加载中...
共找到 24,878 条相关资讯
Operator: Good morning, and welcome to the Restaurant Brands International Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. All callers will be limited to one question, and please note this event is being recorded. I would now like to turn the conference over to Kendall Peck, RBI's Head of Investor Relations. Please go ahead. Kendall Peck: Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International Inc.'s earnings call for the year and quarter ended 12/31/2025. Joining me on the call today are Restaurant Brands International Inc.'s Executive Chairman, Patrick Doyle, CEO, Josh Kobza, and CFO, Sami A. Siddiqui. Following remarks from Josh, Sami, and Patrick, we will open the call to questions. Today's discussion may include forward-looking statements, which are subject to risks detailed in the press release issued this morning and in our SEC filings. We will also reference non-GAAP financial measures, reconciliations of which can be found in the press release and trending schedules available on our website. Please note that franchisee profitability referenced on this call is based on unaudited self-reported franchisee data. As a reminder, organic adjusted operating income growth excludes results from the Restaurant Holdings segment. In addition, on 02/14/2025, we acquired substantially all the remaining equity interest in Burger King China from our joint venture partner. Burger King China was classified as held for sale and reported as discontinued operations in our financial statements for 2025. That said, BK China KPIs continue to be included in our international segment KPIs. A breakdown of BK China's KPIs and its impact on our 2024 financial statements can be found in the trending schedules available on our website. For calendar planning purposes, our preliminary Q1 earnings call is scheduled for the morning of May 6, 2026. I will now turn the call over to Josh. Josh Kobza: Kendall. Good morning, everyone, and thank you for joining us today. Josh Kobza: As I began my fourth year as CEO, I want to start with a brief reflection on what worked well in 2025. When we stay focused on the basics, make the right long-term investments, results tend to follow. And this year was another example of that. Our brands delivered solid results, reinforcing the strength of our portfolio and the impact of our continued focus on delivering quality, service, and convenience to guests. This year, we also took decisive action to position us well for the next phase of growth. In China, we temporarily took control of our Burger King business, built a strong local leadership team, elevated marketing, optimized the restaurant portfolio, and strengthened operations, driving three consecutive quarters of positive same-store sales. Importantly, we attracted an engaged local partner, CPE, and established a strong foundation for long-term growth. At Popeyes, we took important steps to refocus the leadership team and begin returning the brand to the level of performance we know it is capable of delivering. And at Burger King in the US, we continue to invest in operations, marketing, and modern image, while also beginning our refranchising efforts two years ahead of schedule. Over the past few weeks, Tom and I spent time in the field together, road tripping from DC to Philadelphia, visiting restaurants, sitting in on Royal Roundtables, and checking in on remodeled SIZZLEs. These restaurants are a great example of getting all of the basics right. Operations are dialed in, teams are energized, managers are focused and engaged. As a result, these stores are delivering annualized average restaurant sales of nearly $3,000,000, a clear tangible illustration of what strong execution looks like in practice. That same focus on the fundamentals was evident across the business in 2025. For the full year, we delivered comparable sales growth of 2.4%, net restaurant growth of 2.9%, and system-wide sales growth of 5.3%. We translated those top line results into organic adjusted operating income growth of 8.3% and nominal adjusted EPS growth of over 10%. It is now our third consecutive year of delivering roughly 8% organic adjusted operating income growth, a level of consistency that remains differentiated within the industry. I am proud of how our teams and our franchisees showed up. Our three largest businesses, Tim Hortons, International, and Burger King, all outperformed their respective categories this year. Tim Hortons Canada and International have now each delivered 19 consecutive quarters of positive comparable sales. And Burger King US made visible progress executing Reclaim the Flame. While 2025 represented a low point for our consolidated net restaurant growth, we believe we have turned the corner and are excited to reaccelerate growth in 2026. Stepping back, this year reinforced the resilience of our model and the progress we have made strengthening our brands. We delivered solid top line growth and on-algorithm adjusted operating income growth amid a tougher consumer backdrop, strengthened the quality and durability of our earnings, and exited the year ready to build on that momentum in 2026. Lastly, I would like to provide a quick reminder of our upcoming Investor Day on February 26. This year marks the midpoint of our long-term growth algorithm, and our Investor Day will serve as a check-in on our progress and an opportunity to address some of the biggest questions we get about the business. Tom will provide an update on Reclaim the Flame, and I will spend time discussing our path to 5% plus net restaurant growth. Sami will walk through our plans to return to a 99% franchise business model and discuss capital allocation. And you will hear from Patrick and our brand presidents with additional time for Q&A. As a result, today's call will largely focus on our quarter and year-end results, and we will address most of our forward-looking plans at Investor Day. We look forward to seeing you there. With that, let us turn to our segment highlights, starting with Tim Hortons, which represents roughly 42% of our operating profit. 2025 was another year that underscored the strength and durability of Tim Hortons. We started the year amid macro uncertainty and weaker consumer sentiment in Canada, yet Tim’s delivered solid performance by staying focused on executing against the basics, delivering great experiences for our guests. That consistency carried through the fourth quarter, with comparable sales in Canada growing 2.8%, outperforming the broader Canadian QSR industry by nearly two points. Brand health continues to be a key advantage, with Tim’s leading in affordability, trust, and relevance with guests. That connection to the communities we serve was evident during our Holiday Smile Cookie campaign, which raised approximately C$13,000,000 across Canada and the US for local charities and our Tims Foundation Camps. During the quarter, we kept a disciplined balance between innovation and core offerings. Breakfast food sales grew 3.5%, supported by innovation like our 100% Canadian freshly cracked scrambled eggs, alongside strength in our core such as our Farmer’s Wrap. Baked goods grew 2% driven by seasonal offerings like the Biscoff Boston Cream doughnut and croissant. In the PM daypart, main foods grew modestly, supported by our holiday meal offering. PM remains an important long-term opportunity for the brand. We continue to refine the menu, value platforms, and execution to drive growth. Q4 beverage sales grew 3.2% year-over-year, with strong guest response to seasonal offerings like our Biscoff and brown sugar beverages. Cold beverages remain a standout, growing 8.6% despite colder than usual temperatures in December, reaching nearly 27% of total beverage sales in Q4, the highest fourth quarter mix on record. This growth was largely driven by our iced espresso-based beverages platform, including iced chai lattes and protein lattes. We also began rolling out our new espresso machine to support improved quality and consistency for this growing category. Tim’s ongoing industry outperformance would not be possible without Axel and his team’s constant focus on delivering a great guest experience. Speed of service improved across dayparts in 2025, and guest satisfaction reached record levels, including in the PM. Digital engagement also continued to build, with digital ordering and payments reaching all-time highs in Q4 and kiosk expanding to over 800 restaurants. We are excited to give guests even more reasons to engage with Tim’s and accelerate loyalty adoption through the launch of our partnership with Canadian Tire later this year. On development, Tim Hortons returned to net restaurant growth in Canada for the first time since 2021. As expected, growth this year was measured and targeted, capacity-constrained markets, and urban densification focused on suburban developments. This represents a positive step forward for the system; with a strong pipeline, we are confident in our ability to accelerate development again in 2026. Josh Kobza: Meanwhile, in the US, Tim’s delivered its Josh Kobza: highest level of new restaurant openings in the past decade, reflecting continued progress in both existing and new markets like Florida and Virginia. Lastly, I would like to touch on franchisee profitability in 2025. In Canada, Tim Hortons delivered solid top line sales performance, which helped offset headwinds from tariffs and increased operating commodity costs, including coffee. While cost pressures impacted P&Ls, average four-wall EBITDA grew resilient at approximately C$295,000, underscoring the strength of the Tim Hortons business and the durability of its franchisee economics. Overall, the fourth quarter capped another year of steady performance for Tim Hortons, supported by strong brand fundamentals, delicious menu innovation, and consistent execution. That foundation positions the business well as we move into 2026. Turning now to International, which drives about 27% of our operating profit. 2025 was a standout year for this business. Across a diverse set of markets, our teams and franchisees executed a balanced operational and marketing playbook that led to another year of double-digit system-wide sales growth. While International is often viewed as a unit growth story, it is worth highlighting that this segment has also delivered strong comps and double-digit system-wide sales growth for years, with a mid-single-digit average royalty rate that flows efficiently to AOI. For the full year, comparable sales grew 4.9%, including 6.1% in the fourth quarter, and net restaurant growth was 4.9%, driving system-wide sales growth of nearly 11%. Performance was strong across several of our largest markets, reflecting the quality of our brands and the effectiveness of our local strategies. In France, Burger King delivered another strong quarter, led by the DuoMystère Box, where guests receive a surprise duo for €5, and our Stranger Things activation. In Australia, the launch of Jacked Up Sodas, which is Hungry Jack’s take on dirty sodas, helped drive record beverage incidents. And in Brazil, our King em Dobro platform continued to resonate by delivering compelling core value. Q4 was also an important quarter for Burger King China, with comparable sales growing 9.2%, driven by improvements in restaurant fundamentals, growth in delivery, and refreshed marketing. Most importantly, during the quarter, we announced a joint venture with CPE, an experienced Chinese investment firm with a proven track record of scaling consumer brands in China, under which CPE would take majority ownership of the business. The transaction closed on January 30, and CPE injected $350,000,000 of primary capital to fund growth. Together, we share an ambition to roughly double Burger King China’s restaurant footprint to at least 2,500 units by 2030. I could not be more excited to welcome CPE to the RBI family. I am looking forward to sharing more about their vision for Burger King in China at our upcoming Investor Day. We also made progress at Popeyes China, opening 55 net new restaurants in 2025, as we continue to build brand awareness. With a clear path to accelerate development in 2026, we remain focused on scaling this business thoughtfully and look forward to eventually getting it into the hands of a long-term local operator. Reflecting on 2025, International stands out as one of our strongest growth engines, a clear competitive advantage. We have now built five $1,000,000,000 businesses in Burger King Spain, Germany, Australia, Brazil, and the UK, along with a $2,000,000,000 business in Burger King France. We are also seeing consistent success in markets just outside our top 10 that we do not always highlight, like Burger King Japan, where we have beaten the industry for eleven straight quarters, delivering 22% same-store sales in 2025 on top of 19% same-store sales in 2024, and adding 84 net new restaurants this year. Or Popeyes Turkey, which more than doubled its store count in the last four years, ending 2025 with nearly 500 restaurants. In addition, we are scaling newer markets like Popeyes in the UK or Tim Hortons in Mexico, where we crossed $201,100,000,000 in system-wide sales respectively, as brand awareness and market adoption continue to build. While these markets are diverse, they are winning by executing the same fundamentals: locally relevant marketing, disciplined development, and consistent operations, all managed by strong local operators. These fundamentals give me confidence that International is well positioned to deliver durable growth in 2026 and beyond. Turning now to Burger King, which represents roughly 18% of our operating profit. US comparable sales grew 1.6% for the full year, including 2.6% in the fourth quarter. We have now outperformed the burger QSR industry in nine out of the last 12 quarters, demonstrating how Reclaim the Flame is strengthening the brand and its relative value proposition for guests. Marketing and menu innovation played an important role during the quarter. In December, we launched the SpongeBob SquarePants menu, featuring the Krabby Whopper, an iconic square yellow bun alongside Cheesy Bacon Tots, a Strawberry Shortcake Pie, and a Frozen Pineapple Float. The activation drove strong guest engagement and brought families back into our restaurants, with Kids Meals reaching their highest incidence level in the last ten years. It is an exciting proof point as we think about the potential of our family business. Importantly, we were able to retain traffic after the promotion ended, with new SpongeBob guests coming back to Burger King in January. This innovation was supported by our consistent value platform, $5 Duos and $7 Trios, which remained on the menu all year. Duos and Trios continue to perform well by offering guests choice, price certainty, and consistency. In a year when there was significant noise across the industry around value, this dependable platform allowed us to focus our marketing behind Whopper-led innovation and family partnerships that attracted new guests to the brand. Looking ahead, we will continue executing this balanced strategy. But that sales momentum only translates into sustained traffic when it is supported by solid operations. Throughout the year, the team remained focused on improving execution. Tom and his team are completing their fourth annual Royal Roundtables, bringing together every restaurant manager in the country to sharpen operational focus across the system. We see the impact of consistent operations, speed, and service quality reflected clearly in the performance of our A operators, who outperformed the system average profitability by nearly $50,000 in 2025. In addition to improving operations, we remain dedicated to modernizing the asset base, and ended 2025 at 58% modern image, up from 51% in 2024. While we previously discussed reaching 85% modern image in 2028, the current cost environment is influencing the pace of remodel activity, and as a result, will take a bit longer to reach that level. This does not change our strategy or the role of remodels in Reclaim the Flame. Remodels continue to deliver compelling uplifts and the teams are in control, reinforcing our confidence in the program. We will continue to make steady progress alongside our franchisees. We also continue to modernize Carrols, completing roughly 60 remodels in 2025, including 54 SIZZLEs. Comparable sales grew by 2.4% in Q4, slightly behind the rest of the system as Carrols restaurants were more heavily impacted by weather given their geographic concentration in the Northeast. Finally, franchisee profitability was about $185,000 in 2025, down from about $205,000 in 2024. This was driven primarily by beef costs, which Sami will discuss shortly. While 2025 was a step back, we are well ahead of where we were just a few years ago. Fundamentals continue to strengthen, and we are confident profitability will expand as beef costs normalize. Overall, I am encouraged by the progress Tom and team made in 2025. Burger King executed compelling marketing, offered consistent value, improved operations, and continued to make progress on modern image, helping the brand once again outperform the burger QSR industry and reinforcing my confidence in the brand's trajectory as macro pressures ease. I am excited for you to hear from Tom directly on February 26 about how we plan to further elevate the brand moving forward. Now turning to Popeyes, where net restaurant growth of 1.6% was more than offset by comparable sales down 3.2% for the year, resulting in system-wide sales growth of negative 0.7%. As a result of softer sales this year, franchise profitability declined to roughly $235,000, which remains a healthy level, but one we are focused on improving. Our performance this year reinforces a clear reality. While the chicken category remains competitive, Popeyes’ biggest opportunity is improving restaurant-level execution and reengaging with our core guests. We know Popeyes is capable of much more, and we are taking decisive action to put the brand back on the right path while supporting our franchisees to deliver stronger results at the restaurant level. In November, we announced that Peter Perdue, former COO of Burger King in the US, would step into the role of President of Popeyes US and Canada. Peter has a clear mandate to raise operational consistency, and he is moving quickly, resetting his leadership team and engaging with our franchisees. At its core, the chicken business is a service business, and winning requires consistent speed, accuracy, and reliability in every restaurant every day. To support that, we are expanding field engagement and providing targeted support to our lowest-performing restaurants. We have increased our field operations team by approximately 75%, launching in-restaurant coaching visits and hosting our first-ever Restaurant General Manager Experience rallies across the US this spring. Alongside operations, we are also sharpening our core product focus, prioritizing offerings that define Popeyes and resonate with both new and legacy guests, including our incredible hand-battered and fried bone-in chicken, tenders, and sandwich. I am excited for Peter to share more detail at our upcoming Investor Day. In the meantime, I want to reiterate my confidence in the underlying strength of the Popeyes brand. We have a great group of engaged franchisees, a relatively modern asset base, solid unit economics, and some of the best chicken in the industry. With disciplined execution and sustained focus, I am very confident Popeyes will return to the level of performance it is capable of delivering. Finally, Firehouse Subs had a solid year, with comparable sales of 1.1%, including 2.1% in the fourth quarter, and net restaurant growth of 7.7%, driving 8% system-wide sales growth. As a result of this growth, franchisee profitability grew to over $100,000. Importantly, Mike and the team opened 104 net new restaurants across the US and Canada and accelerated net restaurant growth from approximately 6% in 2024 to 8% in 2025, led by Canada. In fact, Firehouse is one of the fastest growing QSRs in Canada in 2025. I am excited about the growing momentum of this brand, and I am looking forward to even more success in 2026. I will now turn the call over to Sami. Sami A. Siddiqui: Thanks, Josh, and good morning, everyone. 2025 was a year of execution-driven performance which translated into solid top line results, 8% organic AOI growth, and double-digit adjusted EPS growth, with performance improving as we went through the year. We also took important steps to simplify the business and strengthen our foundation for future growth, announcing a new partner for Burger King China, beginning refranchising the Burger King US ahead of schedule, and maintaining disciplined investment behind the initiatives that matter most Sami A. Siddiqui: for long-term value creation. As we exit 2025, the fundamentals of our business are stronger, our portfolio is more focused, and we have improved visibility into earnings and cash flow growth, all of which give me confidence in our ability to build on this momentum in 2026. Today, I will focus on our full year 2025 financial results and I will touch on a few modeling-related items for 2026. As Josh mentioned, the bulk of our forward-looking commentary will be reserved for our Investor Day on February 26. Now on to our results, beginning with our financials. For the full year, we delivered comparable sales growth of 2.4%, net restaurant growth of 2.9%, and system-wide sales growth of 5.3%. We translated that to organic AOI growth of 8.3% and nominal adjusted EPS growth of 10.7%. Compared to our long-term algorithm, comparable sales came in modestly below target, though we continue to outperform the industry. Meanwhile, net restaurant growth of 2.9% was roughly in line with our full year guidance. Importantly, we believe 2025 represents a low point for NRG, and from here, we expect to ramp back towards 5% unit growth by the end of our algorithm period. In 2026, we expect to see modestly positive NRG from Burger King China following our portfolio cleanup and the transition of the business to our new local partner, CPE. For reference, returning Burger King China to neutral NRG would imply a positive impact of 70 basis points on our consolidated 2025 unit growth. We look forward to providing more color on our future development outlook during our Investor Day. We continue to translate system-wide sales growth into even stronger earnings growth, delivering our third consecutive year of roughly 8% organic AOI growth. There were some specific puts and takes in 2025 that I will walk you through now, all of which we have discussed on our prior calls. Operator: First, Sami A. Siddiqui: we lapped over the roughly $60,000,000 BK Reclaim the Flame ad fund contribution. In 2025, those expenses moved over to the P&Ls of our franchisees and our company restaurants, which was a tailwind to our organic AOI growth. Second, moving the other direction, we did not recognize revenue from Burger King China in 2025 as we recorded results from the business in discontinued operations. As a result, the International segment saw a $37,000,000 revenue headwind in 2025. Of course, we expect these results to phase back into our P&L prospectively, which I will touch on shortly. Third, segment G&A stepped down by $38,000,000 year-over-year in 2025. This reduction was primarily driven by lower stock-based compensation and headcount efficiencies identified during the first half of the year, in addition to continued cost discipline. We believe our business is at a healthy level of G&A which will grow modestly with inflation over time. Operator: And last, Sami A. Siddiqui: net bad debt expense totaled $21,000,000, modestly lower than $24,000,000 in 2024. Together, these factors enabled us to translate 5.3% system-wide sales growth to organic AOI growth of 8.3%. Now turning to EPS. For the full year, adjusted EPS grew 10.7% to $3.69 per share. EPS growth was driven by our AOI growth, as well as a $43,000,000 year-over-year decrease in adjusted net interest expense, reflecting the benefits of our 2024 refinancing activities and our cross-currency swaps. Our adjusted effective tax rate was 18.6% in line with our guidance and our expectations for 2026. Now turning to cash flow and capital allocation. We generated nearly $1,600,000,000 of free cash flow this year, including the impact of $365,000,000 of CapEx and cash inducements and a $138,000,000 cash benefit from our swaps and hedges. We also returned $1,100,000,000 of capital to shareholders year through our dividend. In 2026, we are increasing our dividend target Operator: To refranchise 50 to 100 Burger King restaurants in 2025 and I am pleased to say we slightly exceeded that guidance. Now before shifting to 2026 financial guidance, I would like to touch on two additional modeling items: Burger King China and beef costs. As a reminder, throughout 2025, Burger King China was classified as held for sale, its results were reported under discontinued operations and excluded from our International segment P&L. Following the close of our joint venture transaction with CPE, royalties from Burger King China are once again being recognized in our International segment P&L. For reference, in 2024, we recognized $32,000,000 in royalty revenues from Burger King China at a full royalty rate. In 2026, the royalty rate will begin a couple points below our standard 5% rate for traditional Burger King International locations and will ramp to 5% over time. Next, I would like to discuss beef costs. Burger King US saw approximately 7% commodity inflation in 2025, largely due to beef, which increased over 20% for the full year. This drove the year-over-year decrease in average four-wall profitability which would have been roughly flat year-over-year if beef prices stayed around where they were in 2024. As previously discussed, we believe these pressures are cyclical as the increase is largely tied to US herd rebuilding coupled with tariff impacts and upstream labor shortages. Importantly, the key to reaccelerating franchisee profitability growth will come from driving strong top line results, and we continue to work closely with our franchisees to drive improvement in areas that are under our control. Now finally, I would like to discuss our 2026 financial guidance. Most importantly, in 2026, we are committed to delivering a fourth consecutive year of on-algorithm 8% AOI growth. This is supported by a strong top line and continued flow-through to earnings. A couple points to note. First, we expect segment G&A, excluding Restaurant Holdings, of about $600,000,000 to $620,000,000, representing modest inflation relative to $594,000,000 in 2025. Second, we expect net adjusted interest expense to stay at approximately flat year-over-year in the $500,000,000 to $520,000,000 range, based on a mid-3% SOFR rate which flows through to approximately 15% of our debt. Third, we expect 2026 CapEx and cash inducements, including capital expenditures, tenant inducements, and incentives, to be around $400,000,000 compared to $365,000,000 in 2025. This increase is primarily driven by higher CapEx associated with Tim Hortons development and renovation as well as acceleration in Carrols remodels. Fourth, we expect Tim Hortons supply chain margins to be roughly in line with 2025 levels. From a seasonal perspective, we expect Q1 margin to be the softest of the year, more or less in line with 2025. And last, there are a couple things to keep in mind for Restaurant Holdings, which, as a reminder, is not included in our AOI algorithm guidance. BK Carrols restaurant-level margins will continue to be impacted by commodity inflation, primarily related to elevated beef costs. For 2025, BK Carrols full-year restaurant-level margin was 11.1%, and we expect similar full-year margins in 2026. For 2026, we expect total RH AOI of roughly $10 to $20,000,000, with favorability in beef costs bringing us towards the higher end of that range. The expected year-over-year decline in RH AOI reflects the impact of Carrols restaurant refranchising and incremental investments in our International start-up businesses, Popeyes China and Firehouse Brazil, that we expect to continue until we transition ownership to new local partners. To wrap up, stepping back, 2025 demonstrated the strength and resilience of our business model and the benefits of the strategic investments we have been making over the past several years. We spent much of the year talking about how our business was at peak complexity, and I am pleased to say that we are entering 2026 with a simpler, more focused portfolio and visibility into future earnings. That positions us well as we move into the next phase of growth and work to deliver another year of 8% organic AOI growth in 2026. With that, I will turn it over to Patrick. Patrick Doyle: Thanks, Sami. 2025 was my third full year at Restaurant Brands International Inc., and I would like to take a step back and talk about what this year taught us about the health of our business and the progress we have made strengthening it. 2025 was a demanding year for restaurant operators. The consumer was under pressure. Costs were elevated. And macro and geopolitical uncertainty weighed on confidence across many of our markets. Taken together, it was the kind of environment that served as a pretty good test of the fundamentals of a restaurant business. And in that context, our performance demonstrated that the underlying fundamentals of our portfolio are not only resilient, but improving, with our brands continuing to strengthen their competitive positions despite a challenging backdrop. Of course, the most important metric we look at is franchisee profitability. While profitability was down in parts of the system in 2025, a closer look tells an important story about the strength of our portfolio. At Tim Hortons, despite elevated coffee costs and tariff-related headwinds that weighed on consumer confidence in the first half of the year, average four-wall EBITDA held at around C$295,000. While we are always striving to drive growth in franchisee profitability, we believe this is a healthy outcome given the context and reflects the consistency of Tim Hortons’ business, strength of its restaurant owners, and benefits from its continued outperformance versus the broader QSR industry over the course of the year. And while we do not report franchisee profitability at International given its scale and structure, it is fair to say that with mid-single-digit comparable sales growth and net restaurant growth of 7%, excluding BK China, our International franchisees are doing quite well overall and continue to see attractive economics. At Burger King, we faced a meaningful headwind this year from over 20% inflation in beef, our largest commodity, which caused franchisee profitability to step back year-over-year. But what is important to me is what did not happen. Even in an environment with a lot of value noise, we did not need to rely on deep discounting to drive top line results. The core business continued to improve, and the system showed far more resilience than it would have four years ago before Tom and the team launched Reclaim the Flame. The investments we and our franchisees have made in operations, marketing, and modern image have fundamentally strengthened the system, and that showed up clearly this year. There is absolutely still work to do. But relative to much of the burger QSR category, I think it is fair to say that our franchisees are feeling pretty good about where they stand and our ability to grow from here. We have also been disciplined about growth and capital. In a year like this, the wrong response is to push development or investment faster than the economics support. Instead, we have prioritized protecting franchisee balance sheets, pacing remodels thoughtfully, and placing restaurants in the hands of operators who can execute at a high level. Simplifying the business and moving toward a more purely franchise model are part of that same mindset. At Popeyes, we also saw a step back in unit economics year-over-year, and this is a different situation. We have been very upfront that sales are not where they should be, and you saw us make leadership changes in 2025 and earlier this year as a result. I am confident that the steps we are taking, particularly the renewed focus on operations, consistency, and brand standards, will translate into better performance over time. Average profitability of roughly $235,000 is not where the system can or should be, but Popeyes has a strong franchisee base, and there is real engagement and momentum around the changes Peter and the team are leading. And lastly, at Firehouse, we saw average profitability grow to $100,000, reflecting the steady progress Mike and the team are making despite some lingering category headwinds. Given Firehouse’s lower cost inline build model, that level of profitability supports attractive paybacks on new openings and positions the brand well to continue accelerating unit growth. I mentioned earlier that a year like this can serve as a real test of a restaurant business. And when I look at how we performed, I think our overall grade is pretty strong. We outperformed the industry across our three largest businesses, including by two points at Tim’s Canada and three points at Burger King US. Tim Hortons Canada and International each extended their multiyear streaks of positive quarterly comparable sales. And our teams delivered over 8% organic operating income growth and double-digit EPS growth for shareholders. That marks the third year in a row of roughly 8% organic adjusted operating income growth. That is the type of consistency we want to continue to deliver moving forward. This combination of industry outperformance, margin discipline, and earnings growth does not happen by accident. It reflects improving fundamentals, strong execution, and real partnership across the system. I am proud of what our teams and franchisees delivered this year, and I feel good about the progress we have made strengthening this business for the long term. With that, I will turn it over to the operator for questions. Thank you. As a reminder, if you would like to ask a question on today’s call, please press star then one. And our first question will come from Danilo Gargiulo from AllianceBernstein. Kendall Peck: Danilo, please go ahead. Your line is open. Great. Thank you. What is very encouraging is to see solid sales momentum in US and Canada in the quarter despite the tough backdrops we are describing. I am wondering if you can maybe talk about how you are thinking about the comparable sales evolution and trajectory in 2026. Which anchor points may provide upside gains for Tim Hortons and Burger King? And specifically to Tim Hortons, you seem to have achieved great results with the beverages, with the PM skewls growing a little bit more modestly. So what is the next evolution to drive greater PM expansion? Thank you. Josh Kobza: Morning, Danilo. Thanks for the question. You know, I think in terms of the same-store sales, I agree it was a very good year and I think a positive Q4. And I think that sets us up well as we step into 2026. I think importantly because the reason that we were achieving those same-store sales is we are delivering on the fundamentals across all of the businesses. So I think that is a great setup, and you know, I think our expectation is for a similar consumer environment in 2026 to 2025, and we will keep focusing on building on those basics. You know, the one thing I would call out for in 2026 that I am sure anybody in Toronto or New York is aware of is that it has been a bit of a tough weather environment so far in 2026. So I think that is important to flag. You know, that should normalize as we get out of the next couple of months, and we look forward to building back another great year. In terms of the Tim’s same-store sales, you know, I think you characterized it well. I think we made a ton of progress across cold beverages. It was a big highlight throughout the year. And as I mentioned in the prepared remarks, even in Q4, which is not traditionally the strongest time of the year for cold beverages, we had our highest incidence ever, which tells you we are really building a better portfolio of offerings, and we are building new habits with our guests. So that is something we are very mindful of, and I think you will see us bring even more exciting innovation. I think you will see that cold bev mix keep ticking higher as we move through the year. In terms of PM foods, I do think we have made good progress there. We have expanded the portfolio and introduced some really great offerings. And we are going to build on that in 2026. We have got a whole calendar planned out of initiatives that build upon what we did in 2025, but I think brings some exciting additional innovations that will help us to build that habit with PM food. And I think we have always viewed our efforts to move into the PM as a long-term initiative, something that will take a lot of years. That is a big new front to open up for a concept that historically was really focused in the morning in that kind of 6 AM to 10 AM time window. So that kind of shift, it will take a number of years to build those habits, to build those product portfolios. I think we are well on the way to doing that. We are making good progress, not just on the product portfolio, but also on operations and making sure that we are delivering the same great experience through lunch and in the afternoon that we deliver in that morning daypart. Axel and the team have been really focused on that. I think that as much as the product innovations are going to be critical to making Tim’s a destination for folks in the PM, I think we are going to make some more progress on that in 2026 and also in the years beyond. Thanks. The next question comes from Brian Bittner from Oppenheimer. Brian, please go ahead. Your line is open. Kendall Peck: Thanks. Good morning and congratulations on Josh Kobza: a strong 2025. The important International segment really seems to be hitting on all cylinders recently, over 6% comps in the fourth quarter in the face of much stiffer comparisons. Kendall Peck: Burger King and Popeyes seem to be the standouts in the International segment, and I know this segment covers a lot of geographies, and you touched Josh Kobza: on a few in your prepared remarks. But generally speaking, can you just unpack for us how much of this momentum internationally is being driven by a healthier backdrop that you are operating in versus perhaps share gains that you are taking or what you are doing from a bottom-up perspective at Burger King and Popeyes? Thanks, Brian. I think it is a bit of all of the above. You know, I will walk through a few pieces. I think the backdrop has been decent in a lot of our markets, especially the European and Asia Pacific markets. And I think our brands benefit from a few different structural tailwinds in those markets broadly. You know, we have talked about it a lot, but there is a lot of structural growth in those markets. As you have more folks moving into the workforce, you have more folks getting into the middle class, you have more formalization of the restaurant segment. A lot of those markets, especially in places like India, where we are very early in what I think will be a long road of growth, decades to come. So I think you have got a really supportive structural market. And within that, our brands are also well positioned. You know, we have got modern assets. We are new in those markets. The brands are more aspirational. We are highly digitally enabled, and we have really great operations that are Josh Kobza: consistently driving Josh Kobza: same-store sales, and as you mentioned, I think same-store sales that have exceeded many of our competitors in a lot of those markets. You know, if you look across the regions, I would tell you EMEA in particular has shown consistent strength across a lot of our biggest markets. So that has been a consistent tailwind for us. And then in Asia Pacific, things have really gotten a lot better the last year or so. You know, obviously, we have talked a lot about China where we went from negative same-store sales to meaningful positive same-store sales. So that was a very intentional set of steps we took that moved a big market there. But I also mentioned, you know, markets like Japan that are not historically huge growth markets for folks. You know, we are doing double-digit comps on top of double-digit comps and growing the restaurant base there. So we have got a lot of markets in Asia Pacific that are really performing well over the last year or so. I think our team has been doing a really nice job out there, and some of that has allowed us to outperform the competition. Patrick, I would add just one other thing to kind of highlight. In calendar year 2023, our system sales for Popeyes outside of the US were $927,000,000. Last year, they were $1,700,000,000. We did a half billion in the fourth quarter, so we are already at a run rate of $2,000,000,000. It is a stunningly great business outside of the US, and really excited about what we are going to be able to get done with the Popeyes brand. And I will just add a couple more things on some of these International markets that are doing well. You know, I think if you go see our business in a place like France, it is really fantastic. We have wonderful locations, beautiful new assets, highly digital. The product quality is great. Alexis Simon and the team are truly passionate about the product quality. I think that is why we have driven tremendous growth there. And I can go to the other side of the world and go to Japan and I will tell you, if you are in Tokyo, I think you will have one of the best Whoppers you are going to eat anywhere in the world. And so these markets are really doing a great job at the fundamentals. And that translates to a great business model as well, which is driving growth. So lots of good reasons that International business is doing well. Josh Kobza: The next question comes from David Palmer with Evercore ISI. David, please go ahead. Your line is open. Josh Kobza: Great. Thanks, guys. I wanted just to follow up on Brian’s question about sort of walking around the world here. And, you know, I think a lot of us really know the US market in terms of the fast food consumer and the fast food market trends here. In the US, we know them less well in Canada, less well in Europe. It feels like Europe in general, and I am really focusing on this developed market side of things in this question, it feels like Europe is remarkably strong when it comes to fast food, particularly when you contrast it with some of the CPG commentary that we get in consumer staples world in regards to the European consumer. And then you pro looks like you are gaining share in a lot of these markets. So maybe just kind of Josh Kobza: sort of summarize, contrast, Josh Kobza: what you are seeing in the US. It feels like Canada is maybe a little weaker, maybe more like the US. And just how you think about the setups for key markets and help us get comfortable with that the strength can continue in markets like Europe. Josh Kobza: Thanks. Josh Kobza: Dave, thanks for the question. So I will maybe comment on both the EMEA markets and particularly Western Europe and a little bit on Canada as well. So if you look across the big Western European markets, so places like France, Spain, Germany, Great Britain, you know, every one of those markets was positive, low to mid-single digits. So we had a lot of consistency of positive performance across those markets, and I think that is what you see in the results. We also within EMEA, I mentioned this about Popeyes having a fantastic year in Turkey. Burger King in Turkey also was a standout performer, so a lot of unit growth and tremendous same-store sales growth. So we had a really good year across the board in Turkey. So I think it is that consistency across all of the biggest markets within EMEA. You know, they almost across the board had a positive year and quarter. That is driving the results that you see. And then if you go to Canada, you know, I think with around 3% same-store sales in the quarter, that is a pretty good result, I think, for a pretty developed business in a mature market. And I think importantly, within those results, we saw positive sales growth across all dayparts and all categories of the menu. So it was pretty broad-based, and I think that illustrates a pretty healthy business across the board. Josh Kobza: Next question comes from Dennis Geiger at UBS. Dennis, please go ahead. Your line is open. Great. Thanks, guys. I wanted to ask a little bit more about BK US given Sami A. Siddiqui: the continued industry outperformance in the quarter and your execution against plans despite the difficult environment. Anything more at a high level to talk about as it relates to opportunities for growth and share gains in ’26? And perhaps any thoughts you can share on franchisee sentiment right now and if that has got any implications for your confidence in the Carrols restaurant refranchising trajectory that you are thinking about? Thank you. Josh Kobza: Morning, Dennis. You know, I would tell you I am really proud of the work that Tom, Nico, Joel, the whole BK US team are doing. You know, it has been three or four years of working on the fundamentals, improving operations. We have come so far, improving the franchisee base, remodeling restaurants. You know, they have been doing all the basics, and I think for us, it was really interesting to watch what we did with SpongeBob in the fourth quarter. And, you know, I think that Joel and the marketing team did such a nice job on all of the elements of that, the IP, the products that they developed, the packaging, and then we executed it well at the restaurant. And I think, really, it was great work. But it delivered great results because of all the underlying work that we have done in the business. And it really told us that I think we are ready to take this business to the next level and really elevate the brand based on the work that we have done and the fundamentals. And I mentioned it in the prepared remarks, but we saw both a lot of new folks coming into the restaurants and then we saw them come back. And that tells me they had a good experience. And they really enjoyed what they saw. They were surprised by the Burger King that they found, the changes that we have made. And I think that is what we are so excited about as we go into ’26 is we think we have got the fundamentals to a place where we can now get really on our front foot and go bring a lot of new folks back in the restaurant. People who love Whoppers, bring families back. I think it really opens up the doors for us. And, you know, I think our franchisees feel that. They have seen that improve, they have seen those improved fundamentals. They have seen us doing a nice job on the marketing side. I think they are pretty excited about the direction that we are planning to go in the coming year. Sami, do you want to touch on the refranchising? Yeah. I can take that. Good morning, Dennis. And actually, you know, similar to what Josh was touching on, I think you see that excitement in the calendar and innovation. You see that translate into excitement around refranchising. When we first spoke about the Carrols transaction, we talked about refranchising really beginning in earnest in years three through seven. We started actually refranchising much ahead of schedule in year one. We said we would do about 50 to 100 refranchised restaurants in the first year. And we exceeded that. We actually did a little bit over 100. So I think that reflects a lot of the interest and excitement from local owner-operators in the Burger King brand. You know, to step back, and we have talked about this a lot on previous calls, the most critical thing is that we get the restaurants into the right hands, the hands of local owner-operators who are going to be aligned to driving great guest experiences. And we are seeing that in all of our conversations, and we look forward to actually accelerating that number here in 2026. Patrick Doyle: I will actually add one thing, which is, you know, the partnership with the franchisees is working because they know that we are focused on their success. We have been doing that now for a number of years, and they are seeing that what we have said we are going to do, we have done. And, you know, the remodels are generating a good lift in sales for them as we have been talking about for a couple of years. But we still have a lot more to do, which will continue to drive sales as we get more done. The service improvements that they are driving in their restaurants are giving guests a better experience, which means we are seeing things like Josh talked about. We do SpongeBob, and not only does that increase sales, but we see increased retention of those customers who have tried us because of it, because they had a good experience driven by our operators, driven by our franchisees and in our Carrols restaurants. You know, you see our improved marketing working and the focus that we are putting in there. So, you know, I can look at the glass half full, which is the things we have been doing are what have been driving the results that we are seeing in BK. And I can look at the glass half empty, which is we have still got so much more to do, and we know exactly what we need to do and what we are going to be doing over the course of the next couple of years. And that is what gives me confidence that we are going to continue to generate good growth and hopefully outperform the category and all of that being done with just consistent value that our customers can count on. We do not have to play around with a bunch of price points. We know what works, and we are doing that consistently. And their ability to count on that is a real value for our guests. Josh Kobza: The next question comes from John William Ivankoe from JPMorgan. John, please go ahead. Your line is open. Josh Kobza: Hi. Thank you. The question is on Popeyes US. And if I were to go back in history, you launched an incredible sandwich line in August ’19. I had to use the Internet to check that. In 2019, fried chicken is a great category. I mean, there are so many different people that want to be in the category and, quite frankly, have been successful in the category. And yet, you know, your results have really slowed down in the past couple of years, including some, you know, fairly low numbers in the fourth quarter of ’25. So I really want to go a couple places. So what do we kind of learn from the experience in the last couple of years, for example? What could you have done differently? In other words, what will you do differently to allow success? And then, really, I guess, maybe the bigger part of the question is, you know, a large franchisee declared bankruptcy in the Popeyes system. And, you know, looking at the comps, looking at that franchisee, are we kind of at the point at this point where we should stop thinking about new unit expansion and perhaps should even consider contraction until we get the franchise system and just the brand and the operating platform in the right place where it can materially grow again? Because I am sure me, like many others, had unit growth expectations for that brand ’26, ’27, ’28 for the Popeyes US business. Thank you, and hopefully, you absorb that question. Sami A. Siddiqui: Thanks, John. I will try to get through as much of that as I can, and feel free to add, Josh. It is a big topic to address regardless. So Patrick Doyle: for sure. Josh Kobza: So just to start off, I agree with you. I think the chicken category is amazing. It is a great category to be in, and I think we have a wonderful brand, both for the US and around the world. That said, as you pointed out, we have had weaker performance than we would like over the last few quarters. And that is why you saw us make a change in leadership. And I think Peter is exactly the right person for what we need to do. And I am super confident in both what he is already starting to do and where he wants to take the brand. I think if I would break down the learnings into two simple buckets that shape where we are going to be focused: one is making more progress on the consistency of operations. You know, the leading players in the chicken category on average have very good operations. And we need to make more progress on that front. Peter’s background is in operations, and that is exactly where he knows how to make progress. So I am very confident in what we are going to do there. And then I think on the marketing and product side, you know, we spent more time in categories that were a bit more non-core over the last year, year and a half. And I think we are going to bring that focus back to the core. We are going to bring it back to the things that made Popeyes great, you know, our hand-battered and fried bone-in chicken, our tenders, and our sandwich. So we are going to narrow the focus a little bit that I think is going to help us to bring back our core customers and to execute at a much higher level. So, you know, you will hear more from Peter directly here at our Investor Day on Feb 26. I encourage you to kind of hear from him directly because I think it is very compelling. But I would give you that outline of overall where he will generally be focused. In terms of your question on the franchisee situation, obviously, we did have a filing from one of the large franchisees. I would tell you that the rest of the franchisee system across the US is actually in a quite good place. Leverage levels are in a healthy place even though EBITDA stepped back a little bit. So I do not think that is at all representative of the rest of the system. As a result of that, while NRG has stepped back already, I think we will continue to see growth in the Popeyes US business over the next couple of years. You know, just one last stepping back, John, and you kind of pointed out at the beginning. In terms of stepping back and looking at the history, you know, we acquired this business about nine years ago. It has been a tremendous run. It has had a little bit of some ups and downs along the way, but it has really been great both in the US and around the world. If I actually go back to when we got involved in the business in 2016, what created that opportunity was a bit of a wobble in the business at that time. And, you know, that created an opportunity to acquire a brand in one of the most attractive, if not the most attractive segments in the entire world. And after that point in time, we managed to produce an incredible nine years of growth. I think we have tripled or quadrupled that business. And I hope we will do that again now under Peter’s leadership. Very helpful. Good job. Kendall Peck: Thanks, John. Josh Kobza: The next question comes from Brian Mullen from Piper Sandler. Please go ahead. Your line is open. Josh Kobza: Thank you. Just a question on Tim’s in Canada. I wanted to ask about Patrick Doyle: speed of service. I believe that has been a tailwind for some time now. I am just wondering if you still see opportunity Josh Kobza: to continue to improve from here. And then separately, can you just talk about the loyalty program, your efforts to continue to grow membership in that program, which we know is important. It correlates with higher visitation and spend. Thanks. Morning, Brian. I will take both parts of that question. So on speed of service, we have mentioned, I think, repeatedly over the last few quarters or years, we have made good progress there. I think Axel and Naira and the team are doing a very nice job. We are awfully fast in the morning. You know, the cars just fly through that drive-thru, sometimes every 20 seconds, which is remarkable. So it is pretty impressive that we continue to make progress there, and we will continue to seek to do so. There are a couple things that we are doing there that help. One of the big ones is actually the remodels. So I think we mentioned we have been ramping up the pace of remodels. And one of the big things that we do in those remodels is we rework the back of house in a way that accommodates some of the new things that have come in the restaurants—think about cold beverages—and allow us to enhance the speed of service in the morning. The other prong I would say there that is really important is our speed of service in the PM. And that is where historically we have not been as fast as the AM side of the business. And I think that will be a place where we can make maybe even more progress than we can in the AM over the next couple of years. In terms of the loyalty program, you know, we have made a lot of progress. We have got that up to about a third of the business. And we will continue to push adoption through everything from some of the events that we put out there, the things like Roll Up The Rim where we drive more digital engagement. But there is a new direction we are going with that as well, which I mentioned in my prepared remarks, which is partnerships. And we announced recently that we are going to do a loyalty partnership with Canadian Tire. We think it is a really obvious and very logical partnership for the brand. Two of the most iconic retailers in Canada coming together to tie together their loyalty programs. We think that brings even another compelling reason for Tim Hortons guests to become part of our loyalty program. And we will see how that goes. We are quite excited for it, but it opens a lot of doors to further places we could take that loyalty program to cause an even higher percentage of our guests to engage directly through our digital channels with us in the future. Brian, I will just add a couple stats here on the loyalty program, just because they are really incredible stats. What we are seeing is about 33% of sales came from loyalty members in 2025, which is incredibly strong. 7,000,007 active members. And our active members are spending more than 50% sort of post-joining versus pre-joining, and they visit more often than nonmembers. So a lot of good things to highlight in the program. And Josh brought up strategic partnerships that we think will further drive that business. And we also think that member-only offers through the app and the loyalty program are also going to help drive more penetration. So we are really pleased about the future of the loyalty program, and I think it is just the beginning. Josh Kobza: Next question comes from Andrew Michael Charles at TD Cowen. Andrew, please go ahead. Your line is open. Josh Kobza: Okay, great. You talked about your confidence in achieving 8% AOI growth in 2026, and I know you are saving the forward-looking commentary for the Investor Day. The release reiterated a 3% plus system same-store sales as part of the long-term algo. Wondering about your confidence this level can be achieved in ’26 and what you described as similar consumer backdrop domestically as ’25. Maybe said differently, is your belief in 8% AOI growth in ’26 contingent on reaching 3% same-store sales? Andrew, I will take that question. And Josh, feel free to chime in here. I think, look, first off, we are very pleased to have delivered three consecutive years of roughly 8% AOI growth and are excited, I think, to work again towards that target in 2026. Typically, kind of as we think about budgeting for the year and our targets for the year, we do target around that 3% same-store sales level, which is kind of consistent with our algorithm. I think as we think about that 3% comp and the unit growth kind of building towards system-wide sales, obviously the unit growth was a little bit lighter in 2025, though I think that still sets up a strong backdrop for system-wide sales. You know, rough math, if you are assuming around a 3% comp and just the math of it of around that unit growth from 2.9% unit growth from 2025, it equates to a top line of around 6% system-wide sales. Then I think there are a couple other puts and takes that kind of bridge to that 8% AOI growth. I think we have done a really good job on the G&A side. We have done a fantastic job in terms of adding discipline and really setting a new baseline for the business at $594,000,000 of G&A in 2025. We expect that to grow slower than the top line, so you will see operating leverage through the P&L from that. And then you will also see the Burger King China royalties come into the P&L in ’26, you know, at a couple points lower than our standard rate, but still kind of coming back into the P&L. When you take all of that together, I think that gives us confidence around the 8% organic AOI growth for a fourth consecutive year. Josh Kobza: The next question comes from Christine Cho with Goldman Sachs. Christine, please go ahead. Your line is open. Sami A. Siddiqui: Thank you so much. I really appreciated the color on beef Christine Cho: prices as well as the impact on franchisee profitability at Burger King. And you have mentioned that you expect improvement as these costs normalize. But beyond that, are there any organic cost and margin opportunities you have identified across the P&L that could help strengthen the four-wall economics as we look into 2026? Thank you. Josh Kobza: Hey. Morning, Christine. I can take that question. I think, look, you know, the beauty of being a multi-branded organization and having the size and scale we have all over the world is we are able to share best practices between all of our partners around the world and ultimately drive franchisee profitability. And there is a variety of things that we are working on when you think about from procurement and our global procurement scale, to thinking about digital contracts, to thinking about operational efficiencies. We like to share those best practices across our brands and ultimately that is kind of what helps drive franchisee profitability, be it at Burger King US or Tim’s in Canada. I would say particularly on the beef prices, obviously, we have seen beef prices be at record highs over the last year or so. And any of those levels have sustained. This is very regular and kind of normal in the market, and I think if you look at the beef market over many decades, the herd rebuilding cycles are a very common sort of pattern in this industry. We anticipate there will be relief at some point, though I think likely if there is relief on that side of things, it is likely closer to the second half of the year on beef in particular. So, but look, I think stepping back, as you think about franchisee profitability, it was down year-on-year for the Burger King system. Though I think we see, you know, when you normalize for those beef prices, actually roughly flat to even slightly positive year-on-year when you kind of incorporate the step to the ad fund contribution as well. The only other thing I would add, Sami, is, you know, the best possible way for us to grow the franchise profitability of Burger King is through growing sales in a profitable manner. I think that that is what is front and center with Tom and the franchisees is how do we do a great job growing the AUVs of this business in a profitable way. And I think the stuff that we are focused on, things like making the Whopper as amazing as it can be and bringing families back into the restaurant with awesome IP partners, those are great in that they bring more guests into the restaurant, they drive more sales. And it is very profitable traffic for the franchisees. So I think the sales, you know, we are always looking at cost opportunities, but I think the sales part is just as or more important. Josh Kobza: Our final question today comes from Brian James Harbour at Morgan Stanley. Brian, please go ahead. Your line is open. Patrick Doyle: Yes, thanks. Good morning, guys. Josh Kobza: I am curious where Patrick Doyle: new unit paybacks are. I guess I will focus my question on North America for sort of the unit growth brands. Do you think those are where they should be? How do you think it compares to some peer concepts? Or what else do you think you need to drive those besides obviously driving AUVs like you just mentioned? Sami A. Siddiqui: Yeah. Brian, I can take that one, and Josh can jump in as appropriate. I think as we think about, obviously, new unit paybacks are very tied to the franchisee profitability metrics that we disclose. And, you know, when we think about new unit paybacks, I think it is also important to think about who is developing. And so really critical across all of our brands is that we are developing with strong operators, A operators. And if you actually look at A operator, you know, we typically are disclosing averages, but the A operator profitability is typically much higher than that. So when we are looking at new unit paybacks and the investment case for building units, particularly in the home market, you see actually pretty compelling paybacks across the A operators. I would say some of the most compelling, if you kind of tick through the brands, certainly continue to be at Tim Hortons in Canada. You know, at around $300,000 in four-wall profitability, and, you know, often with us with the corporate contribution on real estate. When you think about the paybacks the franchisees typically are looking at, you know, investing in FF&E equipment packages, and with us sitting on the head lease, that typically creates very strong payback on the order of, like, three years in Canada. When you kind of come to the US, and I will tick through—actually what was nice to see is the fastest growing US brand being Firehouse. When you think about the Firehouse payback, you know, that is a totally different development model. It is an inline development model. It is very scalable, and the increases in profitability combined with some of the great work that Mike and the team are doing. That is also leading to around three-ish year paybacks on new, three to three and a half year paybacks on new Firehouse units. And so, you know, the two faster growing in our home markets are very strong payback. You know, at Burger King, as we have talked about extensively now, we have a little bit of work to do on the profitability side. Josh said it best when the best thing we can do is drive sales and drive top line to improve those ROIs. But we do still have a lot of our franchisees who are developing—those A operators. They are seeing compelling returns with their higher average profitability. I would say the same thing on Popeyes as well. You know, our A operator profitability at Popeyes is still close to $300,000 of four walls. So when you think about payback, they are still quite strong. Josh Kobza: I will now hand the call back to Josh for any closing comments. Josh Kobza: Great. Well, thank you everyone for joining us today, and importantly, thank you very much to our teams all around the world and our franchisees for a great year in 2025. We look forward to seeing many of you on the call here in Miami in two weeks, and wish you all a great day. Thank you very much. Josh Kobza: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: Good day, and welcome to the Fourth Quarter and Full Year 2025 Zebra Technologies Corporation Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Michael Steele, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Zebra Technologies Corporation’s fourth quarter earnings conference call. Michael Steele: This presentation is being simulcast on our website at investors.zebra.com and will be archived there for at least one year. Our forward-looking statements are based on current expectations and assumptions, and are subject to risks and uncertainties. Actual results could differ materially and we refer you to the factors discussed in our SEC filings. During this call, we will reference non-GAAP financial measures as we describe our business performance, with reconciliations shown at the end of this slide presentation and in our earnings press release. Throughout this presentation, unless otherwise indicated, our references to sales performance are year-on-year at constant currency and exclude results from recently acquired businesses for twelve months. This presentation will include prepared remarks from William J. Burns, our Chief Executive Officer, and Nathan Andrew Winters, our Chief Financial Officer. Bill will begin with a discussion of our fourth quarter and full year results. Nathan will then provide additional detail and discuss our outlook. Bill will conclude with progress on advancing our strategic priorities. Bill and Nathan will take your questions following the prepared remarks. Now let's turn to slide four as I hand it over to Bill. Thank you, Mike. William J. Burns: Good morning, and thank you for joining us. We delivered fourth quarter results above our outlook driven by our team's strong execution and positive demand trends. Before discussing the quarter, I would like to briefly reflect on the progress we have made over the past year on our vision to advance intelligent operations. In 2025, we expanded our connected frontline portfolio and customer base through the Elo Touch acquisition and expanded our 3D machine vision capabilities with the Fotoneo acquisition. We advanced our market leadership with the introduction of our AI solutions for the frontline and sharpened our focus on automation by exiting our robotics business to prioritize areas where we see better growth opportunities including RFID, machine vision, and AI-powered solutions. Operationally, we delivered solid growth, generating strong free cash flow, and deepened customer and partner relationships. For the fourth quarter, we realized sales of nearly $1,500,000,000, a 10.6% increase, or 2.5% on an organic basis, from the prior year, an adjusted EBITDA margin of 22.1%, and non-GAAP diluted earnings per share of $4.33, which was 8% higher than the prior year. We drove strong results in our Asia Pacific and Latin America regions with EMEA returning to growth. Our healthcare, manufacturing, and retail and e-commerce end markets grew while transportation and logistics cycled strong compares in North America. Elo performed well in the quarter and we are pleased with the early progress on driving synergies. We realized solid earnings growth by fully mitigating existing tariffs and driving operating expense leverage through productivity initiatives while continuing to invest in our market leading solutions portfolio. For the full year, we achieved greater than 6% sales growth in line with our long-term expectations and 17% non-GAAP diluted earnings per share growth. We also generated more than $800,000,000 of free cash flow and closed on accretive acquisitions. Overall, our team executed well while navigating an uncertain environment. Our strong financial position enabled us to return significant value to shareholders with more than $300,000,000 of repurchases in Q4 and nearly $600,000,000 for the full year. Given our progress, our Board of Directors has expanded our authorization by $1,000,000,000. We will continue to execute on our disciplined and balanced capital allocation strategy prioritizing investments in our business that elevate our portfolio of solutions, while consistently returning capital to our shareholders. We are well positioned as we enter 2026 and excited about the opportunities ahead. I will now turn the call over to Nathan to review our Q4 financial results and 2026 outlook. Nathan Andrew Winters: Thank you, Bill. Let's start with the P&L on slide six. In Q4, total company sales increased 10.6% or 2.5% on an organic basis with growth across most categories. Our Connected Frontline segment grew 3.6% led by mobile computing, and our Asset Visibility and Automation segment grew 1.3% led by printing and supplies. We realized solid performance across our regions. William J. Burns: Asia Pacific sales increased 13% led by Japan and India, Nathan Andrew Winters: sales increased 8% in Latin America with double-digit growth in Mexico, William J. Burns: in EMEA, sales increased 4% with solid growth in Northern Europe and Germany. And in North America, sales declined 1%, as we cycled large order activity in the prior year partly offset by solid run-rate demand. Adjusted gross margin declined 50 basis points to 48.2% primarily due to lower services and software margins. Nathan Andrew Winters: We fully mitigated current tariffs earlier than expected thanks to our team's successful efforts including supply chain moves, product portfolio rationalization, and price execution. William J. Burns: Adjusted operating expense leverage improved by 60 basis points. Nathan Andrew Winters: This resulted in fourth quarter adjusted EBITDA margin of 22.1%, William J. Burns: non-GAAP diluted earnings per share were $4.33, an 8% year-over-year increase, Nathan Andrew Winters: and above the high end of our outlook. William J. Burns: In Q4, we recognized $76,000,000 of restructuring charges relating to the exit of our robotics business and productivity initiatives. Turning now to the balance sheet and cash flow on slide seven. For the full year, we generated free cash flow of $831,000,000, or a conversion rate of 102%. At year-end, we held $125,000,000 of cash with a modest debt leverage ratio of 2 and $1,200,000,000 of credit capacity. Nathan Andrew Winters: We have been deploying capital consistent with our allocation priorities. For the full year, we repurchased $587,000,000 of stock William J. Burns: and acquired Elo, Nathan Andrew Winters: and Fotoneo with cash on hand and our existing credit facility. William J. Burns: We continue to maintain excellent financial flexibility Nathan Andrew Winters: for investment in the business and return of capital to shareholders. As Bill noted, our Board authorized an additional $1,000,000,000 of share repurchase providing a total of $1,100,000,000 after the $100,000,000 repurchase through early February. William J. Burns: This action underscores the confidence in Zebra Technologies Corporation’s prospects for continued growth and value creation. Let's now turn to our outlook. Nathan Andrew Winters: We entered 2026 with a solid backlog and pipeline that supports our first quarter sales growth guidance range William J. Burns: of 11% to 15%, Nathan Andrew Winters: including approximately 10 points of contribution from business acquisitions and favorable FX. Our first quarter adjusted EBITDA margin William J. Burns: is expected to be between 21%–22%, and non-GAAP diluted earnings per share Nathan Andrew Winters: are expected to be in the range of $4.05 and $4.35. For the full year, William J. Burns: we expect sales growth to be 9%–13%, Nathan Andrew Winters: which reflects a strong pipeline of opportunities, William J. Burns: machine vision returning to growth, continued momentum in RFID, along with manufacturing, and a seven-point favorable Nathan Andrew Winters: impact from acquisitions and FX. William J. Burns: Our full year adjusted EBITDA margin is expected to be approximately 22% and non-GAAP diluted earnings per share are expected to be between $17.70 and $18.30. We are currently facing industry-wide price increases for memory components beginning in Q2. Our full year guide reflects us fully mitigating this approximately two-point headwind and driving profitable growth in 2026 through multiple initiatives, including collaborating closely with our vendors to manage supply, targeted price increases, net savings from the robotics business exit, Nathan Andrew Winters: targeted actions to drive productivity, as well as FX favorability. William J. Burns: Free cash flow for the year is expected to be at least $900,000,000 which reflects free cash flow conversion of approximately 100%. We are continuing to optimize our working capital levels balanced with our supply chain resilience objectives. Nathan Andrew Winters: Please reference additional modeling assumptions on slide eight. With that, I will turn the call back to Bill. Thank you, Nathan. As we turn to slide 10, William J. Burns: Zebra Technologies Corporation remains well positioned to benefit from secular trends to digitize and automate workflows with our innovative portfolio of solutions including purpose-built hardware, software, and services. We deliver intelligent operations by digitally connecting people, assets, and data to assist our customers Nathan Andrew Winters: with business-critical decisions William J. Burns: that drive meaningful outcomes. A $35,000,000,000 served market represents a significant growth opportunity. Zebra Technologies Corporation’s complementary and synergistic segments position us well to capitalize on this opportunity. The Connected Frontline provides the digital touch points necessary to improve efficiency, collaboration, and the customer experience. Our solutions include enterprise mobile computing, Nathan Andrew Winters: interactive displays, William J. Burns: frontline software, and AI agents. Asset Visibility and Automation gives assets a digital voice to automate environments with technology that scales through printing solutions, advanced data capture, RFID, and machine vision. Turning to slide 11. Zebra Technologies Corporation solutions enable our customers across a broad range of end markets to drive productivity and efficiency and improve the experience of their customers, shoppers, and patients. We are accelerating our investments in RFID, machine vision, and AI, further sharpening our strategic focus. Zebra Technologies Corporation is investing in RFID solutions that advance our leadership and support emerging use cases. Our next generation mobile computers embed RFID reading capabilities to prepare our customers for the increased penetration of RFID tags across the supply chain. A North America telecommunications company recently selected our new RFID-enabled mobile computers for their retail locations, replacing consumer devices. Our solution enables this customer to improve inventory accuracy and reduce shrink, as well as lowering IT support costs over the product life cycle. We are excited about the momentum we are seeing in RFID adoption and our pipeline of opportunities. We are driving new opportunities in machine vision by investing in go-to-market initiatives for deeper engagement with our customers. There are many mainstream workflows that benefit from the proven return on investment from our solutions. Nathan Andrew Winters: For example, William J. Burns: a large European parcel delivery company has selected Zebra Technologies Corporation’s machine vision platform to drive productivity gains by identifying and sorting parcels, eliminating bottlenecks along conveyance systems. We have a strong pipeline of machine vision opportunities and expect to return to growth in 2026. Now turning to slide 12. At the National Retail Federation trade show in January, our team, along with valued customers and partners, demonstrated how our innovative portfolio advances the AI-powered modern store through engaged associates, optimized inventory, and an elevated customer experience. Nathan Andrew Winters: These outcomes are achieved William J. Burns: through improved real-time inventory management, omnichannel execution, and technology-empowered workers and shoppers. Nathan Andrew Winters: The addition of the Elo Touch business William J. Burns: enhances the modern store experience as our combined capabilities along with AI enable us to offer additional ways to digitize operations across multiple touch points. Together with Elo, we will deliver higher customer satisfaction and complete solutions through the intersection of frontline mobility, self-service, and digital media. This value proposition extends well beyond retail, including quick-serve restaurants, hospitality, healthcare, and other industrial markets. For example, a high growth multinational fast-food restaurant recently selected Elo's self-serve kiosk at its U.S. locations to increase order size, Nathan Andrew Winters: enable faster fulfillment, William J. Burns: and improve order accuracy. Looking ahead, we have an opportunity to expand our business across their entire point of service platform Nathan Andrew Winters: and also supply their international locations. Turning to slide 13. William J. Burns: Our industry leadership puts us in a unique position to be a supplier of choice of AI solutions for the frontline of business. Our Connected Frontline and Asset Visibility and Automation segments play a critical role in enabling AI for business operations. As AI transforms the frontline of business, asset visibility becomes essential, providing a digital voice to physical assets to identify, locate, and understand condition. This real-time data provides critical insights allowing AI models to better understand the physical world which is fundamental to transforming frontline workflows across industries. Our connected frontline solutions unify a mobile workforce which, combined with our SaaS offerings, deliver the output from AI models to frontline workers providing the right information to the right person at the right time. Nathan Andrew Winters: Global solutions will be capable of seeing, William J. Burns: hearing, and understanding the environment while interacting with frontline workers in a conversational or vision-based way. We continue to invest in our AI solutions with our recently launched Frontline AI Suite, comprised of three components. AI Enablers are foundational to our offering, consisting of tools and APIs that empower partners and customers to build enhanced applications for mobile devices. Our AI Blueprints combine enablers into purpose-built templates that streamline multistep workflows. These blueprints integrate computer vision, Nathan Andrew Winters: voice recognition, and sensor data William J. Burns: to automate critical workflows such as proof of delivery, material receiving, and shelf merchandising. Zebra Companion includes agents we design and manage addressing key responsibilities including operating procedures, product knowledge, and sales enablement. Our Frontline AI Suite is a clear differentiator in the industry and enables us to meet a range of customer requirements. Our partners and customers can choose to build their own fully customized application using Enablers, elect to adopt Blueprints to more quickly address their evolving business needs, or deploy our fully functional Zebra Companion. AI Enablers are a value add to Zebra Technologies Corporation’s mobile computers, while AI Blueprints and Zebra Companion are software and service offerings with paid pilots already underway and scaled deployments expected this year. We are pleased that two prominent retail customers demonstrated the value of our Frontline AI Suite at the NRF trade show, and we look forward to building on our momentum to further elevate Zebra Technologies Corporation as the leading solutions provider Nathan Andrew Winters: for the frontline of business. William J. Burns: I will conclude on slide 14, which highlights end market trends driving our long-term growth opportunities across our end markets. These include several broad-based themes including labor and resource constraints, track-and-trace requirements, increased consumer expectations, and advancements in artificial intelligence. Nathan Andrew Winters: Our customers rely on our solutions William J. Burns: to advance their business-critical workflows and we are uniquely positioned to address the need for intelligent operations with our market-leading portfolio. I will now hand it back to Mike. Michael Steele: Thanks, Bill. We will now open the call to Q&A. We ask that you limit yourself to one question and one follow-up to give everyone a chance to participate. Operator: We will now begin the question and answer session. If you are using a speakerphone, to withdraw your question, Operator: Our first question today comes from Thomas Allen Moll of Stephens. Please go ahead. Good morning and thanks for taking my questions. Good morning, Tommy. Good morning, Tommy. First one for you on memory. Nathan Andrew Winters: Nathan, I think I heard you say that beginning in Q2, you anticipate a two-point headwind that you can fully offset. So maybe we can just unpack that a little bit. Two-point, I presume you are just referencing a two percentage point hit to William J. Burns: gross margin Nathan Andrew Winters: and William J. Burns: maybe you can give us some context how that progresses from Q2 and beyond? Or Nathan Andrew Winters: maybe you can quantify for us some of the William J. Burns: initiatives that you have in flight to try to offset that headwind? Thank you. Yes, for sure. Nathan Andrew Winters: No. It is correct. What we said in the statement is about two-point gross margin headwind on a gross basis, but obviously, the memory chip demand and price expectations have escalated quite a bit since the beginning of the year. But we are pursuing multiple mitigation strategies, different than what we have done before, whether this was with tariffs or semiconductors. So we recently announced price increases globally over the past week. They will be effective in March. Practically working with our suppliers around spot buys, co-planning around the demand trends as well as looking for alternative memory sources. And then a lot of work from our product teams on transitioning to some higher density memory. So, again, quite a few active work streams in process. And if you look at the impact for 2026, I mean, this is based on indicative pricing from our suppliers and where they see that going here over the next several quarters. The impact really begins in Q2 just based on the timing of those price increases, as well as what we have in inventory going into the year. But we fully expect to mitigate that within the year, and that is embedded in our guidance. About a half of that or a point is offset with just other offsets we have, whether that is the exit of the robotics business, some tailwinds from some of the lower tariff rates, as well as the actions the team has taken to mitigate the tariff exposure, as well as some of the favorability in FX. And then the other half coming through as we realize the pricing benefits into Q2 and through the second half of the year, as well as all the other mitigating actions the teams are currently working. So again, our teams have done a really great job at securing supply to meet the demand we have within the guidance. So a lot of work. It is obviously dynamic, but I think, again, we feel good about where we are at with the work streams and working closely with our supply base. Thank you. And I want to follow up on the repurchase Nathan Andrew Winters: update you provided today. It sounds like you have already done William J. Burns: $100,000,000 through Nathan Andrew Winters: the year-to-date period. And so my question is with the new authorization and William J. Burns: assuming your stock is at similar levels, is there any reason why you would not Nathan Andrew Winters: or, excuse me, why you would slow down the recent level of repurchase? Nathan Andrew Winters: No. If you look at, I mean, if you just take a step back, ending the year from a debt leverage around 2x, we feel great about the overall capital structure, strong cash position, balance sheet is in good shape. So, as we said, we repurchased $300,000,000 of share repurchases in the fourth quarter. We have repurchased $100,000,000 year to date leading into the call. So right now, we are targeting to do share repurchase around 50% of our full year free cash flow of $900,000,000. That will be primarily here in the first half of the year. So, again, we continue to plan to be aggressive in the market here over the next several months, and this still provides ample flexibility as we enter the back half of the year based on our cash profile for the year. Operator: The next question comes from Guy Drummond Hardwick of Barclays. Operator: Hi, good morning. Guy Drummond Hardwick: Bill, I think it has been a couple of years since you have referenced the pipeline. So I guess that is very positive. So is visibility improving? But just more specifically in the near term, it appears the midpoint of your Q1 revenue guidance suggests revenues are above Q4, which is much better than seasonality. Any particular reasons for that? Is that Elo? Is it because of the pull forward from Q4 to Q3 makes an easier comparative? What other sort of issues are there? And is FX a big change sequentially? William J. Burns: Yeah. I would say that the strong finish to the year certainly is playing into this. As we exceeded our outlook, 2025 we drove solid growth, 6% growth and then 17% EPS growth, greater than $800,000,000 of free cash flow in what was an uncertain environment through the year. Elo added two points of sales growth to the year leading to 8% growth for the full year, really advancing our offerings in the Connected Frontline segment, and then also our capabilities across engaging customers in a digital way certainly in that segment. So enhanced our modern store offering as well. We see that, as we enter 2026, there is momentum. Right? We see reacceleration of growth coming out of fourth quarter, led by manufacturing, our machine vision pipeline, momentum in RFID are all positives as we enter the year. We are seeing our customers continue to talk about investments in technology as we spent a lot of time with them at the National Retail show. Really, we are focused on higher growth opportunities across the portfolio and to drive productivity with the business, as Nate talked about, kind of offsetting memory. So I think overall, we feel good as we enter the year and that the momentum is there to Nathan Andrew Winters: drive profitable growth in 2026. Nathan Andrew Winters: And then, Guy, I think, if you look at the Q1 guidance, as you mentioned, in line or roughly flat from where we were in Q4. I think a couple of things in play. One, if you just look back over the last couple years, linearity has been anything but typical. So I think it is hard to say what has been typical linearity if you look back just at what has happened over the past couple years. Nathan Andrew Winters: But also, Nathan Andrew Winters: we did not see, as we said in our guidance for the fourth quarter, kind of a surge in year-end spends. So we did not see the same type of cyclical improvement from Q3 to Q4. And then Elo plays a small part, just not quite the same seasonality, more linear throughout the year. So I think all three of those play a factor, along with, as Bill mentioned, the demand environment, all play a factor in why Q1 is going to be in line with Q4 in the top line. Guy Drummond Hardwick: Sorry. Just on the memory issue, do you have much visibility to the back end of the year in terms of what could be the annualized impact as we kind of exit Nathan Andrew Winters: Yes. I mean, we have, I mean, really, the Guy Drummond Hardwick: the year? Based on your discussions with your suppliers? Nathan Andrew Winters: pricing we have gotten now is kind of through the middle of the year. So I think that is, you know, and obviously, that is what we have incorporated into the guide as well as some assumptions around just how that may play out in the back half. I think the way to think about it now would be you take the two points, really pull that over the second, third, and fourth quarter, and then annualize that run rate on an annual basis. So it is not that much different from what we are seeing here in our 2026 guide. Operator: Our next question comes from Joseph Craig Giordano of TD Cowen. Please go ahead. Operator: Hey, guys. Operator: Good morning. Thanks for taking my questions here. Can you talk about, like, I mean, it is a fairly wide-ish, it is kind of a wide organic growth guide for the year. So maybe you could talk to scenarios and what your visibility looks like and how you are, you know, what would be required from a Nathan Andrew Winters: from, like, a market standpoint to get to that higher end? And how, like, de-risked is the low end. Yeah. Maybe just, you know, start with the full year guide. 11% at the midpoint, 22% EBITDA margin, and double-digit EPS growth. So again, I think we feel good about the overall profile for the year. And as Bill mentioned, I think the underlying theme of that is entering the year with a strong pipeline, the momentum across different parts of our business, whether that is RFID, manufacturing, machine vision. And I think if you take a step back, we believe the guide provides a balanced view of the environment where we sit here today, including still some macro uncertainty out there, the memory component challenges, with the opportunities that we see in the market. So if you look at the 11% midpoint, about four points of that is driven by underlying demand. Elo provides five and a half points of the growth, and FX is a point and a half there. And I think visibility is pretty typical for what we see at this time of the year. So I think the range is really bound around the midpoint. It is more how we think about it in terms of circular around the midpoint. Obviously, the macro conditions, timing of deals, play a factor in kind of the balance between the low and high end of the range. But I think we are based on everything we have today. Joseph Craig Giordano: And just a follow-up. Can you talk about price just like bigger picture? Has the William J. Burns: has the way customers think about price of these types of electronics, like, structurally changed and maybe permanently changed? Like, is it, I mean, how much of your, how much of your revenue base now is almost like just pure pass through of weird things that have happened, right? Whether it is Joseph Craig Giordano: whether it is tariffs or memory or etcetera. Is it just, like, William J. Burns: more acceptable behavior now and customers kind of can accept that price is not just going to keep going down into perpetuity for, like, existing products? Nathan Andrew Winters: Yeah, Joe. I would say that Joseph Craig Giordano: you know, the things like tariffs and memory and others have, William J. Burns: you know, allowed us to raise price where, you know, along with Joseph Craig Giordano: with our competitors as well. I think you are just seeing this across the industry that it is William J. Burns: not possible to absorb the cost of tariff or memory and we have to raise price. And I think that, look, our customers are price sensitive. We have competitors in the market. Our largest customers get our best pricing. That is just the way it works, and we continue to work with them to make sure they are seeing the value. We are adding a lot of technology to our devices, not just, you know, we are raising price because we have to on memory and tariff and others, but also, they are getting a lot of value. Right? We have added RFID to all our next generation mobile devices. We are increasing memory and Joseph Craig Giordano: processing speeds, working with, William J. Burns: you know, our partners in Qualcomm and Google on the OS to make sure that they can support AI models on the device. So they are seeing value in things like mobile computing. We are doing the same across the entire portfolio, adding Joseph Craig Giordano: AI capabilities, capabilities to machine vision, continuing to enhance capabilities around scanning, William J. Burns: printing to that portfolio. So, you know, our print portfolio, we are adding RFID. There is a lot of value as well that our customers are getting from our solution. William J. Burns: Certainly, there is price sensitivity and competition, and that all matters. But look, we do not have a choice but to raise price when memory and tariffs and others are so significant. But I think our customers understand that. They are seeing that across not just our segment, but many others. Nathan Andrew Winters: Yeah. And, Joe, I think if you just look back at last year, even with the price increase we did in April, it still represented a little over half a point of the full year organic growth. So still the vast majority of the growth last year was driven by underlying demand. So it clearly plays a part, but that underlying demand is still what is going to ultimately drive the top line. Operator: The next question comes from Robert W. Mason of Baird. Operator: Please go ahead. Yes. Good morning. Operator: Maybe just an extension of that last question. I mean, as you think about the way you have laid out the guidance for the first quarter and how you are thinking about the balance of the year and when pricing goes into effect. Are you giving any consideration to customers trying to get in front, you know, moving projects, pulling those forward, you know, trying to get ahead of some of the price increases or just, you know, uncertainty around memory in general? Nathan Andrew Winters: Yeah, Rob. So I think two points. On the first quarter, we are not expecting any type of pull-forward activity, or that is not incorporated into the guidance. I mean, we just announced the price increase this past week. So, obviously, what we were seeing in the pipeline of opportunities was unaffected by the price announcement here just over the past week. And just how we implement that through our distribution channel, with our partners, in terms of honoring prior pricing that we have or updating the full backlog or what is sitting with our distributors. As we have done these price increases in the past, we really have not seen a huge pull-in of demand just based on how we administer that through our channel, as well as honoring some of the PCs, price concessions we have with certain customers on deals. And then I think the other one, just as you look at the incremental price increase we announced this week, that is not been incorporated into the guide. Similar to how we thought about last year. We want to monitor the impact. We just announced it, so, obviously, that is being absorbed through the channel. So I think, as we sit here today, we thought it was the right move to say, what is really what we are seeing from the underlying demand today? And then we will update that as we go through the year in terms of how we see that as either incremental revenue or any type of trade-off with underlying demand. William J. Burns: Yeah. I would say that maybe just to add, Rob, that, you know, talking to our partners at our channel partner conferences, we have been through North America and Asia Pacific already, and you know, the message they are sending to customers is, you know, let us talk about these major projects early. Let us get those orders in. William J. Burns: Not the idea of to save on pricing or others, but more just to make sure we have supply for them ultimately. And I think that is the message they are sending. So I do not see people buying early because of it. I think it is just a reality of what is happening across memory. But I think it allows our partners to have the conversation early with early visibility William J. Burns: to especially larger opportunities with our customers to make sure that they understand that, you know, the more visibility we have to demand on specific product they are looking to utilize, then we can go meet that demand with the memory we have. Operator: Makes sense. And then, Bill, you mentioned this Operator: return to growth in machine vision. I think historically, we are aware of where you had some maybe over-index into certain verticals. Are those the verticals that you are expecting Joseph Craig Giordano: to see recovery in? Or do you have some new ones that you are looking to drive that return to growth? Yeah. We see that machine vision is really an integral part of the Asset Visibility and Automation segment for us. And I think that William J. Burns: when we look at machine vision, we saw sequential growth in fourth quarter. So we feel good about that. We have seen some new wins both in, you know, as you know, the machine vision market, there are two sides of that. One is T&L. So we have seen some large Joseph Craig Giordano: transportation and logistics wins, and the other is inside William J. Burns: manufacturing. So we have seen at the high end of our portfolio some Joseph Craig Giordano: you know, automobile manufacturing wins that are coming back a bit. So I think manufacturing William J. Burns: in general on the machine vision side Joseph Craig Giordano: recovering, in addition to T&L, is William J. Burns: a good sign. Joseph Craig Giordano: We expect sequential growth to continue through first half, but solid growth for the full year. I think the pipeline is, you know, we have been working hard to diversify the pipeline of customers, but William J. Burns: everything across inspection, you know, dock door, pack bench, scan tunnel, optical character recognition, to a broad breadth of Joseph Craig Giordano: opportunities that the team is working on. I would say as we are looking to diversify, William J. Burns: the business, as you said, into new vertical markets. I think our value proposition is strong. We have got, Joseph Craig Giordano: you know, we focus around ease of use, the unified software platform that we have brought across the portfolio. We have invested in go-to-market. We have changed out some leadership in the business. Acquired Fotoneo to have another offering at the high end of the market. William J. Burns: So I think, you know, Joseph Craig Giordano: we feel good the market is recovering overall in machine vision as manufacturing recovers and T&L spends again in that environment. Joseph Craig Giordano: So Joseph Craig Giordano: we see, you know, solid growth, quite honestly, into 2026. So, you know, overall, I would say we feel good. Operator: Our next question comes from Keith Michael Housum of Northcoast Research. Please go ahead. Good morning, guys. Appreciate the opportunity. Sorry to harp on the memory issue a little bit more, but I appreciate, Nathan, the visibility through the first half of the year. But we are hearing more and more concerns along the industry that perhaps product shortages and limitations to sales in the second half of the year. Can you talk about any confidence you have that in regards to the price, Nathan Andrew Winters: you are going to have the availability there of the products? Operator: Yeah. Of course. Nathan Andrew Winters: Look, I think the team, as I mentioned earlier, the team has done a great job working with suppliers. Bill mentioned, I mean, part of this message through the channel with our partners is getting the visibility on those projects to what SKU, what product do you want, and getting that visibility early. It allows us to then shape demand. So it is really around, you know, a bit of can we get the product, as much as get the right memory for the right product that we need and making sure that those precious components are going to the right product families as we build out the pipeline. So that is where the team is really focused now, shaping demand, working with our customers around the particular SKUs they are looking for around projects maybe a bit earlier than normal, so that as we build the build plan, work back through our supply chain, we are getting the right memory through the pipeline. And then the other thing the team is working actively is moving to the higher density memory, with a lot of that capacity planned to come online in the middle of the year. So part of that is also shifting to the newer memory, which, again, we expect for that supply to increase as we go to the back half of the year. William J. Burns: I think, Keith, maybe I will just add really quick. Just strong supplier relationships is critical to this and that we know coming out of COVID, that is critical for our business. And we have worked really hard to make sure that we have got the right relationships in place with our suppliers and they are, quite honestly, guiding us through this, as Nate said. You know, months ago we had the conversation around moving to new memory that would be more readily available, and we have got early samples of that. We are working with William J. Burns: our other suppliers to go test that and make sure that we are ready. So we are doing everything our suppliers are asking us to go do to get the most access to memory we can. And those relationships really matter ultimately. We are working closely with them. And as Nate said, William J. Burns: on the other side of it, on the partner or customer side, to say, look, we do not want to build product and put memory in it that we do not need for customer demand. So we want to make sure we have got the right SKU, the right product, William J. Burns: the right timing around it, William J. Burns: and the analysis we have done so far is that we are going to mitigate the pricing, and we are going to have the supply we need. There is always some risk in that, but we feel good about where we stand today. The team has done a lot of work on this. Operator: Okay. Great. In terms of that memory, Operator: is it primarily the mobile computers that are at risk here? Or is it also point of sale of the Elo or the printers? Is that experiencing some of the same issues or is it really concentrated with mobile devices? Nathan Andrew Winters: Concentrated to mobile devices. Elo and the POS and kiosk business has, you know, similar, but it is predominantly in those two portfolios. But, again, the teams there are working closely together. Our supply chains are William J. Burns: you know, tied on exactly what we are doing from Operator: a pricing perspective, but also a supply perspective and leveraging William J. Burns: the strengths of both of our, you know, both Elo and William J. Burns: core Zebra to make sure we have got William J. Burns: supply across both. Operator: The next question comes from Andrew Edouard Buscaglia from BNP Paribas. Please go ahead. Operator: Hey, good morning, everyone. Good morning, Andrew. Nathan Andrew Winters: I just wanted to get William J. Burns: a sense of these kind of customer conversations you are having in terms of what they are thinking for 2026. Joseph Craig Giordano: It sounds like, I mean, you have a, it sounds like you have a healthy backlog and your Q1 guidance implies some, William J. Burns: you know, improving spending. But what are the customers saying in terms of the biggest, you know, impetus to spend here? Is it, like, in the past, you talked about clarity around tariffs. Is it, are they taking advantage of accelerating depreciation? And is there an upgrade cycle, maybe they just have not bought in so many years, and they have got to move forward this year. I would say that the, you know, William J. Burns: customer conversations are really around the idea that they are continuing to invest in their business, you know, and that is across all verticals. We have spent, you know, even though it is early in the year, a lot of time with customers, as I mentioned, at National Retail show, but, you know, our largest T&L customers, because T&L is so critical to retail also, were at that show. We have got Nathan Andrew Winters: you know, our healthcare show coming up in HIMSS over the next, you know, x number of weeks. So William J. Burns: we are preparing for that. So across all verticals, our customers are really talking about continuing to invest in their business and technology. I would say that William J. Burns: you know, we enter the year with a solid backlog and really a pipeline. We have got momentum, as Nate talked about, around Nathan Andrew Winters: you know, our core business overall, William J. Burns: you know, including scanning, printing, William J. Burns: mobile computing, but also, you know, manufacturing, you know, seeing more strengths in that, which has been a focus area for us. EMEA returning to growth. I would say that the demand remains strong for Elo, so we are certainly excited about that acquisition. You know, I think that the breadth and depth of our solutions portfolio, Operator: including the addition of Elo and William J. Burns: the new opportunities around our AI suite and the idea that customers are thinking about how they are deploying AI at the frontline of business overall. Those conversations continue, and I think that, you know, customers are really focused on how do they serve their customers better and get better experiences, whether that is omnichannel or it is self-service or point of sale. They are talking about driving efficiencies within their business. How do I use our solutions to go do that across RFID, machine vision, and others. And I think it is how do you increase inventory visibility, which is still challenging across our customer base, and that is everything from, you know, printing to scanning to our mobile devices. So I think that, you know, we are confident in delivering solid growth in 2026. And our customers seem to be really focused on continuing to deploy technology across their business. And I would say, kind of playing their game. Right? They have got a plan. They are executing on it. And there has been really no talk about kind of anyone holding back or others. It has all been kind of positive about, you know, what are their plans for 2026 and what are the opportunities we have to work closely together. Operator: Yeah. Joseph Craig Giordano: Yeah. Sort of on that note, you know, a lot of people, like, looking at things like the AI effect, and certainly, your customers are trying to find ways to leverage it and, you know, reduce cost and, you know, improve productivity. I am wondering, you know, years ago, you had this Windows-based device that was shifting to Android, which prompted a big upgrade cycle. I am wondering, do you sense, like, these new AI products you are talking about, you have been talking about them for a while, could have a similar effect in terms of prompting new spending or an upgrade cycle here. William J. Burns: Yeah. I would say that, you know, if you look at the portfolio overall in relation to AI, that, you know, we are uniquely positioned to where, you know, Zebra Technologies Corporation can position itself really to be the leading AI solutions provider for the frontline. And I say that in a couple of ways. One is that the Asset Visibility and Automation segment gives a digital voice to assets, to inventory, that is necessary to feed AI models if you are going to leverage those at the frontline of business. You have to give everything a digital voice and have visibility to be able to Joseph Craig Giordano: to leverage the AI model. William J. Burns: The second thing is you need something to deliver the output of the AI models, what needs to be done. You need to be able to connect that information to workers. And the way you do that is through mobile devices and our SaaS offerings like communication, collaboration, task management combined together take the output of the model and allow a worker to drive a behavior or do something: put inventory on the shelf, move something from backroom to front of room, pick up a pallet and move it to the next location, that drives ultimately the outcome in your business. That gets you to be more effective and more efficient. So it plays a critical role across our whole portfolio. Specific to mobile computing, the idea of, Joseph Craig Giordano: you know, our latest mobile devices certainly will support William J. Burns: memory, processing power, and others, and the software to support AI models on the device or in the cloud. And we are seeing, you know, customers move to those devices as their next generation devices, as they are beginning to refresh. So, yes, we are seeing that clearly AI will drive, you know, the upgrade of those devices ultimately. You know, higher ASPs on those devices with higher memory, and also will have an opportunity for us across the idea of Enablers and Blueprints and Companion we talked about to be able to drive AI software revenue for ourselves as well. Our next question comes from Piyush Avasthy of Citi. Operator: Please go ahead. Operator: Good morning, guys, and thanks for taking my questions. Nathan Andrew Winters: Good morning. Good morning. Piyush Avasthy: I think you mentioned the decline in gross margins due to lower service and software margins. Can we double click on software margin performance, like anything you want to call out? Is it just the investments that you guys are making that are pressuring the margins? And when we can expect that to reverse? And anything on the receptivity of the software offering that you are coming out with, like, how the customers are kind of, you know, buying or procuring those, that would be helpful. Nathan Andrew Winters: Yeah. For sure. I think if you look at the real driver within the service and software margin impact, it is primarily, and obviously it represents the vast majority of the revenue, in the service portfolio and the just higher repair costs that we have seen over the past couple of quarters. Now, the good thing is the overall margin rate improved in the fourth quarter from where we were in Q3. But this is really due to the age of the installed base, and we are starting to see that play out in terms of driving the overall number of repairs. We expect to see that level out here as we go through the year and see the overall margin for the services and software to be flat, kind of look at it year on year throughout 2026. Specific to software, you know, the two real areas the teams are working on: one is a lot of energy and efforts going over the last couple years in unifying the platform, bringing together the architecture to ultimately lower the overall support cost that will improve margins as we go really into the back half of this year and into next, as some of that effort is starting to come to a closure in terms of transitioning customers to the unified platform. And then, like anything, then it is about scaling on that in terms of as revenue grows, getting the scale to drive gross margins further. So those are the two aspects. If you look at that line, it is really driven by service, but within software, a lot of work over the past couple years around the platform and unifying the platform, and we are getting close to the end of that activity, which then gives us some runway to improve margin as we move forward. Piyush Avasthy: Gotcha. Helpful. And Americas was soft in Q4, and I understand that there were some really tough comps. Can you elaborate on the underlying demand environment and trends you are seeing in the region? And as you think of your 2026 guidance, based on conversations with your customers, how do you think Americas is contributing to your 2026 guidance? William J. Burns: Yeah. I think that I would say that overall, you know, we saw relative strength in fourth quarter in North America around small and midsized business. But as we talked about, cycling larger large order activity in T&L and retail in the fourth quarter. So I think we feel good about the pipeline of opportunities that is healthy in the business. I think it really is just cycling a compare. We did not see as many large deals, very large deals, in fourth quarter as, you know, we have seen in past years. Nate talked about that a little bit in the seasonality idea. So William J. Burns: that is really what it is about. We feel William J. Burns: we feel across North America that all vertical markets, product areas, we see no real challenges there other than a tough compare in fourth quarter. If you talk about the other regions, I would say return to growth in EMEA, really driven by strength in North and Central Europe. I would say double-digit growth we saw, you know, so strong growth in mobile computing, print, RFID, so broad-based. And we are seeing opportunities in Europe around retail with personal shopper refresh opportunities in new. So where the North America market is really Nathan Andrew Winters: more William J. Burns: self-service checkout and kiosk, where, you know, Elo plays, the European market is a combination of that as well as self-scan, which is a large opportunity for us both in new customers and refresh opportunities. So those continue to move forward in EMEA. Asia Pacific saw strong growth, 13%. Nathan Andrew Winters: Growth across most of the region. William J. Burns: Japan and India certainly were bright spots. Those are areas where we have been investing. Certainly, the amount of manufacturing investment happening in India. We changed our go-to-market model in Japan several years ago, continue to win opportunities in Japan. Latin America, strong growth in Latin America, broad-based. I would say, you know, Brazil and Mexico outperformed with large retail deployments, but broad-based growth across Latin America. So we are not concerned at all about North America. Really, it is just truly cycling a compare. And we feel good about broad-based growth across the regions and product areas as we enter 2026. The next question comes from James Andrew Ricchiuti of Needham and Company. Please go ahead. Michael Steele: Thanks. I know it is early. I am wondering what kind of assumptions are you baking in for the large project business this year. What kind of visibility do you have? It sounds like just based on what you are hearing and the concerns around memory that maybe these discussions are happening earlier. William J. Burns: I would say that, you know, given the installed base, right, certainly, Zebra Technologies Corporation’s installed base overall, these very large orders are really tied to refresh cycles and activity across our customer base. And that remains an attractive opportunity for us overall. We are assuming the same, you know, a similar level of refresh activity in 2026 that we saw in 2025. And I would say remember every customer's refresh cycle is different, right? It is really driven by things like supporting new applications, driving, you know, higher processing power or memory or new features like we just talked around on AI or new features like, you know, RFID being embedded in the devices. It is driven by, you know, obsolescence of OS or the security life cycle, it is driven by technology transitions, but everyone is on a different cycle. And I would say that, you know, when customers refresh, the opportunity for us is not just the refresh cycle, but they typically buy more devices because they are extending their use cases and putting devices more in the hands of more associates overall across all industries. When we look at things like retail, the refresh cycle has really normalized over the last several years and we are seeing some retailers spread their purchases over a longer time horizon. From a T&L customer perspective, I would say they refresh at a slower pace than retail, which is typically four to five years, driven by really the fact that the devices have higher durability and are using fewer applications than we see in retail. William J. Burns: But as you said, those discussions are, William J. Burns: you know, with large T&L customers are progressing. We are talking to them earlier about these refreshes, and the pipeline continues to grow for multiyear deployments that, you know, likely begin in 2027. So in 2026, we would see, you know, about the same level as we saw in 2025, but this is clearly an opportunity out there for us. And William J. Burns: we would see that, you know, as these conversations continue to progress, and progress earlier with challenges, things like memory, we get more and more visibility to time frame from our customers. Michael Steele: And you Operator: mentioned RFID several times. What kind of growth rate are you assuming in the RFID business this year? And are you seeing more of the activity coming from the emerging areas like food or Nathan Andrew Winters: the traditional areas logistics and Operator: retail. Nathan Andrew Winters: Yeah, we see 2026 high double-digit growth continuing in RFID. We had William J. Burns: a strong year over the last several years including 2025 and we see that continuing. The opportunities have really been broad-based all the way across the supply chain from retail to transportation and logistics to manufacturing, now opportunities in government. We are seeing, you know, clearly the move from retail apparel. We saw it move to broader merchandise inside retail. You mentioned fresh food inside grocery as a new opportunity in things like bakery and around the outside edge of the store, higher margin perishable items. We are seeing that opportunity there. Parcel within T&L remains a large opportunity. Quick-serve restaurants, you know, we think of automation always as, you know, but quick-serve restaurants are moving from pen and paper to RFID. You know, we are seeing healthcare and just broader track and trace across the supply chain. So I think that we are seeing broad-based growth. We have got number one share in fixed and handheld readers, we continue to have strength in our, we are the leaders in RFID printers, you know, across our labels business, we are seeing strength. So I think it is broad-based. I think we are continuing to see the adoption. It is why we are adding RFID capabilities to the majority of our new mobile computing devices is that customers continue to want to adopt RFID within their environment. So really broad-based and not driven by just one industry or segment, but, you know, across all the vertical markets we serve. The next question comes from Bradley Thomas Hewitt of Wolfe Research. Operator: Please go ahead. Operator: Good morning, guys. Thanks for fitting me in there. Nathan Andrew Winters: Good morning, Brad. So curious how you see channel inventories as they stand today and Bradley Thomas Hewitt: does the guide embed any meaningful changes in channel inventory levels as you progress through the year? Nathan Andrew Winters: Right. No. We have seen channel, as we exit, we are in good shape. Pretty similar to what we saw at the end of last year, so no meaningful change. You definitely see variability quarter to quarter, just, you know, whether that is timing of deployments on their end, prepping for year-end, etcetera. So quarter to quarter, you see some variability, but I think as we look at the full year picture, no major changes in terms of days on hand, you know, measuring it on days on hand. So how much are they carrying on a daily basis? And we do not expect a material change in that as we go through the year. Operator: Okay. Bradley Thomas Hewitt: That is helpful. And now that the tariff situation seems to have stabilized a little bit overall, have you guys seen any change in customer willingness to go ahead with projects versus three months ago? And to what degree is any macro-driven change in customer sentiment baked into your 2026 outlook? Thank you. Nathan Andrew Winters: I would say that, you know, customers were William J. Burns: on the retail side, you know, a bit concerned overall about just the secondary effect of tariffs as they have, you know, had to push that through, you know, on their inventory to their customers ultimately. But I think that we are really beyond that. That is all kind of flowed through their supply chains. And they have had to raise price in the places that they have. So I would say that, you know, again, these conversations with customers today, there has not been concerns of tariffs raised. There are always, you know, challenges. There may be future challenges around trade, but we do not see those as of today. The bigger challenge we talked about multiple times in the call is probably memory that we have, you know, we are going to mitigate in the year. So I think that, you know, I think tariffs have not factored into a lot of conversations with customers at this point. This concludes our question and answer session. I would like to turn the conference back over to Mr. Burns for any closing remarks. Nathan Andrew Winters: I would like to thank our employees and Michael Steele: for delivering solid 2025 results. We certainly William J. Burns: as we look ahead, are focused on advancing our portfolio of solutions and driving profitable growth across our business. Thank you, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Anterix third quarter fiscal 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press *11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Natasha Vecchiarelli. Ma'am? Please go ahead. Natasha Vecchiarelli: Thank you, operator, and good morning, everyone. I am Natasha Vecchiarelli, Vice President of Investor Relations and Corporate Communications, and I welcome you to our fiscal 2026 third quarter investor update call. Joining me today are Scott Lang, our President and CEO; Elena Marquez, CFO; Chris Guttman-McCabe, Chief Regulatory and Communications Officer; and Heather Martin, Chief Marketing Officer. Before we begin, please note that our discussion may include forward-looking statements regarding our outlook, operations, and expected performance. We do not undertake any obligation to update these statements. Additionally, these statements are based on current assumptions and are subject to risks and uncertainties. For a detailed discussion, we encourage you to review our SEC filings which are available on our website. With that, I will now turn the call over to Scott Lang. Thank you, Natasha. And good morning, everyone. Scott Lang: Thank you for joining us. Let me start with this. We are not the same company we were a year ago. We have executed a complete and total refresh of the critical components of this company. We significantly reduced operating expenses while at the same time strengthening our balance sheet. We successfully launched the Anterix Accelerator program. We introduced new products to remove barriers to deployment and also create the opportunity for annual recurring revenue. We have put in place the senior leadership team to execute on the opportunity in front of us. And our recent brand refresh, just unveiled last week at DISTRIBUTECH, reflects this evolution, clearly signaling who we are today and where we are headed. As a result of our efforts, our 900 MHz broadband spectrum is increasingly viewed not as optional, but as foundational. This is evident in how utilities are planning their networks. In one active deployment, Evergy is supporting roughly 4,500 connected devices today, and that is growing significantly each year with a future line of sight to over 1,000,000 connected devices. This is a real-world example of the scale that utilities are deploying to connect and secure their most critical infrastructure assets. Evergy is not alone. We are hearing and seeing the same plans from each one of our existing customers. For example, in our booth at DISTRIBUTECH, San Diego Gas & Electric spoke to the scale and meaningful operational impact that our collaboration has delivered, validating the credibility, momentum, and trust behind the Anterix platform. CPS, our newest customer, had more than 20 members of their team in our booth witnessing this collaboration firsthand and reinforcing their excitement to get started. And with our foundational 900 MHz spectrum now poised to cover more than 93% of the counties in the great state of Texas, one thing is clear. Anterix is the trusted partner for utility private wireless. With eight flagship customers that represent $400,000,000 in contract value, we are the market leader. We remain in active negotiations with a wide range of utilities, from those serving hundreds of thousands of customers and moving at a faster pace to some of the largest utilities in the country serving millions of customers, where the scale and complexity naturally lengthen decision cycles. We look forward to sharing more on these deals with you soon. During our last earnings call, we announced two important products that we launched to address friction points and challenges as utilities move from spectrum decision to an actual deployment. Every utility that I have spoken with is excited about what these products can do for their company and are learning more. With our success, our spectrum still to monetize, and our new solutions, we are making it easier for utilities to move from network design to real deployments, speeding up time to value. To lead this effort, we recently appointed Ross Sparrow as our first Chief Product Officer. Ross is already making an impact, working closely with customers and our ecosystem partners to ensure our product roadmap is grounded in real-world operational needs, while increasing the value delivered per megahertz. Equally significant, we are encouraged by the FCC's plan to consider a Report and Order on February 18 that would enable broadband deployment across the full 10 MHz of the 900 MHz band. We appreciate the leadership shown by the FCC and Chairman Carr in advancing policies that recognize the role of private wireless broadband in supporting critical infrastructure and long-term grid modernization. Taken together, these milestones reflect a company that has done the foundational work and is now moving with total focus and intent. Our strategy is clear. Execution is accelerating. And our confidence has never been higher. We are uniquely positioned to deliver durable, long-term value for our customers, our shareholders, and the entire utility ecosystem. I will now turn the call over to Elena Marquez to discuss our financial performance. Thanks, Scott. Elena Marquez: Under Scott's leadership, we are poised for success from a financial standpoint. We have reduced our operating expense run rate by 20%, accelerated the delivery of 900 MHz broadband spectrum to customers, which resulted in the highest number of licenses we have delivered in a single year, positioning us for our first year ever of positive GAAP net income. On the commercial front, our CPS Energy agreement is a $13,000,000 contract and represents the first commitment under the Anterix Accelerator program. This agreement includes favorable cash timing, with 50% payable upfront and the remaining 50% payable at the end of our fiscal 2027. Importantly, this agreement provides a potential path towards top-line revenue as both parties have committed to negotiate a master agreement for additional products and services. More broadly, our financial position reflects the underlying strength of our spectrum asset and the valuable opportunities it supports. As we expand our offerings to address a broader set of utility use cases and develop additional recurring revenue streams, we continue to believe there is a substantial disconnect between our enterprise value and the significant opportunity that is in front of us. Over the past year, we have become a leaner, more disciplined organization with a sharper focus on execution, capital efficiency, and long-term value creation. Our balance sheet remains strong, with approximately $30,000,000 in cash as of December 31. We have zero debt and over $80,000,000 to be collected during the fourth quarter, including a $6,500,000 initial payment from CPS Energy. We now raise our projected cash proceeds for the current fiscal year to $120,000,000 from the $100,000,000 we previously guided on. Our lean OpEx structure and disciplined spend approach provides flexibility, allowing us to take strategic steps towards creating long-term value for our shareholders and customers. With that, I will turn it back to Scott. Scott Lang: Thank you, Elena. To close, let me be clear. Anterix is no longer just building the foundation. We are scaling a movement. We have the strategy, the team, the momentum, and we are making meaningful, decisive strides every day. The foundation for private wireless is firmly established. Regulatory alignment is advancing, and our engagement with the nation's leading utilities has never been stronger. We are aggressively advancing active commercial to expand our footprint. We are executing on a product roadmap that delivers more value to our customers than ever before. And we are maintaining the rigorous financial discipline that ensures our long-term strength. We are focused. We are disciplined. And we are ready. Thank you for your continued support. Operator, we will now open the line for questions. Operator: Thank you. Press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment for our first question. Operator: Our first question comes from the line of George Sutton with Craig-Hallum Capital Group. Your line is open. Please go ahead. George Frederick Sutton: Scott, to your point of foundational versus optional for your spectrum, I wondered if you could, coming off of NARUC that just occurred, give us a sense of what the Public Utility Commissioners are saying. We are hearing increasing pressure on utilities to modernize their grid given the demands and/or the data center demand that is out there? You know, you mentioned Silver Spring Networks. I wondered if you could discuss because that really became a network effect story, a run-the-table kind of thing. Can you give us a sense of where you think 900 MHz fits relative to that network effect concept. I have a thousand questions, but I will limit it to just one more if I could. The products that you are building out, I certainly—I got a sense talking to a number of the partners that the opportunities from the product side are actually fairly significant relative to the size of your licenses. Could you just talk about what the product opportunities may end up resulting in from a revenue opportunity. Scott Lang: Hey, George. Good to hear from you again. Yes. In fact, I was at NARUC. I had the opportunity to meet with a few commissioners and specifically talk with them about connectivity, about the importance of connectivity, and how they are navigating all of the challenges they are seeing across the industry with large investments being asked for and affordability. It is on their mind. And in fact, one of the commissioners I spoke with is a commissioner that was familiar with this whole movement of connecting devices and the importance of it for utilities going all the way back to my first company, Silver Spring Networks, when we touched so many homes and businesses across the entire United States. And so this came up, and this was part of the conversation. And it was on their mind, and we enjoyed—I enjoyed—these conversations and connecting with some of these commissioners. They get it. They see this as important. They see this as a way to keep customers informed, safe, secure, enabling utilities to be responsive when the power is out. And the risk of not having that kind of connectivity, the risk of not having that kind of responsiveness and securing the grid is a great risk. Our message resonates with that audience as well, which I touched on a little bit of the regulation support where I am not just only referring to the FCC support, but across the board because our message resonates. We are proven, therefore eliminating this—you know, utilities often do not like to be first. Well, the next utility is not first anymore. The risk aspect of it is easier for regulators to say, wow. You have eight customers out there. You saw it yourself, George, in our booth, of the testimonies that are being had and how it is making an impact and lighting up their grid and allowing them to be more responsive to outages and collect and connect their critical infrastructure. So commissioners are seeing that same message. Our economics are very strong. The nature of how we have proven this technology and validated by some of the most leading utilities in the nation is strong. And so I think it was—I was pleased compared to one year ago right when I first started, there was not this level of conversation about private broadband wireless. And part of that is that now we are seeing utilities with real success stories talking about it, which you witnessed yourself at DISTRIBUTECH. And that is permeating across every aspect of this industry, our customers, our partners, and now on the regulation side. I thank you for that, George. I love the question. There are a lot of flashbacks I get to that journey that we took with Silver Spring Networks. And, you know, sharing with the team some of the recollections I had and having had been working with Ross Perot for so many years before I started Silver Spring Networks, and he always said he saw so many companies get to where the table was set, ready to go sweep the table and just sweep the opportunities, and they do not think big enough and strategic enough. And at Silver Spring, we did have that kind of network effect where we won one on each side of the country and then literally swept the table across the entire nation as utilities started to stand up, talk about it, advocate our brand, what we were doing. We made it easy for them to have successful deployments. What we have here at Anterix is a table that is set that we did not have 20 years ago when we started Silver Spring. We did not have eight customers that were advocating for us. We did not have a multibillion dollar pipeline of opportunities. We did not have cash and a balance sheet the way we have cash and the balance sheet now. We had a handful of engineers, did not have the strength and the depth of an experienced leadership team at the table. And we yet have that now. And we have the tools and we have the opportunity right here in front of us to think big and really be that change agent that utilities are asking us to be. And so it is—not exactly the same, I like where we are. In fact, I told the team last night, I love where we are at right now. I just absolutely love it. And where we are today versus anything I have seen, and I put it up against any company that you can start the race with, the tools and what we have to work with clearly puts us in a strong lead, and we plan to keep it. It is another great question, George. You know, there is probably close to $8 for every dollar that is spent on us that have historically flown around us versus through us. And that is something that, with the appointment of a chief product officer, we are changing. These two products that we launched, just to give you an idea, are—there is one particular utility that we are in deep discussions with that are interested in both products. And it is a significant increase—I do not want to give percentages yet, but I will say it is a significant increase of just the wireless spectrum alone. There is not a lot of risk. They deliver strong margins, and they are long term, and they are recurring, and they are sticky. All the things that you would love to have that underpins a strong recurring business that is being built as a result of the asset that we have and the success of selling that asset. So it is really—it is a very synergistic kind of opportunity of products that we are getting pulled into naturally by existing customers and they are being built as a result of what we are selling and what we have as an asset. And the reason that is important is one of the other things that—lessons learned and leadership lessons learned—is you do not want to go just chasing everything that moves in order to, you know, try to grab revenue here and grab revenue there because it takes the team away from maniacal singular focus on what we are here to do. And these products are naturally connected to everything Anterix has done and the preparations we have made and what I have called before the superpowers in this company of wireless spectrum leadership. And so I like the products. That gives you a little bit of an idea, hopefully, of the kind of dollars that are there and available. And I guess I will just dismount off of this question with a final comment. And that is, you know, when I use Evergy as an example and I threw out San Diego as an example, and frankly, we could talk about every one of our current customers of what they are doing. For them, they told me in live conversations, this will help them move faster. They are frustrated that sometimes they do not have the skills and the focus internally to stand these networks up once they make the purchases of spectrum. So the tower access and the SIM management piece of that are first stop whenever the spectrum gets purchased. And for them, it reduces complexity. It is good for them. They like it. We make the contracting easy. And it is not a lot of risk, margins. And it is really immediately profitable, generating some nice recurring. But it does not stop there. It also is what we have noticed is helping the prospects that have been at the table that we have been in discussions with, that they now know what the second and third step is once they make a spectrum decision. Versus saying, okay. Now I have got to figure out the next many steps in this long journey to having millions of devices connected. We make it easier for them. We make it a safer place that they can step onto, not just because of the testimonials and the support they are getting from our large customer base now, but we can make it easy for them to get started to actually getting real results of—you know, reducing that time to value is very important to them, and therefore, very important to us. George Frederick Sutton: Perfect. Thank you for the thoughts. Scott Lang: Okay. Thank you, George. Operator: Thank you. And as a reminder, if you would like to ask a question, please press *11. Our next question will come from the line of Mike Crawford with B. Riley Securities. Your line is open. Please go ahead. Mike Crawford: Thank you. I am just thinking about what steps you will be taking if we get, as anticipated, this favorable Report and Order for five-by-five next week. And I know in some markets, like, I do not know, maybe Washington, D.C., you might already have close to 10 MHz of spectrum in the band, but in others, you may have to pay the 600 MHz auction clean prices to get enough spectrum to enable such a solution. But can you just provide some color on where you have concentrations of spectrum and/or not across the U.S.? Scott Lang: I am going to take the first part of that, and then I am going to ask Chris to jump in on the second part of that. The first part of that is yes, we are cautiously optimistic. We are excited about the February 18 in part because we have tried to be responsible of how we have been signaling the progress that we have been making on this for the last several quarters. And we always want to be able to be in a place to underpromise and overdeliver. And so we continue to be enthusiastic, and we are excited about the 18th. And once the 18th happens, we will be sharing in short order and with our investors and our analysts and the broader community of what that means and how we will plan to go forward now that we have 10 MHz. So until that happens, we are not going to make a lot of projections on it at this time. But soon after the 18th, when that is completed, we will be able to talk about it in some level of detail. And I am going to ask Chris to touch on the second part of that question. Chris Guttman-McCabe: Yes. Thanks, Scott. And good morning, Mike. So I think obviously you are spot on in terms of, you know, painting a picture that the mark-to-market, the reality of clearing an incumbent is different. You know, the beauty of our product offering, and to be quite honest, it is fueled by the beauty of our balance sheet, is that we can take our utility customers where they are. Where they are from a spectrum need perspective, where they are from a capital allocation perspective. You have seen it in our contracts. We deliver counties when they want it. We deliver it in a timeframe that matches their access to capital, and we will apply that to the five-by-five approach. So we will—you know, Scott has given us the ability, our balance sheet has given us the ability to be flexible in our product offering. That will continue with five-by-five. And, you know, the reality is the incumbents and the clearing and the unjust enrichment payments, they all become a portion, you know, a part of our basis, and that helps to inform our price point. And that will continue as we move—you know, again, do not want to get too far out over our skis, but we will, as Scott said, come back and have a broader discussion about that after the 18th. Mike Crawford: Okay. Thank you very much. Scott Lang: Okay. Thanks, Mike. Operator: Thank you. And I would like to hand the conference back over to Scott Lang for closing remarks. Scott Lang: Okay. And I would like to say again, thank you all for joining. If you hear a level of excitement, it is because there is a lot of excitement. We love where we are at right now. The opportunity to see the energy and the engagement—at one point, when we had our customers speaking in the booth, we were probably four or five deep in a 180-degree half circle all the way around the booth of current prospects, future customers, future prospects, existing customers, partners. Partners actually wanted to get the microphone and talk about their products and how Anterix has been a good partner. This week at NARUC, being able to talk with commissioners, but also some of our biggest customers were there, saying, wow. You guys have been such a great partner. We love your technology. It is doing these things for us. And I said, hey. Will you go—we need your engagement. We need you to tell those stories with us. Count us in. Anytime, any place, we want to make sure everybody understands what we are trying to get done. And so we like where we are a lot. We are building a great company. We have the table set to do something that is very significant, with an OpEx structure that is being very well managed. And I am looking at Elena that she manages every single dollar. It is in the best long-term interest of our shareholders and our customers and our company of what we are trying to build. And I think we have really got a really great team around the table as well to go execute this. And that is what we are singularly focused on, and we look forward to sharing results as we go forward and being in touch on the events over the next couple of weeks. And thank you again for everyone, and have a terrific rest of your day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, and welcome, everyone, to the PHINIA Inc. Fourth Quarter 2025 Earnings Call. Today’s conference is being recorded. After the speakers’ remarks, there will be a question-and-answer session. To ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, press 1 again. At this time, I would like to turn the conference over to Kellen Ferris, Vice President of Investor Relations. Please go ahead. Kellen Ferris: Thank you, and good morning, everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on PHINIA Inc.’s Investor Relations website, including a slide deck we will be referencing in our remarks. We are also broadcasting this call via webcast. Joining us today are Brady Ericson, CEO, and Chris Gropp, CFO. During this call, we will make forward-looking statements which are based on management’s current expectations and are subject to risks and uncertainties. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. We caution listeners not to place undue reliance upon any such forward-looking statements. I will now turn the call over to Brady Ericson. Brady Ericson: Thank you, Kellen, and thank you to everyone for joining us this morning. I will start with some overall comments on the fourth quarter and full year, discuss financials at a high level, and then provide some thoughts on our outlook for 2026. Chris will then provide additional details on our fourth quarter 2025 full year financials and discuss our 2026 financial outlook. We will then open the call for questions. We delivered a solid finish to 2025, with full year results in line with our expectations despite a dynamic and often uncertain macro and industry environment. What stands out to me as I look back on the year is the resilience of our business. Our diversification across regions, customers, end markets, and products continues to serve us well, with no single end market and region that defines PHINIA Inc. Our balance allows us to perform consistently even as conditions shift around us. Before we get started on numbers, you will notice some changes as we recast some numbers between the Fuel Systems and Aftermarket segments. As we have been driving operational efficiencies, a significant portion of the original equipment service, or OES, sales will now be distributed from the Fuel Systems segment and not the Aftermarket segment. We have also further enhanced our end market breakdown and have separated out our off-highway, industrial, and other sales, which includes construction and agricultural machinery, vocational vehicles, marine, industrial applications, power generation, aerospace and defense, and all other. Finally, we have also updated our calculation method for free cash flow conversion to be more in line with industry standards. There is no change in expectations around the strong cash generation of the business. Now let us jump into the fourth quarter results on Slide 4. For the third consecutive quarter, we delivered year-over-year growth in both the Aftermarket and Fuel Systems segments. Total net sales in the quarter were $889 million, up 6.7% from the same period of the prior year. Excluding FX impacts and the contribution of SEM, revenue was up 2.3%. We reported adjusted EBITDA of $116 million for the quarter, up $6 million and a margin of 13%. Total segment adjusted operating income was $112 million and a 12.6% margin. The Fuel Systems segment delivered a strong quarter with sales of $560 million, up 7.9% and adjusted operating margin of 10.7%. The Aftermarket segment had sales of $329 million, up 4.8% with adjusted operating margin of 15.8%. Adjusted earnings per diluted share, excluding non-operating items, was $1.18 for the quarter compared with $0.71 in the same period of the prior year. Our balance sheet remains solid with cash and cash equivalents of $359 million, and $859 million of total liquidity. We have reduced our debt by $24 million and our net leverage ratio came down from 1.4x to 1.3x, all while returning $40 million to shareholders via dividends and share repurchases. The fourth quarter performance underscores the durability and resilience of our business amid a complex and uncertain operating landscape. It reflects the advantages of being a diversified industrial company by serving a broad mix of regions, customers, end markets, and products. Moving to Slide 5. We continue to win new business across our core and adjacent markets. Throughout the year, this included multiple wins in light vehicle, commercial vehicle, off-highway, industrial, aerospace, and alternative fuel applications. A few key Fuel Systems segment wins in the fourth quarter included securing our third aerospace and defense contract for a post-combustion fuel valve, highlighting our proven capabilities and strengthening our position in the sector; key contract extensions with global commercial vehicle OEMs, reaffirming the strength and longevity of our strategic partnerships; and a new business win in India with a leading OEM for port fuel injectors used with compressed natural gas, underscoring our dedication to lower-carbon mobility and commitment to alternative fuels. Now to Slide 6. The Aftermarket segment remained a steady and resilient contributor throughout the year. Demand continued to be supported by an aging global vehicle fleet and expanding portfolio. Our strong brands and service continue to resonate with customers and distributors. We are winning both new business and expanding relationships with existing customers. Importantly, these wins were across diverse geographies, further strengthening our position in the PHINIA Inc. aftermarket. We also continue to accelerate the pace of expanding our offerings and coverage by adding approximately 5,800 new SKUs across our portfolio. Slide 7 highlights the diversification of our business across regions, customers, and end markets. This is supported by manufacturing facilities close to our customers in all key regions. We also benefit from the flexibility to redeploy manufacturing and human capital across these opportunities. As noted earlier, we provided additional end market granularity by splitting out CV and other into medium- and heavy-duty on-highway CV, and off-highway, industrial, and other. This shows the progress we have made in expanding our presence in this end market as it now represents 6% of our sales. Moving next to capital allocation on Slide 8. We remain disciplined and balanced in our approach to capital allocation while remaining opportunistic about M&A. Since the spin, we have repurchased 9,800,000 shares which is roughly 21% of our original share count. In total, since the spin we returned over $500 million to shareholders via share repurchases and dividends. We accomplished all this while maintaining net leverage below our target level, sustaining robust liquidity, closing on an opportunistic acquisition, and supporting the organic growth needs of the business. We also announced a few weeks ago an 11% increase in our dividend and a $150 million increase in our share repurchase program. Needless to say, our capital allocation decisions will always be based on how we can maximize long-term shareholder value. Moving to Slide 9. We had some significant milestones in 2025: completing our first acquisition, receiving our aerospace quality certification along with our first program launch, and delivering strong financial performance in a volatile market. Also of note, 2025 is the first full year without the impact of PSAs and contract manufacturing with our former parent. Investors have been rewarded with a total shareholder return, which includes share price appreciation and dividends, over the two-year period of 2024–2025, of 140%. Looking forward to 2026, we expect our journey to continue on the path we set from the beginning: differentiating via product leadership, focusing on markets that will support our goal of sustainable growth, maintaining our financial discipline, and remaining focused on delivering long-term value for our shareholders. Finally, I want to thank our team for their outstanding execution through fiscal 2025. Their hard work and dedication enabled us to successfully navigate dynamic market conditions while driving meaningful growth and operational improvements. I will now turn the call over to Chris Gropp to discuss our financial results in more detail and introduce our 2026 financial outlook. Chris? Chris Gropp: Thanks, Brady, and thanks to all of you for joining us this morning. As a reminder, reconciliations of all non-GAAP financial measures that I will discuss can be found in today’s press release and in the presentation, both of which are on our website. Chris Gropp: Our fourth quarter and full year results met our expectations even as we navigated a range of challenges, from tariffs and macroeconomic instability to geopolitical tension and a shifting policy landscape. Despite these headwinds, we grew our top line and delivered a solid bottom line. Chris Gropp: In addition, as Brady mentioned, we made meaningful progress on the priorities we set at the start of the year: strengthening our core businesses, entering new markets, and positioning PHINIA Inc. for long-term profitable growth. Fourth quarter financial results were solid and include a full-quarter contribution from SEM. The external environment has not changed dramatically from the prior quarters; however, we saw some strength in Asia and the Americas, partially offset by lower sales in Europe within Fuel Systems. Aftermarket sales were also higher, primarily driven by aftermarket pricing and tariff recoveries, offset slightly by lower commercial vehicle sales in the Americas. Let me now bridge our revenue and adjusted EBITDA for the fourth quarter which you can find on pages 11 and 12 in the presentation. Specifically during the quarter, we generated $889 million in net sales, an increase of 6.7% versus a year ago. Compared to Q4 2024, our top line benefited from favorable foreign exchange tailwinds of $25 million as the dollar weakened mainly against the British pound and euro. Revenue in the quarter also rose on tariff recovery of $15 million. Overall, volume and mix contributed $8 million as we saw strength in sales in Asia and the U.S., with higher LPD sales, partially offset by lower sales in Europe. SEM contributed $12 million in the quarter. Excluding the FX impact and the SEM contribution, sales were up 2.3% in the quarter. Moving next to the bridge on Slide 12. Adjusted EBITDA was $116 million in the quarter, with a margin of 13%, representing a year-over-year increase of $6 million and a 20 basis point decline in margin. Corporate and other costs, primarily R&D savings, were a $6 million tailwind. Net tariff recoveries, supplier savings, and other overhead cost savings measures combined were another $5 million. These benefits were partially offset by unfavorable product mix in Asia and the Americas. Overall results were healthy. The margin percentages were diluted as a result of FX, inclusion of SEM, and negative mix. Let me now bridge our adjusted revenue and adjusted EBITDA for the full year, which you can find on pages 13 and 14 in the presentation. Once again, starting with adjusted sales, where the drivers were similar to the fourth quarter. Total revenue was approximately $3.5 billion, an increase of 3%, excluding the final contract manufacturing sales from our former parent in 2024. FX was a tailwind of $45 million as the dollar weakened mainly against the British pound and euro. Adjusted sales also benefited from tariff recovery of $38 million. Volumes of base business were flat for the year, but boosted with the inclusion of $20 million in sales from SEM. Excluding the FX benefit and contribution from SEM, revenue was up 1.1% for the year. Moving next to the bridge on Slide 14. Adjusted EBITDA was $478 million, flat year over year, with a margin of 13.7%, representing a 40 basis point decline in margin. Supplier savings and other cost-saving measures of $26 million were offset by unfavorable product mix, a slight increase in employee costs, and net tariff pass-through. Margin was negatively impacted by the dilutive impact of both tariff and FX, each of which resulted in an approximately 20 basis point decline in margin. Moving next to discussion of the individual segments’ full year performance. Note that in 2025, we made a strategic decision to shift a significant portion of our OE service business previously reported in the Aftermarket segment to the Fuel Systems segment. This change is a result of creating a streamlined process for the sales structure and distribution of these sales, thereby reducing the related administrative burden. Our reporting segment disclosures have been updated accordingly, including recast of prior periods in all our reported financials. Moving next to Fuel Systems on page 15. You can see that revenue for the full year increased 3.3% with a 40 basis point increase in adjusted operating margin. Segment revenue was impacted materially by changes in FX of $33 million, the addition of SEM of $20 million, and tariff recoveries of $13 million. Full year segment AOI of $244 million is an increase of $16 million with solid supplier savings, partially offset by negative volume and mix. Compared to 2024, our Aftermarket segment sales were up 2.7% for the full year, primarily due to customer tariff recovery and favorable FX. Aftermarket segment margins of 15.2% were down 30 basis points, primarily due to the dilutive impact of tariff recoveries. Moving on to a discussion of our balance sheet and cash flow. We continue to effectively execute our disciplined capital strategy, successfully balancing significant cash return to shareholders with strategic M&A and other investments. Cash and cash equivalents were $359 million while available capacity under our credit facilities remained at approximately $500 million for a resulting liquidity of $859 million. Cash flow from operations was $312 million for the year, and adjusted free cash flow came in above guide at $212 million, enabling us to continue returns of capital to our shareholders through regular dividends and buybacks. Share repurchases represented a primary use of capital totaling $30 million in Q4 and $200 million for the full year. We paid $10 million in dividends in Q4, bringing full year dividend payments to shareholders to $42 million. We remain confident in our ability to generate strong free cash flow to support our future capital allocation priorities. This is evidenced by the strong performance of the business in 2025, enabling dividends back to shareholders, share repurchases, a small bolt-on M&A transaction completed solely with cash, and the settlement of $24 million in debt. We made meaningful progress on lowering our tax rate in 2025, moving from a full-year adjusted effective tax rate of 41.5% in 2024 to 32.5% in 2025. Cash taxes paid also reduced to $61 million in 2025 from $94 million in 2024. Although it should be noted that there were one-off reductions in 2025 cash taxes paid. Without these one-off items, we would have expected a cash tax outlay in the approximately $75 million to $85 million range. While we expect improved trends to continue in the coming years, rate of improvement and rate of change is not linear for either ETR or cash taxes paid, and, therefore, we expect rates and cash outlays to change at differing levels each year as various structuring projects are enacted. Before moving to Slides 17 and 18 for a discussion of our 2026 outlook, I also want to take a moment and thank and congratulate all our employees for delivering great 2025 results. Despite any market turmoil or chaos that ensues, our teams understand how to calmly assess situations and react appropriately. Let me briefly discuss the drivers behind our outlook for 2026. Industry volumes are expected to be flat to slightly down globally, inclusive of battery electric vehicle sales. We expect to offset these market changes through continued share gains in Aftermarket and increased gasoline direct injection products, off-highway, industrial, and other end markets. Taking these factors into account and at the midpoint of our net sales outlook of $3.5 to $3.7 billion, we would expect an increase in sales in the mid-single-digit range, inclusive of FX. Excluding expected FX, our growth is projected to be in the low-single-digit range. We are therefore guiding adjusted EBITDA to be $485 million to $525 million with an EBITDA margin of 13.7% to 14.3%. We believe the business is well positioned to continue generating meaningful cash flow, and our 2026 outlook for adjusted free cash flow is, therefore, $200 million to $240 million. The adjusted effective tax rate should be in the 30% to 34% range. Overall, we expect to deliver strong results in 2026, as we continue to drive operational efficiencies and search for new areas of growth for both segments. Note that our outlook does not include any possible impact related to future policy changes by any government, which could affect our operations or technical centers. This includes additional tariffs, tax, or any other policy that could inflate or deflate revenue or affect our cost base. Fiscal year 2025 was marked by complexity and resilience—a tale of navigating global headwinds while making strategic progress. We are entering the next chapter of growth and look forward to continued success in fiscal 2026 and beyond as we continue our focus on revenue growth, product innovation and new markets, business wins, disciplined capital allocation, and delivering shareholder value. We want to thank all of you for joining us on the call today. Operator, please open the lines for questions. Operator: If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. We will take our first question from Bobby Brooks at Northland. Hey, good morning, guys. Thank you for taking my question. Bobby Brooks: The first one I had just on guidance—Chris, you gave a great breakdown of the guidance, and I was just curious, that Slide 17, when you are talking about mid to upper single digits for commercial vehicle for Europe, right? Is that the industry overall, or is that what you are expecting to see? Chris Gropp: That is the industry overall. I think down below, you will see kind of what our expectation is. I mean, we have seen, I think it is part of the from the October S&P kind of update. And, again, we saw that commercial vehicle kind of ended last year in Europe relatively stable. And we are also seeing some positive signs from our customers in that region as well. Bobby Brooks: Thank you for clearing that up for me. And just sticking with the guidance, turning to adjusted EBITDA margins. I would have thought if revenues would grow 6% that you would see a bit more margin expansion. So I just wanted to maybe double click in here what might be sort of the hurdles preventing more robust margin expansion with better growth? Chris Gropp: Well, we are showing margin expansion of 20% incremental, which for us is a good rate to go through. And it is actually higher than that if you take out some of the FX and the tariff. We are assuming that we are also going to grow on tariffs and FX, which are basically hollowed out. There is not going to be a big increase in the tariffs if they stay stable from last year. But there is a, you know, a reasonable amount of FX in there. But 20% is really a good number, we feel. Bobby Brooks: Got it. I guess I was not looking at it like that. And it was really exciting to hear you guys won your third aerospace and defense supply contract. And I was just curious to hear, is this with the same customer from the first two, or is this a new customer? Chris Gropp: Same customer. But there is momentum in other areas as well. Bobby Brooks: Got it. And maybe just the last one is, so I know you started production on the first A&D supply contract in the fourth quarter, right? And is not that second project slated to start beginning now in the first quarter? And any insights on when that third supply contract might start to kick off? Chris Gropp: Start until, I think it is July 2027. Bobby Brooks: Got it. Alright. Thank you, guys. Congrats on the great quarter. I will turn it to queue. Chris Gropp: Yep. Thanks. Thank you. Operator: We will move next to Joseph Spak at UBS. Joseph Spak: Thanks. Good morning, everyone. Chris, just want to make sure I have it right, because I was doing some of the same math on incrementals, and I think there might be some factors that are, you know, sort of weighing that a little bit down. So it sounds like in your revenue guidance, you are assuming about two points from FX. Anything there—can you give sort of further breakdown, like what the contribution from tariffs or if there are any recoveries or other pass-throughs in that revenue guidance? Chris Gropp: I mean, we are assuming on tariffs that we will come out even. So that is why it is a bit dilutive on the tariffs. There is not a lot more tariffs. Remember, we had three quarters of tariffs. We are just assuming the carry forwards that you would have additional tariffs in the first that were there last year. So that is additional. But, yeah, overall, we just assume that our tariffs are going to be breakeven, which does not give you a lot of room for growth on margins. Joseph Spak: Yeah. I mean, so the tariffs are, what, the $10 million to $15 million range, I think, the one extra quarter at no margin. FX is helping. Chris Gropp: It adds revenue. And most of that is coming in the first quarter because, again, remember the dollar started weakening at the end of the first quarter last year. A lot of that was coming into the first quarter. So that FX is not great conversion? Joseph Spak: Yeah. So it is basically at margin. So, again, if you take a look at the total number, if you go mid, you know, the 2025 to the midpoint of 2026, you are looking at, what, $130-some million of revenue and $27 million of EBITDA, you know, which is a 20% conversion with those additional headwinds of no conversion on a quarter to a third of it. Operator: Okay. Joseph Spak: Yeah. That is alright. So we can start back into what margins would have been otherwise. I guess just on another point, I am curious if, you know, if anything is rebating here as well. Like, we have obviously been seeing metal and other input prices move higher, and they have been a little bit volatile of late. Can you just remind us again of the most important inputs and just contractually how that flows through your financials? Yeah. I mean, we have got mostly, it is copper. Copper and aluminum are probably going to be the two, as well as some stainless steels. But, again, material content, you know, of our overall revenue is not a significant percentage. Chris Gropp: Yeah, because we are buying nicely already-finished components that have it built in. And where we do have any kind of commodity, we get pass-through. It is not perfect because it is usually an adjustment at the end of the quarter to go either positive or negative overall. But there is nothing meaningful in our guide from commodity pass-throughs or commodity impacts. Operator: We will go next to Jake Scholl at BNP Paribas. Jake Scholl: Guys, can I ask about the quarter? Within that, you know, appreciate you guys breaking out the 6% industrial mix. Within that, are there any particularly rapidly growing areas—anything you guys really want to call out in there that should be a growth driver over the next few years? Brady Ericson: Yeah. I mean, I think we have seen it in some of the press releases or in our earnings calls as far as the new business. I think you will see a lot of marine applications, some off-highway, some gensets in there, ag and construction. So I think it is obviously aerospace and defense. And so it is all been growing really good for us, and we have had a nice uptake in customers there. Order of magnitude, I think we will give some more color on the details and those markets at the Investor Day later on in a couple weeks or two. Jake Scholl: That is great. And then, you know, you guys finished the year hopefully within your leverage range. You are generating strong free cash this year. How should we think about your capital allocation priorities? Are there any areas where you are looking to build out your portfolio through M&A? Or do you expect to, you know, keep deploying most of that towards buybacks? And then just quickly, can you quantify where you expect the transaction costs within the free cash to adjusted free cash bridge to fall out? Thank you. Brady Ericson: I think I will hit the first question—capital allocation. Right? I mean, as we kind of told you, we are always going to sit down every quarter and kind of take a look at where we are on cash and where some M&A is and where our share price is, and try to make decisions that we think are in the best interest to maximize shareholder value. And so, obviously, with share price appreciation and our multiple going up, it may make M&A look better. But, again, we are not going to force ourselves to do M&A. You know, we still think that, you know, our business is made up of—and the diversity of our business makes us look very much like a diversified industrial, and we kind of know where some of those comps are. So we still think that share repurchases are still going to be part of our cap allocation policies, which is why the board also came out and increased our share repurchase program to give us some additional flexibility there, and continue to be opportunistic. We like our business. We like the portfolio of our products right now. And we like the trajectory that we have. So, you know, we upped our dividend as well, 11%, because our share count keeps coming down. And so we will continue to make those decisions to maximize shareholder value. Now on the cash conversion, I think it was your question there. Can you reframe that one again, Jake? Because I did not even type— Chris Gropp: I think both of us got a little confused. Jake Scholl: A quick question on the transaction costs to bridge from, like, you know, traditional free cash to adjusted free cash? Chris Gropp: Oh, I mean, we are just going from doing it from net income, which we felt was a little bit odd and squirrely, and moving it to adjusted EBITDA. Jake Scholl: Why did it go from net to adjusted cash flow? To adjust—We say adjusted cash flow. It is net. Yeah. Like, credit—Is that your question? Operator: Yes. Thanks, Jake. So, like, on Slide 25, in the adjusted free cash bridge, there is the separation-related transaction costs. And that is the only difference between what you guys report as adjusted free cash, but some things. But, you know, what is true, like, kind of traditional free cash flow number? I am just trying to bridge that. Separation. Chris Gropp: Are you asking what the separation costs are? I mean, that still relates back to the original spin transaction. And those go down. There is still a little bit of noise coming out of that from the settlement with BorgWarner and the finalization of some of the old transactions as we clear out some of the old statutory things. So those are the numbers that are there, and you can see it on page 25 in the bridge. Brady Ericson: I think those will continue to come down. Chris Gropp: That will come down. Yeah. I think it will, as we get through that. Jake Scholl: Thanks, guys. Operator: We will take our next question from Bobby Brooks at Northland. Bobby Brooks: I guess, you know, kind of broad question, but a lot of good things happening in the business. You guys are doing a great job expanding outside of just being an auto supplier. You have got your Investor Day coming up in two weeks. You know, just kind of wanted to give you the floor to what might be the focuses of the Investor Day and maybe just any hints of what is to come. Thank you. Brady Ericson: Sure. I think one of the things we are obviously going to do is we are going to go through a lot of our technology and the products and services that we think differentiate us and give us strong relationships with our customers that makes us a good partner for them. From our products to our services and support and software and calibration, we will take you through that. We will go through and deep dive each of these end markets that we have now highlighted and kind of share with you some of the applications and technologies and the market opportunities that we see in each of those markets. And, finally, we will kind of give an outlook on where we think we are going to be in 2030 and beyond as we continue to shift our business more and more towards, you know, commercial vehicle and off-highway and service applications and how that is going to further support our growth beyond 2030. And so we will have some nice displays there as well as some of our unique manufacturing and proprietary processes that we have in our manufacturing facility that also helps put some walls up around our business and protects us from kind of individual players out there. So we think it will be a nice deep dive. And in some ways, it is going to be, you know, more of the same. We are going to continue to be financially disciplined. We are going to continue to lead with product leadership. And we are going to continue to allocate capital in the most efficient way possible. And so it is just a continuation of the journey for us. Bobby Brooks: Great to hear. Really looking forward to it. I will turn it to you. Operator: We will move next to Drew Estes at Banyan Capital Management. Drew Estes: Hey there. Good morning. So my question is about 2026 volume assumptions. We are seeing what seems to be a refocus on ICE and hybrid vehicles among OEMs, especially in the U.S. And you are still assuming light vehicle volumes to decline low single digits in the Americas. And I am just curious, what would it take for light vehicle volumes to turn positive in the Americas for you all? Thank you. Brady Ericson: Okay. This is the market numbers. It is kind of the latest and greatest is that North America, the Americas, is going to be relatively flat to down a little bit—not a whole lot, I mean, from the number standpoint. And that includes, you know, EV or battery electric vehicles in that number. And so we do still see some battery electric vehicle penetration kind of flat to maybe a little bit of growth. But for us, we have got a good market. We continue to see market share gains in GDI. Penetration rates increasing. Again, the GDI goes across both hybrid and plug-in hybrid applications that have combustion engine in them. So that is a good thing for us. You know? So for us, in general, the market may be flat to down, but we continue to see good penetration rates for our business. As we kind of highlighted there on Slide 17, the overall global internal combustion, which includes hybrids and just standard combustion vehicles, you know, is going to be flat to down next year for us. But we are still showing growth. And that is because of our continued market share gains. And so we are outgrowing the market by maybe, you know, 400 basis points, 500 basis points, you know, on a year-over-year basis based on our market. And that, I think, is a testament to our technology and a lot of new business wins that we have been announcing over the last few years. So, you know, from our perspective, you know, the down 1% or 2% is kind of noise. And we will continue with our market share gains. We will continue to see growth. Drew Estes: Okay. Thank you. And just a quick follow-up on that. You know, a lot of your competitors had de-emphasized, you know, their GDI platforms and anything ICE-related. Are you seeing any change in their behavior? Maybe a refocusing on some of those programs, or have they not really changed anything? Brady Ericson: No. Not really. I mean, there are still, you know, there are just two other major players out there other than us. We continue to gain share. I think the smaller players have already kind of started to wind down things. So there is not a huge change there. Drew Estes: I think you will continue to see— Brady Ericson: —ours first to market with a 500 bar type system. We are doing a lot with alternative fuels, both natural gas, E100s, that I think puts us in a strong position. And we continue to launch, you know, more hybrid applications with GDI as well. So, again, what we benefit from is that, you know, we are truly focused. It is our key market for our company. Where some of our competitors, it is just a small percentage of a very big company. And they are allocating their capital, and they are focusing on a lot of different things. So I think there are benefits for us being a little bit smaller and more focused and dedicated to this space. Operator: Okay. Thank you. And that concludes our Q&A session. I would like to turn the conference back over to Brady Ericson for closing remarks. Brady Ericson: Great. Thank you. We really feel we delivered a solid finish to the year. 2025 results were in line with our expectations, reflecting the resilience of our diversified portfolio. The progress we made during the year underscores the strength of our strategy and successful execution, and has us well positioned in the coming year. With our strong foundation in place, we are excited about the opportunities ahead and remain confident in our long-term growth outlook and our ability to create long-term value for our shareholders. And as mentioned earlier, we are going to be hosting our Investor Day on February 25 at the NYSE. Please go to our Investor page to sign up to join us either in person or via livestream. So, again, thank you everyone for joining us this morning. Have a great day. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Euronet Worldwide, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star-11 again. As a reminder, today's program is being recorded. And now it is my pleasure to introduce your host for today's program, Adam J. Godderz, General Counsel for Euronet Worldwide, Inc. Thank you, Mr. Godderz. You may begin. Adam J. Godderz: Thank you, and good morning, everyone, and welcome to Euronet Worldwide, Inc.'s fourth quarter and full-year 2025 earnings conference call. On the call today, we have Michael J. Brown, our Chairman and CEO, as well as Rick L. Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet Worldwide, Inc. or its management's intentions, expectations, or predictions of further performance are forward-looking statements. Euronet Worldwide, Inc.'s actual results may vary materially from those anticipated in these forward-looking statements as a result of a number of factors that are listed on the second slide of our presentation. In addition, the PowerPoint presentation includes a reconciliation of non-GAAP measures we will be using during the call to their most comparable GAAP measures. I will now turn it over to our Chairman and CEO, Michael J. Brown. Thank you, and good morning, everyone, and thank you for joining us today. Our fourth quarter 2025 results reflect one of the more challenging operating environments that we have faced in some time. Immigration policy uncertainty and economic stress, especially amongst lower-income consumers, weighed on growth across all three segments with the most pronounced impact on Money Transfer and epay. That said, despite the external headwinds that pressured the quarter, we remain excited about growth initiatives underway across all our segments that will drive business momentum through 2026. We will discuss these items in detail throughout this call. Further, we remain confident in our competitive position, particularly in Money Transfer where underlying trends continue to outperform broader market Operator: dynamics. Michael J. Brown: I would be remiss not to highlight the resiliency of our EFT segment, which delivered solid growth and once again demonstrated its role as a stabilizing earnings engine. This business continues to evolve beyond its historical reliance on ATM ownership with an increasing focus on payment infrastructure and merchant acquiring. Stepping back and looking at full-year results, despite a difficult operating backdrop, I am proud to say that we delivered another year of double-digit EPS growth consistent with our history as a publicly held company. Looking ahead to 2026, we expect to continue that performance with adjusted EPS growth in the 10% to 15% range. Based on our track record and the investments we have made, we are now confident in our ability to deliver another year of double-digit earnings growth. Next slide, please. In periods of uncertainty, I believe that history does matter, and this chart on slide five shows our ability to consistently deliver top-line growth year over year. Euronet Worldwide, Inc. has more than three decades of experience in dealing with various economic cycles. We have navigated the economic downturn in 2008 and 2009, demonetization in India, the economic instability in Greece, one of our largest EFT markets, and, of course, we navigated COVID, just to name a few. In each of these periods, the diversity and durability of our earnings, our conservative balance sheet management, share repurchases, and thoughtful investment in growth initiatives allowed us not only to withstand the pressure, but to emerge stronger, more agile, and with greater market share. You will see these themes emerge as Rick and I talk you through the details of the quarter. In short, we do not view near-term uncertainty as a reason to adjust our long-term strategy. Instead, we rely on the same principles that have granted our success for decades: disciplined execution, evolution of our business model, thoughtful capital allocation, and a focus on building assets that compound value over time. Our 2025 execution shows how we put these principles into action. We generated $4.8 billion in adjusted earnings, which allowed us to return approximately $388 million in capital to shareholders in the form of share repurchases, which excludes the shares repurchased to offset the shares issued for the CoreCard acquisition. During the year, we also acquired Kyodai in our Money Transfer segment and we announced the acquisition of Credia Bank's merchant acquiring business. We expect both of these acquisitions to drive multiyear growth. Next slide, please. As I continue my comments on slide six, you can see a quick recap of some of our key accomplishments for 2025. We continue to invest in growth opportunities across all three segments, particularly in areas where we were accelerating our digital strategy. In addition to the acquisitions I previously mentioned, we signed a REN deal with one of the top three U.S. banks. We added Commonwealth Bank of Australia along with Citi to our Dandelion portfolio. We continue to expand distribution into digital wallets in epay. Not only will these deals contribute to our growth, names like these demonstrate that our products are being recognized as market leaders and drive value. The flywheel is definitely turning and gaining momentum. So while we have experienced some pressure from immigration and the economy, we have continued to keep our eye on execution of all our growth initiatives as we enter 2026. Next slide, please. With that perspective in mind, I want to step back and remind everyone how we think about Euronet Worldwide, Inc. at a higher level as illustrated on slide number seven. As we have discussed in prior calls, our business is built around two core revenue pillars: payment and transaction processing, and cross-border and foreign exchange. What is important is that these two pillars support a huge number of use cases across the globe that we can serve through our technologies and global network, and they also work together to combine payments, cross-border movement, and FX resulting in revenue generation which is meaningfully higher per dollar moved than the broad global payments industry. Despite global challenges like the ones I mentioned earlier, the bottom line is that people and businesses will continue to make payments. They will send money, move funds across borders. Our focus is on ensuring that Euronet Worldwide, Inc. remains well positioned to serve those needs wherever, whenever, and however they may arise. Now let us go on to slide number eight and we will talk about how we furthered this strategy in each of the segments, and, of course, I will start with EFT. I am on slide number eight now. During 2025, EFT continued to deliver consistent growth, earnings stability, and cash generation which was largely the result of the diversity of our products, geographies, and payment channels in the segment. During the fourth quarter and on the heels of another year of exceptional growth in our merchant acquiring business, where adjusted EBITDA grew 32%, we acquired Credia merchant acquiring business. This partnership with Credia Bank, which is the fifth-largest bank in Greece, adds to the diversity of products and services in the EFT segment, additional mix shift to our digital strategy, and is a perfect example of the breadth of services EFT can offer a partner largely due to our REN platform and its flexible, modern digital payments processing capability. This agreement will add another 20,000 merchants to our acquiring portfolio, or nearly a 10% increase, as we provide the banking infrastructure for financial services to Credia including credit, debit, and prepaid card issuing. We will also manage the outsourcing for the branch and off-branch ATMs and provide Credia customers with access to our leading ATM network. Before I wrap up, I would like to briefly touch on our recent acquisition of CoreCard, which we completed in October. This acquisition aligns well with our objective to expand into high-growth fintech areas such as credit card issuance and processing. We view CoreCard as a strong addition to our payments processing pillar, and we are encouraged by the early momentum into new markets along with its ability to serve a more diversified client base. Since the acquisition, we have seen an expansion in processing relationships across several new programs, including the recently launched and well-publicized Bilt 2.0 credit card focused on renters and homeowners that allow you to earn points on housing payment, and the Coinbase OneCard, which offers rewards paid in Bitcoin. These are just a few of the potential new customers that we are targeting with this innovative platform. As previously stated, our near-term focus is on integrating CoreCard into our product offering for international markets. Over time, this integration will enable a more and more comprehensive end-to-end client offering combining seamless credit card processing with our existing payment capability. Needless to say, at this point, we are pleased with the early customer response. I would like to pause here to specifically highlight one important point. Our EFT business is evolving from a model historically centered on ATM ownership to one increasingly focused on payments infrastructure. While ATMs remain an important and cash-generative component of EFT, partnerships like Credia and acquisitions like CoreCard accelerate our capabilities in modern issuing and processing allowing us to scale software-driven services that support digital transactions and real-time payment flows across our global network. Now let us go on to slide number nine and we will talk about epay. As I mentioned, epay's results were impacted by global macroeconomic pressures. However, despite these challenges, the underlying core epay business continued to perform well in a difficult environment. Throughout the year, we expanded and diversified epay's distribution footprint across both physical and digital channels. This included growth in our merchant payments processing business, the expansion of our digital content and gaming partnership, and the launch of our own open-loop product in a new market. The fourth quarter, we delivered strong performance in our gaming-related branded payments business which makes up 37% of our total branded payments margin. According to industry reports, the global video game market was approximately $290 billion in 2025 and is expected to grow at a 13% CAGR through 2031. We have strategically positioned our branded payment distribution to benefit from these strong growth trends in markets around the world. We also expanded our digital content distribution with Revolut to India and New Zealand as part of their loyalty program. We are now in 20 countries with Revolut and looking to expand further. Revolut is one of the fastest-growing fintechs out there which further demonstrates our global reach, good execution of our digital channel growth strategy, and customer demand for the epay products. Additionally, we broadened our partnership with Lidl Supermarkets adding digital branded payments in two markets, Italy and France. Finally, we continue to leverage our relationship with the merchants that distribute e-content to offer payment processing. This has allowed epay to grow its merchant payment processing revenue by 21% for the full year. As we move forward, we will continue to evaluate the business to ensure that epay operates at optimal levels while staying focused on our core strategic initiatives to drive growth across the segment. Now let us move on to slide number 10 and we will talk about Money Transfer. Operator: Slide 10. Michael J. Brown: As I mentioned in my opening comments, the Money Transfer segment faced headwinds, particularly in the second half of the year driven by macroeconomic uncertainty and the changes in U.S. immigration policy. While these external factors certainly impacted our business, they have impacted everyone in the industry. It has been tough for everyone, yet we continue to find ways to gain market share. Since we have acquired Ria, we have outpaced market growth. Despite the disruption in remittances, we have continued to expand our world-class network, to add more digital touch points, to operate in new send and receive markets, and to add world-class partners to our Dandelion network. To ensure the continuity and stability of our operations, our management team focused on what is within our control and in 02/2025, anticipating a softer environment, we proactively initiated a comprehensive results-based review of the Money Transfer business with an external management consulting partner. The goal was to improve our digital sales focus, together with the efficiency, scalability, and operating leverage of the segment. That work resulted in a set of structural actions designed to strengthen the business over time. Rick will walk you through the financial implications of those actions, but from my perspective, this was about fortifying and optimizing how the business focuses on digital customers and operates through AI and process automation. Because this work began well in advance, we are better positioned now and expect these proactive steps to support performance in the coming quarters and beyond. In parallel with the optimization effort, we continue to invest in key areas that will position Money Transfer for future growth. During the fourth quarter, we signed an agreement with WorldFirst, a U.K.-based fintech that is owned and operated by Ant Financial. WorldFirst will join Citi, Standard Chartered, HSBC, and others in leveraging our Dandelion network to offer best-in-class real-time cross-border payment flows to their customers. We also closed the year with strong performance in our Ria digital channel. In the fourth quarter, we expanded our digital reach with the launch of the Ria app in Greece, Romania, and the Czech Republic, which are exciting new markets that will support our ongoing digital growth. In the fourth quarter, our global digital channel delivered 31% transaction growth and 33% revenue growth including 33% new customer acquisitions in December alone. We also continue to expand our global distribution network by launching business operations in Colombia and Panama under our own licenses. These new markets are part of our geo-expansion efforts that will allow us to continue to expand our global TAM. We look forward to building strong inbound and outbound businesses in both countries. Finally, we continue to work closely with Fireblocks and our internal teams to launch our stablecoin strategy. This initiative, which we announced last quarter, will support use cases around the globe. So while we work through some market-driven challenges in 2025, we remain confident that our optimized operating model combined with our leading global network, which now reaches 4.1 billion bank accounts, 3.7 billion wallets, and 4.0 billion cards across 200 countries, will continue to support our ability to outgrow the market in 2026 and beyond. I will stop there, and I will turn it over to Rick L. Weller, who will walk you through the financial results for the quarter in more detail. Yes. Thanks, Mike, and good morning, everyone. I will begin my Operator: comments on Slide 12, which shows our fourth quarter and year-over-year Rick L. Weller: results on an as-reported basis. Most of the majority major currencies we operate in strengthened compared to the dollar. To normalize the impact of the currency fluctuations, we have presented our results adjusted for currency on the next slide, on slide 13. As Mike mentioned, adjusted EPS for the fourth quarter was $2.39 reflecting another quarter of double-digit year-over-year earnings growth, even as parts of the business faced pressure. With that context, I will start with the fourth quarter results and then move to the full-year performance. On a constant-currency basis in the fourth quarter, consolidated revenue increased 1% year over year, adjusted operating income declined 6%, and adjusted EBITDA was consistent with the prior year, reflecting macroeconomic and immigration-related pressures in Money Transfer and epay, partially offset by strong performance in EFT, where we delivered double-digit growth in both operating and adjusted operating income and EBITDA. EFT produced another strong quarter with revenue growing 8%, adjusted operating income increasing 12%, and adjusted EBITDA growing 13%. Money Merchant Services in the Greek business performed exceptionally well, delivering another strong quarter with adjusted EBITDA up 32% year over year on robust transaction volumes and continued merchant expansion. Results in the quarter also benefited from continued expansion in Morocco, Egypt, and the Philippines as we deployed additional ATMs, broadened service offerings, and deepened relationships with banks and fintech partners. In epay, revenue declined approximately 2% while adjusted operating income decreased 7% and adjusted EBITDA declined 8% reflecting product mix shifts, continued investment in proprietary offerings, and macroeconomic pressures. Promotional activity in our B2B channel was lighter year over year, while our core digital content and payment processing businesses remain stable. Money Transfer revenue declined 1% year over year with adjusted operating income down 6% and adjusted EBITDA down 5%. I want to put these headwinds in proper context. The declines we experienced in certain remittance corridors were driven primarily by macroeconomic conditions and immigration-related dynamics affecting senders, with more pressure in the United States and more specifically, Mexico. Financial pressure remains concentrated among low-income households which represents the majority of remittance customers. According to the Federal Reserve's most recent Survey of Household Economics and Decisionmaking, inflation and prices remain the top financial challenge facing U.S. customers, and a significant share of lower-income households report difficulty covering monthly expenses and absorbing unexpected costs. What that typically means in practice is not a sharp reduction in support for families abroad, but rather fewer transactions. When budgets are strained by essentials such as rent, food, fuel, and utilities, senders continue to remit but with less flexibility between paychecks. That shows up first in frequency rather than ticket size. While we saw pressure in transactions, average amount sent increased by 7% to 8% year over year in the fourth quarter. According to the Central Bank of Mexico, remittances into Mexico declined approximately 2% in the fourth quarter of 2025, following eight months of decline ranging from about 2% to 16% compared to the prior year, and were down roughly 5% for the full year. Our Money Transfer results tracked the industry in the fourth quarter, reflecting the same macroeconomic and immigration-related pressures facing U.S. senders. However, while the broader market contracted on a full-year basis, our business delivered a modest increase in remittance volumes for 2025. In our view, that outperformance reflects continued share gains driven by our expanding digital footprint, corridor diversification, and strong partner network demonstrating the durability of our platform even in a softer demand environment. Consistent with our discussions over the past few quarters, we are very focused on extending our digital strategy in each Operator: segment. Rick L. Weller: More specifically, in the Money Transfer segment, where we have consistently produced 30% growth rates in Ria Digital, and signed Dandelion agreements with leading financial and fintech institutions. To continue our focus on digital growth, about a year ago, we initiated a process to carefully look at what we could do to drive yet more focus on Money Transfer digital initiatives. This effort is expected to produce approximately $40 million in annual run-rate benefit, a portion of which will drop to the bottom line. In that regard, as you saw in our earnings announcement, we recorded a charge of $20 million related to driving the extension of our wholesale SME and consumer digital products, enhancing the end-to-end customer experience, and deploying targeted marketing investments to accelerate digital customer acquisition and engagement. The net benefit of this investment will meaningfully contribute to an expansion in the Money Transfer segment's operating margins by approximately 50 to 75 basis points in 2026. Moreover, we will continue to critically evaluate the opportunities to accelerate our Money Transfer digital revenue growth which will likely require additional investment. We expect that the net benefit of these investments will drive additional growth as well as contribute to an expansion of our operating margins. This focused approach to accelerate our digital product opportunities to operate and scale the business to fully leverage the company's strong capabilities, extensive global infrastructure, deep banking relationships, and regulatory expertise is all designed to translate our advantages into scaled sustainable growth in digital money transfer. We will share additional details regarding these initiatives in our upcoming quarters. Finally, despite the macroeconomic and immigration-related pressures impacting the fourth quarter, as Mike mentioned, we remain very confident in the underlying earnings power of this business. The momentum we see across EFT, early wins from CoreCard, and the structural cost actions we have taken across the business, including the ongoing optimization project in Money Transfer, give us increasing confidence going into 2026. As Mike mentioned earlier, based on our current operating trajectory and pipeline of growth initiatives, we anticipate adjusted earnings per share growth of 10% to 15% in 2026 with multiple levers to drive performance as volumes normalize and investments scale. I am on slide 14 now. Turning to the full year, we delivered revenue of $4.2 billion, adjusted operating income of $550 million, adjusted EBITDA of $743 million, and adjusted earnings per share of $9.61. Essentially, the difference between the fourth quarter and the full year was from the increasing pressure in the second half of the year due to macroeconomic conditions and immigration-related policy decisions across several markets. Despite these headwinds, the diversification of our portfolio, disciplined expense management, and share repurchases we executed during the year enabled us to deliver another year-over-year double-digit earnings growth. I would also highlight that consolidated operating margins expanded by approximately 30 basis points versus the prior year, and we expect that margin trajectory to continue into 2026. As Mike mentioned earlier, adjusted EPS of $9.61 represented another year of double-digit growth, consistent with our long-term track record. Let us now turn to slide 17 for a few brief comments on the balance sheet. Slide 17 presents a summary of our balance sheet compared to the prior quarter. As you can see, we ended the quarter with $1.0 billion in unrestricted cash and debt of $2.0 billion. The decrease in cash is largely due to stock repurchases and debt repayments, partially offset by cash generated from operations. From a capital allocation standpoint, Operator: our Rick L. Weller: our priorities remain consistent: maintaining a leverage profile aligned with an investment-grade rating, investing in growth opportunities tied to our digital initiatives, and returning excess capital to shareholders through disciplined share repurchases. In 2025, we repurchased $388 million of our shares, which represents essentially all of our adjusted earnings returned to shareholders through share Operator: buybacks. Rick L. Weller: This $388 million does not include the 2.6 million shares repurchased and then reissued for the CoreCard acquisition. We believe this balanced approach—managing our balance sheet while actively deploying capital for growth and shareholder returns—is central to our long-term value creation strategy. With this, I will turn it over to Mike to wrap up the quarter. Michael J. Brown: Thanks, Rick. Growing this business has never been easy. Over thirty years, we have regularly been met with certain macroeconomic, regulatory, and geopolitical challenges. Rick L. Weller: Even though in the second half of the year, we faced stronger macro Michael J. Brown: issues, we are not discouraged. We have entered the year with a lot of motivation and confidence. We will continue to focus on the areas that we can control including executing on the growth of digital across all three segments, continuing to grow merchant processing in both EFT and epay, enhancing our banking infrastructure products and services with REN and Operator: CoreCard. Michael J. Brown: Adding more branded payment products across more markets with epay, signing more partners and increasing transactions through our Dandelion network, expanding our digital money transfer presence, optimizing the business in all three segments, and generating free cash flow and deploying our capital where it makes most sense, whether to deliver growth through acquisitions or repurchasing shares. This strategy has served us well, highlighted by our ability to deliver our fifth consecutive year of double-digit adjusted EPS growth in a difficult environment. I am confident we can continue to deliver 10% to 15% earnings growth in 2026. With that, we would be happy to take questions. Operator, will you please assist? Operator: Certainly. And our first question for today comes from the line of Michael John Grondahl from Northland. Your question please. Michael John Grondahl: Hey, guys. Wanted to ask a little bit Michael J. Brown: you know, you have called out some macro issues at the lower end and immigration. Are you seeing the light at the end of the tunnel on any of those 3Q and 4Q at 1% constant currency growth, and did things pick up by the end of the year? Are they picking up in January at all? Just just kind of curious what you are seeing there kind of real time. Michael J. Brown: Well, I would say it is first of all, whatever happens in January does not necessarily reflect the rest of the year. We do see some positive trends in January, but I would not hang my hat on. We have to kind of see what happens. It is still a very difficult environment out there. We have got a very anti-immigrant administration here, which slows down my Money Transfer business. And so I would say we are cautiously optimistic, but I would be careful, you know, jumping to conclusions. Rick L. Weller: Yeah. I would add to that, Mike, you know, just a little bit of data. And, again, as Mike says, you know, I do not think you want to jump to, you know, any kind of quick conclusion here. But if we take a look at the transfers to Mexico as reported by the Bank of Mexico, we saw declines as sharp as 16%. Now this was back more in the summertime period. Okay? And those have consistently decreased. Those drops have kind of, they have had a bit of a sawtooth pattern to them, but let us say they have consistently decreased where actually in December, there was an increase year over year. Michael J. Brown: So, Rick L. Weller: you kind of see the momentum moving a bit more north here, and, you know, that you kind of take a look at that. You know that families are, you know, families in Mexico are dependent on the monies being sent back home for their daily needs. And so, you know, maybe there is something in that kind of underlying improving trend. But as Mike says, you know, let us not overthink it at this point. It is positive, I think. And, you know, we think that we are well positioned to take advantage of that because we have continued to grow and expand our network. We continue to put more emphasis in our digital business. And so from that standpoint, our operational execution is doing good. And if we really do see this, you know, kind of northerly movement out of what you are seeing in Mexico is reflective of a broader environment, you know, maybe that, you know, is more positive than you think. But at least those indicators, you know, and I will look more specifically to this Mexico stuff. You know, they look like they are moving in the right direction. Michael John Grondahl: Got it. And then secondly, it sounds like the Money Transfer review started a while ago. One, maybe what triggered that and then two, any thoughts on doing something similar in EFT or epay? Michael J. Brown: So, yeah, we started this about a about this time last year, maybe a little before. Gustavo Andre Gala: So, yeah, we have been thinking about it and kind of what triggered it. You have got to remember, Ria is an exceptional case of success. When we bought Ria, you know, eighteen years ago, it was, you know, it was doing $200 million in revenue and now doing $2 billion. You know? So we have grown a whole lot over the last decade. It has been, you know, we moved up to be from a very tiny player to the second-largest money transfer house in the world. And with that, we realized, you know, we need to take a hard look at how we are organized, what we are doing, to make sure that our organization matches the size of the opportunity and our customer base. So that is why we did it. It was not, I mean, you know, we were not doing it out of desperation. It was more like, boy, we have really grown. Let us make sure we are not leaving any money on the table. And Michael John Grondahl: you Gustavo Andre Gala: as we as Rick said and I Gustavo Andre Gala: and I said, we are really focusing on the digital aspect of Money Transfer, and you can see with the 30-plus percent growth rate that we have had for several years now, we want to continue to grow that digital business. Michael John Grondahl: Got it. And then, I guess, just any thoughts on a similar review at at Michael J. Brown: EFT? Gustavo Andre Gala: We are always doing that. We may do something like that in the others or we may self-review, but I would say that the growth in EFT has not been quite as quick over the last couple of decades as maybe Money Transfer, so that is why we wanted to make sure. And the focus there, of course, is moving our bricks and mortar to more digital. Michael John Grondahl: Got it. Okay. Hey. Thanks, guys. Operator: Thank you. And our next question comes from the line of Cristopher David Kennedy from William Blair. Your question please. Michael J. Brown: Yes. Good morning. Thanks for taking the questions. Can you give us a little bit more details on the merchant processing business Michael John Grondahl: understand it is split between epay and the EFT segment. Michael J. Brown: Yeah. But any more color on the growth of that and the opportunities going forward? Gustavo Andre Gala: Well, we are getting pretty much blown away by that growth is the kind of the bottom line. We probably do about 20% of that volume coming out of epay and the other 80% out of EFT. As you can see by those numbers in both of them, and the epay merchant acquiring business grew over 20%. Our merchant acquiring business in Greece and elsewhere that was run out of EFT has grown over 30%. Michael J. Brown: So Gustavo Andre Gala: you know, this is a big one for us. And it is now gotten to the point where the combined EBITDA of both of those endeavors is in the kind of $90-ish million. So it is not only growing fast, but it has size. So we are really excited about that. Cristopher David Kennedy: Great. Thanks for that. And then just a quick modeling question. Can you talk about free cash flow in 2025 and the prospects for 2026? Thank you. Gustavo Andre Gala: I will let Rick do that one. Well, as Michael J. Brown: you know, Mike said, we essentially generated about $400 million of Rick L. Weller: free cash earnings there. And so, you know, now that obviously was offset with things like share repurchases, did a couple little acquisition pieces there. We would expect 2026 to be, statistically, no different than our earnings improvement. Right? We expect our earnings to be going up 10% to 15%. That should be, we should see a similar kind of rhythm in our free cash flow. Now, you know, then, as Mike said, we will be thoughtful on how we then deploy that Cristopher David Kennedy: free cash flow, Rick L. Weller: our first objective would be to support and develop our internally developed products. And Mike mentioned a couple of those in his comments there. We are going to continue to have very strong focus on our digital initiatives across all three segments. You know, we have talked a lot about Money Transfer, but we have got initiatives going in all three segments, whether it is acquiring or it is gaming or it is Money Transfer. I mean, they are in every part of the business. And so to that end, you know, we will continue to look for opportunities on the acquisition side that would be helpful to promoting and extending those digital growth strategies. So, yeah, net-net, I would expect that that number will improve consistent with our EPS outlook for 2026. Michael J. Brown: Great. Thanks for taking the questions. Operator: Thank you. And our next question comes from the line of Peter James Heckmann from D.A. Davidson. Your question please. Gustavo Andre Gala: Hey. Good morning. Thanks for Michael J. Brown: the time. I had a few follow-ups. In terms of CoreCard, can you give us the approximate revenue contribution for the partial quarter in the fourth quarter? Rick L. Weller: Yeah. Yeah. It was, you know, in the ballpark of $10 million to $12 million. Operator: Okay. And that is helpful. And then just in terms of the Michael J. Brown: the pending Credia, merchant acquiring acquisition, can you give us maybe some brackets around potential purchase price and total revenue? Rick L. Weller: We, I would not put anything out there on the, I mean, we have not disclosed those kind of numbers. The purchase price was relatively small. And it really will be, and it will only, you know, happen once we migrate the parts of the business into our platforms. But, Gustavo Andre Gala: it is within the Peter James Heckmann: more like towards the last half of the year. Gustavo Andre Gala: Yeah. Rick L. Weller: It is in the few of millions of dollars rather than hundreds of millions of dollars. So, yeah, it is quite low on the few of millions of dollars scale. Operator: Okay. That Michael J. Brown: that is helpful. And certainly, that acquisition would lead us to believe that you just mentioned that the merchant acquiring business is generating strong growth, organically off the base of the Piraeus deal. Operator: Now you are adding in this tuck-in Michael J. Brown: Are there opportunities for other tuck-ins to continue? Gustavo Andre Gala: We are looking for them, Pete. And, you know, we have been looking for them since we purchased them three years ago, since we purchased the merchant acquiring business from Piraeus. So we are looking. When we find a good one, we will slip it in. But there is no guarantee to what you can find and what it will be priced at. You know? So but, I mean, all our growth up to this point, which probably has a compounded return of 30% over the last three or so years, has all been organic. So it is nice to be able to have a little inorganic tuck-in that we can also use some of our additional products on that they did not have themselves to help them grow faster. Rick L. Weller: And, you know, Pete, I would add to it. If we do see some across each of our businesses as opportunities. It is good to see that it appears that sellers are coming to their senses on valuation. I mean, the whole payments industry is being hit extremely hard in terms of valuation, and that is starting to kind of sink in with sellers out there. And I would also tell you kind of in terms of some of the things that we have seen, and I would even say on this Credia thing, is the economics we will get out of the deal will be as good or better than share repurchases. Operator: Right. So that will give you, you know, some perspective in terms of Rick L. Weller: the efficiency of the acquisition versus even using it for share repurchases. We will have as good or better economics than share repurchases. Michael J. Brown: Alright. Great to hear. I will get back in the queue. Appreciate it. Operator: Thank you. And our next question comes from the line of Rayna Kumar from Oppenheimer. Your question please. Rayna Kumar: Good morning, Mike and Rick. I just want to go back to CoreCard for a second. Could you talk about what your expectations are for CoreCard in 2026? And now that JPMorgan is going to be the issuer for Apple Card, is there a prospect for you to retain that Apple Card relationship? Gustavo Andre Gala: I, well, we will just say that we do not know that answer for sure, Rayna. But based upon JPMorgan's history of wanting to do things in their own shop, I would say long term, that would be doubtful. You know? I am not saying it is impossible. They may decide that because the CoreCard platform has a plethora of services and features that they do not have in their current platform, it might, they might find that it is better to use our platform for a while until they make those transitions. Or maybe they will not. But we, when we did the business model, we said this is a good buy if we can keep them through the end of their contract, which is 2027. And it may go further. Rayna Kumar: That makes sense. And anything you can say on just, like, the contribution of CoreCard in 2026? What you are estimating? Rick L. Weller: Well, you can see what they had in their publicly reported Operator: information. Michael J. Brown: You know, we will do Rick L. Weller: we will do that good or better. Yeah. And, you know, so we are not putting a specific number out there for CoreCard. But as Mike said, we are already seeing the wins show up on the ledger. And the one, yeah. I mean, the value that CoreCard brings to the table is they have got a great platform. They have got a great group of people that know this industry inside and out. Got a great reference customer that is better than anybody else you could probably have out there, and in Apple. Now you put that together with us that has global distribution. Just like we did with Money Transfer. When we bought Money Transfer, it was highly focused on the United States. We are now around the world with that business. Same thing with epay. When we got epay, it was focused on the U.K. We have got epay now around the world. That is the same kind of customer reaction that we are seeing on the CoreCard product. It is the leading quality product in the market. And now we are exposing it to the rest of the world. So we are excited on seeing what the customer reaction is. But I would say you can see what their publicly reported numbers are. Gustavo Andre Gala: We will do that that good or better. Rick L. Weller: And you can bet that we are driving it to be a heck of a lot better. But let us not, I do not want to overhype the expectation. Gustavo Andre Gala: But I will say, even though Rick is telling me not to overhype, the number of interested parties that have come out of the woodwork since this announcement has been phenomenal. So what we have got to do is move those interested parties to closure and then we will be cooking. Rayna Kumar: Okay. That is exciting, and I appreciate that. And then just, you know, one more if I can sneak it in. Just, like, any thoughts on, like, segment EBITDA contribution for 2026? Like, how we should think of the different growth rates by segment. And I, like, I know a competitor recently announced an exclusive relationship with Kroger's. Is there any impact there to your business? Thank you. Rick L. Weller: Well, first of all, the Kroger impact to us will be marginal at best. And, yeah. So it unfortunately was not a great success in that regard. So nothing there to speak of. As it relates to, you know, the growth rates in that by segment, I think we will kind of hold off on that. We have given you guidance for the EPS. You can kind of look at the, you know, what we have had historically as growth rates across those businesses. You know, what I would probably say, without putting numbers out there, you know, we would expect the growth rates out of EFT and Money Transfer to lead the way, with epay, you know, in a lesser growth kind of a profile as we see it right now. Although I know that, you know, Kevin is looking at a number of exciting products that, you know, hold out some opportunity. But, yeah, we will hold off on putting specific numbers out there by segment. If you remember, a couple of years ago, we went through an approach of using an earnings guidance for the bottom line. Because essentially what we were seeing, we were seeing is a dozen different numbers out there that if you meet, if you exceed one and you missed any one of the others, you know, you really get penalized for it. And so we are trying to get the investors to focus on the strength of our total business and really reward us for, again, this is the fifth year in a row with double-digit earnings growth. I looked at the Fortune 500 stuff the other day. And the expectations for the full year are something like about 12% growth. When you say, alright. Well, if that is what is out of the S&P 500, if that is out of the S&P 500, we did 12%, why are we not getting the same kind of trading? Okay? If you took the four or five leading valuation guys out of those numbers, their numbers were 9% in growth year over year. Yet we have produced again, Mike said, the fifth year in a row Gustavo Andre Gala: of double-digit Rick L. Weller: earnings growth, and we expect the same thing next year. So we have got a business that has great consistency. Michael J. Brown: Great continuity, Rick L. Weller: we have great diversification because we are not dependent upon any one market. You know, just look at Mexico, for example. If all of our business was going to Mexico, our results would not be anywhere to what they are now. They would be down significantly. But we are diversified in that we are not dependent upon Mexico. We would love to see better numbers come out of that market, but we have a great diversified business. And so we really try to, you know, want to try to get people to focus on the consistency and the reliability of double-digit earnings growth. And our earnings are durable. Gustavo Andre Gala: I mean, they have been here for a long time and they continue to be so. Rayna Kumar: Thank you for the color. Operator: Thank you. And our next question comes from the line of Daniel Krebs from Wolfe Research. Your question please. Rick L. Weller: Hi, thank you. This is Daniel Krebs on for Darrin. I would love if you could discuss the recent Operator: DXC Hogan partnership Daniel Krebs: you know, how you may think that can improve distribution of the issuer processing products and Daniel Krebs: maybe where those efforts are being targeted by client or region. Thank you. Did you say Hogan partnership? DXC. Gustavo Andre Gala: The DXC partnership. Daniel Krebs: I am sorry. I am unfamiliar with what that is. Okay. No worries. We can take that one offline. Yeah. Maybe switching back to Credia Bank then. I know we are not giving a lot of specifics on the revenue. It sounds kind of smaller than Piraeus. But if you could just compare and contrast the business relative to Piraeus when you got it, are we talking about a similar margin profile and growth profile as we look at combining those two? Gustavo Andre Gala: Well, we hope so. So they have got about 10% of our base of, you know, our number of merchants. So that gives you an idea of kind of its size. The one thing that has helped us grow that business, where we have gone from about 18% market share in Greece to about 24% market share over the last three and a half years, and that is in a highly competitive market. We have grown that market share because we have a really good product set. And we do more than just merchant acquiring. We do DCC at these things. We do tax refund. We have various credit kinds of deals going on with our merchants. So we continue to grow that business really quick. Really quickly. And I would expect that if we could add 20,000 more merchants, they should fall right there in lockstep with it. So we are pretty excited. Plus, we are not stopping. We mentioned too that we did, what, 7,000 plus merchants organically in the fourth quarter. So we are going to keep working organically, not just inorganically. Daniel Krebs: Right. Thank you. Operator: Thank you. And our next question comes from the line of Vasundhara Govil from KBW. Your question please. Vasundhara Govil: I guess just first one on the EPS guide of 10% to 15%. Maybe you could give us some color on sort of what the underlying macro assumptions are at the low end versus the high end, just given we are seeing some pressure there? Gustavo Andre Gala: I do not think we have a high end and low end assumption. We have our forecast Gustavo Andre Gala: that falls in that range. There is a lot of things that can happen positive and negative in a year or so, and we have been able to deliver that for the last five years. So we feel pretty comfortable with that range. I would like to beat it like we did year before last, like we did in 2024, but we are just going to put that out there to give people a little bit of a yardstick of where we think we are going to land. Rayna Kumar: Great. Thank you. And then, Mike, Vasundhara Govil: you talked about sort of diversifying EFT revenue mix away from the ATM business. You have obviously made a bunch of acquisitions to make that happen. Can you remind us what that mix looks like today? And sort of if you look out two to three years, what do you envision that mix could be? And then similarly on the margin profile, I am guessing it will be accretive to the margin profile, but any color on how we can see that evolve over time? Rick L. Weller: Yeah. Yeah. Can you repeat that for me? Gustavo Andre Gala: There is that quite the EFT revenue mix Vasundhara Govil: you guys have been making acquisitions, and you are talking about that mix, or diversifying away from the ATM business? So just looking for some color on what that mix could look like two to three years from now, just given that you are buying non-ATM businesses and some of them are going at a faster pace, and then also, like, what that means for margins over time. Gustavo Andre Gala: Well, Vasu, there is also another nuance here because you say diversifying away from the ATM business. What that assumes is that all we do is, you are kind of, we are probably referring to our owned ATM business. What we found is because of our scale and the size and our reach, we do a lot of banking infrastructure deals where we are being contracted by the bank to do their ATMs or provide them ATM services. So unlike our traditional tourist-focused ATMs where if a tourist does not walk up to the ATM, you do not make money. If he uses less cash this year than last year, you make less money. These are infrastructure deals. These are long-term contracts with banks. And so what we are finding now is you have kind of got to break out when you look at ATMs, you cannot, like, throw them all in one bucket because some of them, it really does not matter how much people are going to spend with cash. We are going to get paid the same or more. So and as far as what percentage, I will let Rick try to take a shot at that. But I just want to kind of educate people. Everybody wants to say, this is all ATMs. It is not all ATMs. Rick L. Weller: And, you know, we have shown you some charts and graphs before that show that the ATM business is slightly less than 20% of our consolidation there. And we have even put out a slide that said, you know, when you look out several years, you know, that number is anticipated maybe to be something like, you know, 13, 14, you know, kind of in that ballpark. Right? So we continue to see the mix shift to where we will not get rid of the ATM business. But we are not, as Mike said, we are not focused on it being a growth engine. We are seeing more of the growth come out of our digital strategy being either infrastructure support for banks or acquiring or like CoreCard where, again, which falls into that infrastructure piece. So that will continue to become a bigger and bigger part of it. And then as it relates to the margins, I would expect that we would see an improving margin structure. Today, in our EFT business, we have an operating margin that is just north of 20%-ish kind of percent. Okay? And if you kind of take a look at the acquiring business, it generally is going to be in a 25%-ish kind of ZIP code, the better. Okay? Michael J. Brown: You look at the, Rick L. Weller: the infrastructure or, like, the issuing business, it is going to be more in the 40% to 50% kind of range. And so we would anticipate seeing that mix will shift down for the ATM portion of it. And that will have better margins out of the EFT segment over time. Daniel Krebs: And I think, with Gustavo Andre Gala: yeah. Yeah. But it is nice to talk to you. And with everybody else, I noticed we are at the top of the hour, so we are going to close ourselves off. Appreciate your interest and look forward to talking to you in the future. Thank you very much. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power Company, Inc. Fourth Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Darcy Reese, Vice President, Investor Relations. Please go ahead. Good morning, and welcome to American Electric Power Company, Inc.’s fourth quarter 2025 earnings call. A live webcast of this teleconference and slide presentation are on our website under the Events and Presentations section. Joining me today are William J. Fehrman, Chairman, President, and Chief Executive Officer, and Trevor Ian Mihalik, Executive Vice President and Chief Financial Officer. In addition, we have other members of our management team in the room to answer questions if needed, including Kate Sturgess, Senior Vice President, Controller, and Chief Accounting Officer. We will be making forward-looking statements during the call. Darcy Reese: Actual results may differ materially from those projected in any forward-looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We will take your questions following opening remarks. I will now hand the call over to Bill. Thank you, Darcy, and good morning, and welcome to American Electric Power Company, Inc.’s William J. Fehrman: fourth quarter 2025 earnings call. I am happy to be here with all of you. We are operating in a period of incredible transformation across our industry, marked by accelerating electrification, rapidly expanding AI-driven and industrial demand, and rising expectations for reliable and affordable energy solutions. These trends only accelerated in 2025 and continued in 2026. As we look to the future, AEP stands out among its peers as one of the fastest-growing high-quality, pure play electric utilities strategically positioned in multiple high-growth regions. Let's begin on slides four and five of today's presentation. AEP is rooted deep in innovation, and we are ready to meet unprecedented customer demand across our impressive 11-state regulated service territory and beyond, resulting in significant infrastructure investment which continues to drive our strong financial performance now and into the future. We are operating in an environment and time when scale matters more than ever, and we continue to leverage our size to mitigate supply chain risk and focus on having the resources necessary to meet this massive system demand and investment opportunity. Notably, we are deepening our engagement with customers, regulators, policymakers, and suppliers to align our long-term goals and achieve favorable outcomes. For example, we have key relationships with major gas turbine manufacturers securing over 10 gigawatts of capacity and have entered into a long-term strategic partnership with Quanta Services to strengthen and accelerate capabilities for 765 kV transmission infrastructure buildout. Simply put, the AEP team has made significant progress in 2025. And as we look ahead, we have built a robust plan with a clear focus on operational excellence and accountability supported by the strength and experience of our winning team. I am very excited to share our progress with you today. Turning to slide seven and eight, I would like to first walk through our 2025 financial performance and share our outlook, then speak to our recent key accomplishments and continued focus on customer satisfaction and affordability. I will then hand things over to Trevor for a more detailed summary of our financial results and the growth trajectory of our business. Now on to our financial results. I am proud of the dedication and accomplishments of the entire team over the past year. AEP has a long history of consistently delivering or exceeding our earnings guidance and 2025 was no exception. We achieved fourth quarter 2025 operating earnings of $1.19 per share, bringing our full-year 2025 operating earnings to $5.97 per share, which is above the top end of our guidance range. In October, we also increased our quarterly dividend to $0.95 per share, demonstrating our ability to deliver competitive and sustainable shareholder returns. In fact, total shareholder return for 2025 was 29%, one of the highest in the industry. AEP’s execution-driven performance in 2025 has established a solid foundation from which we are reaffirming our 2026 full-year operating earnings guidance range of $6.15 to $6.45 per share. With the remarkable load expansion we are experiencing today, we are also reaffirming our premium long-term earnings growth rate of 7% to 9% for 2026 to 2030 with an expected 9% CAGR. We have a large but conservative $72 billion five-year capital plan yielding a 10% rate base CAGR that continues to present incremental upside and is supported by a strong balance sheet. In short, we finished the year with positive momentum, and we are only just getting started. Later in the call, Trevor will walk through our fourth quarter performance and provide additional details about our financial growth outlook. As we have discussed, we are in the midst of a generational load growth phenomenon throughout our diversified service territory, especially in Texas, Ohio, Indiana, and Oklahoma. We now have 56 gigawatts of firm incremental contracted load additions, doubling the 28 gigawatts we reported just last fall. These gigawatts are not speculative as they are all backed by signed customer agreements. However, meeting this demand must be done responsibly. It is critically important that costs associated with these large loads are allocated fairly and the right investments are made for the long-term success of our grid. AEP continues to work with federal and state leaders to quickly adopt reforms to streamline the connection of new energy resources to serve large loads and drive smart solutions to protect residential customers from extra costs. This builds on our progress over the last several years. We laid the groundwork two years ago when we secured commission approvals for data center tariffs in Ohio and large load tariff modifications in Indiana, Kentucky, and West Virginia. We now have pending tariff filings in Michigan, Oklahoma, Texas, and Virginia. A summary of these tariff filings can be found on slide nine of our presentation. This methodology is designed to help protect our existing customers from bearing the costs of grid improvements required to meet data centers’ energy demands. While this is good progress, additional measures must be taken to ensure that the infrastructure required to serve large loads is paid for by the customers who drive those needs. Beyond these efforts, we are also building on AEP’s history of innovation. We continue to explore generation solutions for the benefit of customers during this period of massive demand. We have previously talked about AEP’s ongoing efforts to develop small modular reactors, or SMRs, in our service territory. We announced that we are participating in the early site permit process for two potential SMR locations, in Indiana and Virginia, and we will, of course, only move forward with the appropriate returns and risk mitigating structures. Additionally, last month, we announced plans to purchase $2.65 billion of fuel cells that will be part of a generation facility expected to be located near Cheyenne, Wyoming. The facility includes a 20-year offtake arrangement with a high-quality investment-grade third-party customer. Transmission will be equally important for affordability and to ensure new generation is quickly and reliably connected to serve large loads. Our unmatched scale on the transmission side continues to be a defining advantage for AEP. As outlined further on slide 10, we own and operate nearly 90% of the 765 kV infrastructure in the United States. With the largest electric transmission system in the country, AEP is exceptionally well positioned as the utility partner of choice for customers who need consistent large load power. As a matter of fact, AEP was recently recommended for approval or awarded new 765 kV projects in PJM, SPP, and MISO, expanding our footprint even further. New transmission projects and our planned fuel cell facility in Wyoming reinforce AEP’s growth trajectory, representing opportunities that include approximately $5 billion to $8 billion of confirmed or endorsed incremental generation and transmission projects. This is additive to our current $72 billion five-year capital plan just announced last October. Let me now touch on the progress we are making on the legislative and regulatory fronts for the benefit of our customers and communities. We remain focused on reducing the gap between our authorized versus actual ROE. In 2025, we achieved an earned ROE on the regulated business of 9.1%, up 30 basis points from two years ago with detailed plans to continue the improvement. Our successful approach of listening closely to state leaders, and aligning with their needs has resulted in the passage of improved legislation and the achievement of positive balanced regulatory outcomes that benefit both our customers and investors. Our continued execution is evident through several recent milestones all detailed in the appendix of today’s presentation, including broader regulatory accomplishments achieved in 2025. I would like to highlight a few of these key milestones. Legislation that reduces regulatory lag was approved in Ohio, Oklahoma, and Texas. I&M achieved approval on a generation resources filing enabling targeted resource additions through an efficient streamlined process. Base rate cases in Arkansas, Kentucky, and Ohio were approved or settled with additional new base rate cases recently filed in Oklahoma and Texas. Kentucky Power’s investment in our Mitchell plant was approved, extending interest in its energy and capacity beyond 2028. And in West Virginia, we continue to work with leaders at all levels of the state on fair financial returns as the state’s energy strategy aims to attract more capital investment and triple electricity generation to 50 gigawatts by 2050. While there is no statutory timeline for the commission to rule on the reconsideration filing made last September, we expect the decision soon. Affordability is at the heart of our regulatory approach, and as summarized on slide 11, we are taking decisive action to keep customer bills as economic as possible. We are building on efforts to support incremental load growth with innovative rate design while also mitigating residential rate impacts through our focus on O&M efficiency and effective financing mechanisms such as securitization. As we invest in this electric infrastructure growth cycle, and assign the appropriate cost to new large loads, we remain focused on protecting residential customers from increased cost. To finish up, we are seeing rapid change in our industry as well as increased need and demand from our customers and communities. We have a clear strategy, a strong financial foundation, and a team that knows how to deliver, all coming together to help us capitalize on the unprecedented opportunities ahead for the grid. I am dedicated to AEP’s vision of improving customers’ lives with reliable, affordable power. I am also committed to leading AEP for many more years to come. I look forward to working with our incredible team. We will continue to execute at an unmatched pace of play on behalf of our stakeholders to drive growth, serve our customers, and create value for our investors. I will now turn the call over to Trevor, who will walk us through fourth quarter financial performance and provide more details surrounding our growth. Thanks, Bill, and good morning, everyone. As you have heard, AEP delivered an exceptional year of performance in 2025. Our year-to-date results exceeded expectations, supported by industry-leading load growth fundamentals, constructive regulatory and legislative developments, and disciplined execution of our robust plan with affordability front and center. I am pleased to walk through our progress today. I will start with the key earnings drivers behind our 2025 performance, and build on Bill’s comments regarding load growth. From there, I will provide additional context around our $72 billion base capital plan. I will then highlight the incremental projects that have been identified beyond the base plan. And finally, I will close with remarks reinforcing our continued commitment to our operational and financial strength that positions us to deliver long-term value for our customers and investors. Please turn to slide thirteen and fourteen of the presentation. Our 2025 full-year operating earnings was $5.97 per share, exceeding the high end of our guidance range of $5.75 to $5.95. This strong performance in our regulated segments was due to constructive rate case outcomes across many of our jurisdictions, steady progress on our transmission investment program, and the continued momentum in the load growth across our service territory, which I will speak more about shortly. These positive drivers were partially offset by additional spending on system reliability improvements, higher depreciation from our growing capital base, and interest expense. We also continue to see meaningful performance in our Generation & Marketing segment, driven by favorable energy margins and the benefits we realized from contract optimization within the portfolio. Turning to Corporate and Other, the year-over-year variance was largely due to a $0.06 per share tax benefit recognized in 2024 from updated state tax apportionment. As Bill noted earlier, our 2025 performance continues to give us confidence in our financial plan, and we are reaffirming our 2026 guidance and our long-term earnings growth outlook through 2030. As we turn to sales trends on slide 15, you will note that 2025 was a transformative year for AEP. Our total system sales exceeded 200 million megawatt-hours for the first time in AEP history. This milestone highlights the historic load growth we are seeing on our system, with what we anticipate will be even more incredible opportunity ahead of us. Retail sales grew 7.5% in 2025 compared to 2024, driven by significant commercial and industrial sales growth of nearly 10%, primarily from data centers in Indiana, Texas, and Ohio, as well as industrial sales in Texas. Comparatively, residential sales grew approximately 3% in 2025 across our footprint, mostly attributable to I&M and SWEPCO. Keep in mind that our revenues are supported by these rising sales growth trends and further strengthened by minimum demand charges included in our large load customer agreements. So while total retail sales rose 7.5% in 2025, corresponding revenue was up 8.3%. Turning to slide 16 and the future. We have previously discussed our forecast of 28 gigawatts of incremental contracted load growth by 2030. Today, we increased and doubled that outlook by 28 gigawatts to 56 gigawatts of incremental load. This step up reflects our continued success in converting projects from our planning queue into binding financial commitments. The increase to 56 gigawatts over our prior disclosure is driven by growth in ERCOT, PJM, and SPP. In PJM, contracted load increased by 4 gigawatts driven largely by activity in Ohio. This growth continues to be reinforced by data center development and, importantly, about 90% of the incremental PJM load is supported by executed take-or-pay electric service agreements, or ESAs. We are also seeing positive momentum in the region in Oklahoma, where contracted load has grown by 1 gigawatt driven primarily by a commitment with a large aluminum smelting customer. Together, PJM and SPP account for the 5 gigawatts increase in our contracted load outlook. Let me turn to ERCOT because the Texas story remains a central part of our long-term growth outlook. As a transmission and distribution utility, AEP Texas does not directly bill retail customers in ERCOT. We secure contracted load through letters of agreement, or LOAs. Under these agreements, customers must secure land, complete and pay for interconnection studies, provide detailed load forecasts, and importantly, fund all of the construction costs. This structure ensures that only viable and financially backed projects advance into AEP’s forecast, supporting greater confidence in our long-term load additions. Within AEP’s 56 gigawatts of identified incremental load, AEP Texas has signed LOAs for 36 gigawatts with large industrial customers, well-capitalized hyperscalers, and mega-size data center developers. This is a significant increase of 23 gigawatts since October, and all of these new loads meet Senate Bill 6 criteria outlined on slide 17. As implementation of this legislation progresses in Texas, we anticipate improved clarity and certainty around the timing of when additional loads will connect in ERCOT. As such, AEP is well positioned to build the transmission and distribution infrastructure that Texas needs, and investment timing will be influenced by resource availability to support growing system load. We will continue to update our load forecast throughout the year as we support and benefit from the rapid economic growth in Texas. Please turn to slide 18. I want to take a moment to ground us in the foundation of our capital plan and the opportunities ahead. We built our forecast using relatively conservative assumptions which gives us a lot of confidence in our ability to deliver and creates opportunity for upside as conditions evolve. For example, our $72 billion five-year capital plan is based on the 28 gigawatt incremental demand outlook we shared last fall. As we continue to see new opportunities materialize across our service territory, the capital plan will continue to expand. Just since the third quarter call, we have seen upside of approximately $5 billion to $8 billion of confirmed or endorsed generation and transmission projects in the period of 2026 through 2030 that are in addition to the base capital plan. I would like to emphasize that any capital related to the incremental load outlook, which has increased by an additional 28 gigawatts, is additive to our $72 billion plan and is not part of the $5 billion to $8 billion of capital upside. As I have articulated on prior earnings calls, we want to have a cadence of updating the capital plan annually in the third quarter. This timing allows us to run the full plan through our modeling process and provide a view of the associated financing needs. That said, given the size and rapid growth of the incremental opportunity, we felt it was important to highlight some investments that have come into the five-year window. We will provide additional clarity on these opportunities, formally update our capital plan, Trevor Ian Mihalik: and address the associated financing William J. Fehrman: as we have a greater line of sight. We have a plan that is supported by tangible upside and is designed with affordability considerations for our existing customers. We are confident in our ability to advance this critical work of building a resilient, modern grid that will help power the economic growth in our service territory, including the rapidly expanding AI-driven and industrial demand. Now moving to slide 19. I want to highlight the key takeaways that reflect the steady progress we are making in both operational and financial execution and reiterate some of the themes you heard today. First, today, you heard that our positive results in 2025 give us strong confidence in the financial commitments we have laid out. We delivered performance that exceeded our 2025 operating earnings guidance, which supports our conviction in reaffirming the 2026 guidance range and the long-term earnings growth rate. Second, you heard that we have increased our load forecast to 56 gigawatts of additional contracted Trevor Ian Mihalik: load William J. Fehrman: by 2030, all backed by signed customer financial agreements. Trevor Ian Mihalik: This is real committed load, much of which is under take-or-pay large load tariff agreements and positions us to advance the critical infrastructure customers and communities will rely on for decades to come. Third, you heard that our capital plan remains relatively conservative with approximately $5 billion to $8 billion of confirmed or endorsed projects incremental to the $72 billion base capital plan. And continued acceleration of load growth could also support further expansion. Fourth, you heard that we remain committed to maintaining a healthy balance sheet. This is endorsed by our FFO to debt target of 14% to 15%, and we currently exceeded this target with S&P at 15.2% as of year-end. Comparatively, our Moody’s FFO to debt is just under 14%, underscoring our commitment to balance sheet strength. Our diverse high-growth footprint also provides the flexibility to deploy capital efficiently in direct support of customer needs, regulatory priorities, and long-term shareholder value. This disciplined approach ensures we can prioritize high impact projects and maintain financial strength as we execute at scale. Finally, you heard that along with large-scale infrastructure investment execution, we continue to work closely with our stakeholders to advance regulatory strategies to keep customer affordability top of mind. This includes our data center and large load tariff filings and our focus on O&M efficiency. Taken as a whole, these actions reinforce a balanced approach that supports affordability while advancing critical investments needed to meet the growing customer demand. I am excited by the momentum we have built over the last year, and I am confident in the discipline we are bringing to our execution. We are delivering on our robust plan guided by a high-quality, seasoned leadership team that has come together to leverage AEP’s size and capabilities, resulting in strong operational and financial performance. With unmatched infrastructure assets and deep expertise, I believe AEP is exceptionally well positioned to build the critical infrastructure our country needs to support unprecedented growth. I am extremely proud to be part of an organization with this much opportunity. We really appreciate you taking the time to listen to our prepared remarks. I am now going to ask the operator to open the line so that we can take your questions. Thank you. Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. Your first question comes from Shar Pourreza with Wells Fargo. William J. Fehrman: Hey, guys, good morning. Morning, sir. Shar Pourreza: Good morning, Bill. So just quickly, I mean, obviously, you guys have doubled your signed contract load since the last update. You are seeing very healthy demand from large load customers, especially in Texas. Can you just maybe give us a small inkling, even kind of directionally, on what this could mean to the CAGR? I mean, could this put upward pressure on the current 9% or when you look to roll forward, especially as you continue to sign additional ESAs? So I guess could the CAGR be a 3Q update in addition to CapEx and funding? Thanks. Trevor Ian Mihalik: Shar, it is Trevor. I appreciate the question. Yeah. Look. I think the good news here is the $72 billion five-year capital plan does not include this incremental load growth of 28 gigawatts. And we really tried to articulate that we think the $72 billion is somewhat conservative, and that is why we did want to come out with this incremental $5 billion to $8 billion that we have line of sight to. I do think what we will do is on the first quarter call, when we have a little bit of greater line of sight around the five to eight, we will come out with some more definitive ideas around how we are going to finance it and what that ultimately means to the growth rate. But the bigger question that you are asking on the 28 gig, that probably will be more around the third quarter call as we formally put forward our revised capital plan and run it through our internal processes. However, if we see some big chunks like we have with this five to eight that are meaningful, we may address those on the second quarter call as well. But I would say keep an eye out on the formal process. We really are trying to stick to the cadence of doing this once a year. But with this much load growth that we are seeing, I think it was really important for us to come out and at least give the street some line of sight into what this really means for us. Good news also, though, is with this 28 gigs, that gets us up to the 56, we still have 180 gigs plus in the queue, in various stages of development. And so even while we upsized the interconnection queue up to 56, we did not lower the 180 gigs, just because we are seeing that much growth on the system. And so I think, you know, what that really means is you will see a greater line of sight beyond 2030 as we continue to deploy capital into the next decade or past this decade into the next decade. But, again, I would say let’s see what we can pull together by the first quarter call and then ultimately what the formal process generates on the third quarter call. Shar Pourreza: Got it. Yeah. I know it is pretty amazing growth. I mean, just I know, Trevor, I know and Bill, the ESAs have been sort of under sort of a bit of a microscope with investors. I mean, I guess, talk a little bit about the protections and the level of confidence there. And the reason why I ask is, you know, we have at least seen one data center pull out of a project due to local pushback, and that was despite having sort of a signed ESA in place. Just maybe talk about the level of confidence there because it has obviously been on the microscope with investors. Thanks. Trevor Ian Mihalik: Yeah. And this is Trevor again, Shar. So from that perspective, again, what gives us a great deal of confidence is that 180 gigs that are backing any of those firm ESAs that are in the load right now. But we do actually a pretty good job of really distilling down those loads on our system to ensure that they are backed by financially secure and very committed counterparties. And then, as you know, the ESAs have a take-or-pay component, and the large load tariffs that we have pioneered lock those counterparties in place to ensure that the dollars that are spent are not going to be Shar Pourreza: detrimental Trevor Ian Mihalik: to our existing customers. So, we feel very, very good about where we are under the ESAs and even the LOAs in Texas. You know, given how SB 6 is really trying to ferret out and ensure that only those loads that are very committed are advancing. And that is where we are at, and that is why we feel good about coming out with this 28 gigs incremental on top of the 28 that were there. And so from our perspective, we feel very, very secure in the 56. William J. Fehrman: And then, Shar, I will add that with our service territory predominantly being more on the rural side, we are actually having very good success with our local communities and the desire to host this type of economic development. Obviously, we have a few here and there that we need to do more work with. But the thing I love about AEP’s footprint is the diversity of the assets that we have and the locations that we have and the desire across many of those locations to get this economic development built and built as quickly as we can. And so in addition to what Trevor had with regards to the contractual side of this, I love how our teams are attacking the need to build those community relations and working with our individual states and really working to deliver what they want. Shar Pourreza: Got it. Big congrats to both of you. I mean, the turnaround has been nothing short of amazing. Thanks, guys. Trevor Ian Mihalik: Yeah. Thanks, Shar. Operator: Your next question comes from Steven Isaac Fleishman with Wolfe Research. Trevor Ian Mihalik: Hey. Good morning. William J. Fehrman: Morning, Steve. Steven Isaac Fleishman: Hey. Hey, Bill. William J. Fehrman: Trevor. So just on the Trevor Ian Mihalik: on the LOA, is there any more kind of color that you can provide on, I know that people are making significant commitments, but I guess in the scale of the value of making sure you are kind of in the kind of SB 6 queue, what the, you know, how much risk there might be that these are just, like, options being put on the table and, you know, Steven Isaac Fleishman: it is worth putting a decent amount of money William J. Fehrman: for an option as opposed to really Trevor Ian Mihalik: a committed project. I do not know if that makes sense as a question, but just wanted to get a sense of, like, the scale of Steven Isaac Fleishman: commitment relative to the scale of these projects. William J. Fehrman: Yeah, Steve. Trevor Ian Mihalik: Again, we try to articulate just our confidence in all of this in the prepared remarks. But, again, what we are seeing is a big chunk of what is coming in in ERCOT is around the data center load, which is a lot of hyperscalers and data center developers. You know, more than 50% of that load is now hyperscaler load. And so these are counterparties that are significantly committed to their place in the queue and putting dollars at risk. And so we feel very good about that. And then, again, with the amount of capacity in the backlog that is not even in the 56, if anyone were to walk away or just have, like you say, a financial holding position, we feel we could backfill that very, very quickly. So all of that gives us a great deal of confidence in these LOAs in Texas. Okay. That makes sense. And then maybe just on the transmission project, is there any more info you can share on each one and the rough investment William J. Fehrman: related to those. Yeah. Let me say this. Generally, projects. Trevor Ian Mihalik: Right. Roughly, there is, I will call it, almost $5 billion associated with those projects. It is about $2.7 billion of transmission projects in SPP, about $1.5 billion in PJM, and about a half billion in MISO. That all adds up to kind of the $4.7 billion, or close to $5 billion, of transmission projects that have either been awarded or kind of assigned to us. And then you layer on top of that the $2.7 billion associated with the Bloom fuel cells that we announced under the 8-K, and that gets you to roughly $7.4 billion of the breakout of the five to eight that we talked about. Again, I would say the three transmission opportunities of that $4.7 billion, we feel very, very good about. And largely, most of that, I think it is only the MISO piece that does not fall within the window through 2030. It is, I think, 2031 is when it would go in service. But everything else would be in the five-year window 2026 to 2030. William J. Fehrman: And, Steve, I would add that with our transmission business, the huge advantage we have, of course, is that we operate 90% of the 765 system in this country and are by far the leader in that voltage level. And with our exceptional partnership we have with Quanta, we are the preferred provider of these projects. And so again, as Trevor laid out, I am very excited about our future in this area and our ability to win these projects and deliver on them, particularly with our push to acquire the components that we need well ahead of time. And our size matters in this area because we are out ensuring that we have the equipment that we need, we have the contractor that we need, we have the capabilities that we need to deliver on these projects. And so I really love where we sit from a competitive position. Steven Isaac Fleishman: Great. Thank you. That makes a ton of sense. Thank you. Trevor Ian Mihalik: Thanks, Steve. Operator: Your next question comes from Julien Patrick Dumoulin-Smith with Jefferies. Hey. Good morning, team. Trevor, Bill. Nice to chat with you guys. Appreciate it. William J. Fehrman: Hey, Julien. Good morning. Julien Patrick Dumoulin-Smith: Hey. Good morning. Hey, guys. Just following up maybe in the same vein here with Steve. You know, how do you think about, you know, this contracted generation business in as much as Bloom seems a little step away from the core rate base opportunity? Again, obviously, PJM’s reevaluating its own construct here. They have got backstopping they are considering. How do you all think about the prospects for contracted generation to effectively backstop and serve some of this 56 that you guys are talking about here, you know, in terms of whether that is PJM or more in Wyoming? How do you think about that almost as an adjacent business segment, whether that is scaling up with Bloom beyond this commitment or whether that is something adjacent in a more traditional gas context. William J. Fehrman: Yeah. Thanks for that question. And for us, it is really about serving our customers and arriving at solutions for them to get them connected as quickly as we possibly can. And in many of these cases, where the grid connect could be out for a couple of years, we have been able to offer to them the capabilities of bringing the data centers online significantly faster through deals like the Bloom Energy deal and perhaps the deployment of batteries and some other opportunities. And so I see this as a significant customer service that we are providing to them to support what they ultimately want to do and need to meet their business requirements. So I am very excited about where we sit on this. I like the deals that we have done with Bloom. It is clearly a proven technology that can be deployed relatively quickly. And so I see it as very complementary to the rest of our business and we will continue to provide those services to the customers as they need it. Trevor Ian Mihalik: And, Julien, let me just also add one thing on this is as we have said in the 8-K, this is a long-term agreement with a very creditworthy counterparty. And so from our perspective, that long-term contracted cash flow off of a material asset like this is very, very important for us Julien Patrick Dumoulin-Smith: And Trevor Ian Mihalik: to me, it is very similar to a regulated return because here you have a very, very high-quality counterparty signing a 20-year PPA agreement. And ultimately, you do not have to go in for a rate case every so often on this, and it is very, very positive for us. Julien Patrick Dumoulin-Smith: Yeah. No. Indeed. And then with respect to PJM, any comments on that front? As how you think about tackling it? And that could be an Ohio-specific thought process as you think about engaging this year and future years. Or frankly directly with PJM. Again, to the same vein as serving your customers, right, under this contracted generation effort. William J. Fehrman: We are deeply engaged in PJM as well as SPP and MISO. Obviously, the secret sauce on all of this is figuring out methodologies to speed up connecting generation to load. We are fully in support of the administration’s work on trying to solve this issue in PJM and to find ways to accelerate that process. And so our teams are working directly with a variety of stakeholders on all of this, and I am hopeful that we will find paths forward that will allow for this to be expedited. The thing for us is we are super prepared for this. We have the equipment we need. We have the contractors we need. And so once we get through the processes at the RTO, the beauty of that is it falls back on us to execute, and I am absolutely confident in our team that we will execute once we can start digging the holes. Julien Patrick Dumoulin-Smith: Awesome, guys. I will leave it there. Thank you very much. William J. Fehrman: Thanks, Julien. Operator: Your next question comes from Michael Lonigan with Barclays. Julien Patrick Dumoulin-Smith: Hi, good morning. Thanks for taking my question. So your 2026 William J. Fehrman: morning. Julien Patrick Dumoulin-Smith: Your 2026 EPS guidance that you initiated on the third quarter call reaffirmed today. In the third quarter, you included 4 gigawatts of incremental contracted load which was raised to 7 gigawatts today, but you reaffirmed that 2026 EPS guidance. Would you say you expect to be towards the high end of that EPS guidance this year? Julien Patrick Dumoulin-Smith: Now? Trevor Ian Mihalik: Yes, Michael, this is Trevor. What I would say is we really give a range for a reason. It is still very early in the year right now. We do see some opportunity for incremental CapEx, but that most likely would not manifest itself in the next several months here. So I would say we still are very, very confident with the $6.15 to the $6.45 range that we put out and with the midpoint being $6.30. And as we have said in 2025, we worked to guide to the upper end of the range, and then we exceeded the high end of the range. We certainly are a management team that focuses on execution and putting out things that we can deliver on. Julien Patrick Dumoulin-Smith: But Trevor Ian Mihalik: I am very much of the mindset, I want to underpromise and overdeliver. And so we see a lot of opportunity coming together. But at this point, we are going to just continue to affirm our range. And if something else comes forward on future calls, we would certainly address it at that time. Steven Isaac Fleishman: Thank you. And then William J. Fehrman: you know, you have continued to talk about steady earned ROE improvements over the course of your plan. And I know driven by Trevor Ian Mihalik: you know, legislative enhancements Julien Patrick Dumoulin-Smith: you know, to the recent rate case settlements in Ohio, Kentucky, Trevor Ian Mihalik: Arkansas support Julien Patrick Dumoulin-Smith: that trajectory, and I know you also recently filed in Oklahoma and SWEPCO Texas. William J. Fehrman: Do we expect more recent rate case filings across the board given all the robust capital opportunity from the Trevor Ian Mihalik: the load and the five to eight you identified, William J. Fehrman: if so, when Trevor Ian Mihalik: you know, what jurisdictions should we expect you to file in next? Yeah. So, Michael, you have asked a few questions in there. So let me start with the ROEs and the earned ROEs and how we ended up in 2025 at the 9.2. Again, feeling very good about that, and the projection over the five-year period is to get us to the 9.5. And so we feel like there is a good path, and it is not just speculative items that we are putting in with assumed benefits to rate cases. There are some definitive things that have transpired like, you know, the UTM in Texas, SB 998 in Oklahoma, and certainly the forward-facing test year in Ohio. All will help us get to where we think we will come out on the 9.5 by the end of the five-year plan. So we feel very good about that. And, again, how we executed in the current period. With regards to incremental filed rate cases, we certainly look at the appropriate times, whether it is the required filing periods or when you can go in and ask for incremental capital that would benefit the customers. Those all get put through the normal regulatory process internally. Again, we feel good about where we are from the regulatory standpoint and ensuring that we are getting constructive outcomes that not only benefit our customers but also add value to our shareholders. William J. Fehrman: Yeah. Let me add into there that our philosophy here is no plugs, no, basically, things that get added into our plan that we do not have a clear line of sight to execute against. And so when we put these numbers out, we have absolute detailed, disciplined plans that we will execute against and measure ourselves against to get there. And so while others might just put numbers out there, we will not allow that. There has to be something behind it, and that is essentially the standard that Trevor and I have as we push the organization forward. Julien Patrick Dumoulin-Smith: Great. Thanks for taking my question. William J. Fehrman: Yep. Thank you. Thanks, Michael. Operator: Your next question comes from David Keith Arcaro with Morgan Stanley. William J. Fehrman: Good morning. David Keith Arcaro: Let us see. Looking at the 36 gigawatts here that you have got in ERCOT, I was just wondering, are there physical constraints in the grid to consider with all that load coming on by 2030, or labor constraints? I guess, what needs to be done from a transmission investment perspective to actually make sure that it can all come on? William J. Fehrman: Yeah. Really good question, and that goes right to the heart of the thing I believe in most, which is execution around this organization. And as our teams are looking at the requirements to deliver these projects for our customers, we are getting well ahead of the equipment supply and the contracting supply that we need to ensure that we are able to deliver on these projects. Now we know the demand on this is real. The timing will depend on the SB 6 implementation, and some of these could potentially move around. But we are making sure we have the capabilities and resources in place to deliver on these in accordance with what our customers are demanding. And that is fundamental to our business. So I feel very comfortable with where we are at in that regard. We will obviously continue to adjust as the SB 6 implementation moves in and out. But I can guarantee you our team is all over this. David Keith Arcaro: Got it. That is helpful. Thanks. David Keith Arcaro: And obviously, a big inflection, big step change upward here in the ERCOT activity that you are seeing. I was wondering also on the 180 gigawatt overall queue that you have of load, is that also heavily weighted toward ERCOT? Or how is that split where you are seeing the incremental progress on the margin across your service territories? Trevor Ian Mihalik: Yes. Generally, David, what you are seeing is in that roughly 180 gigs, call it roughly about 70 gigs is in David Keith Arcaro: ERCOT. Trevor Ian Mihalik: And then you have got about 20, 25 gigawatts in AEP Ohio, and then about 30 gigawatts in PSO and another 30 gigawatts in APCo, and then 16 in I&M. So you can see it spread around very well around the core states that we have talked about around our growth. And those four states around the growth tend to be Texas, Oklahoma, Ohio, and Indiana. David Keith Arcaro: Got it. Super helpful. Thanks so much. William J. Fehrman: Yeah. Thanks so much. Operator: Our next question comes from Carly S. Davenport with Goldman Sachs. Maybe just to follow up on a few of the questions earlier on the ERCOT growth. Just as you have seen that materialize over the last couple of years, are there any historical data points or rules of thumb you can share just Darcy Reese: about the conversion from LOA to finalized customers taking power? Just trying to get a sense of that conversion rate and any potential risk around the headline there, recognizing you still have the strong backlog to backfill? Carly S. Davenport: Yeah. Carly, I would say Trevor Ian Mihalik: the thing that I would look at for AEP is we have some pretty big large loads associated with some of the data centers that a significant amount of capital is being deployed. As you know, for example, Stargate is in Abilene, and that is squarely in our service territory. So I would say it is not really a rule of thumb I would go by, but really look at more the quality of the counterparties that are stepping forward, making the financial commitments, and signing up for this load. And, again, we feel very, very good about that 36 gigs Carly S. Davenport: in Trevor Ian Mihalik: in Texas that have signed LOAs. And then as I just said to David, you know, almost another 70 gigs behind that. So 100 gigawatts just in Texas alone with really strong hyperscalers and these mega data centers that are coming into our service territory. And then the other thing that I think I would really point out as well is there is a large industrial load in Texas when you think about around the Port of Corpus Christi. There is a large amount of LNG activity there that draws heavily on the load. So that is another 5.1 gigawatts of industrial load that we are seeing in our service territory in Texas. So it is a good dispersion across data centers and industrials as well. Operator: That is helpful. Thank you. And then maybe you just, you had continued strength in the G&M business in ’25. I think earnings came in a bit above your initial expectations there. Darcy Reese: Could you talk a little bit about what you think contributed to that and then just how you would expect those trends to evolve in 2026 and then sort of over the course of the plan? Trevor Ian Mihalik: Yeah. Absolutely. I will let Kate take that question. Operator: Hi, Carly. Good morning. So in G&M in the fourth quarter, it is really two drivers. We had strong performance with margins in our retail business. Darcy Reese: And then in our wholesale business, a number of contracts Kate Sturgess: moved in and out of contracts, so, you know, contract optimization in that business. We do expect some of that to continue into next year. You saw when we released our guidance at EEI, we would still expect that same level of performance for G&M for next year. William J. Fehrman: Yep. Thanks, Carly. Operator: Great. Thank you so much for the time. Your next question comes from Sophie Karp with KeyBanc. Kate Sturgess: A lot of my questions have been answered, Maria. Sophie Karp: I just wanted to have you guys talk a little bit about the potential permitting reform that is brewing in the U.S., I guess, on the federal level. And what kind of opportunities might that unlock in the near and medium term for you? William J. Fehrman: Oh, sure. Thank you for the question on permitting reform. We are deeply engaged with our Senate partners and working towards a solution on permitting reform. I, in fact, was in D.C. yesterday and was visiting with a number of the leadership folks and reinforcing the need for this to really accelerate infrastructure development in this country. Aidan Kelly: Who knows if William J. Fehrman: it will get traction and if it will go, particularly in a manner that would be super helpful to us. But our team is very much engaged with the appropriate parties on this topic, and we have been communicating directly with Secretary Wright at Department of Energy, Secretary Burgum in the Interior, and they understand that something in this area would unleash even more investment faster. So, hopefully, we will get there, but in this environment, it is hard to say. Sophie Karp: Got it. Okay. Thank you. William J. Fehrman: Thank you. Trevor Ian Mihalik: Thanks, Sophie. Thanks. Operator: Your final question comes from Anthony Credel with Mizuho. Just hopefully two quick questions. Steven Isaac Fleishman: One is, I guess last month ERCOT came out with a new batch study, maybe on how large loads connect. Is that really factor into the hookups or your forecast of ERCOT load. William J. Fehrman: So we are deeply engaged on the batch study. We have put in our information and I would say that for us, it is positive. We do not see a significant hindrance in this area, but, again, like any process, we will make sure we are on top of it, and we are pushing it through to make sure we get the right outcomes that we need to support this level of investment. Aidan Kelly: Great. And then I think I am going to Julien Patrick Dumoulin-Smith: add on to Steven Isaac Fleishman: question earlier. You guys talked about maybe supply chain and labor. I am just wondering when you look at the size of 56 gigs, like, I do not doubt that AEP is going to execute and get Julien Patrick Dumoulin-Smith: everything built. But will the generation be there? Like, I worry that you guys are going to clearly execute on it, but then, you know, when you just think of the load of New York City, the hottest day is 13 gig, and Steven Isaac Fleishman: you just look at the magnitude that has been added, just in three months, will the generation be there for the load? William J. Fehrman: Yeah. That is a really, really good question, and that we have obviously been very focused on this. And for our T&D companies, the RTOs are really responsible for the generation, and I would say both PJM and ERCOT have taken very important steps to address the large load generation needs, particularly through PJM’s reliability backstop auction process and then ERCOT’s Senate Bill 6. Clearly, we support efforts to accelerate new generation development, and we also fully support modernization of the transmission and interconnection so that we can get customers connected to load faster and get the new resources built much more quickly and at a lower cost. So as those right reforms come together, we are ready to work with our stakeholders to try and move it along even faster. We really need to work on streamlining how new comes online because we know it is critical for reliability, sort of amid this rapid load growth. But at the end of all this, the one thing I would also say is keep in mind that all this must focus on proper cost allocation. And so our residential customers should not be asked to absorb the higher bills just because the demand is increasing, and in our case, we are making sure that these large load customers bear the cost of any new infrastructure required to serve them. So obviously, generation is going to be critical. We are deeply involved in it. For our load within our own VIUs, we believe we have sufficient resources to meet our current growth projections. We are very focused on working with our commissions to ensure that they understand the priorities, and we are making sure that they support us. We have communicated to them that we have secured over 10 gigawatts of gas-fired generation in the plan. So we are confident on the vertically integrated utility side that we have got the right generation strategy there to serve the loads that are coming on. So, overall, that is clearly a big focus for us. But we are going to stay deeply engaged and work very hard to ensure we have what we need when the load shows up. Steven Isaac Fleishman: Great. Thanks so much for taking my questions. Trevor Ian Mihalik: Thank you, Anthony. Thanks so much, Anthony. Operator: There are no further questions at this time. I will now turn the call back over to Bill for any closing remarks. William J. Fehrman: Well, I would like to thank all of you for participating on our earnings call this morning, and we really appreciate everybody who joined with us. I would like to close with just a couple of summary remarks. As you can tell, super exciting times continue here at AEP, and we are very well prepared for 2026 and beyond. We are driving the business very hard. We are driving it forward with our plan to deliver results on behalf of our customers and our communities and our investors and other stakeholders. We are participating in a very meaningful way to capture this growth, and I am extremely proud of the entire AEP team and all the strong support we received from our Board of Directors. If there are any follow-up items, please reach out to our IR team with your questions, and we look forward to seeing many of you at the upcoming IR conferences and meetings. This concludes our call, and, again, thank you for your interest in AEP. Operator: Ladies and gentlemen, this call will be available for replay for seven days. To access the replay, please dial +1 807-702-2030 or +1 609-800-9909, and enter conference ID 6984853. That concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Independence Realty Trust, Inc. Q4 and Full Year 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. We do request for today's session that you please limit to one question and one follow-up. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star then one again. I would now like to turn the conference over to Stephanie Krewson-Kelly, Head of Investor Relations. You may begin. Good morning, and thank you for joining us to review Independence Realty Trust, Inc. fourth quarter and full year 2025 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer; James J. Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President of Operations; and Jason Lynch, Senior Vice President of Investments. Today's call is being recorded and webcast through the Investors section of our website at irtliving.com, and a replay will be available shortly after this call ends. Stephanie Krewson-Kelly: Before we begin our prepared remarks, I will remind everyone we may make forward-looking statements based on current expectations and beliefs as to future events and financial performance. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Independence Realty Trust, Inc. does not undertake to update them except as may be required by law. Please refer to Independence Realty Trust, Inc.'s press release, supplemental information, and filings with the SEC for further information about these risks. A copy of Independence Realty Trust, Inc.'s earnings press release and supplemental information is attached to Independence Realty Trust, Inc.'s current report on Form 8-K that is available in the Investors section of our website. They contain reconciliations of non-GAAP financial measures referenced on this call to the most direct comparable GAAP financial measure. With that, it is my pleasure to turn the call over to Scott Schaeffer. Thanks, Stephanie, and thank you all for joining us this morning. 2025 was a solid year for Independence Realty Trust, Inc. Scott Schaeffer: During another year of challenging market fundamentals, we delivered same-store NOI growth that exceeded our initial guidance. We also adopted new technologies that will drive operating efficiencies and cost savings for years to come. Some of the most impactful initiatives included implementing our AI leasing agent to support the time and talents of our property teams, fine-tuning how we manage bad debt, and reducing the turn time on our value-add renovations to an average of just 25 days. We also successfully rolled out our Wi-Fi initiative and will be expanding it to 63 communities covering 19,000 units as part of our 2026 plan. On the capital front, last year, we sold two older communities and redeployed the proceeds into three newer communities with higher rental rates and lower CapEx profiles. We profitably exited two joint ventures, and invested into new joint ventures. Lastly, we purchased 1,900,000 of our shares, taking advantage of market dislocation. Because of these and other initiatives, our company is stronger than ever and ready to capitalize on the growth opportunities ahead. So before I say anything else, I want to thank the entire Independence Realty Trust, Inc. team for last year's extraordinary efforts and successes. Regarding capital allocation, we continue to view investments in our value-add program as our best use of capital. In 2025, we renovated 2,003 units, achieving an average unlevered return on investment of 15.3%. In 2026, we expect to renovate between 4,500 units at ROIs that are consistent with our historical results and have added six new communities to the value-add program. We expect market fundamentals to continue to improve across our portfolio of well-located communities in desirable submarkets. In 2026, CoStar forecasts inventory will increase by 2.1% across our markets, weighted by our NOI exposure. This increase is significantly lower than the 3.7% increase in 2025, the 5.9% increase in 2024, and the 3.2% long-term average prior to 2024. Drivers of apartment demand in our markets remain solid. Job growth, population growth, and household formation rates within our markets are expected to outpace the national average for 2026. For example, according to CoStar, job growth across our markets is forecasted to average 60 basis points, double the national average of 30 basis points. Our major markets like Atlanta, Dallas, Indianapolis, and Raleigh are forecasted to achieve 50 to 80 basis points of job growth. This shows that people will continue migrating to our markets for employment opportunities and a better quality of life. As evidenced in the 2025 U-Haul Growth Index, nearly 70% of our NOI is generated from communities located in seven of the ten highest in-migration states. And the high cost of homeownership will continue to support apartment fundamentals. Against this backdrop of improving supply and demand, we see the majority of our markets recovering this year. With that, I will now turn the call over to James J. Sebra. James J. Sebra: Thank you, Scott, and good morning, everyone. Core FFO per share during the fourth quarter and the full year of 2025 was $0.32 and $1.17, respectively, in line with our guidance. Same-store NOI grew 1.8% in the quarter, driven by a 2% increase in same-store revenue and a 2.4% increase in operating expenses over the prior year. For the year, same-store NOI increased 2.4% based on 1.7% growth in revenues and a 50 basis point increase in operating expenses. We are pleased with our performance this year amidst a difficult environment and ultimately delivering better same-store NOI growth than we originally anticipated. As compared to the prior year period, fourth quarter same-store revenue growth was led by a 124 basis point improvement in bad debt over 2024, a 60 basis point increase in average effective monthly rents, and partially offset by a 10 basis point decrease in average occupancy. The year-over-year increase in fourth quarter same-store operating expense was due to higher repairs and maintenance related to a greater volume of turns, timing of certain projects, and increased contract services related primarily to ancillary services offered to residents that were offset by other income. These cost increases were mitigated by overall lower real estate taxes and insurance costs. For the full year, 2025 same-store revenue growth was led by an 80 basis point increase in average effective monthly rents, a 30 basis point increase in average occupancy, and a 70 basis point improvement in bad debt year over year. Same-store operating expenses in 2025 were modestly higher than in 2024 due to higher advertising and contract service costs largely offset by lower insurance and real estate taxes. Sequential point-to-point occupancy during the fourth quarter in our same-store portfolio was stable at 95.6%. Our strategy of having higher year-end occupancy is supporting the solid start to 2026 leasing, which I will address momentarily. Rental rate growth in the quarter was in line with our expectations. New lease trade-outs in the seasonally slower fourth quarter were negative 3.7%, 20 basis points lower sequentially from the third quarter. Renewal rates increased 30 basis points to 2.9% in the quarter and resident retention increased another 100 basis points to 61.4%. Regarding leasing so far in 2026, asking rents in our same-store portfolio have increased 73 basis points since December 31, and new lease trade-outs remain consistent with the fourth quarter. Renewal lease trade-outs in January were 20 basis points higher than in Q4. We are making good progress on our February and March renewals and expect to achieve approximately 3.5% trade-outs for those months. This leasing activity to date is in line with the trajectory of our 1.7% blended effective rental rate growth assumed in our 2026 full year guidance, which I will discuss momentarily. Regarding transactions, during the quarter, we sold the 356-unit community that we had held for sale in Louisville for $15,000,000, reflecting an economic cap rate of 5.2%. Also during the quarter, we entered into a new joint venture in Indianapolis to develop a 318-unit community that is slated for completion during 2027. Subsequent to the quarter, we purchased a 140-unit community in Columbus for $30,000,000, which represented an economic cap rate of 5.6%. The community is located two miles from existing Independence Realty Trust, Inc. communities. We also acquired our JV partner's 10% interest in the Tisdale at Lakeline Station in Austin, Texas, and began consolidating this $115,000,000 asset on our balance sheet. The property is fully developed and currently in lease-up. We have been busy on the capital markets front as well. During the quarter, we allocated $30,000,000 to buy back 1,900,000 of our common shares at an average price of $16 per share. Additionally, we entered into a new $350,000,000 four-year unsecured term loan and used the proceeds to repay our $200,000,000 term loan and mortgages that mature later this year. Our balance sheet remains flexible with strong liquidity. As of December 31, our net debt to adjusted EBITDA ratio was 5.7x, and we intend to continue improving this ratio to the mid to low 5x. Adjusting our full-year stats for the term loan activity I just discussed, we have zero debt maturities between now and 2028. Turning to our outlook for 2026, our markets are in various stages of recovery driven by receding supply pressures and demand fueled by job growth, continued population, and migration into our markets. In this improving leasing environment, we expect to drive NOI growth by capturing recovery market rents and maintaining our focus on operating efficiencies to keep costs low, while providing a well-maintained, safe environment for our residents and their families. We are establishing full-year EPS guidance of between $0.21 and $0.28 per share and core FFO guidance in the range of $1.12 to $1.16 per share. The bridge from our $1.17 starting point of core FFO in 2025 to the $1.14 midpoint of our 2026 guidance includes the following components: a $0.01 increase from same-store NOI growth and a $0.01 increase in non-same-store NOI growth. These two are offset by $0.01 from lower preferred income from our joint ventures during the year, $0.03 of higher interest expense caused primarily by lower levels of capitalized interest, incremental interest expense from recent acquisitions, and the expiration of our 2026 SOFR swap, and $0.01 associated with higher corporate costs reflective of inflationary pressures and increased training and development costs for our community teams. Our 2026 guidance assumes same-store NOI increases 80 basis points at the midpoint driven by 1.7% same-store revenue growth and a 5.1% increase in controllable operating expenses, and a 50 basis point increase in noncontrollable operating expenses, resulting in overall a 3.4% increase in total same-store operating expenses for the year. The midpoint of our same-store rental revenue growth of 1.7% is based on the following assumptions: average occupancy of 95.5%, an average increase of 20 basis points from 2025; bad debt of 90 basis points of revenue, which is approximately 20 basis points lower than 2025; a 5.4% increase in other income, primarily comprised of the incremental revenue from our Wi-Fi program of $5,500,000, which is expected to commence in July 2026; and lastly, a blended effective rent growth of 1.7%. Operator: Our blended rental rate growth assumption James J. Sebra: is comprised of new lease trade-outs of negative 75 basis points and a renewal trade-out of 3.25%, along with a resident retention rate of 60%. As part of our rental rate expectation, we are expecting that market rents will increase approximately 1.5% to 2%. Operating expenses are expected to grow 3.4% at the midpoint, driven by a 5.1% increase in controllable operating expenses and a 50 basis point increase in property tax and insurance expense. The 5.1% increase in controllable operating expenses includes $1,900,000 of Wi-Fi contract costs in our contract services line item. Excluding the Wi-Fi costs, our controllable expenses are increasing 3.5%. The 50 basis point increase in noncontrollable costs is comprised of a 2.6% increase in real estate taxes and an 11.5% decrease in property insurance costs. Our non-same-store portfolio to start 2026 consists of eight communities aggregating 2,541 units. Two of these communities are currently held for sale and are expected to be sold by midyear. The remaining six communities include two communities that are in lease-up: our legacy development deal in Bloomfield, Colorado, and our most recent JV acquisition in Austin, Texas. Both of these deals are leasing up, albeit at a slower pace than anticipated and with larger concessions than we previously modeled. We expect both these communities will reach their targeted NOI just later than expected, as rent growth will come once the communities hit a stabilized occupancy. Overall, for 2026, the midpoint of our guidance assumes non-same-store NOI of between $25,000,000 to $26,000,000. G&A and property management expense guidance for the full year is $56,000,000, reflecting standard inflationary growth and incremental costs associated with expanded training and development of our community teams. We forecast an $8,000,000 increase in interest expense driven primarily by $3,000,000 of higher interest expenses associated with our net acquisitions last year and our two acquisitions earlier this year, $3,900,000 of lower expected capitalized interest on development projects, and $1,000,000 associated with hedges burning off. Scott, back to you. Scott Schaeffer: Thanks, Jim. The outlook for 2026 is meaningfully better than 2025. Some headwinds remain in a few markets where supply is still being absorbed, but in all cases, market fundamentals are improving. Demand in our submarkets continues to be driven by population and job growth that exceed the national average. People continue to migrate to the Sun Belt and Midwest for jobs and quality of life. And the lower cost of renting favors apartment demand. We will maintain our focus on operational stability and efficiency to maximize the flow of revenue growth to the bottom line, and we will remain nimble and disciplined in allocating capital to the highest and best uses to create value for shareholders. We thank you for joining us today. Operator, you can now open the call for questions. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is now open. Please go ahead. James J. Sebra: Hey. Good morning, guys. Jim, just curious how the new lease rate growth assumption, 75 basis point decrease this year, does that fully incorporate that you capture the 1% to 2% market rent growth? And then can you break out how that 75 basis points is comprised for the first half of the year and then the back half of the year? Yeah. Great question. Thank you for, Austin, obviously, the insight. The 75 basis points of new lease obviously starts negative in January, like I kind of mentioned, very consistent with fourth quarter, and continues to get better throughout the year. The new lease growth that we have got baked into guidance for the first half of the year is down about 2.25%. And then the second half of the year, it is up roughly 75 basis points, such that for the year, new lease growth is about—sorry—negative 75 basis points for the year. And that does assume that you capture—I do not know the exact, I cannot remember the exact percentage—but a vast majority of that market rent growth. That is helpful. And then just on the non-same-store pool, I mean, can you talk a little bit about how that stacks up, I guess, versus the same-store pool? It sounds like you have a little bit of slower growth there from some of the drag on the lease-up. But is there any conservatism in that figure based on what you have experienced more recently? And just trying to think about, you know, kind of the brackets on upside downside risk for that pool of assets. Stephanie Krewson-Kelly: Thanks. James J. Sebra: Yes. Great question. I will break it into two components. Janice Richards: Obviously, the same-store properties that we bought last—I'm sorry—the non-same-store that we bought last year are very much performing kind of in line with our expectations. The two deals that are in development are behind where we want them to be from a lease perspective and from, obviously, as I mentioned, a little bit higher concessionary environment. They are both—the guidance numbers assume some conservatism in the buildup of that NOI throughout the year. Specifically, the deal we bought in Austin—the JV we took over in Austin—our expectation is that we will probably end up selling that asset maybe later this year and really begin to kind of cut off some of that drag. But, again, for guidance purposes, it is assumed that we own it for the full year. Stephanie Krewson-Kelly: Understood. James J. Sebra: For the time. Operator: Your next question comes from the line of James Colin Feldman with Wells Fargo. Please go ahead. James J. Sebra: Great. Thanks for taking the question and good morning. Can you talk about the impact of concessions burning off and what you think that will do to help your rent growth projections? And if you could provide any more color on just your confidence in going from the minus two and a quarter to the plus 75, that would be helpful too. Janice Richards: Yeah. No. Great. I will start with the last one. The new lease trend is obviously very much a function of just asking rent trends throughout the year and then, obviously, the expiring rents in each month. As I mentioned in the prepared remarks, our asking rents in January are up 75 basis points from where they were at December 31. As I mentioned earlier, the market rent growth assumption is about 1.5%. We are halfway there. And, obviously, the year has to continue to play out. But we are quite excited to see the strength in the asking rent growth so far this year. When you look at where the asking rents are today versus the expiring rents out month by month throughout the year, you pretty much hit that kind of breakeven point June/July time frame, you turn positive on new lease trade-outs in the back half of the year. From a concession standpoint, we do assume lower concessions in the back half of the year. I do not have the exact improvement at my fingertips, so I will get back to you on that one. But I think, ultimately, it does produce better comps for us in terms of the ability to grow that rental rate, specifically on renewals in the back half of the year. But I just want to be clear. There has been some conservatism baked into what those renewals are just because we want to make sure we had James Colin Feldman: Okay. And then I guess just turning to the markets, James J. Sebra: I think you said most of your markets will be in recovery this year. Can you just talk about some that are the standouts on both the best markets that are kind of surprising you to the upside and where you think the drags will be? And then maybe focus specifically on the Midwest markets where you have unique exposure. Stephanie Krewson-Kelly: Absolutely. So the Midwest—Columbus, Indiana, Kentucky—delivered consistent performance throughout 2025. Operator: Anticipate this to continue in 2026, and all signs and starting point indicate that. And all throughout 2026. Stephanie Krewson-Kelly: Consistent performance, yeah. Operator: Some of our emerging markets, as we would say, is Atlanta showing strong fundamentals Stephanie Krewson-Kelly: delivering a 100 basis points improvement in occupancy and 490 basis point expansion in blended growth from January 2025 to December 2025. James Colin Feldman: So we are positioned to continue this growth Stephanie Krewson-Kelly: and momentum in 2026. Operator: Nashville has maintained stable occupancy through 2025. It created the ability to have pricing power in the second half of the year. Delivered a 280 basis point expansion in blended growth from January 2025 to December 2025. Dallas occupancy remained stable as well through 2025, providing consistent foundation. Stephanie Krewson-Kelly: Blended rent growth is showing momentum. As alluded to, we are excited about the asking rent momentum we are seeing through the start of 2026. So there are clear signs that the market inflection is on its way, and we are anticipating the comparison in the second half of 2026. Operator: Raleigh blended rent growth momentum is building here. Net absorption is projected to be positive in 2026. Stephanie Krewson-Kelly: And so we anticipate seeing that inflection point in 2026 as well. Some of the markets that are weaker are Operator: Memphis. Memphis is facing a slower macro growth environment in 2026, with jobs and population. However, we are going to remain focused on protecting that occupancy while we wait for gradual improvement in the fundamentals Stephanie Krewson-Kelly: and fundamentals start to recover. Operator: New supply is elevated in Denver and in our submarkets. Lease-ups are taking a little longer to stabilize, as we mentioned with Flatiron. And concessions are remaining above normalized levels. Stephanie Krewson-Kelly: We believe primarily this is due to timing of delivery—sorry. Our focus in 2026 is disciplined occupancy management as the market works through the supply, and we position ourselves for 2027. James Colin Feldman: Okay. Great. Thanks for all that color. Janice Richards: Yeah. Jamie, just a quick follow-up. Obviously, the market performance and the new lease performance go, obviously, hand in hand. But when you look at 2024 to 2025 and our thinking about 2026 guidance, there is acceleration in new lease trade-outs in eight of our ten top markets, just to put a finer point on how excited we are about what we see coming and the acceleration of asking rents and the burn-off of—or I should say where the expiring rents are relative to those asking rents. James Colin Feldman: Alright. Thank you. Your next question comes from the line of Eric Jon Wolfe with Citi. Operator: Please go ahead. James J. Sebra: Hi. Thanks. You mentioned that market rent growth was up 75 basis points in January from December. Is that a relatively normal increase from December? Just trying to put it into context with what you normally see at this time of year and maybe what you have Janice Richards: seen over the last couple of months? Eric Jon Wolfe: So Janice Richards: it is probably a little bit faster pace than what we would normally see in the seasonally slower period of January. It is slower, though, than what we saw in January last year. So it gives us confidence that we are back to—while it is a little bit faster pace, it is not as fast or as extreme as it was in January last year. So it gives us confidence that the asking rent growth could firm up in this area. Eric Jon Wolfe: Got it. And then could you talk about how you set your bad debt guidance? Maybe how it trended fourth quarter, where you ended the year, and what you are expecting in 2026 relative to 2025. Janice Richards: Yeah. Great question. For the year of last year, we ended at 110 basis points of revenue. The fourth quarter alone ended at 72 basis points of revenue. For purposes of setting guidance for 2026, we assumed 90 basis points of revenue, starting a little higher in the first quarter—so call it somewhere in the 100 basis point range—and then stepping down to the 80–70 basis point range in 2026. Eric Jon Wolfe: Got it. Eric Jon Wolfe: Thank you. Operator: Next question comes from the line of Bradley Barrett Heffern with RBC Capital Markets. Please go ahead. Eric Jon Wolfe: Yeah. Hey. Good morning, everyone. This is a follow-on to the last question. You said last January had stronger growth than this January did. Obviously, last year, that proved to be kind of a head fake. So I guess what gives you confidence that we are not in a similar situation this time? Janice Richards: Yeah. Well, the asking rent growth in early January of last year was probably three times as high as it is today. We also see just a little more stability around the demand picture. We do not see the ebb and flow that we saw in January and February last year. Eric Jon Wolfe: Okay. Got it. Then you have a couple of assets designated for sale. Do you have a likely use of those proceeds at this point? Janice Richards: We do not have a use of proceeds. We obviously assumed in guidance that they are sold in the middle of the year. And we will use the capital to either acquire something else, delever, or buy back stock. Eric Jon Wolfe: Okay. Thanks. Operator: Your next question comes from the line of Ami Probandt with UBS. Please go ahead. Thanks. I was hoping that you could break down the blended spread forecast into a Sun Belt and Midwest buckets. And then if you could comment on what impact value-add has on the blends, that would be great. Thank you. Janice Richards: Value-add impact on the blends, I will start with that one first. We have a bunch of properties in the value-add program. They do get a nice premium over comps. It is supporting the blend by roughly 70 basis points on the individual units, but for the overall blends, about 20 to 30 basis points of support. In terms of the blended rental rate growth trajectory throughout the year, we expect it to be about 1% in the first half of the year, about 2.5% in the second half of the year. In terms of looking at the individual market growth between the Sun Belt markets, the Midwest markets, and Denver, we expect negative overall blended rent growth in Denver throughout the year simply because, as I mentioned, the overall supply pressures and what it is expected to do on new lease growth. In terms of the Midwest, we expect the blends for the full year to be right around 2.5% to 3%, really supporting it. And then the Sun Belt, you are just under 2%. Operator: Thanks for that. And then how does the lower supply environment impact your decisions around capital allocation for redevelopment? And do you typically see higher returns on redevelopment in the lower supply environment? James J. Sebra: Yes. Of course. Because the Scott Schaeffer: redeveloped units are competing directly with the newer product. With less newer product, we will have better pricing power on our renovated units. Operator: Are you able to provide any context how much higher the returns could be? Scott Schaeffer: Well, last year, the return on investment was about 15.3%. And in years prior to all of this supply hitting, we were in the high teens, 18%–19%, and then in a couple of years, even north of 20%. Stephanie Krewson-Kelly: Correct. Operator: Great. Thank you. Your next question comes from the line of Omotayo Tejumade Okusanya with Bank. Please go ahead. Stephanie Krewson-Kelly: Yes. Good morning, everyone. Was wondering if you could talk James J. Sebra: was wondering if you could talk a little bit about the same-store OpEx guide for 2026. Omotayo Tejumade Okusanya: I think, again, the controllable expenses—you did talk a little bit about the Wi-Fi program having some impact on it. But even ex the Wi-Fi, still about 3.5%, which is kind of higher than where you trended recently. So just kind of curious what else is trending up within those controllable expenses? Janice Richards: Yeah. No. Great question. I think if you look at the rest of the controllable expenses, the increases are primarily heavier increases that I would say above inflationary, primarily in payroll and utilities. They are the other drivers. But, again, even as I mentioned in the prepared remarks, if you remove the cost of the Wi-Fi program, your controllable expenses are only growing about 3.5%. But it is really the payroll and the utilities pushing up a little bit. Omotayo Tejumade Okusanya: And then payroll is because you are hiring more people or you are paying to compete with the market? Just kind of curious what is happening there. Janice Richards: So it is a variety of things. It is primarily inflationary increases for the team members. It is also increased incentive compensation to drive results. Those are the key drivers. There is also a little bit of—there were some benefits in healthcare savings in 2025 that are not expected to repeat in 2026. But I think the overall increase in payroll is in the 6% to 7% range, which is almost entirely driven by some of that savings on benefit programs in 2025. Omotayo Tejumade Okusanya: Okay. That is helpful. And then development spend and guidance as well. I mean, you only have one development project left. It is pretty much almost complete. You are already in lease-up mode on that project. I think you were still forecasting a meaningful amount of development spend in 2026. I am kind of curious what that pertains to. Janice Richards: We were not forecasting development spend in 2026. But you are right. We did have one final on-balance-sheet development called Flatirons. That one was completed, and all of that development spend has been incurred. So there is not really an expected increased development spend this year. We obviously continue to expect to spend redevelopment money on value-add programs, but not development money. Stephanie Krewson-Kelly: Gotcha. Okay. That is helpful. Omotayo Tejumade Okusanya: And then, sticking with the redevs, for the 2026 guidance, again, good to see the amount of units that are going to probably be up versus 2025, but curious what kind of yields are being assumed, again, just given some of the yield pressure that we have seen in this past year or so. Janice Richards: So I apologize. We will have to make this your last question so we can get to some other analysts. But, ultimately, on the redev, we did about 2,000 units in 2025. We are planning to do somewhere in the 2,000 to 2,500 units in 2026. The ROIs that we assumed on the six new properties that we are adding to the redevelopment program were very consistent with historical trends of that 15%–16%. As Scott mentioned earlier, as the market cycles come back and the supply pressures wane, we should be able to see more pricing power in our redevelopment program and, therefore, be able to compete more directly with some of the Class A stuff and even generate higher returns. Omotayo Tejumade Okusanya: Thank you. Stephanie Krewson-Kelly: Thanks. Your next question comes from the line of John Kim Operator: with BMO Capital Markets. Please go ahead. Janice Richards: Thank you. Just James J. Sebra: going to your Flatiron development, it is expected to be a drag this year as you lease up the asset and you are expensing the interest. John Kim: But where do you see occupancy stabilizing in terms of timing? Then maybe if you could just comment on why it has taken longer to lease up the asset. Sure. I will Janice Richards: the occupancy forecast—the guidance assumes that we hit occupancy at about 90% in the month of June. That is about a quarter behind expectations and certainly not fully stabilized yet, but at 90%, we would want to see 93%–95%. But I think the other component of just the drag on earnings is lower actual rents we are signing and having higher concessions. Janice, if you want to add anything, feel free. Operator: I think we are seeing the submarket as a whole in Broomfield. Stephanie Krewson-Kelly: Obviously, there has been an onslaught of supply in that market that kind of all Operator: came Stephanie Krewson-Kelly: to fruition at the same time. And so we are really just working through that fundamental. We are seeing high conversion of the leads that are coming through the door. Tours are strong. And so with that Operator: continued momentum, we see that we are going to hit that stabilized marker. John Kim: And then just going back to your blended guidance, you are expecting, I guess, a pickup in the second half of the year. And that goes against what you have experienced the last few years where blended rents have kind of peaked in the first half. I understand there are the easier comps and concessions, but what other assumptions do you have in terms of the dynamics and getting that improvement later in this year? Janice Richards: I think it is primarily obviously better comps in the back half of the year. Just like I mentioned before, a little bit lower concessionary expectations. We also think, generally speaking, the market rent growth is going to be better in the second half of the year simply because supply pressures are less, and then all the lease-up deliveries that have happened should be leased up by then, really further enhancing the opportunity for pricing power. James Colin Feldman: Okay. Thank you. Operator: Your next question comes from the line of John Pawlowski with Green Street. Please go ahead. Eric Jon Wolfe: Thanks. Good morning. Jim, it would be helpful to hear what kind of balance between fixed and floating rate debt you are going to target in the next James J. Sebra: about two to three years. Do you have a significant amount of swaps or collars expiring, as well as just the duration of debt with maturities in 2028–2029? Would love to hear your strategy in the next couple of years. Janice Richards: Great question. Obviously, we just did this $350,000,000 bank term loan—we thank all of our banking partners for participating in that. The expectation we had this year was that when all the debt that was returning this year, we would be hitting the investment grade market, which is why we got the rating a few years ago. Obviously, the investment grade costs are much more expensive today than where a floating-rate environment is, and we actually are okay being a little more floating rate in today's environment than trying to fix everything. We want to be able to enjoy some of that expected—either where SOFR is today relative to Treasuries or a potentially declining SOFR curve over the next few months and quarters, again, depending on what the Fed decides to do. For the 2028 maturities, our goal is to be in the investment grade market for some or all of those expirations. When we hit it and how fast we hit it or how sizable the individual bond issuance is will depend. But the goal is to—many of those maturities are going to start happening in 2028—are mortgages. That will improve the unencumbered pool and potentially allow us to further enhance our rating profile and maybe even secure a better rating. Eric Jon Wolfe: Okay. That helps. James J. Sebra: So we should assume, I think— John Pawlowski: maybe you already took this swap out or it rolled—but James J. Sebra: about $250,000,000 in swaps maturing this year. We should expect you guys just roll to floating rate debt. Janice Richards: So there are two swaps maturing this year. There is one that is maturing in March 2026. That was a one-year swap we put in place last year simply because of where we saw the interest rate curve for one year and wanting to protect our interest expense during 2025 versus where we saw maybe the interest curve may not be as steep. The actual cuts were not going to happen as planned, and we thankfully won on that swap from a cash flow perspective. We are not anticipating redoing that swap. We are going to stay floating. And we will enjoy about a 30 basis point improvement on the underlying SOFR from the 3.9% that we were swapped at to the 3.6% that SOFR is today. For the June swap that is maturing of $150,000,000, we have already put a forward-starting swap in place. That swap that is maturing is 2.2%, and we have put a new swap in place that is swapping at 3.25% SOFR. Eric Jon Wolfe: Okay. Janice Richards: Thanks for all the color. We are not, at this point, anticipating putting any other swaps in place. That being said, we are watching the interest rate markets like a hawk, and we will continue to protect as best we can the interest rate expense going forward. Eric Jon Wolfe: Okay. Thanks. Operator: Your last question comes from the line of Mason Guell with Baird. Please go ahead. John Kim: Hey. Good morning, everyone. James J. Sebra: For your Mustang joint venture property in Dallas, is the call option period open? What are your thoughts on exercising the call, and what is the forward NOI yield? So, yes, the call option is open. When we look at where that property would trade today, or be valued today, it is still at a cap rate that is not our best use of capital to buy it. So I would anticipate that property being sold this year because we can use that capital in better ways, again, as Jim said, through deleveraging and/or buying back our shares. Janice Richards: Better ways relative to owning that asset. James J. Sebra: To owning that asset. Correct. John Kim: Great. And then, kind of following on that, you have repurchased Michael Gorman: some shares in the quarter. Kind of talk about your thought process for doing so? Janice Richards: Sure. Obviously, like a lot of our peers, there is a fundamental disconnect between implied cap rates and market cap rates. We looked at that as a good opportunity to take capital or earnings from non-EBITDA generating sources and use that capital to buy back stock. If you sell an asset, you lose the EBITDA and the earnings. We are very much focused on the long term. Ever since our start, we have always said we are going to be patient and disciplined, and we are going to continue to be that way. That being said, we did have a lot of capital that came in last year from the sale of one of our joint venture assets as well as the embedded gain that existed in the forward contracts. We took those proceeds and used that to buy back stock in a positive and accretive way for shareholders. Great. Thank you. Operator: There are no questions at this time. I would now like to turn the call back over to Scott Schaeffer, CEO, for closing remarks. James J. Sebra: Well, thank you all for joining us this morning. I just want to reiterate how excited we are about 2026 and the forward trajectory that we see for our portfolio. Thanks for joining us, and we look forward to speaking with you next quarter. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the LXP Industrial Trust Fourth Quarter 2025 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply 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 Heather Gentry, Investor Relations. Please go ahead. Heather Gentry: Thank you, operator. Welcome to LXP Industrial Trust Fourth Quarter 2025 Earnings Conference Call and Webcast. The earnings release was distributed this morning. Both the release and quarterly supplemental are available on our website at www.lxp.com in the Investors section and will be furnished to the SEC on a Form 8-K. Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP Industrial Trust believes that these statements are based on reasonable assumptions. However, certain factors and risks, including those included in today's earnings press release, and those described in reports that LXP Industrial Trust files with the SEC from time to time, could cause LXP Industrial Trust’s actual results to differ materially from those expressed or implied by such statements. Except as required by law, LXP Industrial Trust does not undertake a duty to update any forward-looking statements. In the earnings press release and quarterly supplemental disclosure package, LXP Industrial Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders and unitholders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP Industrial Trust’s historical or future financial performance, financial position, or cash flow. On today's call, T. Wilson Eglin, Chairman and CEO, and Nathan Brunner, CFO, will provide a recent business update and commentary on fourth quarter results. Brendan Mullinix, CIO, and James Dudley, Executive Vice President and Director of Asset Management, will be available for the Q&A portion of this call. I will now turn the call over to T. Wilson Eglin. Thank you. T. Wilson Eglin: Thank you, Heather. Good morning, everyone. Our fourth quarter marked the conclusion of a successful year, driven by meaningful achievements in leasing, healthy occupancy gains, strategic property sales, and continued progress strengthening our balance sheet. We delivered on our key operating objectives in 2025, notably reducing leverage from 5.9 times to 4.9 times net debt to adjusted EBITDA and increasing occupancy 350 basis points to 97.1%. Additionally, we leased nearly 5,000,000 square feet in 2025 with attractive mark-to-market outcomes of approximately 28% on a cash basis, excluding fixed rate renewals. We were encouraged to see market fundamentals continue to improve during fourth quarter, with our target markets driving over 66% of the overall U.S. net absorption of about 54,000,000 square feet. Larger users made up the bulk of the demand, favoring facilities exceeding 500,000 square feet that built within the last five years. Several of our target markets, including Phoenix, Indianapolis, Dallas–Fort Worth, and Houston, led this demand. Reflective of an improving leasing market, in the fourth quarter, we leased over 2,000,000 square feet at attractive base and cash-based rental increases of approximately 27% and 23%, respectively, excluding fixed rate renewals. We have also made good progress on our 2026 expirations. To date, we have addressed roughly 3,000,000 square feet, or 41% of our total 2026 rollover, achieving an average cash rental increase of approximately 28%, excluding two fixed rate renewals. On the sales front, we exited five non-target markets in 2025 and continue to prioritize investing in our 12 target markets, which currently account for 87% of our gross book value. Total disposition volume for the year was $389,000,000, including $116,000,000 from non-target market sales in the fourth quarter, with an average cash capitalization rate of 5.7% on stabilized assets sold during 2025. This volume included the sale of our Indianapolis and Ocala development properties to a user buyer in September at an implied capitalization rate of approximately 5% and a 20% premium to our cost basis. The capital generated from asset sales was primarily deployed to strengthen our balance sheet by reducing high coupon debt. Additionally, we acquired one property for a 1031 exchange requirement in September and repurchased approximately 277,000 shares at an average price of $49.47 in December 2025 and January 2026. At year end, we held approximately $170,000,000 in cash on our balance sheet. While cash balances are currently weighing on earnings, we believe liquidity is valuable as we head into a period we can create significant value in our land bank. Strengthening our balance sheet was one of our primary objectives in 2025. We successfully accomplished this goal and entered 2026 in a strong financial position. Our capital allocation priorities will now primarily focus on disciplined investment and external growth opportunities, mainly in our land bank, and executing opportunistic share repurchases, provided they do not impact the balance sheet progress we made in 2025. Acquisition activity is expected to be limited to 1031 exchanges, which may happen from time to time as we exit non-target markets. Through our development program, we have developed 15 facilities since 2019 at a 7.1% weighted average stabilized yield on first-generation leases and generated sale proceeds of $91,000,000 in excess of our cost basis. At year end, our development program was 98% leased or sold. We have continued to closely monitor market fundamentals where we own development land, evaluating both build-to-suit and speculative development opportunities. In the West Valley of Phoenix, where we own a 315-acre land site, we have observed an acceleration in leasing activity for facilities over 1,000,000 square feet. Eighteen months ago, there were ten 1,000,000-square-foot buildings available in the West Valley. Since then, eight of these buildings have leased or sold to users, and the remaining two are in advanced stages of negotiations. Consequently, there will be no 1,000,000-square-foot facilities available in the West Valley, and nothing is currently under construction. In addition, construction costs are roughly $20 per square foot lower than they were at the market peak on a 1,000,000-square-foot spec project. With this favorable backdrop, we will be breaking ground on our Phoenix land site. Project completion is anticipated for 2027, with an estimated budget of $120,000,000 and a stabilized cash yield within a range of 7% to 7.5%. In summary, we successfully executed our core strategic initiatives in 2025, including enhancing our balance sheet, addressing vacancy at our three big box development properties, increasing portfolio occupancy, and achieving attractive leasing outcomes. In 2026, our priorities will center on strategic capital deployment, specifically pursuing disciplined growth opportunities, making opportunistic share repurchases, leasing our remaining vacancies, and generating robust mark-to-market outcomes. Our high-quality portfolio, consisting primarily of Class A assets in the Sun Belt and Lower Midwest, is well positioned to benefit from improving market fundamentals and the positive momentum associated with advanced manufacturing investments. I will now turn the call over to Nathan, who will provide a more detailed overview of our financials, leasing activities, and balance sheet. Thanks, Will. Nathan Brunner: Adjusted company FFO in the fourth quarter was $0.79 per diluted common share, or approximately $47,000,000. For the full year, we produced adjusted company FFO of $3.15 per diluted common share, or $187,000,000. This morning, we announced our 2026 adjusted company FFO guidance range of $3.22 to $3.37 per common share, which represents 4.6% growth at the midpoint. This guidance assumes the proceeds from the properties sold in the fourth quarter will be redeployed into the development project in Phoenix, although these asset sales and capital redeployment are a drag to 2026 FFO, that will be a source of earnings growth in future years. Our guidance does not assume any other dispositions or investment activity. Our portfolio occupancy increased to 97.1% at year end, compared to 93.6% at year end 2024, primarily reflecting the successful outcomes for the three big box development properties in 2025. Turning to the same-store portfolio, full-year same-store NOI growth was 2.9% and flat in the fourth quarter when compared to the same time periods in 2024. Consistent with our commentary on our last earnings call, our fourth quarter same-store NOI growth reflects lower occupancy in the same-store portfolio of 97.3% as of year end 2025 versus 99.5% in 2024. We are estimating 2026 same-store NOI growth to be within a range of 1.5% to 2.5%. At the midpoint of 2%, the components of same-store growth include a positive contribution of 3.25% from contractual rental escalators and lease renewals, offset by a 1.25% impact associated with lower occupancy and higher rent concessions in the form of free rent. Our 2026 guidance range assumes average occupancy in the same-store pool of 96% to 97% versus average occupancy for this same pool of properties of just over 97% in 2025. The low end of our adjusted company FFO and same-store guidance assumes $500,000 of credit loss. G&A was approximately $11,000,000 in the quarter, with full-year 2025 G&A of $40,000,000 within our expected range. We expect 2026 G&A to be within a range of $39,000,000 to $41,000,000, broadly in line with 2025. Turning to leasing, our current mark-to-market on leases expiring through 2030 and second-generation vacancy is compelling, with in-place rents approximately 16% below market based on brokers’ estimates. As a reminder, this mark-to-market metric is inclusive of fixed rate renewals. With respect to 2025 expirations, during the fourth quarter, we secured a new ten-year lease with 3.5% annual rental bumps at our 380,000-square-foot facility in the Indianapolis market. The lease expired in July, but the previous tenant held over through the end of September. The new lease yielded a 34% increase in rent over the prior rent. The positive contribution of this new lease to same-store NOI growth will be recognized beginning in 2026, reflecting concessions associated with the ten-year lease term. At year end, the tenant at a 160,000-square-foot facility in Phoenix moved out. This is a modern building with highway frontage, and we expect the releasing of the building to produce a 40% to 50% rental increase. Moving on to 2026 expirations, we signed two leases during the quarter, including our 650,000-square-foot facility in Cleveland and 769,000-square-foot facility in St. Louis. Both were subject to fixed rate renewals with 2.5% and 1.5% annual escalators, respectively. The extension of these leases is positive for occupancy and uninterrupted cash flow, particularly given the absence of leasing concessions. Additionally, we renewed our 194,000-square-foot facility in Cincinnati and a 70,000-square-foot facility in the Greenville–Spartanburg market, generating cash rent spreads of approximately 15% to 7%, respectively. For 2026, we have two known move-outs, including 121,000 square feet at our multi-tenant facility in Greenville–Spartanburg that expired at the January and a 230,000-square-foot facility in Tampa scheduled to expire this month. The Tampa facility is in an infill location within the sought-after Sable Business Park. There are no other properties of this size available in the market currently. Given the older vintage of the facility, we will be undertaking some renovations, including the addition of rail capabilities, which we expect to result in a rent increase of 10% to 20% over the existing rent. We have assumed in our same-store growth guidance that this property remains vacant for 2026. Our 600,000 square feet of redevelopment projects in Orlando and Richmond are progressing well. Completion of the Richmond project is expected in the second quarter, while Orlando is now slated for the third quarter. Both properties are anticipated to produce yields on cost in the low teens. Our balance sheet is in terrific shape, with net debt to adjusted EBITDA at 4.9 times at year end. Reflecting this strength, S&P Global Ratings revised LXP Industrial Trust’s outlook to positive in the fourth quarter. Over the course of the year, we repaid approximately $220,000,000 of debt, which included $140,000,000 of our 6.75% senior notes due 2028 pursuant to a cash tender offer in the fourth quarter. Subsequent to quarter end, we recast our $600,000,000 revolving credit facility and $250,000,000 term loan, extending the initial maturities to January 2030 and January 2029, respectively. The new debt facilities extend our debt maturity profile and reduce interest costs, further advancing the progress we made on the balance sheet in 2025. With that, I will turn the call back over to Will. T. Wilson Eglin: Thanks, Nathan. In closing, we are pleased with the success we had in 2025 and are focused on building on our momentum in 2026. While it has been several years since we have seen attractive development opportunities that make sense for LXP Industrial Trust, we are excited to capitalize on improving market dynamics by pursuing disciplined external growth opportunities. At the same time, we remain focused on leasing and producing favorable mark-to-market outcomes that drive enhanced value for shareholders. With that, I will turn the call back over to the operator. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. T. Wilson Eglin: Your first question— Operator: —comes from the line of Jim Kummert with Evercore ISI. Please go ahead. T. Wilson Eglin: Hi. Good morning. Thank you. Real interesting on your planned development here in Phoenix, Dreams and Olive. I am just curious, obviously it sounds like the market has definitely improved. Do you have sort of a quiet list of prospects that you are talking to already? I mean, this is a big project. It is a large project. You have not done—you know, the supply–demand equation there is really favorable for us, as is the lower construction cost. So it would not be surprising to me if there was interest in the facility before it is finished. And there are prospects hunting for that size space now, and there really are not any choices. So we think it is an extremely good setup for us and almost the best one that I have seen, candidly. Interesting. And you are using about 65 acres if I interpret your presentation materials. So you just kind of left it— Brendan Mullinix: Net 240, so there could be more in the future? Nathan Brunner: Of development. Yes. Yes. Thank you. Operator: Your next question— Nathan Brunner: —comes from the line of— Operator: —Todd Thomas with KeyBanc Capital Markets. Please go ahead. T. Wilson Eglin: Hi. Thanks. Good morning. Maybe for Nathan, I just wanted to ask about the full-year same-store NOI growth that— Todd Thomas: —2.9%—you know, was unchanged in the quarter. For the full year, though, it came in a touch below your prior forecast, 3% to 3.5%, which was revised lower last quarter from 3% to 4%. I am just curious, in terms of the trends later in the year, what drove that miss versus your budget, if you could talk about that a little bit? Nathan Brunner: Yeah. Thanks, Todd. So, actually, our year-end same-store occupancy of 97.3% is actually within the range of expectations that the 3% to 3.5% range was set on. The difference between the final result of the 2.9% and the low end of guidance of 3% was about $200,000. That variance was primarily driven by marginally higher property expense leakage across about half a dozen properties. Some of them—two or three of them—are vacant properties where we are carrying the full OpEx burden, and two or three of them are leased properties that have property expense caps in the leases where we had some unbudgeted expenses that ultimately went through the caps. Todd Thomas: Okay. Helpful. Is that expense leakage— you did not mention that when you talked about the same-store forecast for 2026. Is that expected to continue to weigh on 2026 to some extent? And then you did mention that concessions are acting as a little bit of an offset to the base rent and escalators in 2026. Are concessions a little bit greater than previously anticipated, and can you maybe speak to the environment for concessions more broadly? Nathan Brunner: Sure. I will take the first piece, and I will hand it to James to talk about concessions and the environment. On the first piece, we certainly updated our budgeting for the property expenses that we experienced in Q4 and reflected that in the forecast of the guidance we put out this morning. T. Wilson Eglin: So on the concession piece, I would just say that the market is changing pretty rapidly. And if you look at what happened in anything that was done in kind of the first half of last year and early into the third quarter, there are some pretty high-level concessions just because— Nathan Brunner: —the supply–demand outlook was a little bit softer than it is now. James Dudley: Over the last six months, we have had a massive amount of space get taken down. We have had vacancy rates in most of our markets start to either flatten and in many cases start to decline. So I do think the concessions will continue to be a part of the story, but I do think we are in an environment where some of the concessions that were given twelve months ago will start to recede and soften a bit, and we will get into a situation that is a little bit more landlord favorable. Todd Thomas: Okay. That is helpful. And then I just lastly wanted to ask about transaction activity and capital allocation a little bit. It sounds like acquisitions going forward will be driven by dispositions. And I just wanted to get your thoughts on what that might look like and the potential to exit more non-target markets in 2026, and maybe you can sort of speak to how that activity might stack up versus additional stock buybacks? T. Wilson Eglin: Sure. Well, as you can see, we have been methodically working our way through that portfolio of assets outside of our 12 target markets and taking our time and being sure that we are maximizing value and managing those proceeds to enhance shareholder value. So often, there is an asset management project involved as a gating item before maximizing value. And I would say there are a couple of $100,000,000 assets in that portfolio where there are negotiations underway that could lead to a very good outcome. So none of that is in our guidance, but it could create some great outcomes that would give us some capital to redeploy as the year progresses. James Dudley: We have to be careful about— T. Wilson Eglin: —managing tax gain as we do that. Yeah. But we are in a good position of liquidity to begin with. So, you know, buyback has been appealing after we addressed the need to bring our leverage down. But in terms of new development, we think the shareholder value is more interesting from that perspective than buyback at this moment, but there has been room for some buyback activity. Nathan Brunner: Okay. Todd Thomas: Thank you. Operator: Your next question comes from the line of Vince Tibone with Green Street. Please go ahead. T. Wilson Eglin: Hi. Good morning. I wanted to— James Dudley: —follow up a bit more on the cash same-store NOI guide. I believe you said, Nathan, it is going to be about 3.25% contribution from both contractual bumps and spreads. And I believe contractual bumps are just south of 3%, so it does not seem like spreads are going to be much of a contributor. So maybe you can just talk about—you know, I am guessing fixed rate renewals are going to drag that figure down, excited from, you know, like 28% spreads on, you know, 2026 rollovers you already mentioned. But how can we think about spreads with the fixed rate renewals or contribution to spreads in 2026? Because it seems to be pretty minimal given the data point I just cited. Nathan Brunner: Yeah, Vince, I will go first and just—I was trying to clarify the 3.25%, and then I will hand it to James to talk about the 2026 spreads. But the 3.25% positive contribution is contractual rent escalators, which you are right are about 2.8% on average across the portfolio— James Dudley: —and the second component is just the renewal rent spreads. So that is the positive contribution. And then— Nathan Brunner: —the 1.25% we talked about in prepared remarks reflects the low—offset by the drag from vacancy. So it actually captures some of the rent spread activity around new leases. So it is a little bit of a bucketing as to whether it goes in the first category or the second category, but that first category is just the renewals. And then, James, do you know the 2026— James Dudley: Yeah. I can. So, yeah, we had two really large fixed rate renewal options that did go, which put a pretty good drag on it. So we have got the, you know, 28% cash 2025, which included quite a bit of the 2026 that was done. And if you kind of put those back in, it is about a 14.5% mark to market. So that kind of shows you the delta between the two when you include the fixed rate renewal options. The good news is we are pretty much through those at this point for 2026. We have two small ones at the end of the year we expect to renew, but we have gotten past those now. So, hopefully, we will start to see some higher mark-to-market numbers, holding with more ability to fully mark those rents to market. James Dudley: No. That is really helpful color. And then just curious how you thought about the average— Brendan Mullinix: —occupancy guide in terms of retention you are assuming for some of the larger expirations in the back half of the year? But also, just if you could touch on some of the activity on some of the vacancies that you have had for a bit longer that I think, you know, when we spoke in NAREIT, you were having some activity on. So just curious kind of how you are budgeting those, and if you just talk broadly or quickly on some of the activity, some of the existing vacancy in the portfolio. James Dudley: Sure. For retention, we are feeling pretty good about it at this point. We have already chopped a lot of that wood and gotten through the big potential vacancies with renewals. I mean, two of them were the fixed rate renewal options that I just mentioned. So we feel pretty good about our retention numbers for the balance of 2026. And then looking to 2027, we feel like we are going to have a nice retention there as well. We have got a number of big leases rolling, but we feel like we will retain those tenants and should be back to more of a typical LXP clip at that high retention rate, with 2025 kind of being an anomaly. On the vacancy side, we continue to have activity across our vacancies. It is just—it continues to be a real challenge to get deals done. Lots of RFP traffic, lots of tenant tours, lots of interest, and it is really just getting them across the finish line. I think that we will make some good progress this year on the vacancy that we have. And as a reminder, there is a really good opportunity there to mark those rents up in the mid-30s if we can get those deals done. Brendan Mullinix: Great. Thank you. James Dudley: Thanks, Vince. Operator: Your next question comes from the line of Nikita Bailey with JPMorgan. Please go ahead. Nathan Brunner: Hey. Good morning, guys. Any comments—I know you just did a bigger spec development, but anything on the build-to-suit front? Some of the companies in the net lease space seemingly, they are increasingly getting to the industrial BTS deals. Does that pose more competition for you guys down the line? And I do not know if that is something that you would consider, given this large expected spec that you have going on right now. T. Wilson Eglin: Yeah. Sure. Why do I not take that? This is Brendan. Brendan Mullinix: Yeah. I think the build-to-suit space remains interesting to us, and the supply dynamic is making it look more encouraging, particularly in our land bank. So— James Dudley: —you know, there may be more competition from some of those other players. But since we do have a land bank— Brendan Mullinix: —that puts us in a more favorable position than many of those guys looking to finance build-to-suit. So the dynamic you see is, as supply comes out of the market of existing spec-built space, we remove that competition. So we have been pretty actively responding to build-to-suit over the last couple of years, in fact, in our land bank. But in many cases, some of those deals did not make, but the ones that did proceed, we were competing against existing supply. That factor I think is encouraging for us, and we have been responding. And, in particular, in Columbus, which has tightened significantly, and in Phoenix, we have been responding to build-to-suit inquiries as well. So we will look at— James Dudley: —both as those fundamentals— Brendan Mullinix: —have improved. We will consider spec, but we absolutely will continue responding to build-to-suit. Nathan Brunner: Was it an option to do a build-to-suit maybe for the site in Phoenix and maybe wait a little bit longer? I mean, was there any urgency to do a spec deal versus doing a build-to-suit maybe at some point down the line if you were able to get someone locked up? Brendan Mullinix: Well, as we looked at it, the supply dynamics—the lack of competing supply—made that very compelling. And then the other piece of it is that we are strategically taking advantage of what I think will probably turn out to be— James Dudley: —a particularly attractive construction— Brendan Mullinix: —pricing window here before competing supply starts starting. So it is really twofold. It is not just supply–demand, but it is also very tied to construction pricing. And the combination of that was very compelling for us to start on a spec basis. James Dudley: Like Will said, I would not be surprised if we could— Brendan Mullinix: —potentially have an early conversion, and maybe it turns into sort of a spec-to-suit. Nathan Brunner: But— James Dudley: —both options continue to look good there, and we will continue to respond to build-to-suit— Nathan Brunner: —at that site. Brendan Mullinix: And to get back to Jim’s comment on this initial site earlier, actually, this is going to be approximately 75 acres. We have planned a little over 5,000,000 square feet at our site in Phoenix. So there is a lot of runway beyond the building that we are starting. Nathan Brunner: Got it. Can I ask a more modeling question? What is your bad debt assumption for 2026 that you guys have in guidance, and how does that compare to 2025? Nathan Brunner: Nikita, we continue to have a very good track record on credit loss. We did not have any credit loss in 2025. In the guidance, we included $500,000 in the low end only. We looked at some distress that is happening in certain sectors and, as a matter of prudence and of bringing ourselves in line with some of the peers, we just have to bake a little bit of credit loss in the low end of it. Todd Thomas: Alright. Thanks, guys. Operator: Again, if you would like to ask a question, press star then the number one on your telephone keypad. I will now turn the call back over to T. Wilson Eglin for closing remarks. T. Wilson Eglin: We appreciate everyone joining our call this morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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.