with confidence in them in going up the value chain. So yeah, it has been an exciting ride and we are working very closely and with all of them. Andrew Jon Krill: That is great to hear. As you scale your data center deployments, is there a meaningful opportunity for Nexa or digital monitoring solutions here? Maybe how should we think about the long term opportunity? Robert J. Pagano: Yeah. That is an opportunity for the long run. Right now, they have their own systems that they have developed over many years. The last thing we want is a new system. But we are leveraging some of our smart and connected products where it makes sense with them. So those would be the next evolution we are working with them on that. And but right now, that is early innings on that. Andrew Jon Krill: Got it. Thank you. Robert J. Pagano: Thank you. Operator: Our next question comes from the line of Andrew Creel with Deutsche Bank. Please go ahead. Jeffrey David Hammond: Going back to the, you know, Michael J. Pesendorfer: Good morning. So 2026 organic Andrew Jon Krill: Sales guide for The Americas. I was hoping you could put a little finer point on the level of growth or declines you expect for some of your bigger verticals. You know, institutional, commercial, and then in resi, you know, single family multifamily, maybe just some help on how you are thinking about those different markets? Thanks. Robert J. Pagano: Yeah. So when we look at the residential, we are to be down, right? Single family, low single digits. Multifamily, mid single digits. Institutional, we are seeing up low single digits. Data centers up double digits, and I would say all the other commercial types of businesses would be down low single digits. So that is how we are kind of framing it. Very similar to what we saw here in last year in 2025. Kind of the markets are kind of about the same here, maybe a little more softness in residential than what we saw, but that is how we are framing it at this point in time. Shashank Patel: Okay. Diane M. McClintock: Great. That is helpful. And then going back to 80/20, you know, I think the Michael J. Pesendorfer: Acceleration to it being a two point headwind, you know, it had been, I think, a Andrew Jon Krill: Point or a little bit less in 2025. Just what Michael J. Pesendorfer: Were these existing businesses you just found new opportunities? Or like, what changed? And then as we look forward into 2027, do you think Andrew Jon Krill: This could flip to being more neutral or maybe it is even a positive as, you know, you start to overserve, you know, some of your better customers. Thanks. Robert J. Pagano: Yeah. So, again, we look at the portfolio. I think in the residential section, it has been more competitive, especially after all the tariffs and stuff. And, you know, we are always looking at making sure we have differentiated products and solutions that customers are going to pay for. Right? So in the end, we are trying to get rid of lower margin type products and focusing our teams on higher margin business. So we have identified a portion of that that, you know, it is just not worth us spending the time and effort, and it is better for us to reallocate our resources to the faster, higher growing margin businesses. So that is all it is. We took a second look, another look, especially after all these tariffs have settled down and pricing actions and looked at this and where we are going and said it is time to exit some of this business. Diane M. McClintock: And, Andrew, just a little more color on that. It is products and channels within our core Americas business. So it is not within the acquisition. It is our core Americas business. Retail and OEM. Shashank Patel: Thank you. Our next Operator: Question will come from the line of Ryan Michael Connors with Northcoast Research. Please go ahead. Jeffrey David Hammond: Good morning. Morning. Good morning, Ryan. I am not going to ask about data centers. Ryan Michael Connors: Although I would say your call is going to screen really well here with the AI bots on the data center mentions. So I might set a new record. But, yeah, back to the basics. You know, talk about price for a minute. I was a little bit surprised, underwhelmed, I guess, would be the word. Low single-digit price you mentioned, Diane, in 2026. When I think about copper year to date and the fact that we have set a new record there, I was just curious how that fits into the equation on these thoughts around price. I know we have taken a lot of price the last few years. Just kind of reset us with the move in copper, how we feel about price cost going forward. You know, just conceptually. Diane M. McClintock: Yeah. So we expect, certainly, we expect higher price in the first quarter as we carry over some of the price increases we had in the fourth quarter. So think about that as higher in Q1 and then ramping down over the year and probably averaging out to maybe low single digits. But we expect to be high single digits Q1 and then sequentially going down after that across the year. In terms of copper, we are watching that very carefully. Bob, do you want to add some color on that? Yeah. I mean, we are looking at copper just like you are, Ryan. And, as you know, we are not Robert J. Pagano: Bashful about pushing prices. So if this continues, we will probably be looking for another price increase mid-year. Operator: Yep. Ryan Michael Connors: Okay. Yeah. That is kind of what I figured. Okay. And then just a real quick one on, so you have talked quite a bit in the Q&A here about these product lines you are exiting. And I am just curious the mechanics on that. So these are not any kind of divestiture. There is no monetization here. We just literally stop taking orders, kind of just stop making the products, and let whoever else is out there take that share. I mean, is that what happens here? You just sort of just walk away? Robert J. Pagano: Or walk away from various channels. Of inventory. In other words, we will still make it and sell it through other channels, but some of the channels we are deemphasizing based on competitive nature and profitability in those markets. Ryan Michael Connors: Oh, I see. So it is not a product walk away. It is just on the channel. I see. Okay. Helps so much. Thanks for your time. Shashank Patel: Thank you. Hey, Ryan. Thank you. Operator: Our next question comes from the line of Joseph Craig Giordano with TD Cowen. Please go ahead. Michael J. Pesendorfer: Hi. Good morning. This is Chris on for Joe. Good morning, Chris. The fifth. Good morning. For the 2026 Americas guide, could you elaborate on how much growth is anticipated from repair, replace versus new construction? Robert J. Pagano: Yeah. I mean, we usually, you know, basically repair replace. We assume GDP, right? So around 2%. That is kind of what we are assuming on repair and replace. Got it. And Michael J. Pesendorfer: Could you elaborate on how you are set from a capacity standpoint to meet the demand from the data center end market? Robert J. Pagano: Yeah. So we are leveraging our global supply chain in our facilities around the world, whether it be in North America, Europe, and our facilities in Asia Pacific, and our global supply chain. So we have been adding capacity, building capacity, and, you know, we feel good about our ability to ramp up for this market. Michael J. Pesendorfer: Thank you very much. Robert J. Pagano: Thank you. Thank you. Operator: Again, that is star one for any questions, and our next question comes from the line of Brian Blair with Goldman Sachs. Brian, you might be on mute. Shashank Patel: Hello? Can you hear can hear you now. Good morning. Michael J. Pesendorfer: Okay. Sorry about that. Good morning. Yeah. Just a couple questions around the outlook. A lot has been covered already on the call. But when I look at the top line outlook here for 2026, Andrew Jon Krill: You know, it seem to be growing well ahead of many water peers at, you know, the 2% to percent organic, which actually, you know, two points lower due to the 80 as you mentioned, so even better than on paper. Maybe kind of walk us through what is Michael J. Pesendorfer: Driving some of that performance. Is it price? Is it geo? Is it specific end markets? Just seems like you guys even off of a good 2025 performance. Position better here in terms of growth versus peers? Robert J. Pagano: Yeah. I think it is a combination of all of the above. Right? We are leveraging the institutional market, the data center market, certainly price, repair and replacement is growing. Again, our new solutions, which are around Nexa and I would call some of our electrification products in our heating and hot water solutions group with our Aegis heat pump. So again, those are all growing and we are leveraging those capabilities. As you know, we have been investing a lot in R&D and we are starting to see the benefits of some of that new product even in difficult markets. Michael J. Pesendorfer: Yep. Fair enough. And then on the margin guidance here as well, you called out the 50 basis points of dilution due to acquisitions. Andrew Jon Krill: If you strip that out, I think you guys would have been guiding to basically a typical annual margin expansion targets that you have maintained for the past several years. How should we think about sort of the recapture of that margin into the out years Nicklaus Marin Cash: As you kind of realize some of these synergies. Is that something that comes right back in 2027? Robert J. Pagano: Yeah. I mean, that is our goal and focus as an organization. 30 to 50 basis points improvement on margins or operating income. Really at that point. And we will get that through leveraging the One Watts performance system, through factory automation, productivity initiatives, and some of our products that are, you know, we can charge higher prices because they are having better solutions to our customers. So again, it is not just one thing, it is a combination of things that give us confidence that we will continue to grow the 30 to 50 basis points on a go-forward basis. Nicklaus Marin Cash: Okay. Appreciate the color. I will pass it on. Thank you. Robert J. Pagano: Thank you. Operator: And that will conclude our question and answer session. I will hand the call back over to Robert J. Pagano for closing remarks. Robert J. Pagano: Thank you for joining us today. We appreciate your ongoing interest in Watts Water Technologies, Inc. and look forward to speaking with you again in May for our first quarter results. Have a great day, and stay safe. Operator: This concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation Plc Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, thank you. I would now like to turn the call over to Ian MacPherson. You may begin. Ian MacPherson: Thank you, operator, and welcome, everyone, to Noble Corporation Plc’s Fourth Quarter 2025 Earnings Conference Call. You can find a copy of our earnings report, along with the supporting statements and schedules, on our website at noblecorp.com. We will reference an earnings presentation that is posted in the Investor Relations page of our website. Today’s call will feature prepared remarks from our President and CEO, Robert W. Eifler, as well as our CFO, Richard B. Barker. We also have with us Blake Denton, Senior Vice President of Marketing and Contracts, and Angeli Kolaja, Senior Vice President of Operations. During the course of this call, we may make certain forward-looking statements regarding various matters to our business and companies that are not historical facts. Such statements are based upon current expectations and assumptions of management and are therefore subject to certain risks and uncertainties. Any factors could cause actual results to differ materially from these forward-looking statements. Noble does not assume any obligation to update these statements. Also note, we are referencing non-GAAP financial measures in the call today. You can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, in our earnings report issued yesterday and filed with the SEC. I will now turn the call over to Robert W. Eifler, President and CEO of Noble Corporation Plc. Thanks, Ian. Welcome, everyone, and thank you for joining us. Today, I will walk through our financial and operational highlights, recent commercial wins, market outlook, including our semiannual review of deepwater rig demand around the world, and a brief update on our fleet strategy. Richard will then provide a financial overview, and I will wrap up with closing remarks before we go to Q&A. Starting with Q4, we reported adjusted EBITDA of $232,000,000 and free cash flow of $35,000,000, bringing adjusted EBITDA for the full year 2025 slightly above the $1,100,000,000 midpoint of our original guidance. We have maintained our return of capital program, returning an additional $80,000,000 to shareholders through our $0.50 per share quarterly dividend in Q4. Yesterday, our board declared a $0.50 per share dividend for the current quarter. Turning to the commercial highlights, we have continued to see strong booking levels across our fleet, with backlog increasing to $7,500,000,000. First, the Noble Great White has been awarded a three-year contract with Aker BP in Norway valued at $473,000,000 including mobilization, but excluding additional fees, integrated services, and bonus potential. This marks the Great White’s first campaign in Norway and represents a significant step in expanding our presence on the Norwegian Continental Shelf and deepening our important relationship with Aker BP. We expect CapEx of approximately $160,000,000 for the rig’s reactivation, Norwegian certification, and contract preparation. This is a highly strategic investment with a compelling return profile, as we anticipate total EBITDA potential of approximately $240,000,000 over the three-year contract period. Essentially targeting a recovery of the capital in the first two years of the program and positioning the Great White very well for the future as one of the most technically capable units in the Norway floater market. And, of course, the access to the Norway market should result in a structural enhancement to the long-term earnings profile and NAV of the rig. Next, the Noble Johnny D’Souza was awarded a two-year contract in Nigeria. This contract, valued at $292,000,000, is scheduled to start around the middle of this year, and is followed by three one-year options. We are looking forward to redeploying the D’Souza in Nigeria following the rig’s previous campaign there from 2023 to 2025. In the U.S. Gulf, the Noble Black Rhino has recently been awarded one well plus one option well with Beacon. The firm well is an estimated 50-day workover set to start in March, and the option well is for an estimated 100 days of drilling work. Next, the Noble Developer received a three-well contract with BP in Trinidad that is scheduled to commence in early 2027 at a dayrate of $375,000, with estimated duration of 240 days plus three option wells with similar duration. As a side note, the Developer has been made available for this contract as the previously announced long-term contract with Total in Suriname, scheduled to start later this year, has been reassigned to the Noble Discoverer. Perhaps somewhat counterintuitively, our sixth-generation D-class semis actually began to realize an earlier demand recovery than some of the higher-spec seventh-gen rigs, with both the Developer and Discoverer now booked out for a combined total of nearly five rig years. Additionally, the Deliverer looks well positioned for a good amount of work that is expected to start next year. Hopefully, we will have some positive news to report on the Deliverer before too long. Staying in South America, the 11-well contract with an undisclosed operator is expected to commence late this year with estimated duration of 18 months at a rate of $300,000 per day, plus mobilization and demobilization fees and potential for performance bonus. And finally, in Southeast Asia, we have firmed up contracts for an additional five to six months of work this year, through the expansion of existing work scopes plus one additional option well. So we now expect the Viking to be solid through July, with additional opportunities under discussion that would carry term for the rig through this year and beyond. Now onto the market outlook. Despite the ongoing abundance of macro uncertainties and Brent prices hovering around five-year lows in recent months between $60 and $70 per barrel, floater contracting activity has been resilient, underscoring our customers’ multiyear planning horizon for their highly strategic deepwater assets. Including our recent contract awards, the contracted UDW rig count has now bounced back up to 105, up from a recent low of 97 early last year, and is closing in on the 2024 high watermark of 107 contracted UDW rigs. On this basis, the contracted utilization rate of the marketed fleet is 95%. That said, these figures all reflect the gross number of contracted rigs, including those which are currently idle but have contracts starting in the future. Alternatively, the number of UDW rigs currently working under contract today is 90, which represents marketed utilization of 82% on a present basis and, of course, gives rise to the soft dayrates we have seen recently. These divergent utilization statistics tell us a couple of things. First, the industry fleet has added backlog depth but has not yet fully worked through the prompt white space overhang. And second, the foundation has been set for a steadily improving activity level as we progress through this year and into 2027. Of note, six of the 14 rigs that sit idle today with future contracts in hand are Noble rigs: Noble Black Rhino, Voyager, Valiant, Great White, Johnny D’Souza, and Endeavor. We believe this is a strong indicator of improving utilization for the industry fleet and especially the Noble fleet. More on this later. Focusing on the near term, there are still about 25 UDW floaters with contracts expiring during the course of this year. For context, this is essentially the same as the fleet’s rollover profile in 2025 and does not cause concern. While this churn will still probably continue to result in some idle gaps this year, overall, the white space across the industry looks to be on the retreat. And if the overall contracting cadence remains on trend, then we would expect to see some convergence between the present and future utilization metrics. Against this firming, but not yet decisively tight backdrop, dayrates for tier-one drillships have settled at around $400,000 per day, with lower-spec units recently capturing low to high $300,000 per day. Geographically, the recent deepwater demand trend has been characterized by steady strength in South America, a slight decrease in the U.S. Gulf, and an uptick throughout other regions, including West Africa, the Med and Black Sea, and Asia Pacific. Starting first in South America, where contracted UDW demand stands at 44 total units, including 34 rigs in Brazil. Although Petrobras budget pressure has emerged as a near-term headwind, resulting in slower contract executions and ongoing blend-and-extend negotiations with contractors, including ourselves, thus far, this has been offset by increased demand from other operators, both within Brazil and elsewhere throughout the region. Later this year, the Noble Discoverer will wrap up its program in Colombia. It is planned to commence its three-year campaign with Total in Suriname. We remain in constructive dialogue with Petrobras regarding contract extensions for either or both of our two Brazil rigs, the Noble Faye Kozak and Noble Courage. Overall, with Petrobras paring back activity by a few rigs over the short term, while other operators throughout the region are net adding, we would expect South America to remain roughly flat over the year relative to today’s record-high contracted UDW rig count of 44. U.S. Gulf has softened recently, with the Noble Black Rhino’s recent contract award bringing the contracted UDW rig count back up to 21, which is one to two rigs below last year’s average level. We had predicted this slight pullback in the U.S. Gulf and it appears now that this has more or less fully played out. Next, on West Africa, where contracted UDW demand has recently rebounded to 15 rigs with the Noble Johnny D’Souza back under contract. This is an uptick from last year’s trough demand level of 12, although there is still some variability to demand in this region, with a few rigs contracted into other regions later this year. The pipeline of open demand throughout Africa remains highly promising, including at least five active or pending long-term tenders throughout Angola, Nigeria, Côte d’Ivoire, Ghana, and Namibia, plus the potential for multiple rig lines in Mozambique over the next couple of years. So overall, the West Africa plus Mozambique region appears poised to grow into a mid- to high-teens UDW rig count as these various programs come online. The Mediterranean and Black Sea has been a growth pocket, partly due to the continued expansion of Turkish Petroleum’s offshore ambitions. The region is now up to 11 rigs, up from an average of seven to nine last year, and this could expand to 12 rigs by the second half of this year with the commencement of two programs in the Med offsetting the conclusion of the Noble Globetrotter I’s contract in the Black Sea. Visibility beyond this year is not quite clear yet with a number of rigs rolling off contract by year end, but the long-term trend has been one of secular UDW demand growth. So from where we stand today, an estimated range of 10 to 12 rigs going forward looks sustainable. Continuing with Eastern Hemisphere strength, the Asia Pacific plus India region is witnessing a significant recovery with contracted UDW activity rebounding over the next year from a trough level of four rigs to eight currently. Additionally, the pipeline of open demand in the region remains robust, with over 30 rig years of active tenders and pretenders outstanding, including a variety of requirements throughout Southeast Asia, India, and Australia. All of this indicates a likely upward bias of at least a couple more UDW units through 2027. Rounding out the global picture, the harsh environment North Sea and Norway market currently represents 22 units of total floater demand, seven of which are satisfied by UDW semis, which is up by one to two units compared to a year ago. We are very excited to kick off preparations for the Noble Great White three-year program with Aker BP starting next year, and the redeployment of both the Great White and the Endeavor points to a tightening market for harsh semis. So the pathway back to 105 total contracted UDW rigs that we described on our earnings call last summer has, in fact, materialized, if anything, faster than we had hoped. This is good momentum. There is still some work to be done to arrest the recontracting churn. The average Brent crude price of $68 per barrel in 2025 was down by 15% compared to 2024, which I believe makes Noble’s 30% year-over-year backlog growth stand out incredibly well by comparison. However, I believe that a broader industry uptrend will necessarily require at least a modicum of positive upstream cash flow momentum. With both spot and long-term Brent futures hovering in the high sixties per barrel, our end markets are, for the most part, highly economic, whereas our customers’ budgets remain relatively inert, which creates friction for significant expansion in drilling activity and dayrates. The great news for Noble is that our backlog progress has already formed a strong foundation for rising utilization, EBITDA, and free cash flow, without necessarily a great deal of wind at our backs from a macro perspective. This sets us up well toward our goal of maintaining our robust shareholder returns through a transitional year in 2026 and supports visibility for a meaningful step-up in free cash flow next year even in a flat world. Before I turn the call over to Richard, I would like to provide a brief update on our fleet strategy. Last month, we completed the sale of five jackups to Borr Drilling for $360,000,000. Additionally, the $64,000,000 sale of a fixed jackup, Noble Resolve, is expected to close in Q3 upon completion of its current contract. As we continue to sharpen Noble’s strategic focus around the high-end deepwater and CJ70 jackup market, we have in the process unlocked capital available both for fleet reinvestment, in particular the highly strategic reactivation and upgrade of the Great White, as well as for preserving a highly flexible balance sheet and industry-leading shareholder capital returns program. On the jackup side, we remain fully committed to the CJ70 market in Norway and the North Sea, and we are encouraged to see early indications of the strongest utilization outlook for this fleet in many years. This aligns very nicely with our entry into the NCS floater market with the Great White next year. With that, I will now turn the call over to Richard B. Barker for the financial results. Richard B. Barker: Thank you, Robert, and good morning or good afternoon all. In my prepared remarks today, I will briefly review highlights of our fourth quarter and full year 2025 results and then discuss our outlook for 2026. Parting with our quarterly results, contract drilling services revenue for the fourth quarter totaled $705,000,000, adjusted EBITDA $232,000,000, and adjusted EBITDA margin was 30%. Q4 cash flow from operations was $187,000,000, capital expenditures were $152,000,000, and free cash flow was $35,000,000. Last quarter, we terminated the BOP service agreement on the four black ships, which increased fourth quarter CapEx by $18,000,000. For the full year 2025, we generated $3,300,000,000 in revenue and $1,100,000,000 in adjusted EBITDA. CapEx, net of proceeds from insurance claims, of $497,000,000 included approximately $25,000,000 of variable CapEx and the aforementioned CapEx for the termination of the BOP service agreement. This all resulted in $454,000,000 in free cash flow for the year. As summarized on page five of the earnings presentation slides, our total backlog as of February 11 stands at $7,500,000,000. As a reminder, our backlog excludes reimbursable revenue as well as revenue from ancillary services. Our current backlog includes approximately $2,300,000,000 that is scheduled for revenue conversion during the remainder of 2026, as well as a slightly greater amount that is already booked for 2027. This is the first instance in many years in which our year-two backlog has exceeded prompt year backlog at this point in the calendar, which highlights the embedded utilization and earnings ramp that we anticipate for 2027. I will circle back to this point in just a moment. Referring to page nine of the earnings presentation, we are providing full year 2026 guidance for total revenue between $2,800,000,000 and $3,000,000,000, which includes approximately $150,000,000 in reimbursable and other revenue, and adjusted EBITDA between $940,000,000 to $1,020,000,000. The low end of our adjusted EBITDA range is fully covered by our existing firm backlog plus a measure of relatively high-confidence options. We currently expect Q1 adjusted EBITDA to be roughly flat versus last quarter. We also anticipate a slightly higher weighting of adjusted EBITDA in the second half of the year compared to the first half, although not dramatic. Total capital expenditures in 2026 are expected to be between $590,000,000 and $640,000,000. This range includes approximately half of the $160,000,000 Great White project CapEx, with the remaining half included in the 2027 CapEx, approximately $25,000,000 of customer reimbursable CapEx, and approximately $50,000,000 of additional project-related CapEx associated with the $1,300,000,000 of contract awards we announced in late January. While our CapEx for this year is amplified by previously announced upgrade projects, including the Noble Voyager and the Noble Venturer, as well as capital associated with more recent contracts including the Great White, Endeavor, and Johnny D’Souza, these expenditures represent life-of-asset upgrades that support a fundamental enhancement to the NAV of our fleet, and all with very robust project IRRs. This capital is an important enabler to a structurally high level of potential EBITDA and free cash flow for our fleet. And as discussed earlier, this is all supported by 2027 backlog currently higher than 2026 backlog. Looking ahead to 2027 and beyond, we would expect CapEx net of customer reimbursements to taper meaningfully towards a range in the high $300,000,000s to $400,000,000, excluding the remaining Great White project capital, which is essentially how we would think about the go-forward run rate for the fleet, barring any meaningful additional contract-supported project capital. A few other elements for 2026 to consider are as follows. Firstly, we expect cash taxes to be approximately 11% to 12% of adjusted EBITDA. Secondly, during 2026, we anticipate a maximum potential outlay of up to $85,000,000 associated with the possible buyout of the BOP leases on the four black ships. This possible buyout is not included in our capital expenditure guidance. Next, we expect a favorable working capital reduction of around $100,000,000, this partly driven by CapEx reimbursables. Additionally, when modeling cash balances, recall that the sale of five jackups to Borr Drilling brought in $210,000,000 in cash proceeds last month, plus a $150,000,000 seller note. We also expect to close the additional $64,000,000 cash sale of Noble Resolve to Ocean Oilfield in the third quarter. As it relates to the Noble Resolve, we received approximately one-third of the sale proceeds as a deposit in Q4 2025. Lastly, our guidance reflects inflation rates in the low single-digit area on average across various cost components. With the significant recent advancements with our contract backlog underpinning forward revenue visibility, coupled with the anticipated normalization of net CapEx to a lower sustaining range after this year, we have increasing tangible visibility to a healthy inflection in both EBITDA and free cash flow next year. By way of illustration, assuming 13 of our 15 tier-one drillships working at current market rates, contribution from all three D rigs, and the remainder of our fleet essentially contracted at current status quo, we can envision an annualized run rate of around $1,300,000,000 in EBITDA with corresponding free cash flow of approximately $600,000,000 in 2027. With that, I will pass the call back to Robert for closing remarks. Robert W. Eifler: Thanks, Richard. To sum up, I am incredibly excited about this moment for Noble. All of the strategy and effort that our organization has invested over the past five years is truly paying off, as evidenced by our backlog build and widespread relationships with the world’s most active deepwater producers. On backlog, our outperformance is a direct result of our strategy and has differentiated Noble over the past year, fundamentally recasting our contract coverage profile and substantially underwriting the material earnings and free cash flow inflection that Richard just mentioned. In connection with several of our major contract awards, we are making significant strategic investments to support our first-choice offshore strategy. With these investments, our fleet of 15 high-spec drillships will all have owned and integrated MPD or CM/L systems. Two-thirds will be equipped with NOV’s leading-edge automation technology, including advanced robotics on several rigs, and two will feature 2,800,000-pound derricks. Additionally, the Great White’s modifications will place it as a tier-one floater in Norway, alongside our leading fleet of ultra-harsh CJ70 jackups. With all of this, we strongly believe that Noble has the most advanced automated fleet in deepwater and NCS. As Richard mentioned, the significant increase in our backlog, with over 90% of our 24 floaters now contracted, combined with the unique characteristic of having greater year-two backlog in the book than current-year backlog, serves to provide a direct line of sight to run-rating approximately $1,300,000,000 of annualized EBITDA by 2027, even without any improvement in dayrates. And with 10 of our 15 drillships already secured by long-term programs, this implies only a small handful of highly marketable rigs to be contracted in order to derisk that trajectory towards the highest free cash flow level this company has seen in over a decade. And I would further add that nothing about our near-term rollovers gives rise to significant concern, as the demand pipeline appears quite robust, resource holders continuing to look offshore for future oil and gas developments of scale with advantaged economics. This is evidenced by a 33% increase versus last year in open tenders and pretenders for floaters, which is now back to around 100 rig years of open demand in the public domain, i.e., not counting direct award opportunities. Several high-profile and long-anticipated FIDs in places like Namibia, Suriname, and Mozambique, for example, stand out as key contributors to this next leg of the offshore cycle. But as we have discussed earlier, there is considerable global breadth to the story. Previously, on our second quarter earnings call last summer, we communicated a milestone objective of $400,000,000 to $500,000,000 of run-rate free cash flow by 2026. Since that time, we have taken strategic investment decisions that have pushed the time horizon of this inflection back to 2027. However, we can now visualize around $600,000,000 of run-rate free cash flow by the second half of next year at current market rates, with significant leverage to dayrate upside beyond this. And based on the emerging utilization improvement across the global fleet, as well as the encouraging leading indicators on forward demand, we would expect to see an upward bias to dayrates from here. As we have seen before, rates can move from the low 400s to the high 400s in the blink of an eye. So it will be interesting to see where this next part of the cycle takes us. But in the meantime, we will remain laser-focused on execution and continuing to deliver value for our customers and shareholders. With that, I will turn it back over to the operator for questions. Operator: Thank you. At this time, I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad. We do request for today’s session that you please limit yourself to one question and one follow-up. Your first question will come from Arun Jayaram with JPMorgan Securities LLC. Arun Jayaram: Yeah. Good morning, Robert and team. Robert, I was wondering if you could give us your thoughts on industry consolidation. Obviously, you have seen a large merger announced earlier this week, and just your overall thoughts on the implications to Noble and your overall strategy. Yeah. I mean, look, consolidation has been the path for this industry post-COVID. Obviously, we participated in that, and then this week, there has been a really significant announcement. You know, I think with the outlook for our industry, I think consolidation is the obvious path throughout the energy complex, throughout the entire chain. It has obviously been no different for the drillers. And, you know, I would say we certainly have benefited from it through the past years. We are a better company today than when we started this journey, and I am hopeful that broadly consolidation makes the entire industry better and more capable and more efficient, because that is the path forward for the drillers. Got it. I have my follow-up, Robert. Obviously, you have been a participant, as you mentioned, in industry consolidation, including the Diamond Offshore transaction. Maersk obviously have a very capable offshore rig fleet either compete at the very high-end, high-spec end of the market. Do you feel you have sufficient scale now if the other deal does get through regulatory approval? And thoughts, do you see a window of opportunity perhaps to maybe further expand your opportunity set perhaps in the floater market? You know, obviously, you have been divesting some of your shallow water jackups. Yeah. Look, I think the answer, strangely enough, is the same today as it would have been before Monday’s announcement, that we feel we have scale. We, as I repeat myself, but we are a better company today than we were before because of the scale we have built. And there are going to be opportunities out there. We will continue to look at everything, and we will continue to be as picky as we ever have been on ensuring that any opportunity we look at sits in the right place for us as a company in terms of the type of asset and the quality of the asset. Great. Thanks a lot. Thank you. Operator: Your next question will come from Scott Gruber with Citigroup. Scott Gruber: Yes. Good morning. I want to inquire about the recent strength in the sixth-generation market. I think your recent contracts surprised the market. You know, I guess first, what is driving that? Is that just a collection of projects moving forward? Is it a bit of value buying by customers? And you mentioned prospects on the Deliverer. Just curious whether you think you can get some good term on that rig as well. Yeah. It is a good question, and, you know, not necessarily something we would have predicted a couple of years ago for sure. What I would say, I think, is our D-class semis are most of our sixth-gen rigs, and those are the most capable non-Norway semis out there. They have both moored capability and DP, and they are set up particularly well for certain types of operations. And so what I would say is for that class of three rigs, it is a project-specific right place, right time kind of phenomenon. I think it is sustainable. I do not mean to suggest that this is a window in time, but I think the fact that they have kind of contracted prior to the seventh gens is the phenomenon of being at the right place in the right time for the right projects. It is not a value decision by our customers, as you mentioned, which is a good thought, but I do not believe that is what is driving it at all. Got it. And then we have kind of long sought it. You know, the sixth gens, we need to see better utilization just to get another round of upward momentum in rates across the collective seventh- and sixth-gen marketplace. It seems like, you know, the direction of travel there is positive. And you mentioned line of sight to especially getting back to 105 UDW’s. You know, what does it take to get some upward momentum in rates? You know, just do you think you have to kind of eclipse that level as crude prices do you say subdued? Or, you know, just kind of getting back there, do you think you would inject enough tightness back into the market? Or do we need to see crude prices improve to kind of, you know, see some additional spending capacity by customers? Just some thoughts on the conditions that could drive some dayrate improvement here. Yeah. It is really a question I wish I had the answer to. I think it is a mixture of both. I think what we are seeing, this phenomenon where we are seeing higher backlog kind of in year two than year one right now, I think is somewhat crude agnostic, and I think is perhaps driven more by the realization that volume of barrels is going to have to be produced from deepwater, and those are all obviously long cycle, etc. And so I think that is more driven by this return to deepwater that we have seen play out over the last couple of years. However, you know, the incremental rigs that probably the tightness in supply and demand, you know, crude price does matter for near-term projects. And that is why we kind of outlined in our script the problem, not the answer. I personally am quite optimistic for 2027 for the reasons I mentioned in prepared remarks. But we need another, say, five rig contracts that we do not see anywhere out there today to come through to really get to an extremely tight market, call it. I am pretty confident that everything is set up to supply that. I do not think there is any reason that could not happen by 2027. Let me put it that way. But we are a little cautious to say we kind of have to see how 2026 plays out here right now. I will say I think there are a lot of contracts that are going to get announced here, not just now. Well, just across the board over the next few months. And I think that obviously should all be well received. We are including all of that in our analysis, and we are pretty hopeful that here going into 2027, we have the various pieces for a tightening market. I appreciate the color. Thank you. Operator: Next question will come from Eddie Kim with Barclays. Eddie Kim: Hi. Good morning. I will ask the pricing question in a little bit of a different way, and I appreciate all the detailed commentary on the outlook. You said recent dayrate fixtures for tier-one drillships have been in the kind of plus or minus $400,000 a day range. You pointed to a tightening market as we progress through this year. Do you think we could start seeing fixtures sometime next year in 2027 back up into the mid-$400,000 range, or does that maybe look like more of a 2028 event just based on the conversations you are having and the opportunities you are seeing out there today? Yes. I think the possibility is there. I think I would stop a little bit short of making that the base case today. But maybe it is a maybe it is a 50/50. I do not know. It is so hard to predict. But, look, I think all of the pieces are laid out, and we need just a little bit more contribution worldwide to really tighten up the market going into mid next year. You know, I would say a couple things about us specifically. One, you know, the things Richard laid out in his script are all completely without dayrate improvement. So we feel, with our unique backlog curve where we have done a lot of the 2027 work already, we feel that we are extremely well positioned for an inflection here without dayrate improvement. And then two, I would say, also, I really like the way the fleet contracting is staggered right now. So we have got a nice mix of short-term availability, long-term contracting, and then, of course, our CEAs. We price up and down. And so I think I am pretty pleased right now with the way the Noble fleet sits looking forward at everything. Got it. Thanks for that color. My follow-up is just on negotiations with Petrobras. We have not really heard any news about the London from you or anyone else. I would have thought that we might have seen something on the Faye Kozak in your fleet update several weeks ago. It mentioned negotiations are still ongoing. When do you expect these will conclude? And separately, I mean, Petrobras has a tender out for Buzios and Tupi and Mero I. Is it fair to say they are unlikely to award these contracts until those blend-and-extend negotiations have concluded? Just any thoughts there would be great. Yeah. It is a good question. Something we are tracking closely along with everyone else. You know, we are hopeful that the next couple of months bring a fair amount of news. If you look at it through Petrobras’ lens, they have an incredibly complicated set of dynamics. They have got more debarred rigs than anyone else out there. They are managing the tenders you mentioned as well as the blend-and-extends all at the exact same time, and that is a heavy lift and so could easily see how that could get pushed out a little bit past the next couple of months. You know, I would add color, kind of referring back to our remarks, that we do think maybe Petrobras rig numbers probably come down a couple of rigs. But we think non-Petrobras players in Brazil are going to basically make up that supply change in 2027. And then from there, who knows? You know, plans change, and so we are generally positive, optimistic about Brazil being, you know, kind of worst flat, which is, you know, in a really good place right now, and hopefully up by a couple of rigs over the next couple of years. Got it. Thanks for that color. I will turn it back. Thanks, Ed. Operator: Your next question will come from Fredrik Stene with Clarksons Securities. Fredrik Stene: Hey, team. Hope you are all well, and thank you for the prepared and detailed remarks on the grid market in particular. I wanted to ask a bit more about the Norwegian market because a couple moves here that you have done recently. One, obviously, signing the Great White with Aker BP and focusing your jackup fleet solely on the high heavy-duty, harsh environment market. If you take that kind of combined with your prepared remarks where you said that the outlook, I think, for these particular markets were better than you had seen in many years. Are we able to elaborate a bit on that and maybe specifically on the jackup side since the Great White’s floater role has been contracted for three years? Why what makes you optimistic, and how should we think about the jackup fleet in 2027–2028 where there is some space that definitely needs to be filled? Thanks. Yeah. It is a good question. I do not want to imply more than too much optimism. And, look, we have got contracts for the CJ70s. A number of those are in the UK sector, which is great. I am not sure that we see a renaissance in shallow-water Norway right now, so I do not want to overstate that or have that misunderstood. But we do have contracts for everything. We do have multiple customers that are looking at and considering potential jobs in Norway, so the market has expanded well past just Equinor. And, obviously, I include Equinor in the multiple customers, but, you know, I think with the rigs kind of in a steady state utilization right now and some ongoing conversations, it just feels like it is more likely to get better than worse for sure. Okay. Maybe Norway-specific stays more flat than up. But it definitely feels flat or up right now. And, you know, we think we have the most capable rigs in the world ready to go if we do get an incremental unit or two of demand in Norway. Alright. No. That is very helpful. One quick one more. Turning to the floater fleet. You have the Globetrotter I, you know, which is a little old contract. You have the Apex and that is idle. Deliverer, we seem very optimistic about, potentially having a good chunk of work from ’27 and beyond. Would you have any commentary on how you view the Ocean Apex and the Globetrotter in your fleet as we look forward? Thanks. Yeah. So on the Globetrotter, we have said before that we are effectively bidding those into intervention or niche drilling applications. So, obviously, Black Sea qualifies for that, since those rigs can go into the region pretty quickly and efficiently. You know, I think the intervention market remains out there, and we are, you know, I would say we are kind of chasing a mixture of intervention and potentially some niche programs for the Globetrotter. Apex is, you know, probably we will see what happens with that rig. So there is, I guess, less on the horizon for that rig. We are going to keep looking hard at that one. Alright. Thank you so much for your answers. Have a good day. Thank you. Operator: Next question will come from Ben Summers with BTIG. Ben Summers: Hey. Good morning, guys, and thanks for taking my question. So first on the Black Rhino, kind of just the U.S. Gulf market in general. Just kind of curious, it was a to see that rig get some work. And I know we have the 100-day drilling option, but just curious, kind of longer term there, what you think the potential is for maybe more spot work in the U.S. Gulf or potentially moving that rig elsewhere? Any color there would be helpful. Thank you. Yes. It is a good question. That is where we are spending our, myself and our marketing group, spending a lot of time on that rig. We have multiple opportunities. So I would say, you know, for 2026, we are hopeful that there is some spot work out there, but there is probably not a huge amount of upside on the rig. Hopefully, some. I think the more exciting programs for that rig really are in 2027. Those exist both in the U.S. and outside of the U.S., and we have got a couple of different opportunities with some of our closest customers globally, and we are hopeful that we can land something there. That rig is an excellent rig. It is outfitted very well for big development campaigns and obviously can perform with the best of them for shorter-term and exploration jobs as well. So we are hopeful to land something here before too long. Awesome. Thanks for the color. And kind of just more broadly, I know you guys spoke on the 2027 kind of expected demand pickup. I guess, is there any kind of concern there that projects could continue to shift to the right, I guess particularly in a market like West Africa? Are we pretty confident here that that is kind of in the past now and that demand should really begin to substantially pick up in 2027? Just kind of curious on anything here and there. Not a day that I do not wake up concerned about things getting pushed to the right. So it is obviously always a risk in our business. When you have got Brent in the sixties, it is always going to be a risk in the business. Partly why I, you know, we are not exactly calling for predicting with certainty what happens in 2027. But I will say, with all of the backlog that has been announced by Noble and our competitors, and I think an amount of backlog that will be announced here in the coming months, the number of pieces that need to fall in place for a tight 2027 are substantially lower than what we have seen in quite some time. We threw out the statistic about the kind of open demand that is out there. There are obviously direct negotiations that are in excess of those numbers. And we look at where we sit today in the year, in the rollovers, it is kind of there is no negative story about 2026 rollovers. It looks like upstream CapEx is either flat or up. And if you try to decode what that means for deepwater and commentary around it, it feels like that is a reasonable story for 2026. And for us, you add all of those together, and it gives us a fair amount of optimism for a pretty tight market in 2027. Awesome. Thank you guys for taking my questions. Thank you. Operator: Your final question will come from Keith Beckman with Pickering Energy Partners. Keith Beckman: Thanks for taking my question, guys. I had a question kind of relating around the CapEx on the nine contracts outside of the Great White. So I think it is about $50,000,000 of CapEx, and I believe you guys said it was related to the Endeavor and the D’Souza. Can you sort of bucket between those two rigs roughly what that is for me? Yeah. So I think you are talking about the incremental $50,000,000 of contract capital that we announced in conjunction with the $1,300,000,000 of backlog here about two weeks or so ago. Think about that incremental capital as kind of split between the Endeavor and D’Souza. Okay. Perfect. Awesome. And then my other question was, just relating around, and I think this was hit on maybe a little bit earlier, but just relating around the remaining five jackups. Does it potentially make sense if somebody comes in with the right price now to kind of make yourself the largest pure-play floater fleet? Just any color around that. Yeah. Like, it is a good question. No. We are committed to the CJ70s. When we announced the merger with Maersk, we chose to put our secondary headquarters as Stavanger. We have an established, extremely capable operation there, and with the addition of the Ocean Great White, some added scale. So we are pretty happy with where we sit there right now. Perfect. Really appreciate the color. Thanks for taking my questions. Thank you. Operator: And that concludes the Q&A portion of today’s call. I would now like to turn the call back over to Ian MacPherson for any closing remarks. Ian MacPherson: Thank you for joining us today, everyone. We appreciate your interest and we will look forward to speaking with you again next quarter. Have a great day. Operator: Thank you for your participation. This does conclude today’s conference. You may now disconnect.
Operator: Good morning, and welcome to Safehold Inc.'s Fourth Quarter and Fiscal 2025 Earnings Conference Call. If you need assistance during today's call, please press 0. If you would like to ask a question, please press 1. That is 1 to ask a question. As a reminder, today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President of Capital Markets and Investor Relations. Please go ahead. Pearse Hoffmann: Good morning, everyone. Thank you for joining us today for Safehold Inc.'s earnings call. On the call, we have Jay Sugarman, Chairman and Chief Executive Officer; Michael Trachtenberg, President; Brett Asnas, Chief Financial Officer; and Steve Wilder, Executive Vice President, Head of Investments. This morning, we plan to walk through a presentation that details our fourth quarter and fiscal year 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 2:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53587. In order to accommodate all those who want to ask questions, we ask that participants limit themselves to two questions during Q&A. If you would like to ask additional questions, you may reenter the queue. Before I turn the call over to Jay, I would like to remind everyone that statements in this earnings call which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold Inc. disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Now with that, I would like to turn it over to Chairman and CEO, Jay Sugarman. Jay? Thanks, Pearse, and thank you to all of you joining us today. While headwinds remain, Safehold Inc. made good progress on a number of fronts in the fourth quarter that we believe should have a positive impact on 2026. We were pleased to welcome Michael Trachtenberg as President, giving us new reach and firepower. To see Steve, Josefa, and the rest of our affordable housing team begin expanding our platform to new states and new sponsors. To have Brett and our capital markets team continue to solidify the balance sheet and drive down our cost of capital. These are all important parts of our goal to get our share price back to where it belongs. More consistent origination growth, more Carats visibility, and implementing share buybacks are some of the important themes this coming year that we believe have the potential to unlock value for shareholders. And we want to continue the work begun in 2025 to deliver tangible results in 2026. Our goals will be to add more ground lease volume in 2026 versus 2025, to find ways to get Carats value more readily recognized, and to begin utilizing our previously authorized share repurchase program when trading windows are open and market conditions make sense. Obviously, there are a lot of factors in the mix, but these are the three areas of focus that we have been working towards and we believe will support success in the coming year if we can deliver on them. With that, I would like to turn things over to Michael and Brett to recap the quarter and the year in more detail. Michael? Thank you, Jay, and good morning, everyone. In the short time that I have been with the company, I have seen firsthand the benefits gained for real estate owners utilizing modern ground lease capital and the competitive advantages of Safehold Inc.'s platform that have been carefully built out over the past nine years. It has been a privilege to meet with employees, customers, and investors to better understand the perspectives of our key stakeholders, and I look forward to engaging further with the investment community in the coming weeks and months. I am confident in our business model and the long-term value creation embedded in a diversified portfolio of institutional-quality ground leases, and I am excited to work closely with Jay, Brett, and the entire team to help guide Safehold Inc.'s next stage of growth. With that, let me pass it on to Brett to detail our fourth quarter and full-year results. Brett Asnas: Thank you, Michael, and good morning, everyone. Let's begin on slide two. The fourth quarter was productive for both new investments and capital markets activity. We closed on 10 transactions, including nine ground leases and one leasehold loan, for an aggregate commitment of $167,000,000. Eight of the ground leases were within the affordable housing sector in Southern California, and one ground lease was a market-rate multifamily development in Cambridge, Massachusetts. That market-rate transaction also included a leasehold loan which was valuable and efficient one-stop capital for our customer. Moving to ratings and capital. During the quarter, the company received a credit ratings upgrade from S&P to A- with a stable outlook. Safehold Inc. now has single-A ratings from all three major rating agencies, underscoring the high credit quality of our portfolio and balance sheet. This recognition was a strong result for the company and we are already seeing positive flow-through into our cost of capital. Also during the quarter, the company closed on a $400,000,000 unsecured term loan. This transaction effectively refinanced our nearest-term maturity due in 2027, increasing liquidity and replacing secured debt with new unsecured debt that is both low cost and freely prepayable over its term. The right side of the page details the quarter and full-year investment metrics. For the year, we closed 17 ground leases for $277,000,000 and four leasehold loans for $152,000,000 for an aggregate capital commitment of $429,000,000. The 17 ground leases included 12 affordable housing, four market-rate multifamily, and one hotel, all in major markets with underwritten coverage of 3.2x, GLTV of 34%, and an economic yield of 7.3%. At year-end, the total portfolio was $7,100,000,000 and UCA was estimated at $9,300,000,000, an approximately $200,000,000 increase from last quarter, which was primarily driven by external growth from new investments. GLTV was 52%, rent coverage was 3.4x. We ended the year with approximately $1,200,000,000 of liquidity which is further supported by the potential available capacity in our joint venture. Slide three provides a snapshot of our portfolio growth. In the fourth quarter, we funded a total of $60,000,000 including $44,000,000 of ground lease fundings on new originations that have a 7.3% economic yield, $11,000,000 of ground lease fundings on preexisting commitments that have a 7.4% economic yield, and $6,000,000 of leasehold loan fundings which earned interest at a rate of SOFR plus 5.01%. For the full year, we funded a total of $252,000,000 including $141,000,000 of ground lease fundings on new originations that have a 7.2% economic yield, $43,000,000 of ground lease fundings on preexisting commitments that have a 7% economic yield, and $68,000,000 of leasehold loan fundings which earned interest at a rate of SOFR plus 3.47%. At year-end, our ground lease portfolio had 164 assets, including 101 multifamily properties, and has grown 21x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio is comprised of approximately 38,000,000 square feet of institutional-quality commercial real estate, consisting of nearly 23,000 multifamily units, 12,600,000 square feet of office, over 5,000 hotel keys, and 2,000,000 square feet of life science and other property types. Continuing on slide four, let me detail our quarterly and annual earnings results. For the fourth quarter, GAAP revenue was $97,900,000. Net income was $27,900,000 and earnings per share was $0.39. The increase in quarterly GAAP earnings year over year was primarily driven by $3,500,000 net accretion on investment fundings offset by a nonrecurring $2,200,000 loss on the early extinguishment of debt. Excluding the nonrecurring loss, earnings per share for the quarter was $0.42, up 15% year over year. For the full year, GAAP revenue was $385,600,000. Net income was $114,500,000 and earnings per share was $1.59. The increase in annual GAAP earnings year over year was primarily driven by $17,200,000 net accretion from investment fundings, offset by a $5,100,000 decrease in management fee revenue from Star Holdings, and the same $2,200,000 loss on early extinguishment of debt. Excluding nonrecurring items, earnings per share for the year was $1.65, up 5% year over year. On slide five, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield and a 5.4% annualized yield. Annualized yield includes noncash adjustments within rent, depreciation, and amortization, which is primarily from accounting methodology on our IPO assets, but excludes all future contractual variable rent such as fair market value resets, percentage rent, or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 5.9% economic yield which is an IRR-based calculation that conforms with how we have underwritten these investments. This economic yield has additional upside, including periodic CPI lookbacks, which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate of 2.25%, the 5.9% economic yield increases to a 6.1% inflation-adjusted yield. That 6.1% inflation-adjusted yield then increases to 7.3% after layering in an estimate for unrealized capital appreciation using Safehold Inc.'s 84% ownership interest in Carat at management's most recent estimated valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today. Turning to slide six, we highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, remained flat quarter over quarter at 52%, and rent coverage on the portfolio was unchanged at 3.4x. We continue to believe that investing in well-located institutional-quality ground leases in the top 30 markets that have attractive risk-adjusted returns will benefit the company and its stakeholders over long periods of time. Lastly, on slide seven, we provide an overview of our capital structure. At year-end, we had approximately $4,900,000,000 of debt, comprised of $2,600,000,000 of unsecured debt, $1,300,000,000 of nonrecourse secured debt, $780,000,000 drawn on our unsecured revolver, and $270,000,000 of our pro rata share of debt on ground leases which we own in joint ventures. Our weighted average debt maturity is approximately 18 years, with no significant maturities due until 2029. At year-end, we had approximately $1,200,000,000 of cash and credit facility availability. We are rated A3 by Moody's, A- by S&P, and A- by Fitch, all with stable outlook. We have benefited from an active hedging strategy and remain well hedged for the short and long term. Our limited floating-rate borrowings are protected by a $500,000,000 SOFR swap locked at 3% through April 2028. We receive SOFR swap payments on a current cash basis each month. We have an additional $250,000,000 of long-term Treasury locks at a weighted average rate of 4% and current gain position of approximately $30,000,000. We recognize the value of our Treasury locks on the balance sheet but not yet on the P&L. We are levered 2.0x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.3%, and the portfolio's cash interest rate on permanent debt is 3.9%. To conclude, we saw strong production in the fourth quarter and are pleased with how the pipeline is developing for 2026, and we are well positioned to capitalize on opportunities with ample liquidity and improved debt cost of capital. And with that, let me turn it back to Jay. Jay Sugarman: Thanks, Brett. Go ahead and open it up for questions. Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for any questions. Your first question is coming from Mitch Germain with Citizens Bank. Please pose your question. Your line is live. Mitch Germain: Good morning, and congrats on the quarter and the year. Mitch Germain: Jay, it sounds like you are a bit more constructive about putting capital to work here. Obviously, a lot of your origination volume has been in the multifamily sector. Any potential willingness to invest back into office at this point? Jay Sugarman: Hey, Mitch. Good morning. I am going to throw that to Michael because we have been talking a lot about the opportunity set in 2026. Michael, you want to jump in here? Michael Trachtenberg: Hey, Mitch. How are you? Okay. I think that we are certainly going to look to expand the asset classes that we are investing in. I would say more broadly that we will be very, very particular if we look at office deals, and we are more inclined to look at other food groups. Mitch Germain: Got you. Q1 is a big quarter for office valuations. Any sense, you know, do you think that the worst is behind you with regards to some of the office downside with regards to the appraisals? Michael Trachtenberg: Yes, you are right. The first quarter is a big one. We have certainly seen a strengthening in some core markets like New York. That feels pretty good. Other places are a little bit behind, but we have seen CBRE, you know, take a pretty good whack at those. So I do not know whether we are absolutely at the bottom, but, you know, they have taken a pretty good whack at the markets that are slower to recover. Mitch Germain: Great. Last one for me. Jay, you talked about getting the Carats, I think you used the word recognized. Is it just outright sale of units? Is there anything else that you potentially have up your sleeve there? Jay Sugarman: Yes, it is a great question. Obviously one we have talked a lot about. I still believe fundamentally this is a massive asset that shareholders own that is not being recognized. I think one of the biggest issues is people still perceive it as a 100-year asset. We think we can recognize that value much, much earlier. It is tangible. It is measurable. In some respects, it is Safehold Inc.'s trust fund. Jay Sugarman: And so we are going to, you know, continue to point a spotlight at it. We are going to continue to look for things that can enable people to understand that value, whether that is liquidity or sales or monetization of some sort. But yes, we think as we start to grow the underlying portfolio again, this has to be part of the equation that shareholders factor in. We think the value is so significant that it deserves an enormous amount of our attention, and it will get it. Mitch Germain: Thank you. Operator: Your next question is coming from Kenneth Lee with RBC Capital Markets. Please pose your question. Your line is live. Kenneth Lee: Hey, good morning. Thanks for taking my question. Just one follow-up on the remarks around Carat. Just want to clarify. In the past, you have mentioned that to see any progress around liquidity or any other monetizations you would be dependent upon either a pickup in market activity or investor sentiment. But I just want to check that would you still be dependent upon any kind of pickup in activity before you could do anything with the Carats? Thanks. Jay Sugarman: Yes. I do not think it is a, you know, a specific thing, but it is obviously common sense. If Carat is growing, the underlying portfolio is growing. It is easier for people to understand the potential. And, you know, the marks have been, you know, candidly, with particularly on the office side, you know, a pain point for a couple years now. We feel like that is starting to stabilize. You saw UCA actually pop up this quarter. You know, that to us was a little bit of a precondition to get a wider group of investors interested or at least to take the time to understand Carat. So it feels like that is a, you know, a tailwind. If we can put that into the mix, it just makes everything easier. Kenneth Lee: Gotcha. Very helpful there. And just one follow-up if I may. Around buybacks, mentioned for the coming year, it sounds like there could be a little bit more emphasis around buybacks. Any way you could frame out either potential levels or a payout ratio and perhaps just talk about how leverage considerations would come into play here? Thanks. Brett Asnas: Hey, Ken. It is Brett. Yes, when we think about buybacks, we obviously feel like the stock is at a discounted level. And as you pointed out just now, we are cognizant of our leverage and our targets. In terms of our policy, you know, it has not really changed. In terms of leverage, we are at around 2x, and we want to be around that level or lower. So we are, you know, looking at our funding profile, again to the pipeline that Jay and Michael have brought up. You know, we are looking at what those obligations are going forward. And, you know, just again for context for folks about leverage, every $240,000,000 that we fund takes leverage up one tenth of a turn. So it feels like there is runway there. But, again, to effectuate buybacks, we want to be able to do that in somewhat of a leverage-neutral way. So a lot of the capital recycling exercises that we have talked about in the past, you know, we are constantly evaluating and exploring those and want to make sure that any transactions that we not only endeavor on but actually, you know, move forward with, we want to make sure that it has got, you know, multiple valves that help us from a strategic standpoint as well. So again, more to update going forward, but that is certainly, as Jay pointed out in his opening remarks, one of our core objectives for the coming quarters. Kenneth Lee: Gotcha. Kenneth Lee: Very helpful there. Thanks again. Operator: Your next question is coming from Harsh Hemnani with Green Street. Please pose your question. Your line is live. Harsh Hemnani: Thank you. So maybe you highlighted that the origination volume is getting better. 2025 was already an acceleration over 2024. And what is interesting is, at least over the last year, your unfunded commitments have burned off, at least the ones that were, you know, written in a lower-rate environment. And what is unfunded today is in that, you know, 5% initial yield-type range. Given that sort of backdrop and that there is no longer a significant mismatch between what you are going to fund, the yields on those and the cost of capital, as you think through funding your 2026 origination pipeline and also the unfunded commitments that are in place today, how do you think through funding those? Brett Asnas: Yes. When we look at our unfunded commitments, you hit the nail on the head, which is a lot of the lower-yielding existing commitments have rolled off. So today, we have about $140,000,000 of ground lease unfunded commitments. On the loan side, it is about $125,000,000. And as you noted, the economic yield of those ground lease commitments are in the low sevens, so making 5%+ cash yields. On the loan side, they are around SOFR + 300. So certainly accretive to what we are achieving on the debt side, especially with credit spreads coming in. So we are constantly evaluating both the existing hedges that we have in place as well as, you know, thinking about any rate moves moving forward. But, again, the T-locks that we have in place—there is that $30,000,000 of gain that is hung up—when we enter into new debt, those could be unwound and then amortized over the life. So that will help our earnings profile and, obviously, some of the cash metrics that you have mentioned. But any new funding activity on the new-deal front, you have seen the yields that we have been able to achieve. So there is more spread or more margin than we have had in our existing book over the past couple years. So we certainly feel like we are well positioned from a funding profile of those $265,000,000 of unfunded. Again, that will be over the course of, say, the next six, seven quarters. So that will certainly take some time to deploy. But in looking at those yields versus our cost of debt capital, it feels like that margin math is in the best place it has been for a while, net of the hedges that we have in place. Our credit spreads are at all-time tights, so we are feeling pretty good about continuing to be the ability to drive down our debt cost of capital. Harsh Hemnani: Got it. That is helpful. And then maybe does that change your math at all in between—it feels like at least last year, the majority of what was funded came from incremental leverage. Does it change your calculus at all between raising more equity capital versus, you know, continuing to tap the unsecured bond market? Brett Asnas: Not here in the near term, Harsh. I mean, again, the question that came from Ken and Mitch earlier, you know, we were talking about our leverage level at the moment and what it really means in terms of funding and deployment for an uptick. We have some room here. We have runway. So, yes, we do have equity capital solutions that are not, you know, issuing shares. Right? There are hybrid solutions. There is recycling capital. There are areas in which to keep leverage neutral. But, you know, in terms of tapping the unsecured bond markets, you have seen us issue both in the public and private market. That is something we are certainly going to look to here over the coming quarters to make sure we have ample liquidity to continue to do what we are doing. We feel good about our liquidity position right now. But while credit spreads are at tights and, you know, our bond complex has more liquidity than it ever has, we want to make sure that we are being thoughtful about what that pipeline and deployment looks like versus our funding needs. Harsh Hemnani: Sounds great. Thank you. Operator: Your next question is coming from Rich Anderson with Cantor Fitzgerald. Please pose your question. Your line is live. Rich Anderson: Thanks. Good morning, everyone. Rich Anderson: Just to put a finer point on the whole buyback theme. Is it fair to say that you could be kind of killing two birds with one stone in the sense that you sell assets, get a price discovery event for the Carat, use those proceeds to buy back stock, and do it in a leverage-neutral way? Is that one sort of collection of events that, you know, we could potentially expect for 2026? Jay Sugarman: Yes. Certainly. Brett Asnas: I think that components of what you mentioned there are in the cards. We certainly would like to make a lot of that happen. Those are our goals. So again, you know, we think the stock is quite discounted, and we want to bridge that gap and create, you know, shareholder and stakeholder value. And some of those ways of recycling capital, you know, eating our own cooking, and making sure that we are also growing the book accretively, we think we could accomplish all those goals. Jay Sugarman: Eating our own cooking. I like that. Jay Sugarman: I am going to write that down. So, could you maybe, you know, other forms of equity capital, you know, perhaps more JV capital in the mix—is that something that you are entertaining? You know, you certainly have one in place, but wondering if that is something you are entertaining to again, you know, create another equity option for the company. Brett Asnas: Yes. Certainly, again, having the right partners and the right cost of capital is really important. There is a lot of insurance capital out there that wants duration, that likes, you know, predictable, compounding cash flow that is inflation-protected. I think we are one of the few places in the universe that can offer that. And if there is something that we can do with any partner that is helpful to the overall franchise and is helpful to our cost of capital, that is always in the cards, and, you know, that could be in the form of things that we have done historically, like our venture with our sovereign wealth fund partner, or it could come in the form of others, other sorts of partners. But we are, again, to your point, looking for the best cost of capital that helps us kind of, you know, leap to the next place we want to be. And right now, with where our cost of equity capital is, solutions like that are front and center in our mind. Rich Anderson: Yep. Okay. I just want to sort of get that on record. I think it is, you know, important to the longer-term story. Maybe just a couple of quick ones. Can you provide, like, a net G&A guidance number for 2026 with the step down in the fee income and, you know, sort of where our models should, you know, ultimately land when you kind of have that event in April? Brett Asnas: Yes. It is a good question, Rich. Obviously, since we did the internalization back in early 2023, that management fee from Star Holdings has continued to decline. When we look at, you know, year over year from this past year to 2026, it feels like about a $5,000,000 net increase. So we are going from, you know, low $40,000,000 net G&A, net of the management fees, in 2025 to high forties for 2026. And then, obviously, just, you know, regular-way costs and expenses that we have within that line item, you know, typical inflation, etc. So we are, you know, we are targeting high $40,000,000. Rich Anderson: Okay. And does that fee income—is that the last year? Is 2026 the last year, or is there another year still remaining, a stub year of fee income? I do not remember. Brett Asnas: There is still more fee income to go. So there is a contractual schedule of a fixed amount, and then it will eventually turn to a percentage of assets. Rich Anderson: Okay. And then finally for me, on leasehold loans, you know, are you sensing more demand? It seems like at least there is more demand for a kind of a one-stop shop solution that you described in Cambridge. And, you know, how would you describe your leasehold loan in terms of its competitiveness to the market? What is the typical term on those loans? We got the pricing, but I am just curious how you know, you fold that in with the obviously long duration of the ground leases. Thanks. Jay Sugarman: So they are typically three years in term, occasionally have a little extension option period afterwards. We really look at it as a blended ground lease plus leasehold loan. It can be an attractive cost of capital as the entire envelope to the customer. Providing that one-stop shop has been a benefit to some, and we will selectively continue to deploy it where it makes sense, where we like the asset enough to want to go to that place on as an attachment point. Rich Anderson: Do you think your pricing is market? Do you think your pricing is below market, again as you consider, like, the one-stop shop solution? Brett Asnas: To sort of encourage people as a one-stop solution, we think that our pricing is, as a blended cost of capital, below market. I think we beat the overall market from kind of zero to wherever the last dollar one attachment point. Rich Anderson: Perfect. Thank you very much. Operator: Your next question is coming from Ronald Kamdem with Morgan Stanley. Please pose your question. Your line is live. Ronald Kamdem: Hey. I just wanted to double click back on, you know, the origination activity and sort of the opportunities to expand outside of California. Right? Maybe just a little bit more color on what are the sticking points. Is it finding the right partner? Is it regulatory? Is it the different jurisdictions? Just what are the frictions you think as you sort of try to replicate the success in some of the other states on the origination side? Thanks. Steve Wilder: Yes. Hi, Ronald. So you are right. On the affordable side specifically, the volume has been concentrated in California to date. That is the largest and most active of the affordable markets in the U.S. So we are making good progress there and penetrating that market. It is going to continue to be a big part of what we do, but we are also making really good progress in other states. So we are spending some time to study the state-specific mechanics, the regulatory regimes. It does take some time to build up pipeline and to get those deals across the finish line. But at this point, we have several other transactions in other states under LOI, and we think that will start to translate into closings over the coming quarters. Ronald Kamdem: Helpful. And then I am sure you are limited on what you could say on Park Hotels, but any sort of update on timing and for resolution—when this could all be behind us? Jay Sugarman: Yes. You are right. I cannot speak to it directly, but we do have a court date in 2027. Unfortunately, it cannot go quicker. But, you know, that is the time frame we have been given. And it is going to cost us, you know, $7,000,000 to get there, which is unfortunate, but you know, at least we have something to shoot for here to get our contractual rights recognized. Ronald Kamdem: Helpful. Thanks so much. Operator: Once again, if you do have any remaining questions or comments, please press 1 on your phone at this time. Your next question is coming from Kyle Bonsi with Truist Securities. Please pose your question. Your line is live. Kyle Bonsi: Thanks. Good morning. Just following up on the Park Hotels portfolio. For the two assets that did not renew, do you expect to continue to operate, release, or sell these? And what might that timeline look like? Jay Sugarman: We have got Hilton staying in place. So that was important. Again, the litigation is really going to dictate a little bit of what we can and cannot do. So timeline still feels like final decisions are going to be dependent on this court process. It is not our long-term goal to run these assets. But I think we need to let the litigation play out before we can make the right decision on timing. Kyle Bonsi: Great. Thank you. Operator: Mr. Hoffmann, there are no additional questions in queue at this time. Pearse Hoffmann: Thanks, everyone, for joining us today. If there are additional questions, please feel free to reach out to me directly. Thank you. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Hello everyone. Thank you for joining us and welcome to the Waste Connections, Inc. Q4 2025 Earnings Call. 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, please press 1 again. I will now hand the call over to Ronald J. Mittelstaedt, President and CEO. Please go ahead, Ron. Ronald J. Mittelstaedt: Okay. Thank you, Operator, and good morning. I would like to welcome everyone to this conference call to discuss our fourth quarter 2025 results and our outlook for 2026. I am joined this morning by Mary Anne Whitney, our CFO, and several other members of our senior management. As noted in our earnings release, adjusted EBITDA margin expanded by 110 basis points in Q4, capping a strong year for Waste Connections, Inc. driven by price-led organic growth, solid waste, and continued operating improvements. For full year 2025, delivered an industry-leading adjusted EBITDA margin of 33%, up 100 basis points year over year excluding lower commodities. We also completed approximately $330,000,000 of acquired annualized revenue, and returned over $830,000,000 to shareholders through share repurchases and dividends, while preserving flexibility for continued growth and return of capital. Before we get into much more detail, let me turn the call over to Mary Anne for our forward-looking disclaimer and other housekeeping items. Thank you, Ron, and good morning. Operator: The discussion during today's call includes forward-looking statements Mary Anne Whitney: made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including forward-looking information within the meaning of applicable Canadian securities laws. Actual results could differ materially from those made in such forward-looking statements due to various risks and uncertainties. Factors that could cause actual results to differ are discussed both in the cautionary statement included in our February 11 earnings release and in greater detail in Waste Connections, Inc.’s filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. You should not place undue reliance on forward-looking statements, as there may be additional risks of which we are not presently aware or that we currently believe are immaterial that could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change after today's date. On the call, we will discuss non-GAAP measures such as adjusted EBITDA, adjusted net income attributable to Waste Connections, Inc. on both a dollar basis and per diluted share, and adjusted free cash flow. Please refer to our earnings releases for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. Management uses certain non-GAAP to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate these non-GAAP measures differently. I will now turn the call back over to Ron. Ronald J. Mittelstaedt: Okay. Thank you, Mary Anne. We are extremely proud of our accomplishments in 2025, led by disciplined execution to deliver better-than-expected operating and financial results. For the third consecutive year, employee turnover and safety incident rates declined, exiting 2025 at multiyear lows. In fact, building on a well-established track record for better-than-industry-average performance, in 2025, we reached historic company record levels in safety, our most important and impactful operating value. Moreover, that momentum has continued into January, when safety-related incidents were down almost 20% year over year to another record low. Additionally, we saw multiyear improvement in employee retention, to achieve our 2025 targeted voluntary turnover level of 10%, and we are continuing to raise or, in this case, lower the bar as we see momentum for continued gains. As expected, these ongoing improvements have driven cost savings, productivity gains, and improved customer service. As we had indicated would be the case, we are realizing related reductions in operating costs throughout the P&L, most notably in labor, repairs and maintenance, and most recently, risk management. Moreover, we have seen incremental benefits from pricing retention as a result of enhanced employee retention and customer satisfaction. In fact, solid waste core pricing of 6.5% in 2025 exceeded our original expectations for the full year, further expanding an outsized price-cost spread and contributing to underlying margin expansion of 100 basis points in solid waste. This outperformance enabled us to overcome incremental pressure on reported margins related to a second consecutive year of declines in value for recycled commodities and renewable energy credits associated with landfill gas sales, as well as continued sluggishness in underlying solid waste volumes. Not only did we report our expected adjusted EBITDA margin expansion to an industry-leading 33%, but we did so in spite of recycled commodity values at multiyear lows and without contribution from operations at Chiquita Canyon Landfill, which we closed at the end of 2024. On the subject of Chiquita and the closure-related outlays, we continue to make progress on managing the elevated temperature landfill, or ETLF, event. The technical aspects of that process are moving forward largely as expected, subject to some timing differences on outlays as we have made better-than-expected progress in some areas. On the other hand, the political challenges of resolving this situation continue to exceed our updated expectations primarily because of related regulatory, permitting, legal, consulting, and other unanticipated requirements that have dragged out and inflated an already burdensome and dysfunctional process. As we have indicated previously, to address these regulatory challenges, we have sought out and we welcome the involvement of the U.S. EPA and constructive efforts to streamline processes, remove regulatory impediments, and enable a more effective and efficient response. We are encouraged by recent meetings we have had with top officials at the U.S. EPA about their further engagement at the site. U.S. EPA has indicated they are finalizing next steps to support short- and long-term solutions to assist Chiquita in further mitigating and managing the reaction and streamlining the regulatory oversight at the landfill. Moving next to acquisitions. During 2025, we closed approximately $330,000,000 in annualized revenue from 19 acquisitions, ranging from West Coast franchises to competitive markets, including integrated businesses, new market entries, and a number of tuck-ins to existing operations. Our expected 2026 rollover revenue contribution of approximately $125,000,000 reflects a few additional deals already completed this year and is expected to grow with our active pipeline. As always, we stay selective about the markets we enter and disciplined about the amounts we pay. We would consider any additional deals as upside to our full-year 2026 outlook. Our focus has been and will continue to be solid waste, and we look forward to building on a model that has consistently delivered value creation. Following multiple years of outsized acquisition activity, we remain well positioned for future growth. With leverage of 2.75x debt to EBITDA, our strong balance sheet and free cash flow generation allow for continued investment in acquisitions, along with other opportunities, including growing shareholder returns. To that end, during 2025, we increased our quarterly per share dividend by 11.1% to return a record amount to shareholders, including over $330,000,000 in dividends, and over $500,000,000 in share repurchases. We have taken an opportunistic approach to share buybacks, and intend to continue to do so. We recognize that market sentiment and capital flows may shift over time; that does not change the fundamentals of our business or the durability of our model, which makes buybacks compelling in the current environment. Additionally, we are reinvesting in the business and positioning ourselves for further growth and value creation through both sustainability-related projects and artificial intelligence, or AI, technology-driven initiatives. Looking first at sustainability. We continue to make progress developing our portfolio of renewable gas, or RNG, facilities, including five already online, with the remainder expected to be operational around year-end. We have also broken ground on an additional state-of-the-art recycling facility expected online in 2027. Looking next to AI and our multiyear rollout, which began in 2025, these investments are aimed at enhancing efficiency and boosting productivity by further digitizing and automating our operations and improving forecasting through data analytics. At the same time, we are focused on service and customer experience for improved transparency and mobile connectivity. What is exciting is that we are just getting started. We are already seeing positive outcomes as we expand the utilization of AI and data analytics across multiple platforms. For instance, we have enhanced our dynamic routing platform to further optimize asset utilization performance. Promising early indications show direct and indirect benefits beyond cost reductions ranging from improvements in safety and employee engagement to enhanced customer satisfaction and retention. We are excited to build upon these efforts as we deploy additional applications and expand our development in 2026 and 2027. I will now turn the call over to Mary Anne to review more in-depth the financial highlights of the fourth quarter, as well as provide a detailed outlook for the full year 2026. I will then wrap up before heading into Q&A. Mary Anne Whitney: Thank you, Ron. In the fourth quarter, we delivered revenue of $2,373,000,000. Acquisitions completed since the year-ago period contributed about $58,000,000 of revenue in Q4, net of divestitures, bringing full-year net acquisition contribution to $377,000,000. Q4 pricing accelerated sequentially to 6.4% and ranged from about 3.7% in our mostly exclusive market Western region to over 7% in our competitive markets. Reported volume down 2.7% was in line with prior quarters and continued to reflect the combined impact of intentional shedding, price-volume trade-off, and ongoing weakness in the more cyclically driven elements of the business. Looking at year-over-year results in the fourth quarter on a same-store basis, roll-off pulls were down 2%, and total landfill tons were up 3%. On MSW and special waste both up 4%, while construction and demolition debris, or C&D, was down 4%. For the full year, C&D tons were down 5% year over year, bringing tons down about 15% from 2023. Special waste, on the other hand, was up 7% for the full year 2025 following declines in two of the last three years. And finally, full year 2025 MSW tons were up 3%, in part as a result of our purposeful increase in internalization in the Northeast and in certain Texas markets. We are encouraged by the consistency of results in 2025 and macro indicators that suggest improving underlying dynamics in the broader economy, but have not factored in a material pickup in our expectations for 2026. Adjusted EBITDA for Q4, as reconciled in our earnings release, was up 8.7% year over year to $796,000,000 or 33.5% of revenue, up 110 basis points year over year. In Q4, we lapped the initial wind-down of operations at Chiquita Canyon Landfill, as well as the toughest year-over-year commodity comparisons, both of which had masked the strength of underlying margin expansion on a reported basis. As anticipated, the outsized benefits from operational improvements that had been contributing all year were more visible in Q4. Along those lines, we were encouraged to see benefit from risk management costs which up until Q4 had been a headwind to reported results. Looking at the full year 2025, adjusted EBITDA of $3,125,000,000 was up 7.7% year over year, with adjusted EBITDA margin of 33%, up 50 basis points. Normalizing for Chiquita and lower commodities, the adjusted EBITDA margin exceeded 33.6%, as expected. Moving next to adjusted free cash flow. Our 2025 adjusted free cash flow of $1,260,000,000 was largely in line with our expectations and reflects underlying conversion of adjusted EBITDA of approximately 50%. Strength of our free cash flow generation largely overcame higher-than-expected cash flow impacts from Chiquita, which totaled approximately $200,000,000. Capital expenditures of $1,194,000,000 were in line with our expectations, including RNG projects spend of about $100,000,000. Our RNG spend for the projects noted will be completed in 2026, and Chiquita outlays are expected to step down, setting up higher free cash flow conversion which has been factored into our 2026 outlook, which I will now review. Before I do, we would like to remind everyone once again that actual results may vary significantly based on risks and uncertainties outlined in our safe harbor statement and filings we have made with the SEC and the securities commissions or similar regulatory authorities in Canada. We encourage investors to review these factors carefully. Our outlook assumes no change in the current economic environment. Our outlook also excludes any impact from additional acquisitions that may close during the remainder of the year and expensing of transactions-related items during the period. Revenue in 2026 is estimated in the range of $9,900,000,000 to $9,950,000,000. For solid waste collection, hauling, and disposal, we expect organic growth in the range of 3.5% to 4%, driven by core pricing of 5% to 5.5%, with expected yield of approximately 4% implying volumes flat to down about half a percentage point. Acquisition revenue contribution of about $125,000,000 reflects deals closed to date. Commodity-related revenue reflects recent values, and E&P waste revenues are expected to be flattish year over year. On that basis, adjusted EBITDA in 2026, as reconciled in our earnings release, is expected in the range of $3,300,000,000 to $3,325,000,000. Adjusted EBITDA margin in the range of 33.3% to 33.4%, up 30 to 40 basis points year over year, reflects the commodity-related drag of 20 to 30 basis points. As noted, incremental acquisition activity, any improvement in the underlying economy, or increase in commodities would provide upside to our 2026 outlook. Depreciation and amortization expense in 2026 is estimated at about 13.1% of revenue, including amortization of intangibles of about $195,000,000 or $0.57 per diluted share net of taxes. Interest expense is estimated at approximately $330,000,000 and our effective tax rate for 2026 is estimated to be approximately 24.5% with some quarterly variability. Adjusted free cash flow in 2026, as reconciled in our earnings release, is expected to increase by double-digit percentages to a range of $1,400,000,000 to $1,450,000,000. CapEx estimated at $1,250,000,000 includes an aggregate of about $100,000,000 for RNG and recycling projects. And our adjusted free cash flow outlook also reflects $100,000,000 to $150,000,000 impact from closure-related outlays at Chiquita Canyon. Normalizing for both non-core impacts, 2026 adjusted free cash flow reflects conversion of approximately 50% of EBITDA or approximately $1,700,000,000. While not providing specific expectations for revenue and EBITDA by quarter, we would offer the following high-level Ronald J. Mittelstaedt: framework. Mary Anne Whitney: For solid waste, we would expect a typical seasonal cadence and related margin progression in 2026, keeping in mind the recent outsized weather events across several geographies impacting Q1. Looking specifically at Q4, we would note the toughest year-over-year Ronald J. Mittelstaedt: comparison. Mary Anne Whitney: given our outperformance in 2025. And finally, for recycled commodities, a reminder that the toughest comparison would be in the first half of the year. Ronald J. Mittelstaedt: Thank you, Mary Anne. Coming into 2025, we emphasized excellence with humility, recognizing our ongoing commitment to a proven strategy for delivering industry-leading results while acknowledging the benefits of new ideas, innovation, and technology. We are excited about our progress in 2025 and the momentum in 2026 for another year of outsized solid waste margin expansion, along with double-digit adjusted free cash flow growth. Moreover, we are positioned for upside from any pickup in the economy or commodities as well as additional acquisitions. We are excited to win from within in 2026 and are grateful for the dedication of our 25,000 employees who set us apart by putting our values into action every day. We also appreciate your time today. I will now turn this call over to the Operator to open up the lines for your questions. Operator? Operator: Thank you, Ron. We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please 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 the line of Sabahat Khan with RBC Capital Markets. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Great. Thanks, and good morning. Maybe just starting with, Mary Anne, the free cash flow commentary that you shared. Mary Anne Whitney: Wondering if you can just delve a little bit more into sort of the sustainability CapEx, where that is going? And then just on the Chiquita as well, it sounds like $100 to $150. If you can just talk about the cadence of that spend, and then more importantly, as we think about free cash conversion in this year into 2027, just how should we directionally expect those two incremental amounts to evolve through 2026 and more so into 2027? Thanks. Mary Anne Whitney: Sure. Well, high level, to be clear, we would expect them both to step down 2026 to 2027. So first of all, in terms of sustainability-related outlays, the $100,000,000 includes the final $75,000,000 that we have been talking about for the large slug, that dozen or so RNG facilities, which, as Ron mentioned in his remarks, almost half of which are online, the balance are expected by around year-end. So that is done there. And then the incremental $25,000,000 that we mentioned is part of our efforts longer term, as we have described, to really de-risk recycle, take advantage of the incremental technology that provides benefits as a set of de-risking, reducing our cost to third parties, and also improving the quality of the recyclables coming. So that is just, you should think of that as there is this opportunity. It is a little out slug. We are always spending a little, but it is part of the $100,000,000 this year. And, again, I would not say that repeats going forward. With respect to Chiquita Canyon outlays, as we described, some of what was the outlays in 2025 reflect getting more done than we had anticipated. So there is some of that that continues to decrease as we move through that process. And then there are other pieces that we had not expected, the pace or the type of outlays that we are seeing. And so we certainly, when you say the cadence during the year, I would not put too much premium on how quickly those outlays are, just as you know CapEx and free cash flow in general is always lumpy during the course of the year. So I would encourage you to just think about it in totality for 2026. Mary Anne Whitney: Great. Thanks for that. And then maybe just stepping back on the broader guidance. I think the commentary indicates not a lot of, you know, not a lot of aggressive assumptions at least on the macro and the commodity prices. Maybe you can just share some thoughts around sort of what you baked in terms of the macro environment. You know, we are hearing some commentary on some of the sector calls around green shoots. If you can just comment on where you see potential sources of upside, whether that is on maybe the cyclical volumes getting a little bit better, whether that is maybe another above-average year of M&A. Just what have you baked in, and where do you think upside could come from if there is for the rest of the year? Thanks. Mary Anne Whitney: Sure. So as we have said, I mean, I would say there are three key things that we have not baked in. One is any improvement in commodity values. And so you see that headwind over the course of the year, which, as I noted in terms of quarterly cadence, is strongest. So the largest headwinds are a lot like Q4 when it was 40 basis points headwind. That is how to think about the first half of the year, and then those abate just as comps get easier. So to the extent that there is any pickup in commodity values, you would see a benefit there. Next, you heard us talk about, you know, with yield of about 4% that volumes are kind of in that flat to down half a point. That is not materially different from what we have been seeing in terms of that piece of the business that is the more cyclically exposed where you have had lower roll-off and C&D tons. And so to the extent that those improve or that there is incremental improvement in special waste, which we described being up year over year, that would be incremental. And we certainly agree with the characterization that others have made about green shoots in the economy, you know, from certain macro indicators. You know, we would point to, within our business, seeing the special waste pipeline firming. I would note that Q4 is our fifth consecutive quarter of improvement. And I look at the recent trends just in January and weekly trends. I continue to see those up in the most recent weeks. Next, commercial service increases are outpacing decreases with overall net new business up. That is encouraging. And while C&D is still down over the year, we have seen the declines moderating. You look back earlier in the year in Q2, we were down about 9% year over year, and we exited the year down more like 3.5% to 4%. So no improvement overall is factored in there. And then the final piece you asked about was M&A, and I will turn it to Ron. But, of course, as is our approach, we do not bake expected M&A into our outlook. What we have provided you are deals that have already closed. Ronald J. Mittelstaedt: Yeah. And, Sabahat, I would say that, you know, when we, at the third quarter call, I think we had reported that we had closed about $250,000,000 by then, that we expected to close some $75,000,000 to $100,000,000 thereabouts. You see we closed about another $80,000,000. That brought that number to $330. In fact, today, we have closed, and last week, closed about another $20,000,000 of that. So that brings you right to that $100,000,000 that we talked about that was out there that could occur during the fourth quarter or the very beginning of the year. So that has occurred. So there is no real change to M&A. As Mary Anne said, look. You know, I know you have not followed the space forever, Sabahat, but if you go back, there is a pattern by multiple companies within the space that tend to go out and put out guidance at the beginning of the year and make all kinds of improvement assumptions in the economy and then come back around in the third quarter or the fourth and back all those off. We do not believe that is a prudent way of providing guidance. We are providing guidance with what is known today assuming it does not improve, and if it does improve, it will be upside. So we just think that is a more conservative approach. Not saying there is anything wrong with the other approach, but this is a very consistent pattern for us, and actually for others in the space taking the approach they have. Mary Anne Whitney: Great. Thanks so much for the color. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Your line is open. Please go ahead. Mary Anne Whitney: Hi. Good morning. Thank you so much. I think your pricing is moderating versus last year as some of the cost pressures are also waning. I was curious, could you elaborate on which buckets of expenses you are seeing moderation in and you believe are sustainably trending downward for the next few years? Ronald J. Mittelstaedt: Yeah. Tami, I mean, number one, you are correct. Price is moderating, and that is a good thing. We are happy about that. Remember, we do not always focus on the ultimate amount of the dollar amount or percentage of the price increase. We try to focus on maintaining the spread of, you know, 150 to 200 basis points spread to what we believe our cost is going up. So if you look at our guidance for price, core price of that 5% to 5.5% and say that is 100 basis points down from 2025, it would indicate to you that we believe our cost is down about 100 basis points relative to 2025 on an increased basis, and it is. You know, we began 2025 with labor rates approaching 5% year over year, and we exit Q4 with labor rates up about 3.9% year over year, and trending down towards 3% to 3.5% throughout 2026. We had other costs within the P&L in 2025 that began the year probably closer to 4.5% and moved throughout the year closer to up more in that 2.5% to 3%. So it is just about the spread. We look forward to not having to put as much dollar amount or percentage rate increase on our customers. They are feeling the same effects from the economy as everyone else. But if the spread has maintained the same, or approximately the same, then that is what we focus on. Mary Anne Whitney: Understood. That is very helpful. And I think we love hearing about all the tech and AI investments you are making to improve the efficiency in your business. Any exciting initiatives you want to call out specifically that are due for implementation this year that we can look forward to? Ronald J. Mittelstaedt: Well, yes, there are. And, you know, we are actually excited about them too. Whoever thought in an old-line industrial waste company that, you know, we would understand what AI even was. But this year, we are focused heavily on two incremental initiatives of seven that we have agreed to do between 2025–2027. This year’s two are moving the company into more of a dynamic, real-time customer routing opportunity. We have very good routing today, but it is what I call static. It has no ability to read incoming data. So you run the route sort of the night before or the week before. Where we are moving to is sort of a real-time routing that takes into effect things just like I have said on another call would be like Waze for your car. It takes in road closures. It takes in traffic conditions. It takes in third-party data feeds to allow us to react real time and resequence with the utilization of AI doing the resequencing, not somebody doing it in another way. So that is one. And the second one is we are developing a dramatically more robust mobile connectivity platform and working towards trying to eliminate inbound calls to our customer service groups locally by as much as, you know, 30% to 50% over a multiyear period. You know, we take over 1,500,000 calls from customers per month right now. And our objective is to get that down somewhere between, you know, 700,000 and 1,000,000 over the next couple of years by being able to push out information mobily to customers for the five to six most common things. We know what the five to six most common things customers are asking, and it is mostly because they are not receiving that information in real time, such as, you know, I think your driver did not pick me up today because he usually picks me up between 7 and 8 a.m., and in reality, he is going to pick them up that day, but the road has been closed due to snow. And so we are able to push out. They are able to see when their driver will arrive and where their driver is on their route, much like you do with your Uber if you order an Uber today. You know where they are and how far away they are. Those kinds of things are dramatic changes in efficiency and service quality for us. So those are two things that we are working to bring online in 2026. Mary Anne Whitney: Very exciting. Thank you. Operator: Your next question comes from the line of Noah Duke Kaye with Oppenheimer & Co. Your line is open. Please go ahead. Noah Duke Kaye: Hey. Good morning. Thanks for taking the questions. You know, Ron, in years past on M&A, you have talked about potential for an out year. How do you Ronald J. Mittelstaedt: assess, based on the pipeline, the potential coming into this year? Noah Duke Kaye: And then on Ronald J. Mittelstaedt: the same subject of capital allocation, Noah Duke Kaye: you said you will be opportunistic with the buybacks, but just given where the stock price and the valuation sit today, how opportunistic are you being here to start the year? Ronald J. Mittelstaedt: Well, let us tackle the first part of that, which was your M&A question. Look. As you know, M&A can be lumpy. We have had three very strong years in a row. No reason to expect that 2026 looks any different. There is nothing that has changed in the underlying opportunity basket. Nothing has changed in our appetite to complete deals or our ability to complete deals or our financial flexibility. So, you know, I think it is very fair that you and others, we should expect, you know, another sort of out year. Now how much of an outsized relative to a normal $150,000,000 to $200,000,000 year? You know, the year needs to play out to see that. But I think, hopefully, you look back at the last three years’ track record and we are not seeing something that would make us think that this year looks different. And we certainly have the capacity, as we said in our script, to do both whatever comes along at M&A and as much buyback and, you know, return of capital as we think is prudent based on the fundamentals of our business and what is driving those opportunities in the buyback. So we do not see any limitations on any of those. As far as, you know, every now and then, you pointed out that a larger deal comes along. And, you know, we looked at several things that we did not pursue or were not successful on in 2025, and we had one of those in 2024, had one of those in 2023. I mean, certainly, there is a good chance that happens in 2026. But we do not bank on any of that or forecast any of that, because that just leads to overpaying and pushing to do something that you might not otherwise have done. So we continue to look at everything and be very active. But we are going to continue to be very disciplined in our approach to what we think is a quality asset for, you know, long-term value creation. Noah Duke Kaye: Very helpful. Noah Duke Kaye: We can table the buybacks until we see your results, I guess. I really want to get after, because I think it is just so important for a lot of investors, you know, the underlying free cash flow conversion becoming the headline free cash flow conversion. You know, to be doing 50% underlying is really impressive. So on these moving pieces, the sustainability CapEx, you know, and Chiquita. I guess with sustainability CapEx, you know, is 2026 really kind of the last big slug that you envision and we go from $100,000,000 down to, you know, almost nothing on RNG in 2027? Is that the right way to think about it? And then on Chiquita, you know, I guess just—yeah. Go ahead. I just built the last one on Chiquita is really Ronald J. Mittelstaedt: Go ahead. Ask the Chiquita, and we will answer you both. No problem. Noah Duke Kaye: Thank you for your patience. I think just to help us understand kind of your level of confidence that 2026 is really kind of the last big chunk of spend there. Maybe help us understand a little bit better how it has played out and why that might be the case and, you know, where, pending any, you know, big regulatory change, you could see this kind of winding down to in 2027. Ronald J. Mittelstaedt: Sure. Okay. Well, let us address the—you made a comment about the buyback. First off, look. We do not communicate at any time, whatever the stock price is, what our intentions are. We have, obviously, our view of underlying fundamental value that we are running at all times. And we are going to be active. That is what I can tell you. And so I think that speaks for itself. You saw what we did in the third and the fourth quarters when there was dislocation. On RNG, there is actually a two-point inflection that you need to think about here for this conversion moving back. And you are right. 50% is impressive, but I would remind we have been as high as 53–54% at one point in time. So getting back to 50% for us is actually very average of where we have been. But next year in 2027, you lose the CapEx that has been associated with this RNG, these 12 projects, and you now begin most of the full contribution of the EBITDA and free cash flow. So it is sort of a double whammy for 2027 in that vein. Noah Duke Kaye: Now Ronald J. Mittelstaedt: will there be incremental RNG or sustainability in future years? Well, certainly, there could be. But that would be for new projects that represent incremental cash flow and growth opportunities, not related to the 12 original and the three to four big recycling facilities we have talked about. That piece will be done this year. We expected the outlay for RNG to be done in 2025, but the reality is we do not control all the timing on that outlay because of the permitting and the local utility interconnect that we have to respond to. And I think you are seeing that in everybody’s RNG, that it is taking a little longer to get online than original thoughts. But we are very confident in that $100,000,000, to answer your question, being done in 2026 and then the contribution being there for 2027 in the EBITDA and cash flow. Next to Chiquita. Look. What I would tell you is this. First off, I think you and other investors need to think through this this way. First off, an ETLF is nothing new in this industry. There are 10 to 15 going on right now across the U.S. in many states. Your large public companies have between three and five each going on today, that were going on last year, that were going on the year before. Noah Duke Kaye: The difference is Ronald J. Mittelstaedt: they do not have them in California. If this had happened in 49 other states, you and no one else would have ever known about it, which is why you do not know about the other 10 to 15 occurring. They are not in California. One is by one of our large competitors, but be thankful for them it is not in Los Angeles County. Noah Duke Kaye: It is adjacent. Ronald J. Mittelstaedt: The reason the EPA is involved at our request is because they are having an extremely difficult time understanding the dysfunctionality of California’s inability to resolve its own regulations. That is the issue. Okay? And so what we know is—your question was, is 2026 the last year of outlay for Chiquita and how confident? What we are confident is this is stepping down and continues to step down, and will step down fairly meaningfully in 2026 as the year goes on because of the involvement and the streamlining of what is coming along. Will there be some in 2027? Yes. But it will be quite lower again than 2026. So we should begin to approach those approximate 50% conversion levels as we come through 2027. Okay. So we cannot sit here and tell you will it be exactly that in 2027, without knowing where we will end with things on Chiquita in 2026? No. But all those things are triangulating to that direction. Noah Duke Kaye: Ron, thanks so much for the thoughtful Ronald J. Mittelstaedt: I will turn it over. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Noah Duke Kaye: Good morning, Jerry. Ron, I am wondering—hi. Ron, I am wondering if you could just give us an update on how the Northeast rail corridor buildout is going. Update us if you do not mind on your expectations on shipments over the course of this year and the densification on the collection side as well. Where do we stand on that initiative? Sure, Jerry. And I think most Ronald J. Mittelstaedt: of you, what you are referring to is where we are in our Arrowhead Landfill in Alabama and our intermodal facilities along the Eastern Seaboard in Massachusetts, Connecticut, and New Jersey, New York. Again, to remind everybody, in August 2023, when we acquired this network, it was doing about 2,300 to 2,500 tons a day through the network into the landfill. We are now doing, you know, 7,500 tons a day sort of at the peak period. We have built out incremental rail, storage, and track capacity in our New York, New Jersey intermodal facility. We have incremental track buildout that we must do at our Arrowhead Landfill, which we are in the process of. We believe as we come through 2026 we will be in the 9,000 to 9,500 tons a day into our Arrowhead Landfill. So we are basically almost—not quite—almost quadrupling what was there two and a half years ago right now. So I would tell you that I think that is going fairly well. As is our continued densification, to use your word, in the Northeast. We did multiple tuck-ins in our New York franchise market area in 2025. We acquired at the end of the year a large transfer station as well in New York in Queens. We acquired a large recycling facility in Hoboken in 2025. So we have, I would say, put a lot of effort into building sort of our leading position, certainly at least in the New York City metro area. So I would tell you overall, Jerry, that continues to be a focus and continues to be opportunity there. But we have made good headway. Mary Anne Whitney: And, Jerry, the only thing I would add to Ron’s remarks would be just to clarify that where you have seen that increase in activity at Arrowhead, as we have talked about throughout 2025, it is really from internal tons as opposed to incremental third-party tons, and we had seen that as an opportunity. So two things. You see that in our internalization rates, which I mentioned in the prepared remarks, which are now up to almost 60%. And secondly, you see it in margin contributions, and you see the outsized margin performance in 2025. Decreased third-party disposal was a component of that. And that is really the impact of Arrowhead. Jerry Revich: Okay. Super. Appreciate the update. And then can we shift gears and talk about—just to expand on the landfill gas part of the conversation? So in terms of the timing getting pushed out, obviously, everybody is working Ronald J. Mittelstaedt: through that, so that is clear. What we are seeing from some others is the initial plant ramp-up and productivity and profitability has generally been lower for a number of operations. Can you just talk about how that is going for your plants that are coming online versus initial expectations in terms of efficiency rates and profitability ramp based on what is the most recent vintage that has come online? Ronald J. Mittelstaedt: Sure. Well, Jerry, I would say that your characterization that others are experiencing are very similar to ours in many ways. Look. These things are taking a little longer to get online due to mostly permitting and startup issues. But they get there. We get them there as a company and as an industry. There is multi-months, if not up to a year, to work out and get the flow accurate and really work through the startup issues of the plant. So you probably start up at somewhere maybe in a 40% to 50% efficiency, and you work up over time to, you know, approaching 100%. You are not at 100% efficiency till, you know, well after a year plus being online and getting your flows increased and everything dialed in. So the ramp is somewhat slow. Of course, profitability is affected by both revenue values. And as you know, RINs have come off a high of, you know, $3.40ish down to, you know, a low of two and now in that $2.40ish range. So, you know, they are down a third, and that certainly has an impact depending on your structure of the RNG ownership. Jerry Revich: Facility. Ronald J. Mittelstaedt: As you know, we and most others have sort of one of three types of a structure: fully owned, to some sort of hybrid, to a royalty arrangement. And it also is affected by inputs on the cost side, such as the cost of electricity. And, of course, that has had some waxing and waning. So I would tell you that the returns, while lower than probably—and certainly when run at $3.00 and $3.25—are still very good, extremely good returns at the, you know, $2.20 to $2.50 range on a RIN value and current electricity costs. Not as great as they were at a higher commodity value, but still very attractive and well worth the investment that we are making. Mary Anne Whitney: And, Jerry, when we look at our full-year outlook, we did not assume that facilities were necessarily contributing. They may have an incremental cost during the course of the year, or that they were going through testing. And as Ron described, at these lower run rates or efficiency rates there would be upside to the extent that moves along more quickly. And then, of course, any improvement in RINs as well would be upside to our guidance. Ronald J. Mittelstaedt: Yeah. And to give you an example, Jerry, a real-life example, I mean, we have one of the largest—we have the largest facility in Canada outside of Montreal that we have owned a long time. It is very effective. We started another one. It was supposed to be online in April 2025. It came online in December 2025, and it only began running at sort of close to full capacity in the last couple of weeks. So, you know, they can take a little longer, but they definitely—the performance is still attractive. Jerry Revich: I appreciate the discussion. Thank you. Operator: Your next question comes from the line of James Joseph Schumm with TD Cowen. Your line is open. Please go ahead. James Joseph Schumm: Hey. Good morning. Thanks for taking the questions. Ronald J. Mittelstaedt: I have a multipart question on Chiquita. Last quarter, you gave daily leachate production figures and how that was dropping. Can you update us there, and is it fair to assume that leachate costs make up, I do not know, 50% to 60% of your total Chiquita spend? And then also, what is the cost per gallon for disposal there? And do you see any opportunity to lower that cost with evaporation or any other potential help from the EPA. So, James, I will give you some high-level stuff on this because a lot of this changes fluidly quite frequently. But at the peak of the reaction, we believe the peak was somewhere between June and August 2024, we were generating as much as 400,000 gallons of leachate per day. As of the end of the fourth quarter, we were generating most days between 200,000 and 225,000 gallons. So that number, as you can see, is at least from the peak, down approaching 50%. We have other things such as wellhead temperatures that are cooling. So we have every reason to believe that the statistics point to that we are on the downward slope or the backside of the curve of the slope of the reaction as it is starting to cool and wane. What the slope of that trajectory line is, obviously, it is too early to tell. But the indicators are that we are over the hump and on the other side. So that is number one. You know, the cost per gallon varies. It can be as low as about $0.50 to $0.60 to as high as $1.50 to $2.50 depending on what treatment facilities are available and what constituents they can take. Some facilities cannot take various things that are within leachate. And so you have to transport further to a more complex treatment facility. And, yes, to answer your question, I would say that the leachate treatment is not 50% to 60%, but I would characterize it more as about 40% to 45% of the cost. Certainly, the large majority. And then lastly, I would tell you that, you know, I am not sure that evaporation is necessarily going to happen. This still resides within the state of California. But it is interesting you bring that up. Had a large one of these going on in Nevada right now, there you can purchase acreage and go out and aerate this in the desert for $0.02 a gallon. So it is quite interesting how one state handles this compared to a state like California. So I doubt we will get to evaporation. But, yes, we do believe that the involvement of the EPA can lead to some streamlining of treatment facility opportunities, and that ultimately leads to a more cost-efficient process. That is great. Thanks for all that detail, Ron. And then maybe just moving to Seneca Meadows. Can you provide an update there? You know, I think you guys had said you are pretty confident that this moves forward, but I do not think we have gotten resolution on that yet. And, you know, I was just curious if that landfill were forced to close, what kind of impact would that have on your EBITDA? Well, first off, two very good questions. Two-part. Hopefully, you know, both things we are going to answer here give you some comfort in this. First off, we absolutely do believe that that expansion will go forward. That is expected to happen here over the course of the next several months. We are in the technical review piece of the expansion with the state. And generally in the state of New York and other states, the technical review is really what the design, the final design, and contours will be relative to whether it is a go or no go. The go or no go is a separate process, and that has effectively been decided in our favor. So we have a very high degree of confidence that Seneca will succeed in its expansion and go forward. Noah Duke Kaye: But Ronald J. Mittelstaedt: in order to have enough airspace to honor our commitments, we have been throttling back volumes consciously at Seneca, our choice, over the last 18 months. And we have taken that to other landfills that we own throughout our network both in New York and Pennsylvania, and some to our Arrowhead network that we mentioned earlier, intermodal. We have also had to push out some third party to do that. And so, you know, we have overcome that as well in our results. But to answer your question, I would tell you that if Seneca were to close, as you said, if that is a worst-case scenario, the impact to us is far less than what we absorbed at Chiquita closing. So without laying it, it is far less, and you have seen us overcome the impact to EBITDA, revenue, and margin of Chiquita, and this would be far less. So it would be something I am not even sure you would Noah Duke Kaye: notice. Ronald J. Mittelstaedt: Okay. That is great color, Ron. Thank you very much for that. Operator: Your next question comes from the line of Adam Bubes with Goldman Sachs. Your line is open. Please go ahead. Adam Bubes: Hi, good morning. I think the outlook implies an improvement in the rate of change of volumes 150 basis points at least on an apples-to-apples basis with how you traditionally report. And it does not sound like that embeds macro improvements. So what are some of the moving pieces driving the rate of change improvement in volumes year over year? Mary Anne Whitney: Sure. As we have talked about volumes historically, the way we have communicated it, you had what we would characterize as that price-volume trade-off, or I would argue there is a piece of mix in there and churn. Also talked about shedding, and then we talked about the underlying economy. That price-volume trade-off, you know, the way we are communicating it, is embodied in the yield calculation just the same way our peers do. And so I would say that has not moved materially, although we look forward to seeing certainly the churn element of that continue to decline as we use better tools. And we have talked about the visibility we have there with our price increases. So then, you know, I would observe that the shedding has decreased. We talked about anniversarying one of those last contracts last year in Q4, so that is behind us. So I would expect that to be more de minimis. And then as we said, we still expect that there is some from those more cyclically driven pieces of the business. That is why we said maybe that is flat to down about half a point. That is essentially what you are seeing there. And, again, that does not mean that things are getting better. It is just that we are anniversarying these low rates and the comps are easier. And as we have said, we have already seen some pickup in special waste, and we are continuing to see our pipeline, our visibility on special waste projects improve. Again, no macro pickup. That is all upside. Adam Bubes: And then, Ron, you talked about the technology initiatives, specifically the real-time routing sounds really interesting. It sounds like you are in the early innings, but to what extent is that rolled out across the fleet today? And what type of initial savings or productivity are you seeing? Ronald J. Mittelstaedt: That is not yet rolled out to the fleet today, Adam, so it would be misleading to tell you that it is, and what we think those savings will be. We have beta-tested what we have done in, you know, probably what would equate to maybe up to 5% of our locations, but not at all of the routes on those 5%. So that is a smaller test. But I do expect that we will have this rolled out fairly broadly by the third and fourth quarter of this year, and then really more fully deployed throughout 2027, but have a good understanding of the potential impact in the second half of this year at some point. Adam Bubes: Great. Thanks so much. Operator: Your next question comes from the line of Christopher Allan Murray with ATB Capital Markets. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Yeah. Thanks, folks. Good morning. Christopher Allan Murray: When we start looking at at least what you are proposing to see in 2026. Maybe turning back to, you know, the margin expansion that you saw in Q4. But, Ron, I mean, you alluded to the fact that a lot of this was Ronald J. Mittelstaedt: you know, attributable to, you know, there is some price-cost spread Christopher Allan Murray: gains, but it was also kind of the underlying Ronald J. Mittelstaedt: improvement in things like turnover and risk Jerry Revich: You know, Ronald J. Mittelstaedt: thinking that that stuff is not going to change, can you just maybe kind of square the circle on why you would not think that those trends would extend a little bit more into the year, and you are kind of looking at a lower year-over-year kind of growth rate? Mary Anne Whitney: Sure. So I guess what you are referring to is that we have guided to 70 basis points at the high end of underlying margin expansion after exiting the year at, you know—which, by the way, is about what we have seen through the course of the year—and then exiting the year at over 100 basis points margin expansion. And I would say that we recognize that the trends are still in the right direction, so there is certainly continued opportunity, and we factored that into our expectations for what we would characterize as an above-average margin expansion. From that price-cost spread, driven in part, as you note, by the employee retention and safety-driven benefits. Just remember, we had talked about about 100 basis points of margin expansion coming from that improvement over a multiyear period, and we are really two years through that multiyear period, and we mentioned that the final piece, the risk, is the largest contributor in the final pieces. So it is just an acknowledgment that as those metrics continue to improve, we look forward to seeing continued opportunity. Obviously, it gets harder the further down you go with improving these numbers and hitting record lows. But we will certainly look forward to continuing to drive those savings. And, Chris, I also think in terms of pricing retention and the improvement in churn that we have already seen from our pricing tools. So I think there is opportunity, which is why we are guiding to 50 to 70 basis points of underlying margin expansion when, as you know, that number would historically or typically be 20 to 40 in February. Jerry Revich: Fair enough. Other quick one just for me. The Canadian government changed its Ronald J. Mittelstaedt: or is introducing new regulations around methane emissions for landfills. Just wondering if you guys have any thoughts on how that could impact Noah Duke Kaye: the Canadian landscape, either creating some opportunities or some costs for you, and how you think that will actually impact the industry over the next few years? Jerry Revich: Yeah. I would tell you Ronald J. Mittelstaedt: Chris, that it is probably too early for us to make any real educated response to that. But I can tell you in speaking with our Canadian leadership team—we were just in Canada this week at our Canadian region office on Monday and Tuesday—and it was not something they were concerned about, based on everything they understood at this point. Mary Anne Whitney: Okay. I will leave it there. Thanks, folks. Operator: Your next question comes from the line of John Trevor Romeo with William Blair. Your line is open. Please go ahead. Ronald J. Mittelstaedt: Good morning. Thanks a lot for taking my questions. Just a couple of quick ones for me. I think first on the E&P business, would love to know, if you could kind of talk about in the quarter, I think you had some M&A deals contributing, but maybe talk about your organic growth you saw in Q4. And then as you think about modeling E&P for 2026, I think, Mary Anne, you said maybe flattish for the year. If you could talk about what you are expecting in U.S. versus Canada, is there anything to call out on a seasonal basis or anything else on that topic? Mary Anne Whitney: Sure. So looking at Q4, I would say we outperformed in Q4. That is the seasonally weakest quarter, and what we saw was some benefits in the U.S. from some remediation work, which, you know, that is episodic or lumpy, and so that was a nice add. And we saw continued outperformance in Canada. So both of those markets, even normalizing for acquisitions, were up year over year, and that is in spite of lower rig count and lower values for crude. So I would say that the business is arguably outperforming sort of the macro environment, and I think that the concerns that have been expressed looking forward, you know, we are certainly mindful, but we have seen no indication of a slowdown. And as I said, you know, we think in terms of how the year plays out at this point, we would say flattish is the right way to think about it and let it be upside, because, again, things like remediation jobs, those do not necessarily repeat every quarter. And so that is kind of the approach to the business. But generally speaking, very pleased that, as we have said before, the thesis on the Canadian business being more production-oriented played out last year, and our expectation is it continues to play out with the steadiness, the projectability of that business, which has not shown any signs of change. John Trevor Romeo: That is great. Thank you. That is it for— Mary Anne Whitney: Sorry. You are cutting out. Ronald J. Mittelstaedt: Cutting out. We could not hear you, Trevor. John Trevor Romeo: Hello? Hi, is this— Mary Anne Whitney: No. It is not better. Ronald J. Mittelstaedt: No. It is not better. John Trevor Romeo: I apologize if you cannot hear me. I guess you missed— Operator: Your next question comes from the line of Bryan Nicholas Burgmeier with BNP. Your line is now open. Please go ahead. Bryan Nicholas Burgmeier: Hi, good morning. Thanks for taking Mary Anne Whitney: the question. Can you hear me okay? Mary Anne Whitney: Yes. Loud and clear. Bryan Nicholas Burgmeier: Okay. Jerry Revich: Oh, great. Ronald J. Mittelstaedt: Just going back to the RNG business. Sorry if I missed it. But is Bryan Nicholas Burgmeier: $100,000,000 of EBITDA still kind of the right way to think about the contribution for 2027 or run rate Ronald J. Mittelstaedt: once that is fully operational? Is that still a good number to talk to? Mary Anne Whitney: Yeah. You know, I think that is a fair way to think about it based on what we know right now, and I would just remind you that there’s, you know, almost half of the projects are online. And so the incremental contribution would be what remains after that. Bryan Nicholas Burgmeier: Sorry. So you mean half the projects are online Bryan Nicholas Burgmeier: today? Bryan Nicholas Burgmeier: And so the Ronald J. Mittelstaedt: year-over-year 2027 versus 2026 will not be $100,000,000? Is that what you are saying? Bryan Nicholas Burgmeier: Correct. Jerry Revich: Yes. Bryan Nicholas Burgmeier: Okay. Okay. Okay. Thank you. Bryan Nicholas Burgmeier: But $100,000,000 in aggregate is the right way to think about Adam Bubes: the return on that overall investment. Mary Anne Whitney: That is right. Maybe a little higher. $100,000,000–$120,000,000, something like that. Bryan Nicholas Burgmeier: Okay. Thanks. Adam Bubes: And then just lastly, I think in prior calls, you called out Florida and Texas as being kind of weak or softer end markets. Is that still the case? Are you seeing—and then kind of related to that, did you see any weather impact in the quarter just broadly around some of the cold snap and stuff like that? Ronald J. Mittelstaedt: In the fourth quarter, are you referring to, or in the quarter we are now sitting in? We really did not see any weather impact in the fourth quarter. I mean, weather was, you know, somewhat mild, but nothing to note. Of course, in the month of January, there was a fairly significant cold snap that affected our business in up to 30 states, and certainly is some impact, but nothing material by any means. Mary Anne Whitney: Yeah. And just on Q4, really was not— you are right. We have mentioned those markets on construction-driven activity. I would say those stayed about the same, and there was a little incremental weakness in the Northeast that may have been some minor weather during Q4. Ronald J. Mittelstaedt: And to your question on Texas and Florida, I think Mary Anne Whitney: you covered it. That was a construction-driven slowdown since you guys were— Bryan Nicholas Burgmeier: Yep. Yep. Adam Bubes: Thanks, guys. I appreciate it. Thank you. Bryan Nicholas Burgmeier: Thank you. Operator: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead. Shlomo Rosenbaum: Hi. Thank you very much Ronald J. Mittelstaedt: for taking my questions. Shlomo Rosenbaum: Ron, I want to go back to some of the things you touched on earlier in the call about the ability to improve your operations with technology, and you are talking about routing and dynamic routing and other things. I want to ask, when you kind of sequenced some of these things that you were looking at, did you go after the biggest opportunities first? And what should we be thinking about for subsequent years of things that you are going to attack? And just, is there a way to use technology that you are seeing that maybe could squeeze more out of the assets, maybe trucks, maybe not have to have so many trucks on reserve, in terms of proactively being able to get them using technology? I am just trying to get other things that might be out there that might be able to squeeze more efficiency out of the system, both operationally and then, frankly, from a capital perspective? Jerry Revich: Yeah. Well, Ronald J. Mittelstaedt: look. When we looked at this, we identified up to 40 areas that we could potentially look at the utilization of AI in some way or another. We prioritized the seven things over a three-year period that we thought had the biggest opportunity for impact to the business positively, whether that be from an operating, a financial, customer service, etcetera, efficiency. So those are the things we attack. Last year, we worked heavily, 2025, on commercial pricing and a couple of other initiatives in AI. This year, as I said, it will be on routing and mobile customer engagement. Without question, these initiatives should and I think will lead to improved efficiency, improved margin performance, and improved asset utilization. No question. You know, dynamic real-time routing allows you to move assets with information that today you do not really have or you have only reactively, not proactively. And therefore, you have to have a little bit higher spare factors in your fleet at locations, those kinds of things. You end up with a little higher overtime because you are reactive versus proactive. So it is not one of these things that moves the dial in one area, you know, 40 or 50 basis points. It is one of these things that moves seven or eight dials 10 to 20 basis points throughout your P&L over time. And so that is what we see and what we are seeing. And, ultimately, look, it provides a better service quality, a more proactive communication with your customer, a greater efficiency for your physical and your human assets, and greater projectability in your business. Those are the things we are expecting and we are seeing. So it just makes it better for all of our, you know, our shareholders, our customers, our employees, and ultimately our shareholders. So, yeah, we are excited about it. I think it is still early innings and not prepared to put a marker out there of what does this mean. But I can tell you that these investments, the payback is very quick. Jerry Revich: The payback is months Ronald J. Mittelstaedt: to maybe a year to year and a half. So these are very solid investments for the business. Shlomo Rosenbaum: Okay. Thank you for that color. And then just more of a tactical perspective. Mary Anne, can you talk a little bit about what a change in commodities prices would do to Shlomo Rosenbaum: revenue and EBITDA in 2026 versus the baseline that you are using right now? Mary Anne Whitney: Yes. So when I look at overall what our commodities sales are of about $250,000,000, that tells you a 10% move is around $25,000,000. And so what we have factored into our outlook is a 15% decline overall year over year, which translates to meaning based on current prices as compared to last year, and that translates to that 20 to 30 basis points of margin drag, which starts off probably a multiple of that in Q1 and drops down over the course of the year. Shlomo Rosenbaum: Very helpful. Operator: Your next question comes from the line of William Grippin with Barclays. Your line is now open. Please go ahead. William Grippin: Good morning. I appreciate you squeezing me in here. Adam Bubes: Just another one here on commodity prices. I know you are not baking in a recovery into the forecast, but just curious if you could maybe elaborate a little bit on what you are seeing in Ronald J. Mittelstaedt: market today and maybe what developments you are watching that could potentially William Grippin: signal or support an improvement in commodities prices off these cyclical lows? Mary Anne Whitney: Sure. So, Will, we saw some incremental weakness early in the fourth quarter, then there was stabilization, and what we saw most recently was a little uptick in OCC, which was encouraging. The reality is, though, that was offset by incremental weakness in plastics. So I would say, overall, the basket really has not moved, which, again, that informs our thinking for how we guide. Then what we are watching for and looking forward to would really be the uptick which is driven by underlying economic activity, which ultimately drives the demand, most importantly for fiber, which, as you will recall, is the majority of the value in a ton of recycled materials. So cardboard—commerce. Demand, consumer confidence, all those things that are the engines of driving consumption, which ultimately is what drives our business and recycled commodity values. Adam Bubes: Appreciate that. And then just coming back to RNG, and obviously the EPA William Grippin: widely expected to release the 2026–2027 biofuels RVO here, hopefully in the first quarter. Anything you are watching there that Ronald J. Mittelstaedt: could cause you to maybe change your approach to RNG offtake William Grippin: or capital deployment for those projects? Mary Anne Whitney: Really, just to be clear, these are terrific projects at a whole range of outcomes for RINs. And we have talked about delayed startup or the whole project development. If it goes to a couple-year payback or four or five years versus two or three, it is still very compelling. And as we remind folks, you know, we have $6,000,000,000 sunk into our landfills. Of course, we are looking to monetize the value as that gas—the waste—breaks down and generates gas. So you should expect us to continue to opportunistically pursue these projects. And, of course, we are completing the projects we have underway, and we look forward to delivering those returns. In terms of what we are watching, we are encouraged. You know, we do not know exactly where the RVOs come out or what RIN values do, but we have recently seen some improvement in the D5 RINs, which are a good indicator for D3 because that can be a substitute. And, again, we have seen stability in RIN values in that kind of $2.40 level. And we are encouraged by what we are seeing out there. So no change in the philosophy. As you know, we have taken a portfolio approach of not having outright risk on all of the RINs through a variety of ownership structures. We will continue to evaluate those opportunities over time and continue to own the most attractive in our network. But, again, no change in the thinking. As we have said, the largest outlays are behind us, getting through 2026 for this large group of facilities. But we will continue to have the one-off facilities over time as, again, as our landfills mature and the opportunities present themselves. Ronald J. Mittelstaedt: And one other thing I would say, William, that I think, you know, we were not going to talk about this, but since you raised the question, look. We have gone out and purposely recruited one of what we believe is the top RNG experts anywhere in the industry. And this person is an executive officer of one of the finest RNG companies. We work with all of them, and we have more regard for this company than anywhere else. And they have built and operated some of our facilities. And we have been laser-focused on figuring out how to have him join us, and he starts Monday morning. And we are very, very excited about that. We are not going to release that name right now because that is not appropriate for him or his company. But that, I think, shows you our commitment to RNG and our acknowledgment that we could continue to get better there. And like any area, just like we are doing in AI and others, if you have to go out and get the talent, we are going to go out and get the best talent we can find to drive what we may not be as good in as we are in some of our core competencies. So I think we will just continue to get better as we go forward in RNG starting Monday morning. William Grippin: Great to hear that. Sounds like a nice win and a great resource. I appreciate the color. Operator: Your next question comes from the line of Konark Gupta with Scotia Capital. Your line is now open. Please go ahead. Konark Gupta: Thanks for squeezing me in. Just maybe on free cash, I wanted to understand, Mary Anne, if besides earnings growth that you expect this year and lesser outlays on RNG and Chiquita, is there anything else in terms of major swing factors embedded in guidance or any wild cards to watch for free cash? Mary Anne Whitney: No. I think, you know, when you think about the free cash flow drivers, you have got that incremental $100,000,000 in EBITDA, the decline in Chiquita. You know, we gave you the CapEx number that steps up a little bit. Cash taxes step up a little bit because they were so suppressed this year. But, no, I would say those are the major moving pieces that you have probably already observed. Konark Gupta: Okay. Thanks. And just a clarification on the margin side of things. I mean, you said 50 bps to 70 bps of underlying expansion before commodities. But are there any headwinds that are embedded in that 50 to 70 bps, like, from Chiquita maybe? Or is there any, you know, tax offset that are swinging in the other direction? Mary Anne Whitney: No. We are talking about EBITDA margin drivers. No. There are no anomalistic headwinds that are out there. As I said, you know, we have lapped some of the outsized improvements that drove even greater underlying margin expansion, and we continue to work on all the same things. So we would look forward to unlocking even more margin expansion, but think this is the right way to guide. Ronald J. Mittelstaedt: Alright. Konark, thanks for taking that question. Thank you. Operator: Your next question comes from the line of Toni Michele Kaplan with Morgan Stanley. Your line is now open. Please go ahead. Yehuda Silverman: Hey. Good morning. This is Yehuda Silverman on for Toni. Thanks for squeezing me in. Just a quick question on Jerry Revich: strategy. Yehuda Silverman: So the comments you made about how Chiquita is being affected by being in Los Angeles and California being the difference between that and other ETLF events. Does that change your strategy at all of where you might want to operate in terms of more politically friendly areas? Is that something that is already factored in, or is this just sort of a one-off situation? Ronald J. Mittelstaedt: Well, it is clear we would rather operate only in jurisdictions that have a more friendly business environment. But, you know, we are obviously in 45 states, so that bet is already decided. I certainly would not pursue owning an additional landfill in California in the next 200 years. But, other than that, no. It does not change anything. Yehuda Silverman: Great. Thank you. Mary Anne Whitney: Your next Operator: question comes from the line of Kevin Chiang with CIBC. Your line is now open. Please go ahead. Kevin Chiang: Thanks for taking my question. Maybe just here on the Eastern region. A lot of good color on what you are doing with Arrowhead. You know, you are rolling out the franchises in New York. Does that change the structural margin profile of the Eastern region? Those seem like they would be tailwinds to profitability. And then just broadly on Arrowhead, does the potential merger of Union Pacific and Norfolk Southern change how you think about the growth opportunities within Arrowhead if you are partnering with a much bigger railroad there? Mary Anne Whitney: I will start with the margin commentary regarding our Eastern region. Certainly around the edges, as I mentioned, increased internalization does help margins. But, more broadly, the Eastern region’s margins are dictated by the high transfer and disposal expenses that are just inherent in that market. So that will never change. You can improve around the edges and look for ways to optimize within that market, and you have seen us do acquisitions that help on that front in terms of optionality. But, no, I would not encourage you to think about a major step change in the margins of the Eastern region beyond that. And then, Ron, I think— Ronald J. Mittelstaedt: Yeah. What I would say, Kevin, no. I do not necessarily believe that the franchise of New York City or the franchising model of the New York City market becomes necessarily a tailwind. What I do think, however, is it becomes a much more stable, less volatile market because it is a very competitive market up till now. And so you have large swings. So I think it becomes a much more stable, projectable, investable market than it has been in the past, where, you know, you can have a swing of a collection margin that goes from 10% to, you know, 6% to 20% in a three-year period. And now I think what you have is you will have a very tight bandwidth of margin performance for the most part at very good margins, at sort of company-average type margins on an integrated basis. Mary Anne Whitney: I think Kevin had also asked about the Norfolk Southern merger. Ronald J. Mittelstaedt: Oh, yeah. And, you know, look. I do not think—I mean, I think it is too early to tell what will happen in the UP–NS merger. You know, I think we are quite a ways away from understanding whether that will happen, and if it will happen, what will be the guardrails put around that. We have a very long-term agreement with Norfolk Southern that the combined company would be honoring, so we are not concerned about it in that way. Could it open up additional opportunity because of the connectivity between those two? Well, that is certainly a possibility, but not something we have yet explored. Kevin Chiang: That is great color. Thank you very much. Operator: Your next question comes from the line of George Bancroft with Gabelli Funds. Your line is now open. Please go ahead. George Bancroft: Good morning. Congratulations on doing great work, Ron and Mary Anne. My question, maybe you could opine a little bit here, Ron, on—you talked about automation and AI, but maybe a little further down the road. Thought of, you know, self-driving. Obviously, your largest part of your cost structure is Jerry Revich: or a very large part is your George Bancroft: labor and all the driver tightness and your focus, the industry’s focus on safety. You have seen, obviously, some recent reports about the improvements in safety in self-driving. Have you ever talked to, ever thought about it, tested, done anything—maybe having either doing like a leasing—self-driving? It seems like it would be a great market for taking people off the truck and more safety. Even if the person stays on the truck and then you just have that added safety and technology there. Just want to get your thoughts on that. Ronald J. Mittelstaedt: Yeah. I mean, you know, Tony, number one, just to say that we have done anything in that arena would be misleading because we have not. Do I think it is something that could potentially occur in the waste industry? Absolutely. I think it is potentially there. As you know, there are mixed views depending on where you are and what you look at on the self-driving vehicles. It is obviously happening in some markets today. So the technology is certainly there. George Bancroft: But, you know, I will tell you, Tony, as you know, I am on the board Ronald J. Mittelstaedt: of a publicly traded airline, and I can tell you that, you know, for the last seven to eight years, you can push a jet back from the jetway to actually do the runway, take off, fly to your destination city, land, open the door, with no one in the cockpit. I am not sure anyone is getting on that plane. But there are still pilots in every day. So there is this theoretical, could this occur, and then the reality of, you know, when a car gets in an accident, that is bad. But when a garbage truck hits something, it is catastrophic. And so, you know, even if it could, I still think you would have professionals in the cab there for those reactionary scenarios that occur if something malfunctions. Exactly the reason airlines have pilots today. It is not because they cannot do it without it. It is because of the one-tenth of 1% that happens that they protect everyone from. And I think garbage truck would be the same way. But certainly something we will look at as the technology evolves. You know, we are always, as are our peers, always looking for ways to improve the safety aspect of the business, the efficiency, the customer improvement. But I think it is quite a ways out, and then, you know, we look forward to the day, if that opportunity arises, where we can improve it, but it is not there today. George Bancroft: Thanks, Ron and Mary Anne. Great job. Ronald J. Mittelstaedt: You bet. Operator: Your next question comes from the line of Tobey Sommer with Truist. Your line is now open. Please go ahead. Bryan Burgmeier: Hi. It is Henry on for Tobey. Thanks for squeezing me in. Great to hear the labor turnover numbers and where those are to start the year. Could you just give us an update on driver academies? What percentage of new driver hires do you expect to pass through those in the coming year and how much of an incremental benefit that could have on labor turnover throughout the year? Jerry Revich: Thanks. Ronald J. Mittelstaedt: Yeah. Thank you for asking that question. So when we opened our academies—one at the start of 2024 and one at the end of 2024—we felt that if we could get to approximately 35% of our driver need per year being internally developed at our academies, we would consider that a tremendous success. We achieved that number in 2025, and for 2026, we are forecasting that 60-plus percent of our driver need will go through one of our two academies. So far exceeding our expectations. Now that is a twofold function. That is because we have reduced turnover quite dramatically, so the need for new drivers is not as high. But the second and more important thing is the retention rate through our academies is almost double the retention rate of those that do not go through our academies. And we also thought that would happen, but we did not think it would be quite as good as it has been, however. So we are getting a double sort of whammy, and that is what has helped decelerate, improve turnover so quickly. Do we ever think that gets to 100%? Probably not. But if it could stay in this above-50% range per year—what we call being internally developed and trained—we would be very happy. And, as I said, we believe that number will be north of 60% this year. So, so far, that—and, you know, again, what is that yielding? We are working through getting the statistics to support this. But we believe that the drivers that go through our academies—number one, the turnover is lower. We know there is direct linkage between turnover and tenure and safety. And so we think as we look out through this year into next year, the linkage will show that those drivers we internally develop tend to have better safety performance statistics as well. So that is sort of where we are there. Jerry Revich: Great. Thanks for Bryan Burgmeier: that. That is great to hear. And then just if we could quickly circle back to core pricing cadence over the course of the year, do you expect a pretty steady step down sequentially during 2026? And how much visibility do you guys have at this point in the year on the full-year guidance of pricing? Thank you. Mary Anne Whitney: Sure. So as is typical, you should expect pricing to step down sequentially. So, obviously, if we have talked about 5% to 5.5%, you would start north of that—maybe 6%—and drop down over the course of the quarters to something less than that to average that number in the middle. And in terms of visibility, as is typical in our model, by the time we report Q1, we will have visibility on 65% or 70% of our price increases. Most of the competitive piece will be done, and then we will have known amounts for our CPI-linked markets. So pretty typical for us in terms of the visibility. You know, we are a company that stops talking about price really after April. Operator: There are no further questions at this time. I will now turn the call back to Ronald J. Mittelstaedt for closing remarks. Jerry Revich: Okay. Ronald J. Mittelstaedt: Well, if there are no further questions, on behalf of our entire management team, we appreciate your listening to and interest in the call today. Mary Anne and Joe Box are available today to answer any direct questions that we did not cover that we are allowed to answer under Regulation FD, Regulation G, and applicable securities laws in Canada. Thank you again. We look forward to seeing you at upcoming investor conferences or on our next earnings call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings. Welcome to CSP Inc.'s first quarter fiscal year 2026 conference 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 during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Michael Polyviou. You may begin. Michael Polyviou: Great. Thank you. Hello, everyone, and thank you for joining us to review CSP Inc.'s initial results for the fiscal 2026 first quarter ended on 12/31/2025, as well as recent operating developments. Today, with me on the call is Victor J. Dellovo, CSP Inc.'s Chief Executive Officer, and Gary W. Levine, CSP Inc.'s Chief Financial Officer. After Victor and Gary conclude their opening remarks, we will then open the call for questions. During the Q&A session, we ask participants to limit themselves to one question and one follow-up question, then requeue if you have additional questions. Statements made by CSP Inc.'s management on today's call regarding the company's business that are not historical facts may be forward-looking statements as those identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions, are intended to identify forward-looking statements. Forward-looking statements should not be meant as a guarantee of future performance or results. The company cautions you that these statements reflect the current expectations of the company's future performance or events and are subject to several uncertainties, risks, and other influences, many of which are beyond the company's control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as of the time with respect to future events. All forward-looking statements are qualified in their entirety by this cautionary statement, and CSP Inc. undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date thereof. I will now turn the call over to Victor J. Dellovo, Chief Executive Officer. Victor, please go ahead. Victor J. Dellovo: Thank you, Michael, and good morning, everyone. As expected, our first quarter product revenue compared to the prior-year period reflects tough year-over-year comparables, which obscures the progress we continue to make executing on CSP Inc.'s core growth strategies and building long-term shareholder value. In the year-ago quarter, we recorded approximately $4,500,000 in a one-time product deal that did not repeat in fiscal Q1 2026, resulting in the decline in total revenue. As I have emphasized on prior calls, our strategic focus is on expanding service revenue and growing our MRR base. In the first quarter, service revenue, driven by ongoing momentum in the technology solution and managed service practice, grew 14.6%. The strength translated into a meaningful improvement in our overall gross margins, which reached 39.3%. The higher-margin profile contributed to a $171,000 increase in gross profit versus the prior-year period. We also continue to gain traction in the market with our differentiated and award-winning AZT Protect cybersecurity solution, supported by both new customer wins and multisite expansion with existing customers. Overall, our fiscal first quarter results reinforce our confidence that fiscal 2026 is shaping up to be a growth year for CSP Inc. Our technology solution business continues to lead our progress. Our offerings increase the efficiency and effectiveness of our customers' IT investments in networking, wireless, mobility, unified communication and collaboration, data centers, and advanced technology security. And while all our TS services are performing to plan, our managed cloud and managed service practice continue to excel. We are benefiting from the ever-expanding business and organizational migration to the cloud and the increased trends for enterprise of all sizes to acquire operation support required once the migration is complete. A primary factor behind this market driver is the growing complexity of the cloud and the unique and specific needs of each enterprise. Microsoft, through its Azure offering, is considered to be the market leader in this space, and our MSP practice is a platinum partner with the company. During our last call with you in December, we mentioned the increased investments we were making in the managed service practice. We have already begun to generate returns from the investment through the signing of new customers. In Q1, we signed new MSP customers that will generate nearly six figures in monthly revenue commencing this quarter. This traction has continued into the second fiscal quarter as we look out over the remainder of the year. We believe our service segment momentum can continue. Meanwhile, based on our best-in-class services, our customer's retention rate remains extremely high, contributing to expanding our gross margins in the service segment. We also achieved meaningful traction with our AZT Protect product suite in the first quarter, delivering year-over-year revenue growth. While we are still progressing towards the full market opportunity for cybersecurity solutions, the quarter reflected several encouraging developments. We secured multiple new site customers for AZT, and through our strategic partnership and distribution, continue to expand our pipeline of prospective deployments. Despite being in the market with the AZT for just over a year, we now serve over 46 unique customers, some of whom have multisite installations on the way and additional expansion opportunities. These customers span a broad range of verticals, including steel, energy, manufacturing, water utilities, pharmaceuticals, food, and telecommunication. Importantly, many of the highest-value multisite opportunities, each with potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment processes. We have already received approval— Michael Polyviou: I believe we may have lost that. Gary, are you there? Gary W. Levine: Yeah, I am here. Let us take a look. Line connected? Operator: Ladies and gentlemen, please stand by. We will get Victor back on the phone. Gary W. Levine: Yep. One moment, please. I still see his line connected. Operator: I will reconnect it again. One moment, please. Michael Polyviou: Yep. Again, please stand by. We are trying to get Victor back on the phone here. Hello? Victor? Hello? How CSP Inc. Technology Solutions professional services can transform your IT challenges into a business advantage. We offer five core areas of expertise, including network— Victor J. Dellovo: Unified communications, operation. Michael Polyviou: Data center solutions, and advanced security. Operator: Your IT infrastructure is the backbone of your business, but managing and maintaining multiple mission— Michael Polyviou: Gary, perhaps it is Victor’s phone? Operator: —security can strain your resources and get in the way of executing your core business and IT strategy. CSP Inc. Technology Solutions managed services team can customize a— Michael Polyviou: We have Victor’s line connected. Operator: Alright. Victor J. Dellovo: Hey, Michael. Where did we leave off? I did not realize we dropped. Michael Polyviou: Why do we not just pick up on—well, Victor, it is probably easier if we could pick up from the beginning. If not, we could pick up on the top of page two. Victor J. Dellovo: Okay. We will talk technology solutions business. Yeah. Sounds good. Sorry about that, everyone. Our technology solution business continues to lead our progress. Our offerings increased the efficiency and effectiveness of our customers' IT investments in networking, wireless, mobility, unified communication and collaboration, data centers, and advanced technology security. And while all our TS services are performing to plan, our managed cloud and managed service practice continue to excel. We are benefiting from the ever-expanding business in organizational migration to the cloud and the increasing trend for enterprises of all sizes to acquire operation support required once the migration is complete. A primary factor behind the market driver is the growing complex of cloud and unique and specific needs of each enterprise. Microsoft, through its Azure offering, is considered to be the market leader in this space, and our MSP practice is a platinum partner with the company. During our last call with you in December, we mentioned the increased investment we were making in a managed service practice, and we have already begun to generate returns from that investment through the signing of new customers. In Q1, we signed new MSP customers that will generate nearly six figures in monthly revenue commencing this quarter. This traction has continued into the second fiscal quarter, and we look out over the remaining of the year, and we believe our service segment momentum can continue. Meanwhile, based on our best-in-class services, our customer retention rate remains extremely high, contributing to our expanding gross margin in the service segment. We also achieved meaningful traction with our AZT Protect product suite in the first quarter, delivering year-over-year revenue growth. While we are still progressing towards the full market opportunity for our cybersecurity solution, the quarter reflects several encouraging developments. We secured multiple new site initial site customers for AZT Protect and, through our strategic partnership and distribution, continue to expand our pipeline of prospective deployments. Despite having been in the market with AZT for just over a year, we are now serving 46 unique customers, some of who have multisite installations underway and additional expansion opportunities. These customers span a broad range of verticals, including steel, energy, manufacturing, water utilities, pharmaceutical, food, and telecommunication. Importantly, many of the highest-value multisite opportunities, each with the potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment process. We have already received approval to proceed at several second and third site and our team is focused on rapid execution to demonstrate the substantial value AZT Protect delivers in preventing cyberattacks that otherwise can disrupt operations for days, or even weeks. The case studies developed from our initial industry installations are helpful getting our target customers to understand how exposed they are to operational disasters and how AZT Protect uniquely acts to prevent such disaster. For some, they are learning of the risk as operational technology customers continue to lack effective cybersecurity protection at the level AZT Protect provides. Unfortunately, for many, they do not realize their exposure until it is too late, and they are exposed. We continue to believe we have a strong competitive advantage in the space and believe that the market is starting to see us as a resource. The unique procurement process and development criteria for each customer previously mentioned has resulted in various timing delays which we continue to work through. Our team is resilient and committed, and we are not letting up. We continue to believe the effort will result in sizable AZT sales for the fiscal year unfolds. In addition to expanding direct pipeline, we are advancing strategic OEM relationships, most notably with Acronis, as they work to embed AZT Protect into their platform. While these integrations require time to mature, they represent highly scalable opportunities with substantial long-term potential. We also conducted our first webinar this quarter with Acronis, which drew nearly 200 attendees and generated more than a dozen demo requests. Engagement levels were strong, reinforcing our view that this go-to-market motion will be an important contributor to our long-term growth trajectory. In summary, we are off to a solid start of the fiscal year, with particularly strong performance in our service business. We believe we remain on track to deliver steady profitable improvements throughout fiscal 2026, supported by the infrastructure investments we are put in place to enable meaningful scale. As a result, we expect to generate substantial operating leverage as revenue grows. With that, I will turn the call over to Gary to discuss our recent financial results in more detail. Gary? Gary W. Levine: Thanks, Victor. For the fiscal first quarter ended 12/31/2025, we generated $12,000,000 in revenue as compared to $15,700,000 for the year-ago fiscal first quarter. Product revenue for the 2026 fiscal first quarter was $6,700,000 compared to product revenue of $11,000,000 for the 2025 fiscal first quarter. Last year's revenue for the quarter included several one-time transactions with customers totaling approximately $4,500,000, and we did not have any product orders of that magnitude in the first quarter of this year. Service revenue for the first fiscal quarter increased 14.6% to $5,300,000 from $4,700,000 in the year-ago fiscal first quarter. Gross profit for the fiscal first quarter was $4,700,000 versus $4,600,000 during the 2025 fiscal first quarter. The solid service revenue growth and mix during the quarter drove the gross profit margin increase. Gross profit margins for the first quarter were 39.3% of sales, which was slightly more than 10% higher than the gross margin for the prior 29.1%. Research and development expenses increased 9.2%, or $858,000, compared to the same period of prior year, as we supported the customization of the AZT Protect deployments and OEM embedding development. Sales and general and administrative expense for the fiscal first quarter declined $143,000 to $4,000,000. For the year-ago first fiscal quarter, the company had increased interest income that increased 23% over the prior year on our financing deals and interest on our cash. The company recorded a tax expense of $280,000, which represented a year-to-date effective tax rate of 75.5%. The differential between the company's effective tax rate year to date and the U.S. statutory tax rate of 21% is primarily due to state income taxes, changes in the valuation allowance maintained against certain state credits, and nondeductible executive compensation. Net income for the fiscal first quarter of 2026 was $91,000 compared to $42,000 in the prior-year period. Diluted earnings per common share were $0.01 compared to $0.05 in the prior-year first quarter. As of 12/31/2025, our balance sheet remains strong with cash and cash equivalents of $24,900,000. We would also like to point out that the decrease in cash from 09/30/2025 was primarily related to several financing deals that we closed in Q1 2026, and we are to collect approximately $3,300,000 from financing payments scheduled during the next two quarters. As we noted in the press release this morning, we will be paying a dividend of $0.03 per share on March 12 to shareholders of record of February 26. With that, I will turn it over to the operator for your questions. Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. To pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Joseph Nerges with Seagram Investment. Joseph Nerges: Hello. Good morning, guys. How are you? Gary W. Levine: Good. Good morning, Joe. How are you doing? Joseph Nerges: Okay. A quick accounting question. We keep talking about service revenue. Do we have two categories service? When you talk service revenue, are we talking managed services, are we talking services beyond managed services? So are is there two categories or just one category? Gary W. Levine: For services revenue, it is— Joseph Nerges: Do you understand my question? Of— Gary W. Levine: Yeah. Multiple items, Joe. Joseph Nerges: Okay. It is not just one. Victor J. Dellovo: Alright. So then what are we talking about for managed service for the quarter? You— Gary W. Levine: I think you said—did you say $5,300,000? Is that correct? Joseph Nerges: Correct. The managed services portion of our services revenue— Gary W. Levine: For the first quarter—well, that is the total service revenues inclusive of, you know, the TS division as well as the— Joseph Nerges: Yeah, AZT— Gary W. Levine: Okay. So— Joseph Nerges: We do not break it out, Joe. Joe, we do not break it— Gary W. Levine: Okay. You are not breaking out between TS and— Joseph Nerges: I am just trying to understand where—how much of our managed—much revenue in managed services do we have? Victor J. Dellovo: A lot. Joseph Nerges: Yeah. Victor J. Dellovo: It is a good portion of it. I do not have that number right in front, but it is the majority. Joseph Nerges: Okay. So the majority of the $5,300,000 would be the managed services portion of it. Victor J. Dellovo: Okay? Joseph Nerges: Alright. Alright. Let me get past the accounting here. Let us talk about the Acronis just for a second. I noted that from the Acronis website, they changed their—we are going to be rolled into Acronis Cyber Protect. That is going to be their product, I understand. Is that correct? In other words, when we be into—it will be into not just a Cyber Protect. It will be over all— Victor J. Dellovo: It will be on their front GUI. So, like, even when they potentially want to do a backup, if the customer chooses, they can run our product to look at all the data and all the applications, making sure there is no issues before they back up the data. Joseph Nerges: Okay. Victor J. Dellovo: So, you know, previously, they had a product called Acronis Cyber Backup. Now they changed the name to Acronis Cyber Protect. That is, as I understand, where we will be rolled into. Joseph Nerges: So we—and are we not—are we not selling Acronis Cyber Backup? Have we not sold that in our TS division? Victor J. Dellovo: We have customers that are utilizing the Acronis down there. Joseph Nerges: Have we? Victor J. Dellovo: Yeah. Joseph Nerges: Correct. So, theoretically, we can increase our AZT sales force by incorporating our sales team in Florida who sell the Acronis backup service, which would now include AZT. You understand my question there? Victor J. Dellovo: It is not really. It is a statement. Gary W. Levine: Yes. Victor J. Dellovo: And the capability of the backup service for the possibility of adding AZT to it. Gary W. Levine: Correct. Victor J. Dellovo: And since we have customers, I assume, because we have been representing— Joseph Nerges: Yeah. Victor J. Dellovo: —have customers—a number of years in our TS division. We must have a number of—just in our division that have Acronis that are utilizing the backup service. Gary W. Levine: Solely. Victor J. Dellovo: Mhmm. Joseph Nerges: Okay? So in effect, our sales team in Florida can expand the backup service to include AZT for those customers that want to have that protection. Victor J. Dellovo: Yeah. If we are doing backup for a customer—you have to understand not all would do backup for. There are a few that we do. Joseph Nerges: Well, okay. I am good. But the few we do can all utilize the AZT admin if they start to— Gary W. Levine: Yeah. If they choose to— Joseph Nerges: If they choose to spend the money. Gary W. Levine: Yes. Joseph Nerges: Yep. Okay. I will let somebody else jump in. You know, I do not want to dominate the whole thing, but I will come back and put another question in after other people have a chance to ask questions. Gary W. Levine: Okay. Thanks, Joe. Operator: Your next question is from Mike Price, a shareholder. Mike Price: Good morning. Thanks for taking my questions. With AZT being embedded in the Acronis offering, there should be some predictability. Can you give us an idea of how that translates into revenue? I mean, at some point, it would be nice to have this quantified. Victor J. Dellovo: Yeah. We have not even fully integrated. We are building the APIs. So how that rolls out, Mike, is if we ever get that out there, that we have some outlook on that, I will include it. But at this stage, it is way too early. Mike Price: And how far out do you think that might be till you give us some idea of a dollar amount? Operator: I have no idea, Mike. Victor J. Dellovo: I am not going to guess at this stage. Right now, I am concentrating on the integration finished. Mike Price: Okay. And, also, it has been five months because the blackout period that you have been able to repurchase shares. Is that in the plans? With, you know, a $100,000,000 market cap and the stock within hailing distance of the twelve-month low— Gary W. Levine: Yeah. It is always been part of that. Yeah. We have been—we have been— Victor J. Dellovo: You know, unfortunately, locked out for a— Gary W. Levine: Yeah, for a while. It will open up in the next forty-eight hours, and we will do something this— Victor J. Dellovo: We will be doing some this quarter. Mike Price: Okay. And a statement along with that, it would sure show a lot of confidence if the insiders, other than Joe Nerges, were buying shares also. Just a statement. Victor J. Dellovo: Yeah. Mike Price: Okay. Thank you. Victor J. Dellovo: Thanks, Mike. Operator: Your next question for today is from Brett Davidson, a private investor. Brett Davidson: Good morning, gentlemen. Victor J. Dellovo: Morning, Brett. Brett Davidson: Just got a few quick things. Gary, I think you were talking about the repayments on the financing, the $3,000,000. Gary W. Levine: The interest. Brett Davidson: Yeah. Are we—are we still—so we are going to collect $3,000,000. That number on the balance sheet could conceivably drop, but are we still acting in that financing role? Is it going to drop on the balance sheet? Or it is just cycling through to another customer or whatever? Victor J. Dellovo: It could. Right? It could. Yeah. It is just—every customer is a little different, but those are the ones that we have already, you know, paid out, you know, paid for the product, and now we will be collecting. Brett Davidson: So— Victor J. Dellovo: Sometimes we are taking three-year deals for the customer and, you know, the payment structure for all deals are a little different. Brett Davidson: Okay. So we are still in that business. Just one of— Victor J. Dellovo: Yeah. We are offering it to customers that are high-quality customers, and it keeps us sticky inside the organization. And it is a good use of our cash. Brett Davidson: Yeah. You got your claws in them. Victor J. Dellovo: Mhmm. Yep. Brett Davidson: So the permission on the second and third sites—I am just interested in kind of when that occurred. Are we talking about just in the first quarter? Or does that continue into the current quarter, some of those second, third sites? Victor J. Dellovo: The ones that have multisite, there is two variations. The ones that we deal with corporate and then, you know, if they have 50 locations, like we did with one of our large pharmaceuticals, they bought from the corporate level, and we pushed it out to those 40-plus. In some cases, all the budgets are separated, so we have to go to—one of the ones I mentioned was that steel company. We have to go to all 20-some-odd sites. And we already got the third site—you know, one came in last quarter. One came in this quarter. There is another one in food industry that we got the second one. Another one in another industry came in actually yesterday for the third site. So, yeah, they are—unfortunately, it would be nice if we could just deal with corporate, take one purchase order, and push it all out. In some cases, that is not the case, so we have to go to every individual site, and it gets easier after the first one because we do not have to do another POC. We just have to go get budget money from them. And as I mentioned earlier in the script, every customer's purchasing process is a little different, so we have to kind of abide on how each one does that. And sometimes, unfortunately, they are very, very slow. Things take way more time than I think it should. But we are at the mercy of the customer. Brett Davidson: Well, from the description there, it sounds like this is becoming a more regular occurrence. Starting to happen with some kind of frequency. Victor J. Dellovo: Yeah. Like, last year at this time, we had two customers. A year later, you know, I mentioned we have 40-something. So we are doing that where we seed the product at one location. We try to get someone who can evangelize the difference between us and some of the competitors out there, why they should spend money with a small company like us, and how we truly do protect the endpoint and lock it down. And if we can get someone who can evangelize internally, it makes it a lot easier for the second, third, and multiple locations that they have. So, yeah, it is getting easier, but it is not easy. Every customer is a little different, and getting to know the customers and how they do business is a lot of work. But we are getting references, and the references are helping. We are working on a deal right now. They are like, who else do you do business with locally? And we mentioned it. He is like, oh, I know that person. Let me call him. If they get thumbs up on our AZT, I do not even have to do the POC. So things like that are happening. To me, it can always be faster. But things are happening in a positive direction. Brett Davidson: Yeah. I am—it is—yeah. You know, it is exactly what I am getting at. I fully get it that, you know, it is just really tough slog, but eventually, we get to the point where multiple of these relationships start to pay dividends and, you know, one guy is talking to another guy, and—I mean, do you get any feel yet of the kind of momentum where this starts to look exponential instead of linear? Or still too early? Victor J. Dellovo: Still a little too early. We are gathering the data. It is getting a little easier to connect dots, but it is still—you know, like I said, it is only been truly a year of really, really pushing this product and kind of figuring out the messaging, and every industry is a little different. So building those—you know, like I had mentioned in the script there, that we are putting these one-pagers together that represent the industry to try to make it a little easier to understand how we can help them, and why we are a little different than the competitors, where we fit in with those competitors. Sometimes we can go alongside of those competitors. They can do the IT side of it while we do the OT side of it. And how we can join all the logs on the one interface. So those are the messages that we kind of put together over the last year to try to make it a little cleaner, clearer to the customer—everything to speed up the sales process. Brett Davidson: So it sounds like the beginning signs are there, but it just has not fully mushroomed yet. I commend you for the hard work and moving this forward, and I will try and be patient. Victor J. Dellovo: Yeah. We are moving as fast as we can. I promise you that. You should know me. You know? I am not a patient person. Brett Davidson: Okay. Alright. Well, thanks for taking my questions. Gary W. Levine: Thanks, Brett. Operator: As a reminder, if you would like to ask a question, please press 1. Next question is a follow-up question from Joseph Nerges. Your line is live. Joseph Nerges: Okay. I am back on again. Okay. Just a little clarification. You elaborated on the expansion of our marketing and managed services, and I am trying to get the numbers. I heard them once, and I think we heard them through a repeat again. Well, you said that we are adding some new customers in managed services. Did you say that you thought it would be monthly revenues going forward of $100,000? I am trying to get the numbers that you gave in the— Victor J. Dellovo: Joe, we had a—we closed some nice deals. So a little clarity. When you close an MSP deal, it takes various time to get them set up and actually start billing them. Over the last—we closed some before the end of last year, we closed some nice deals. It took us a little time to get those up and running. And as of last quarter, we are starting to bill net close to $100,000, a little less than $100,000 additional per month of net new revenue for the MSP. That is net new revenue. Joseph Nerges: That is extremely good. That is what I thought you said, and that is the total of all the customers you have added. Victor J. Dellovo: Yeah. Those are just the additional increase per month. Joseph Nerges: Alright. Well, great. Thank you. That is that clarification. I thought that is what you said, but I just want to make sure that the numbers were added up to what I was thinking of. Thanks a lot. Thanks again, guys. Michael Polyviou: Yep. No problem, Joe. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Victor for closing remarks. Victor J. Dellovo: Thank you, everyone, for joining us today. As I mentioned at the top of today’s call, we made progress on all fronts during the first quarter and are aggressively pursuing our opportunities for the remainder of fiscal 2026, both on the services side of the business as well as AZT Protect. We look forward to reporting on our progress with you in May. In the meantime, thank you to our shareholders for their support, to our team for their dedication and effort, and we wish everyone a good remainder of the day. Goodbye for now. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to Crane NXT, Co. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please note this conference is being recorded. Now it is my pleasure to turn the call over to the Vice President of Investor Relations, Matt Roache. Please begin. Matt Roache: Thank you, Operator, and good morning, everyone. I want to welcome you all to the fourth quarter and full year 2025 earnings call for Crane NXT, Co. Before we begin, let me remind you that the slides we will reference during this presentation can be accessed via the Investor Relations section of our website at cranenxt.com and a replay of today’s call will also be available on our website. Before we discuss our results, I encourage all participants to review the legal notice on slide two, which explains the risk of forward-looking statements and the use of non-GAAP financial measures. Additionally, we refer you to the cautionary language at the bottom of our earnings release and our Form 10-Ks and subsequent filings pertaining to forward-looking statements. During the call, we will also be using non-GAAP financial measures, which are reconciled to the comparable GAAP measures in the tables at the end of our press release and accompanying slide presentation, both of which are available on our website in the Investor Relations section. With me today are Aaron W. Saak, our President and Chief Executive Officer, and Christina Cristiano, our Senior Vice President and Chief Financial Officer. On our call this morning, we will discuss our 2025 highlights, our financial and operational performance, and our 2026 financial guidance and outlook. After our prepared remarks, we will open the call to analysts for questions. With that, I will turn the call over to Aaron. Thank you, Matt, and good morning. I appreciate everyone joining the call today. Aaron W. Saak: I would like to begin by thanking our Crane NXT, Co. team members around the world for their performance during Q4. We have an exceptional team, and I am proud of our accomplishments throughout 2025. Starting with our financial results, we had a strong end to the year, executing our strategy of accelerating organic revenue growth while maintaining strong margins and free cash flow. Sales growth was approximately 20% in the fourth quarter, and 11% for the full year. Adjusted EBITDA margin was approximately 25% in Q4 and 24% for the full year. Additionally, our strong free cash flow resulted in a conversion ratio of approximately 135% in the fourth quarter and 94% for the full year, in line with our expectations. Finally, we delivered adjusted EPS of $1.27 in the fourth quarter and $4.06 for the full year. We continue to build momentum in executing our strategy to accelerate organic growth, and I would like to highlight a few of our key achievements this year. We ended 2025 with a total of 20 new currency denomination wins specifying our micro-optics technology. This result exceeded our target range of 10 to 15 wins and is one reason why I am so positive about the long-term outlook for the currency business. Notably, the new wins include five new denominations for the nation of Fiji, which unveiled a new series of currency in December featuring micro-optics integrated into polymer substrates. With our currency team’s continued streak of wins, and organic backlog up more than 30% year over year, we are highly confident in our sales outlook for this business in 2026. Also in 2025, we successfully completed the final equipment upgrades to support the launch of the new U.S. currency series. With design and testing finalized, we are preparing for the release of the new $10 bill later this year. And we are excited, as I know many of you are, for the U.S. Treasury unveiling of the new design we think will likely be in mid-2026. In 2025, we also secured significant contracts in our Crane Authentication business across major customers, including the world’s most recognized sports leagues. As a reminder, earlier last year, we announced that we renewed our multiyear contract with the National Football League to provide physical product authentication and online brand protection services, and in Q4, we signed a multiyear agreement with Major League Baseball to provide security technology for their consumer products. We are confident that these partnerships, together with other contracts we have with some of the world’s most recognized brands, will continue to drive growth. We also continue to build upon our market-leading positions in authentication traceability technologies. In 2025, we further strengthened our leadership in global authentication through the creation of Crane Authentication, combining OPSX Security and De La Rue Authentication into one integrated business. We made significant progress executing on our synergies, including 80/20 initiatives, which will drive significant margin accretion in this business in 2026. Additionally, in the fourth quarter, we closed our initial equity investment in Antares Vision, a global leader in providing advanced detection systems and track-and-trace software, expanding our presence in higher-growth end markets, including life sciences and food and beverage. And we are on track to complete this acquisition and take the company private in mid-2026. Finally, to capitalize on increasing demand, we are investing in the future growth in our international currency business, and I will provide more details on this later in the call. In summary, throughout 2025, we continued to execute our strategy, accelerating revenue growth, building momentum in key strategic areas, and expanding our market-leading positions. We are taking meaningful steps to position the company for success, and we are in a strong position to deliver long-term shareholder value creation. So thank you again to our entire Crane NXT, Co. team for your dedication in 2025 and commitment to continued success in 2026. Now with that, let me hand the call over to Christina to review our fourth quarter and full year financial performance in detail, as well as our 2026 guidance. Matt Roache: Christina? Operator: Thank you, Aaron, and good morning, everyone. Christina Cristiano: I would also like to echo Aaron’s thanks to our associates for their continued hard work. I appreciate your contributions and your commitment to our customers and shareholders. Starting on slide four, sales were $477 million in the quarter, an increase of approximately 20% year over year, driven by acquisitions and continued strong performance in Crane Currency. Core sales increased approximately 5%, reflecting accelerating growth in SAT, partially offset by expected softness in CPI. Adjusted segment operating margin of approximately 26% declined approximately 120 basis points versus the prior year, reflecting additional costs and investments to support increased demand in international currency as well as unfavorable FX, which I will speak more about in a few moments. Adjusted free cash flow conversion was very strong at approximately 135%, underscoring our robust operating discipline, and we delivered adjusted EPS of $1.27. Moving to slide five. Full year sales were approximately $1.7 billion, an increase of approximately 11% year over year, with core sales growth of approximately 1%. Adjusted segment operating margin decreased approximately 260 basis points year over year, reflecting the expected impact of acquisitions and additional costs in international currency to deliver on increased demand. Finally, adjusted free cash flow conversion was approximately 94% for the full year and we delivered adjusted EPS of $4.06. Moving to our segments and starting with CPI on slide six. Core sales were flat compared with 2024, with double-digit growth in gaming offset by expected softness in other end markets, including vending. Adjusted operating margin improved approximately 340 basis points to approximately 32%, reflecting the impact of disciplined cost management and productivity initiatives. Finally, there was a modest increase in backlog sequentially and the book-to-bill ratio was above one. Turning to slide seven. For the full year, CPI core sales were in line with expectations, decreasing by approximately 4% year over year, reflecting the indirect impact of tariffs on demand in our vending end market, as pricing actions caused customers to delay orders. Results were also impacted by the final phase of the gaming dynamic we experienced during 2025. Through strong cost discipline and application of CVS to drive productivity, we maintained adjusted operating margin at approximately 29%. These results reflect excellent work by our CPI team. Moving to Security and Authentication Technologies on slide eight. In the fourth quarter, core sales were up approximately 11%, driven by strong performance in Crane Currency, where we achieved 11 new micro-optics denomination wins in Q4, bringing our full year total to 20 new wins. As a reminder, total sales growth of over 40% includes the acquisition of De La Rue Authentication, which closed in May. Adjusted segment operating margin decreased by 420 basis points from the prior year. Matt Roache: As shown on slide nine, Christina Cristiano: we had strong volume growth year over year, increasing our margins. However, this impact was partially offset by several items. First, we experienced unfavorable mix in our international business as compared to 2024, based on the specific shipments from our backlog to central banks. Second, we incurred additional costs to meet increased demand, including hiring and training of additional production staff, higher freight, procurement of substrates from third-party suppliers, and selected outsourcing of banknote printing. Additionally, there was an unfavorable FX impact on margin, as we experienced higher operating costs to manufacture in our international currency products in Sweden and Malta, incurring costs in Swedish krona and euro. We also made additional investments in Q4 to support anticipated future growth as we continue to execute the development of the next generation of micro-optic products with very high customer interest. Finally, the contribution from the acquisition of De La Rue and the execution of our synergies across Crane Authentication performed as expected in the quarter. Turning to slide 10, for the full year SAT delivered core sales growth of approximately 7%, driven by strength in currency, which exceeded our expectations. Crane Authentication performed as expected, with results including eight months of De La Rue Authentication in 2025. Adjusted operating margin decreased by approximately 380 basis points, driven by the expected impact of acquisitions and, as discussed earlier, the increased costs in international currency and the unfavorable impact of FX. Finally, backlog was up more than 50% year over year, which gives us high confidence in our growth outlook for SAT in 2026. Moving to our balance sheet on slide 11. We ended the year with net leverage of approximately 2.3 times. During the fourth quarter, we secured a term loan of roughly $500 million and drew approximately $130 million to fund the initial equity investment in Antares Vision. We expect to draw the remaining balance in 2026 to fund the rest of the Antares Vision transaction, which is on track to be fully completed in mid-2026. Looking ahead, we anticipate using our free cash flow to pay down our outstanding debt and end 2026 with net leverage of approximately 2.3 times. We have an excellent balance sheet, attractive fixed-rate long-term debt, and substantial liquidity. Our strong free cash flow generation enables us to invest in organic growth, pursue M&A to build on our leadership position, and maintain a competitive dividend. Continuing our commitment to a disciplined and balanced capital allocation strategy, yesterday we announced a 6% increase to our annual dividend, while preserving ample capacity to deploy capital toward acquisitions in the future that meet our financial criteria. Moving now to 2026 guidance on slide 12. I would like to highlight that this guidance only includes the interest expense associated with our initial approximately 32% investment in Antares Vision. We anticipate updating guidance in our first quarter earnings announcement after Crane NXT, Co. has a greater than 50% ownership stake in Antares Vision, at which time its results will be consolidated within Crane NXT, Co. In 2026, we expect full year sales growth of 4% to 6%. In SAT, we expect high single-digit growth, driven by high single-digit growth in U.S. currency from a favorable mix of banknote demand and low single-digit growth in international currency, even with a tough comparison to a very strong 2025. In Crane Authentication, we expect mid-single-digit core growth, including a full year contribution from the De La Rue Authentication acquisition. In CPI, we expect sales to be flat year over year, reflecting mid-single-digit growth in service, where we are expanding our offering, offset by approximately flat revenue year over year in our hardware businesses and a low single-digit decline in vending, as order softness continues following price increases to offset the impact of Chinese tariffs. Before I discuss our profit guidance, I would like to note that we have changed our profitability metric to adjusted EBITDA from adjusted operating profit. We believe adjusted EBITDA is a more meaningful measure of our operating performance, as it eliminates non-cash expenses, including depreciation, and we will be using this metric going forward. We expect adjusted segment EBITDA margin to be approximately 28%, which is approximately flat year over year. This reflects continued high profitability in CPI and the benefit of synergy realization in Crane Authentication, partially offset by actions we are taking to expand capacity for international currency. Continuing with full year guidance, we expect corporate expenses of approximately $58 million. We also expect non-operating expenses of roughly $60 million, which includes a noncontrolling interest associated with the Crane Authentication joint venture and interest expense associated with our initial stake in Antares Vision. We will update our guidance to reflect the impact from Antares Vision once we consolidate the company into Crane NXT, Co., and Aaron will be providing an update on this timing later in the presentation. Matt Roache: For the full year, we expect our tax rate to be consistent versus Christina Cristiano: 2025 at approximately 21.5%, and we expect to deliver full year adjusted EPS in the range of $4.10 to $4.40. Finally, we expect adjusted free cash flow conversion in the range of approximately 90% to 110%, recognizing that the specific timing of currency shipments can vary quarter by quarter. Turning to slide 13, I want to point out that the phasing of revenue in 2026 will be slightly higher in the second half of the year. In the first quarter, we expect to see revenue growth in the mid-teens, reflecting the impact of the acquisition of De La Rue Authentication and full operations in our U.S. currency business, which will drive 45% to 50% growth in SAT year over year. This growth will be partially offset by a mid-single-digit decline in CPI, reflecting timing of hardware shipments based on the expected customer order pattern. Adjusted EBITDA margin of approximately 19% will be flat in the first quarter year over year, reflecting the realization of acquisition synergies in Crane Authentication, partially offset by the flow-through impact of lower CPI volume, mix impact of the De La Rue acquisition, and increased currency costs to meet the higher demand. For the full year, we expect Crane NXT, Co. sales to grow in the mid-single digits in 2026, with adjusted EBITDA of approximately 25%. This reflects a continued high adjusted EBITDA margin in CPI of approximately 30% and an approximately 120 basis points improvement year over year in SAT to an adjusted EBITDA margin of approximately 25%. Now let me turn the call back to Aaron to provide further details about the actions we are taking to capture growth opportunities in international currency and an update on the Antares Vision transaction. Aaron W. Saak: Thanks, Christina. Turning to slide 14. I would like to take a few moments to discuss the investments we are making to capture organic growth opportunities in international currency. Demand continues to be very strong, with 20 new micro-optic wins in 2025 and organic backlog up over 30% year over year. This is a particularly exciting growth area for us, and we see tremendous potential for it to continue in the years ahead. Now as a reminder, we deliver value to our international currency customers through four primary offerings, as shown on the slide. These offerings include the designing of banknotes, substrate manufacturing, production of our proprietary micro-optics technology, and banknote printing. To capitalize on rising demand, we are taking a variety of actions to expand our Matt Roache: capacity. Aaron W. Saak: First, we are leveraging our CBS discipline, which we expect will continue to drive increased productivity annually from continuous improvement initiatives. Second, to supplement these productivity initiatives, we are adding resources to our design team and increasing staffing in our micro-optics and banknote printing facilities to increase capacity and move to 24/7 operations. Additionally, we are also increasing the amount of products and services we are procuring from a select group of suppliers and partners. This includes purchasing additional substrates beyond our current capacity and partnering with select government print works for banknote printing. We significantly increased these activities in Q4 and expect them to continue into 2026 to meet the growing demand. For 2026 in total, we expect additional cost of $4 million in SAT related to these actions, but reducing substantially in 2027 as our internal productivity programs are executed. Finally, we are investing in capacity expansion with new micro-optics production lines in our Nashua, New Hampshire facility and in our facility in Malta. Based on these investments in organic growth, we expect CapEx to increase to approximately 7% of currency’s revenue in 2026, even with these investments, we expect Crane NXT, Co.’s CapEx spending to continue to be in the range of 3% to 5% of sales in total. Additionally, for 2026, we expect approximately $4 million of added OpEx to support micro-optic product development, design, and these capacity expansion programs. In total, we expect adjusted EBITDA margins to improve by 120 basis points in SAT, and a more detailed bridge of the 2026 year-over-year SAT margins is provided in a slide in the appendix. In summary, we are excited about the long-term growth opportunities these actions will drive, and we will share more about those programs at our upcoming Investor Day. Moving to slide 15, I want to provide an update on the Antares Vision transaction. In Q4 2025, we completed the first step of the transaction, acquiring approximately 32% of the company from its largest shareholders. And I am happy to report that we have received approval from the Italian regulators to move forward with step two of the transaction. We will launch a mandatory public tender offer to all remaining shareholders in February. We expect this process will be completed by Q1, at which time we will own over 50% of the shares of Antares Vision and consolidate the results under Crane NXT, Co. As Christina mentioned earlier, we will provide updated 2026 guidance based on the consolidation of Antares Vision during our Q1 earnings in May. Finally, in Q2, we will start step three of the transaction to take the company private. As a reminder, Crane NXT, Co. has secured voting agreements with the largest shareholders of Antares Vision, which ensures our ability to take the company private after the completion of the mandatory tender process. We expect the take-private process will be completed in mid-2026. In closing, I want to reiterate a few key points from our call today. First, we are continuing to execute our strategy of accelerating growth while maintaining strong margins and robust free cash flow. Matt Roache: Second, Aaron W. Saak: we continue to build momentum in our strategic growth areas. Our team is ready for the launch of the U.S. new series of banknotes starting with the $10 bill in 2026. International currency’s strong performance is exceeding our expectations, and we are taking actions to drive further growth opportunities and expand our leadership in this market based on our technology. In Crane Authentication, we took actions in 2025 to accelerate the realization of synergies, and we expect to see significant margin accretion in 2026 as a result. And finally, the Antares Vision acquisition is on track, and we look forward to welcoming the entire Antares Vision team to Crane NXT, Co. in 2026. With all of these actions, I believe we are well positioned to accelerate growth in 2026 and beyond and deliver significant value creation to our shareholders. I look forward to seeing many of you at our upcoming Investor Day on February 25 in New York City, where we will share more details on our strategy, growth opportunities, and financial priorities. We will also be showcasing some of our advanced technologies and solutions during the event. So thank you again for your time this morning, and I would like to also thank our Crane NXT, Co. team members across the world for their commitment to our customers, our communities, and all of our stakeholders. And now, Operator, we are ready to take our first question. Operator: Thank you so much. Star 11 on your telephone and wait for your name to be announced. To remove yourself, press 11 again. We ask that you please keep your questions to one and one follow-up. One moment for our first question. Comes from the line of Matt J. Summerville with D.A. Davidson. Please proceed. Matt J. Summerville: Thanks. Morning. Aaron W. Saak: Good morning, Matt. Maybe just start with SAT. As I think about the margin performance in Q4, kind of sequentially, you got $30-plus million of additional revenue, $2 million less OP dollars. Matt J. Summerville: And I realize you had the investments. You called that out more in the waterfall chart. But I guess I am wondering why this business, if demand is that strong, cannot do more to test price elasticity in the market, given the nature of what you are selling and kind of the criticality, especially if this decisioning is being done through an 80/20 lens. Aaron W. Saak: Hey, thanks for that question, and good morning again. I would start by saying as you see in our prepared remarks and as you referenced the waterfall, we are really encouraged by the growth and the backlog that we have in international currency. We strongly believe and I am highly confident this is setting us up for sustainable growth. And that is why we are making these investments. Now to your point on pricing and the flow-through of that, just to remind you, Matt, most, if not all, of these contracts that we are delivering in any quarter have been put into our backlog well before. So we are executing this backlog. That is what gives us great visibility into 2026. This is not a book-and-ship business. And so with that being said, as we are looking forward here, as new contracts come into the backlog, we are very focused on ensuring we are maximizing our value and the pricing power we have with our leading technology. I feel confident that the team is doing that. Matt J. Summerville: And then as a follow-up, obviously, there are a few moving pieces. Two things. One, can you talk a little more explicitly about the EPS cadence as we move throughout the year, particularly given some of the pluses and minuses we see you referenced in the first quarter, and then you mentioned being able to see some cost recovery on these investments. If I look at and say $12 million in 2025 that you call out in waterfall, another $4 that you call out in the 2026 waterfall, that is $16. How much of that do you think can ultimately be recouped looking out to next year? Thank you. Christina Cristiano: Well, maybe I will start with that one, and then Aaron can jump in if he likes to. So just in total, we feel confident in our guidance for 2026 and the outlook that we set. And so our range of $4.10 to $4.40 reflects continued strength in currency and sales in authentication continuing at MSD, and softness in CPI driven mostly by the hardware businesses and vending, which continues to experience softness as a result of the tariff. In terms of the phasing, as we said, we will see accelerating growth throughout the year. And the results will be slightly skewed toward the second half from the first half. So specific to your question, Matt, EPS will accelerate through the first half and then level off a little bit in the back half of the year to get to that total of $4.10 to $4.40. Overall, the guidance is balanced, and we think we have taken a prudent approach, particularly with CPI, with our flat guide on sales for the full year. Aaron W. Saak: Matt, hey. I will add in too on the recovery of some of the cost or the read-through of that on a go-forward basis. I think you know, the right way to think about this is, as you have seen, we are going to increase adjusted EBITDA margins in the SAT segment by about 120 basis points in 2026. We should expect to see that kind of continued incremental improvement on a go-forward basis inside of SAT. Obviously, there is some mix there that will play, as you know, with our U.S. currency, and we will wait and see the volume distribution later in 2026. But I think that is the kind of frame I would put on it. So we are going to continue to be on this march now of increasing EBITDA margin and significant expansion in SAT on a go-forward basis. Highly confident of that. Matt J. Summerville: Got it. Thank you, guys. Operator: Thanks. Thank you. Our next question is from Mike Halloran with Baird. Please proceed. Mike Halloran: Hey, good morning, everyone. Aaron W. Saak: Good morning, Mike. Mike Halloran: Hey. Good morning. So a couple questions. Maybe you could just talk about the sequential CPI dynamics. Aaron W. Saak: What is happening in the first quarter maybe specifically and what type of recovery are you expecting? Seems a little light seasonally going into the first quarter. So Mike Halloran: you know, obviously, the gaming commentary Christina highlighted earlier, but is there any other destocking going on in the broader piece there? And how do you expect that dynamic to trend out through the year? Christina Cristiano: Hey, Mike. Thanks for that question. And I will just—it is worth repeating that CPI is expected to be flat in 2026 with a 30% EBITDA margin and continued very strong free cash flow conversion. And so if we just go through CPI overall, service will continue to grow at mid-single digits, and that will be consistent throughout the year. We expect vending to be down in the low single digits with that continued softness from tariffs, and that will improve in the second half based on the comp to 2025. If you remember, the tariff headwind that we experienced began really toward the back half of 2025. So we will get a better comp in 2026 as a result of that. Now lastly, our hardware businesses will be approximately flat for the full year, and the phasing here is more skewed to the back half of the year, and that is just based on customer order patterns. So, overall, we have high visibility into that hardware ordering pattern and feel confident in the full year guide. Q1 will be the lowest quarter, and we will see accelerating growth as the year progresses. Mike Halloran: Thank you. And then Aaron W. Saak: what is embedded in the expectations this year for the $10 bill onboarding? Is there an expectation for a second half ramp on that Mike Halloran: business specifically? And then secondarily and related, maybe could you just talk about how you are expecting the international business to Aaron W. Saak: to flow as you work through the year on the currency side? Specifically, as you are working with these outside vendors and you are ramping your own capacity, is that a constraint at all in the short term in meeting demand? And does that accelerate as you work through the year? Or because of these arrangements, are you allowed to maybe more level-load it and meet the need? Yeah. Yeah. Hey. Thanks for that, Mike. Why do I not take the U.S. question and Christina will jump in here on the international linearity Aaron W. Saak: question. We are very highly, you know, very highly confident here, Mike, that the U.S. Treasury is going to make an announcement mid-year on the Mike Halloran: $10. Aaron W. Saak: We are, ourselves, already working on the $50, and feel, you know, again, highly confident that that design will introduce sophisticated security features. And so when you think about our guide then, you know, I think we are just being prudent here on when they actually make the announcement. We look at it to be probably going into full consumer release more at the end of the year, call it Q4. And so that is what we have put in the guidance. We think that that is probably prudent for 2026. Christina Cristiano: Thank you. And just in terms Aaron W. Saak: I am sorry. We have a follow-up. I was just going to follow up on the Christina Cristiano: international phasing. As you know, we will have a very tough comp in 2026 based on the acceleration that we saw this year in Q4. So you will see that international demand accelerating in the year, but a very tough comp in the end of the year. And then just on cost, just a reminder that, you know, Q1 will have the lowest profit just based on these incremental costs, which are more heavily phased toward the first half of the year, and we will see that profitability improving as the year progresses. Aaron W. Saak: Hey, I will just add as we close out your question here, Mike. You know, with the actions we are taking both on productivity, the staffing, the capacity expansion, it is not really a limit to us. You know, we are going to see very nice growth in international currency. You know, just this Q4, which was exceptional for us, puts a pretty tough comp on the back half of next year. So, I think we are in a really good position to continue to meet the customer demand, and we see a very healthy pipeline of opportunities going forward. And that is what is also giving us a lot of confidence here for the investments and, you know, many years of sustained growth in this business. Operator: Thank you so much. Our next question is from Robert James Labick. Please go ahead. From CJS. Aaron W. Saak: Good morning, Bob. Yeah. So thanks for the incremental information on the Aaron W. Saak: kind of international currency capacity. I wanted to stick on that theme. I think Aaron W. Saak: the demand or your results for international currency growth have been stronger than expected, probably a year or two ago. And that is why you are adding this capacity, and we are talking about all this now. What are the drivers for the kind of faster growth in international currency for Crane? I guess it is question number one, how sustainable? And how does this impact your goal of 10 to 15 new micro-optics per year? Was there a pull-forward, or do you still think you can do that going forward? How are you seeing the market? Hey. Thanks, Bob, for that question. Well, when you think about what is driving this overperformance in our international currency business, it really comes down to three things. Number one is a market driver of increased counterfeiting that is Aaron W. Saak: occurring Aaron W. Saak: in the market, particularly in the emerging markets and with some of our core customers. And so that is forcing them in many ways to redesign their currency. They are always putting on higher security features, and we are simply number one. We have got the best set of security features in the market, and we are a natural net winner when that occurs. Secondly, is simply the growth in emerging economies coupled with the inflation that they are seeing. And remember, our international currency business is predominantly operating in emerging markets. Again, we are kind of a net beneficiary of that dynamic. And then finally, third is the time to redesign that most governments typically go through is accelerating. And that is a combination motivated by several factors. But in part of what is happening is one country redesigns their currency, the neighboring countries then start the process to do that. And we think the U.S. redesign process helps that as well, as new security features are going to get rolled out in the U.S. So we see all three of these—from increased counterfeiting, growth in emerging economies, and faster redesign times—as durable trends in this currency business. And it is why we see very strong, sustainable growth over the long term, and I would expect we will continue to be in that range of 10 to 15 wins, Bob, and that is the target we would put out. But I think as you saw this year, there is momentum in our business. And certainly, this year, we exceeded that target. Okay. Super. I appreciate that. And then on last call, you discussed international currency security-only, I believe, contract win with a Latin American country that you will tell us more about, I think, in the future. I guess, any update there? And are there, you know, many more security-only opportunities that you are bidding out on, or how does that play out? Hey. Thanks again for that, Bob. I will be the first to tell you I cannot wait to tell you what that country is, and we are just in a position given our contract with them that we cannot announce that. But it is a significant step forward for us, not only with the country, but with the security features that they have adopted that we think will be an exceptional reference customer for us going forward. But we are going to have to wait for that. As we move forward, remember, Christina Cristiano: our strategy inside of Crane Currency is to sell advanced security Aaron W. Saak: features. And those features are embedded in our micro-optics. They are the highest margin part of our business. And so we are out there pursuing several opportunities to sell those security features and get them into governments that may print their currency like we do here in the U.S., or print the currency for them, provided they incorporate our micro-optic features. And the pipeline here is as strong as it has ever been. And it is why we are making the investments that we have to make right now in our design capabilities and engineering capabilities to answer those tenders and win them in the future. So I feel more positive, quite frankly, Bob, than we ever thought we would feel versus, as you referenced, two years ago, based on what we see in the market. Christina Cristiano: Thank you. Operator: One moment for our next question. That comes from the line of Isaac Arthur Sellhausen with Oppenheimer. Please proceed. Isaac Arthur Sellhausen: Hi. Thank you very much. Great quarter. Aaron W. Saak: So the question would be on SAT. If we look at the fourth quarter, is there a way you could give us a breakout of maybe what the currency piece grew and maybe what the non-currency piece grew? I do not know if you have the exact number, but maybe just directionally, just trying to understand the different pieces in that segment. Thanks. Aaron W. Saak: Yeah. Sure. Sure, Isaac. If you look at it, currency was up high double digits in the fourth quarter. That was based really on the strength of international currency. And as I think you know, we have had headwinds on a comp basis with the U.S., just due to the volume in 2025. So the good news there is that, obviously, that corrects itself, and we are going to get to high single-digit growth next year on the full year for the U.S. currency. So, very strong high double-digit growth in currency. Christina Cristiano: Currency. Aaron W. Saak: Our De La Rue acquisition performed just as we planned. And we saw lower growth, call it in the legacy business, but that was really intentional because of the 80/20 work that we did and we talked about in the third quarter. I would say it performed kind of on our plan, and with the synergy activities that you see in the bridge, we actually read through some nice incremental margin simply on the execution of the synergies, which are coming in, as Christina said, ahead of our schedule. Isaac Arthur Sellhausen: Okay. Thanks. And then, as a follow-up, Michael J. Pesendorfer: on the $10 note, I know you talked a little bit about this, a lot about it. But, you know, how do we think about when it is going to reach run-rate production? And I guess when you are saying it is going to be back-end loaded, is it based on when the government announces the launch? You know, so what are kind of the goalposts we need to look at as far as what is being communicated by the government versus what is going on with your business? And I would imagine Aaron W. Saak: you might have a heads up on that because you would have to stock it preannouncement, or am I not thinking about that right? Thanks. No. You are Aaron W. Saak: you are, Isaac, good question. You are thinking about it exactly correctly. We are, you know, closely working with the Treasury on setting up the right levels of inventory ahead of the public launch. Aaron W. Saak: It does Aaron W. Saak: still depend on exactly when they decide to launch it. That is where, to the prior question, I would say we are being prudent to say we think that starts to really hit in Q4 of this year. That is what we put in our estimates and influenced our guide. Isaac Arthur Sellhausen: That is Aaron W. Saak: that is Aaron W. Saak: you know, going to get crystallized here, I would say, in the next three months, to be precise. And what I would say, Isaac, to probably the broader question that I know you are asking and others about the impact of the U.S. currency program and where it is at, that is something we are obviously going to spend a little more time and dive deeper into at our Investor Day, and provide some more insights of how we see the impact of that playing out. Operator: Thank you. Our next question comes from the line of Robert Brooks with Northland Capital Markets. Please proceed. Robert Brooks: Hey, guys, thank you for taking my question. Aaron W. Saak: First one I have got is just great to hear about the multiple professional sports leagues renewing secure authentication and security contracts. But I was curious if we could try to get a sense on the financial benefit from that. And then secondly, did those renewals see additional tech or services layered on? I am just trying to get a sense of maybe what the dollar-based net retention was of those leagues re-upping their contracts? Christina Cristiano: Hey, Robert. I will take that one. And, hey, we are super excited to continue a partnership with a flagship customer like the MLB, just like we announced with the NFL last year. These are great customers that we have long-standing relationships with. We cannot reveal much of the details, as you can imagine, about their contract. But in this case, we are providing product authentication and licensee management software, and it is a great recurring revenue stream because, as you know, once we get engaged with the customer, it is very sticky. It is a very sticky arrangement that drives future recurring revenue. So we are very excited about this, and we will continue to work with them to partner on our offerings and what more we can offer them as part of the portfolio, and just continue our relationship with them. Robert Brooks: Got it. Appreciate that color. And then could you remind us—so the 24-hour staffing for micro-optics production and the banknote printing, that is great to hear. But could you remind us, was that from, like, previously, were they just doing a 40-hour work week, or was it more like an 80-hour work week? And secondly, could you just remind us, like, when those transition to 24/7 shifts? Aaron W. Saak: Yeah. So it varied a little bit, Robert, based on each of the sites, quite frankly. You know, you could probably think of it as more of, like, 24/5 directionally. And we are in the process of ramping up to the 24/7, which we will be at here in Q1. Just a reminder, these are very highly complex and secure operations. So ramping up is not just something that happens with the flip of the switch. You know, we are hiring our direct labor. They have to go through a security clearance, as well as some fairly intense training to be operating on our micro-optics and banknote printing lines. So there is, with that, just a very natural ramp-up period to get us there. Again, expect that to be completed here as we exit Q1. And I feel very good we are on the track to that. But, you know, at that point then is why we are making the investments to add another line in Nashua and particularly excited about the expansion in Malta, which gives us more obvious capacity, creates redundancy in our operation, which is very good, and, quite frankly, puts us closer to our customers with a flag planted now in Europe for micro-optics, and very close to our emerging market customers, all of which we see as an excellent setup for sustaining the growth of this business long term. Operator: Thank you so much. And this will conclude our Q&A session for today. And I will pass it back to Aaron W. Saak, President and CEO, for closing comments. Matt Roache: Well, thank you, Operator. Aaron W. Saak: As we conclude today’s call, I again just want to thank everyone on the Crane NXT, Co. team for their strong efforts in 2025. I am excited about the direction of the company and the momentum we are building to accelerate growth. I look forward to seeing many of you at our upcoming Investor Day on February 25 in New York to tell you more about our plans for 2026 and beyond. And so until then, take care, and I hope you all have a great day. Operator: This concludes our conference. Thank you all for participating. You may now disconnect.
Operator: Hello, and welcome to Exelon Corporation's Fourth Quarter Earnings Call. My name is Gigi, and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we will have a question-and-answer session. If you would like to view the presentation in full-screen view, click the full screen button by hovering your computer mouse cursor over the PowerPoint screen. Press the escape key on your keyboard to return to your original view. Finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the help option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Ryan Brown, Vice President of Investor Relations. The floor is yours. Great. Thank you, Gigi. Ryan Brown: Morning, everybody. Thank you for joining us for our 2025 fourth quarter earnings call. Leading the call today are Calvin G. Butler, Exelon Corporation's President and Chief Executive Officer, and Jeanne M. Jones, Exelon Corporation's Chief Financial Officer. Other members of Exelon Corporation's senior management team are also with us today, and they will be available to answer your questions following our prepared remarks. Today's presentation, along with our earnings release and other financial information, can be found in the Investor Relations section of Exelon Corporation's website. I would also like to remind you that today's presentation and the associated earnings release materials contain forward-looking statements, which are subject to risks and uncertainties. You can find the cautionary statements on these risks on slide two of today's presentation or in our SEC filings. In addition, today's presentation includes references to adjusted operating earnings and other non-GAAP measures. Reconciliations between these measures and the nearest equivalent GAAP measures can be found in the appendix of our presentation and in our earnings release. With that, it is now my pleasure to turn the call over to Calvin G. Butler, Exelon Corporation's President and CEO. Thank you, Ryan, and congratulations on the new role, and good morning to everyone. We appreciate everyone joining us today for our fourth quarter earnings call. As we reflect on another successful year and celebrate the close of our twenty fifth anniversary, we are proud to once again deliver exceptional results for our customers, employees, and investors. Across Exelon Corporation, our companies bring more than eight hundred years of collective experience. Even with that long view, this moment stands out. The industry is changing at a speed and scale rarely seen. With that comes both great responsibility and opportunity. Calvin G. Butler: I have never been more confident that Exelon Corporation has the people, the discipline, and the platform to continue to lead the energy transformation and meet this unprecedented demand. This is underscored by our recent results. As you saw from this morning's release, we delivered another strong year. For 2025, we reported adjusted operating earnings per share of $2.77, delivering above expectations. This continues our track record of exceeding the midpoint of guidance in each year as a standalone utility. Since 2021, we have achieved a 7.4% annual earnings growth rate and 8% rate base growth in 2025, highlighting our ability to navigate changes and consistently execute. This steady performance is a direct result of a continued focus on affordability and our ability to deliver investments that directly benefit our customers, providing above-average performance at below-average rates. It was also another exceptional year operationally. Exelon Corporation continues to set the standard for the industry. Our utilities maintained top quartile reliability metrics once again, and we are ranked one, two, four, and seven amongst our peers based on 2024 benchmarking data. This level of performance is nothing new. In fact, we have delivered top quartile reliability for over a decade. It is who we are and central to our mission. But do not get me wrong. Consistency does not come easy. It is the direct result of a culture of continuous improvement, innovation, and a steadfast focus on targeted investments that maximize value for our customers. These investments not only prevent outages and deliver best-in-class service, but they directly benefit local economies, with every $1 million invested creating eight jobs or $1.6 million of economic output. I am truly humbled by the commitment and sacrifice of our employees that make this level of service possible. Recently, their dedication was on full display during Winter Storm FERN. Despite record low temperatures, our investments withstood heavy snow and icing across our territories, maintaining strong reliability with only minimal disruptions. Fewer than 1% of our customers experienced outages, even as the extreme weather impacted our regions. This reflects the tremendous work of our employees over the past decade to invest in the safety, reliability, and resiliency of our system. The performance is remarkable when accounting for the scale of the storm, as well as the demand put on the grid. FERN resulted in the PJM RTO experiencing five days in a row of peak load ranging from 135 to 140 gigawatts, reaching 97% of the all-time winter peak. Our investments, combined with our employees’ around-the-clock dedication, kept nearly 11 million electric and gas customers safe and warm when they needed us most. I would like to express my gratitude to all of our employees who have supported storm restoration efforts locally and afar. Thank you for all that you do. Over the last quarter, we also made significant progress on the regulatory front. As Jeanne will detail shortly, it has been an active few months. We have achieved several key milestones, including final settlements for the Atlantic City Electric and Delmarva Gas rate cases, reconciliation orders at ComEd and BGE, and the filing of ComEd's second multiyear grid plan. This progress is built on a foundation of hard-earned trust. We work collaboratively with stakeholders and our communities to ensure that our investments align with the specific goals and needs of the states we serve. Looking ahead, we now expect to invest $41.3 billion of capital to support our customers, with more than 70% of the plan-over-plan increase driven by transmission, where we continue to have a unique opportunity and significant momentum. Our size and scale, multistate footprint, and operational expertise position our utilities to capitalize on the growing need for transmission investments in reliability and resiliency, accelerated by the pace of new business growth. This progress is further evidenced by our success in the recent PJM reliability window results, where $1.2 billion of incremental Exelon Corporation investment was recommended, including a jointly developed solution with NextEra. This comes on the heels of other recent large-scale transmission awards including Brandon Shores, Tri County, and the MISO Tranche 2.1 project. You should expect us to be active in future windows within PJM and other ISOs, leveraging our competitive advantages where appropriate. We continue to see robust demand in our jurisdictions, with anticipated load growth exceeding 3% through 2029. This is further reinforced by our large load pipeline, which is now further supported by an increasing number of signed transmission security agreements, or TSAs. Overall, our pure transmission and distribution capital plan is unique and truly differentiated. It is highly diversified across seven regulatory jurisdictions including FERC, with no one jurisdiction greater than 30% and no single project comprising more than 3% of the plan. It is also actionable. We have line of sight to each project that comprises the $41.3 billion, with a significant pipeline of incremental projects over the next five to ten years and the size and scale to execute efficiently. With continued returns on equity in the 9% to 10% range, we expect rate base growth of approximately 8% and annualized earnings growth of 5% to 7% through 2029, with the expectation of being near the top end of that range. We will continue to fund investments in a balanced and disciplined manner that maintains a strong balance sheet. For 2026, we are initiating operating earnings guidance of $2.81 to $2.91 per share. Our continued progress is clearly demonstrated by the scorecard on slide five, where we have once again met or exceeded every goal we set at the start of the year. At Exelon Corporation, commitments made are commitments meant. Ryan Brown: That discipline and credibility Calvin G. Butler: define who we are and shape how our teams operate every day. In addition to strong operational and financial performance, we continue to lead on customer affordability, which remains a top priority. We continuously drive cost out of the business through efficiency and innovation, maintaining a track record of cost growth well below inflation. In the past year, we executed a $60 million customer relief fund to support low- and moderate-income customers facing higher supply costs. We advanced innovative TSAs that prioritize large loads while ensuring existing customers remain protected. Our award-winning energy efficiency programs continue to deliver meaningful savings. We expanded connections of distributed resources, giving customers more ways to participate and save. We are steadfast in introducing innovative tools and processes to connect customers to low-income assistance. We continue to focus on actions like these that are directly within our control in addition to delivering safe, reliable energy while keeping bills as low as possible. In the meantime, we are also actively partnering with federal, RTO, and state leaders to address high supply prices and emerging reliability risk. The supply challenge is real, but not insurmountable. We are encouraged by the growing national focus, including the recent announcement from the White House and our state governors advancing policies to incent new generation and improve affordability. As we have said before, we firmly believe it is going to require an all-of-the-above strategy that includes utility-generated, demand-side, and merchant solutions. This was further supported by the study released last week by Charles River Associates. The report is an urgent call to action, highlighting the risk of the status quo and the cost and reliability benefits of utility-generated energy. Specifically, they note that utility-generated power could have saved total PJM customers $9.6 to $20 billion in the 2028–2029 delivery year, while reducing the risk of potential future outages from energy shortages by approximately 85%. We are committed to continue to work with all stakeholders to advance policies that strengthen energy security as quickly and cost effectively as possible. Finally, I want to take a moment to reiterate why our platform and approach are best positioned for the years to come. As highlighted on slide six, our foundation is based upon a customer focus and industry-leading operations. With our size and scale, constructive regulatory frameworks, and diversified footprint and capital plan, we have a disciplined and defensive foundation that is resilient. Yet at the same time, we are well positioned to capture credible, meaningful opportunities for sustainable growth. We are excited about where we are headed. Our platform is designed to deliver an attractive risk-adjusted return and long-term value for all stakeholders. I will now turn the call to Jeanne to dive deeper into our 2025 results and share more details on our updated long-term plan. Jeanne? Thank you, Calvin, and good morning, everyone. Jeanne M. Jones: Today, I will cover our fourth quarter and full-year results, key regulatory developments, and updates to our financial disclosures, including 2026 guidance. Starting on slide seven, as Calvin noted, since becoming a standalone utility, we have continued to execute, and 2025 adds to that track record. In 2025, we delivered $2.73 per share on a GAAP basis and $2.77 per share on a non-GAAP basis for the full year, reflecting strong year-over-year growth. For the quarter, Exelon Corporation earned $0.58 on a GAAP basis Jeanne M. Jones: and $0.59 on a non-GAAP basis. Jeanne M. Jones: Full-year earnings Jeanne M. Jones: above our guidance range primarily benefited from favorable weather and storm conditions and the resolution of certain regulatory proceedings. Throughout the year, we also managed costs well across the platform, ensuring we could accommodate a range of outcomes while monitoring regulatory activity and weather in the fourth quarter. Quarter-to-date and year-to-date drivers relative to prior year can be found on appendix slides 37 and 38. Turning to slide eight, we are initiating 2026 operating earnings guidance of $2.81 to $2.91 per share. With much of our growth aligned with completed rate cases and continued strong cost management, the 2026 implied midpoint relative to the midpoint of our 2025 estimated guidance range is ahead of previous disclosures, reflecting midpoint-to-midpoint growth above 6%. Our performance in 2025 underscores our ability to deliver strong financial results amid uncertainty, all while operating at industry-leading levels and innovating to find new and creative ways to support our customers. We have executed operational efficiencies, capitalized on our growth opportunities, and identified more ways than ever to support our customers. We look forward to furthering this progress in 2026. Jeanne M. Jones: Looking ahead to the first quarter, we expect earnings Jeanne M. Jones: to be approximately 31% of the midpoint of our projected full-year earnings guidance range, which is in line with historical averages. This accounts for completed regulatory filing, anticipated revenue shaping, and O&M timing, as well as normal weather and storm conditions throughout the quarter. Turning to slide nine. We executed another busy regulatory calendar in 2025, marking significant milestones and reaching final resolution on open reconciliation and key rate cases, providing cost recovery for the next several years. Starting with Atlantic City Electric, in November, the New Jersey Board of Public Utilities approved a settlement supporting the recovery of $54 million associated with grid improvements and modernization investments in line with New Jersey's energy master plan and the Clean Energy Act at a 9.6% ROE. New rates went into effect at the end of December 2025. Also, in December, the Delaware Public Service Commission issued a final order on the Delmarva Power Gas rate case, approving a settlement that supports the $21.5 million revenue requirement and 9.6% ROE, recovering various reliability investments and LNG plant upgrades, which protect customers from price volatility during peak periods. Rates went into effect at the beginning of this year. In addition to closing out base rate case activity, we also received final orders in our open reconciliations at BGE and ComEd in December, gaining clarity on the recovery of our investments from 2023 and 2024. While we were disappointed to receive about half of the BGE reconciliation, we realigned capital accordingly. Finally, moving to our core regulatory activity for 2026, the Pepco Maryland base rate case continues to progress according to the procedural schedule with intervenor testimony filed at the end of last month. A final order is expected in August. In December, Delmarva Power filed an electric base rate case in Delaware, requesting a net revenue increase of $44.6 million to support system reliability investments, storm remediation, and storm damage costs. DPL also requested to implement a bill stabilization adjustment, which will offer customers more predictability as seasonal temperatures grow increasingly volatile. DPL expects to be able to implement interim rates in effect on July 9. Finally, on January 16, ComEd filed its multiyear grid plan in Illinois requesting an approval of an investment plan covering 2028–2031 in support of the priorities laid out in the state's CEJA and CRGA bill. A final order is expected in December, and the company expects to file its next rate filing in 2027. On slide 10, we provide updated utility CapEx and rate base outlook through 2029. We plan to invest almost $10 billion in 2026 and a total of $41.3 billion over the next four years, an increase of $3.3 billion or 9% from the prior four-year planning period. Incremental investments reflect updates to align with recently approved rate cases and jurisdictional priorities and an increase in transmission investment. Of the overall increase, approximately 70%, or $2.3 billion, is attributable to incremental transmission investments driven by the structural trends that underpin the energy transformation in our jurisdiction: increased demand for high voltage investments and capacity expansion to support large load growth, evolving generation supply, and the reliability and resiliency needs of grid customers to withstand increasingly volatile weather. Jeanne M. Jones: In fact, a majority of the additional transmission relates to continued Jeanne M. Jones: system performance and capacity expansion across our platform, supporting incremental data center load in addition to the gradual replacement of an aging network. Our plan also includes an additional year of investment of our two largest transmission projects, Brandon Shores and Tri County, going into service in 2028 through 2030, along with the early spend of the MISO Tranche 2.1 project, which goes into service in 2034. Our annualized rate base growth of 7.9% over the next four years reflects an increase from the prior year plan, with a projected addition of nearly $23 billion in rate base from 2025 to 2029. Having executed within 2% of our capital plan since 2023, we are confident we will execute this next stage of growth, driving progress towards economic and energy goals and always prioritizing our customer needs in everything that we do. Moving to slide 11, our size and scale, award-winning reliability, and expertise in owning and operating 765 kV lines uniquely position us to capitalize on additional transmission opportunities that enable us to grow our transmission rate base CAGR by over 15% from 2025 through the end of the guidance period. Coupled with our strength in execution, we now have line of sight to an additional $12 billion to $17 billion transmission opportunities over the next decade that strengthen and lengthen our plan, of which over 60% includes projects associated with our existing infrastructure, supporting continued reliability, generator deactivations, and providing additional operational flexibility and efficiency. This upside also includes an estimated $1 billion of transmission-associated high-density load projects with signed TSAs, where we now have a foundation for additional certainty in our pipeline. Agreements are presented to customers coming out of our cluster study process. We also remain optimistic about the work associated with MISO Tranche 2.1, with over $1 billion of investment in our ComEd service territory, which is now getting a cost allocation filing at FERC. Beyond these opportunities, we anticipate additional investment required to support our state public policy goals, particularly as our jurisdictions assess energy security and economic development needs. For example, achieving CEJA's goals amid growing economic development in Illinois will likely require billions in transmission investments. Finally, as we discussed in prior quarters, success in winning competitively bid projects offers additional upside. From our success in winning the Tri County project to the $1.2 billion in Exelon Corporation investment PJM has recommended in this recent window, our size, scale, and expertise position us well to pursue competitive opportunities outside of our service territories within and outside of PJM. Our ability to deploy almost $10 billion of capital annually over the next four years is only possible with a rigorous focus on cost management and delivering value through those investments, supporting customer bills at rates 19% to 20% below national averages. This focus is saving our customers approximately $580 million in O&M annually relative to what it would have been growing at a standard inflation level over the last decade. We feel confident we can continue to keep our expense growth well below inflation levels, demonstrating nearly flat expense growth from 2024 to 2026 and targeting no more than 2.5% adjusted O&M growth through 2029. As we talked about last year, our institutionalized team and a One Exelon culture are committed to delivering value. We have taken advantage of our focused operations along with our size and scale to continue to standardize and streamline our structure and operations. Driving out $580 million in annual O&M savings is no small feat, but it is something our customers and shareholders have come to expect. Exelon Corporation's unique platforms and industry best practices enable us to build upon these savings with a line of sight to additional opportunities. As investment needs grow to meet unprecedented load growth and reliability needs, our customers remain our top priority. Since 2021, Exelon Corporation's portion of the average customer bill as a percent of median income has remained relatively flat, growing only 10 basis points while maintaining top quartile reliability, which saved customers $1 billion in avoided outage costs last year alone. We have reduced annual customer interruptions by nearly 2 million since 2021 and made significant economic impact in our communities. Since 2021, we have employed 20,000 people, sustained 50,000 jobs, and have fostered nearly $60 billion in economic activity in our communities. Bringing value to our customers is foundational to what we do, and it is why we invest in the grid. That is why we have committed to keeping our O&M costs relatively flat from 2024 to 2026 and, in partnership with our jurisdictions, committed to support our customers through nation-leading programs and advocacy efforts. Conversely, the supply side of the average monthly residential bill in the Mid-Atlantic has increased up to 80% or more over the last five years. Customers are now paying more for less. Since July 2024, PJM customers have paid more than $32 billion as supply in the market declined 1.2 gigawatts. That is why we continue to be at the forefront of advocating for our customers across federal, PJM, and state levels, ensuring that every dollar our customers spend can be tied to additional value they receive. We are pleased that federal discussions proposed the extension of the PJM capacity auction collar, saving customers tens of billions of dollars through 2030. But our advocacy efforts do not stop there. We are committed to advocating for other policies, such as queue and rate design reforms that protect customers and support economic development. Our first-of-its-kind transmission security agreements filed at FERC do just that, providing a clear path to interconnection while protecting existing customers. We believe all solutions are required to support energy security and drive affordability. This includes encouraging state-procured solutions such as utility-generated power, which can bring certainty that the supply will be there, offer our states control, and ultimately benefit our customers. Turning to slide 14, with prudent O&M spending and $41.3 billion of projected capital spend driving 7.9% rate base growth, along with earning ROEs of 9% to 10%, we are projecting compounded annual earnings growth near the top end of 5% to 7% from our 2025 guidance midpoint of $2.69 per share through 2029. We continue to build momentum across our jurisdictions as we make progress on Pepco and Delmarva rate cases, the ComEd grid plan, and as BGE prepares to file later this year. We look forward to working with our stakeholders to align on the investments that benefit our customers, enable us to maintain and improve upon our operational excellence, all at a fair return. Maintaining our commitment to transparency, we have provided assumptions associated with our expected annual growth in earnings through 2029 on appendix slide 23. As you can see, we expect to deliver the out years near the top end of the 5%–7% range, allowing for flexibility of rate case timing and keeping us on track to deliver near the top end of our 5% to 7% annualized growth rate from 2025 to 2029. We also continue to project an annual dividend growth at 5% and anticipate paying out a dividend of $1.68 per share in 2026 in line with that growth. Finally, turning to slide 15, I will conclude with a review of our balance sheet and financing activity, where we have continued to de-risk and secure cost-effective capital to invest for the benefit of our customers. In December, Exelon Corporation corporate issued $1 billion in convertible debt, pulling forward over half of our planned long-term corporate debt needs for 2026. Through 2029, we expect to fund the $41.3 billion capital plan with $22 billion of internally generated cash flow, $13 billion of debt at the utilities, and $3 billion of total debt at the holding company, with the balance funded with a modest amount of equity. As a reminder, our policy is to fund incremental capital needs approximately 40% with equity. Specifically, our total equity needs of $3.4 billion over the four-year plan implies approximately $850 million of annualized equity needs, less than 2% of Exelon Corporation's annual market cap. We have already made progress on 20% of these equity needs, having priced $700 million in 2025 using forward contracts under our ATM. Our financial plan has been designed to accommodate the issuance of other fixed-income securities that receive equity credit in place of senior debt at our holding company, identifying opportunities to mitigate risk and maintaining a strong balance sheet continues to be core to our strategy. Ending 2025, our average credit metrics of 13.5% exceeded our downgrade threshold of 12% at Moody’s by 150 basis points. With our balanced funding strategy in place, target credit metrics of 14% over the planning period provide 100 to 200 basis points of financial flexibility on average over our downgrade thresholds at S&P and Moody’s throughout our guidance period. We also continue to advocate for language that incorporates all tax repairs for calculating the corporate alternative minimum tax, which is now reflected in our disclosures. As a reminder, without the implementation of tax repairs deduction, our anticipated consolidated credit metric would average over the plan closer to 13%. Supported by our history of execution, I want to close by reiterating our confidence not only in the plan we have laid out, but also in the broader opportunity we have to deliver value for our customers and our shareholders for another twenty-five years and beyond. I will now turn it back to Calvin for his closing remarks. Calvin G. Butler: Thank you, Jeanne. As we look ahead to 2026, our priorities are clear and aligned with what matters most to our customers, communities, policymakers, and investors. We have a track record of meeting our commitments, and we will continue to focus on what we do best: executing our capital plan efficiently and maintaining industry-leading operational performance to benefit our customers; driving affordability through disciplined cost management, prudent investment, and active stakeholder engagement; and pursuing growth and innovative customer solutions. We have the right people, platform, and strategy to continue delivering on these commitments. In 2026, we expect to deploy $10 billion in capital, earning a consolidated 9% to 10% operating ROE. We anticipate delivering operating earnings of $2 and 81 to $2.91 per share with the goal of being midpoint or better. Finally, we will execute a balanced funding strategy that maintains and strengthens our balance sheet. Serving approximately 11 million customers across some of the largest and most economically vital metropolitan areas in the country is a responsibility we do not take lightly. Our infrastructure is essential to the economic future of the regions we serve, and we honor that responsibility through disciplined execution, operational excellence, and a relentless focus on the people who depend on us every day. We are proud of our track record of execution. The sector continues to evolve at a breakneck pace, but Exelon Corporation remains steadfast in its priorities, consistently delivering as a proven leader. Gigi, we can now open it up for questions. Operator: Thank you. If you would like to ask a question, simply press 1-1 on your telephone keypad. Our first question comes from the line of Nicholas Campanella from Barclays. Calvin G. Butler: Good morning, Nick. Hey, Nick. Nicholas Campanella: Hey. Good morning, everyone. Thanks for the updates. Appreciate it. Always. So great to see the five to seven outlook refreshed near the upper end here. I just maybe could you comment quickly on, you know, the rate base growth is near 8%. You do have financing lag against that, you know, which maybe would be greater than 1% financing lag between equity needs and debt funding. So just what is the tailwind to the plan to kind of keep you at the high end of the 5%–7% outlook? Jeanne M. Jones: Yeah. I think I will start with, kind of, you know, what we have done, right, which is if you look back since 2021, we have had actual rate base growth of about 8% and earnings growth of 7.4%. So I think it is really just a continuation of that track record. If you look at where rate base is at the end of 2029 and you kind of assume, you know, half equity, and then you look at our earned ROEs over the last four years, I think you can get, you know, to an EPS number that then, to your point, you have to back off financing costs. But I think if you look at the equity needs, sort of assume an average, you know, debt cost. But then I think what you might be missing is the AFUDC associated with transmission capital. If you look at that and how much we are growing transmission over that period, that will get you to kind of the near top end, Nick. Nicholas Campanella: Okay. Great. Great. And then I know that you probably are assuming a range of regulatory outcomes here, but maybe you can just kind of comment on, given so much focus on Pennsylvania, how you are thinking about regulatory strategy for 2026? Whether you would file in 2026 or wait until 2027, and then any kind of considerations there for the timing of rate cases and how that can kind of impact where you are within this five to seven? Thank you. Calvin G. Butler: Yeah. No problem, Nick. I will tell you this: we are constantly in conversations with all of our stakeholders, and that goes from the governors to the regulatory bodies to talk about what makes sense for the jurisdictions and our customers. With affordability front and center in all of our jurisdictions, we lean into that first. But we also recognize that we have to maintain a reliable and resilient grid. So to your point, we are looking at what we are going to do in Pennsylvania, what we are going to do in Maryland. I think in our documents, we have already laid out that we are filing in Maryland this year, and we are considering what is the best approach to action in Pennsylvania. We will keep you updated on that, but right now, please keep in mind, everything centers on affordability and maintaining a reliable system. Jeanne M. Jones: Yeah. And to your point, Nick, the disclosure kind of accommodated a variety of scenarios. So looking at a variety of scenarios around rate case timing, we felt confident in that. You know, the 8% rate base growth, the earned ROEs, and the, you know, sort of manageable amount of equity delivers that, you know, five to seven years at top end. Nicholas Campanella: Great. And then just, you know, Calvin, if I could squeeze one more in, you talked about in your prepared remarks just supply being a real challenge and I know this RBA process is in its early innings at PJM, and we have all seen the comments from the IPPs and what they are looking for. But just maybe what are the T&Ds advocating for here, and how do you see that process shaping up? Do you expect it to still be on time for, you know, a September auction? If you could comment at all there. Calvin G. Butler: Do you want to take Jeanne M. Jones: Certainly. Good morning, Nick. Thank you for the question. We have really been focused on engaging not only at PJM, but Jeanne M. Jones: with our regulators. We were really pleased to Jeanne M. Jones: see the administration’s, to Calvin’s point, the administration’s focus on this issue. We do support the development of this reliability backstop option. We really endeavored also to bring a bit of clarity to the discourse. That is why we enlisted Charles River Associates’ support in helping us crystallize what we are dealing with. We need to focus on supply because we know it will lower customer electric costs. We know that we will also see improved reliability. To the point on costs, as Calvin mentioned, utility-generated power, which, you know, is something we are very focused on, but because if no one else is going to build, we know that supply costs are an ever-increasing portion of the customer bill. So we really have to be focused on driving more builds, and as this report Jeanne M. Jones: report Jeanne M. Jones: outlaid, Jeanne M. Jones: utility-generated power could reduce PJM customer costs by between $9.6 billion and $20 billion in the 2028–2029 delivery year. So while we are focused on supporting the RBA, we also have to, in the near term, focus on extending the price cap, getting more supply on the grid, and, as Calvin mentioned, improving reliability. Jeanne M. Jones: We know that those things will bring greater price stability Jeanne M. Jones: and ultimately help address affordability, which is an ever-growing concern in each of our jurisdictions. Nicholas Campanella: Thanks for the update. Calvin G. Butler: Hey, Nick. I know she does not need an introduction, but that was Colette Honorable. Since you are Nicholas Campanella: Alright. Calvin G. Butler: Alright. Thank you very much. Ryan Brown: You are welcome. Thank you. Operator: Thank you. Our next question comes from the line of Shahriar Pourreza from Wells Fargo. Calvin G. Butler: Good morning, Shah. Hey, Shah. Calvin. Morning, guys. Just on Colette’s Shahriar Pourreza: maybe a quick question for Colette. I mean, obviously, you know, there is a lot of affordability things out there, whether you are looking at Maryland, New Jersey, Pennsylvania, Delaware. We saw that in, obviously, Shapiro’s budget speech. There are several bills out there in Pennsylvania, Maryland, and New Jersey around resource adequacy. I guess a little bit more specifically, how are the conversations going on the legislative fronts? Like, can you strike a middle ground in a state like Pennsylvania with the IPPs around the new generation PPA structure, which is currently being proposed under the House and Senate bills, or the conversations are just too wide apart right now? Thanks. Calvin G. Butler: Hey, Shar. So this is Calvin. I will jump in first and just say, first and foremost, we understand where Governor Shapiro was coming from, because we are all frustrated with the affordability limit that is hitting all of our customers and his constituents. So at the forefront, we start from a foundation of alignment, that we all have to do something together. You notice our approach is always an all-of-the-above approach. How can we help deliver solutions that satisfy everyone? So to your direct question, is there an opportunity to have conversations and engage with IPPs? Absolutely, because we have never said we are going to do this on our own. But we do believe it must involve everyone. I think you talked about Governor Shapiro, but Governor Moore in his State of the State even talked about an all-of-the-above. It requires everyone to come together to solve this problem. We are committed to that. So when you talk about the House and Senate bills, it is always in the details. But please know that we are showing up every day in the capital and with the governor and the PSC to talk about delivering solutions. You notice from us, it is not one-and-done. It is everyone coming through, and it is an all-of-the-above approach. Colette, anything you would like to add there? Jeanne M. Jones: Thank you, Calvin. Good morning, Shar. I would add, it will, I hope, put in better context Jeanne M. Jones: why we showed up as a company the way we did around colocation issues. Colocation can be a great solution. We knew when we saw this headed our way that we needed to focus on affordability. Now you see others jumping in with us. It is great to see, and we need these discussions because this is how we will solve the problem. We have been very active, to your question, Shar, not only in Pennsylvania, on the ground there, on the ground with the governor. If you know, we joined Governor Shapiro in the filing at FERC Jeanne M. Jones: on extending the Jeanne M. Jones: podcast. We will continue to partner with him, his administration, and engage heavily in the legislature. Not only in Pennsylvania, we are having the same discussions Jeanne M. Jones: in Maryland, in Delaware, in New Jersey. Ryan Brown: And I think that, for instance, in the Jeanne M. Jones: the address by Governor Moore, you could see very clearly he has a view on what needs to happen. Jeanne M. Jones: Take a look at New Jersey with Governor Sheryl stepping in and really focusing on the solutions that need to come about in PJM. This is heartening to see, and you will continue to find us engaging in each of our jurisdictions to help solve this issue of affordability. Let me close by saying we are bringing solutions. We have been focused, if you know, on our customer relief fund that we developed last year, and then we further supplemented ahead of the winter season in anticipation of these issues. We will continue focusing on low-income discounts in our jurisdictions. We have those well underway, as well as focusing on longer-term solutions such as utility generation. So we are very active in our jurisdictions, and we will continue to be active. Thank you. Shahriar Pourreza: And is it fair to just assume that there is some level of collaboration with the generators, or is that bid-ask too wide apart? I am just trying to tease that out. Is that the right price? Jeanne M. Jones: Right? I think we are always going to be our customers’ advocate. So I think right now, what is the problem right now is our customers are paying more for less. So we have to get to the right place where there is actual new generation at the right price. If they want to build it at the right price, wonderful, right? But at the end of the day, to Colette and Calvin’s comments, the Charles River report was really helpful because it said, you know, if we had been doing this and we had the generation needed in 2028 and 2029, that costs would have been, you know, $10 to $20 billion lower. We cannot go back in time and build that generation, but we can take action now. That is what we are focused on, getting the generation built at the right price. Shahriar Pourreza: Got it. And then just last question here. Just to tease out Nick’s question around the CAGR. There is not a lot of delta between rate base growth and the EPS growth, so that sort of makes sense where you are. But I know, Jeanne, clearly from the slide this morning, there is plenty of incremental upside, whether you are looking at, you know, PJM RTEP, or MISO tranches, data center TSAs, resource adequacy. I guess, what is the correct podium to step-function change the trajectory, which has been out there for some time? Is it as simple as we need a few more quarters to execute? I guess, how do we sort of think about the upsides that are evident on these slide decks, whether, and will it be incremental to rate base growth? Will it be incremental to EPS growth? I guess, what do you need to see that step-function change to that five to seven? Thanks. Jeanne M. Jones: Yeah. No. Good question. I think, at the end, we feel like it is kind of progressing, right? So your last rate base CAGR was 7.4%. You are sitting at 7.9% now off of that 7.4%. You know, we delivered above expectations through 2025. So I think we are seeing continued progress there. I think, given the deconcentrated plan, in addition to progress, it is really executable. We, as I mentioned in my prepared remarks, have delivered within our capital within 2% since separation. You look at our rate base this year within 1%. That is no small task on $64 billion of rate base. So we feel not only is it really executable, you should feel confident in that growth, but it is continuing to ramp. We are not going to be the flashy, right? It is not going to go up double digits, but it is going up, and it is highly executable, defensible, and we are not going to give you a number that I cannot sit here and say that. So I think that is how we should think about it. Shahriar Pourreza: Okay. Yeah. That is actually a perfect answer. Thanks, guys. Appreciate it. Congrats, Calvin. Bye. Calvin G. Butler: Thank you, Shar. Appreciate you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Paul Andrew Zimbardo from Jefferies. Calvin G. Butler: Good morning, Paul. I Paul Andrew Zimbardo: Good morning, team. Calvin G. Butler: Kudos. Nicely done. Paul Andrew Zimbardo: Thank you. To Paul Andrew Zimbardo: to continue the theme a little bit from Nick and Shar, just Paul Andrew Zimbardo: almost asking an inverse. It seems like rate base growth is pretty consistent with historical, the 7.9%, and you did grow at 7.4% despite some headwinds in Illinois and elsewhere and, of course, tailwinds too. Paul Andrew Zimbardo: What Paul Andrew Zimbardo: why could you not grow at that kind of ZIP code, the same seven-and-a-half percent growth rate? Again, doing even better than the top then. Like, is it kind of the conservatism, like you are mentioning, or just getting more comfort? If you could elaborate a little bit more. Jeanne M. Jones: Sure. I mean, I think we are always going to strive to exceed expectations. But I think, again, giving you a number you can count on, I think, you know, financing costs are increasing, right? So you have to account for that. But, you know, we are investing more in transmission, and so that gives us confidence in the, you know, that we can continue with the strong earned ROEs that we have had. So I think Jeanne M. Jones: you know, I think it is Jeanne M. Jones: it is Paul Andrew Zimbardo: defensible Jeanne M. Jones: is growing. I think, you know, but you have to think about giving a number that is defensible that we can manage, but also accounts for the associated financing costs. But we are always going to strive to exceed your expectations, Paul. Calvin G. Butler: No. And you have been. So Paul Andrew Zimbardo: if you give a mouse a cookie, you always have to ask for more. Calvin G. Butler: I noticed that, Paul. Thank you. Paul Andrew Zimbardo: The last one I want to ask just on the incremental financing cost. So you definitely made a lot of progress on the balance sheet. How should we think about financing incremental capital opportunities as they come? Should we be using kind of that 40% in this roll forward or maybe a lower number? Jeanne M. Jones: No. It is the 40%. We want to maintain and, you know, keep that cushion we have worked so hard to get on the balance sheet. So what that results in is about the $3.4 billion over the four-year period. On an annual basis, it is less than 2% of market cap, manageable. As you probably saw, we have already made good progress on that. We priced $700 million of that $3.4 billion. So on an annual basis for 2026, you know, it is a small amount to do. Given our ATM and our trading activities, it is very manageable. But we are going to stick with that 40%. Calvin G. Butler: Okay. Thank you very much, team. Mhmm. You, Paul. Operator: Thank you. One moment for our next question. Our next question will be from the line of Steve Fleishman from Wolfe. Good morning, Steve. Ryan Brown: Hey. Good morning. So just maybe on the, with the move to more transmission continuing, that 9% to 10% earned ROE range Steve Fleishman: are we seeing some kind of Calvin G. Butler: movement up within that range? Helps kind of put all these pieces together? On the growth rate. Jeanne M. Jones: Yeah. I think, you know, it is a guess. Jeanne M. Jones: Yeah. Yeah. If we go back to, I think, since separation, 2022 to 2025, our average earned has been somewhere around 9.4%. To your point, as we have been turning the shift towards transmission, I think you can expect that, if not slightly better, but it is going to take some time for some of these, you know, transmission projects to close. You have some longer-dated ones, the big ones. But we are, that is the direction we are headed. Steve Fleishman: Okay. Ryan Brown: Okay. And then on the CAMT that you mentioned, just when do you expect to actually have that, like, full clarity on that? Sometime, this sounds like sometime this year? Jeanne M. Jones: Yes. Yeah. We are hopeful that we have final, final resolution here in the near term. Steve Fleishman: Okay. Calvin G. Butler: And then lastly, just tying up some loose state stuff that Steve Fleishman: are we going to get a Maryland lessons learned Ryan Brown: at some point? Calvin G. Butler: Or Steve Fleishman: yeah. Is there any chance they just say kind of we are moved on to Calvin G. Butler: No. We are Steve Fleishman: I do not know. Patience. Calvin G. Butler: Yeah. Yeah. Steve, I hear in your voice my frustration, so thank you. It is, we do believe we are going to get a lessons learned. I know the team has been talking to the commission and the new chair. We have worked with him as a former state senator. He understands the need for this. We do believe we will get a lessons learned, and I wish I could give you a timeline, but we do believe it will happen in 2026. Steve Fleishman: Okay. Ryan Brown: But you will file BGE Steve Fleishman: you know, probably before you get it? Calvin G. Butler: Yes. Yes. Yeah. Jeanne M. Jones: We are going to file in probably the first half and, you know, would love to accommodate whatever is in there. But to Calvin’s point, we have been, you know, transparent with the commission around the fact that the rates expire in 2027, and so we have to do something here. Ryan Brown: And then a last quick one. I know New Jersey is not your, of your larger states, but just Steve Fleishman: curious your take so far under the new governor. Calvin G. Butler: Absolutely. Not, to your point, not one of our largest, but it is very important. Tyler Anthony, the CEO of Pepco Holdings, has spent time with the other EDCs with Governor Schirle. Michael A. Innocenzo, our Chief Operating Officer, has spent time, and I will let Mike elaborate further on New Jersey if you would like to, Mike. Michael A. Innocenzo: I would just say, you know, it certainly got a lot of headlines during the election campaign. But if you look at the content of the executive orders, we think that they are very constructive. They are things that we can live with. I would say behind the scenes, the conversations are focused on the right areas, which is, you know, if we are really going to go after affordability, we need to bring more supply in an affordable way and an efficient way. We fully support those discussions. Calvin G. Butler: Great. Thank you. Thank you, Steve. Operator: Thank you. Thanks to all our participants for joining us today. This concludes our presentation. You may now disconnect. Have a good day.