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H. Foss: Hi, everybody. Welcome to Flex LNG's Fourth Quarter 2025 Result Presentation. My name is Marius Foss. I'm the CEO of Flex LNG. And today, I'm joined with our CFO, Knut Traaholt, who will make us through the financials later in our presentation. Today, we will cover the Q4 and full year 2025 results, provide an update on the LNG shipping market. As always, we will conclude this webcast with a Q&A session. Knut Traaholt: And before we start, we would like to highlight the following. We are using certain non-GAAP measures such as TCE, adjusted EBITDA and adjusted net income. These are supplements to the earnings report reported in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures are available in the Q4 earnings report. There are also limitations to the completeness of our presentation. Therefore, we encourage you to read the quarterly report together with this presentation. And with that, let's begin and back to you, Marius. H. Foss: We sell in revenues of $87.5 million or $85 million, excluding the EUAs related to emission trading system. The fleet average TCE during the quarter ended up at $70,100 per day. Net income for the fourth quarter came in at $21.6 million, implying an earnings per share at $0.40. When adjusting for unrealized losses and interest rate swap and FX, ending up with adjusted net income of $23.3 million or adjusted earnings per share of $0.43. We completed the dry dock of Flex Volunteer in January. She is now trading in the spot market. We received a notice from one of our charters that they will not declare the 1-year options on the good vessel Flex Aurora, and we expect to have her back in our fleet in March. Our spot exposure in 2026 is limited to 3 vessels, Flex Volunteer, Flex Aurora and the Flex Artemis, and all 3 vessels are marked for long-term contracts. The remaining 10 vessels are on time charters. We are today presenting guidance for the full year and with 3 vessels in the spot market, we are presenting wide ranges, reflecting exposure to the volatile spot markets. We expect full year revenues to be between $310 million and $340 million, and the expected TCE per day around $65,000 to $75,000 per day. Adjusted EBITDA is expected to come in at around $225 million to $255 million for the full year. The Flex LNG has a very robust financial position. We are -- with a cash balance of $448 million at the year-end. No debt matures prior 2029, and we have a solid contract backlog. The Board has declared another $0.75 per share dividend. This is the 18th consecutive dividend of $0.75 per share, and we have distributed then around $770 million since 2021. Our last 12 months dividend is $3 per share, implying a dividend yield of approximately 11.5%. When looking at the 2025 figures, the short summary is that we delivered in line with our guidance. The full year TCE ended at $72,000 per day and with sell-in revenues of $340 million. Our adjusted EBITDA came in at $251 million. We traded 2 vessels in the spot market in 2025, the Flex Artemis and the Flex Constellation, and we completed 4 dry dockings in 2025, Flex Aurora and Flex Resolute in Q2, Flex Amber and Flex Artemis in Q3. With that, let's have a look at our contract backlog. In 2026, we have 78% of available days fixed on long-term charters. As you can see in the bottom of this slide, Flex Artemis and Flex Volunteer are now trading in the spot market, while Flex Aurora will be redelivered from her current charters in March. We are actively marketing all 3 vessels for both spot and long-term contracts. Further, in 2027, we have options for Flex Resolute, Flex Courageous and Flex Freedom. These options are due to be declared during this year. The spot market was a roller coaster last year with soft rates in the start of the year, while we saw a rally in Q4 with spot fixtures for modern 2 strokes reaching up to $175,000 per day. We expect 2026 to be equally volatile and active market with many fixtures. There is a lot of new LNG export volumes ramping up, continued geopolitical uncertainties, potential congestions, both at import and export terminals, but at the same time, there's also a lot of new buildings being delivered. Therefore, we have modest expectations for the earnings from our spot exposure -- exposed vessel this year. Flex Constellation is due to complete her final voyage in March before she will commence her 15-year time charter delivered in direct continuation. Looking at our total contract coverage, we have today 50 years of minimum firm backlog, which may grow up to 75 years if the charters declare all the options attached. We are optimistic about our open exposure later in this decade. We have greater open exposure during this period, which aligns well with our expectations of an attractive shipping market. Significant new supply volumes are set to come on stream, creating strong market fundamentals. Let's have a look at the guiding for 2026. We expect full year revenues to be between $310 million and $340 million, and correspondingly, we expect the TCE for 2026 to be around $65,000 to $75,000 per day. The range in revenues and TCE reflect our open position and exposure to the volatile spot markets. Adjusted EBITDA is expected to come in around $225 million to $255 million for the full year. In addition, we will complete 3 dry dockings in 2026. The docking of the Flex Volunteer was completed in January, while Flex Freedom, it will enter dry dock later in February. Flex Vigilant is expected to dry dock in Q2. We have budgeted around 20 days of fire on average and the average cost of $5.9 million per docking. Before handing over to Knut, I want to touch base on the key factors behind the dividend decision. Most of our decision indicators are dark green with a few exceptions. Earnings and cash flow, we have adjusted this to a lighter green, reflecting more open exposure. Market outlook. We maintain a range level. The supply of new LNG volumes is firm, but there are simply too many ships being delivered ahead of the new volumes. The long-term outlook is, however, very optimistic. Backlog and visibility. Even though we have a comfortable 50 years of minimum firm backlog, it is prudent to maintain light green. Based on these factors, the Board has declared another quarterly dividend of $0.75 per share. The dividend will be paid out on about 12th of March for shareholders on record 27th of February. And with that, I hand it back to you, Knut, for a walk through the financials. Knut Traaholt: Thank you, Marius. In 2025, we had strong operational performance with close to 100% technical uptime, net of the days for dry dockings of our 4 vessels. The dry dockings in 2025 was completed on 64 days in total, significantly below the budgeted 80 days and hence providing more available days for revenue generation. The TCE for the fourth quarter ended up at slightly above $70,000 per day, resulting in a TCE of $71,700 per day for the full year and then on par with our guidance. OpEx for the fourth quarter was $16,600 per day. And as you can see, higher than the previous quarters. This is due to planned and scheduled engine maintenance performed based on running hours. Hence, we performed more of this in the fourth quarter compared to previous quarter. For the full year, OpEx per day was $15,800 and slightly above our guided level of $15,500 per day. For 2026, we budget OpEx per day to be $16,000. The increase is primarily driven by technical expenses for scheduled maintenance and cost inflation, in particular, related to crew changes. In summary, the fourth quarter revenues, net of EUAs for EU emissions trading system was $85 million and $340 million for the full year. The $15 million reduction year-on-year is primarily explained by higher market exposure with Flex Constellation and Flex Artemis trading in a softer spot market. Adjusted EBITDA and adjusted net income for the full year ended up at $251 million and $101 million, respectively. This is fully in line with our guidance provided earlier last year. As a reminder, in our adjusted number, we adjust for unrealized gains and losses from the interest rate swap portfolio, FX and write-offs of debt issuance costs and access fees related to the 3 refinancings completed last year. We generated cash flow of $44 million from operations and net of working capital movements and dry docking expenditures, we generated approximately $36 million in net operating cash flow. We repaid $27 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, our cash position was reduced with $31 million. This left us with a robust cash balance of $448 million at the end of the year. In addition to our cash position of $448 million, we maintain a book equity ratio of 27%. As noted before, our book values reflect the historical low acquisition cost and then adjusted with the regular depreciations. We have also an interest rate swap portfolio for interest rate hedging, which is valued at $17.5 million on the balance sheet. The average fixed rate of this interest rate swap portfolio is fixed at 2.5%, and we expect to maintain a hedge ratio of around 70% into mid-2027. And since January 2021, this swap portfolio has generated unrealized and realized gains of around $132 million. And with that, I hand it back to you, Marius, for the market section. H. Foss: Thank you, Knut. Well done, this robust financial position provide us highly commercial and financial flexibility going forward. Summarizing the export volumes for 2025, it was a year of growth for LNG with Europe clearly leading the demand. Global LNG export rose 4% on a year-to-year for around 429 million tonnes, driven by strong U.S. growth up to 25% versus '24. The rapid ramp-up from Plaquemine LNG, combined with new supply from Corpus Christi accounted to the majority net growth in the U.S. Outside North America, new volumes additional were limited, while Russia LNG exports declined 2 million tonnes, largely due to sanctions. Australia saw a large decline due to heavy maintenance. On the demand side, Europe absorbed the majority of the increased volumes with imports up to 24% year-to-year, reinforcing its role as a key balancing market. Asia, on the other hand, was more mixed. Fast-growing markets such as China and India saw reduced import year-to-year. In 2025, China reduced its imports with 15% from 2024 and relied more on domestic production, increased pipeline imports, especially from the Power of Siberia pipeline. This is also impacted by the geopolitical events and the trade war with the U.S. India is typically a price-sensitive LNG importer. And while JKM traded above the $10 mark, India tend to import more LPG. On the more mature LNG market, Japan, South Korea and Taiwan, LNG imports were in some unchanged from 2024. The U.S. supply most of the new volumes in Europe in 2025, and Europe has effect switched its reliance from Russian pipeline flows with the U.S. LNG. The explanation of the big jump in LNG imports in 2025 is clear on the right-hand side of this slide. European gas storage levels entered 2026, well below normal and are now said to be around 40% at the risk to fall to levels not seen since 2022. If Europe ends the winter with low storage levels, huge amount of gas will be needed to inject to return stock to minimum levels ahead of next winter. Most are used to meet daily demand, so Europe's total buying requirements in the coming months could be enormous. Hence, we expect strong demand pull from Europe. As long as Europe will maintain a high demand in 2026, there will be fewer intra-basin voyages, putting a lid on the spot market. This is also reflected in the expectation for 2026 spot rates. However, the third wave of LNG supply is underway, and we saw in Q2 last year, ramp-up of new export capacity can suddenly absorb a lot of tonnage in short time. This is very well illustrated in the ramp-up of LNG Canada, which moved a lot of tonnage away into the Pacific Basin. Total new building orders in 2025 was 35, down from 79 in 2024. Ordering momentum has carried out in 2026 with around 20 new building orders record as early in February. Vessels ordered in 2025, 2026 are scheduled for delivery late 2025 or 2029. A meaningful share of these orders remain without attached contracts. This signals growing confidence in a firm shipping market later in this decade, a period that aligns well with our open exposure. The new building prices remained fairly stable for $250 million for a standard 2-stroke vessel built in Korea. This is supportive for asset values for existing tonnage, including our fleet. We do not expect new building prices to fall materially anytime soon. 23 new buildings were delivered in the fourth quarter 2025, bringing the total deliveries up to 79, up from 60 in 2024. With 6 vessels already delivered this year, the remaining order book is estimated to around 290 vessels, equivalent to around 40% of the existing fleet. 90 to 95 vessels are expected to be delivered in 2026, including roughly 20 units that slipped from 2025. Of the total order book, approx 45 vessels are currently uncommitted. This profile means that while there will be a lot of new tonnage entering the market in 2026 and '27. With a lot of new modern tonnage entering the market, the steam vessels rolling off long-term contracts, we saw a record high 15 steam vessels scrapped in 2025. This is a strong signal. We expect recycling activity to continue. Spot rates for steam vessels are quoted currently under $5,000 per day, effectively pushing these vessels out of the market. The ship broker, SSY believes close to 100 steam vessels will roll off their long contracts over the coming years. And these vessels are expected to exit the active trade either scrapped or enter into regional trades. This slide shows the 3 waves of global LNG capacity and why the period we are now entering really matters. We are entering the third wave of LNG, and it's larger than ever seen before. Over 200 million tonnes of new export capacity is expected to come on stream or around 50% growth in the global liquefaction capacity. Most of this growth is concentrated in 2 places, the North America and Qatar. Qatar North Field East is expected to begin deliveries late this year with new trains coming online thereafter. In addition, LNG Canada will continue to ramp up towards full capacity in 2026, alongside increased output from Corpus Christi in the U.S. This widely anticipated start-up of Golden Pass LNG is expected later in 2026, providing a further boost of U.S. liquefaction capacity. With that, let's move on to the Q&A session. Knut Traaholt: Thank you, Marius. That hands us over to the Q&A sessions and questions that have been submitted. And thank you for all of those who have sent us questions for this quarterly presentation. There's a number of questions regarding the upcoming options that you walked through in the fleet overview. Can you give any more color around these options and the likelihood of being declared? H. Foss: Thank you. That's a good question. We are also waiting for that. I can't really comment on when these options are due, but the charters will do so during 2026 regardless if they are declared not these options have -- will not have an effect with our fleet portfolio of 75% in 2026. So we all have seen in our presentation, 2027 and 2028 is an interesting period with the increased volumes. So it's -- yes, we're also interesting to see if the charters are sharing the same as we have shared in this presentation today or not. So we will report back when these options are due and inform the market accordingly. Knut Traaholt: And now with Flex being redelivered and we have increased market exposure. There are also a number of questions on the decision factors and how this should be viewed regarding future dividend payments. I think we can start off by saying that each dividend payment is a decision made by the Board by each -- at each Board meeting ahead of the quarterly presentation. So there's difficult to say something about the future of dividends. But what we can say is on the decision factors, yes, we have adjusted some, but the majority of the decision factors are dark green or light green. In the decision, it's important here to view that we have a very solid financial position with a high cash balance to support the dividend. And we also have a large contract backlog, which are not subject to options being declared or not. One thing that we are monitoring and will be assisted into evaluating future decision factors will be the visibility, in particular, the trading of the spot vessels and also if any of these open ships will get another long-term contract. There are also a number of questions here on new buildings and the recent surge in new building orders, in particular in the start of the year and on flex and on fleet growth. Do you consider new buildings similar to these owners? H. Foss: Thank you. With what you have explained now with the position we are in, we are in a position to order ship if needed, but we are trying to be, say, disciplined and not to order if we don't have a contract attached. As explained in our presentation now is that the new building in modern 2-stroke today is about $250 million. and the benchmark for a 10-year contract is, say, $85,000, give and take. And in our calculations, that's not really a good investment for a shipowner. So we are trying to be patient, disciplined and also working with our charters that if new building should be needed, we are ready to go to the yard and discuss new contracts with our charters if somebody wants to support with us. But speculatively, we see others are ordering that, and that's a good sign of where we are heading. I think the exposure we have with the current open ships coming open later is -- will mean that we are in a very good position to get these ships extended or new contracts. Knut Traaholt: Yes, there is a follow-up comment to that to support to that. There is will we order ships newbuildings, while we have nearly half of the fleet exposed in the market for '28, '29. H. Foss: No, I think we should take the benefit of what we have on the water, which still is considered as new building. They have now -- basically the entire fleet has been through a 5-year service, and I believe all our ships leaving dry docks now are better than you. So I think we have a good quality tonnage, which the size is in line with the new orders. So we will focus on that first, stay disciplined. Knut Traaholt: And that covers the main topics of the questions we received today. So that concludes the Q&A session. H. Foss: Thank you, Knut. Thank you for all joining into our webcast today. We would like to welcome you all back to our Q1 2026 presentation, which will be back in May. Thank you.
Marie Dumas: Good morning, everyone. I'm Marie Dumas. I'm the new Investor Relations Director for Dassault Syst�mes. Some of you might recognize my voice from my previous role at the company, and I'm delighted to reconnect with many of you today. Joining from Dassault Syst�mes with me are Pascal Daloz, our Chief Executive Officer; and Rouven Bergmann, our Chief Financial Officer. On behalf of the team, I'd like to welcome you to Dassault Syst�mes Fourth Quarter and Full Year 2025 Earnings Presentation. Following the presentation, we will open the floor for questions. First, from the room, and then from participants joining us online. Later today, we will also host a conference call. Dassault Syst�mes results are prepared in accordance with IFRS. Most of the financial figures are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 document d'enregistrement universel published on March 18. With that, I will now hand over to Pascal Daloz. Pascal Daloz: Good morning, everyone. Thank you for joining us today to review the Dassault Syst�mes performance for the fourth quarter and the full year 2025. Let's start with an opening comment, which is at Dassault Syst�mes, we do not manage only for the quarter. We build platform that lasts for decades. I think 2025 was a year of transition. 2026 is a year of executions. And I think those 2 years are financial foundations because they are the year when we prepare the next cycle of growth, scale and long-term value creation. So let's start with the facts. 2025 was a disappointing year for you, but also for us. We finished at the low end of our objective with 4% growth, excluding foreign exchanges. I think this performance does not meet the standard we set to ourselves as part of the long-term plan. And we own that. That said, we moved the company for a while. And I think we made meaningful progress on the priorities that matter the most for the long-term success. What moves forward? First, the 3DEXPERIENCE and the Cloud. I think we deliver significant wins and competitive displacement. And in 2026, we will build on this momentum, turning headwinds into tailwinds and deepening our leadership in industrial AI. And I think our ambition is clear, it's to remain the partner of choice for all the industries. Second, MEDIDATA and Centric PLM, they faced challenges in 2025 and weighted our results. I think we are seeing the early sign of the recovery at Centric, and for MEDIDATA, we are investing for the long term. Keep in mind that Life Sciences is undergoing a fundamental transformation from inefficient document-based process to AI-powered Virtual Twins that redefine how pharma innovates, complies and operates. So this shift is really structural, and the structural changes usually take time. Third, in 2025, we introduced 3D UNIV+RSES, a new environment where virtual twin and AI converge, connecting the virtual and the real in a seamless dynamic loop. In 2026, we turn this vision into concrete value. Finally, we remain disciplined on costs while continuing to invest on our future growth. Execution matters and returns matter as well. Now as we enter in 2026, we are scaling our transformation plan, ensuring every step we take positions Dassault Syst�mes and our customers for sustainable successes. And our transformation is built around 3 strategic pillars. The first one, the product offering. We are reshaping our portfolio, accelerating towards 3D UNIV+RSES and investing where scale matters. Second, the go-to-market. We are strengthening the go-to-market execution with targeted end-to-end engagement, especially in Life Sciences for the top 50 large accounts and consumer industry for the formulated products. We are also transforming our partner ecosystem to generate demand, not just distribute licenses. And to support this, we have strengthened the leadership with the Transformation Officer and an Operating Officer focusing on the execution and performance. Third, the business model, and this is a very important part. As customers accelerated the adoption to subscription and cloud, we are introducing the annual run rate reporting in 2026. I think this will provide a clear visibility into the health and the momentum of our recurring revenue base. In parallel, we are also evolving beyond the seat-based pricing toward a value-based pricing model for AI-powered solutions. Because we don't just deliver the software, I think we are delivering outcomes and we will capture a fair share of the value we are creating. This transformation is not just about growth. It's about building a resilient customer-centric company ready for the generative economy. Now let's step back a little bit and look at the market realities. Every industry we serve, whether it's manufacturing, life sciences, infrastructure and cities is under an intense pressure. Supply chain volatility, rising regulation, aging infrastructure and an urgent need for breakthrough innovation in all the domains. These are not just constrained. In fact, they are catalysts, and this is exactly where Dassault Syst�mes step in, not only as a vendor but as a strategic partner for many of our customers. We are helping them to turn the complexity into a competitive advantage that last for decades. In manufacturing, we see 2 realities. The traditional sectors face margin pressure and demand uncertainty. At the same time, defense, high-tech are bold, they are making bold investments where the complexity and the collaboration are the new normal. And this is here where the 3DEXPERIENCE platform is becoming the de facto standard, enabling faster cycle, collaboration at scale and streamlined operations, reducing program time lines to under 18 months in Transportation & Mobilities, delivering between 25% to 40% efficiency gains in Aerospace & Defense, cutting error to 1/3 to almost half in high-tech through prebuilt simulations. That's what we do. In Life Sciences, the pressure is still intense, tighter regulations, rising R&D costs and a shift towards personalized therapeutics or precision medicines. And the incremental improvement is not longer enough. I mean, the customer, they need a new operating model. With our end-to-end lab to manufacturing solutions, we are already helping them to reduce their operating costs by over 30%, while turning the compliance into a competitive advantage. Now in Infrastructure & Cities, demands for autonomous and resilient system is accelerating. Data center demand will double by 2030. The nuclear infrastructure requires safe decommissioning in many countries, cities need to be resilient by design, and I think our AI-powered Virtual Twins reduce the project time line by over 25%, while ensuring safety and compliances. This is really how we are and we create new markets while addressing the most critical challenges of our time. Now across every sector, our customers, they prove one thing. We don't just talk about AI, we deliver it. In Transportation & Mobility, as I was saying, innovation pressure has never been higher. Products are more complex, time lines are shorter. Competition is global. And value is a good example of this. You know Valeo, it's a global leader in the automotive technology from ADAS to electrification systems. And I think together, we are pushing the boundaries of the generative experiences. Here, AI does not only assist, it co-creates. And how we do this? By training the virtual twin on our synthetic data, we generate thousands of design alternatives optimized for performances, cost, compliances before a single prototype is built. This is really the new way of working, turning complexity into opportunity. In Life Sciences, our partnership with Catalyst, I think, show how an industry can be reinvented. By moving from static document to data-driven Virtual Twins, Catalyst is really redefining the CRO model. The clinical trial become agile, patient-centric, continuously optimized. And this is not about fixing the old model, it's really about building a new one. In infrastructure, with Technique at Home, I think we are redefining how the next-generation nuclear systems are designed and operated. The Virtual Twins connect the entire ecosystem, ensuring the traceability, the compliance by designs and more importantly, closing the loop between the virtual and the real world. So that year, we did also something extremely important. A year ago, if you remember, we introduced 3D UNIV+RSES. But what does it mean in practice? 3D UNIV+RSES are not applications, they are knowledge factories where knowledge is enriched, know how is scaled and the results are trusted. And AI is the engine, not a generic AI, not a surface AI, an AI which is grounded in science, engineering and industry. This is not about large language models. I insist on this because with LLM, you will never be able to build drones. You will never be able to design humanoids. You will never be able to discover cell therapeutics. And this is what our customers do. And this is really what we do for them to help them to certify what they do. o we are building what we call industry world model, which is the next generation of AI after the large language model. And what is important is those models understand how the real world works and how to build it. That's something extremely important. Why so? Because those model, they are built on physics. They are trained on decades of industrial knowledge with a continuously validated Virtual Twins. It's explainable, it's certifiable and it's trusted. And there is one fundamental reasons because in the physical world, you cannot forgive the mistakes. This is the reason why our partnership with NVIDIA matters. I think together, we are combining the virtual twin with AI factories and accelerated computing. But maybe long -- more than the long explanations, launch the video, please. [Presentation] Pascal Daloz: So I hope you got it, and it's not me telling this. Jensen, the founder and the CEO of NVIDIA. And I think what we do together, we are building the foundation for industrial AI. And as you said, it enables 3 things: First, in research and innovations to develop the models that simulate the casualty, not only the correlation from a statistic standpoint. Second, the factory of the future, which are software-defined. And why they are software defined? Because autonomous factories continuously optimize through simulation is the reality. And third, the new way of working, which is how you can have skilled virtual companions, not a simple chatbot, but industry trained experts who could help teams to design, comply and optimize everything you do. So in 2026, now we turn this into reality with the 3 AI native solutions, the new categories. The first one, we call it the Virtual Companions. They are not assistants, they are experts. They scale the knowledge, they democratize the expertise. They turn the complexity into productivities. The second one, the Generative Experiences, AI that encodes the best practices, science and compliance by default, a faster innovation, lower risk, higher confidence. And third, the virtual twin as a service, we don't sell the software we deliver outcomes. That's why we are evolving our business model from seed-based licensing to value-based monetization for this new category of solutions because together, I think our AI-driven solutions unlock 3 powerful levers of value creation. The first one is expanding the adoption with the Virtual Companions with usage-based. Keep in mind that right now, the real limitation we face is the number of people being skilled to use our software. Now if we have Virtual Companions being trained by design, they will take the benefit of what we deliver to them. The second one is monetizing the know-how with Generative Experiences. For 40 years, we have invested in many, many industries, aerospace, auto, now life sciences, high tech. And we have accumulated a lot of industry know-how, how to design things, how to produce them. With this knowledge, we can automatize many things. And what the gain we have in front of us, it's a moon shot. It's 10x. It's not a 20% improvement. It's not 30% improvement. It's really a radical change. Last but not least, we can sell the outcome with the virtual twin as a service. Why so? Because right now, how does it work? We provide the software. You have a lot of services, which is needed to implement the software on-premise to train the people, to change the processes. Now with AI, we can -- rather than to sell the tool, we can automatically generate the end result, the virtual twin. It's a way to reintegrate part of the value in our software. So that's what we do, and this is how we are turning AI from a promise into a concrete sustainable value. And I think this is just at the beginning. Now that was the key question a week ago. I mean all of you, you were asking the question, which is AI is revolutionizing everything. But there are 2 kind of companies, the one that compounds and the one who could be commoditized. I think Dassault Syst�mes is built to compound. We are not just participating to the AI revolution. We are really shaping it for the industry. And this November, at our Capital Market Day, we will come back on this, how these visions could -- is translating into the financial impact. But before that, now it's time for me to hand over to Rouven. Rouven, you have the floor. Rouven Bergmann: Thank you, Pascal. And also a warm welcome from my side to all of you here in the room and joining us online for our Q4 2025 earnings conference call. Before reviewing the numbers, I would like to highlight 3 key themes that define 2025. First, to sustainable growth. Our core industrial business, I want to reemphasize that our core industrial business was resilient in 2025 with strategic client wins. However, we faced a backdrop of tough comps and complex macro, specifically in the fourth quarter. We are focused on further strengthening our growth model while we are looking at improving our operational excellence. We have identified the challenges, and we will now execute to deliver, as Pascal said. Second, AI at the core. The collaboration with NVIDIA reinforces our leadership position in industrial world models, and it supports the development of next-gen AI-driven solutions for engineering and manufacturing. And in 2026, our focus shifts from product launches to monetization. Third, business model evolution. The 3DEXPERIENCE platform continues to drive the transition towards cloud and subscription and our recurring revenue base. And as AI adoption accelerates, the business models are evolving beyond traditional seat-based pricing towards a usage and value-based model. And to better reflect this shift, we will begin to report an annual run rate or ARR, and I will talk about this in more detail later. So as Pascal said, 2026 will be a year of execution where we will strengthen our foundation and our full year guidance for the total -- so our full year guidance for the total revenue growth of 3% to 5%, which is important to highlight. It provides the room to navigate current challenges and to prepare the organization for the new era of growth. Now with this in mind, I will transition to the numbers in more detail. In Q4, total revenue rose 1% ex FX to EUR 1,682 million, with software revenues slightly up by 0.3%. We navigated a complex macro dynamics with weaknesses specifically in France and Germany, mainly in the auto sector. Plus, we also faced headwinds at MEDIDATA and Centric in the fourth quarter. Now we have taken the actions to address these issues, which I will discuss shortly. The recurring revenue rose 3% in Q4, with 4% subscription growth, while services was up 11%. The operating profit for the quarter was EUR 622 million with a healthy operating margin of 37%, it's up 90 basis points ex FX, thanks to the productivity gains that we leveraged across the group, and we had initiated those already entering into the year of 2025. EPS was EUR 0.40, up 9% ex FX. For full year 2025, we saw total revenue of EUR 6,240 million, along with software revenue growing at 4%. Recurring revenue grew 6%, and it's making -- it's creating an 82% recurring revenue base as a percent of software revenue, while subscription revenue grew 11%. We delivered good profitability in '25 with an operating profit of EUR 1,994 million and an operating margin of 32%, achieving 40 basis points of improvement versus last year with an EPS of EUR 1.31, up 7%. Now turning to the growth drivers. The 3DEXPERIENCE platform is at the core of our growth strategy and the foundation to review the power of AI for industry. 3DEXPERIENCE revenue grew 10% for the full year, and it's now 40% of software revenue. As expected, the fourth quarter was impacted by a strong comparison base year-over-year. And on top, we faced the weak auto sector in Europe. However, important to highlight, we signed several strategic 3DEXPERIENCE deals that have the potential to expand over the course of '26 and '27. This will generate future revenue and help build the momentum in ARR, which I will come back shortly. Cloud revenue at the group level grew 9% in Q4 and 8% for the full year with 3DEXPERIENCE Cloud growing 38% and 32%, respectively. This strong growth highlights the value of the platform for clients where the transformation is critical as is the need to leverage AI. Now looking at our geographies and product lines. The Americas rose 3% in Q4, with a good performance in high-tech and transportation mobility in the Americas. Full year '25 was up 5%, and we faced year headwinds in Life Sciences as well as in Home & Lifestyle. The core industries in the geo were strong and resilient with 10% growth. Europe declined minus 5% in Q4, but it was up 2% for the full year. The weakness in the quarter was against a strong base comparison, and it was also impacted by softness in France and Germany, and I mentioned that before, mainly driven by the challenges in the automotive sector in these countries. Meanwhile, Southern Europe was resilient and also Northern Europe gained momentum with a good performance in High Tech. Asia was robust. We grew 6% in the quarter. It was 5% for the year. Growth was driven by Transportation Mobility and High Tech. We had very good momentum in Korea as well as strong growth in India, while Japan delivered solid growth. China had a softer quarter on a backdrop of tough comparables in the quarter. Now to the product lines. So industrial innovation was up 1% in Q4 and 6% for the full year. As noted, the quarter was impacted by the lower growth in 3DEXPERIENCE and in particular, the challenges we faced in Europe. But overall, for the full year, we saw a very positive momentum, which was led by solid traction in SIMULIA and ENOVIA, and continued solid growth with CATIA. We are confident on the resilience of our core business, which is led by the cycle of 3DEXPERIENCE adoption, while preparing for the next wave of growth with AI-based Virtual Twins and companions. On the mainstream side, growth was 1% in Q4, 2% for the full year. Growth was again driven by strong momentum of SOLIDWORKS, which was up high single digits in the fourth quarter and in the full year. As expected, Centric was down double digits in the fourth quarter on a high comparison base. Two effects that played a role on Centric. First, we saw some renewals shifting and also we accelerate the move to cloud as we explained to you previously. And now we expect a marked recovery this year in '26 with a new management in place and a robust pipeline that's building going forward. Now to Life Sciences. Here, the growth was lower than expected. We were down minus 4% in Q4, while the full year was minus 2%, as we faced continued headwinds for MEDIDATA, which I will cover in more details shortly. Outside of this, MEDIDATA signed several strategic account win backs over the course of the year. This includes the likes of Novartis, Merck, AbbVie and Gilead. It highlights our competitive advantage as we build strong foundation and expand our footprint with the large pharma companies. Now as we look ahead, we are convinced that the time has come to transform the biopharma industry from a document-based approach to virtual twin-based operations, as Pascal highlighted. This has been our vision for Life Sciences for long term. Therefore, let's take a holistic view of our Life Sciences industry on software revenue that we are generating today. You see on this slide, this includes MEDIDATA as well as the 3D portfolio adopted by pharma and med tech. And in order to better highlight the growth dynamics, we are differentiating 2 elements, the direct business, the enterprise business as well as the indirect go-to-market model we have where we predominantly sell to our CRO partners. Now to the direct enterprise business. It accounts for 70% of the total revenue in this industry, and it grew 3% in total in 2025. Now within that, the MEDIDATA Enterprise business grew 1%. However, this growth was impacted by one client, Moderna, that adjusted its run rate to reflect lower study volumes. And excluding that, our MEDIDATA Enterprise business was, in fact, up 6%. Meanwhile, 3DEXPERIENCE grew 7%. And now to the indirect business. And here, important to understand, this business is mainly focused on the biotech sector on the small -- on the very small pharma companies. So selling -- and here, we are selling through CROs, and this accounts for 30% of the Life Sciences industry, and this is declining by minus 5% year-over-year. Our market saw lower study starts, which were down minus 7% compared to minus 5% revenue decline. So the study starts were lower by minus 7%. Importantly, we continue to expand our market share also here in Phase 2 and Phase 3 by about 1 point in 2025. And now also, we don't want to anticipate this too early. We did see some green shoots in Q4 as its large CROs are starting to increase the number of new studies on our platform. So what are the actions we are taking to reinvigorate growth? You see them here on the bottom of the slide. First, on the enterprise side. What we are doing is we are setting in motion a dedicated account teams to focus on overall pharma transformation with our platform and leveraging AI. These teams are formed and in action across all the geos. Now to the indirect business, the goal is to reduce our exposure to volatility in the volume business. And to this end, we are evolving our pricing model and terms and conditions to monetize continued data access, which will be critical in the times of AI because this is the way the models will evolve and will help and support our pharma customers to improve the efficiency of clinical trials. Now turning to the cash flow and balance sheet items. Let's start with the operating cash flow. We generated EUR 1,630 million in operating cash flow year-to-date, and this was up 1% compared to last year on a constant currency basis. Indeed, despite a challenging environment marked by FX headwinds and new tax regulations, we demonstrated resilience and cash generation. As previously discussed, we absorbed about a EUR 40 million hit in, which was driven equally by the hike in employer contributions on share-based compensation and new exceptional tax for large companies in France. Excluding this, operating cash flow grew 3% ex FX. In the first half of 2026, we expect the working capital to be positively impacted by the collection from large subscription deals we signed in 2025. Now to free cash flow. It was up 2%, also excluding currency. CapEx investments were lower approximately by EUR 30 million due to lower investments in leasehold improvements versus 2024, while investments in cloud and IT infrastructure were stable. The cash conversion remains a top priority. We reached 82% for 2025 versus 84% in 2024. And this is ahead of our previous estimates, mainly due to better collections. In 2026, we expect cash conversion rate to improve driven by cash collections and better alignment of billing to revenue. Now to complete the picture. Cash and cash equivalents totaled EUR 4,125 million at the end of 2025, and it compares to EUR 3,953 billion at the end of '24. This increase of EUR 173 million includes a negative full year currency impact of EUR 263 million, mainly to the weakening of the U.S. dollar over the period. The net cash position reached EUR 1,530 million at the end of Q4. Any additional information, you will find in the operating cash flow reconciliation in our presentation that we published this morning. Now I want to transition to a new topic. Pascal already introduced it the annual recurring revenue run rate, which we are introducing in 2026 for now. And it is already previewed that with you at our Capital Market Day in June last year. It's a key metric to reflect our continued transition towards a subscription and cloud-based business model. We believe that ARR provides a consistent view of the underlying run rate and the health of our recurring revenue base, while it's also eliminating the volatility from revenue recognition. As such, the ARR is a snapshot, which reflects the 12 months recurring value derived from all active contracts at period end. And it includes software subscriptions, cloud, SaaS hosting as well as support. It excludes future commitments. In the appendix, you will find a detailed definition of ARR on how the methodology is applied, and we also are giving you 3 illustrative examples. Now if you look at the numbers, growing at an average of 6% over the last 2 years, the ARR highlights the consistent execution in core and subscriptions and cloud and is driving the growth of our recurring business. It is also more closely tied to the invoicing and cash flows from those deals. In Q4 2025, the ARR reached almost EUR 4.5 billion with an increase of around EUR 100 million of net ARR in the quarter. This highlights the consistent performance in signing new cloud and subscription contracts, while revenue is highly dependent on the timing of revenue recognition. In 2026, we are establishing this new metric in our reporting, and the plan is to guide starting 2027. Now during the Capital Market Day in November, we will outline the steps in the context of our 2029 financial plan. Now as we look ahead, the trajectory to accelerate growth is, of course, linked to the shift in our business model. Now let me discuss very briefly the levels of ARR growth. First, the mix is driven by faster growth of subscription versus maintenance ARR. I think we see that already clearly in our numbers. It's happening. Second, the growth in 3DEXPERIENCE and cloud as AI-powered Virtual Twins and Virtual Companions boost our 3D UNIV+RSES portfolio. The third, within Life Sciences, we are expanding our footprint, and we are creating and preparing the next generation of growth with new clinical -- with a new clinical trial platform powered by AI. And finally, with Centric, the ARR growth has a long runway. Now with this, let me turn to our financial objectives for '26. We expect total revenue and software revenue growth of 3% to 5% ex FX for the full year of 2026. Importantly, this guidance marks a tipping point. In 2026, the share of subscription revenue will surpass the maintenance revenue, and that's also why we are providing an ARR to better reflect the growth dynamics, not yet as a guidance, but to show the momentum and the progress. The operating margin is expected to achieve 40 to 80 basis points improvement ex FX, which takes us to the range of 32.2% to 32.6%. As we continue to balance investments and margin expansion, leveraging our operating productivity gains. We see the EPS growing at 3% to 6% ex FX to EUR 1.30 to EUR 1.34. Now this is all based on our FX assumption and our full year average rate for the U.S. dollar to euro at 1.18 in yen to euro of 170. Now quickly to Q1, we expect 1% to 5% growth for both total revenue and software revenue. Operating margin is expected to be in the range of 29.2% and 30.7%, and EPS at EUR 0.28 to EUR 0.31. Finally, I would like to share some key assumptions underlying this guidance framework for 2026. So first, we expect 3DEXPERIENCE and Cloud momentum to remain broadly in line with last year. It's driven by continued expansion with our -- within our installed base and ongoing market share gains. We are focused on entering new markets and accelerating the monetization of our AI portfolio. Now from a geographical standpoNow from a geographical standpoint and industry standpoint, the demand in the Americas remains healthy, while Asia continues to show resilience. In Europe, we see solid pipeline development in Southern and Northern regions, which is partially offset by continued expected weakness in the automotive sector, mainly in Germany and France. Potentially, this is impacting the timing of decision-making within quarters. The defense sector represents a potential upside. Within our mainstream business, SOLIDWORKS continues to deliver mid- to high single-digit growth in both revenues and users. For Centric, we expect a return to low teens growth, supported by execution against a strong pipeline and a higher mix of cloud revenues. Now Life Sciences is facing a transition year with actions underway to position the business for a return to growth from 2027. On the margins, we expect continued improvement driven by productivity gains from AI initiatives and operational excellence. So these initiatives are focused on increasing our flexibility and reallocating investment towards top line growth. Now in conclusion, 2025 and 2026, we are laying the foundations for our next phase of growth. I want you to remember 3 things. First, the 3DEXPERIENCE platform is at the core of our industry transformation, and it's creating a long runway of growth. On AI, we are introducing new categories of solutions, those go beyond productivity gains, it's about creating new possibilities. And we are taking actions to scale our operations with one single goal in mind: to generate sustainable growth. Now with this, Pascal and I look forward to taking your questions. Marie Dumas: We will start taking questions from the room. Unknown Analyst: This is [indiscernible] from [ ING. ] So I allow myself to start with asking a question maybe with everybody's mind. Your guidance seems quite cautious for 2026, right? So I can understand there are headwinds. There are some things we are in the beginning of the long runway. But what could go wrong? I mean, what do you think will be the major headwinds in the year to come? Pascal Daloz: Rouven, I start, and then after you will add whatever you want. What's the difference between the 2026 guidance and the 2025 guidance? 2025, we were running quarter-after-quarter after the top line guidance. And you have seen, we have been able to deliver the EPS as initially planned, but we have to adjust in the middle of the year, the top line. So I do not want this for 2026. Let's be clear. So maybe you will see this as a very conservative guidance, and I accept the point. But from a dynamic standpoint, I really want to build on the good momentum and again, keep the company focused on what matters, which is in this AI stories. I mean, it's time for us to invest massively. It's time for us to take the positions. It's time for us to accelerate the transition to subscriptions, and this is the game plan we are doing. And that's the reason why, to be direct with you, I think we are relatively conservative in our guidance. Now what could be wrong? I think we have factored many, many things already. And I think you have seen in the -- Rouven's presentations, compared to 2025, there are certain things which are moving in a good direction. Centric is moving and back to growth. It was really a headwind last year. MEDIDATA, we are cautious, even if we have early signs of improvements, but we did not factor improvement in the guidance. And on the mainstream, you see H1 last year was growing mix single digit. H2 last year is growing high single digit, and we have a better perspective for year '26. And on Industrial Innovation, I think we are taking some cautiousness on the auto sector, especially for Europe, which was, in a way, the bad surprise of Q4 last year. That's what's in it. I don't know if you want to add a few things, Rouven? Rouven Bergmann: For the top line, that's the situation. I think for -- I think the other point that's really important to highlight is we are creating the room also to make investments to support our growth because it's very critical at this point in time. We are at an inflection point to accelerate growth. We're transitioning the business model. We are focused on accelerating our growth in subscriptions to build the ARR for acceleration. I think that's the upside we have. And that's how we constructed the 2026 outlook for growth acceleration to come. Derric Marcon: Derric Marcon, Bernstein. So one remark, Rouven. You told us in June 2025 that you will give us ARR or subscription annual recurring revenue without removing any guidance or projection, but we don't have -- we no longer have the split of your recurring revenue target between subscription and support, something you gave before. So maybe you will continue in that way. And so first question, can you help us to reconcile the guidance, plus 3% plus 5%, with the ARR growth that you project for 2026? And if you have an acceleration at the end of 2025 on ARR, why we don't see that on the revenue guidance for 2026? And the second question is about the remaining performance obligation that you gave at the end of the year. Can you help us to reconcile or bridge what is in the RPO next 12 months and ARR, please because the RPO was growing nicely at the end of 2024. We don't see that in the 2025 numbers. So I'm wondering if we will have the same picture at the end of 2025 when we try to extrapolate the RPO numbers for 2026 and reconcile that with the guidance. Sorry, it's pure figure, Pascal. Pascal Daloz: No problem. And I will start, by the way, and Rouven, feel free to add whatever you. So first of all, on the split between subscription license, if you go to the appendix, we are providing the details. So we did not change the way to guide the market, and we definitively do not want to hide something. Now as you know, the annual recurring run rate cannot be fully translated into the revenue the following year because you have the revenue recognitions mechanisms. And I will let Rouven to elaborate. Nevertheless, if you look at the last 2 years, it's a good proxy to approximate the recurring revenue anyway. Now how to bridge with the guidance, which is your questions because you have 6% on one hand and you have 3% to 5%, right? So remember, in the recurring part of the revenue, half is subscription, half is maintenance. The maintenance support is growing at 1%. So which basically means, the rest, the other 50% should, at minimum, grow to 11% to 12%. You do the math. That's point number one. Point number two, why 3% to 5%? Because if you are at 5%, it means the license are flat. If you are at 3%, it means the license are decreasing by 10%, as simple as that. This is how you will be able to reconciliate the guidance we are providing with the ARR. Maybe, Rouven, you could explain a little bit more some specificity? Rouven Bergmann: Yes. We gave the 3 examples that I think are illustrating the methodology. What you really need to keep in mind, what is really the challenge of Q4 also is a tough comparison of Q4 2024, where we had very high subscription growth in parts also because our on-premise subscription are also including some in-quarter revenue, which when you look at an ARR, it's all allocated over a 12 months period, right? We really only look at the run rate. We don't consider any revenue in point in time. It's really over time. And now as you straight line all of our bookings into this methodology, you will see the true growth of our business activity outside of the revenue recognition noise, so to say, that's in the numbers. So that, I think, creates a clear metric of year-over-year comparison. Now over the last 2.5 years, it grew consistently 6%. As Pascal said, you have to understand the underlying, I think, growth drivers and momentum because the subscription is growing 10-plus percent, also keep in mind, we are still facing inside that the MEDIDATA headwind, so the core business of Dassault Syst�mes, 3DEXPERIENCE is growing much, much faster in the subscription revenue, which is important to understand. And as the MEDIDATA business is expected to improve, we will see the upside of that as well in this number. One other comparison I would like to share with you is the recurring revenue growth was 6% over the last 2 years, and it's very consistent with the ARR. Now we're talking about an ARR of EUR 4.5 billion, growing at 6% with the potential to accelerate because of the mix effect as well as subscription becomes -- is getting to the threshold of 50% plus, and then you have a base effect where that growth is starting really to become meaningful. Maybe a last point on -- you mentioned the remaining performance obligation. And I think the coverage that we have in our visibility for the next 12-month subscription revenue growth, that is very comparable to 2020 when we enter 2025 as it is in 2026. We are forecasting 8% to 10% subscription revenue growth for which we have good visibility to achieve that. Pascal Daloz: Now maybe I should add one additional topic, which is an interesting one. If you look at the performance of Q4, 1% growth, flat for the software. If you look at the ARR, it's EUR 105 million incremental, overall EUR 1.5 billion software revenue, which is 7%. So again, I'm insisting on this because we are really transitioning to the subscriptions and to the cloud. Now if you look at the way many of our peers did it, they were decreasing for many years. We are not. We are slowing down the growth for sure, but we are really transitioning. And that's the reason why this metric is extremely important for you because it's a way to see the momentum we are building. It's a way to see the ramp-up we are creating with those long-term contracts. This is what is behind. I think there are another question related to -- Derric, you had the last question? Derric Marcon: Just on the remaining performance obligation. I think the next 12 months figure for remaining performance obligation last year. So at the end of 2024, if I remember well, was growing in the low 20s, so 23% or 24%. Why we don't see that appearing in the numbers of 2025? And when we will look at the figure at the end of 2025, how can we extrapolate that number and bridge that with your guidance for 2026? Rouven Bergmann: We are not -- Derric, we are not guiding in the remaining performance obligation because we -- the way the revenue recognition is, we're not fully ratable as it relates to that. The remaining performance obligation is a value aggregated for the next 12 months of bookings value, not revenue. So it's always depending on the timing of renewals, right? In a year where there is upcoming larger renewals, it is less because then it will be back to the growth after the renewal. So there can be time-to-time variances. I think what's important to understand for you is that the visibility we have into subscription growth is the same in '26 as it was entering '25. Derric Marcon: At the same time, if I compare the guidance for subscription in 2025 at the beginning of the year and the end results. Rouven Bergmann: I understand. I understand your point. Not -- you don't -- you never have 100% coverage, of course, right? The coverage is typically around 85%, 84% for subscription. So depending on the timing of signing and this can impact at the end of your achievement, and this is what happened. Laurent Daure: It's Laurent Daure from Kepler Cheuvreux. I also have three questions. The first is on the 3D UNIV+RSES and your plan for the next 2 or 3 years. I was wondering if you were planning to invest mostly organic adding staff or if you were considering partnership or even M&A, so the way you will build it. My second question is on Centric. You had a very strong decline in the fourth quarter. What can you give us to make us comfortable, the fact that you will renew with double-digit growth and probably, hopefully in the first part of the year, maybe the pipeline or whatever? And my last question, even if I don't want to preempt the Capital Market Day, from '26 to '27, what could be on top of maybe MEDIDATA, the additional growth? Is it AI related or any other things? Pascal Daloz: You start with the first. Rouven Bergmann: I can start with Centric. Yes. So you're right. Q4 was -- we faced the decline. The visibility for the first quarter is already there. What is also important to highlight is not only the SaaS transition, but also the diversification. So we are going really from the apparels, shoes, the traditional business, the apparels, the consumer-centric industries also to food and beverage and retail. So we are really expanding our scope. And the new leadership team is embracing that as well as the opportunity to expand really enterprise-wide from the front end also to the back end with 3DEXPERIENCE. So we have multiple growth levers on Centric that we are building and that are contributing to the business going forward, and that gives us confidence. And the last point I would say that when you look at it geographically for Centric, the Centric business has a strong momentum in Europe. Asia is building. And in Americas, we see a strong reinforcement. And that is, I think, another very important element that we really see that business on a global basis diversified, and that has strengthened as we enter in '26. We continue to invest. You remember, last year, we made the ContentServ acquisition. We are now through the full integration of that. And this really expands the domain and the platform for Centric to expand within the current customer base and brands, which is creating the next -- another potential points of growth. Pascal Daloz: And maybe above all of this, Laurent, the problem came from the management, the previous management, who did an acceleration of the revenue. And we are -- this is clean. I mean, now it's behind us. Coming back to 3D UNIV+RSES, I think the way you should look at it, it's not an extension of the current portfolio. I mean it's really a redefinition of our offerings, the same way we did when we came with 3DEXPERIENCE almost now 15 years ago. So why I'm saying this? It's because it's requesting a new ecosystem. So in a way, you have seen new partnership, and NVIDIA is a good example of this. You need a new computing -- accelerated computing capabilities. At the same time, NVIDIA, they need to -- I mean, computing without knowledge is blind. So we are the one providing the knowledge with our Industry World Model. So the combination is extremely meaningful. And we will continue to partner with basically people having or leading this game. The real question, I think, is the M&A behind your questions. Yes, if we look at the landscape, I think it's not a bad time to consider M&A. MEDIDATA reimbursement is behind us. The cash flow is relatively significant, even if you are challenging a little bit the cash conversion. But at the end, it's a lot of money every year we are generating. The exchange rate is helping us to consider certain acquisition in the U.S. And the software landscape is under pressure. So I remember having exactly the same question 2 years ago, and I was telling you, it's not the right time. I think now it's the time. I will not say more, but at least you understand the way we think. And the last part, which is related to the '26, '27 ARR, what are the growth drivers. I think maybe, Rouven, you just started to mention it in your presentation. Rouven Bergmann: Yes, yes, yes. I think 2026, we have the guidance, Laurent, right? So let's look at '27 and beyond. What are the potential upsides we have and how we can accelerate. First of all, keep in mind, our large, large client base and the long runway we have to penetrate that client base with 3DEXPERIENCE cloud and our AI portfolio. That's really the strongest engine we have and it's -- and the acceleration potential. Now this, together with the transition to the subscription and cloud, which creates the recurring revenue building on top of that and creating the base effect of the faster-growing subscription growth. That's to me the first thing that is important, and you see we are focused on that to build this to reach this inflection point where we will see the acceleration. You're right to mention Life Sciences. We are -- you see that we are taking the investments. We have a lot of good things going already. You see the enterprise business is growing when you exclude some special effects. So there is a lot of good things that are happening, and we will continue to double down to strengthen them. And as it relates to the volume business, once we retain that exposure to churn, we will also see the benefits here. The expansion on the 3DEXPERIENCE portfolio for the industry, Pascal highlighted that as a massive opportunity. Centric, we discussed, I outlined this before is another growth driver that is not -- that is material. So -- and then there is the last point, you mentioned it, which is potential M&A, which is not factored into this model, creating an upside that we have. So that's the situation as we are transitioning from '26 to '27, and this is what I will focus to explain and outline in the Capital Market Day in November this year, where it's about translating that into an ARR model to give you confidence and understanding of the path ahead. Marie Dumas: So we'll take one more question in the room and we'll go online. Gregory Ramirez: Yes. Gregory Ramirez, GR20 Research. I have one question on the Healthcare business for '26. Trying to do the math, it seems to imply something low to mid-single-digit decline. What is the implied impact of the Moderna contract? Does that mean that if the impact for '25 is just on 1 quarter, that will have some -- still some headwinds for the first 3 quarters of '26? And regarding the enterprise business excluding Moderna, does that mean that it will be growing? So when we exclude the Moderna effect, that means that maybe in Q4 '26, this will drive the growth for '27? Rouven Bergmann: Yes. Maybe first, I want to clarify that we are not expecting decline in the Life Sciences business overall in 2026. We're expecting flat in 2026. Pascal Daloz: With everything we do. Rouven Bergmann: With everything we do in Life Sciences, from an industry standpoint, we expect to be flat. As it relates to the impact of Moderna, this is a 2025 impact. It was not only related to Q4, but it's really for 2025. But the aggregate of this impact is now behind us. Moderna reduced their contract by more than half to reflect their new business level activity. We're still the prime partner for Moderna. We have not given that or losing that to anybody else. It's our client. But their business realities have changed, and we have adjusted to that, which was -- it had a big impact on the performance. So now with that behind, as we look at the enterprise business going forward with -- I gave you some names and large enterprise clients that we have signed, where we are expanding our footprint. And beyond that, we will do even more. By the way, in March, we have MEDIDATA NEXT, where we have many of those clients coming with us on stage to explain what they do with us to expand across our portfolio to transform what clinical development is today. And that will translate, and we're confident about that, that will translate into growth in the enterprise segment going forward. Where we have less control is on the part of the volume business with the CROs. And this is where we are, to some extent, exposed to funding environment on the biotech sector, which can be volatile, and we know it has not been great over the last 2 years. But also there, we see some green shoots coming. And if that materializes, it will stabilize the business. Pascal Daloz: Maybe one additional thing. So if you look at the enterprise segment, and Rouven showed the number to you. The structural growth of MEDIDATA, excluding Moderna, it's 6%. And the growth of the rest of what we do is 7%. So we have 2 legs, if you want, which are solid. And we do not see a reason why it will not continue to be the case in 2026, right? The part where we are extremely cautious because we have been burned last year with this. Rouven Bergmann: That's only last year. Pascal Daloz: We were getting a recovery of the CRO to be back to at least being flat, and we landed at minus 5%. So that's what is not factored in the guidance. We do not take any improvement in the guidance of the CRO business. Despite the fact that some of them, they have published a better result in Q4 compared to Q4 2024. Marie Dumas: Thank you. We will now take questions online, please? Operator, could you start the online Q&A? Operator: [Operator Instructions] And it comes from line of Moawalla from Goldman Sachs. Mohammed Moawalla: Yes. Great. My first question was just to sort of understand the 2026 outlook a bit better. Can you help us understand at both the low end and the high end of the range kind of the assumptions, particularly around what you're incorporating for some of the larger deals as well as the kind of mega deals, what's in there and what isn't? And then again, coming back to sort of bridging the kind of ARR to the revenue growth guidance you've given, you sort of mentioned that we're kind of getting close to parity between subscription and maintenance. But obviously, in there is the MEDIDATA and Life Sciences recurring revenue. So could you give us a better feel for what the underlying subscription growth rates in kind of the core or when the business ex MEDIDATA has given? We're doing a transition both in the enterprise business but also SOLIDWORKS and Centric. Just to sort of better understand the moving dynamics of growth. And then lastly, you sort of touched a bit on more consumption outcome-based revenue as you drive kind of the AI applications or use cases. How does this sort of change the kind of the visibility going forward? Because I think because of conventional business is there's going to be more variability. But when does this become kind of more meaningful to your midterm growth rate? And is that going to be -- and how is that going to be captured? Rouven Bergmann: Okay. Mo, thank you for your questions. I'll start with the first one on how to position the guidance of 3% to 5% revenue growth. As I said, at the beginning of my prepared remarks, I just want to reemphasize this point that this guidance provides us room to navigate. It's derisked. It's derisked for mega deals. We do not include any mega deals into that. Of course, we always have large and chunky deals that are important to happen, but not mega transactions. I think what we need to do to overperform this guidance is I mentioned that there are certain areas that are introducing upside into what we do. We have not included significant growth in the defense sector, for example, simply because we have not yet seen this sector to contribute incrementally strong to our demand. But there are opportunities, of course, in this market that we are very focused to tackle and to get involved and to take benefit of it. We are building a very powerful AI portfolio, transforming our industries and building that to expand what we do with our current clients. And Pascal gave the examples and discussed that. This has, of course, a huge potential for us to accelerate the growth in 3DEXPERIENCE and AI. For now, as you see in the guidance, we have taken a more prudent approach to -- and this was what I shared with you as well, we consider the momentum in 3DEXPERIENCE growth to be consistent with 2025 and 2026. So of course, now as we enter in 2026, we are a significant step further in making these use cases and scaling them and replicating them. So there is, from that perspective, clearly, an opportunity for us to improve and grow and accelerate from there. Now we have to keep in mind that we have to offset also some potential softness in the auto sector. Now there is 2 sites to look at, 2 ways to look at that. While there is maybe softness in the fourth quarter, but still it represents significant opportunities for us also in 2026 because we have -- I want to remind you, Mo, and everyone here that we have signed significant deals in this sector over the last 2 years that are building the foundation to bring these clients onto 3DEXPERIENCE now with the potential to expand, and we are expanding with them in AI, and we are changing the game with that and creating significant opportunities that we couldn't do years before because we simply weren't in this position to do it. So that is all in front of us. And now in this context, I think we wanted to position the guidance from 2026 that is consistent with 2025. We ended at 4%. The midpoint of this guidance is at 4% with the potential to do better than that, but also to have the room to make the right choices for the mid- to long term to accelerate growth. On the low side, what can happen on the low side more? We -- there are macro factors that can always impact us and make things even more difficult and the timing of decisions more difficult. That can be a factor that we need -- we took into account on our guidance to be at the low end of 3%, but that's not what we are targeting. So going to the ARR. You're asking for a lot of additional information, Mo. And for sure, I will be prepared to disclose some of that at the Capital Markets Day. So please bear with me that I will be a little bit more high level, but I will give you the directions on where the ARR, what are the elements of the ARR and the different growth dynamics inside the AR. You're right when you call out MEDIDATA as part of the ARR, of course, that has been a headwind on the 6%, very clear on our subscription ARR. I mentioned subscription ARR is growing more than 10%. And now when you exclude MEDIDATA on core industrials, subscription ARR is growing mid- to high teens. It's a strong resilient cost driver for a long time. And we have, as I said, we have some potential to further accelerate that as more and more of our business transitions to cloud and 3DEXPERIENCE. Now that also -- you know the size of MEDIDATA. MEDIDATA in total is about a EUR 1 billion business. Now we have been -- in the way we've defined the ARR, we have some business in MEDIDATA as it relates to the volume business where we have churn effect, that's not renewable. It's not included in our ARR. So we have not factored in the 100% of Medidata subscription business because not everything is renewable. But nevertheless, it's a very large number inside the subscription ARR that has been facing a lot of headwind. Once we are removing this headwind, and you see we are already doing it for the enterprise part. Now the CRO part is still what is the challenge. But as we are removing that and increase and essentially generate a net increase in ARR quarter-over-quarter for MEDIDATA, that will then contribute to also increase the subscription ARR from what today is plus 10% to the next level. And I would say to go from plus 10% to gradually up point by point to reach 15-plus percent in the subscription ARR in aggregate. So -- but again, I will be prepared to outline those components at the Capital Market Day in more detail. Here today for me is to introduce this concept to you, explain the growth drivers. And with that, build the foundation on the levers that we are focusing on for growth acceleration to come. Pascal Daloz: Now the last part of the question, Mo, is related to the new business model for the new AI solutions. If you look at the story of Dassault Syst�mes, we changed almost everything, except one, the business model because it has always been an equation of the number of users, the number of seats. Now what's the problem? With the AI, you have virtual users now. We call it virtual companion. Some of our peers, they call it agent. So the model cannot be anymore the same. That's point number one. Point number two, I think the software are really selling the capabilities. Now we have an ability by combining the capabilities with the knowledge to sell the end result. Whatever the virtual twins of the improvement. So that's the reason why we are coming with new units. And let me explain to you what the units are about. The first one, we have the unit of works. When a Virtual Companion is working, in a way, it's working like a human. And the same way you have a cost for a human, you should have a cost for the companion. So we are not inventing anything on this one because this is what ChatGPT, Entropy, this is exactly what they do. It's a fraction of the cost of the people. More importantly, when we have a Virtual Companion, it could be a mechanical engineer. This one could be a mechanical engineer and an electrical engineer. It could be also, in addition, a specialist to do the simulation. So we have what we call the unit of knowledge. And the more knowledge the companion they have, the more we price for this because it's a way to capture the value of what we bring, right? If you have to hire someone right now, who has graduated from the best mechanical school, graduated from the best IT or computing school, it will be difficult. With a companion, we have an ability to enable this. Last but not least, what -- there is a third unit, we call it the unit of knowledge. And again, I insist on this for 4 decades, we have accumulated a lot of industry knowledge. We know how to design a car. We know how to produce it. We know how to certify them. We know how to scale the production systems. And this is true in every industry we serve. Now what can we do with AI? We can automatize those processes. And I can tell you, this is a significant value we are creating. In many cases, it's a 10x. It's really a moonshot. So that's the reason why we need also to have dozen units if you want to price in order to capture this value. And last but not least, I make this in my comments. But the entire industry is pushing to do Software as a Service. I present, we should do Service as a Software because you have so much money being spent in services just to make the technology enable that there is a chance not to use artificial intelligence to produce automatically the end results. So -- and that's what's the virtual twin as a Service is about, it's how we can mix the capabilities with basically what used to be human driven, and now it could be a virtual companion in order to deliver the end results. That's the new lever we have in our hands to create additional value. It's tangible, it's concrete, it's not science fiction, it's fiction with science. And it works because it's a way -- I mean, I have enough experiences the last year with many engagement to tell you. We know how to objectivize the value discussion with many of our customers. Now this will come on top of what we do because, again, I repeat myself, if you have a Virtual Companion, you still need CATIA. The Virtual Companion is the one using CATIA. It's not substituting CATIA. You still need to use CATIA SIMULIA, DELMIA in order to produce the end result. So that's an additional lever we are creating. And if you remember what I say, with the companion, we are accelerating the adoption. It's taking too much time to train the people. It's taking too much time for many of our customers to hire people. Now we have the way we master in a much better way the cycle of adoption. We have a better way to monetize the knowledge and the know-how we have put in our software because usually, people, they are comparing the capabilities, but they forget that we have put a lot of industry knowledge in our software. And again, we have the way to monetize the end result of what we do. That's the entire purpose. Now given the visibility, it's a little bit early to speak about this. The only thing I can tell you is just last year, in 6 months because we released those products, the first initial drop was midyear last year. We have been able to build to basically create a EUR 50 million backlog, right? That's what we have been able to do. And this is growing extremely fast. But again, same story, we will come back with more insight at the Capital Market Day in November. Marie Dumas: We can take the next question online, please. Operator: And the question comes from the line of Adam Wood from Morgan Stanley. Adam Wood: I've got 2, please. Just first of all, thinking about more traditional kind of metrics of visibility in the business. Could you maybe help us with pipeline coverage as it stands today? And I guess, particularly given the comments around automotive and investor fears around that, have there been any notable shifts in terms of where the pipeline is by industry that might reassure? And then secondly, I think we've seen in software a lot where there's been deceleration in revenue growth and particularly where companies have a lot of things changing and opportunities. You've obviously mentioned AI, the subscription transition for you. Can you just help us understand the balance that you're trying to strike between making sure you're reinvesting at the right level in the company to drive that revenue acceleration and maybe protecting margins in the short term? And are you comfortable you're getting that kind of split rate? Pascal Daloz: Thank you, Adam. I will start with the first part of the question, and Rouven will take the second one. So related to the pipeline, the coverage right now is 2.5x. So if I look at it, we have the pipeline to cover 2.5x the sales plan for the full year, which is good, which is good. The idea is to create 0.5 more during the year because we are creating also the pipeline over the time. So as a starting point, it's a good ratio. What's the difference compared to last year is the mix. Last year, we were relatively overweight with a lot of opportunity in the auto sector. And if I remember well, the pipeline in the auto sector was around 35%, 37% last year, right, Rouven? Rouven Bergmann: Yes. Pascal Daloz: This year, we are below 30%, which is, I think, better given what is happening, I mean, the volatility we have, especially in Europe on this topic. Where we see a share, which is increasing is in the aerospace and defense, which is, I think, more than -- close to 17%, 18% for this year. It was a little bit, let's say, last year, it was around 12%, if I remember well. What's the difference? We still have the backlog because as you may know, this industry still have a lot of planes to produce, and they still struggle to deliver the backlog. And we have a lot of demands coming from the manufacturing part. You remember the large deal we signed with Lockheed Martin a year ago, it was on this topic. But also, we have new segments. Defense is one of them, but also you have the new space. New space is in this industry what the EV was, let's say, 10 years ago for the car industry. People developing drones, low orbit satellites, the new launcher, I mean, the new space station as well. And they are the one basically equipping themselves very rapidly, and they are raising and growing fast their engineering departments. So this is also something important. We'll see also more demand in the high-tech sector. It's something I did not mention, but we spoke a lot about NVIDIA as a partner. But NVIDIA is also a customer, right? And for the one we have, I mean, we look at what Jensen said last week on stage. NVIDIA is using our technology. In fact, we have built the virtual twin of their future AI factories. And if you look at this entire sector, this is where the money flow right now. I mean, every morning, you open the newspaper, you see all the hyperscalers, all nations committing themselves to invest billions to create these AI factories. It's a very complex object. I mean, you cannot imagine the complexity of it. It's much more complex than a nuclear plant. And by the way, as I comment, do not make the confusion between the data center and the AI factories. The data center is to make an analogy, the warehouse. This is where you store the data. The AI factory, it's a real factory. This is how you transform the data into insight, knowledge, value added. So the complexity and the requirements, it's -- I mean, there is nothing comparable to what we know currently with the data center. So where I want to go, they need a virtual twin. And that's what we do. We are building the virtual twin of the AI factories of the future. This is a tremendous opportunity where we're expanding a lot. And to come back to the initial questions, that's the reason why the share also in the high-tech sector is increasing significantly in the pipeline, and we are around 15%. So long story, a short one, good coverage, mix difference. I think the mix is probably more resilient compared to last year, less exposure to the auto sector, much more distributed. The rest, industrial equipment, the consumer goods and packaged goods is almost the same than what we had last year. Rouven Bergmann: Okay. And then to your second question on the investment policy, how is this reflected? And really, we are looking at the different parts of the organization, starting with R&D. And here, the focus is on allocating our resources to accelerate the AI portfolio and also help to prepare the go-to-market with our brands because the R&D and the go-to-market, as you can imagine, as we are now bringing these next-generation applications to our clients, where R&D brands and go-to-market are extremely connected with our industries. So when I look at the opportunities and where we are investing on the go-to-market side, Pascal mentioned high-tech data centers, that's a growth opportunity, but also related to that, the energy sector, the energy transition, which is a massive opportunity for us. And we have had already in '25 some great wins here. And -- but we know the energy shortage and the pressure on the energy market will further open opportunities for us to virtualize and to improve and help this industry. Aero and space is a very resilient industry for us, where we are doubling down our focus on the go-to-market as well. And of course, industrial equipment. We have seen very resilient results in SOLIDWORKS, and we expect that momentum to be also in 2026. And last but not least, I mentioned that before, Adam, but just to complete the list here, the auto sector remains a critical industry for us with a lot of opportunities. And we are focusing also our go-to-market on that because we have a large footprint and the opportunity to expand. Now we talked about the life sciences go-to-market where we are investing with dedicated integrated account teams. We are really reallocating our resources to address that industry more holistically and open up new pockets of growth and budgets that we didn't systematically addressed in the past, which we have an opportunity to do, and we will. And then the last part, I think Pascal mentioned that also before, we are focusing on scaling the indirect channel, where just through the value network, the suppliers serving the OEMs, we have a lot of opportunity in this market as well, where we are enabling our partners with our new AI solutions to transform these suppliers. Now on G&A, we have initiated a large transformation project here as well to leverage AI and cloud in our back office to streamline the operation. Marie Dumas: We will take one more question online. Operator: And it comes from the line of Michael Briest from UBS. Michael Briest: Just thinking about the CMD in November, are you currently reiterating your 2029 financial ambition? Should we expect that to be updated at that event? Because I'm looking at subscription and you're expecting it to be 55% of software by then, and it was 40% last year, maybe 42% this year. That looks like a steep ramp. And then I appreciate the comments on M&A opportunities. But given the share price, what is your view? Is there any shift in the view on potential buybacks given the valuation of the data? Rouven Bergmann: All right. Thank you, Michael. On the Capital Market Day, regarding the 2029 financial ambition, there's 2 things. First, the introduction of the ARR will allow to have a more focused discussion on the growth levers and our path to accelerate top line growth, which is really around subscription, recurring cloud. And now with AI, we are in a different point than compared to last year where we have very concrete monetization examples on how they will build on top of our existing model. The second point I would reemphasize is that our financial commitment is on the EPS to -- and that also has a lever of the operational efficiency that we are implementing. That's why we reemphasize that today that we are taking the actions to improve the EPS and margin, which then, of course, will have a stronger effect as the top line comes back. So we will discuss that at the Capital Market Day and how we are going to bridge to reach our financial ambition by 2029 as we outlined last year. Pascal Daloz: The second part of your question, Michael, is related to the capital allocation. So again, there is no -- I mean, I have nothing against the share buyback. But if you step back a little bit, let's assume I'm spending EUR 0.5 billion to do this. the levers on the EPS will be relatively limited. And the same EUR 0.5 billion invested to acquire new AI start-up will deliver a better level. So that's the reason why right now, I'm really directing the capital much more to the external growth than to the share buyback. The share buyback for us, you remember our policies is only to offset the dilution coming from the LTI. That's what we do. But again, I have no dogmatic positions. I'm not against. I'm with you on the value creation, but I think we have a better road to create value by investing on the new AI domain than rather than to buy the shares. I think it's time to conclude. Again, thank you, all of you for your engagement today. But I want to leave you with one clear message. I think Dassault Syst�mes is really undergoing a profound and deep transformation of its business model. It's obvious that we are transitioning decisively to subscription-driven future. And it's not only coming from the acceleration of the cloud platform strategy, but above all of this is the evolution of our offerings. AI is at the core of the platform. This will enable our customers to create, simulate, operate virtual twin at scale to bring the virtual in the real world together and to manage the -- for the entire industry. And I think this transformation is not incremental. It's really a fundamental transformation. So -- and we do all of this with a certain resilience. Whatever you say we continue to grow, maybe at a moderate pace, yes, I accept this. But we sustained the momentum when if you look at in our industry, many of our peers, they struggle when they did this transition. And they did the transition before the AI came. So I think I hope you get a better sense of what we do, how we are executing, how we are innovating and how we are advancing to deliver the next phase of growth. I think Rouven and the Investor Relations team are looking forward to seeing you in the coming weeks because they will do road shows and see you no later than next quarter for me. Thank you.
Operator: Welcome to 2020 Bulkers Q4 2025 Financial Presentation. [Operator Instructions] This call is being recorded. I'll now turn the call over to CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q4 2025 Conference Call for 2020 Bulkers. My name is Lars-Christian Svensen, and I will be joined here today by our Chairman, Magnus Halvorsen; and our CFO, Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These assumptions reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may differ materially from those anticipated. I will now continue with the highlights of the quarter. We reported a net profit of $13.8 million and an EBITDA of $16.5 million for the fourth quarter of 2025. We achieved an average time charter rate of about $39,300 per day in the same period. Our total dividends amounted to $0.63 for the months of October, November and December 2025. In October 2025, we signed an agreement to sell the Bulk Sao Paulo for a total of $72.75 million with Q1 2026 delivery. In November 2025, we signed further agreements to sell the Bulk Sydney and the Bulk Santos for a total of $145.5 million. These 2 vessels will also be delivered to new owners within Q1 2026. In subsequent events, we reported an average net TCE earnings of about $30,800 per day for the month of January 2026. And this morning, we also announced a dividend of $0.15 for the same month. And with that, I will now pass the word to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $13.8 million and earnings per share of $0.60 for the fourth quarter of 2025. Operating profit was $15.8 million and EBITDA was $16.5 million for the quarter. Operating revenues and other income were $21.4 million for the fourth quarter. The average time charter equivalent rate was approximately $39,300 per day gross. Vessel operating expenses were $3.5 million, and the average operating expenses per ship per day were approximately $6,300 in the fourth quarter. G&A for the fourth quarter was $1.1 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148.4 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $15.5 million for the quarter. Cash and cash equivalents were $22.1 million at the end of the quarter. The company declared total dividends to shareholders of $0.63 per share for the months of October, November and December 2025. That completes the financial section. And now over to you, Magnus. Lars Halvorsen: Thank you, Vidar. As our remaining ships will now soon be delivered to their new owners, I just wanted to reflect and summarize a little bit the 2020 Bulkers history and the financial returns we've generated for our loyal shareholders. We started out in 2017 by ordering 8 scrubber-fitted Newcastlemax vessels at New Times Shipyard paying at the time, all-inclusive $47.6 million. And we believe at the time, there was a very interesting risk reward given the attractive newbuilding prices and falling order book. As we became an operating company, we remained profitable every single quarter from the delivery of our last vessels. And looking at what this has meant in terms of returns, the company was initially financed by $142 million in equity through a number of share issues. As of and including the declaration we made today, we have declared a total of $251 million in dividends and distributions to other shareholders. And as we've reported today and Vidar went through, we expect to have net proceeds from the sale of the last vessels amounting to around $311 million after all debt has been repaid. Additionally, we have around $50 million on cash on the balance sheet as of today. What this means for the investors who supported us throughout the whole story, participating prorate in every equity offering since November 2017, we've generated an IRR of 28% per annum measured in dollars. For those and perhaps more relevant who came in on the IPO on then Oslo Axess in June 2019, the annual return, including dividends, has been 31% measured in U.S. dollars. This compares to 17% for the S&P 500 and just under 16% for the Oslo Stock Exchange measured in dollars for apples-to-apples comparison. As we stated in the release today, our intention is to, as soon as possible, return all the proceeds from the sales to shareholders as well as the majority of cash on hand. We will retain a small amount in the company to support G&A, which will enable us to stay listed while we can evaluate potential strategic or other opportunities. Before I go to the Q&A, I'd like to thank everyone who's been part of the story so far. We obviously wouldn't have been able to do this without the investors. And I think particularly the ones that supported us in a very challenging share offering in May 2019. At the time, dry bulk was not exactly in fashion. It was very tough to get it done. And also a big thanks to the employees, the Board, the banks, brokers, New Times Shipyard and of course, very importantly, our very good charters, so -- which we have remained very loyal to. And with that, I'll leave it over to the operator for questions. Operator: [Operator Instructions] As there appears to be no questions in the queue, I'll hand it back to the speakers for any closing remarks. Lars Halvorsen: Okay. I think we've said what we want to do. So thank you, everyone, for dialing in. And if you have any questions that you didn't ask, feel free to reach out to us. Thank you very much.
Operator: Welcome to the GXO Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. My name is Daryl, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If anyone should require operator assistance during the conference, please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures, and the company's guidance. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities law which, by their nature, involve a number of risks, uncertainties, and other factors that can cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that can cause actual results to differ materially is contained in the company's SEC filings. Forward-looking statements in the company's earnings release or made on this call are made only as of today. And the company has no obligation to update any of these forward-looking statements except to the extent required by law. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions, and consumer demand, and spending, labor market, and global supply chain constraints. Inflationary pressures, and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore, actual results could differ materially from guidance. You can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to GXO's Chief Executive Officer, Patrick Kelleher. Mister Kelleher? You may begin. Patrick Kelleher: Good morning, and thank you for joining our fourth quarter and full year 2025 results call. Joining me today are Baris Oran, Chief Financial Officer, and Kristine Kubacki, Chief Strategy Officer. GXO delivered a strong finish to 2025, setting a solid foundation to accelerate organic growth and profitability in 2026 and beyond. When we spoke last quarter, I shared some of my early observations about GXO, where I see opportunities to improve the business to accelerate organic growth, and sharpen operational execution. I'd like to spend most of my time today discussing the recent leadership actions that position us well to grow and expand margins. First, let me share the highlights from our record quarterly and full year performance. For the fourth quarter, we delivered record revenue of $3.5 billion and record adjusted EBITDA of $255 million. We did the same for the full year. Total revenue was a record of $13.2 billion with every region delivering organic growth. And full year adjusted EBITDA was a record at $881 million. Even against a dynamic macro backdrop, the strong results we delivered clearly demonstrate the value we create for our customers and the resilience and predictability of our business model. New business wins were $1.1 billion in 2025, providing good visibility to accelerating growth in 2026. During the fourth quarter, we won significant business in both strategic and established verticals, including notable contract wins in the life sciences sector, several aerospace and defense sector wins, as well as a notable win with a global apparel brand. We have $774 million of expected incremental new business revenue already secured for 2026. This is an increase of over 20% compared to this time last year. I'll let Baris and Kristine discuss our financial outlook and new business wins in more detail in a few minutes. But I'm pleased to announce that we've released our 2026 financial guidance today, which at the midpoint shows accelerating organic growth, adjusted EBITDA margin expansion, and an increase of 20% adjusted diluted EPS growth at the midpoint. I want to recognize and thank my GXO teammates for these results. Together, we are building a culture anchored in speed, accountability, and customer intensity. And that culture is directly fueling our performance. As I shared last quarter, GXO has very strong fundamentals. We are the industry leader in tech-enabled fulfillment. We have strong regional businesses, deep operational expertise, and a compelling commercial engine. Our scale, global footprint, and expertise set us apart in both execution and capability breadth. And we are well-positioned to lead what's next in the deployment of automation, robotics, and AI versus peers. My focus right now is to bring our strengths together to operate as one global organization. Deliver faster growth, higher margins, and sharper execution. Over the past five months, we've announced new leadership in three key areas: commercial, operations, and our Americas and Asia Pacific region. These changes are primary accelerators designed to, number one, scale consistent operating standards across the organization to sharpen execution and drive margin expansion. Number two, to sharpen growth priorities and go-to-market disciplines to accelerate organic growth and three, grow our market share in the US. I see opportunity to strengthen our operating model by moving from regional strength to global leverage. Our regions are strong. And there's clear upside from better connecting what already works across the network. Operating in a higher gear will come from deploying consistent operating standards, sharing best practices, and standardizing what is best in class. To be clear, it is not about one standard for customers. We will continue to deliver the customized solutions that set us apart. It is about establishing one way of working as a global team. The new chief operating officer role is a critical step in enhancing our operating model. Bart Beeks joined us in January after more than two decades at CEVA Logistics, most recently as COO. He brings decades of industry experience and proven expertise in driving increased productivity, efficiency, and greater value for our customers. Bart's mandate is to scale a single operating methodology across our global network, creating a flywheel effect spanning solutions, and seamless implementations. To service delivery, continuous improvement, and renewals. Productivity gains will come from better labor planning, network-wide best practice replication, and operational visibility. All key levers behind margin expansion. Bart will also lead the operationalization of our automation and technology strategy, as we accelerate our leadership in this area. We are already at the leading edge of AI in our industry and we plan to move even faster in AI and robotics this year, particularly with humanoid robots. A key focus will be the continued rollout of GXO IQ, our AI-powered warehouse operating system. GXO IQ's AI capabilities are already improving labor planning, inventory distribution and movement, forecasting, and workflow management across several of our largest sites. We see the technology amplifying our competitive differentiation as supply chains become more complex and data-intensive. This has the potential to be a real game-changer for us. As we move through the year and into 2027, we expect to drive clear productivity benefits, as we increase proprietary AI applications across our footprint. I'm also very excited about our progress with physical AI and humanoids. I believe humanoid technology will be a game-changer for our industry and we have the pole position. GXO was the first to deploy this tech in a live operating facility. As we've collaborated with top robotics developers, we are driving significant improvements in the sophistication of warehousing tasks that can be undertaken. Commercially, I also see significant opportunities to operate in a higher gear. Not all growth is equal. And we will be very deliberate about where we lean in. It is about building a clear unified global approach to customer relationships, and pricing with an initial focus on accelerating sales in select B2B verticals and longer-term identifying geographies for expansion. Karen Baumer joined us two weeks ago as chief commercial officer from ABB Industries. She brings expertise in commercial strategy, and driving growth across the energy, industrial automation, and retail technology sectors. Her mandate is to tighten execution through more consistent global engagement, sharpen go-to-market execution and strategy, ensure pricing reflects the value that we deliver, and improve the speed and consistency of our commercial processes. As we discussed last quarter, the growth opportunity in the contract logistics industry is huge. With a total addressable market exceeding $500 billion, we see meaningful opportunity to increase market share, by expanding the pipeline and improving our conversion rates. The good news is that we're already accelerating our momentum in priority B2B growth verticals, aerospace and defense, life sciences, industrial, and technology, specifically data centers. We achieved another sizable win in life sciences in the fourth quarter, and won several aerospace and defense contracts with Boeing and BAE Systems among others. While continuing to see strong demand in omnichannel retail, a core strength. Bridging both elements of growth and operational execution is our North America Division. We have a great platform in North America, with leading positions across the consumer, technology, aerospace, and industrial verticals. The US is our largest and most immediate growth lever to accelerate organic growth given market demand, vertical mix, and the scale advantages that we can unlock. Also expect this market to be the epicenter of technological innovation as we look to capitalize on opportunities with AI, and humanoids to drive greater warehouse productivity. Michael Jacobs, who I've known for more than twenty years, took the helm of our North America business three months ago. He is intensifying focus on operational performance, increasing labor productivity, and winning new business by reallocating investment to solutioning, sales, and digital marketing to realize the opportunity that we see. These three leadership changes are strategic accelerators. It's about running the playbook with greater alignment, scale, and pace. In closing, in 2026 and beyond, we have a solid foundation to build on, and I'm very excited for the future. Profitable growth is the priority. And over the past five months, we've moved with speed. Strengthening the leadership team that will execute on the opportunity ahead, simplifying our structure, accelerating expansion in priority B2B verticals, and coming together as one team to define the ambition of the company for the future. With that, I will hand the call over to Baris. Baris Oran: Thanks, Patrick. GXO has built momentum through 2025, with the fourth quarter performance reflecting the power of our resilient business model. With record revenue, adjusted EBITDA ahead of our original full-year guidance, and robust free cash flow, we are delivering on our commitment to drive profitable growth. For the full year of 2025, we generated record revenue of $13.2 billion, growing 12.5%, of which 3.9% was organic. We delivered adjusted EBITDA of $881 million, growing 8%. Our adjusted diluted earnings per share was $2.51, and we delivered adjusted net income of $292 million. In 2025, GXO delivered record revenue of $3.5 billion, up 7.9% year over year, of which 3.5% was organic. Every region delivered organic revenue growth, highlighting the value of our contractual business model, throughout a dynamic trade and macro environment. We delivered record adjusted EBITDA in the fourth quarter of $255 million, ahead of the implied midpoint of our guidance at $249 million. We delivered net income in the fourth quarter of $43 million and adjusted net income of $101 million. Our diluted earnings per share was $0.37 and our adjusted diluted earnings per share was $0.87. Our free cash flow in the fourth quarter was $163 million and we delivered our target adjusted EBITDA to free cash flow conversion for the full year. We remain disciplined in our capital expenditure and working capital management, which allows us to continue to invest in our business with high returns. Our record operating return on capital remained consistently strong, driven by solid operating performance. Our leverage levels improved to 2.5 times net debt to adjusted EBITDA, even after executing $200 million in share buybacks in 2025, at an average price of $37.34. We also successfully completed our first European bond offering, securing EUR500 million on competitive terms, and using the proceeds to refinance upcoming maturities. Our balance sheet is strong and positions GXO for long-term growth. The integration of Wincanton is moving at pace, and we are on track to deliver the run-rate cost synergies of $60 million by 2026. We also expect to gain significant revenue synergies over the coming years. Given our excellent operating performance in 2025, I'm pleased to share our 2026 guidance, where we expect to deliver organic revenue growth of 4% to 5%, adjusted EBITDA of $930 million to $970 million, an increase of 8% at the midpoint, adjusted diluted earnings per share of $2.85 to $3.15, an increase of 20% at the midpoint, and adjusted EBITDA to free cash flow conversion of 30% to 40%. With strong operating performance, a solid financial foundation, and a robust sales pipeline, GXO's resilient and predictable business model continues to deliver exceptional value to both our customers and shareholders. With that, over to you, Kristine. Kristine Kubacki: Thanks, Baris. Morning, everyone. With the fourth quarter and full-year results demonstrating the strength and resilience of our business model, I want to provide more context on the drivers of growth, the durability we see across our business, and how we're positioning GXO for the next phase of value creation. Patrick has been clear about our priorities of that strategic roadmap: accelerate organic growth and expand margins. And from where we sit, two aspects of GXO's story continue to gain traction: the resiliency of our contractual, highly diversified business model and the durability of our organic growth across cycles. These pillars enabled us to deliver another record year of performance in a dynamic macro environment. And more importantly, they give us confidence about the future. On growth, we are making significant progress building our global relationships with blue-chip customers and expanding across geographies and into high-growth verticals. During the fourth quarter, we won $248 million in new contracts, bringing full-year 2025 wins to $1.1 billion. Critical to growth are significant opportunities in fast-growing, high-value verticals such as life sciences, aerospace and defense, and industrial, specifically data center infrastructure. These areas remain a strategic focus for us, and I'm excited to share the meaningful progress we've made this quarter. First, in life sciences, we're gaining good momentum in the $34 billion life sciences vertical. Even with the largest win in the quarter, with another notable win in Q4, our life sciences pipeline continued to grow quarter over quarter, with several new strategic opportunities. Second, we're seeing increased activity in aerospace and defense, and industrial across all our regions. During the quarter, we further expanded our partnership with Boeing, won new business including BAE Systems and Thales, the direct result of the Wincanton acquisition. We also established a defense advisory board in the US comprised of defense industry experts. This board will provide market insight and strategic guidance on business development. Third, we continue to build momentum in the fast-growing data center market, a critical part of the rapidly expanding AI and cloud infrastructure ecosystem. As a key logistics partner, the complex supply chain, we are well-positioned to capture share in the $28 billion technology vertical. During the quarter, we secured five new contracts, including for the first time wins across multiple regions with a leading hyperscaler, demonstrating our ability to scale globally with high-growth customers. Looking to the growth outlook for 2026, our $2.3 billion sales pipeline is robust and well-diversified across regions and verticals. Altogether, our recent wins translate to $774 million in incremental revenue already for 2026, up over 20% from where we were at this point last year. This gives us confidence in our 2026 full-year guidance and provides visibility into our long-term growth trajectory. The second priority Patrick outlined was strengthening our operating model to drive even better profitability. Core to driving operational excellence is our leadership in automation, technology, and AI. GXO IQ accelerates this differentiation, bringing best-in-class consistency and security while driving clear productivity benefits for our customers. We began successful pilots of GXO IQ in the second half of last year and are excited by the early results, especially in the areas of proactive replenishment and slotting. GXO IQ is expected to go from pilot to scaling across more than 50 existing sites this year. And in automation, by 2026, we expect to have nearly 20,000 robots in operation, plus several humanoid pilots launched across all three regions. We have a strong foundation and are poised to scale these market-leading capabilities further. This will serve as a powerful lever for long-term profitable growth. And we look forward to sharing more about our roadmap at our Investor Day later this year. And with that, I'll pass the mic back to the operator to begin Q&A. Operator: Thank you. We will now be conducting a question and answer session. You may press star 2 to remove your question from the queue. Patrick Kelleher: One moment please while we poll for your question. Our first questions come from the line of Stephanie Moore with Jefferies. Please proceed with your question. Stephanie Moore: Great. Good morning. Thank you. You know, for Patrick and you know, maybe this would be one that Karen would be able to answer as well when she's had a little more time in the role. But as you think about your market-leading position and industry vertical strategy, can you speak to your just overall philosophy on making sure GXO's value is appropriately recognized by your customers and ultimately, what that can mean for pricing, churn, and, you know, really organic growth in the future? Thanks. Patrick Kelleher: Yes, Stephanie. Good morning, and thank you for the question. Our vertical focus is absolutely critical, I think, to the organic growth agenda. In that, we want to make sure that we have in the market verticals, client-aligned solutions that are really addressing specific challenges that our customers face in the verticals that they're competing in. Client-aligned solutions will deliver the most value for the customer, and we think that will come with pricing power in terms of being able to commercialize the value that we're creating for customers in the right way. And that is why I think the specialized agenda around those industry verticals, particularly as we're stepping into the strategic industry verticals of aerospace, defense, industrial technology, and life sciences, we can bring significant value for customers and we want to commercialize that the best way. Stephanie Moore: Understood. Thank you. And then, actually, just a follow-up to the guidance commentary. Baris, can you walk through how we should think about the cadence through 2026? You've announced some pretty big wins to start the year and the like. So maybe just how we should think about how growth and EBITDA flows through as the year progresses. Thanks. Baris Oran: Sure. On the EBITDA phasing, the phasing we expect this year reflects the timing of specific project start-ups and exits. These quarterly swings tend to be immaterial on a full-year basis. These have been reflected in the percentages we provided in our presentation. We have high visibility due to new businesses we have already won. And we expect to have new wins more business, throughout the year. Stephanie Moore: Alright. Thanks, everybody. Thank you. Operator: Our next question has come from the line of Chris Wetherbee with Wells Fargo. Please proceed with your questions. Ryan: This is Ryan on for Chris. Just to follow-up on that last one. The second half run rate looks to be a little bit more elevated, I guess. What does how should we think about that? You know, as we exit 2026 into 2027 from a fairly strong base? Patrick Kelleher: Yeah. This is Patrick. Maybe I can take that to start. And then Baris can close out with a few comments. When you look at the contract logistics industry in our business, the typical sales cycle is six to nine months with a ramp-up period to start up new operations, which could take up to six months. We exited 2025 with a great book of new business wins, $775 million already identified to implement this year. And we are selling opportunities and closing opportunities right now that we expect to start in the second half of the year. Our pipeline exited 2025 at $2.3 billion. Pipeline as we stand today is $2.5 billion and growing, especially in the strategic industry verticals that we're participating in. And so we think we're going to see the benefit of new business wins from that pipeline accelerating in the fourth quarter. And then especially into 2027. Baris, anything to add there? Baris Oran: Yes. On the EBITDA side, remember, we have an integration that we kicked off late 2025. And you will see the benefits of that even more visible in our numbers in the second half of this. Kristine Kubacki: Hi. This is Kristine. I just thought I'd add a little bit to double click about why we are so excited about where and the momentum that we're seeing in the business. As you know, we have a huge addressable market, and, you know, it's over $500 billion. Our core markets, you know, around consumer-facing, we're seeing good momentum there in terms of pipeline wins. But in the new verticals that Patrick just spoke of, we're really unlocking and seeing some very good trends, you know, in aerospace and defense, I mean, that's a and industrial, it represents hundreds of billions of dollars of TAM. In fact, we have over $200 million in the pipeline, and that's even after notable wins with BAE, with Boeing, with Thales, and even BMW. So we're very excited about the strategic initiative that we have in aerospace and defense. And then in life sciences, you know, $34 billion TAM for us. That pipeline has more than tripled in the last twelve months, and that's even having our largest win in the fourth quarter come from the life sciences. And, of course, I talked about the tech side. We're seeing, of course, very strong momentum there. And even as we enter January, more opportunities are popping up for us, and we're very excited about how that plays out and more wins coming as we move through 2026. Ryan: Thank you. Appreciate the color. Then I guess just on the fourth quarter, organic growth came in a little bit light, you know, versus our expectations. You maybe walk us through what happened in the quarter? Maybe you could touch on peak season dynamics and how volumes shook out by vertical and geography? And then on the cost side, you know, seems like there was solid productivity that beat our expectations. Can you help us frame why that doesn't carry fully through to, like, 1Q and 2Q EBITDA? Thanks. Baris Oran: Let me take that. Our growth was very strong in Q4 with the net new business wins and milder volume trend, especially in Continental Europe and UK. The delta between Q3 and Q4 is primarily driven by the volumes. And if you look into 2026 onwards, our guidance implies in 2026 an EBITDA margin expansion around 20 basis points. At the same time, we are making targeted investments to drive our productivity faster and accelerate our organic growth. Absent these factors, margin would have expanded faster this year. But we are taking a multiyear strategy which we will outline at an Investor Day at a later phase. And you will see a clear margin opportunity when we benchmark ourselves in the market against GXO's own history. Ryan: Thank you. Appreciate the color. Operator: Thank you. Our next question is come from the line of Ravi Shanker with Morgan Stanley. Madison: Hi. Sorry, this is Madison on for Ravi. Thanks for taking my question. I was just wondering what you guys are thinking about in terms of timing for Investor Day if we should be expecting that sometime this year. Patrick Kelleher: Yes. That's definitely 2026. And we'll be out with the date for that shortly. Madison: Got it. Okay. And then I was wondering if you could talk about your macro assumptions that you have baked into the low end and high end of the guidance range. And kind of what you're also assuming at the midpoint, if it's just a continuation of what we're currently seeing right now. Baris Oran: Let me go over some of the numbers. We do expect an acceleration in organic growth in 2026. We already have $774 million of incremental revenue secured, or roughly 6% gross growth. This will continue to grow, and we expect our new business wins to provide the growth uplift. The inflation pass-through and retention rates seem to be roughly the same 2025 to 2026. We are assuming flat volumes in our operations, which we believe is prudent. Patrick Kelleher: Yes. And I think that's very important to highlight. So guidance for this year is assumed on flat volume as we consider the overall macroeconomic situation and really anticipating how that is going to materialize and taking a very conservative view there. As a respect with respect to current customer volumes. So the lever for this year is really about organic growth driving top line. Madison: Got it. Thanks for the color. Operator: Thank you. Our next questions come from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions. Scott Schneeberger: Thanks very much. Good morning. I guess I'd like to follow-up on that guidance question and ask at the low end of the range and at the high end of the range, what are some items that you all are considering most of what could what could put you at the high end and the low end? What are you worried about, and what are you most excited about heading into the year? Thanks. Patrick Kelleher: Sure. I can take that. In terms of our guidance on revenue, we feel very good about the revenue that was won in 2025 carrying into 2026. $775 million as mentioned. Feel very good about the current pipeline growing from $2.3 billion to $2.5 billion from the beginning of the year to now, and that continues to accelerate. The sensitivity around the top line will come with speed in which those new business wins can be implemented, and how quickly we're realizing profitability from that. And that really underpins the low end of the range. In terms of the high end of the range, it really is about bringing to life new business wins from the current pipeline and the timing of the implementation of those new business wins this year. Baris Oran: To move on to EBITDA, and the guidance there, that is about not only driving organic growth, which contributes to EBITDA but also progressing our agenda of productivity and cost improvement in the business. Of which we have a number of areas of focus. Talked about Bart Beeks coming on as COO. He is driving already. Productivity improvement initiatives centered around especially labor planning. Where we think we have a big opportunity. Michael Jacobs is really amplifying that in our business in North America. That coupled with our agenda on robotics automation and AI, and driving those technologies into our business for productivity improvement, cost improvement, and finally, a focus on our overall SG&A and operating costs, making sure that we're responsibly spending those dollars getting the best leverage out of SG&A as we move through 2026. Will all be the levers that we're focused on to deliver within EBITDA range that we put forth. Scott Schneeberger: Great. Thanks. And following up, it sounds like, Patrick, you alluded to earlier, we probably have to wait to Investor Day to get a taste of how you're thinking about margin long term, and we look forward to hearing about that. Any color on that now would be great. But, a more specific question in the near term, just with regard to investments, you're clearly making them here, as Baris mentioned, you know, we would see a higher margin if not for these investments. What is the strategy with balancing investments at this juncture in the business, and what type of are you making right now in 2026? Thanks. Patrick Kelleher: Sure. Maybe with respect to the margin improvement opportunity, yes. We will be providing details associated with that in the Investor Day 2026, but I can confidently say right now we are aiming to deliver at margin levels at or better than our peer group. I am very confident from my experience that GXO is well-positioned as a foundation to achieve that. In the Investor Day 2026, we will put definition to the plans associated with getting there and the timeline in which we think we can achieve that. But I feel that is well within reach. Baris, second. Hand it over to you for the second question. Baris Oran: Sure. You look into the type of investments we are making in 2026, which are included in our guidance, by the way, there are primarily two buckets. One is improving our growth and capabilities in the new strategic verticals, such as digital marketing, defense advisory board, and aligning our systems to capture more aerospace and defense business. Number two is structurally increasing our cost efficiency by investing further in labor management systems, GXO IQ, AI, and simplifying our ERPs. That is all included in our EBITDA bridge. Scott Schneeberger: Excellent. Thank you. Operator: Thank you. Our next questions come from the line of Richard Harnett with Deutsche Bank. Please proceed with your questions. Richard Harnett: So just a quick follow-up on that last question. I know it's a heavy investment year for all good things, but in light of the question around or, Patrick, your answer just around, like, you know, all these productivity enhancements that are being put in place today. Is there upside risk to the margin outlook for 2026 if things go right? 20 bps of margin expansion, can it be better? Or is this really just going to be more longer-tail projects and it's going to be maybe more of a 2027 plus type development. And then just I wanted to hear more, you know, data centers. You guys spoke about them a couple of times on that plan that you we had someone in the US data center play report very strong orders this morning, so timely. Like you mentioned, the vertical is a key pillar in your growth strategy. Christine, you've talked about how you service this market, but maybe it'll be helpful to get, like, an update there and how your automation plan sort of play into serving the vertical. In a more differentiated way, if at all. Patrick Kelleher: Yeah. Sure. So on the margin point, I'm very excited to share the detailed plans margin opportunity that we have in the 2026 Investor Day. We feel very good about the range that we're providing in terms of EBITDA and revenue performance this year, the resulting margins associated with that. We're very focused on growing in the high-margin verticals, and we talked about those in the B2B verticals. Very focused on pricing and making sure that we're getting paid the value that we're delivering. And that is really important this year to make sure that that is set in motion. We're driving for site-level productivity. We've got a number of initiatives underway being led by Bart. And that really is about driving towards even more global operating standards driving to a higher level of maturity on our labor planning, and then especially leveraging AI. I think our guidance contemplates the results that we can deliver from the initiatives that we have in place today. And finally, leveraging SG&A more effectively as we accelerate growth. We have a $2.5 billion pipeline today. It's working that pipeline higher, certainly, that can only lead to a good performance. So we're very focused on organic growth as well as the performance levers that we talked about. Kristine Kubacki: Yeah. Richard, this is Kristine. Just to give you a little bit more about on the tech side. As I mentioned, we're very excited about this. It represents a $28 billion TAM. And as you mentioned, it's only just expanding from here and expected to grow over the next several years at a very high pace. You know, for us, it fits right into our wheelhouse because it is a very complicated and complex supply chain that we're supporting everything not only from the start-up and the of the data center, but also the life and logistical support. It's really just one of the core competencies that we have from a very complex set, you know, operation that we're supporting there. It is a high-value vertical for us. So we're very excited in terms of the opportunities. Just alone in the last six months, as I mentioned, we've seen the pipeline more than double and that's on that's even with the five contracts that we signed in alone in the fourth quarter. And, again, that was the first time also we've seen that in multiple regions. So our business is expanding from a geography standpoint. So we're very excited about the opportunity set ahead, and we have a huge vertical to go unlock for us. Richard Harnett: Okay. Thank you. Operator: Thank you. Our next questions come from the line of Patrick Creuset with Goldman Sachs. Please proceed with your questions. Patrick Creuset: Hi, Patrick, Baris, and Kristine. First of all, what timeline would you set yourself to start to see some meaningful commercial traction? And therefore, organic growth lift off in your US business? And sounded perhaps from your previous guidance comments that we could see something maybe towards the latter part of this year already, but rough timeline there to see that accelerate. Second question on margins, same one really. I mean, when would you think we start to see some progress there in terms of converging towards the margin levels we see at your larger European peers? And the rollout of best practice and AI tools you mentioned I mean, is that something that already drives much stronger guided second half EBITDA performance? Thank you. Patrick Kelleher: Yes, sure. Let me take those and then, Baris, maybe you want to comment. From a North American market perspective, I think we are already seeing traction in terms of an accelerated growth agenda there. We've got a fantastic opportunity, great foundation, particularly in the strategic verticals that we see as very contributing to our growth going forward. There's a total market opportunity in North America, $250 billion. Michael Jacobs, who I said I've known for twenty years, he's been in the seat now for three months. And already intensified focus on operational performance. Increased labor productivity, which only makes us more competitive in the market, and he's really driving towards winning new business and allocating resources to solutioning sales and digital marketing, and I think that's critical to converting the pipeline that we have there. I think it's important to remind that the sales cycle for this business is six to nine months. Within a period of about six months to start up new business to realize full profitability of opportunities that are won. And so I think our guidance for 2026 accurately reflects stepping into that growth based on sales and start-up cycle. And that has us very excited for 2027 as well. It's a key focus of mine to reenergize our customer relationships in the region, and that's going to be a key focus of mine in this new era of growth and stronger execution that we've talked about. With respect to your question on margin expansion and margin opportunities, I believe firmly now six months in that there is a structural margin opportunity for GXO. In the near term, Baris can comment, our margins have been diluted by the delays to the Wincanton integration process, that begins to correct itself in 2026 as we deliver the $60 million run-rate synergies, which will be in place full run-rate by the end of the year. But, again, given my experience, I see no reason why GXO can't be performing at or better than our industry peers. We're definitely going to outline how that happens in the Investor Day 2026. Baris Oran: If I may add a couple of things on the Wincanton integration. Wincanton has traded solidly and is a contributor to our incremental year-over-year EBITDA results. We began the integration in the third quarter. We realigned the organization structure. And we are beginning to combine support functions, procurement benefits, become more obvious in '26 and beyond. Total to date integration benefits were around $15 million by 2025, including some in 2024. By 2026, as Patrick highlighted, we expect both businesses to be fully integrated, cost savings program to be implemented, and meaning we will enter 2027 with a full run-rate of $60 million. Which should provide us another $20 million year-over-year benefit is included in our guidance for 2026. In addition to cost synergies, the combined GXO, Wincanton teams are already contributing on new opportunities for new customer tenders which will accelerate GXO's growth protein to our target verticals. Patrick Kelleher: To the last question on productivity improvement, I would highlight especially our initiatives around rolling out GXO IQ. We are really excited about the opportunities AI presents for our business. GXO IQ is the path to implement AI across our 1,200 operations and how we're bringing AI to life. Kristine, maybe you can comment on our progress there. Kristine Kubacki: Hi, Patrick. Just to give you a little bit of background, I mean, we've been deploying proprietary AI modules across our sites for about eighteen months now, and it's in a number of sites. We got our actually, our first nonpilot savings just last year in 2025, so we're seeing very good things. We have gone from the pilot stage of GXO IQ in the second half of last year, and we're going to begin scaling that to more than 50 sites as we go through 2026. And then, you know, most of our new start-ups from here, so that will be existing sites, some existing sites, and then most new startups will be launched on the GXO IQ platform. So we're very excited about the things that we're already seeing, the opportunities in the pilots that we did in 2025. We will provide more details of how this rolls into the margin opportunity over the long term at our Investor Day later this year. Patrick Creuset: Thanks. Can I ask a follow-up just on that AI point? Just in terms of conceptually, what are the exact cost buckets that GXO IQ tackles? Is it sort of site-level SG&A more group functions, or something else? Patrick Kelleher: We have two dimensions that we're chasing in terms of our AI strategy. The one is, as you referenced on SG&A, improving overhead efficiency, refocus on our own operations. That's our functional activities. We'd look to leverage our corporate functions like HR, IT, finance more effectively. And AI plays a big role in that. We see ourselves leveraging market-available AI to drive those improvements. The second dimension is driving innovation within customer warehouse and transport operations. So some examples of that, we have AI modules deployed for dynamic route planning, proactive replenishment, slotting, forecasting, those will all drive to impact the cost basis for how we execute in our operations sharing that value with our customers, as we drive to lower cost, better service, the solutions that we provide. So we expect great results from those two areas of focus. Got a number of deployments already underway. And seeing good results of the work that we're doing. Patrick Creuset: Very clear. Thank you. Operator: Thank you. Our next questions come from the line of Jason Seidl with TD Cowen. Please proceed with your questions. Uday Khanapurkar: This is Uday Khanapurkar for Jason Seidl. Thanks for the question. Maybe a couple for Baris. On the organic growth guide, I think based on 26 locked-in wins. Appears to imply, like, a mid-single-digit churn rate. So maybe if you could confirm the algo there. Just curious if that implied churn is an estimate based on typical churn at this point in the cycle, or have those conversations with customers concluded? And then maybe if you see some support from the broad market, could you see, you know, outperformance on that this year? Baris Oran: Yes. On the retention rates, we assume steady retention for 2026 similar to 2025. And the inflation pass-through is also specifically valid for this business model. That's what makes us resilient. And as Patrick highlighted, we are assuming flat volumes in our existing operations, which we believe is prudent for 2026. We won already 6% of our gross growth and there will be more wins coming up this year, which is going to uplift our growth numbers. Uday Khanapurkar: Right. That makes sense. And maybe just to follow-up on the so you said the flat volume expectations for '26 embedded in the guide. On the US side, there's a few signals pointing to inventories being drawn down quite low and an impending restock. So, you know, maybe potentially better volume throughput in warehouses in the US. Is that something that you're seeing? And is the offset in the guide maybe implying a softer UK and Europe, or are your US trends maybe more discrete from the market? Baris Oran: In Q4, our trends in North America and the US were stronger than Continental Europe and UK. For 2026, it's early to call for the entire year. We just take a flat number for prudence. Just take it as prudence. Nothing more than that. Uday Khanapurkar: Alright. Fair enough. Very helpful. Thank you very much, guys. Operator: Thank you. Our next questions come from the line of Jeff Kaufman with Vertical Research Partners. Please proceed with your questions. Jeff Kaufman: Thank you very much, and congratulations with all the levers moving around and the changes going on. I just wanted to on the question on the operating environment I hear everything you're saying in terms of the new verticals and where we're on growing, but I want to see what the aggregate market is doing. I mean, it did look like US growth slowed a little bit. France and Italy slowed a little bit on the continent based on your numbers. Can you just tell us on the macro side, where you're seeing changes incrementally positive and negative either on a geographic or an industry vertical basis? Patrick Kelleher: Sure. I think the most important thing to call out there is that contract logistics outsourcing as an industry is increasing. Customers are increasingly looking at outsourcing as a very viable alternative to in-source execution of supply chain. I think the challenging macroeconomic environment only intensifies the value proposition that we have for our customers. We are able to invest in robotics automation AI, humanoids in a way that our customers cannot do for themselves. We have the people and the expertise to solve complex supply chain challenges. So as customers and potential customers are under challenging situations on a global basis across multiple geographies, the value proposition of contract businesses, our business, only strengthened. So we are not pinning our forward growth trajectory based on just the performance of the overall broad economy. We want to be a part of solving customer problems and opportunities in the challenges that they face in good times and bad. And I think for the thirty-two years that I've been in the supply chain, industry, contract logistics, specifically, the industry has continued to grow regardless of those macros. We'll be very responsible in terms of how we are guiding on our performance within the year, as it relates to how volumes are going to materialize for customers in the year. But as we look to the long term, we're really confident that we're playing in the right industry. It's a growing industry. We are a market leader in the industry, and we've got a great opportunity to capitalize on that industry growth. Jeff Kaufman: And just to follow-up on that, and I think in Kristine's presentation, she was talking about humanoids and how tech is changing. But and I know you'll hit this on the Investor Day, but can you talk a little bit about AI and how that's changing where automation versus, say, the warehouse automation concept that you were selling twelve or even twenty-four months ago? Patrick Kelleher: Yeah. Sure. You know, a simple example, I think, is there's an opportunity to use AI to solve for the completion of repetitive tasks that our team members don't want to do. There's efficiency in getting those repetitive tasks done either more quickly or more cost-effectively. But the bigger benefit that we're seeing as AI is becoming more sophisticated is the upstream and downstream impacts that AI focused on a process can have on other connected processes. So when we look at AI that we have deployed in one of our large e-commerce warehouses, today for forecasting where we're able to use AI to forecast demand in the e-commerce environment, which is inherently unpredictable, we are able to do Monte Carlo analysis around how a forecast may come in based on weather, promotional, and so forth. And create models for labor planning to be able to respond quickly to what actually happens in reality. So AI, in that case, didn't necessarily make the picking and processing activity more cost-effective, but it made the labor planning more cost-effective allowing us to put labor in the operation when it's needed, when it could be most productive, eliminating a team member downtime, people who are there without work to process, and we are really focused at not only leveraging AI for discrete activity, which is where I think we were a couple of years ago as an industry, but how do we look at the connected benefits of various AI tools, improving processes, and how do we improve overall execution and as a result of that. And I think that for me, paints a very exciting landscape for where AI and then humanoids and robotics and automation play driving cost reduction service improvement for our customers. Jeff Kaufman: Thank you very much. Operator: Thank you. Our next questions come from the line of David Zazula with Barclays. Please proceed with your questions. David Zazula: Wondering if I could ask on how the rollout with NHS is going. I think you'd previously talked about some opportunities to expand that relationship. Have those talks progressed at all, and any outlook on the NHS side? Thank you. Patrick Kelleher: Sure. So the NHS business implemented late third quarter and all the way through the fourth quarter of last year, that is continuing on plan and our team members in the UK are doing a fantastic job of providing amazing service to the NHS. And we're very pleased with how that is progressing. We have built up a pipeline with the NHS. We're progressing on that. We're confident that there's a great opportunity to grow our relationship there as well as that being a great foundation for continued growth in life sciences and the relationships that we're building. Through that execution for NHS and the capabilities that we're able to bring to market as a result of work that we're doing, especially from the Wincanton acquisition and our team members who came from Wincanton are just amazingly talented in this area. We're already seeing the benefits of that in the pipeline. And as mentioned, some of the new business wins that we had in the fourth quarter. David Zazula: So if I'm hearing you right, it sounds like having NHS as an anchor customer gets you into ecosystems that you didn't have access before. And that's creating some incremental commercial opportunities? Patrick Kelleher: I think that is absolutely correct. And we see ourselves in that growing with not only the NHS, but that is the foundation for growth in the space. And that is very similar to the approach that we're taking in aerospace and defense, by the way. We have a great foundation of business in aerospace and defense, only enhanced by the acquisition of Wincanton capabilities they brought there. And we're seeing similar momentum in terms of building on that foundation. And, Kristine, maybe. Kristine Kubacki: Yeah. David, just to add color a little bit there. I think as we announced the NHS deal back in the fourth quarter of last year, that is really the landmark deal that's got us in the marketplace and really got noticed. We added, you know, great names like Siemens Healthineers and Fresenius. And as I mentioned, that in the last twelve months, the pipeline in life sciences alone has more than tripled. So, really, that's a result of the importance of the NHS win. And now with the start-up, going very successfully, we think that momentum only continues. David Zazula: Great. Thanks for the color. Operator: Thank you. Our next questions come from the line of Kevin Gainey with Thompson Davis. Please proceed with your questions. Kevin Gainey: Patrick, Baris, Kristine. Maybe if you could touch on the North American expansion. How you're thinking about it as an opportunity for organic growth. Or maybe you would want to visit that via acquisition and then does the North American market represent maybe the most outsized organic growth opportunity for GXO? Patrick Kelleher: Sure. I can answer that very quickly. North America is a priority for organic growth. And it will be the primary driver. Organic growth will be the primary driver of growth in North America. See a great opportunity there. We've got a great foundation of the business. We are underrepresented in North America. In contrast to our participation in the UK and Europe. And so we are very confident that we have upside there. We're executing that to that end. Pulling in the question on M&A, our M&A strategy is to invest in areas where we can accelerate our growth. We want to be very selective around M&A. Our M&A priorities really center on North America, and the strategic verticals that we're focused on, aerospace, defense, industrial technology, life sciences as I've mentioned. Don't have M&A in our short-term agenda. That'd be in the next couple of months. From a capital allocation perspective, we're very focused on investing in organic growth. We want to continue to deleverage the balance sheet which will get us greater flexibility as we move through 2026. Baris, how many? Two and a half times right now? Baris Oran: Yeah. And moving towards two. At the 2026. And then beyond that, from a capital allocation perspective, we'll take a very balanced approach as it relates to M&A opportunities and share buyback. But to round out your question, North America is a big focus for organic growth. Kevin Gainey: Appreciate all the color there, Patrick. And maybe for Baris, just one last one on cash flow conversion. Talk maybe if you could talk about the confidence in raising the guide there and what drove that. Baris Oran: Yep. We have lower M&A transaction costs in 2026. And we do have an opportunity to improve our working capital management throughout the year. Our CapEx has been as a percentage of revenue will be roughly the same. The delta will come from less transaction costs and better working capital management. Kevin Gainey: Perfect. I appreciate this. Taking my questions. Operator: Thank you. Ladies and gentlemen, that is all the time we have for questions today. I'd like to hand the call back over to management for any closing remarks. Patrick Kelleher: Thank you, operator. Before we close, for me, the message is really clear. I want to leave this with you and a straightforward message that GXO is accelerating. Deliberately and from a position of strength. Our fundamentals are very strong, the team is aligned, and GXO is poised to perform in a higher gear. We see clear opportunity to unlock organic growth and margin expansion through sharper commercial focus, greater operational consistency at scale, disciplined execution of our US growth opportunity. While several leaders have joined only recently, the increased alignment across our leadership team is already proving to be an accelerant. Strength is further reflected in GXO's recent recognition as one of Fortune's most admired companies. This recognition would not have been possible without the dedication and performance of the entire GXO team. And the vision of our founder, Brad Jacobs, who stepped down as chairman at the end of last year. Our future path will always be rooted in the foundations of culture, and performance that Brad espoused. I heard him say recently, move boldly and with speed and I think that personifies our path at GXO. On behalf of our employees, I want to thank Brad for his leadership in building a truly category-defining company and we wish him continued success. With that, thank you for your questions and your continued interest in GXO. Look forward to speaking with you again soon. Thank you so much. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good morning, everyone, and welcome to the Westinghouse Air Brake Technologies Corporation Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please say no conference specialist by pressing the star. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Kyra Yates, Vice President of Investor Relations. Please go ahead. Kyra Yates: Thank you, operator. Good morning, everyone, and welcome to Westinghouse Air Brake Technologies Corporation's fourth quarter 2025 earnings call. With us today are President and CEO, Rafael Ottoni Santana, CFO, John A. Olin, and Senior Vice President of Finance, John Mastlers. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, Kyra, and good morning, everyone. Before John and I get into the details of the fourth quarter, I'd like to take a moment to reflect on our performance over the past year and share my thoughts on the year ahead. 2025 was another outstanding year reflecting the strength and resilience of our business model and our ability to execute in dynamic markets. We delivered top-line growth of 7.5% and grew adjusted EPS by nearly 19%. We accomplished all of that while converting a record orders pipeline into a very strong multiyear backlog. As we move into 2026, our orders backlog and pipeline momentum remain very strong, supported by growing demand. We also advanced our strategic priorities through acquisitions and integration initiatives, unlocking synergies and driving operational efficiencies. To these ends, we're very pleased with the businesses that we acquired in 2025, the teams that came with these businesses, and the strong financial results that we have seen from day one of our ownership. Additionally, our efforts on integration, cost management, and simplification continue to exceed our expectations. As we exit 2025, the underlying momentum of our business gives us the confidence in delivering another strong cycle. We expect 2026 to mark our sixth consecutive year of mid to high teen adjusted EPS growth, positioning us to drive very significant long-term value creation. Finally, our financial position remains strong. We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning value to our shareholders. As a result of our performance in 2025 and our confidence in the future, our Board of Directors has increased our dividend by 24% and has increased our share buyback authorization to $1.2 billion. This is the strongest position our company has been in, and we're both confident and determined about the years ahead. Let's move to Slide five to discuss our fourth quarter results. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials. We delivered another strong quarter. Sales were $3 billion, which was up 15%, and adjusted EPS was up 25% from the year-ago quarter. Total cash flow from operations for the quarter was $992 million, representing a very strong cash conversion. The twelve-month backlog closed the year at $8.2 billion, up 7% from the prior year, while the multiyear backlog surpassed $27 billion, up 23%. These backlog results will drive our continued revenue and earnings momentum and provide us strong visibility and revenue coverage in 2026. Shifting our focus to Slide six, let's talk about 2025 end market expectations in more detail. While key metrics across our freight markets remain mixed, we are very encouraged by the overall strength of our business, the momentum we're seeing in international markets, and the continuing pipeline of opportunities across geographies. In North America, carload traffic was flat in the quarter, which resulted in fewer active locomotives. However, the locomotives that were in service operated at a higher intensity compared to last year, demonstrating the critical role our technology and solutions play in driving efficiency for our customers. Internationally, carloads continue to grow at a robust pace across core markets such as Latin America, Africa, India, and Asia. Significant investments to expand and upgrade infrastructure are supporting our international orders pipeline. Looking at the North America railcar build, as discussed last quarter, demand for new railcars was down compared to the prior year and landed at approximately 31,000 cars for 2025. The industry outlook for 2026 is expected to be 24,000 cars, down another 22% versus 2025. Finally, moving to the transit sector, we continue to see underlying indicators for growth. Ridership levels are rising in key markets such as Europe and India, and we are seeing high backlogs at car builders alongside increased public investment for fleet expansion and renewals. Next, let's turn to Slide seven to discuss a few business highlights. This quarter, we converted more than $2 billion of pipeline into new locomotive and modernization orders for North American customers. An important milestone that reflects our customers' long-term commitment to invest in their fleets and further strengthen what is now our largest multiyear backlog for North America. We are seeing some customers capitalize on strong fleet investment returns. This is not just about upgrading assets. It is about improving service levels for their customers, lowering total cost of ownership, reducing obsolescence, and positioning fleets for the next generation of technology-enabled operations focused on safety, reliability, and availability. We expect orders to follow this trend, reinforcing the long-term demand for Westinghouse Air Brake Technologies Corporation's innovative solutions. Moving to digital, we secured $75 million in orders for PTC and Kinetics in key international markets such as Brazil and Kazakhstan. Also in the quarter, we delivered the first battery-electric heavy haul locomotives to BHP. An important milestone for Westinghouse Air Brake Technologies Corporation and the industry. These locomotives are engineered to perform in one of the world's most demanding environments, leveraging advanced energy management technology, including regenerative braking, to maximize efficiency and significantly reduce emissions. Together with BHP, we are demonstrating how cutting-edge solutions can help meet operational needs while advancing sustainability efforts. Finally, I'm excited to bring Frauzer Sensor Technologies into Westinghouse Air Brake Technologies Corporation following the closing of that acquisition in December. This business is a market leader in train detection, wayside object control solutions, and axle counting systems. In addition, we are pleased to share that we closed on the acquisition of Downer Couplers yesterday. This acquisition will further strengthen our position in critical rail technologies. With that, I'd like to welcome both the Frauzer and Delner employees to Westinghouse Air Brake Technologies Corporation. All of this demonstrates the underlying strength across our businesses and the strong pipeline of opportunities which we continue to execute on. Moving to Slide eight, I want to briefly discuss how we are positioned to deliver strong and sustainable results. Over the past five years, Westinghouse Air Brake Technologies Corporation has built a track record of navigating challenging markets, geopolitical uncertainty, hyperinflation, tariffs, and other significant disruptions, and 2025 was no exception. Our success is driven by a highly committed management team and industry-leading technologies, allowing us to remain resilient and relevant to our customers and our stakeholders. Our twelve-month backlog of $8.2 billion provides visibility and support for growth. This backlog has consistently grown over the past five years, even amid a relatively flat North American rail market and a volatile macro economy, thanks to the innovation and the high level of recurring revenues that our products generate. Our ability to expand operating margins across the business reflects disciplined execution by driving continued productivity, simplifying the organization, managing costs, and pricing for the value we deliver. Finally, we have also demonstrated our ability to consistently generate strong cash flows, with cash conversion averaging 99% over the last six years. Looking ahead, we are confident that our execution, combined with the strength of our business and leading technologies, will result in Westinghouse Air Brake Technologies Corporation being resilient through the economic cycles, delivering profitable growth, and driving superior shareholder returns. Turning to slide nine, before turning it over to John, I want to highlight the significant fleet renewal opportunity that remains in North America. Fleet renewal is not discretionary. It is a critical lever our customers have to improve operating ratios, enhance service for their customers, and strengthen their overall competitiveness. As I mentioned last quarter, North America railroads are still operating an aged fleet. Today, more than 25% of active locomotives are over 20 years old, and 25% still run on DC technology. This aging fleet creates a compelling case for continued modernization. As locomotives age, failure rates and maintenance costs rise, making modernizations a highly attractive return on our customers' investment. We have also noted the operational advantages of AC technology. For every three DC locomotives, customers can replace them with approximately two AC units, enabling Class 1s to reduce fleet sizes while improving productivity and reliability. This helps address obsolescence, reduces maintenance costs, and enhances service levels, all while providing our customers with impactful returns on their investments for modernizing their fleets. To help our customers capture these benefits on additional fleets, we're excited to launch our first-ever EVO modernization program in 2026. The Evolution Series locomotives, first introduced in 2005, are now reaching an age where modernization becomes increasingly compelling. Our new EVO modernization builds upon our proven EVO engine platform and is designed to deliver meaningful operational impacts to optimize performance, reduce costs, and advance their long-term strategic objectives. Key new technologies, such as an upgraded control system and EVO Advantage, will be available as part of this EVO Mod. This product is expected to deliver greater than 20% improvement in reliability and tractive effort by replacing DC traction motors and replacing aged electronics and control systems. In addition, the new mods with EVO Advantage are expected to drive up to 7% improvement in fuel savings. Overall, we're excited about the significant value modernizations will unlock for our customers and for our business. We remain confident in the long-term opportunities ahead. With that, I'll turn the call over to John to review the quarter segment results and our overall financial performance. John? John A. Olin: Thanks, Rafael, and hello everyone. Turning to slide 10, I'll review our fourth quarter results in more detail. Overall, the quarter came in slightly ahead of our expectations for both revenue and EPS. Cash from operations significantly exceeded expectations, while operating margins were lower than planned. Operating margins were adversely impacted by higher compensation expense driven by our outstanding operating cash flow and cash conversion performance during the quarter. Sales for the quarter were $2.97 billion, which reflects a 14.8% increase versus the prior year, with strong contributions from both the freight and transit segments. As expected, Q4 sales benefited from very strong organic growth behind strong orders and sales momentum, along with catch-up on locomotive deliveries that shifted from the second quarter due to a supply part issue. We also delivered strong inorganic growth led by Inspection Technologies, which outperformed our acquisition plan. Excluding the impact of currency, Q4 sales were up 13.2%. For the quarter, GAAP operating income was $356 million. The increase was driven by higher sales and improved gross margin as we continue to focus on productivity and simplification. GAAP operating margin fell in the quarter due to higher restructuring and transaction costs. Adjusted operating margin for the quarter was 17.7%, up 0.8 percentage points versus the prior year. This increase was driven by improved gross margins of 2.1 percentage points, which was partially offset by operating expenses, which grew at a higher rate than revenue. GAAP earnings per diluted share was $1.18, which was down 4.1% versus the year-ago quarter. During the quarter, we had net pretax charges of $55 million for restructuring, which were primarily non-cash and related to our integration and portfolio optimization initiatives, to further integrate and streamline Westinghouse Air Brake Technologies Corporation's operations, as well as transaction costs related to most recent acquisitions. In the quarter, adjusted earnings per diluted share was $2.10, up 25% versus the prior year. Overall, Westinghouse Air Brake Technologies Corporation delivered a very strong quarter, demonstrating the underlying strength and momentum of the business. Now turning to slide 11, let's review our product lines in more detail. Fourth quarter consolidated sales were up 14.8%. Equipment sales were up 33.5% from last year's fourth quarter. For the year, equipment sales were up a strong 12.2%. Our services sales were down 5% as expected, and as we discussed in our third quarter call. This was driven by the timing of modernization deliveries. Component sales were up 11.1% versus last year. For the full year, services had revenue growth of 1.2% despite mod deliveries being significantly down year over year, which demonstrates the strength of the core services business. Due to growth seen in industrial products offsetting the impact from the significantly lower North America railcar build. For the year, component sales were up 2% despite North American railcar build being down 27%. Digital intelligence sales were up 74.4% from last year. This was driven by the Inspection Technologies and Fraucher Sensor Technology acquisitions. When excluding acquisitions, digital was down 1%. For the year, digital sales were up 31% driven by acquisitions. In our 6.7% driven by our products and services businesses. For the year, Transit was up 7.3%. Foreign currency exchange had a favorable impact on sales of 4.7 and 2.2 percentage points for the quarter and total year. Moving to slide 12. GAAP gross margin was 32.6%, which was up 1.7 percentage points from the fourth quarter last year. Adjusted gross margin was up 2.1 percentage points during the quarter. Our team continues to execute well by driving operational productivity and lean initiatives in an effort to offset higher material costs, primarily a result of incremental tariffs. GAAP operating margin was 12%, which was down 0.9 percentage points versus last year. Adjusted operating margin improved 0.8 percentage points to 17.7%. Operating margin was positively impacted by cost recovery from escalation, increased productivity, integration savings, partially offset by unfavorable mix and higher tariff costs. Adjusted SG&A expenses were higher year over year due largely to SG&A expense associated with our acquisitions and higher compensation expense for our employees tied to our very favorable cash performance in the quarter and for the year. GAAP SG&A was up an additional amount over adjusted SG&A due to restructuring expense associated with our integration two point zero and three point zero and portfolio optimization costs associated with divestitures. Engineering expense was $68 million, $17 million higher than Q4 last year, primarily due to acquisitions. Now let's take a look at the segment results on slide 13. Starting with the Freight segment. As I already discussed, Freight segment sales were up a very strong 18.3%. GAAP segment operating income was $318 million, driving an operating margin of 15%, down 0.2 percentage points versus last year. GAAP operating income included $50 million of restructuring costs, portfolio optimization charges, and was adversely impacted by purchase accounting charges resulting from our acquisitions. Adjusted operating income for the Freight segment was $470 million, up 35.1% versus the prior year. Adjusted operating margin in the Freight segment was 22.1%, up 2.7 percentage points from the prior year. The increase was driven by improved gross margin, even despite mix headwinds and tariff impacts. The increase in gross margin was partially offset by an increase in our operating expenses expressed as a percentage of revenue. Finally, segment twelve-month backlog was $6.02 billion. Our twelve-month backlog was up 8%, while the multiyear backlog of $22.49 billion was up 25.1%. Turning to Slide 14. Transit segment sales were up 6.7% at $842 million. When adjusting for foreign currency, transit sales were up 2%. GAAP operating income was $108 million. Restructuring costs related to Integration two point zero and three point zero and portfolio optimization were $4 million in Q4. Adjusted segment operating income was $118 million. Adjusted operating income as a percent of revenue was 14%, down 2.4 percentage points from the prior year, driven by higher operating expenses as a percent of revenue. Finally, Transit segment twelve-month backlog for the quarter was $2.21 billion. Our twelve-month backlog was up 5.1%, while the multiyear backlog was up 14.7%. Now let's turn to our financial position on Slide 15. Fourth quarter cash flow generation was very strong at $992 million, resulting in total year cash from operations of $1.76 billion and cash conversion of 104%. During the year, flow benefited from significantly higher net income and higher year-over-year down payments, partially offset by tariff headwinds. Our balance sheet and financial position continue to be very strong, as evidenced by first, our liquidity position, which ended the quarter at $3.21 billion, and our net debt leverage ratio, which ended the fourth quarter at 1.9 times after funding the purchase of Browser Sensor Technology for approximately $765 million. Our leverage ratio remained in our stated range of two to 2.5 times after closing on the acquisition of Delner. During the year, we repurchased nearly $223 million of our shares and paid $173 million in dividends. As a result of our performance in 2025 and our confidence in the future, our Board of Directors approved a 24% increase in the quarterly dividend. Our Board also increased our existing share repurchase authorization to $1.2 billion. We continue to allocate capital in a very disciplined way to maximize returns for our shareholders. Moving to Slide 16, I'd like to provide an update on the progress that we've made on our integration portfolio optimization initiatives. Starting with Integration two point zero, when we originally announced, we indicated that the initiative would deliver an incremental $75 million to $90 million of run rate cost savings by 2025. With program-to-date restructuring expenses of $149 million, we exited 2025 having achieved $103 million of run rate savings. With the program largely complete and ahead of original expectations, Integration two point zero was a clear success. And importantly, we have carried that momentum forward as we execute our Integration three point zero initiative, which we announced in early 2025. When we introduced Integration three point zero, we outlined an incremental $100 million to $125 million of run cost savings by 2028. I'm pleased to report that our team has delivered strong early performance. In the first year alone, we generated $49 million of run rate savings at a cost of approximately $50 million. Given this performance, we are raising our guidance. We now anticipate $115 million to $140 million of run rate savings by 2028, with anticipated expenses of $125 to $155 million. Turning to our portfolio optimization initiative, we have continued to execute against all planned dispositions of non-strategic product lines, actions designed to strengthen our focus, improve profitability, and reduce manufacturing complexity. During 2025, we exited $72 million of low-margin non-strategic revenue and expect to exit an additional $60 million in 2026. Overall, we remain very encouraged by the team's execution and the value these initiatives continue to unlock across the company. Now moving to slide 17, let me quickly recap the year. Overall, the team delivered a great year for all our stakeholders. We generated 7.5% revenue growth, expanded adjusted operating margins by 1.4 percentage points, and increased adjusted EPS by 18.7% while delivering very strong cash flow. The resiliency of the business combined with disciplined execution positions us for a solid foundation for continued profitable growth as we enter 2026. With that, I'd like to turn the call back over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, John. Now let's turn to Slide 18 to discuss our 2026 outlook and guidance. We continue to see underlying demand for our products and solutions across the business. Our pipeline is very strong, and both our twelve-month and multi-year backlogs provide clear visibility to profitable growth ahead. Our team is fully committed to driving top-line growth and margin expansion in 2026. With these factors in mind, we expect 2026 sales of between $12.2 billion to $12.5 billion, up 10.5% at the midpoint, and adjusted EPS to be between $10.05 and $10.45, which represents 14% growth at the midpoint. It is important to note that this guidance incorporates the expected impact from the Delner acquisition. As we discussed earlier, our cash conversion performance has been very strong, and we expect that to continue. Over the past two years, we have delivered an average of over 110% cash conversion, which is a testament to the strength of our operating discipline. Best-in-class cash conversion has been and is expected to remain a hallmark of investing in our company. While we will continue to provide long-term cash guidance, beginning 2026, we'll no longer be providing annual cash conversion guidance. I remain confident that Westinghouse Air Brake Technologies Corporation is well-positioned to drive profitable growth and maximize shareholder returns in 2026 and beyond. Now, let's wrap up on Slide 19. As you heard today, our team continues to execute against our value creation framework and our five-year outlook, driven by the strength of our resilient installed base, world-class team, innovative technologists, and our customer-focused approach. With solid underlying demand for our products and technologies, and a rigorous focus on continuous improvement and cost management, we feel strong about the company's future and our ability to maximize shareholder returns. With that, I'd like to thank our team for their great work this year and their continued commitment to drive top quartile performance. I'll now turn the call over to Kyra Yates to begin the Q&A portion of our discussion. Kyra? Kyra Yates: Thank you, Rafael. We will now move on to questions. But before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question. Operator: One. If you are using a speakerphone, we do ask you please pick up your handset prior to pressing the keys to ensure the best sound quality. If at any time your question has been addressed or you'd like to withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our first question today comes from Angel Castillo from Morgan. Please go ahead with your question. Oliver Z Jiang: Hi. It's Oliver on for Angel. Thanks for taking our questions. We just wanted to talk about the recent flurry of orders that you guys had announced. You know, with those signed, does your pipeline of opportunities, you know, potentially narrow a little bit? And if not, could you talk about how that's grown across different regions and different end markets? Any color there would be super helpful. Rafael Ottoni Santana: So now we continue to have a very strong pipeline of opportunities, and internationally it's very, very strong. Our teams are continuing to work very hard to convert that pipeline into orders. And it speaks to really some markets where we have a strong presence. Places like Australia, Brazil, East Asia, we continue to have opportunities in Africa and parts of the CIS region. Of course, we are encouraged by the momentum we saw here in North America. I think this reflects ultimately strong customer commitment to win and grow the business through improved reliability, lower operating costs, better fuel efficiency, and reduced fleet obsolescence. So as we look at aging fleets out there, I think that's much more pronounced in North America. And that continues to be probably the single biggest powerful tailwind we have in the company. Oliver Z Jiang: Got it. Thanks, Raj. So that's super helpful. And then just on your components business, I know your railcar deliveries are to be down 20%, 25% again this year. Can you talk about potential offsets there, whether it's in the industrial business or the heat transfer piece? Potentially, do you see that growing to offset some of that decline? Rafael Ottoni Santana: Thank you. So as we look into 2026, every single one of our businesses, we see them driving profitable growth. With regards to the components business, I think we're very pleased with the progress there despite the softer freight car builds. I think those teams have continued to take decisive action to adjust the cost structure to new volume levels. And what I like about what I'm seeing there, and it's across the company, is really the portfolio is working. Right? I mean, we've made investments, but if you think about the organic plays or inorganic plays in the case of Freight Components, some of the investments we've made in the heat exchanger business in industrials is really paying off, and that's where you see some of those offsets taking place along those businesses. To continue to perform. Operator: Our next question comes from Scott Group from Wolfe Research. Please go ahead with your question. Scott Group: Hey, thanks. Rafael, can you just kind of go through that bit about the cash conversion and the guidance change and just the rationale there? Rafael Ottoni Santana: Yes. Hey, Scott. Number one, very strong cash conversion for the business as we expected. We're continuing to operate and reward our stakeholders in the business based on cash performance. So that continues to be paramount for the company. We continue to have very strong variation. As you see it not just quarter to quarter, year to year, it's certainly more pronounced as you go into some of the international deals and you collect cash earlier, we expect to continue to improve. Cash performance in the company. Yes, Scott. With regards to the overall guidance, we continue to shoot for above 90% in our long-term guidance. As we look at what we've done over the last six years, we've averaged 99% on a business that is growing its working capital quite substantially as our revenues and profits have grown very much since then. And actually, Scott, if you look at the last two years, we've been up 110%. Average cash conversion. So with that, we'll continue to stay focused. Our comp plans are all very much tied into cash, both short-term and long-term. And it has become a hallmark of an investment in Westinghouse Air Brake Technologies Corporation. But with that, we'll continue to shoot for the 90%. But in terms of an annual guide, we're pulling the 90% this year. Scott Group: Okay. I think I understand. This transition we're starting to see with fewer mods and more new, I guess, should we think about the net impact here? Maybe just a couple of things to just do you think our sales with the class one rails growing this year and then sort of this shift to more new, how do we think about the net impact to margins for that business and I guess bottom line? With this shift? Rafael Ottoni Santana: Let me start here, Scott, first with regards to new units and mods. We continue to see the combination of that at a global level growing. Well, while I say that's true for the globe, it's not true for North America. And especially driven this year again by mods. Last year, the modernizations, we had a pronounced decline. It was double digits. It's more pronounced this year. And we have seen a shift towards some of the tier four units. With that being said, I think we continue to see a modernization of the aged fleet in North America, one of the most powerful tailwinds we have as we continue to really invest in solutions. We just announced the Evo Advantage, and that opens up a fleet that's growing to really 10,000 units here. It's a global fleet with, I'll call, very compelling elements of payback tied to fuel efficiency, tied again to reliability. So, I think we're continuing to invest in that, and that's going to be a very compelling piece of it. But new locomotives are certainly making more and more headlines there in terms of investment. Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question. Ken Hoexter: Hey, great. Good morning. Hey, I'm on a plane, so I'll be quick. So just given the orders, what was in the backlog and what is new when you think about those recent announcements? And then thanks for the update on the backlog, but in your outlook for EPS, can you talk about what the upside downside to the target is? Rafael Ottoni Santana: With regards to what's in the backlog, Ken, it's everything that was done in the fourth quarter is certainly in the backlog. So when we talk about the $2.2 billion on our key wins sheet, that's all in backlog. Ken Hoexter: Right? Rafael Ottoni Santana: And when we talk about things in the pipeline, which Rafael did, they're not in the backlog yet, but as they convert, they will certainly be put in the backlog. Now when we look at overall guidance, Ken, we feel real good about where we're at. And the range that we have there. We've got a fair amount, we got a lot of good things happening within our business. We have some headwinds. We just talked about mods but also on the railcar build. But with that, we've also got a fair amount of headwinds with regards to tariffs coming at us. Right? We've seen in the third quarter to fourth quarter, a significant increase in the cost of tariffs as things come out of inventory in through the P&L, we would expect that to see the same type of dynamic in 2026 and in particular the first half while we are running all our mitigants against that. So we believe we've got a very balanced plan and a good guide as we go into 2026 to manage any eventualities that come at us. Ken Hoexter: Thanks, John. I guess my question was of all the Class one rails that have just put out orders, were half of those already in the backlog as of last quarter? Is it all new? And then follow on would be just thoughts on the first new build order from Progress Rail in a long time. Is that likely to see something you're seeing increasing competitive step back in? Thanks. Rafael Ottoni Santana: For clarity, Ken, everything that we've announced on the Class 1s, some of those have been announced this quarter, they are in last quarter's backlog. We signed those agreements in 2025. And so there's nothing that we've done that is not in the backlog at this point. With regards to your second part of your question, I'm not going to comment on the specifics of a competitor order. What I'll tell you is very confident about the portfolio of solutions we have. In the case of Tier four in specific, this is about really proven reliability, availability of over 1,000 units that we got running out there. Those are units that we've continued to really invest and to continue to further create advantages versus competitive products that are out there. So we're very confident about that portfolio. When it comes to Tier four and when it comes to modernizations as well. So you'll see us keep being advancing that and coupling that with really a lot of the elements of software and the digital electronics, digital intelligence business. So we're not sitting on our laurels. We've got the best products that are out there. And we're certainly investing to make them better. Operator: Our next question comes from Jerry Revich from Wells Fargo. Please go ahead with your question. Jerry Revich: Yes, hi. Good morning, everyone. Jerry. Hi. Rafael, so really nice to hear the Evo Class locomotives are entering the commercial phase of the rebuild cycle. Can you talk about based on customer interest and the pipeline, when do you expect to see those locomotives enter the rebuild pipeline and separately what are lead times like today for North America? I know combine mods plus new. Can you just talk about the overall lead times in the facilities, if you don't mind as well? Rafael Ottoni Santana: They are entering that phase. So some of the first evals delivered back in 2005. So that makes it again a compelling case here. On that. I think that's a positive for the overall business. In terms of lead times, it will depend very specifically on the fleets that you're looking at it. But I'd say at this point, when we look especially at 2026, we've got the coverage we need. Regards to both mods and new units. So discussions with regards to new programs would really for most of it sit towards 2027 and beyond. Which is, by the way, where most of really the orders that have been announced, it really sits on '27 and beyond. From that perspective, Jerry. Jerry Revich: Super. Thank you. And then obviously very active M&A environment for you folks over the past couple of years and know it's early on Delaware in particular, but I'm wondering if we could just talk about how your expectations for the performance of the business have evolved since you've announced the acquisition acquisitions and anything interesting in terms of opportunities that you're seeing as you're integrating the assets? Rafael Ottoni Santana: Gerry, a couple of comments. We just had our Board meeting last week and we actually reviewed the acquisition since 2019. And we're ahead of pro forma great IRRs on those. With regards to specifically the three announced last year ahead of pro forma really strong performance from that perspective. I think some of my comments I mean, it's good to see, let me take just the case of Avnet. We've got three new product introductions happening on that business on each one of their product lines. And that coupled with I'll call it just a global reach we have, we're seeing strong interest on that. We've got one of the products, it's on the RVI on the remote visual inspection. The other one is on the MDT side with ultrasonic and the other one on the ANI piece of that. Strong demand, we're having to really make sure we continue to invest in the supply chain to support that. So positive dynamics, it's great to see the teams we brought on board and good progress. Early days, first six months here for Avnet and FrauShare we just announced, but good momentum. Operator: Our next question comes from Steve Barger from KeyBanc. Please go ahead with your question. Christian Zyla: Good morning. This is Christian Zyla on for Steve Barger. Thanks for taking my questions. Hi, Christian. With orders and backlog so strong, can you just talk about how that impacts your near-term and long-term visibility? Your twelve-month backlog is nearing annual levels, and your total backlog is about two years' worth of sales now. So do you guys just have better than usual visibility into 2027? And are customers giving you longer road maps or more information about the modernization efforts long term? Rafael Ottoni Santana: So near term, I'd say if you look at the coverage we have for '26, it's really consistent with the coverage we had a year ago. And of course, that's not including the acquisitions that we did, those have shorter lead times. So the coverage there is a last, but very consistent. From that perspective. When you look at '27 beyond, it's stronger. Debt coverage. And with that, I mean, we have also a very strong pipeline. So that gives us really think a good opportunity here. To convert more orders and really add into that coverage for 2027 and beyond. Christian Zyla: Got it. And then there just seems to be a pickup in new builds for locomotives and mod activity along with maybe an inflection in over road freight? Like do you see those as indicators to overall freight improvement? Just what are your thoughts on kind of how that inflection is playing out? Thank you. Rafael Ottoni Santana: I think you're to separate a little bit here. North America from international in some of that regard. We're continuing to see strong demand internationally. I think we've been quite specific about fleets growing at a base of 5%. So that continues to be very robust. Megawatt hours, which is really fleets are running harder as well. So that's quite a positive. When you look at North America, the dynamic short term '26 we're actually going down when you look at the elements of both modernizations and new units. I think it's very important to keep that in mind. By the way, when you think about our service business, overall, while the core of service is really strong, numbers are coming down. And it's a function of really modernizations. Driving that. The core service business continues to be very strong. It's one that it's expected to continue to outperform the growth average of the company over time. The fleets are running harder in North America. So the megawatt hours are tracking in the right direction. But we've got lower dynamics going to the modernization, which is alcohol pulling some of those numbers down. But I think it's very important to emphasize that underlying trajectory of the core growth of service remains solid, strong, and above mid-single digits as we look into 2026 and beyond. Operator: Our next question comes from Brady Steven Lierz from Stephens. Please go ahead with your question. Brady Steven Lierz: Yes, great. Thanks. Morning, everyone. Rafael, I just wanted to follow-up on some of the EVO mod commentary from earlier. Is there any way you can help us think about the size of the EVO mod opportunity compared to the over 2,500 mods you've already completed? And just do any of your recently announced mod orders with the class ones include this new EVO modernization product, or are they all still FDL? Rafael Ottoni Santana: So we would expect first programs on EVO to start this year, Meninck, to progress with customers there. I think that opens a significant opportunity. That fleet's growing to be close to 10,000 units globally. That's an important installed base. That we have with really very strong track record on that product. I think the biggest opportunity really immediately continues to be this aging fleet. We talk about when you think about the active fleet, over 25% of units are still DC traction. Just an enormous opportunity here for significant payback for customers. And as I mentioned before, we see that as one of the most powerful tailwinds for the company in that regard. And those units are also over 25% over 20 years of age. So at that point in cycle, so we continue to see opportunities for that to continue to happen, and it's more pronounced in North America. Brady Steven Lierz: Great. Thanks. That's helpful color. Maybe just as a quick follow-up, John, SG&A was up a pretty meaningful amount sequentially and year over year. Could you just help us understand what drove the increase? I know in your remarks you mentioned higher incentive comp. Was that really the majority of the driver? Just any color there would be helpful. John A. Olin: Yes. So there's two things, Brady, that drove it. One is just the acquisitions. Now we've got the SG&A for Evident and Fraucher in those numbers. But in addition to that, is the comp accrual that we had in the fourth quarter was much higher than what we had anticipated. So as we talked about cash a little bit earlier, right, cash is a hallmark of our investment in our company, and we take it very seriously. And we do have it in our comp program, both our bonus and our long-term. As we got to the through third quarter, we're about 57% cash conversion. We were expecting more in the 90% range on the year. But the team knows how important it is, and they did a fantastic job of bringing in working capital. And we finished the year with an incredible cash conversion in the fourth quarter, almost 300 percent and $992 million of absolute cash. So with that, it comes with a compensation accrual. And it doesn't come with additional earnings on that, right. So that pushed our SG&A up as a percent of revenue. But we feel really good about the overall dynamics of our margin in the fourth quarter. When you look at the driver of margin, our gross margin was really strong, up 2.1 percentage points, and that includes a fair amount of headwinds with regards to mix. Remember, you saw that evident, I'm sorry, equipment at a lower margin is growing at 33.5% versus services, a higher margin being down that 5%, and that's that flip flop between new and mods we've been talking about. And then in addition, tariffs grew quite a bit from third quarter to fourth quarter. Remember, we've talked about it takes two to four quarters to get through our inventory. And we're at that spot, we're about a year into tariffs, and we're starting to really see it come out of inventory. Inventory onto our P&L, and we'll see that as we move into 2026 as well, Brady. Operator: Our next question comes from Harrison Bauer from Susquehanna. Please go ahead with your question. Harrison Bauer: Hey, thanks for taking my question. You guys mentioned the largest multiyear North American backlog, which is great. Do you see or the need to make any investments in your North American capacity to ramp total new locomotive and mod productions? As you look further out or maybe just add production lines? And then do you expect relatively stable, modest, you know, new locomotive and mods over time from North America or really just an extended visibility? So just curious on ramps investment in your capacity you might have to make in North America. Thank you. Rafael Ottoni Santana: We have the capacity in North America, and we continue to invest in the quality of that capacity. So, we continue to improve productivity and so forth. So, feel very positive from that perspective. I think with regards to the dynamics of North America, I mean, CapEx is actually down if you think about a Class 1s into 2026, which reflects a bit some of the dynamics I just described on the combination of mods and new units big down. For this year versus last year. With that being said, we're sitting on a very significant opportunity here that really provides very significant payback for our customers. So they can win with their customers, they can grow volumes and on very proven programs that will ultimately reduce the total cost of ownership, it will improve fuel efficiency, it will drive reliability and service levels. So, I think that continues to be a significant opportunity that customers are going to be evaluating. In North America. Harrison Bauer: Thanks. And maybe just as a follow-up on tariffs. I know that the guidance assumes tariffs ineffective the latest. But could you maybe provide what you saw as maybe the realized tariff impact in 2025? And then maybe bridge to what your guidance implies for 2026 and what that incremental year-over-year tariff impact might be? Thank you. Rafael Ottoni Santana: Yes. If you're referring to an absolute number, we're not providing an absolute number. We want our stakeholders to focus on the actions that were taken to mitigate and certainly on the growth trajectory of our overall business. What I can say is that just as we had expected, the financial impact of tariffs is growing. It's growing exponentially as we come out of the third quarter into the fourth quarter. And we'll expect that growth as we move into the first half of the year. Right now, it's a significant number, but also we've been at this for a year in terms of our mitigates and how we're going to minimize those tariffs. And we've talked about in the past, a four-pronged approach which we continue to employ. Which is one, getting all the exemptions that we're entitled to. The second is on the supply chain. Right, is are we sourcing these parts and products from the right places today given the new landscape? Now that takes more time. Those things sometimes can take up to a couple of years to requalify suppliers and those types of things. But that is in the mix. And the third one certainly is sharing the cost with our customers. And when we take those three, those are not enough to mitigate. All the tariffs that we have coming at us in particular in 2026. And that kind of leaves us with that fourth lever, right, which is an overall proactive approach to how we're managing our company's cost. But in aggregate, we feel that we'll mitigate those costs. And quarter to quarter, we're going to feel more headwinds in the '26 than in the back half with regards to tariffs, and that's where we expect them to peak. Operator: Our next question comes from Ben Moore from Citigroup. Please go ahead with your question. Ben Moore: Hi, morning. Thanks for taking my question. Rafael, John, John, and Kyra. So trying to understand the lower sales on for your service on significantly lower North American mods? And maybe if I can ask it this way, last year, you gave your cadence of services versus equipment revenue on the lumpiness first half versus second half. Can you give a similar kind of view on the cadence of that 2026? And then also kind of driving impact on freight operating first half versus second half? John A. Olin: Yes. Absolutely. What we're seeing in the fourth quarter with equipment up 33.5% and services down five is what we had been talking about most of last year. In the first half of last year, we saw services growing at a faster rate, and actually equipment was down. We knew that was going to flip in the back half. And it's just a matter of timing of our runs between mods and new locos. But it played out exact the quarter, and with that, we had a mix headwind. But let's turn our attention to next year. And broaden the question out a little bit from just services, but let's talk about the overall cadence of our earnings. When we look at the midpoint of our guidance that we just came out with, we're at ten point five percent year-over-year growth on volumes. Think the way to think about that is that about half of that is driven by inorganic growth. Right. That's the three acquisitions that are coming at us. And partially offset by portfolio optimization, which continues to serve the company very well. And then to think about the other part of it about mid-single-digit organic growth. So on an absolute basis, we're looking at more revenue in the second half than the first half, not a lot, but certainly it will be bigger in the second half. And when we turn and look at the growth of our revenues first half to second half, we would expect our growth in the first half to be significantly higher than the second half. And that's going to be driven by two things. The first thing is number one, is the acquisitions. Right. In 2026, we will have revenue from our three acquisitions, EVID, Inspection Technologies, Frauchers, and Delner across most all of the first half and has got nothing to compare against in the year-ago half. As we get into the back half, we are going to have a comparable, and that will be with Evident. The second thing that's going to affect the timing of our growth between halves is we would expect to do more combined mods and locos in the first half than the second half. Okay? As we move on and we look at the second part of our guidance, which is EPS is up 14.5%. While we do not give operating margin as guidance, we do expect it to be up in 2026, and that's you'll find when you do the math. As we talk about that operating margin and we look at the first half, we would expect the first half to have modest growth in overall operating margin. And we would expect the second half to have more significant growth in operating margin. And there's three reasons for this. Number one, as we look at the first half being just modestly higher, it's going to be affected by the year-over-year comps. In 2025, our first half was up 1.8 percentage points of operating margin, and the back half was up one. So that dynamic is going to play out as we move through 2026. The second area is again going back to what we talked about on tariffs, right? Tariffs are going to peak in 2025 in the I'm sorry, in 2026 in the first half. And it will virtually have nothing to compare to on the year-ago basis. While tariffs were there, it was mainly going into inventory. And, so we're going to have some headwinds on the first half. Our mitigants will come in more equally over the year. In that respect. And then the third thing is, our incredible focus on managing our costs through Integration two point zero, product three point zero, regular productivity, and portfolio optimization. Those will build over the year and will deliver more benefit in the second half than the first half. Ben Moore: Amazing. Thank you so much, John. Maybe for Rafael, switching to sort of more of a longer-term outlook. Your freight backlog has been averaged at about $18 billion for several years now, and it's been great to see the jump $21 billion from the Kazakh order last quarter and then to $23 billion today, which is fantastic. How is your view for the outlook given all the puts and takes from international and U.S. opportunities in the pipeline? Should we see that step back down to $18 billion for the longer term going back to the last several years average? Can we see incremental step up and staying, above the 21% or even the 23 going beyond? Rafael Ottoni Santana: We are very pleased with the progress, especially with regards to the pipeline. I mean, despite of record order intake, that pipeline continues to be very strong, and it's international, it's really a very significant part of it. It's driven by international. But there's some other parts of the business that are doing very well. You think about mining, in specific, we're continuing to see a strong demand for ultra-class trucks, which we happen to be very well positioned to work on that as well. And I think we're very happy to see how the portfolio is working. I made some earlier comments on areas that we're seeing soft demand. But the investments we've made, and I mentioned on both fronts on organic, some of the investments we made on PTC2.0, that's allowing a lot of the international orders for our digital intelligence business. So that's a very important part of it. But also in areas like inorganic, we talked about the drop in the freight car manufacturing side of it. And we're seeing the opportunity for parts of the business like in the heat exchanger, in the industrials to really offset some of those pressures. So I think we're going moving forward towards with that portfolio. With that, some parts of that portfolio might not have necessarily the same dynamics if you think about the elements of especially backlog. But it's a stronger portfolio. So the progress with acquisitions is clear. We're moving in the right direction here. Ahead of pro forma. And I think most important here is the quality of the backlog. The margins as you look at individual products and individual elements of that we have higher margins. The other piece which we can't underscore enough is the amount of really activity the team's got going on right now in terms of simplifying, taking cost out. It's really an element of record cost out those teams are going to be driving. And it's encouraging to see that momentum. Across the portfolio. With that, I think we're very confident in committed to deliver on what I guess we've highlighted here as another cycle of meaningful profitable growth. Operator: Our next question comes from Tami Zakaria from JPMorgan. Please go ahead with your question. Tami Zakaria: Hi, good morning. Thank you so much. And thanks for all the color on the margin cadence. We would think the Transit segment probably doesn't have a lot of tariff impact. So if you could provide some color on how to think about seasonality for that segment as it relates to last year? Rafael Ottoni Santana: Let me just start here. We remain very much on track to expand full-year margins again, and that's supported by a lot of the elements of Integration three point zero, the portfolio optimization we continue to do, and the fact that team continues to be very selective on the order intake. And over our strategic plan, we expect transit margins to move into the high teens. I think that's very much the direction. We're very pleased with the overall progress we're continuing to make. But John, And specific seasonality, Tammy, we talked a little bit earlier this year in the second quarter and third quarter that the team in transit was trying to better level load some of their production. And what they did was they brought forward some of the volumes. So we saw a greater organic growth in the second and the third quarter than the fourth. And we garnered some of those manufacturing efficiencies in Q2 and Q3, a little bit to the detriment of the fourth quarter. And having said that, as we look into 2026, we would expect a pretty balanced view of volume growth and margin growth over that year. Now there's always variations quarter to quarter. We saw a variation certainly in our fourth quarter for both Transit and the full company adherent '25 with regards to the extraordinary cash performance that we had. We'll always see those things, but I think we'll see a more balanced delivery out of transit in 2026. Tami Zakaria: That's very helpful. And quickly on the incremental $50 million savings that you've talked about, is it mostly according to the transit segment or freight or pretty much split between the two? John A. Olin: Yeah. When we look at the integration at March, as we did two point zero, transit's a little bit overshared. So yes, I think, Tammy, we're closer to the kind of the fifty-fifty between the two segments, even though the Transit segment's a smaller part of overall revenue. Tami Zakaria: Understood. Thank you. Operator: And ladies and gentlemen, that will conclude today's question and answer session. At this time, I'd like to turn the conference call back over to Kyra Yates for any closing remarks. Kyra Yates: Thank you, Jamie, and thank you everyone for your participation today. We look forward to speaking with you again next quarter. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Fourth Quarter and Full Year 2025 results of Ahold Delhaize. Please note that this call is being webcast and recorded. During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks and uncertainties, other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q4 and full year 2025 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. There, we provide extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, Frans, over to you. Frans Muller: Yes. Thank you very much, JP, and good morning, everyone. In 2025, we operated in a rapidly shifting environment, frequent and unpredictable government policies, pockets of inflation and volatility and rapid advances in AI and technology. In that context, being a consistent and trusted partner for customers, associates and all other stakeholders matters more than ever. As you will have seen in our release this morning, I'm proud to say we are delivering on our Growing Together commitments and are well positioned for what lies ahead. Our execution through the holiday season is a great example of how our growth model is coming together, allowing us to finish the year on a high. And for the full year, net sales increased 5.9%, while comparable sales, excluding gas, increased 3.2%. We delivered a healthy underlying operating margin of 4%, diluted underlying EPS growth of 7.8% as well as strong free cash flow, allowing us to increase shareholder returns. In Grocery, success is never driven by only one thing. It's a result of many details coming together and that on an everyday space. As our capabilities mature and integrate, our execution in turn is becoming more connected. The backbone of this is that the flexibility we have created in our ecosystem to deploy scaled and yet tailored solutions, the resilience of our local value propositions and brand personalities and the disciplined execution driven by aligned teams with a strong culture of ownership and accountability that underpins the Growing Together strategy. So let me unpack this a little bit more in detail with some practical examples. First, starting with the customer. Let's talk about strengthening customer value through trusted products. Across our markets, our local brands invested in price and value by lowering prices and broadening own brand assortments in key daily needs. In the U.S., we had our first full year investing towards a total of $1 billion in price investments over those 4 years. And at the same time, we strengthened our own brand assortments, adding 1,100 new products in the U.S. and 1,450 in Europe. In Europe, where own brand penetration is close to 50%, our assortments are a clear competitive advantage. Over the past year, we expanded collaboration through our AMS buying alliance, and this delivered quality improvements while also generating cost savings with a further expansion planned into 2026. These efforts are truly resonating with customers. Own brand growth continued to outperform the rest of the store with group level penetration reaching 39.8%, reflecting strong appreciation for quality, health, value and innovation. The next core block is vibrant customers experience, covering every interaction between our brands and customers in stores, online and through services. Customers increasingly expect convenience, personalization and a seamless integration across channels. In the U.S., we completed the rollout of PRISM, creating a unified digital backbone for personalization at scale, as it enhances opportunities in advertising and retail media. This enabled us to reach around 32 million customers and deliver 14 billion personalized offers in 2025. Customers are also responding positively to our shift forward towards the same-day delivery and partnerships with DoorDash and Instacart with additional partnerships planned. Together, these initiatives strengthen relevance, convenience and loyalty across channels. In addition, in 2025, we opened 220 new stores and remodeled more than 450 locations, maintaining a modern, healthy and attractive store fleet. As a result, we have strengthened our #1 or #2 positions in most of the markets where we operate. Another factor, which is unlocking compounding opportunities for us, is driving customer and business innovation, where digital, data and AI are increasingly powering both customer value and performance. Technology and AI represent a growing share of our EUR 2.7 billion in annual CapEx. We are applying these capabilities across our ecosystem, improving availability and forecasting, enabling AI-assisted customer journeys and scaling predictive and visual intelligence solutions. These investments, combined with our focus on local store-first fulfillment and a more asset-light operating model, are yielding good results. Online sales grew 12.9%, led by 22.8% growth in the U.S. Food Lion had a standout quarter with over 35% e-commerce growth and a 2% point increase in penetration. With the recent closure of 6 e-commerce fulfillment facilities, we have now completed the shift to our store-first operating model. In the Netherlands, the Albert Heijn app plays an essential role in daily lives for millions of consumers. Supported by generative AI, the app is becoming more personalized, multilingual and intuitive, making it easier for customers to plan meals, manage rewards and discover inspiration and new recipes. At bol, we continue to innovate across the end of the journey -- the end-to-end journey. AI-powered features such as Gift Finder and Spot & Shop are increasing engagement and reach. By combining rich shopper insights with impactful campaigns, bol was named the #1 retail media publisher for the second year in a row in the Netherlands. Retail media, as you know, is an increasingly important growth machine for the company. The key strength is our ability to build once and scale across brands. With one global retail media platform, we can deploy new solutions quickly across markets while tailoring execution locally. So with strong capabilities in place, growth now is more about culture rather than capability, which you can see in our people decisions. Good examples here are Margaret's move from bol to Albert Heijn or Keith brought a remit in the U.S. as a Chief Commercial and Digital Officer. Both Margaret and Keith bring deep retail media and technology expertise into grocery, also understanding the importance of developing best-in-class digital offerings and boosting capabilities across the commercial value chain through the power of AI. This reflects our belief that a win at one brand is a win for all brands and that scaling talent and capabilities is just as important as scaling technology. So let me now turn to shaping our portfolio to drive growth and excellence, where disciplined portfolio decisions and operational execution work hand-in-hand. In Europe, we welcomed Profi at the beginning of 2025, establishing a strong platform in Romania for future growth. Throughout last year, Profi opened 70 new stores, marking the start of a promising growth trajectory. At Albert Heijn, we opened 19 new stores and launched a major refresh of the Fresh Square concept in more than 500 locations, responding to growing demand for convenient, nutritious food solutions. In Belgium, we now recently completed the acquisition of Louis Delhaize, adding 303 stores and expanding our presence in convenience in 2026. As the largest food retail group on the U.S. Eastern Seaboard, we see meaningful runway in a still fragmented market. In a region where supermarket volumes declined in 2025, we delivered positive volumes by leading into price, own brands and omnichannel convenience. In the U.S., Food Lion launched 153 remodels and started construction on 93 remodels in the Greensboro market, which will be launched later this year. Stop & Shop remodeled over 30 stores, deploying an efficient use of capital, progressing on their revitalization plan. As part of this plan, Stop & Shop improved store standards, service and value perception. Price investments now cover more than 65% of the fleet, supported by stronger own brands, new marketing and in-store signage, upgraded stores and improved execution. Through the combination of these efforts, we have seen steadily improving trends in comparable sales growth, including volume growth, by the way, and in our Net Promoter Score, or NPS. Especially encouraging are the year-to-date improvements in value for money and ease of shopping, showing the holistic nature of Roger and his team revitalization efforts. Finally, let me spend a moment on healthy communities and planet because we believe the everyday choices we all make do matter. As a family of great local brands, we are ambitious about the measurable impact we can have, striving to make healthier options more accessible and affordable, supporting the natural systems that make food possible and reducing waste across our value chain. An important part of this, something we don't often talk about, is our U.S. pharmacy business, which plays a growing role in customer trust, health access and loyalty. Millions of customers use our pharmacy services, placing them amongst our most engaged shoppers with the majority of them paying primary -- with the majority of them being primary customers. With ongoing drug store closures, our pharmacies also provide an important access point for health services in their local communities. Under the Inflation Reduction Act, Medicare prices will come down for 10 high-cost drugs. From a financial perspective, Jolanda will share additional figures as part of the 2026 outlook, which for all intents and purposes is a technical change for us. More importantly, for many customers, this provides meaningful financial relief, potentially freeing up spending for other everyday needs. As we leave 2025 behind, we can be proud of the progress achieved and the strong foundation built in the first year of Growing Together. Our strategy has been pressure-tested, our capabilities are evolving and our teams are operating in a strong rhythm, which is delivering compounding results. We are carrying this momentum into 2026 with confidence in our execution, our portfolio and our ability to continue to create value for customers, associates, communities, and of course, shareholders. With that, I will now hand over to Jolanda for more detail on our financial performance and outlook. Jolanda Poots-Bijl: Well, thank you, Frans, and good morning to everyone. Our performance underlines the resilience and flexibility of our brands to deliver also in dynamic market conditions. It's a good reflection of how we're balancing our growth investments and cost-saving strategies in the U.S. and in Europe, whilst remaining laser-focused on creating the best customer value proposition for every wallet. Our growth model is built on a simple and repeatable cycle. That cycle is anchored in the strength of our local brands, our leading omnichannel capabilities and the customer value proposition that resonates. By combining sales-led growth with disciplined cost control and thoughtful capital allocation, we can invest in price, convenience and digital while maintaining strong free cash flows and returns. So let's dive deeper into the numbers. Net sales grew 6.1% to EUR 23.5 billion in Q4 and 5.9% to EUR 92.4 billion for the full year, driven by strong comparable sales, both in the U.S. and in Europe, portfolio expansion, including Profi and continued growth in omnichannel. Q4 comparable sales were 2.5%, which includes a negative impact of 0.1 percentage points from weather and calendar shifts and a negative impact of 0.2 percentage points from the end of tobacco sales in Belgium. Online sales grew 12.9% in Q4 and 13.3% for the full year, reflecting strong momentum in online grocery across both regions. Underlying operating margin was 4.2% in Q4 and 4% for the full year. Strong U.S. performance more than offset headwinds from Serbia pricing regulation and first-time integration of Profi. Diluted underlying earnings per share was EUR 0.73 in Q4, up 11.9% and EUR 2.67 for the full year. Q4 IFRS operating income was EUR 899 million, corresponding to a 3.8% margin. IFRS results were EUR 96 million lower than underlying, mainly due to the impairment charges related to the strategic shift to a local store-first omnichannel fulfillment model in the U.S. For the full year, IFRS operating income was EUR 3.5 billion, representing a 3.8% margin. The EUR 192 million difference versus underlying was largely driven by portfolio optimization actions, including the shift to a store-first model in the U.S. and the acquisition and integration costs related to Profi. These actions reflect disciplined portfolio management aligned with our strategy. Operational excellence remains a core enabler of our Growing Together strategy. Through our family of great local brands, we leverage scale to combine sourcing power and scale tech to deliver local impact in a simpler, smarter and more seamless manner, unlocking new efficiencies through automation and innovation. In 2025, we delivered nearly EUR 1.3 billion in save for our customer savings, in line with our ambition for the year. These savings are reinvested with discipline into price, technology, store upgrades and sustainability initiatives, increasing value for customers, creating free cash flow and returns. This also includes investments in growing complementary income streams such as enhanced personalization and support services for brand partners, creating a capital-light revenue stream. With double-digit growth in 2025, we are making good progress towards complementary income of around EUR 3 billion by 2028. Let's now take a closer look at our regional performance. On Slide 21, for your convenience, we present the impacts of weather and calendar over the last quarters by region. U.S. net sales were EUR 13 billion. Comparable sales, excluding gas, increased 2.7%, driven by continued growth in online and pharmacy sales. The cycling of Hurricane Helene had a negative impact of approximately 20 basis points. Online sales growth reached an excellent 22.8% for Q4 versus last year, driven by strong performance across all our brands. The combination of our delivery speed, customer reach and extensive assortment, enabled by our strategic shift to same-day delivery and ongoing partnerships with DoorDash and Instacart, is what wins over customers. Underlying operating margin in the U.S. was 4.7%. The margin outperformance was driven by higher sales leverage, improvements to our online margins, the positive impact from a shift in category mix and lower shrink levels, which more than offset price investments and the dilutive impact from ongoing growth in pharmacy sales. Last October, we announced plans to develop a state-of-the-art DC in North Carolina. This investment adds capacity and automation in a key growth region. It improves efficiency and service levels and supports the long-term needs of our local brands, including Food Lion. And as you all know, Food Lion has been on an impressive trajectory of growth with Q4 marking the 53rd consecutive quarter of growth. In Europe, Q4 trends were in line with the prior quarter. Net sales were EUR 10.5 billion, up 11.2%, partly due to the Profi acquisition, an increase in comparable sales of 2.4% and new store openings. Comparable sales had a negative impact of 50 basis points from the cessation of tobacco sales in Belgium and calendar shifts. In Q4, online sales increased by 6.6%, driven by double-digit growth at Albert Heijn. The strength of our European brands, their ability to adapt in complex conditions and their relentless focus on cost savings allowed us to deliver an underlying operating margin of 4.1%. This was slightly better than anticipated, considering the headwinds from the sudden government decree and intervention on the limitation of prices in Serbia. Some of the brand highlights in the quarter include Albert Heijn reaching a record market share of 38.2% for the year, Delhaize Belgium completing its transformation and expanding in convenience and the CSE brands, particularly Romania, demonstrating resilience and readiness for renewed growth. At bol, Q4 capped a strong year with high single-digit growth, record Black Friday sales and 70 basis points of market share gains as the brand successfully countered increased competition from Amazon and Chinese players. Full year underlying EBITDA increased to EUR 207 million, driven by advertising growth and cost discipline. Moving now to cash flow. Free cash flow was EUR 1.5 billion in Q4 and EUR 2.6 billion for the full year. This exceeded our guidance for the year and is in part a reflection of the strong holiday period and solid Q4 performance. Additionally, our gross CapEx spend was lower than our original guidance for the year due to the timing of new store openings as well as the finalization of our project plans around the construction of the new Food Lion distribution center. Given the overall performance, I'm pleased to announce our proposal to increase the dividend for 2025 by 6% to EUR 1.24 per share. This reflects our stated ambition to sustainably grow dividend per share and generate strong shareholder returns. To that end, we also initiated a EUR 1 billion share buyback program for 2026 earlier this year. Finally, let me add some insights to Frans's comments on our healthy community and planet priorities. Through our trusted products, we are making healthier and more sustainable choices easier and more affordable. We do this by improving nutritional value, increasing transparency and using data and insights to guide customer choices. In 2025, the percentage of own brand healthy food sales was 52.1%. Like-for-like, we improved with 40 basis points compared to 2024 as our CSE region implemented the Nutri-Score methodology changes in 2025. Our total tons of food waste per food sales decreased 39.1% versus the 2016 baseline. This is a 4.4 percentage point improvement versus 2024, driven by smart sourcing, better inventory management and more donations. CO2 emissions in our own operations decreased 39.1% versus our 2018 baseline, which is an improvement of 3.4% versus last year, mainly driven by the installation of more sustainable refrigeration systems. Virgin plastic in our own brand packaging decreased 10.9% versus 2021, which is an improvement of 0.8 percentage points versus last year as our brands were able to increase the percentage of recycled content in our own brand product packaging. This progress reflects a true company-wide effort and something that deeply matters to our people. It is embedded in how we operate and is why healthy communities and planet remains a key priority for us. Now, turning to our guidance for 2026. First, a few specific items to reflect in your 2026 models. The Inflation Reduction Act will reduce U.S. pharmacy sales by approximately $350 million with no impact on underlying profit. The Delfood acquisition is adding over $200 million in European sales. And 2026 includes a 53rd week, which is expected to add 1.5% to 2% to net sales and 2% to 3% to underlying net income from continuing operations with no significant impact on operating margin. Our outlook reflects a disciplined approach to maximizing returns while maintaining flexibility. We expect an underlying operating margin of around 4% with limited downside expected given our strong operating momentum and the good start of the year. Mid- to high single-digit EPS growth at constant rates, a free cash flow of at least EUR 2.3 billion and a gross CapEx of approximately EUR 2.7 billion. While we do not provide quarterly guidance, some phasing effects should be expected during the year, as we flow investments in line with real-time trading conditions, allowing us to stay sharp, calibrate actions iteratively as new learnings emerge and remain flexible to market developments, including macroeconomic and geopolitical uncertainties such as Serbia. For 2026, you can, therefore, expect a persistent focus on value for customers, continued growth of our brands, disciplined investment in stores, logistics and digital and a relentless focus on cost and cash flow. This is how we operate, consistent, disciplined and delivering compounding results. And with that, I will hand back to Frans for closing remarks. Frans Muller: Thank you very much, Jolanda. As you have heard, and as you have seen, our Growing Together strategy is now fully in motion. The focus ahead is simple, doing more, even better. We have spoken today about many of our capabilities, but in an industry like ours, one of the most powerful and often underestimated is thriving people being connected to their communities. The partnerships between our brands and the communities they serve is as important an asset as scale or technology or algorithms. This proximity to our customers, listening carefully, learning continuously and adapting quickly to what matters most in their daily lives is, therefore, the real oil that makes the ecosystem run smoothly. Therefore, also a big compliment to our teams for a remarkable result in 2025. Behind that, everything we do is within the framework of a clear operating reality. We remain laser-focused on cost, disciplined in how we allocate capital and deliberate in sequencing investment so that growth is funded, repeatable and resilient. This is how we create value every day for customers, associates, communities and shareholders and why we enter 2026 with confidence. With that, thank you for your attention. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And our first question today comes from the line of Frederick Wild from Jefferies. Frederick Wild: So the first one is, would you be able to help us understand the competitive and consumer environment at the moment in the U.S. and your outlook there for 2026, including things like food inflation? And how you expect volumes to develop? Secondly, you mentioned, Jolanda, a cadence throughout the year. Given what's happening in Serbia, given maybe some of the U.S. pressures we're seeing at the moment, can we take those comments to mean that you're expecting a -- the year to sort of sequentially improve as we go through it? Frans Muller: Thank you, Frederick, for your questions. On the consumer sentiment in the U.S., if you read the newspapers that people think, hey, it is a weaker sentiment than we had seen before. We also saw here and there reports of negative volumes in the U.S. in the market in itself. If you look at our numbers, we came out the 2025 year with positive volumes in the U.S. with flat volumes in 2025, the fourth quarter. And I think this is also caused by the fact that we have very strong market positions, #1 and 2 positions in the U.S. that we are very connected to our communities, that we have a very good proposition, that we invested online technology and in our stores. So I think we are competing quite strongly. On inflation, we see in food at home Northeast inflation of 2.2% at the moment. And if you ask my prediction, which is not so easy, then I think we see a flat inflation, 2.2%, going forward in the 2026 year. That's how we calculate this. So that's a little bit on inflation. That is on consumer sentiment. And when people talk about consumer sentiment, sometimes we forget 2 things that we are in a food business. So we are not in a discretionary type of business, that we have a very strong brands, #1 and #2 position, 90% of our sales and that we -- and I tried to convey this in my note that we have very strong community connections. And the element of trust is super important, and that's what we earned over the years, and that's only strengthened during COVID. And that's, I think, what we also benefit from now, plus our price investments, a EUR 1 billion price investment over 4 years in the U.S., our strengthening and growing own brand share. So I think we have a good proposition here to support the customer journeys, not only physically, but also online and also through AI and technology. Jolanda? Jolanda Poots-Bijl: Yes. And thank you for your question. Yes, the cadence, as we guided in our storyline just now, we are confident. We started the year well, and we have given a guidance of around 4%. That cadence is something that we don't want to dive into. Europe and U.S. might have different cadences for us started. And we want to allow ourselves the flexibility to invest where we see an opportunity and do that in the perfect cadence to create value for our customers, but also for our shareholders, of course. Frans Muller: And we are in a growth strategy together? Jolanda Poots-Bijl: Yes, that's why we're heading forward fast. Frans Muller: We are going to grow the business. Jolanda Poots-Bijl: And that's what we're investing in. Operator: We will now go to the next question, and your next question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a big picture one. Just trying to understand how you approach margins on a group level because you consistently talk and communicate and guide on a group margin level. Is that how you run internally as well as in -- if you expect some weakness, let's say, in Europe, you try and compensate for it in the U.S., obviously, within limitations of what you can do on pricing and cost. Does that explain probably a much stronger-than-expected U.S. margin in Q4? That's the first question. Secondly, Frans, it would be amazing if we could dive a little bit into where are in... Frans Muller: Sreedhar, could you speak up a little bit, Sreedhar? Could you speak a little bit louder? Because it's a little bit difficult to understand and... Jolanda Poots-Bijl: Sreedhar, my ears are less strong than Frans' ears, so I need... Frans Muller: Speak up a little bit. Sreedhar Mahamkali: Sorry, sorry. Yes. Of course, yes. I'll just repeat. Just a real question. First one on how you approach group margin because you consistently guide on a group margin. Internally, do you actually manage it as such as in when you see potential weakness in one part of the business, you try and lean into another to deliver the group margin consistently. So that's the first question. Second one is just in terms of where we are on the Stop & Shop reinvestment, price investment and how close to completion are we now given Stop & Shop seems to be progressing in terms of a recovery. So if you can just talk through a little bit more on the reshaping of Stop & Shop offer and where we are in the journey, that would be very helpful. Jolanda Poots-Bijl: Thank you, Sreedhar, and thank you for helping us out here. So your question, I'll take the first one on group margin, our business is local, and we optimize our businesses on that local opportunities and challenges that we have. So we're not balancing out in the portfolio as such. We're managing the optimum business by business and back end, and that's the strength of our model. We try to combine our scale to support those businesses locally. So I think that, in short, answers your question. Frans Muller: Yes. And I think also, Sreedhar, we would like to stay as competitive as we can be on brand level for the U.S., for example, on country level or brands in Europe or in the Benelux. I think that's our promise to customers, our commitments to make sure that we have the local proposition as strong as possible. And then, yes, in the mix, we see the results, of course. At the same time, to stay competitive, we invest a lot in prices. And of course, you know that we have a very strong cost saving program, which Jolanda already talked to. And that plan, we also manage very strictly, too. So I think that's where we get the funding to support locally. It's a local business, Sreedhar. It's -- you can't say, well, we take more money in one brand to subsidize another one. That's not how retail is working for us on Stop & Shop. Sreedhar Mahamkali: Maybe very briefly just on that point, U.S. margin was clearly stronger than most of us were expecting. Was it ahead of your expectation? Because you clearly guided to stable margin... Frans Muller: [indiscernible]. Jolanda Poots-Bijl: Yes. Sreedhar, to be totally transparent, it was above our original plans. And as it is in grocery, you know it as much as we do, it's lots of small things. And if they all come together a little bit more positive than you expect, then you can outperform. And let me mention just a few of them. If you look at our product mix, we sold more fresh than center store. Yes, that's a little support to that margin. We saw that vendor allowances were a little bit more positive. Our online profitability is improving. So it's many small elements all coming together, having small impact as such, but then together, you outperform. So yes. Frans Muller: And a strong holiday season. Jolanda Poots-Bijl: A strong ending of the year. So sales flow-through was -- it was all those elements. Yes. Frans Muller: Thanksgiving, great. Christmas, great. Diwali, also great, by the way. So we had a strong holiday season. And that -- and shrink numbers also went down because if we have high sales, then also shrink numbers come down as well. So a lot of things in the right direction. So, well, I'm not surprised because we have a strong team there, but I think it was stronger than we would initially have expected. Jolanda Poots-Bijl: Yes. Frans Muller: Finally, then we come to the -- before you mix in another question, Sreedhar, we now go to -- it's a good question. We now go to Stop & Shop. So Stop & Shop, we invested in prices as we promised ourselves and our customers. And in 2025, we were in 65% of our sales, 65% of our sales. We did -- we made our price investments. This will go in 2026 up to roughly 80%. So we make additional funding available for our price investments. At the same time, Roger and his team, first of all, a very dedicated, enthusiastic, energetic and a new -- and partly new team, they made quite some changes. They are now very focused on execution. Availability of product is much better. Labor costs are better under control, better service for customers in stores, better mentality. And we see also now that with the relief of the 32 stores we closed, we have now a much better store set for Stop & Shop as well. Also, Stop & Shop, as you might know, has a very high online penetration of around 11%. So also there, the omnichannel is very strong. We see NPS going up for Stop & Shop. We see price perception within the NPS also getting better. They enjoy the higher penetration of our private brand products as well for Stop & Shop. So a number of things are going in the right direction. And at the same time, we also remodeled 30 more stores for Stop & Shop with a different type of frame. So Stop & Shop also, there good momentum. And you have heard me and Jolanda earlier, a good momentum is great, but we will have to see this a few quarters more before we completely embark on this journey. But also there are compliments to Roger and his team, what happened is, yes, there's a new wind -- a positive wind blowing at Stop & Shop for not only the associates, but also for our customers. John-Paul O'Meara: Let's try to not Sreedhar's lead on that one, at least, that's 3 for the price of 2. Operator: We will now go to the next question. And your next question comes from the line of William Woods from Bernstein. William Woods: Obviously, there's been kind of clear debate over the U.S. margin trajectory over the last couple of years, and you showed good results today. When you look over the next year, how does your strategy change in the U.S. as you go into the second and the third year of the strategy? And do you think we're at the trough of the U.S. margin today? Jolanda Poots-Bijl: William, for that question, it might sound a bit boring, but I think I explained earlier, boring for me is a new exciting. We continue on the journey that we shared with the markets when we launched our Growing Together strategy. I think, in our business, it's important to get in a good rhythm in the cadence and then deliver on that cadence. So no big changes expected in the new year. It's fighting to support our customers every day with the best prices possible, continuing with those price investments that we announced, opening up more stores, doing the remodels, driving growth and sharpening our competitive position. So no spectacular changes. It's continuing what we embarked on. Frans Muller: Jolanda mentioned earlier, William, the EUR 2.7 billion CapEx in our total company. A growing part of this is going into technology, AI and these kind of elements. That is also counting for our U.S. business, of course. So with -- when we see digital AI, both in the efficiency part and the forecasting part, but also in the consumer-facing part, we do a better and better job, loyalty, personalization and these kind of things. So we should not forget that, that also that positive trend of growing more into technology investments is also still continuing as well. Jolanda Poots-Bijl: Maybe last, but not least, because we just delivered the EUR 1.3 billion on save for our customers. The next round is already, of course, heavily in because we have another target of EUR 1.25 billion also for this year. So it's also that relentless focus on, exactly what Frans says, using AI, automation, looking for ways to drive our cost down because year-on-year, of course, it's getting a little bit tougher to realize those targets. So we're obviously also heavily into making sure that we drive those cost savings because that's one of the pillars of our success going forward. Operator: Your next question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Apologies. Yes, maybe I was on mute. Sorry about that. And so the first one is just the investor event a couple of years ago, you talked about high single-digit percentage EPS growth as an algorithm. If we look at '26, I guess, ex the 53rd week, we're probably not quite getting there. Just wondering what the headwinds are you see in 2026 to that and whether that high single-digit percentage EPS growth is still the right growth rate to think about for the medium term? And second one, sort of follows on from that, I guess, is just if we look at the U.S., I mean, outside of potential consumer weakness, we've got SNAP cuts, GLP-1s more readily available, Walmart taking share, Amazon gaining more traction with its online grocery business. I mean, why would we not expect the U.S. to slow down on the top line meaningfully in 2026? Jolanda Poots-Bijl: Well, thank you, Rob, for that question. So first of all, our Growing Together commitments was high single-digit growth on EPS over the 4-year period, and we stick to that commitment. If you look at our 2026 guidance based on the 53 weeks that we have in that year, we guide on a mid- to high single-digit growth again. You are right, if you take out the impact of the 53rd week, of course, EPS is impacted. Two elements to keep in the back of your head. There is the Serbian impact. Serbia used to be a profitable business, guiding well in our European average margins. It's now a loss-making business. So that is included in our guidance, and we're also fighting to repair that issue, one could say. So Serbia has an impact. And also don't forget, the 53rd week, it is money that will be banked, and it is part of that 4-year trajectory of growing together. Frans Muller: On your second question, Rob, yes, it's pretty competitive out there in the U.S., and that's what this business also -- makes it also exciting. But we are used to this already for a longer time. This is not a new phenomenon in itself. The elements I just would like to stipulate here is that we have a business which is now better positioned than before for growth. We have a better supply chain. We have a stronger own brand offer. We are investing in pricing, and we will invest more in pricing, the EUR 1 billion in 4 years you have heard. We are growing our total Food Lion network, not only by stores, and we will open more stores for Food Lion, that is also a new trajectory, but we also keep remodeling our existing fleet. And where there are opportunities for Food Lion to dense up, let's say, the footprint by potential acquisitions, then we also will look at this. Technology and mechanization will help us to reducing cost or get a better customer journeys. So -- and we talked about it earlier when one of the largest competitors in the U.S. is gaining share in the Carolinas, that does not mean that we lose. We win share with Food Lion in the markets where we operate, those states in the southern part of the Eastern Seaboard. And that is because we are connected to our customers. We are very local. We have very good networks, and we have great people. And I think that is not changing. I also heard that a marketplace player is also closing a few stores in the fresh areas, which is also telling us this is competitive and food retail with the margins we make is not easy. And that's why I think also experience and good people kick in as well. So competitive, yes. Are we able to compete? Absolutely. We think that we also gained market share in the fourth quarter in the U.S. And with positive volumes, I think we have, yes, a good start for 2026 also when we look at the first period of the year. So competitive, but we're in a fighting spirit and the teams are really -- yes, very geared up for the journey. Robert Joyce: Okay. So you think you're well positioned to keep taking share, Frans, it sounds like. Frans Muller: We'll come back to you quarter-by-quarter. Rob, don't jinx it now, but that is a... Jolanda Poots-Bijl: It's our ambition... Frans Muller: No, we have a growth strategy, and you know that our growth strategy means 2 things, means volume growth and market share growth. And that is for every brand individually the task, and that's how we construe our plans. And then, we have to see how that works out and how strong we really are. Operator: Our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Two questions from my side. One is about actually on Europe. If you look at last year, '25, you had, of course, the dilution of the acquisition of Profi, you had Serbia, that's now most in the base. So what should probably a bit hold you from higher margins in Europe in '26? And then, the second one is on Albert Heijn. You are now at 38% market share. I think competitors are trying to move. How do you look at that going forward? Jolanda Poots-Bijl: Thank you for that question. I'll take the first one, and Frans will take the Albert Heijn question. We have the first year integration of Profi, and indeed, we are now positioned for growth in Profi. So we envision to open up more stores and drive growth there. And we will get some of those first synergies kicking in. We expect Profi will take around 2 to 3 years to land at the European average margin. So I would not say we're there yet. We are on a journey, and we look forward to that. Serbia, of course, is an impact that was only slightly in last year because it started -- the decrease started September 1. So that is, for sure, a difference versus last year. Frans Muller: And then Fernand, on Albert Heijn, yes, this is a very impressive market share. You round it down to 38%, but it's a very impressive market share. But this comes with 0 arrogance in the marketplace. So the teams have designed their commercial plans for 2026. We might see a few brands in the Dutch market, which have the intention to bounce back. We had an almost 12% growth of our online in Q4 for Albert Heijn. And we also would like to make sure that we stay growing online as well, double digit for Albert Heijn. We look at strengthening our journeys and our portfolios. We have 1,900 organic products, where we are absolutely the leader in differentiation, same for convenience, same for meal solutions. So the creativity is there with the team. Online will be an important component to grow, and I think that means also if you look at price investments, and we know the price favorites where we with 2,000 items have the best offer in the market that will also continue that focus that we make that promise work as well. So Albert Heijn, you talk about the Netherlands, but Albert Heijn is also doing a great job, by the way, in Belgium. Also there, we had a very strong result over the year and also big plans to grow our business there as well. So in short, keep very focused on the omnichannel proposition, 0 arrogance, use the innovation you have in your team to build better products, better private label, which is well over 50% share now at Albert Heijn and work strongly on your cost as well because also there, price investments have to be invested also through cost savings. And that is for Albert Heijn, not different than for anybody else. Fernand de Boer: Maybe one last question on working capital. How far further can you stretch your accounts payable? Jolanda Poots-Bijl: Sorry, the mic went off. I don't know what Frans was doing. A strong year-end sales, of course, means that your inventories are temporarily a bit lower and your accounts payable are a bit higher. So that's also a timing impact of one could say, backloaded sales or a good year ending. We're not expecting to stretch our accounts payable any further. We're just dealing with it as we should be as a good partner in crime also for our suppliers. Fernand de Boer: And the 53rd week, does it have impact on your working capital? Jolanda Poots-Bijl: It will have a bit of an impact, of course. But what we will do, as we will -- as we always do, we will disclose any impact of that last week in our communication to the market in a very transparent way. Frans Muller: Like you did already for sales effect and total net margin. Jolanda Poots-Bijl: Yes. And also in the reporting, we will make sure that the impacts are very clear. Operator: We will now go to the next question, and the next question comes from the line of Xavier Le Mene from Bank of America Securities. Xavier Le Mené: Two, if I may then. You mentioned that AI you do and other technology are reshaping the way you are operating. So you mentioned a few examples, but can you potentially elaborate a bit more and give us a bit of color about the type of productivity gains you can expect? And potentially, an indication of the scale, so magnitude of gain you can get there. So even what is the contribution to cost savings potentially? The second question would be on online. You mentioned it's profitable for the first time in 2025. Should we think about online being a potential driver for margin expansion going forward? And what are your expectation for 2026 and beyond? Frans Muller: Thank you, Xavier. On the question of AI, and AI is, of course, an interesting subject as if this is just new to us. I mean, we're working over many years on AI solutions, if it's robotization, if it's our financial processes, if it is making predictions for our demand, looking at our apps for consumer-facing. And we have now a lot of new features as well. So there will be a lot of AI and opportunities in mechanization. We do a lot of things on recipes and even more creative solutions for customers. You saw what we -- when we talked about Spot & Shop, make a picture of the lamp or the pair of shoes with your neighbors you like more, and you make a picture, load it in the app for bol and you get a suggestion where you can buy these kind of things. So we have a lot of back-end solutions, robotics, mechanization, forecasting, marking down to avoid food waste. We talked about it earlier. But more and more, we get even more consumer-facing opportunities with visual search and all these kind of things with AI is giving us. So a lot of things happening there. The other thing is that you might have noticed that we also got a new Chief Technology Officer on board with Jan Brecht. And Jan Brecht is working very closely, of course, with IT and digital and tech teams. And I just came in here, I just bumped in a room today in the meeting room, where they were talking about our group focus area, work group on AI, where we also bring Americans and Europeans and central people together to see, hey, what can we learn from each other, and we're going to learn a lot from the U.S. as well. What can we learn from each other to make even those propositions more standardized, in the end cheaper in serialization and to scale it up. So a lot more to come. And I think we will talk every quarter about the new features like we did today as well. Jolanda Poots-Bijl: On your second question, and thank you for that, online profitability margin going forward. We look at online in a holistic way. So we're not separating it anymore. Of course, we have those numbers, but we don't separate it in as, okay, it's margin dilutive, and how do we balance that out in the portfolio? We drive growth. Online is a core driver of that growth. And from a holistic and more strategic point of view, having those online customers, which creates indeed growth, it also gives us access into people's daily lives. We can design personal assistance that going forward will give us strategic opportunities, gives us data. We can do the personalization. So there are many elements for us that are so much more important than just an online business and the dilution. We indeed communicated half 2025 that we are now online profitable in the group. That profitability is increasing and improving. So going forward, we double down on online also, as Frans stated, for example, for Albert Heijn. We find ways to improve our profitability even further. And we're quite confident that as a part of our overall strategy, this will benefit our customers, our company and also providing the returns to our shareholders that you could expect to have from us from a holistic point of view. Operator: We will now take our final question for today. And the final question comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: Could you elaborate on the online sales growth in the U.S. in '25 and specifically in Q4? I would appreciate the deep dive if you could help us to understand the main drivers behind this performance. And how sustainable do you believe this growth is? Notably how -- I would be interested to know how you share the value with your Click & Collect partners in this business. Frans Muller: Thank you, Francois. [Foreign Language]. 23% growth in the fourth quarter is, of course, magnificent, 35% for Food Lion. And you could argue that it's a little bit from a lower base in itself, but it's still amazing. Penetration getting over 9% now. Stop & Shop historically already in very high participation, but also growing there to over 11%, so a very positive penetration growth in all the brands we operate. We operate very different than before. As you know, we are now having our Click & Collect options powered by PRISM, owned -- well -- own-developed software, which is giving us, yes, first of all, efficiency, picking efficiency, but also a much better customer connect and a much better customer journey in that online Click & Collect, let's say, part of our proposition. We also partner with DoorDash and Instacart. That is going very well. We might address that we might find another strong partnership, too, which is going to fuel extra growth, so we talk about online a lot. The teams are so convinced that omnichannel is the name of the game. Those customers are more loyal, store and online connected. Jolanda already mentioned that we also got a fully allocated profitable and even more profitable. That's also good news. And of course, online and these kind of things are more linked to AI efficiencies, but also more linked to retail media at the same time. And therefore, that online growth is also for us a very important element of having a better deal, having a better proposition for our customer base. Jolanda Poots-Bijl: Maybe adding to that, Frans, I mean, if you look at what is driving our growth next to all the points that you mentioned, if you compare it with some of the competitors in the market, you have access to a very large assortment on our PRISM portal. So that assortment and the breadth of it, I think, helps, and it's fast. So we have a delivery time of 3 hours, which compared to some of those other also huge players, that's high speed. So speed and assortment probably also helps to win customers over. Frans Muller: Yes. And if you're in Brooklyn with your Eastern European assortment, then you pick your online order in that store, your store and your assortment. So it's store-specific. It's a unique PRISM proposition. And I think that's also different than a few of those, let's say, more centralized online things. Also there, we are local. Also there, we give our customers their local store in the mobile phone. François Digard: And how sustainable you see these trends because 20% is just replenishing? Frans Muller: Yes. For the full year, it was 18%... Jolanda Poots-Bijl: Which is also quite high. Frans Muller: Which is also quite high. So double-digit growth is for us important. I think I would leave it there. I mean -- and as I mentioned, 35% for Food Lion, but they have to catch up a little bit because they were at a lower penetration. So they will grow faster, I think, but double-digit growth is our plan. John-Paul O'Meara: So thank you, Francois, and thank you, everyone, for joining us on the call today. Thank you, too, Sharon. We'll be out on the road as usual tomorrow and over the next 7 or 8 weeks. So happy to catch up with you. And if we didn't get your question today, we'll gladly give you a call now after the call. But thank you for your attendance. Jolanda Poots-Bijl: Thank you indeed, and see you next time. Frans Muller: See you next time. Thank you, JP, as well for the preparations.
Operator: Greetings, and welcome to the Lithia Motors, Inc. 2025 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jardon Jaramillo, Senior Director of Finance. Thank you. You may begin. Jardon Jaramillo: Good morning. Thank you for joining us for our fourth quarter earnings call. With me today are Bryan B. DeBoer, President and CEO, Tina H. Miller, Senior Vice President and CFO, and Chuck Lietz, Senior Vice President of Driveway Finance. Today’s discussion may include statements about future events, financial projections, and expectations about the company’s products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. We undertake no duty to update any forward-looking statements that are made as of the date of this release. Our results discussed today include references to non-GAAP financial measures. Please refer to the text of today’s press release for a reconciliation to comparable GAAP measures. We have also posted an updated investor presentation on our website investors.lithiadriveway.com, highlighting our fourth quarter results. With that, I would like to turn the call over to Bryan B. DeBoer, President and CEO. Bryan B. DeBoer: Thank you, Jardon. Good morning, and welcome to our fourth quarter earnings call. In the fourth quarter, we achieved record revenues driven by impressive used vehicle sales that greatly outpaced the market. Quarterly revenue was $9,200,000,000 setting a new record for full-year revenue of $37,600,000,000, up 4% from 2024. Adjusted diluted EPS was $6.74 for the quarter, with full-year adjusted EPS of $33.46, up 16% from 2024. Our operational leaders leaned into growing our top line and flexing their muscles across all aspects of our ecosystem including DFC, which saw a $19,000,000 year-over-year increase in pretax income and delivered a 16.7% penetration rate in December, exemplifying auto done easy. I would like to commend our ops leaders for leaning into used cars, especially value autos, focusing on the customer experience, and earning considerably more share in positioning us again at the top of our peer group. Together, we are challenging our store and sales department leaders to reinvent their profit equation through more dynamic pricing and reducing SG&A while outperforming in volume. Growing our market share and increasing volume is a turbo boost to our ecosystem’s future profitability as we increase DFC penetration, aftersales retention, and benefit from the waterfall of used vehicle trade-ins. During the quarter, our same-store revenues were essentially flat, and gross profit was down 1.2%, reflecting strong execution relative to the market. Total vehicle GPU was $3,946, down $258 year over year, in line with industry-wide compression in both new and used vehicle margins. Despite these headwinds, our diversified earnings mix and focus on market share delivered double-digit growth in aftersales and stable F&I performance to help offset front-end pressures. Note that all vehicle operation results will be on a same-store basis from this point forward. New vehicle revenue declined 6.6% on an 8.3% unit decline as industry demand softened and supply normalized. New vehicle GPU was $2,760, down $300 over last year. Performance varied by brand with luxury brand revenue down 12.7% year over year, partially due to the difficult prior-year comp. Domestic and import brands were also soft, particularly late in the quarter when sales promotions did not materialize. Our used retail performance has returned to our historical industry-leading mid-single-digit growth levels, with used revenue up 6.1% driven by 4.7% unit growth. Our value auto platform continued its strong momentum with 10.9% unit growth, demonstrating our growth at the most affordable price points. Used GPU was $1,575, down $151 year over year as we increased market share considerably, while now turning to the opportunity to improve unit profitability as well. Our focus on this high ROI area provides a stable anchor to new vehicle cycles and allows us to increase the number of customers in our ecosystem while growing our F&I and aftersales profitability. F&I per unit was $1,874, up $10, demonstrating the resilience of this high-margin business. This steady growth came despite a record DFC penetration, where we intentionally shift finance gross profit from F&I to our captive finance platform. Adjusting for these mix shifts, underlying F&I product attachments and pricing was healthy, reflecting strong execution across our network. Inventory levels remain consistent with new vehicle day supply at 54 days, essentially flat from 52 days last quarter. Flat inventory plus lower interest costs drove $6,500,000 in year-over-year floor plan interest. And used inventory at 40 days compared to 46 days in Q3. Aftersales was also up nicely with 10.9% growth in revenue and 9.8% growth in gross profit, delivering 57.3% gross margin. We saw consistent growth across all categories, with customer pay gross profit up 10.9% and warranty gross profit up 10.1%. This stable broad-based growth demonstrates the underlying strength of our aftersales business model and its power to create customer loyalty. Our sales departments have been challenged and are responding to improved SG&A leverage and ensuring more of our gross profit is realized on the bottom line. This quarter, GPU compression outpaced our cost reduction efforts Tina will talk to in just a moment. As we look ahead into 2026, we have flattened the organization, continue to focus on efficient customer experiences, and are making technology investments that will drive efficiency. In the UK, our teams delivered a 10% increase in same-store gross profit while navigating challenging market conditions as well as regulatory labor cost increases. We are capturing market share in our high-margin aftersales business across the UK network while focusing on sales throughput, particularly in used vehicles. Adjusted pretax income for the UK increased 53% for the full year compared to 2024, and we see continued opportunities to strengthen our results in 2026. Well done, Neil, and well done, UK team. Our digital platforms continue increasing our reach and enhancing the customer experiences to make shopping, financing, and servicing simpler and faster. Our partnership with Pinewood AI has delivered exceptional returns, and we are excited to pilot the Pinewood dealer management system in our first North American store soon, creating a single modern platform and reducing complexity, accelerating workflows, and placing our team members in the same systems as our customers to deliver faster, more seamless customer experiences. Together, these technology investments deepen customer retention, support operational efficiency, and reinforce the power of our integrated ecosystem. Driveway Finance Corporation continues to scale profitably with record income, healthy net interest margins, and disciplined credit quality. Our expanding market share creates a larger origination funnel and a path to our long-term 20% penetration target that will convert more sales into reoccurring countercyclical income. As DFC continues to scale, this platform will differentiate our customer offerings while driving higher-quality, more diversified earnings streams. Now on to capital allocation where we remain focused on maximizing shareholder return through disciplined deployment. With our shares trading at a deeply discounted valuation, we accelerated repurchases this year, retiring 3.8% of our shares in the quarter and 11.4% of our shares in 2025 at prices that we should drive meaningful accretion with. We also strengthened our balance sheet through opportunistic refinancing while preserving capacity for our growth investments. Going forward, we will maintain this balanced capital strategy between buybacks, selective M&A, organic investments, and balance sheet strength. Our integrated ecosystem continues to strengthen. Growing aftersales profitability, accelerating used vehicle growth, expanding DFC penetration, and ongoing operational improvements in our sales departments will create a stronger earnings base. With improving operational efficiency, robust free cash flow generation, and disciplined capital deployment, we are well positioned to deliver compounding earnings growth in 2026 as industry conditions normalize by doing what we do best: growing through the power of our people. Strategic acquisitions remain a core pillar and key differentiator, and in the past six years, more than tripled our revenue while pairing scale with consistent EPS growth. This growth was accomplished while also building a more diversified and profitable business model. Today, our cash engine and unique ecosystem give us the flexibility to both accelerate buybacks and continue to grow through high-return acquisitions. We remain disciplined and strategically focused on prioritizing stores that strengthen our network density and elevate our brand mix in high opportunity markets. In the fourth quarter, we added iconic luxury stores, improved our import mix, and expanded a little bit with our Canadian footprint. For the full year, we acquired $2,400,000,000 in expected annualized revenues, diversifying our portfolio and expanding our reach. Our results over the past decade have yielded high rates of return. We achieved nearly double our 15% after-tax hurdle rate through consistent and disciplined acquisitions, targeting purchase prices of 15% to 30% of revenue, or three to six times normalized EBITDA. Looking ahead in 2026 and over the long term, we continue to target $2,000,000,000 to $4,000,000,000 of acquired revenue annually, balancing our share valuation and acquisition prices to strategically accelerate shareholder return. With a half a decade of tremendous results behind us, we are looking ahead to 2026. Our strategic design is showing durable results as the industry normalizes. The elements that support our long-term $2 of EPS per $1,000,000,000 of revenue targets continue to build momentum as we lift store-level productivity and throughput, expand our footprint and digital reach to grow US and global share, increase DFC penetration, reduce costs through scale efficiencies, optimize our capital structure, and finally, capture rising contributions from omnichannel adjacencies. The continued development of these levers will convert momentum into durable EPS and cash flow growth. Our network and digital platform create engagement across the entire ownership life cycle, while strengthening used vehicle, aftersales, and DFC businesses deepen customer relationships throughout economic cycles. Leaders across our organization are unlocking store potential, integrating adjacencies, and enhancing customer experiences. These capabilities demonstrate resilience, operational flexibility, and the compounding momentum that will drive sustained shareholder value creation. With that, I will turn the call over to Tina. Tina H. Miller: Thank you, Bryan. Our fourth quarter results reflect the more challenging environment with year-over-year earnings pressure driven by margin compression and SG&A deleverage. At the same time, our results in financing operations continue to demonstrate the strength of our diversified model, and our solid free cash flow generation supported meaningful share repurchases while maintaining balance sheet discipline. Our leverage remained comfortably below target levels with ample liquidity to opportunistically fund acquisitions and return capital to shareholders. It is important to note that prior-quarter results included the benefit of a large insurance recovery related to the CDK outage. Adjusting for the $0.53 prior-year impact provides better year-over-year comparison. Our year-over-year results reflect class-leading top line and gross profit trends, and as we have historically seen, responding to quickly declining vehicle margins occurs on a lag as our sales departments work to rebalance their cost structures. The benefit of the design of our business and disciplined approach is the optionality provided by our resilient cash engine and the long-run operational efficiency generated by our size and scale that will compound value over time. Adjusted SG&A as a percentage of gross profit was 71.4% versus 66.3% a year ago, with top quartile SG&A performance of 67.9% in North America. These increases reflect the pressure of normalizing GPUs on our sales departments. Our teams continue to focus on managing costs through growing market share and gross profit. More specifically, our sales departments are navigating volume, gross profit pressures, and productivity to meet market conditions and manage efficiency while effectively serving our customers. Beyond near-term cost management, we are executing structural improvements across our network that will compound over time: raising productivity through performance management and technology solutions, including early investments in AI-powered chatbots and customer service automation; simplifying the tech stack and retiring redundant systems; renegotiating vendor contracts at scale; and automating back-office workflows. These efforts are building momentum quarter by quarter with benefits from our Pinewood AI investments expected to materialize over time as we scale deployment and realize efficiency gains. As Bryan mentioned, the most effective strategy to improve future SG&A leverage is to improve market share and volume. Combined with our unique ecosystem, we accelerate profitability as we build customer loyalty and increase the value of our adjacencies. Driveway Finance Corporation delivered strong profitable growth in Q4 with financing operations income of $23,000,000, bringing full-year 2025 income to $75,000,000, an increase of $67,000,000 from the prior year. Our managed receivables portfolio grew to $4,800,000,000, up 23% year over year, while net interest margin expanded to 4.8%, up 55 basis points. North American penetration reached 15% for the quarter, up 650 basis points. Credit performance remains exceptionally strong with an annualized provision rate of 3%, supported by an average origination FICO score of 751 and 95% LTV in the fourth quarter. Our ability to originate loans at the top of the demand funnel creates a fundamental advantage in credit selection and keeps capital requirements efficient. With a steadily growing portfolio approaching $5,000,000,000, increasingly efficient securitizations, steadily improving margins, and clear runway for penetration growth, DFC is delivering on a significant promise as we scale toward our long-term profitability targets. Now moving on to cash flow and balance sheet health. We reported adjusted EBITDA of $364,100,000 in the fourth quarter, an 8.9% decrease year over year, primarily driven by lower net income. We generated $97,000,000 of free cash flow during the quarter, and our strong balance sheet allows us the ability to repurchase shares and acquire stores in strategic markets while diversifying our brand mix. We are committed to maintaining investment-grade discipline with our leverage ratio targeted to remain below three times. Our regenerative cash engine positions us to continue deployment of capital to maximize shareholder returns. This quarter, we continued our commitment to focus on share buybacks while balancing accretive acquisitions. Our shares continue to trade significantly below intrinsic value, and we allocated approximately 40% of capital deployed to share repurchases, buying back 3.8% of outstanding shares at an average price of $314. In 2025, we repurchased 11.4% of our float at an average price of $314. We remain committed to allocating capital to opportunistic share repurchases as our shares trade at a discount to intrinsic value. Approximately 40% of capital was deployed to high-quality acquisitions and the remainder to store capital expenditures, customer experience, and efficiency initiatives. As we look ahead to 2026, our capital allocation philosophy will remain disciplined and opportunistic. With leverage below our three times target, regenerative cash flows, and ample liquidity available, we will maintain our balanced approach, allocating free cash flows to repurchases when relative valuations are attractive and investing in accretive acquisitions at the right price. This balanced deployment allows us to compound returns for shareholders through buybacks while simultaneously expanding our footprint through strategic acquisitions that strengthen our competitive position and diversify our brand portfolio. Our resilient model generates differentiated earnings and cash flows from an omnichannel platform that serves the full ownership life cycle. With talented teams, class-leading digital and financing capabilities, and a strong balance sheet, we are executing with the same discipline that powered the growth of our business over the last ten years. Our diversified model responds with agility as macroeconomic conditions evolve while preserving capital flexibility to deploy where returns are highest. As we move into 2026, we will continue focusing on increasing profitability, scaling high-margin adjacencies like DFC, and translating share gains into cash flows and compounding value per share. This concludes our prepared remarks. With that, I will turn the call over to the operator for questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 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. Our first question comes from the line of Michael Patrick Ward with Citi. Please proceed with your question. Michael Patrick Ward: Thanks. Good morning, everyone. On Page 19 of your slide deck, you have an interesting chart that shows the retention levels on the aftersales business. And it seems like you have had some pretty big increases, particularly with some of the older vehicles. That is just from last year. How much of that growth is tied into the extended service contracts that you are dealing with F&I? I do not know if you can share with us any details on what the take rate is for the extended service contracts. Bryan B. DeBoer: Hi, Mike. This is Bryan. Thanks for joining us today. When we think about retention, we are up slightly as a percentage relative to a state average over last year, where you sit typically around eight or nine better than average, and it is up slightly year over year. When we think about the take rates and how much of our business is driven off of aftersales and customer pay, it is less than 25% of our business in customer pay. Now when people buy cars from us, I think we were sitting at 37% penetration on service contracts. Tina H. Miller: And then somewhere just under 20% penetration in lifetime oil, and that obviously still includes, you know, the denominator of that still includes full electrified vehicles that we do not sell lifetime oil on. So Michael Patrick Ward: Okay. The second thing, it looks like with the shifting priorities, you are really generating a lot of cash and returning it to shareholders. Any reason that is going to shift in any direction over the next couple of years? Bryan B. DeBoer: There is one big reason. If our stock price increased in value relative to acquisitions, then it may make sense. But we really believe that at these prices, it is quite a value. And Tina, myself, and the rest of our capital allocations team are quite focused on it. And imagine we will continue to back up the truck and buy shares because that is an easy return to each of you, as well as ourselves. So Michael Patrick Ward: And there is less cash needed to grow Driveway Finance, and so that is freeing up more capital to do this. Bryan B. DeBoer: Great point. I mean, we hit max cash outlay a couple of quarters ago, which was just under $1,000,000,000, around $900,000,000. And because our overcollateralizations are now so efficient, we are only at overcollateralizing, you know, mid-single digits typically. When we started, we were overcollateralizing upwards of 25%. That obviously is where the capital comes back in. And as those loans begin to age, the 25% turns into 3% or 4%, and we get 22% back. So we really believe that the $15,000,000,000 to $17,000,000,000 mature portfolio at a 20% penetration rate really takes about 3% to 5% to be able to manage that, which means we could probably continue to grow and still recapture a couple hundred million dollars over the next four, five years. Michael Patrick Ward: That is great news. Thank you, Bryan. Thank you, everyone. Bryan B. DeBoer: Thank you, Mike. Operator: Our next question comes from the line of John Murphy with Evercore ISI. Proceed with your question. John Murphy: Hey, guys. Thanks for taking my call. In Q4, SG&A as a percentage of GP came in a bit higher than we were expecting. So I wonder if there is anything specific that drove that number during the quarter, and maybe could you explain how much of Q4 SG&A dilution from the M&A activity? Bryan B. DeBoer: Sure, John. This is Bryan. Maybe I will take a shot at the first part of the question. I will let Tina deal with the dilution. We would classify the quarter as such: it continually weakened. Typically, in the fourth quarter, you get a good close at the November, at the December. And we saw a mediocre close at the November, but we did not see sales materialize like we typically do in the last ten days of December. And we were pushing marketing budgets and so on to be able to drive volume. And when those materialize or GPUs do not materialize, the two combined created a bit of an uptick in SG&A. The neat part is our stores are trying to find that nice balance between volume and net because what we do know is that volume is what drives the future of our entire ecosystem, specifically referring to that waterfall effect of used car trade-in. Big part of that. That drives the reconditioning of service and parts. And all of those drive sales, which generates aftersales business and DFC business. So we believe it is the right model to go after volume. I think we just got, I think the market was a little softer than our teams expected. Tina H. Miller: Yeah. This is Tina. When we look at the same-store SG&A as a percentage of gross profit, it is relatively similar to our total company at 71.2%. You know, the big differentiator really is the UK versus North America. And as talked about in the prepared remarks, you know, our North America SG&A as a percentage of gross profit continues to be in the top-performing quartile when you look at us versus our peers. So good strength there. As Bryan mentioned, a lot of that driven by that top line movement that we are seeing. John Murphy: Okay. Thanks. And then taking a broader view, but staying focused on that SG&A as percent of GP. You ended up the year at 68.8%, up, I think, 130 bps versus 2024. Would you be willing to stake a claim for where SG&A can get to in 2026 en route to your longer-term targets of 60% to 65% overall? Bryan B. DeBoer: John, we can take that question offline, too. But I think most importantly, SG&A is primarily a function of what your GPUs look like and what your volume looks like, and then the response that you take off that. So it is difficult, especially when we are starting to feel some pressures in terms of volumes, and I think you saw that across the entire sector. We were very fortunate that we looked top of the heap in terms of revenue growth. Obviously, looked real good in used car growth and aftersales growth. But generally speaking, everyone is softening on new cars, and that has major implications of SG&A. But one thing I know is that our team has the ability to adjust their cost structures, and we are out there challenging them. And I know my operational presidents and vice presidents are actively working on that to be able to do the best that we possibly can. John Murphy: Okay. Thanks, guys. Bryan B. DeBoer: Thanks, John. Operator: Our next question comes from the line of Ryan Ronald Sigdahl with Craig-Hallum. Please proceed with your question. Ryan Ronald Sigdahl: Hey, good morning, Bryan, Tina. I want to stay a little bit on those topics, but you mentioned kind of weakening sequential trends in Q4, a little bit of a lagged marketing strategy change, I guess, to align. But Q1, thus far, any demand trends that you are willing to call out? And then we have heard of some weather impact in January. March has an impossibly high comp. But I guess, have those trends continued into Q1 is ultimately my question? And then what are you doing from a spend standpoint to align to that? Bryan B. DeBoer: Sure, Ryan. And you are correct. I mean, we do have some Northeast business that is affected a little bit by weather. But, overall, the trends are very similar to what we saw in the latter two months of Q4. We are hoping that once the thaw happens that March sales return. And I think when you think about Lithia and Driveway, we do look at Q4 as our softest quarter, and a lot of that is because the United Kingdom does not have that big month like a September and March in it. So the variation now between Q4 and Q1 can be quite large, which is a nice wind at our tail. And as we mentioned, I mean, the UK was up 50-some percent year over year in net profit, so that is a nice number. So we have got that advantage coming in the month of March, and they had a decent January. So we always have that little benefit now where Q1 and Q4 used to be relatively both our softest quarter. So nice little boost there, hopefully. Ryan Ronald Sigdahl: Yeah. Nice to see the UK turning to a nice tailwind, given the challenges in the market. DFC for my second question, if I look at Slide 12, $62,000,000, nice 2025 finish for the year. Medium term, $150,000,000 to $200,000,000, given you are getting closer to that 16% penetration, kind of all the assumptions and everything is normalizing. I guess, is that medium term kind of within the next couple years or any time frame to get there? And then any commentary to kind of bridge 2026 into that medium term? Chuck Lietz: Yes. Great. Ryan, this is Chuck. Thanks for your question. In terms of kind of last year, we were pretty pleased that we were sort of guiding that, you know, kind of $50,000,000 to $60,000,000 for our total financing income and delivering $75,000,000, which is a great result for last year. But kind of looking forward, we would certainly expect that to be consistent and repeatable in terms of our growth. And so we see kind of a 20% plus kind of growth rate of our financing income operation, and that kind of does align pretty well with your within a year or two, or a couple years, I should say, of hitting sort of that midterm kind of growth targets that we are showing there. Bryan B. DeBoer: Chuck, do not be shy. Talk to him about our penetration rate in January. Chuck Lietz: Great. Thanks, Bryan. You know, January penetration rates were record for DFC at about 17.5%. And we really see clear line of sight to getting to that 20% pen rate a little faster. Now that is going to put pressure on financing income projections as we continue to accelerate the growth due to the CECL reserves. But we think that is the right strategy to continue to make those investments in DFC and continue to partner with our stores and deliver better outcomes for our investors. Ryan Ronald Sigdahl: Thanks, Chuck. If I may, just a quick follow-up there. You mentioned kind of the 20% plus CAGR on the financing income, but also higher penetration kind of as a near-term negative. So I guess, is that 20% a longer term, or can we assume that for 2026 when things kind of normalize from a penetration standpoint throughout the year? Chuck Lietz: Just a slight correction. I said 20% plus CAGR. So 25% is obviously the goal, but I think to your point of the question, yes, you know, as we continue to accelerate growth, that could be a headwind. But we think 20% would be on the low side of that range. And if for some reason our growth rates were to slide, that would obviously put pressure on the top end of that range, which is why it is at 20% plus. But we are still very confident that, you know, we can hit long term that $500,000,000 of pretax income for our financing operations within, you know, a very achievable time frame. Bryan B. DeBoer: Ryan. Operator: Our next question comes from the line of Rajat Gupta with JPMorgan. Please proceed with your question. Rajat Gupta: Great. Thanks for taking the question. I had a quick question on the used GPUs. It has been under pressure for quite a few quarters now. I mean, obviously, nice performance on the unit side. I am curious, like, are we at a new run rate on used car GPUs? Anything you would call out that is causing some pressure there would be helpful, and I have a follow-up. Bryan B. DeBoer: Sure, Rajat. This is Bryan. This is the fun part of the business for me. And I think there is a stage and an evolution that occurs in selling used cars that I think we have got the right formula now that our stores are keeping the older cars. What we are also starting to realize is two of my operations vice presidents have been doing some heavy lifting on what do our pricing models look like. And they did uncover some pretty healthy pricing gains primarily in two areas, and we basically do these studies that is price to market of what we believe cars sell for and then what we sell those cars for. And the biggest single delta was in our value auto cars, which is over nine-year-old cars, that we had a 12% to 13% delta between what the marketplace was selling the cars for. So even though I am motivated by the fact that we are up low double digits in value auto, we are still having tendencies to give them away or think that there is a more sensitive pricing on those scarce older cars, and there is not. So what we are trying to do is reeducate store leaders to inflate the pricing on those cars and understand that it is not necessary that the velocity of that car turns within four days. It is okay if it turns in 24 days, because that scarce car will bring in additional traffic. And then, ultimately, if our average value auto car is around $16,170, an extra 12% is an extra $2,000 a deal. So that is a big number. The other soft spot that we have in pricing is what we would call scarcer late-model used cars, which is basically lower mileage cars than what their model year is, meaning they are driving 4,000 or 5,000 miles a year instead of 10,000 to 12,000 miles a year. We are underpricing those cars by almost 8%. And those cars are a $30,000 average. So, again, it is a pretty darn big number that we have just got to get better at pricing. And this is where some of our data is starting to be used, but it is finally getting disseminated into the field. So we hope in 2026 that we see some of the lift on pricing. And that is what I would say is most of the GPU dilemma is that sacrifice of volume and then not understanding what the pricing is because a lot of those stores, they are still afraid and thinking that an old car they do not have customers for they should not maybe be selling quite yet because we have never done it in the past, and then they cheap sell it. And that is something that will help guide them, and they will mature as they do it more often. Rajat Gupta: Got it. That sounds helpful color. And just follow-up on aftersales parts and service. Pretty remarkable growth there in the fourth quarter. I know it looks like some of the initiatives are coming through, but would you be able to double click on maybe one or two areas that are driving that kind of growth, and what is a good ballpark assumption that we should bake in, you know, for 2026 in that segment? Thanks. Bryan B. DeBoer: Sure, Rajat. I think when we think about what drives same-store sales growth in our aftersales department, it is all about relationships with customers. And I think many of our stores now are understanding that the relationship is built by doing things their way other than our way. And I think that has been a lot of our opportunity is coming from we have processes. We want customers to fall within those processes. But the My Driveway portal of what we do today allows customers to schedule their own appointments, which makes it easier and makes it more collaborative. Then when they come in, we know who they are a little bit better, and hopefully we can focus our attentions on opening our ears and having our heads up rather than texting or thinking about our processes and really delighting and creating memorable experiences. So I would say that if we look forward at aftersales growth, I believe that a mid-single-digit number is a realistic number for the near term. We do have some harder comps coming up because of some big recalls. But those, as we all know, do not just end. They kind of have tails to them, and there are always laggards of people that have not done those recalls that you will get. And then the next recall comes in, and in fact, I was mentioning to Tina and Jardon that I have three cars in service right now that all have recalls, and it is like, oh, my God. One of them had three. So anyway, lots of opportunities in aftersales, but I think for our team, it is about focusing on the individual needs of each and every customer. Operator: Our next question comes from the line of Jeff Licht with Stephens. Please proceed with your question. Jeff Licht: Good morning. Thanks for taking my question. Bryan, you know, you have normally had some pretty in-depth points of view on, you know, the path travel with new GPUs. You finished at $2,781. No, $2,958 for the year, which was at the high end of your guys’ kind of guidance of $2,800 to $3,000. Just curious as we go into next year, I mean, you know, some of your peers have said, hey, look, it feels like things are bottoming. Maybe a couple others have thought, hey, you know, there is maybe some giveback with some of the brands that have not given back such as Toyota. Just curious your thoughts on where you see GPUs going in 2026? Bryan B. DeBoer: Yeah. Sure, Jeff. I think the neat part is I think our manufacturer partners have figured out how to throttle up and down inventory a little more effectively than they have done in the past, whether it is true production capacity issues or whether it is just, hey, we are going to control our inventory so both our gross profit and our dealers’ gross profits are stabilized. And we are quite proud of our Toyota partners and our other for trying to control inventory, because it does matter. It does feel, and I would probably agree with the rest of our peers, that it feels like it is bottoming out, which is nice. We are still seeing some weakness when it comes to BEVs. But, again, I think that is just the backlash of the incentives being gone and us needing to continue to push volume for the lessened CAFE standards and those types of things. But all in all, we, things look pretty good. And I think most importantly, our focus is a lot on used cars and hopefully getting the GPUs out of that in the event that the GPUs on new that are kind of dictated by the marketplace and supply, that maybe we are not able to control those quite as much as we can on used. We will just make sure that we figure out how to balance that. Jeff Licht: And then just a quick follow-up on, you know, just doubling back on the SG&A. And I was wondering, like, back in the day, one of the big talking points for the dealers was always, you know, a very variable cost expense structure. Just curious just more on an in-the-weeds level. When volume does not pan out, I get advertising is what it is. So if you advertise thinking, hey, we are going to do 100 units per month at a store and end up doing 80 and advertising is what it is. What are some of the other expenses that you get caught with when volume drops? Bryan B. DeBoer: The biggest typically is personnel costs. And you would think that they would be volume-based. But unfortunately, there are still guarantees, and there are other factors at play. We are being pretty diligent on modifying compensation plans with what is something that we call XY pay plans. It is basically a grid type of pay plan that is really trying to motivate both volume and ecosystem effectiveness, we call it, as well as net profit. And some of our leaders have really asked for those type of pay plans to drive their performance. And Jeff, I would say this. We as an industry do spend a lot of money on personnel and marketing to drive things that we probably would be able to sell without a lot of that marketing or personnel. So I think as we think about our future, we think about leveraging our best people to be able to do more with less. And as we think about the future and we think about Pinewood AI and the ideas of placing our customers and our team members into the same IT ecosystem, there are massive amounts of savings that should be able to be realized over time, and we are really in the infancy of putting our numbers on that, and the UK’s teams are a little bit further ahead than us. But we still see a nice pathway to that mid to high 50% range, despite being a little higher this quarter in our weakest typical quarter of the year. So nice improvements, but we have got our pulse on this and know that that is where the money can be made in the industry. And ultimately, that is where the relationships with the customers can be leveraged to create more wallet share, you know, more of us getting their wallet shares out. Alright, Jeff. Thanks. Jeff Licht: Just last real quick. Can you define what you meant by medium term in the SG&A slide? In terms of time? Bryan B. DeBoer: That is typically three to four years. Jeff Licht: Awesome. Thank you very much. Bryan B. DeBoer: Thanks, Jeff. Operator: Our next question comes from the line of John Babcock with Barclays. Please proceed with your question. John Babcock: Just firstly, I think you mentioned earlier, and obviously, correct me if I am wrong, but I think you were saying that you were seeing trends similar to the last two months. So currently, it is similar to the last two months of the fourth quarter. Out of curiosity, does that apply to the used market? And also just broadly, it does seem like the used vehicle market is at least showing some decently positive indicators. I mean, it seemed like pricing was up pretty decently in January and, you know, everything we are hearing on the wholesale side sounds like that is pretty strong. So I guess just overall, if you could talk about the used market and what you are seeing there, that would be helpful. Bryan B. DeBoer: That is accurate. The trends that I mentioned are similar in used, new, and aftersales. So we are real pleased with that. We do have two less days in aftersales in January, so it is a little bit hard to extrapolate, which implies that there is 8% less days to be able to turn wrenches. But that usually will get made up in February and March. In any given quarter, it usually does not have that big a difference. When we think about the used car market, this is the typical time that it does begin to strengthen. We are a little surprised that it showed the strength that it did, and to be fair, that is not really how we think about our used car business. I mean, we typically look at our inventories and then look at our turn rates and see which segments are moving quickly, and then go target our buying habits on those areas and elaborate and buy in the areas that things are turning quickly. And I mentioned that idea of how do we make sure our used cars are turning, how do we capture all parts of the marketplace. That is how we think about the used car business. It is about affordability. As long as I have a broad range of one- to ten-year-old cars, whatever happens with pricing, we clear it out in less than two months anyway. So it does not affect us as retailers as much, other than we do think about affordability and making sure that we touch every possible affordability level in used cars. John Babcock: Okay. Thanks for that. And then just my last question. On the affordability point, there was some discussion at NADA about offering Chinese brands in the US. I am just kind of curious. I mean, have you been approached by Chinese brands to offer their products? And then also, what is your interest level in doing that? Bryan B. DeBoer: Sure. Good question, John. I think let me start with we have growing relationships with three Chinese manufacturers in the United Kingdom. We now have a double-digit store count, and they are taking some market share there. I think it is important to remember that with our Chinese partners, the market share gains that they are making in Western Europe is not coming from electrification. Their initial flurries into the Western European markets came on the back of electrified vehicles. It did not go very well. There was not very much traction. And it was not until they brought in ICE engines until they basically 10x’ed their sales. So we are quite excited that we have got that in the United Kingdom, but there is a big fundamental difference. In the United Kingdom, we are allowed to do what is called dueling of franchises, meaning that if I have a certain brand and that brand is not performing as well as another brand, meaning that if the Chinese brand, let us use Chery, for example, is conquesting market share from Stellantis, it is typical that Stellantis will allow us to put Chery brand right next to them in the same showroom with somewhere less than $100,000 in capital expenditure to do it. Why is that important? Because it gives us additional new cars and maybe used car sales. Here is the problem. There are no units in operation when you are opening these Chinese brands. So I think we would probably not be early adopters when it comes to the United States or possibly even Canada, primarily because we are usually not in a dual franchise situation, meaning that I can have my Stellantis brand that has this great units-in-operation even though their new car volumes are dropping. That offsets the fact that the Chinese brands are now selling cars, new cars, maybe a few used cars. Are you following me? And no service and parts business. So it is a balancing act. And I think when we extrapolate that over the North American footprint, I think it would have to be a broader relationship than a dealer, where we would have more influence over the aftersales and the life cycle experiences that you would have with that, possibly even more control over pricing, which would mean we would need, you know, market control to some extent to be able to make it make sense that you are going to be opening points without a service and parts base to start. And remember, we do get 50% to 60% of our profits from service and parts. So it is quite a difficult venture, but we will approach that. We do have building relationships with a number of different Chinese brands and have a pretty good Chinese contingency operationally with Brian Lam, who has done some work with that. And we will keep our minds open and look at what the opportunities that present us in the future. Hopefully, that answered your question, John. John Babcock: Yeah. That is perfect. Thanks for all the detail. Bryan B. DeBoer: You bet, John. Operator: Our next question comes from the line of Bret Jordan with Jefferies. Please proceed with your question. Bret Jordan: Hey, guys. Could you give us a little more color on luxury? I guess, you mentioned that there was some timing issue as, but I think on the third quarter call, you talked about seeing some softening amongst that high-end consumer. How much is product versus pull-forward versus, you know, more of a macro consumer sentiment issue? Bryan B. DeBoer: It is a little of both, Bret. Our luxury was down somewhere in the 11% range. But what we are feeling is that we are fortunate that their service and parts business is still fairly strong, which helps balance some of those things out. I do have some specific numbers. It looks like BMW and Porsche were probably the hardest hit, you know, but they are all within four or five percentage points of each other in terms of same-store sales. And when you start to get down into net profit, there are some more punitive numbers if you get into some of the lesser German brands. So, you know, but we are working on that, and we still got, we announced, what, last week we had our LPG, our Lithia and Driveway Partners Group announcements. Our number one store in the company, and this will tell you the power of people. Our number one store that won our Founders’ Cup is an Infiniti store. So if you get, if that is about as hard a brand as you could have last year, and somehow that person managed to turn lemons into lemonade. And we are quite proud of the accomplishment of all our LPG winners, including some of those sales departments and service departments that really found ways to buck the trends with certain manufacturers. So Bret Jordan: Okay. And then one follow-up question on used. Obviously, the margin rate on used is well below where it was sort of pre-pandemic. And when you think about that, you know, between mix of value versus core and all, but where do you see the margin rate coming back to? Are we structurally less because you have got better internet price transparency? Or is it a supply issue? And if off-lease cars come back, you can see real margin recovery in that category. Bryan B. DeBoer: Bret, I want to believe this is just a maturity thing. We have added two-thirds of our business that have not really ever got into these businesses. So I think that we will get that knowledge into those stores and they will start to understand and be more dynamic in their pricing. That if they do have scarce cars, they have got to price those differently than less scarce cars. And, you know, we have got certain tools that the stores use at times that are there for reference rather than as a bible. And they have tendencies to look at it all as a bible, and those tools do not always delineate between a low-mileage car and an average-mile car, and they do not delineate between a nine-year-old car versus a nine-month-old car. And there are massive differences. And that is where we are relying on our general managers, our general sales managers, and used car managers to watch what is happening on their lots and be sensitive to that and establish pricing that is appropriate for the marketplace and not give the cars away because they happen to be able to steal a trade-in. And that is really the underpinnings of this, is they are able to negotiate trade-ins at a one-to-one negotiation that are less than market conditions, and we still are able to buy our cars, you know, 5% to 7% below what our competitors typically do that are not new car dealers. Why? Because of that one-to-one negotiation. And then, sadly, we pass it along to the next customer rather than sit and wait for the right customer and spread the visibility of that car through driveway.com or GreenCars where you get enough eyes on it that you finally find a customer that will pay you the true market value of that car. So I believe, Bret, that this is all about maturity, and you are starting to see the, I mean, I think last year this time, we were minus 6% or 7% used car same-store sales, and we are the exact inverse of that this year. So that is the sign we want to see first. Now we are going to start constructively working on pricing and maturity and finding these cars and being able to turn them. Bret Jordan: Great. Thank you. Bryan B. DeBoer: You bet, Bret. Operator: Our next question comes from the line of Daniela Marina Haigian with Morgan Stanley. Please proceed with your question. Daniela Marina Haigian: Thanks. Just switching gears a little bit to a more strategic question. We are seeing this big inflection point this year and next few years in autonomous driving. And as legacy OEMs are also emphasizing their push into these passenger vehicles, L2 and L3 ADAS, they are embedding more advanced sensor suites, radars, LIDARs. Essentially, what I want to understand is what is Lithia Motors, Inc.’s capabilities in servicing these advanced sensor suites and EVs with sensor telemetry for autonomy. Bryan B. DeBoer: So this is great, Daniela. Nice to hear from you. It is pretty cool to be able to see these cars have these types of skills, but with that comes massive amounts of technology and massive cost to that technology. I think average aftermarket LIDAR is around $45,000 and has so many different parts. And I imagine as our cars become more so that way, what you find is that proprietary technology that we need to fix those things brings customers back into our dealerships, which is beneficial. So we are down to ultimately all of this. So whatever our manufacturers decide to upfit the cars with and whatever consumers are really demanding, we get the benefits of it. So this technology creates a lot higher breakage rates. And I think that is why it is fairly easy to contend that mid-single-digit same-store sales growth rate for the next five to ten years is probably a pretty nice number. In terms of what can Lithia do differently, I think the single biggest thing that we can do is create optionality and go into people’s homes to make a difference. Make it convenient. Make it simple. Make it transparent. And that is how we try to differentiate ourselves alongside the brand names that are on our buildings. Daniela Marina Haigian: Thank you. And then shifting to auto credit, we have gotten a lot of questions. We have seen rising delinquencies in both prime and subprime in January. Obviously, DFC is skewed much higher on the credit quality curve. But any color you can share on how you have adjusted underwriting standards, if at all, to address the risk there? Have you seen any change in consumer behavior starting in 2026? Chuck Lietz: Yeah. Daniela, this is Chuck. You know, first, I would just like to say that every year for the last four years at DFC, we have improved our credit quality in our three key metrics. Our average FICO has increased, our payment-to-income percentage has declined, and our front-end LTV percentage has declined. That speaks to the consistency of our underwriting standards. And while we tightened up, you know, kind of our credit standards in that 2021 kind of time period where we could see a lot of choppiness in the market, we have been incredibly disciplined, incredibly focused on maintaining our credit discipline, and that really is bearing fruit today. And when we look at our year-over-year delinquency trends, we are down 36 basis points in the 31-plus bucket. That is bucking the trends of the market right now, and that again really just proves out the overall DFC hypothesis of being top of funnel. That really gives us a leg up in terms of our credit quality, and we see those trends continuing as we go forward. Bryan B. DeBoer: Thanks for your questions, Daniela. Daniela Marina Haigian: Great. Thank you both. Operator: Our next question comes from the line of Mark David Jordan with Goldman Sachs. Please proceed with your question. Mark David Jordan: Just one quick one for me on M&A. It picked up here in 4Q, and I understand the capital allocation going forward will be more opportunistic with respect to share repurchases. But, you know, can we expect this year to be kind of a normal year in the $2,000,000,000 to $4,000,000,000 of acquired revenue? Bryan B. DeBoer: Mark, this is Bryan. That is definitely what we are seeing today. And obviously, we are starting to drop off some pretty good profitability years, which helps pricing on M&A. But right now, the market is kind of static. I mean, we are definitely finding some deals. We announced those nice deals in Beverly Hills. We found a small little deal up in Canada, a few others under contract. So I think that that is a pretty good pace for us, and again, depending on what our stock price is versus what those acquisitions are out there for helps dictate how much we will end up doing. Mark David Jordan: Perfect. Thank you very much. Bryan B. DeBoer: Thanks, Mark. Operator: We have reached the end of the question and answer session. Bryan B. DeBoer, I would like to turn the floor back over to you for closing comments. Bryan B. DeBoer: Thank you, Christine, and thank you, everyone, for joining us today. We look forward to talking to everyone again on our call in April. All the best. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Eric Linn: Greetings. And welcome to the Mirion Technologies Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Eric Linn, Treasurer and Head of Investor Relations. Thank you, sir. You may begin. Okay. Thank you, Melissa. Eric Linn: Good morning, and welcome to Mirion Technologies' Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me this morning are Mirion Technologies' Founder, Chairman and CEO, Thomas Logan, and Mirion Technologies' CFO and Medical Group President, Brian Schopfer. Before we begin today's prepared remarks, allow me to remind you that comments made during this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in our annual reports on Form 10-K, quarterly reports on Form 10-Q, in Mirion Technologies' other SEC filings, under the caption Risk Factors. Quarterly references within today's discussion are related to the fourth quarter ended 12/31/2025, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the Investor Relations section of our website at www.mirion.com. With that, let me now turn the call over to Thomas Logan, who will begin on Panel three. Eric, thank you, and thanks to everyone for joining the call today. Thomas Logan: 2025 was a strong year for Mirion Technologies, and it would not have been possible without the hard work, the energy, and the dedication of the entire Mirion Technologies team. And I thank you all for your efforts and results. We booked record orders in 2025 totaling more than $1 billion. This was largely driven by the nuclear power market strength we've been highlighting throughout the year. This includes $150 million from our large opportunity pipeline. Favorable macro conditions in both nuclear power and nuclear medicines supported meaningful growth in 2025. Nuclear power organic revenue grew more than 11% in the year while nuclear medicine organic revenue grew more than 13%. Both of these end markets are expected to enable double-digit organic growth coming into 2026. As you may recall, in 2025, we articulated a strategic priority to increase our nuclear power exposure. To that end, we acquired CERTREC in July, and in December, we closed on the acquisition of Paragon Energy Solutions. Both of these acquisitions augment our North American nuclear power exposure and take our nuclear power revenue to roughly 40% of the total. Importantly, this revenue accrues from fuel cycle, new plant construction, plant operations, and decommissioning. Thus, we cover the breadth of the century-long cradle-to-grave lifespan of a modern large-scale reactor. Importantly, approximately 80% of our revenue comes from the installed base, which is being both pushed and economically incentivized to life extend, operate, and modernize. Driving an attendant increase in demand for the solutions Mirion Technologies provides. We believe this dynamic is robust and not dependent upon any particular view on new build or SMR dynamics given the profound shortage in generating capacity in most developed markets. New builds and SMRs should be thought of as attractive incremental opportunities on top of the flow from the operating fleet and we remain highly bullish on this sector. These key themes are expected to further evolve in 2026. Our large opportunity pipeline is growing and is expected to support favorable order dynamics in the year. We have a right to win on more than $400 million of large opportunity projects that are expected to be awarded in 2026 inclusive of $200 million of projects carrying over from the 2025 pipeline. Lastly, on this panel, I note our 2026 full-year guidance, which reflects the strong fundamentals underpinning our forecast, supporting growing revenues, expanding margins, and enhanced adjusted free cash flow. I'll detail a few of these points beginning on Panel four. As mentioned, we booked a record nearly $1.1 billion of orders in 2025. This represents a 26% increase versus 2024. 2025 order growth plus the addition of Paragon's backlog resulted in a 36% increase in our backlog versus last year. The nuclear power end market demonstrated the strongest growth supported by $150 million from our large opportunity pipeline. This was followed by $34 million of defense and diversified end market orders principally out of The US and with NATO. These two factors were partially offset by a decline in labs and research end market orders. As I mentioned in our last call, DOGE and the lengthy forty-three-day government shutdown negatively impacted DOE orders in Q4. Our Medical segment also faced some headwinds in 2025 largely due to tough comps from the prior year coupled with transitory macro headwinds. To elaborate, nuclear medicine orders increased 31% in 2024 making for a difficult comp in 2025. Despite this, nuclear medicine orders were down only 6% in 2025. The symmetry orders grew 19% last year due to a large hardware order booked in 2024, making for a tough comp. In 2025. RTQA full-year orders were lower versus 2024. Due to a sluggish Japanese market and negative capital spending dynamic in The US healthcare market. On panel five, we summarize our performance compared to 2025 guidance. Top-line performance was softer than guidance due to the RTQA and lab and research weakness. Despite the revenue miss, adjusted EBITDA was on target and demonstrated expanding margins. In addition, free cash flow was more than twice 2024's performance and beat guidance from both an absolute and conversion ratio standpoint. Adjusted EPS was $0.46 slightly below guidance between $0.48 and $0.52 largely due to tax dynamics. Panel six addresses key drivers for the labs and research and RTQA end markets. Believe that 2025 headwinds reflected demand deferral rather than a secular change in the market. More specifically in labs and research, DOGE and the government shutdown represent one-time impacts that are expected to equilibrate. In RTQA, the fundamental market growth drivers continue to apply. Notably an aging population demographic in developed economies, and an increased push for higher standards of care in developing economies are both expected to lead to overall demand growth. Our RTQA and nuclear medicine solutions benefit from this dynamic and comprise around 75% of the segment's revenue. Panel seven demonstrates our strong historical track record. We've delivered double-digit five-year revenue and adjusted EBITDA CAGRs of 11-12% respectively. Moreover, adjusted free cash flow strengthened dramatically in 2025 doubling last year's performance and achieving our 2026 conversion target a year early. We expect to make continued progress on all of these KPIs in 2026. 2026 performance will be augmented by the recent acquisition of Paragon CertRec discussed on panel eight. We are broadening our exposure to our most dynamic vertical with these two deals and are confident the integration campaign. Both acquisitions immediately broaden Mirion Technologies' presence in the North American nuclear power market, substantially enhanced customer intimacy, and represent a significant opportunity for us to take their capabilities global by leveraging our strong international presence. Similar to Mirion Technologies, most of Paragon and CertRec's revenue comes from the operating fleet. However, both acquisitions strengthen our position in the rapidly evolving SMR space. Both Paragon and CertRec are the tip of the arrow with SMR developers. Supporting licensing, regulatory guidance, and reactor instrumentation design. This has immediately improved the top-of-funnel opportunity set for Mirion Technologies as a whole and increases drag alarm traction. For legacy Mirion Technologies solutions. We now have contractual commitments in place with more than 20 SMR developers and our reach is expanding. We're working hard to run the tables to land and expand our position with all key players. Eric Linn: As you can see on this panel, we have quantified attractive synergy opportunities Thomas Logan: and are moving ahead rapidly. In 2026, we will move beyond foundational work such as finance, HR, and IT integration, and shift our focus to material synergy drivers like commercial integration, improved pricing heuristics, and supply chain optimization. In the case of the latter, we saw nearly 100 basis points of adjusted EBITDA margin improvement in 2025 alone, from procurement process improvement in legacy Mirion Technologies. We believe much of the work we're doing in this space will translate well to both the Paragon and CertRec business models. Looking further out, commercial leverage and AI-informed product evolution represent the tail of the integration opportunity set. And we are increasingly enthusiastic about the potential. Paragon also contributes to our large opportunity project pipeline. Panel nine illustrates that at this time, we see more than $400 million of large opportunities with the potential to transact in 2026. The chart identifies $200 million plus of new large projects on top of the $200 million of carryover. From 2025. Notably, nearly half of these new opportunities come from Paragon. While these projects are definitionally $10 million or higher, the broader nuclear power space continues to support growth opportunities for 10 shows headlines from just the past month or so. Whether it's an $80 billion deal for new nuclear power plants in The US, or new hyperscaler partnerships, the momentum in the market continues to build. It is abundantly clear that power availability is becoming increasingly critical to the global economy. Panel 11 illustrates that by 2035, nearly a third of all data centers are expected to exceed one gigawatt compared to only 10% of data centers today. For reference, each one-gigawatt data center campus uses about a fifth of New York City's entire electrical load. Power generation and grid are increasingly becoming the bottlenecks for data center growth and nuclear power is likely to remain a critical component of the long-term solution. Before I turn it over to Brian Schopfer to walk through the financials, allow me to detail our 2026 guidance on panel 12. The headlines here are growing revenues, expanding margins, and increasing adjusted free cash flow. 2026 total revenue is expected to grow between 22-24%. This includes tailwinds from FX and acquisition-related growth from CertRec and Paragon. Absent these tailwinds, you arrive at our 2020 organic revenue growth guidance of between 5-7%. Adjusted EBITDA guidance is between $285 million and $300 million. This equates to adjusted EBITDA margins between 25-26%. And this margin range represents approximately 90 basis points of margin expansion expected for the year, notwithstanding the dilutive margin impact from the Paragon deal. We expect to help Paragon become margin accretive within our planning horizon, again, as we capture clearly identified synergies. 2026 adjusted free cash flow should range from $155 million to $175 million. This expected growth is attributable mainly to the full-year impact of growing earnings and capital structure improvements, which will more than offset a modest increase in expected CapEx to fund AI and other critical strategic initiatives. Finally, 2026 adjusted earnings per share should range from $0.50 to $0.57. This includes an expected $275 million fully diluted shares reflecting a full year's impact from the related capital raise in September 2025. Also new this year, we are now including stock-based comp, within our adjusted EPS. If you were to exclude us similar to last year, our 2026 midpoint guidance would have been $0.61 or $0.07 higher. Brian Schopfer will share more details on this and the broader financials. Brian Schopfer: Thank you, Thomas Logan, and thank you all for joining our call. I'll review the detailed financial results beginning on slide 13. Fourth-quarter enterprise revenue grew 9% to $277.4 million. Compared to the prior year's fourth quarter of $254.3 million. Over half of the year-over-year improvement came from M&A. Both Paragon's December results and a full quarter of CertRec are reflected in the numbers. FX was a tailwind to total Q4 revenue. Contributing 3.4% of the 9% increase versus Q4 2024. As a reminder, about 36% of our 2025 revenue is euro-denominated. Fourth-quarter organic growth was 0.5%. Negatively impacted by tough comps within both segments as we highlighted on last year's fourth-quarter call. The nuclear and safety segment organic growth in 2024 was 13.9%, making for a tough comp. In medical, nuclear medicine was up 21% in Q4 2024, while dosimetry was up 14%. In Q4 2024. Adjusted EBITDA was $77.6 million, up 11.5% versus Q4 2024. Adjusted EBITDA margins expanded 60 basis points despite margin dilutive impact from Paragon being included for December 2025. Our largest month. Excluding Paragon, adjusted EBITDA margins would have been 28.6%, or 120 basis points higher than last year. Q4 adjusted EPS was $0.15 or $0.02 lower than Q4 2024. This reflects the addition of approximately 30 million shares to our diluted share count from the convertible notes and approximately 20 million from the weighted impact of the equity raise supporting the Paragon acquisition that we did at the end of Q3. We've included a slide in the appendix that illustrates how the converts work at different stock prices. Q4 adjusted free cash flow was $78 million contributing to a full year's $131 million adjusted free cash flow generation, and 57% conversion. Full-year performance outperformed the 2025 initial guide. Q4 orders increased 62%, reflecting $140 million large opportunity orders awarded in Q4 from the nuclear power end market. Even excluding these orders, our Q4 order book was strong at up 11%. Slide 14 showcases key nuclear power metrics for the year. Adjusted nuclear power orders grew 52% in 2025. This excludes any acquisition-related orders as well as the Turkey debooking last year. The grid power order growth was supported by all three verticals. New utility-scale reactors, the installed base, and SMRs. For instance, we booked $39 million of SMR-related orders in 2025 compared to $17 million in 2023 and 2024 combined. This momentum continued into 2026, where we've already seen approximately $10 million of SMR orders just in January. Nuclear power end market organic revenue grew 11% for the year. Compared to 4.4% for the collective nuclear and safety segment. The nuclear power end market organic revenue growth is expected to post double-digit growth again in 2026. Slide 15 has the Q4 order book details. As mentioned, we booked $140 million of large orders including the $55 million Asia installed base order disclosed on our October earnings call. Outside of nuclear power, our defense and diversified end markets saw a doubling of orders primarily in The US and with NATO. in Q4, Medical segment orders declined in the quarter. Recall, we had tough comps in both the nuclear medicine and dosimetry end markets. Slide 16 bridges our large opportunity pipeline. Thomas Logan covered much of this in his prepared remarks already. Here, you can see how we arrived at the $200 million of previously communicated large opportunities that make up a portion of the more than $400 million pipeline. Timing is always the wildcard here. And we believe our right to win is strong on all these projects. Let's get into the P&L on slide 17. We'll focus on full-year results since we detailed Q4 already. Full-year revenue totaled $925.4 million up 7.5% versus 2024. More than half of the growth is organic. The rest comes from equal parts M&A and FX. Nuclear power, nuclear medicine were meaningful contributors to organic revenue growth for the year. Full-year adjusted EBITDA totaled $227.9 million up 12% compared to 2024. Margins expanded 90 basis points for the full year, reflecting procurement initiatives and operating leverage, partially offset by tariff Eric Linn: and Brian Schopfer: the impact from the Paragon acquisition which closed in December 2025. Full-year adjusted EPS was $0.46, a 12% increase despite approximately 50 million share increase in 2025 from the convertible notes and the equity raise associated with the Paragon purchase. Eric Linn: Slide 18 provides a 30,000-foot view of the moving pieces impacting Brian Schopfer: 2025 revenue versus our initial guidance from December 2024. Overall, FX and acquisitions were both tailwinds to revenue. Recall, we initially baked in a $1.05 euro to USD rate while we ended the year at approximately $1.17. In addition, the acquisitions of CertRec and Paragon in 2025 contributed favorably to total revenue growth. Conversely, top-line performance was negatively impacted by organic headwinds of approximately 250 basis points. The US government shutdown and Doge initiatives primarily impacted our labs and research end market in the nuclear and safety segment. Additionally, as we've been discussing, our RTQA market was sluggish, mainly related to hardware headwinds in North America, China, and Japan. Partially offset by our performance in software and services. For example, our RTQA services business reported a two-year revenue CAGR 12%. Now let's turn to the segments beginning on slide 19. Nuclear and Safety segment Q4 revenue was $194.9 million up 15.5%. Organic revenue increased 3.1% as the segment was lapping a tough 13.9% comp from last year. Q4 2025 organic revenue growth was aided by over 12% nuclear power end market growth, partially offset by continued softness in labs and research. And, to a lesser extent, from the defense that diversified end market off a large 2024 comp. The labs business was definitely impacted by the forty-three-day government shutdown. We continue to believe this is a delay rather than a decline. We expect it to take some time to get back to a more normalized state, as you can see in our organic revenue growth guide in the back of the deck. Total year nuclear and safety segment revenue was $614.6 million, up 9.5% compared to 2024. Eric Linn: Full-year organic growth reflects 11% nuclear power growth Brian Schopfer: partially offset by an 8.5% decline from the global labs and research end market. More specifically, our US labs business connected mainly to the DOE was down approximately 15% for the year. Additionally, the defense component of our defense and diversified end market declined, while the industrials component grew. More importantly, how do we own Paragon in 2025? Their year-over-year growth is 20%. Going into 2026, it is expected to be approximately 25% plus. Nuclear and Safety segment Q4 adjusted EBITDA was $60 million or 13.6% higher than last year. Q4 margins declined 50 basis points. As we've discussed, closed the Paragon acquisition on December 1, which impacted Q4 margins. Excluding Paragon's December results, Q4 margins would have been instead expanded 50 basis points, reflecting operating leverage lower incentive compensation, and procurement initiatives. Full-year adjusted EBITDA for the nuclear and safety segment $177.7 million or 11.2% higher than last year. Full-year margins also increased up 40 basis points. Again, excluding Paragon's December results, full-year margin expansion would have been 70 basis points or a 30 basis point swing. Next, onto the medical segment on slide 20. Q4 medical segment revenue declined 3.5% to $82.5 million. On the October earnings call, we expected flattish Q4 revenue. Q4 RTQA organic revenue growth revenue declined 4%. The difference was RTQA the difference was the RTQA end was negatively impacted by Asia and Europe hardware headwinds. Additionally, as mentioned earlier, nuclear and Madison and dosimetry were bumping up against tough comps. Full-year medical segment revenue grew 3.7% to $310.8 million. Reflecting double-digit organic revenue growth from the nuclear medicine end market offset by lower RTQA organic revenue. We expect double-digit organic revenue growth in 2026 from the nuclear medicine end market as well as a rebound to mid-single-digit plus organic revenue growth from RTQA. RTQA should see a rebound in Europe hardware sales and continued adoption of our software platform globally, as well as a number of new product launches. Meanwhile, we expect flattish 2026 dosimetry organic revenue due to lower hardware sales. We are encouraged by our InstaView adoption particularly what we are hearing from the nuclear power end market. Medical segment adjusted EBITDA grew in Q4 despite softer revenue versus last year. Q4 grew 5.1% to $34.9 million and expanded margins 350 basis points, primarily due to procurement savings of approximately 100 basis points and 250 basis points mainly from OpEx in-year initiatives. Meanwhile, full-year adjusted EBITDA grew 11.2% to $116.3 million. Full-year adjusted EBITDA margins expanded two sixty basis points, procurement and similar OpEx in-year initiatives. It was a tough year for medical on the top line. But I am encouraged by the margin expansion and the team's focus on cost and productivity. Turning to slide 21. You can see the marked improvement in adjusted free cash flow this year. 2025 adjusted free cash flow totaled $131 million approximately double 2024's $65 million. 2025's performance represents a 57% conversion of adjusted EBITDA. 2025 step change performance reflected improved earnings, reduced net interest expense from capital structure improvements, and lower CapEx. Recall, we reduced our term loan B size from $695 million to $450 million and refinance down to SOFR plus 200. We also issued two convertible notes at 0.250% coupons in 2025. These actions reduced our 2025 pro forma total cost of debt to 2.9% versus 7.4% in 2024. In 2026, we expect to increase our adjusted free cash flow while maintaining a similar conversion rate consistent with our long-term guidance. Before we open the line for Q&A, let me share some additional detail for 2026. From a full-year 2026 percent, perspective, we expect Q1 to be the lightest quarter for both revenue and adjusted EBITDA. The rest of 2026 phasing, expect to be consistent with prior years. For Q1 2026, total organic revenue growth is expected to be low single digits. Medical organic revenue growth should be mid-single digits. While nuclear and safety will likely be flat. Within nuclear and safety organic growth, our sensing business volume within nuclear power will be lower from a tough comp in 2025 due to project timing. This impacts both revenue and margins. Total Q1 2026 enterprise EBITDA margins should contract compared to Q1 2025 despite expected margin expansion in the Medical segment. Remember, Q1 now includes the full impact of Paragon, which is dilutive to overall margins. We expect to return to margin expansion the back half of the year and for the full year. As Thomas Logan mentioned, 2026 adjusted EPS now includes stock-based compensation. We made the change to be more reflective of the true cost of doing business. In addition to the full-year guidance that Thomas Logan walked you through, are additional modeling assumptions in the appendix. With that, I'll ask the operator to open the line for questions. Eric Linn: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Andrew Kaplowitz with Citigroup. Please proceed with your question. Good morning, everyone. Brian Schopfer: Good morning, Andy. Andrew Kaplowitz: Tom, just thinking about your large opportunity pipeline. I know large project timing tends to be difficult. But if I go back to last year, at this time, was $300 million to $400 million and now greater than $400 million. It's up mid-teens. It's obviously noticeable that your backlog ex Paragon moved up nicely in Q4 2025. But can we take your pipeline and say that should translate the double-digit growth in backlog in '26 and with nuclear power now almost half of your sales, do you have confidence you know, to sort of say that Thomas Logan: Yeah. Andy, I think you hit the nail on the head that large project timing particularly when you're talking about new reactor builds and things where there's enormous complexity overall, you know, really gates the timing dynamics. And we try and surround that in terms of you know, how we place probability, ask estimates around timing and quantum of bid awards and the probability of success etcetera. But at the end of the day, it remains, you know, it remains a dynamic target overall. So I'm hesitant to say that, you know, to draw a tight correlation between, again, those large projects, which by definition are more than $10 million in revenue. And the expected timing. What I would say is that we like that dynamic a lot. We you know, we look at the quality, and as Brian noted, our right to win within that, you know, that grouping of large projects. Coupled with the underlying dynamics, particularly in the nuclear power vertical overall, we feel good about how that ultimately drives an accelerating rate of growth. Andrew Kaplowitz: It's helpful, Tom. And then this might be for Brian Schopfer or Thomas Logan. Like, I was intrigued by the Q1 guidance in the sense that you've got medical back up to mid-single digits. Obviously, you know, it's a little bit weaker to end the year. So like, maybe is that that comps is that you expect a relatively quick recovery in places like Europe and China. Maybe you can give us a little more color on how medical should pan out in '26 to sort of meet that mid-single-digit growth? Brian Schopfer: Yeah. I think I mean, obviously, as the year gets goes on, you know, we're a little bit stronger in '25. In the first half of the year in medical, specifically Q2, by the way, with the we we shipped a lot of stuff into China, Andy. So the back half obviously, has been easier than the front half. But you know, the team likes the dynamic they're seeing. In the even even here in the first quarter. And, you know, really across, you know, all three businesses. So you know, that's right now, that's what we're seeing. And, you know, we'll update you when we get through Q1. But I think the point here is that we've thought quite hard and, you know, we usually don't give quarterly too much quarterly guidance. And wanted to make sure we got it appropriately here. Andrew Kaplowitz: It's helpful color. Thanks, guys. Eric Linn: Thank you. Our next question comes from the line of Joseph Ritchie with Goldman Sachs. Joseph Ritchie: Hey. Good morning, guys. Hey, Joe. Hey, Joe. Hey, just maybe just touching on Q1 for a minute. Brian Schopfer: Just to make sure that we're dialed in because you have you have the accretion also from Paragon coming through don't know if there's any seasonality in the business, but I guess we're getting to a number, like, an EBITDA number kind of, like, in that mid to high fifties. I just wanna make sure that we're thinking about it directionally right. Brian Schopfer: Yeah. I mean, look. I'm not gonna give you the number But I, you know, I think by Eric Linn: you know, first off, Paragon's you know, the first quarter will be the Brian Schopfer: the lightest quarter as well. For Paragon. It's not true. So this yeah. The third and the first quarter will be the kind of it it it has similar seasonality to to Mirion Technologies. Where the third and the fur the first and the third quarter are lighter than the second and the fourth quarters. Obviously, the nuclear power business, that kinda matches the outer season. So that's how I would think about it. I think with the lighter first quarter in Mirion Technologies and dilutive nature of the of the margins on the Paragon side. You know, that I would just we just I would think pretty hard about how we're modeling And like I mentioned, our sensing business had a very strong Q1 last year. Margin expansion in Q1. And that that business levers tremendously. So with a little bit of a lighter volume there, you're probably you're definitely gonna see a little bit of a contraction. On the margin side. The legacy Mirion Technologies business on top of the dilution for Paragon. So that's kind of the color I'd probably give around Q1 without giving you a number. Joseph Ritchie: Okay. No. That's helpful. Appreciate that, Brian Schopfer. And then I guess, look, clearly, the orders were excellent this quarter, you know, better than what we even when you gave that funnel at the end of last quarter. Thomas Logan, maybe just kinda I know you touched on this $400 million pipeline the large project pipeline for 2026. Just help with your customer conversations with, you know, win rates that you should expect going forward? Do feel like your win rates are increasing? Is any other you know, color on that pipeline and how you guys are doing commercially? Thomas Logan: Yeah. So we Joe, we don't you know you know, historically, we don't talk about win rates, but I'll tell you what's really important here, and that is the impact that both CertRec and Paragon are having the way we engage with customers overall. And I'll focus mainly on Paragon, but the themes are broadly equivalent. So Paragon was founded and grown by its CEO, Doug Van Tassel, who's an absolute rock star. He's really highly, highly known and respected. Within the within the nuclear industry. And their commercial model historically has required a much higher degree of customer intimacy than Mirion Technologies' go-to-market model, in part because of, you know, fundamental differences in the solutions that they were selling versus what we've been selling. And as Doug and I have developed a strong partnership really focused on the roadmap for integrating the companies, one of the first early opportunities that we see and are obviously working hard to take advantage of is that commercial traction where, you know, the combination of the Paragon customer intimacy with a much broader solution set that is quite unique in many dimensions. We believe help us gain even more traction, not only from the operating fleet, which again is about 80% of our total nuclear power revenue, But more broadly, as we're engaging with the reactor designers, the so-called NSS firms, on new utility-scale projects, and we're engaging with literally all of the SMR players on their various campaigns overall. So that dynamic again, we think is gonna be a net positive We hope and expect that we're gonna see that begin to emerge. As we gain additional traction. And ultimately, you know, again, we were talking about absolute win rates, which we're not, I would expect those to improve. Joseph Ritchie: Great. Super helpful. If I could maybe squeeze one more Just Brian Schopfer on medical, you mentioned the OpEx initiatives. The margins this quarter were really strong. You know, as we as we kinda think off, like, like, the jumping-off point 2026 full year, is the expectation that your medical business should still see over a full-year period, you know, that, like, 50% type incremental margin. Just given the initiatives that and the interaction that you guys are getting? Brian Schopfer: Yeah. I look. I expect pretty good margin expansion again in '26. It won't be as high, though, as what we saw in '25 for sure. So that, you know, that's probably you know, how I'm thinking about it. You know, I Joseph Ritchie: I again, I think the 50% incremental is Brian Schopfer: is good. It maybe is a touch high. But you know, it's still gonna be very strong and robust. Eric Linn: Thank you. Our next question comes from the line of Tomohiko Sano with JPMorgan. Please proceed with your question. Tomohiko Sano: Good morning, everyone. Brian Schopfer: Hey, Tomo. Hey, Tomo. Tomohiko Sano: Thank you for taking my questions. So with 2026 guidance for adjusted EBITDA margins 25% to 26%. So it's the past 30% plus EBITDA margins by 2028 still intact? Should we expect about 200 bps of margin expansion in 2027 and 2028 to reach that target? Thomas Logan: Yeah, Tomo. I'm not I'm not go of that. I mean, the noting that the headwinds that impact us on that have been to some degree tariffs to some degree the near-term dilutive margin dilutive impact of the of the Paragon deal overall. But the countervailing or counterbalancing tailwinds are, firstly, it's growth. Absorption is our best friend here. And given the very high degree of operating leverage we have in the business as we continue to drive, you know, a more robust top-line dynamic. Absorption will be very important. Secondly, is the continuation of self-help. You know, we noted a 100 bps of margin improvements from procurement this year. We're not done in that area. There's much more to be done both with legacy Mirion Technologies as well as with the newly acquired companies. But, you know, beyond that, it's our entire business system as we think about continuous improvement and greater efficiency overall. But the third element which is becoming far more tangible, and I'm sure you're talking about on a lot of calls, is AI. AI is profoundly as we think about both customer-facing applications and the implication that has on both margin and profile and top-line growth As we harness this, it, we believe, will give us the ability to mix up to a degree, but it's also the internal productivity. Last year, we launched 17 internal AI bespoke applications that were focused on productivity enhancement with another, I believe, seven in development. And that cadence of changes is improving. You know, we are resourcing up in AI. We've hired our inaugural chief AI and digital who's got a very clear and compelling vision as to what we can do, what we must do, from both a customer-facing and an internal productivity standpoint. And we're pretty bullish about it overall. So to be clear, this is not this is not a gimme putt to get to 30 EBITDA We have a lot of wood to chop. But having said all that, I continue to see a pathway, and Brian Schopfer and I continue to encourage and motivate the organization to get after it. Tomohiko Sano: Thank you, Thomas Logan. And a follow-up on AI with the announcement of executive appointments, you just described in what other key KPIs ensured to midterm goals for your AI and digital strategies, please? Thomas Logan: Yeah. They're really under development right now. I understand. Understanding that Shamir has only been on board now for a few months. And so we're not yet in a position where we're going to put that out within the investor community overall. But what I will tell you is that we see very, very compelling opportunities to harness as we think about customer-facing applications. To harness our native position, recognizing that we are in almost every operating nuclear power plant in the world. You know, it's in the upper 90% range overall. And increasingly, I think there's a point of view and a defensible point of view that having that core sensor presence will be critically important as we think about things that ultimately in this space may impact the overall efficiency of a power plant. How hot it can be run, how do more effectively manage load balancing, how to accelerate startups in the wake of shutdowns, etcetera. So there's a huge body of work that we're doing not only in the nuclear vertical, but in medical in labs and research, we're very advanced in defense, etcetera. So it really is gonna impact and inform our agenda from a customer-facing applicate or standpoint in all key verticals. But internally as well. We've really developed considerable momentum in terms of incorporating both bespoke tools that our team has developed But beyond that, just leveraging the capabilities that are increasingly embedded within all the various third-party software applications that we use overall. So summary of all of that is that we're not yet ready to guide the key metrics in and around AI, but I think it is important to note that our effort here is significant and that our momentum is building, and, and we see great promise here. Eric Linn: Thank you. Our next question comes from the line of Robert Mason. With Baird. Please proceed with your question. Robert Mason: Yes. Good morning. Thomas Logan: Brian Schopfer, I think I heard you correctly when you were describing Paragon you're expecting 25% growth kind of pro forma for '26 in that business. And as I recall, when you acquired it, know, it'd be growing kinda low teens. A couple of questions. Just what accounts for kind of the acceleration there? And then to the extent that I know, Thomas Logan, you referenced this kind of tip of the spear, You know, that level of step up in growth, what kind of implications could that have on the broader Mirion Technologies nuclear power business over the next couple of years? Brian Schopfer: Maybe I'll take the first part and you'll take the second I mean, just quickly, first off, Paragon has good coverage. They actually have better coverage than Mirion Technologies does on the on for next year. As we think you know, on a forward basis. So I think one of the things that's driving is just the order growth they saw in '25. I think the other thing is they're definitely expanding a bit their markets in '26 into kind of the DOE landscape. Which is a vertical they didn't have as much revenue growth in last year. So I think you know, those two things kinda coupled together is what is what what gives us, you know, confidence in kinda hitting those numbers. But they've you know, they it's an exceptional team, and they continue to put good wins on the board. Thomas Logan: Yeah. Just in Robert Mason, in terms of talking about the strategic implications I think they're profound. Again, Paragon is an amazing company, amazing people. Very, very high cultural affinity goodness of fit with Mirion Technologies, also the strategic alignment is extraordinary. I mean, we've articulated what our you know, what are kinda the obvious and key areas of focus in terms of bringing the two companies together from a synergy standpoint. Particularly as it relates to commercial traction overall. Our ability to help them drive more international growth, their ability to help us again, create a stronger bond and connection, more customer intimacy, within North America overall. But the longer-term implications strategically basically, our number one, we think we can get more wallet share out of the installed base on a combined basis. We think one plus one will be two plus here. Secondly, with the SMR community, Paragon has been very assertive, very effective in prosecuting that marketplace overall. As have we. But the combination of the two companies in that particular field are really, really important, not only as it relates to the SMR players themselves, also as it relates to the broader industry. Both the operating fleet and the evolving utility-scale reactors. One of the classical innovation issues articulated in the innovator's dilemma, you know, classic Silicon Valley book. Is the issue that companies oftentimes will tend to focus on the immediate needs of their best customers today. And one of the interesting things about the SMRs is given the advanced technologies they're deploying, given the rapidity with which they are driving toward big audacious Brian Schopfer: outcomes. Thomas Logan: It is forcing a different level of innovation within the industry. And I like our position here. I like where we sit in terms of how this is evolving overall. And While it's a wildly difficult market to predict, you know, we do believe there will be, there will be success SMRs that are emerging probably faster than people expect. We think the innovation that we are participating in and to some degree is driving will then cascade more broadly into both the operating fleet and some of the utility-scale reactors. So, I mean, the implications here we think are significant. We're thrilled that we were able to close this deal. And know, feel pretty good about the art of the possible here overall. That's helpful, Thomas Logan. Just real quickly as a follow-up, maybe just to extend, the question to, you know, to the Joseph Ritchie: existing fleet on Thomas Logan: reactor side. Yeah. It's a pretty active year for the NRC on life extensions, in The US. Mhmm. Maybe not a surprise, but could see less friction in that happening. How does that, that level of activity, that level of life extension activity, how does that manifest for you in terms of orders? I mean, did we Eric Linn: we see that already in backlog, or is that you know, part of the Thomas Logan: the pipeline that you look ahead? Or just Joseph Ritchie: or does that Brian Schopfer: Yeah. I think it it it to some degree, yes. I mean, obviously, we posted Thomas Logan: 11% growth in nuclear power last year and certainly some of that was informed by those themes. But the key dynamics here, the one you cited, which is life extensions, but in addition, you have to contemplate up rates. So increasing the know, the licensed output of a nuclear power plant And then on top of that, a fundamental need for modernization. Particularly as it relates to instrumentation and control systems overall. All of those themes are critically important. For the global fleet, not just the North American fleet overall. And it continues to build, you know, the most stark examples would be the previously decommissioned power plants that are coming back online, which would include Palisades, 3 Mile Island, and Duane Arnold. There are content as significant in each of those. And you know, it's not fully traded. That continues to evolve. And so I think this dynamic is gonna continue to build. I think it's axiomatic, again, just given the critical shortage of global electrical generating capacity. It's hard to think of an edge case. Where, you know, that dynamic goes away overall, and I think that's fundamentally favorable for us and the solution sets that, you know, we provide to the marketplace. Eric Linn: Thank you. Our next question comes from the line of Jeffrey Grampp with Northland Capital Markets. Please proceed with your question. Jeffrey Grampp: Good morning, guys. Thanks for the time. Joseph Ritchie: Hey, I was curious, With respect to the '26 guide, is there much, if any if any, contribution from the $150 million of large orders that you booked in '25, or is most of that expected more to be in '27 and beyond? Brian Schopfer: Yeah. Great question. There's definitely some of the, of the large orders in '25 that we booked at the end of Q But I would tell you, and we've historically talked about this. I mean, that first year of these larger contracts tends to be the lightest year, then that tends to ramp kind of more in call it, after eighteen months or so into year, you know, two, three, four. So yes, there's a little bit, but I wouldn't say it is the biggest piece of those businesses from an annual perspective. Jeffrey Grampp: Understood. That's helpful. And my follow-up, I wanna reference slide 23, I believe it is. You guys call out SMR as being a bigger factor to the growth in 2026. Is there any way to contextualize that a bit more? And just, I guess, taking a step back, like, how material do you guys see SMRs becoming to Mirion Technologies' growth story over the coming years? Thomas Logan: Yeah. It's, Jeff. It's you know, it is difficult to contextualize recognizing the sheer volume of SMR projects globally where, you know, the depending on know, how you're screening it as well over a 100 discrete projects, overall. You know, we've indicated that we're we have awarded contractual relationships with more than 20 of these guys so far. Brian Schopfer: And Thomas Logan: you know, we as noted, we hope to continue to drive further. We want to cover everybody. We want to have a you know, a with every key SMR sponsor overall. You know, in terms of hard metrics, probably the leading metric is just the orders. That we've taken from an SMR standpoint. We highlighted in the presentation the extraordinary growth that we saw in 2025 in terms of order intake overall. Beyond that, again, it's very, very hard to quantify, you know, specific KPIs in terms of this marketplace beyond orders beyond engagement overall. Brian Schopfer: Yeah. I would say on a total basis, it's sub 3% of our total revenue as we look forward for '26. Jeffrey Grampp: And it was you know, Brian Schopfer: some 2% last year. Maybe even sub one and a half percent in '25. So, yeah, there's growth for sure, but it's not it's not meaningful in the grand scheme of things. But it's absolutely something that we continue to see be excited about in the something that continues to clearly propel orders. So, you know, maybe that's some additional color as we think about '26. Eric Linn: Thank you. Our next question comes from the line of Christopher Paul Moore with CJS Securities. Please proceed with your question. Christopher Paul Moore: Hey. Good morning, guys. Yeah. Just Joseph Ritchie: obviously, from an M&A standpoint, Paragon's gotten most of the headlines. Maybe you could just talk a little bit about the CertRec acquisition. You owned it for a little more than six months. Just, you know, kind of Robert Mason: what you what you've seen to this point in time, anything that perhaps investors don't fully appreciate? It's obviously much smaller than Paragon, but it also broadens your nuclear power portfolio and, you know, access as we were just talking about SMRs, etcetera. Just maybe a little bit more there. Thomas Logan: Yeah. The Chris, the fundamentally, CertRec does is outsource regulatory compliance. So about half of their business is supported by a SaaS platform that they've developed, which is really the industry standard in North America. Very strong dominant position, not only in nuclear power but more broadly as we think about the bulk electrical grid. And that is supported by an incredible treasure trove of data. They have over 15 terabytes of licensing and regulatory data supporting their customers. So literally every permit design drawings, every regulatory action impacting the industries they support, It gives the engineers and the operators at customer sites the ability to quickly discern what kind of regulatory issues they may have, if they have a component failure, they have the ability to see how others have handled that. If they have a routine regulatory filing, that can be automated And we love this company. Again, it's an amazing platform, amazing people. And the focus that we have here has multiple dimensions, but there are two that I'll call out. One is that in particular, with the data-rich environment that they have here, we've been hyper-focused on the AI leveraging of that data set. 15 terabytes is an ocean of data in our industry and there's a lot that we can do to improve the of that data, improve the quality of the information, the feedback, the toolset that we are providing to our customers And then secondly, the ability to drive it more expansively as we look again at Mirion Technologies' strength globally overall. So it's a jewel of a business We're thrilled to have that as part of the Mirion Technologies DNA, and I think it's gonna be an important AI story for us prospectively. Joseph Ritchie: Alright. Perfect. I think we're at the witching hour. I'll leave it there. Thanks, guys. Eric Linn: Thank you. Our final question this morning comes from the line of Yuan Zhi with B. Riley Securities. Please proceed with your question. Yuan Zhi: Good morning. Maybe we can change gear to a nuclear medicine. Novartis is building their fourth radio pharmaceutical site in The US, in Florida, as part of their US investment. I'm wondering what kind of economic is there for Mirion Technologies when such a large-scale manufacturing side is built. Or, Brian Schopfer, if you could also comment on your high-level plans for nuclear medicine in 2026. Thomas Logan: Yeah. Nuclear medicine, again, is an exciting vertical. You saw that we press released today, Yuan Zhi, that we've taken one of our best and brightest executives, Sheila Webb, who heretofore has been our Chief Digital Officer, And we have moved her over to run the entirety of our nuclear medicine business. So both the software component EC2, as well as the legacy hardware business which is the dose calibration instruments, the clinical instruments like thyroid uptake systems, the whole ecosystem within that overall. We see a powerful and compelling opportunity to continue to drive a higher degree of integration to continue to rapidly evolve the capabilities of our software platform overall and do so in a way that Eric Linn: it creates more traction, more at that Thomas Logan: for the hardware overall. But Sheila is also, you know, working more broadly with the team, been very proactive in forging strategic relationships with major players in the nuclear medical infrastructure. So as we think about all the key players the drug makers, the isotope producers, the CDMOs, the radio pharmacies, the clinicians, and IDNs. She has been leaning into that overall. Our focus has really been on building out the you know, the strategic traction with major players here to try and drive again just higher velocity of the opportunity set on both the hardware and software side of in total, And I like the direction that's heading. Again, we continue to see this as a very exciting market. We think this modality and cancer care is relevant and a real game changer and we like where we sit Brian Schopfer: I think the other thing on Novartis that we're super focused on on the nuclear medicine side is that pull through. Of the technology, nuclear safety product lines in. Sheila brings us that advantage because she knows both businesses. And I think as you you know, asked specifically about Novartis, I think that's really where we're gonna get be able to kind of move the needle here. Thomas Logan: Yeah. As you think about that, just tagging on what Brian Schopfer said, you know, they have three major production facilities in the US Yuan Zhi, they're building two more. These facilities require a lot of equipment that is relevant to us relating to laboratory and QC equipment like gamma spec instrumentation. Instrumentation, radiation monitoring for area monitors and effluent you know, classical health physics instrumentation like survey instruments and dosimeters. Dose of record for legal dosimetry dose calibration instruments, etcetera. So it's you know, they're obviously a significant player. You know, we hope to support them, and they, most comprehensive way possible. Brian Schopfer: Yeah. Got it. Thanks for the additional color. Eric Linn: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Thomas Logan for any final comments. Thomas Logan: Ladies and gentlemen, thank you for listening in today. Again, we're excited about the ending what has been a really important year for Mirion Technologies overall. In terms of our continued strategic evolution as a business. In terms of key operational and financial milestones that we've articulated. But more fundamentally, we continue to be very constructive about vertical market dynamics about our capabilities overall. And so we'll look forward to sharing the journey with you over the upcoming quarters and wish you all well. Thank you very much. Eric Linn: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the NETSTREIT Corp. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. It is now my pleasure to introduce your host, Matt Miller, Head of Capital Markets and Investor Relations. Thank you. You may begin. Matt Miller: Good morning, and thank you for joining us for NETSTREIT Corp. Fourth Quarter 2025 Earnings Conference Call. On today's call, management's remarks and responses to your questions may contain statements considered forward-looking under federal securities law. These statements address matters subject to risks and uncertainties that may cause actual results to differ from those discussed today. For more information on these factors, we encourage you to review our Form 10-Ks for the year ended 12/31/2025, and other SEC filings. All forward-looking statements are made as of today, 02/11/2025, and NETSTREIT assumes no obligation to update them in the future. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release and supplemental package for definitions, reconciliations to the most comparable GAAP measures, and explanation of their usefulness, which can be found in the investor relations section of the company's website at netstreit.com. Today's call is hosted by NETSTREIT's CEO, Mark Manheimer, and CFO, Daniel Donlan. They will make some prepared remarks followed by a Q&A session. With that, I'll turn the call over to Mark. Mark Manheimer: Thank you, Matt, and thank you all for joining us this morning on our fourth quarter 2025 earnings call. I first want to congratulate the team on an outstanding 2025. We are efficiently running on all cylinders as we have the right people in place in each role across the entire organization to expand upon our success. We are well equipped from a balance sheet and cultural perspective at NETSTREIT to source the best opportunities, thoroughly underwrite them, and close them efficiently while also maintaining rigorous monitoring and asset management to get ahead of future risks. We had a strong quarter of accelerated transaction activity as we completed $245.4 million of gross investments, our highest quarter on record, at a blended cash yield of 7.5% with fifteen years of weighted average lease term. For the full year, we completed a record $657.1 million of gross investments at a 7.5% blended cash yield with thirteen point nine years of weighted average lease term. When considering how modest our investment goals were to start the year, this record level investment activity is even more impressive as it demonstrates our team's ability to rapidly adapt to fluctuations in both our cost of capital and the overall net lease marketplace. In addition, we accomplished this record activity while maintaining focus on diversification as evidenced by our record level of dispositions, which were completed 60 basis points inside our blended cash yield on investments. Additionally, our diversification efforts led to 15 new tenants joining our roster in the fourth quarter alone, and with 31 new tenants being added for the full year. From an earnings perspective, our attractive investment activity helped us reach the high end of our upwardly revised AFFO per share guidance range. And looking ahead to this year, the team continues to find well-priced high-quality investment opportunities with heightened levels of activity within the grocery, fitness, convenience store, and quick service restaurant industries. As previously announced, we achieved an investment-grade rating of BBB- from Fitch Ratings, which has greatly improved our access to debt and allows for tighter spreads. Coupled with our growing pipeline of opportunities, improving cost of capital, and our low dividend payout ratio, all of which have accelerated our growth prospects, we are increasing our quarterly dividend by 2.3% to $0.22 per share. Our balance sheet remains in excellent condition with pro forma leverage of 3.8 times, $100 million of undrawn term loan capital as of today, $373.1 million of unsettled forward equity at year-end, and no major debt maturities until 2028. Turning to the portfolio, we ended the quarter with investments in 758 properties that were leased to 129 tenants operating in 28 industries across 45 states. From a credit perspective, 58.3% of our total ABR is leased to investment-grade or investment-grade profile tenants. Our weighted average lease term remaining for the portfolio was ten point one years, with just 2.4% of ABR expiring through 2027. The portfolio weighted average unit level coverage is a very healthy 3.8 times. Moving on to dispositions, we sold 76 properties in 2025, totaling $178.6 million at a 6.9% cash yield, which allowed us to accomplish all of our diversification goals for the year, including bringing all tenants below 5% of ABR. With our diversification efforts now met, we do anticipate selling fewer assets in 2026, with our focus turning more towards opportunistic sales and risk mitigation in order to get ahead of potential risks well before they can impact our AFFO per share. That said, we do expect to improve portfolio diversity through the year with Walgreens representing less than 2% of ABR by 2026 year-end. We are confident in the strength of the portfolio we have constructed and the durability of our place rent stream. More specifically, when analyzing the ABR that expires over the next four years, we continue to see a high probability of renewal given the cohort blended rent coverage ratio of 5.1 times and our ongoing dialogue with these tenants. Coupled with our high corporate credit portfolio, properties with in-place rents near market with strong real estate fundamentals, and an active asset management process, we remain confident that our portfolio can continue to produce consistent cash flow generation in the net lease space. In summary, 2025 was a year of record achievements for NETSTREIT driven by our focus on high-quality, necessity-based retail properties and commitment to a well-capitalized balance sheet. We are excited about the momentum we have established in 2026 and our ability to deliver value to shareholders as one of the fastest AFFO per share growers in the space. With that, I'll hand the call to Dan to go over fourth quarter financials and then open up the call for your questions. Daniel Donlan: Thank you, Mark. Looking at our fourth quarter earnings, we reported net income of $1.3 million or $0.02 per diluted share. Core FFO for the quarter was $26.6 million or $0.31 per diluted share, and AFFO was $28.2 million or $0.33 per diluted share, a 3.1% increase over last year. For the full year 2025, we reported net income of $0.08 per diluted share, core FFO of $1.23 per diluted share, and AFFO of $1.31 per diluted share, which represented 4% growth over 2024. Turning to the expense front, with the company making seven net new hires during the year, our total recurring G&A represented 11% of total revenues in 2025, which was unchanged versus 2024. Looking ahead to 2026, we expect this metric to average below 10% as our G&A continues to rationalize relative to our revenue base. Turning to capital markets activity, we sold 5.8 million shares for $104 million of net proceeds in the quarter via our ATM program. Subsequent to quarter-end, we sold an additional 2.6 million shares for $46 million of net proceeds. Looking at the balance sheet, our adjusted net debt, which includes the impact of all forward equity, was $720 million. Our weighted average debt maturity was three point nine years, and our weighted average interest rate was 4.24%. Including extension options, which can be exercised at our discretion, we have no material debt maturing until February 2028. In addition, our total liquidity of $1 billion at year-end consisted of $14 million of cash on hand, $500 million available on our revolving credit facility, $373 million of unsettled forward equity, and $150 million of undrawn term loan capacity. From a leverage perspective, our adjusted net debt to annualized adjusted EBITDAre was four times at quarter-end, which remains comfortably below our target leverage range of four and a half to five and a half times. Including ATM, raise subsequent to quarter-end adjusted net debt to annualized adjusted EBITDAre was 3.8 times. Moving on to guidance, we are reaffirming our 2026 AFFO per share guidance range of $1.35 to $1.39, which assumes year-over-year growth of 5% at the midpoint. Additionally, we continue to expect our net investment activity to range between $350 million to $450 million and our cash G&A to range between $16 million to $17 million. In addition, the company's AFFO per share guidance range includes $0.015 to $0.03 per share of estimated dilution due to the impact of the company's outstanding forward equity calculated in accordance with the treasury stock method. Lastly, on February 5, the Board declared a quarterly cash dividend of $0.22 per share, which represented a 2.3% increase from the prior quarter dividend of $0.215 per share. The dividend will be payable on March 31 to shareholders of record on March 16. With that, operator, we will now open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. The first question is from Haendel St. Juste from Mizuho Securities. Please go ahead. Ravi Vaidya: Hi there. Good morning. This is Ravi Vaidya on the line for Haendel. Hope you guys are doing well. I wanted to ask how are you thinking about balancing tenant credit and yield as part of your capital deployment? Saw that Seven Eleven and Festival are no longer on your top tenant list. But Academy, a lower corporate credit, has entered the list. Is there more of a focus on four-wall coverage or lease term as you move forward with your capital deployment? Thanks. Mark Manheimer: Ravi, good to hear from you. So, yeah, I mean, I guess specifically as it relates to Academy, I mean, double B plus, so that's one notch away from being investment grade. And I think if you just look at their current ratios, I mean, very low debt levels, you know, 3.3 times fixed charge coverage ratio, more than a $6 billion revenue company. I think if you just took the name off of it, you might think that they'd be investment grade. I think the fact that they went public on a five-plus years ago after being a private equity-backed company, you know, they've really kind of returned to their roots as being, you know, what they were as a kind of a family-run business. When most people really thought of them as an investment-grade company. So I do think that they are a high-quality retailer, we have been very selective in terms of the assets that we've acquired. You know, got a very good relationship directly with the folks down in Katy, Texas. And so, you know, we make sure that we're buying locations that generate very strong cash flows. But I do think that is a potential upgrade at some point in time. So that could, you know, at some point in time, move up into the investment-grade bucket. And then just more broadly, you know, as it relates to investment-grade investment-grade profile, versus kind of the sub-investment grade. You know, overall, I'd say we are seeing probably the better risk-adjusted returns in the non-rated bucket where we're doing our own underwriting of the corporate credit. Many of whom don't have any debt, so there's no reason for them to have a rating. And I think could be really safer than some of the investment-grade names out there. And then we're getting, you know, stronger leases where we're getting, you know, master leases. We're getting better rent escalations and pure absolute triple net leases. So, you know, we feel like the risk-adjusted returns are a little bit stronger there. But as you note in the past, you know, we've gone a little bit heavier on the investment-grade side where the pricing was condensed. There wasn't much of a difference. And so I think it shows the strength of the acquisitions team and the underwriting team to be able to go out and source a lot of different types of opportunities and really sort through where we're getting the best risk-adjusted returns. Ravi Vaidya: Got it. That's really helpful color. And maybe you could just talk about the guide. What is your level of confidence towards reaching the upper end of the acquisition rate and the upper end of the AFFO guide? And maybe some thoughts on how 1Q has progressed so far from a capital deployment standpoint? Thanks. Mark Manheimer: Yes, I'll just jump in on the acquisition side. Yes, I mean, I think you saw the number of acquisitions that we did last year. Certainly feel very comfortable that we can hit the high end of the acquisitions guide. Especially in light of the fact that we're gonna be selling significantly fewer properties this year. Daniel Donlan: Yeah. You know, Ravi, anytime we put together guidance, you know, I think we obviously have a bias towards the upper end of the range. You know, as you think about it, there's really four drivers. It's not investment activity in the timing thereof. It's cash G&A. It's dilution from, you know, treasury stock method and as well as potential loss rent from credit events. I would say it's not linear. So, you know, if we come in at the low end of some of those ranges, it doesn't mean we can't be at the high end. It's kind of a mixed bag, in terms of where we can end up, but we certainly confident as we did last year, you know, that we can reach the upper end of our range. Ravi Vaidya: Thanks so much, guys. Appreciate the color. Operator: The next question is from Greg McGinniss from Scotiabank. Please go ahead. Greg McGinniss: Hey, good morning. Mark, with these non-IG investments, you mentioned master leases and stronger rent escalation. Are you also getting property-level P&Ls to compensate for the lower lack of credit? Mark Manheimer: Yeah. I mean, I think, you know, in most cases, we are. Each transaction is a little bit different. And again, just because, you know, S&P or Moody's or Fitch doesn't say that somebody's investment grade. They can still have an investment-grade balance sheet and strong operations generating a lot of cash flow. But, yeah, I mean, I think in general, you have a little bit more leverage. A lot of these are sale-leasebacks where we're dealing directly with a tenant, not buying the assets from other landlords. So it makes it a lot easier to have that negotiation. It is very important for us to, you know, to really understand not just so much at the corporate level, but also at the unit level, that we're getting, you know, productive stores that, you know, the tenant's committed to long term. Greg McGinniss: Mhmm. Okay. Thanks. And, Dan, on the guidance, are you able to give us some maybe some guidelines or your thoughts around the equity issuance that you're kind of building in there and on the treasury solution as well? Daniel Donlan: Yeah. You know, look, I think where we sit today at three pro forma leverage and you think about we have $100 million of undrawn term loan capital today. We have over $400 million of unsettled forward equity that we can draw upon, you know, over $40 million of free cash flow. You know, we certainly don't need to raise any equity at the moment. We can afford to be patient. I think what I'd tell you is we sort of have a de minimis amount of equity baked into the model at this point in time. So, you know, nothing that we can't handle as we sit here today. Greg McGinniss: So could we assume that with a, you know, slightly higher or I don't know how much higher you guys feel it needs to be stock price, then you kinda open up a lot of opportunity on the acquisition side. And growth. Daniel Donlan: Yeah. I think what I would say is just from a leverage perspective, our targeted range is four and a half to five and a half times. I think we can easily operate within that range, raise no additional equity. I think our preference is to obviously be over-equitized. And to the degree that our stock price stays where it is or moves higher, I think we're comfortable raising equity as we sit here today. Our spreads are 160 to 170 basis points over. You know, I think that's certainly above the, you know, industry average over the last twenty years. But at the same time, you know, it's early in the year, and, you know, we're not necessarily in we can be patient. And, so, I think to the degree that the pipeline continues to increase, and we feel good about cost of equity, we could certainly raise it, but it's still early on in the year. Greg McGinniss: Great. Thank you. Operator: The next question is from John Kilichowski from Wells Fargo. Please go ahead. John Kilichowski: Hi, good morning team. First one, just kind of going back to that last question. I'm curious if there's no real extra need for equity here. I guess as far as the acquisition guide is concerned, how much of that is dictated by capital needs versus just what the opportunity set is out there on the market? Because it's good to hear there's nothing that you need, but I'm curious like, you know, how far above and beyond you can go given where leverage is and given the equity capacity you've built up. Mark Manheimer: Yeah. And I think with the guide, I mean, we've, you know, we want some optionality in there. I think the team is able to source significantly more than what we've done in the past. And so, yeah, I mean, I think it's really, you know, capital cost of capital constraints. You know, if our cost of capital gets meaningfully more attractive, we can certainly, you know, ramp up acquisitions, you know, quite a bit. John Kilichowski: Mhmm. And then maybe just one for me on the IG side. You've seen a little bit of drift downwards in that IG profile exposure over the past couple of quarters. Is there anything to note there strategically? I understand there's just better risk-adjusted returns in that space that you're seeing right now, but I'm curious what's the net move. Are you just is there a target subsectors that sit outside of that box that you like more? You like the unit level coverage? Just curious what's making that move. Mark Manheimer: Yeah. I mean, it's really just the pricing of the opportunities. You know, we're seeing a lot of great opportunities really on both sides. It's just, you know, we feel like the pricing has been more attractive and really kind of our efficient frontier of, you know, what our portfolio allocation looks like right now. It's kind of really more it's not really it's a byproduct of what we're doing, which is, you know, to 40% investment grade investment grade profile. Tenants you know, right now, but that can certainly change if we see the market dynamics change. And then, you know, I think things that don't jump off the page are really, you know, the quality of the leases. You know, we don't really want to go out and buy what are shopping center leases where you have, you know, co-tenancy, use restrictions, you know, and a lot of things, you know, landlord responsibilities that we don't really want to be taking on and taking on the cost of. And so, you know, we're not as dogmatic about whether something is just investment grade or not investment grade. We're really just kind of focused on the right risk-adjusted returns. John Kilichowski: Thank you. Operator: The next question is from Michael Goldsmith from UBS. Please go ahead. Michael Goldsmith: Good morning. Thanks a lot for taking my questions. As portfolio diversification is presumably more complete, how would you characterize the shift in strategy from here? I think you talked a little bit about being more opportunistic. Is there a way to think about, like, shifting from defense to offense? Just trying to get a sense of how your actions this year and in the future may change from kind of what you what kind of transpired in the last year or so? Mark Manheimer: Yeah. Sure. I mean, I think, you know, coming out of the gates back in 2020, you know, with a smaller portfolio, any that we saw a really great opportunity that had some size to it, it really kind of moved the concentrations around, you know, quite a bit, you know, with a smaller portfolio. And so, really, just with the market reaction of, you know, some of the tenants even though we felt like were good assets and, you know, continue to think that they were good assets, they're gonna continue to pay rent and continue to renew their leases. You know, it had an impact on our multiple. So we became a little bit more aggressive on addressing some of the concentrations to bring them down, which was kind of a longer-term plan, but we, you know, that into a shorter or medium-term plan. I think, you know, as we look forward today, I would just expect us to not have to, you know, down as much. It would take a lot more for us to buy really start to run into any type of concentration concerns. On a go-forward basis, I think under 5% is, where all tenants are today. I'd be surprised to see anybody move up above that threshold in I think you're gonna see the diversity of the portfolio just continue to improve over time. Michael Goldsmith: Thanks for that. And as a follow-up, the sub-one-time coverage tranche, it picked up sequentially by 50 basis points. So what's driving that? Is that something that you're monitoring? Just trying to get a little more color there. Mark Manheimer: Yeah. Yeah. Sure. So I mean, it is something that we monitor. I mean, we're monitoring everything on that histogram. I think that's gonna move around a little bit. Quarter to quarter, so, we try not to overreact to any moves there. But that relates to some assets that, you know, we feel like are fine, you know, that are, you know, the rent per square foot is below market for each of those assets. And we've got some lease terms. So we'll continue to monitor that if we don't see improvement over the next, you know, several quarters, then we may look to monetize the assets or do something there. But, you know, it's certainly nothing of concern here in the short or medium term. Michael Goldsmith: Thank you very much. Good luck in 2026. Daniel Donlan: Thanks, Michael. Operator: The next question is from Smedes Rose from Citi. Please go ahead. Joseph: Thanks. It's Joseph here with Smedes. Maybe just following up on that last I think in the opening remarks, you talked about opportunistic sales. And really just risk mitigation. As you look at the portfolio today, is that a comment more on industries? Or is that, you know, tenant or property specific? Mark Manheimer: Yeah. No. I think, you know, last year, we sold a lot of properties. And so that was really addressing some of the concentrations, trying to bring those down. I think we're more or less done with what needs to get accomplished there. We hit the goal that we set out at the beginning of the year. And so when we think about dispositions now, you we've got some relationships where people will come to us with, you know, very aggressive cap rates, on some assets that we own, and we feel like, okay. They're valuing those assets more than we are, and so we can take that capital and redeploy it accretively. Improve the quality of the portfolio. So anytime we can do that, we're gonna we'll take advantage of those situations. And then it's just general risk mitigation. I think you can kind of look at, you know, the histogram to get some idea of, you know, the things that we're thinking about. And, you know, if we start to see degradation of performance either at the corporate or unit level, those will likely be more likely to be disposed of in the future. But it's when you think about the quantum of what we'll be selling, it'll be significantly less than what we did last year. Joseph: Thanks. And then, no, there's not a high percentage of rent expiring this year, but what are the expectations for kind of the new rent versus the expiring rent? Mark Manheimer: Yeah. I mean, I think in most cases, they're just gonna renew the lease. And then I think there's one property where rent's about $160,000 where we do not expect the lease to get renewed, but we're in conversations with a convenience store operator that would be interested in taking that over as a ground lease either to ground lease it or to just sell it. We're gonna kind of figure out where we're getting the better outcome. Joseph: Thanks. Operator: The next question is from Jay Kornreich from Cantor Fitzgerald. Please go ahead. Jay Kornreich: Hey, good morning guys. Following up on the deal spreads you outlined currently 160 to 170 basis points. Can you maybe just describe the competitive landscape for net lease assets currently? I mean, it looks like cap rates hold up at 7.5% in 4Q. Just curious if you anticipate elevated competition to compress rates in 2026. Or perhaps that's why you like these nonrated tenant investments that they face less competition and have better yields just curious of your thoughts on that as the year goes on. Mark Manheimer: Yeah. And, you know, we've certainly, you know, read a lot about competition coming into the space and you know, are aware of some groups, you know, stepping in and buying some larger portfolios. But you know, they're really not chasing the smaller opportunities. You know, we're averaging, you know, 3 and a $4 million per property. It's a little bit too cumbersome for a lot of those larger shops with smaller teams to go out and compete there. So just haven't really seen them very much. You know? And so the competition has not changed at all. We're typically competing with the seller's expectations in most cases and occasionally a 1031 buyer. But for the most part, you know, the competition has not had an impact on pricing at all. We've seen a very tight band of where the ten year is trading. I think it was, you know, a little less than 4.2%, before we got on the call. So, it's really kind of bounced around four, low fours, and maybe a little bit under four here and there. But that tight band has really allowed prices to get very sticky. And so we expect at least through, you know, first quarter and even some of what we've acquired, or looking to acquire in the second quarter that's in our pipeline. To see very similar cap rates what we saw, throughout 2025. Jay Kornreich: Okay. Appreciate that. And then just one follow-up. You received your first rating as investment grade from Fitch in December. So can you just outline what the cost of capital improvements are you expect from that and any update to timing or impact from further ratings from Moody's or S&P? Daniel Donlan: Sure. Look, as you can see in the disclosure, you know, most of our term loans priced down 25 to 20 basis points. So it kind of resulted in basically $2 million of annual interest rate savings. You know, we feel good about the rating that we received. To the degree that we got an upgrade in that rating, it'd be another probably 10 basis points of upside across the term loan stack. As we sit here today, you know, we don't really have a need to go out and raise long-term debt until probably mid-2027. So we're not necessarily in a rush to get another rating, but you know, certainly, we'll be talking and speaking with the agencies, you know, throughout this year and into next year just to maintain dialogue. Jay Kornreich: Okay. Thanks very much. Operator: The next question is from Wesley Golladay from Baird. Please go ahead. Wesley Golladay: Hey, guys. I believe you mentioned you added 31 tenants in 2025. I guess when you look at the deal volume in 2026, do you expect to add a lot more relationships like you did last year? You just kind of work more with the existing relationships. Mark Manheimer: Yeah. I mean, it will certainly be a combination. You know, we expect to add new tenants, you know, to be totally frank, those 31 tenants, most of those are, you know, one or two properties, you know, a couple portfolios in there. Sale leaseback, but, you know, a lot of those are just kind of, you know, very small investments that kind of, you know, make that number seem maybe a little bit bigger. But I would expect us to be adding, you know, five, six, new tenants per quarter would be a good assumption. Wesley Golladay: Okay. And what about categories? Do you expect to add a lot this year or lean into some a lot more? Mark Manheimer: I think we'll be shopping in the same food groups as we've been, you know, more recently. So, you know, we're seeing really good opportunities. And, yeah, convenience stores continue to be, you know, a big one. Grocery even some fitness selectively and quick service restaurants have been really, really good for us as well. Wesley Golladay: Okay. That's all for me. Thank you. Mark Manheimer: Thanks, Wes. Operator: The next question is from Michael Gorman from BTIG. Please go ahead. Michael Gorman: Yes, thanks. Just one quick one for me, Dan. Going back to your mentioning not needing to raise long-term debt until kind of mid-2027, can you just remind us of the road map? Would that be an unsecured would you be looking at the unsecured listed market then? Or just kind of what the road map is to get to the unsecured listed market there? Thanks. Daniel Donlan: Yes. So yeah. So you actually don't even need an investment-grade credit rating or to access the private placement market. That certainly is preferred. So as we sit here today, if we wanted to go out and access the private placement market, efficiently, I think we could. As we think about 2027, it's a year and a half away. I think it could take the it could be a private placement. It could be unsecured bonds. The degree that we got a second or third rating from one of the rating agencies. I think it just kind of depends on kind of the growth of the company and, you know, where we see, you know, the lowest cost of capital from the debt side. So, you know, it just kind of remains to be seen, Michael. Michael Gorman: Great. Thanks, Dan. Operator: The next question is from Upal Rana from KeyBanc Capital Markets. Upal Rana: Great. Thank you. I want to get your thoughts on the broader retail space and what you're seeing in terms of any kind of troubled tenants or troubled categories. You've had your fair share of headline risks in '24, but was able to sidestep that last year. So just curious on your thoughts heading to '26 and how maybe bankruptcies or store closings might impact how you invest or divest this year? Mark Manheimer: Yeah. Sure. I mean, there's really not anything in our portfolio, that, you know, any themes there. I think just more broadly, as you think about the consumer, you know, not new news to anybody, but, you know, the k-shaped economy is real, and the, you know, lower-income consumers, you know, felt a lot more pressure, and that's leaked into, you know, some middle-income consumers. So I think you have to be very careful about, you know, understanding who the consumers are of each business, and, you know, whether these are necessity products or, you know, how discretionary they are. And so that cross-section of the lower-income consumer and more discretionary spend is likely to have a little bit more pressure. We've seen, you know, a handful of casual diners, you know, come under some pressure. Whether it be Bahama Breeze, I think, you know, completely shutting their doors one of the Darden concepts. And, you know, we've seen a couple of those types of things, but I think that's gonna be the theme is it's gonna be the, lower-income consumer, you know, at a cross-section of more discretionary spend. Upal Rana: Okay. Great. That was helpful. And then, you know, I'm just doing fewer dispositions this year. Just curious, are you still planning to reduce store account exposure? Some of your troubled tenants, or are you comfortable with what you currently own? And maybe you could talk about the appetite for those types of tenants in the transaction market today. Mark Manheimer: Yeah, sure. I mean, I'm not sure if we have troubled tenants. I think we had a couple of tenants that maybe the news flow wasn't quite as positive. But that being said, we're unlikely to be adding to the tenants that we were decreasing exposure to. I think they're likely to continue to decrease a little bit on the margin. But the portfolio as it sits today and even with those tenants, we've got really strong performing assets. You know, our relationship with the tenants is really very helpful in making sure that we understand, you know, what that risk looks like, and making sure that we've got locations that generate, you know, very strong cash flow, and we're very confident in the portfolio. Upal Rana: Okay. Great. Thank you. Operator: The next question is from Jana Galan from Bank of America. Please go ahead. Jana Galan: Hi, thank you for taking the question. Following up on the rent recapture conversation, Mark, I thought your comments on rent coverage of 5.1 times for the near to medium-term lease expirations were very interesting. Most of these tenants still have renewal options available, or can lease recapture in the future be higher than the historical level? Mark Manheimer: I wish we had a lot of, you know, leases with no options, but I, you know, very rarely do we have any, you know, lease that doesn't have options left. Our expectation is that, you know, almost all of those locations or at least the lion's share of those locations the tenant's just gonna hit the option. Because they're generating so much cash flow. Jana Galan: Thank you. And maybe for Dan on the balance sheet. Some of your peers in net lease have implemented commercial paper programs. Is that something you would look to in the future? Daniel Donlan: Yeah. It's not something I've looked into in the near term. I think you have to be, you know, much more sizable than we are today to access that program. So it's something we would look forward to doing. But I think at our size today, I don't think that, as well as our credit ratings, I don't think that market is available to us at the moment. Jana Galan: Thank you. Operator: The next question is from Daniel Guglielmo from Capital One Securities. Please go ahead. Daniel Guglielmo: Hi, everyone. Thank you for taking my questions. On the net investment guidance, do you think of kind of the higher end of the range as a limit or would you be willing to push through that if the conditions are right? Mark Manheimer: Yeah. I mean, it certainly, you know, I have very few concerns about us being able to source attractive opportunities. So that's not really a limit, you know, at all. In fact, I think we could do significantly more than the high end of the band there. It's really gonna come down to, you know, how accretive would it be for us to go down that path if we've got a really strong cost of capital and our stock price is doing really well. I would expect us to increase that. Daniel Guglielmo: Okay. I appreciate that. Thank you. And then on the 3Q call, you all had said there was about $100 million of acquisitions the last two days of the quarter. There similar kind of investment volumes the last few days of 4Q? Or was it more evenly spread? Daniel Donlan: No. It wasn't as bad as the third quarter. Just because, you know, we really started to accelerate our growth when we got to follow on in mid-July. I think our average closing date was, you know, kind of middle December, and we did close about $77 million of transactions in the last three days of the quarter. So it was more back-end weighted, similar to the third quarter. Mark Manheimer: And then just to piggyback on that, I would not expect that in the first quarter where we were able to close more earlier in the quarter. Daniel Guglielmo: Great. Thanks. Appreciate that color. Operator: There are no further questions at this time. I would like to turn the floor back over to Mark Manheimer for closing comments. Mark Manheimer: Well, thanks, everybody, for joining today. We appreciate your interest in the company and look forward to seeing many of you at the upcoming conference season. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Please stand by. We are about to begin. Good morning, and welcome to the Ryder System, Inc. Fourth Quarter 2025 Earnings Release Conference Call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene F. Candela, Vice President, Relations for Ryder System, Inc. Ms. Candela, you may begin. Thank you. Good morning, and welcome to Ryder System, Inc.'s fourth quarter 2025 earnings Conference Call. Calene F. Candela: I would like to remind you that during this presentation, you will hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation, and in Ryder System, Inc.'s filings with the Securities and Exchange Commission, which are available on Ryder System, Inc.'s website. Presenting on today's call are Robert E. Sanchez, Chairman and Chief Executive Officer; John J. Diez, President and Chief Operating Officer; and Cristina A. Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Thomas M. Havens, President of Fleet Management Solutions, and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation. At this time, I will turn the call over to Robert. Robert E. Sanchez: Good morning, everyone, and thanks for joining us. Today, I will begin by providing you with an update on our balanced growth strategy and share some highlights from our 2025 performance. Cristina will provide you with an overview of our fourth quarter results, which were in line with our expectations, and we will also discuss our capital spending and capital deployment capacity. John will then provide you with our outlook for 2026 and discuss the strategic initiatives that are the key drivers of expected earnings growth in 2026. Before I get started, I would like to provide a quick overview of our CEO succession plan, which was announced in December. Effective March 31, I will retire, and John J. Diez will assume the role of Chief Executive Officer. I will remain on Ryder System, Inc.'s board as Executive Chair. Many of you have had the opportunity to interact with John during his twenty-plus year career at Ryder System, Inc., where he has held various leadership roles across the organization, including Chief Financial Officer, as well as President of FMS and President of DTS. John has been a key player in the development, execution, and success of our balanced growth strategy, and I am confident that he is the right leader to build upon the strength of our transformed business model and create incremental value for our customers, employees, and shareholders. So with that, let's move to the strategic update on Slide four. We have made remarkable progress on our balanced growth strategy, and I continue to be extremely proud of the Ryder System, Inc. team for their consistent execution. Our journey has been transformative, enabling us to outperform prior cycles even during this prolonged freight downturn and providing us with a solid foundation for future growth. In order to establish our transformed foundation, we derisked the business model by significantly reducing our reliance on used vehicle proceeds to achieve our target returns. We also exited underperforming geographies and services. Our multiyear lease pricing and initial maintenance cost savings initiatives meaningfully contributed to increasing our return profile by delivering a combined annual pretax earnings benefit of over $225 million and also contributing to positive free cash flow over the cycle. In addition, we accelerated growth in our asset-light supply chain and dedicated businesses, resulting in a more resilient business mix that is less capital intensive. We continue to evolve our transformed foundation by executing on strategic priorities focused on operational excellence, customer-centric innovation, and profitable growth. We are expecting another $50 million in benefits from the next phase of our maintenance cost savings initiatives. We are optimizing our omnichannel retail warehouse network through continuous improvement and are better aligning our footprint with the demand environment. We are also taking cost actions to increase efficiency. We are investing in customer-centric technology aimed at delivering our customers a proactive supply chain that gives them a competitive advantage. We are enhancing proprietary technologies such as Ryder Share and Ryder Guide by embedding AI to increase functionality and effectiveness. Baton, a Ryder System, Inc. technology lab, is developing an AI-enabled software and data platform that will power next-generation customer-facing technology at Ryder System, Inc. We are leveraging AI from leading technology partners in various use cases, including increasing the effectiveness of our customer call centers. We continue to deploy automation and robotics in our warehouses to drive operating efficiencies. Technology and innovation, including how we deploy AI, is a key component of our strategy, and we will provide you with updates as our journey progresses. We continue to pursue profitable growth opportunities and are focused on higher return segments and verticals, increasing our share of wallet with Port to Door solutions, and generating acquisition synergies. Our transformed model has demonstrated the effectiveness of our balanced growth strategy by outperforming prior cycles. The earnings power and resiliency of our business continue to be supported by our high-quality contractual portfolio that generates over 90% of our revenue. Our significant flexible capital deployment capacity further strengthens our position and ability to pursue strategic opportunities. We are proud of the strong performance of our transformed business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle. Slide five illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder System, Inc. generated comparable earnings per share of $5.95 and ROE of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at Ryder System, Inc. today. In 2025, a year in which freight market conditions remain at or near trough levels, our transformed business model has once again delivered meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions, and innovative technology, we have shifted our revenue mix towards supply chain and dedicated, with 62% of our 2025 revenue generated by these asset-light businesses compared to 44% in 2018. 2025 comparable earnings per share of $12.92 are more than double 2018 comparable earnings per share of $5.95. ROE of 17% is well above the 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated, and supply chain businesses, operating cash flow of $2.6 billion is up more than 50% from 2018. As shown here, in 2025, the business outperformed prior cycles even when comparing the pre-transformation peak to the current market environment. Turning to Slide six. I will share key performance highlights for the full year 2025. First, our resilient business model and benefits from our strategic initiatives delivered higher year-over-year earnings and solid returns in 2025. Comparable earnings per share was up 8%, and ROE was solid at 17%, in line with our expectations given where we are in the freight cycle. Next, consistent execution on multiyear strategic initiatives delivered $100 million in cumulative benefits through 2025. We now expect to outperform our initial estimate by $20 million and expect to realize another $70 million in incremental benefits in 2026. This takes the total expected annual benefit to $170 million. Finally, the earnings power of our high-quality contractual portfolio is driving higher operating cash flow, which continued to increase our capital deployment capacity in 2025. Our strong balance sheet and capital deployment capacity provide us with ample resources to support strategic growth opportunities while returning capital to shareholders. Since 2021, Ryder System, Inc. has generated $3 billion in free cash flow, repurchased 24% of shares outstanding, and increased the quarterly dividend by 57%. I will now turn the call over to Cristina to review our fourth quarter performance. Thanks, Robert. Cristina A. Gallo-Aquino: An overview of total company results for the fourth quarter is on Page seven. Operating revenue of $2.6 billion in the fourth quarter was in line with the prior year as contractual revenue growth in SES was offset by lower revenue in DTS and FMS. Comparable earnings per share from continuing operations were $3.59 in the fourth quarter, up 4% from the prior year, reflecting benefits from share repurchases. Return on equity, our primary financial metric, was 17%, up from the prior year as benefits from share repurchase and dividends were partially offset by lower rental demand and used vehicle sales results. Year-to-date free cash flow increased to $946 million from $133 million in the prior year, reflecting reduced capital expenditures, lower income tax payments due to the permanent reinstatement of tax bonus depreciation, as well as lower working capital needs. Turning to fleet management results on page eight. Fleet Management Solutions operating revenue was down 1%, reflecting lower rental demand partially offset by higher choice lease revenue. Pretax earnings in fleet management were $136 million, down versus the prior year, reflecting weaker market conditions in rental and used vehicle sales. Our pricing and maintenance cost savings initiatives continue to benefit ChoiceLease performance. Rental results for the quarter reflect market conditions that remain weak. Rental demand increased sequentially, but only in line with historical seasonal trends and not indicating any improvement in market conditions. Rental demand this quarter was below the prior year. Lower rental activity was partially offset by higher rental power fleet pricing, which was up 5% year over year. Rental utilization on the power fleet was 72%, down slightly from the prior year of 73% on an average fleet that was 8% smaller. Fleet management EBT as a percent of operating revenue was 10.5% in the fourth quarter, below our long-term target of low teens over the cycle. Page nine highlights used vehicle sales results for the quarter. Year-over-year used tractor pricing increased 1%, and truck pricing declined 9%. On a sequential basis, pricing increased for both tractors and trucks, with tractors up 6% and trucks up 4%. Sequential pricing benefited from a higher retail mix as we realized better proceeds using the retail sales channel versus the wholesale channel. In the fourth quarter, 69% of our sales volume went through our retail sales channel, up from 54% in the third quarter. Our retail mix was also above prior year levels of 64%. Pricing in our retail sales channel declined 2% sequentially for tractors and declined 8% for trucks. During the quarter, we sold 3,600 used vehicles, down sequentially and versus the prior year. Used vehicle inventory of 9,500 vehicles is slightly above our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 23 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. Turning to supply chain on page 10. Operating revenue increased 3%, driven by new business and volumes in omnichannel retail. Supply chain earnings decreased 8% from the prior year as the benefits from operating revenue growth were more than offset by both lost business and extended customer production shutdowns in automotive. Supply chain EBT as a percent of operating revenue was 8% in the quarter, at the segment's long-term target of high single digits. Moving to dedicated on page 11, operating revenue decreased 4% due to lower fleet count reflecting the prolonged freight downturn. Dedicated EBT was above the prior year reflecting lower bad debt and benefits from acquisition synergies, partially offset by lower operating revenue. DTS results continued to benefit from pricing discipline as well as favorable market conditions for recruiting and retaining our professional drivers. Dedicated EBT as a percent of operating revenue was 8.9% in the quarter, at the segment's long-term high single-digit target. Turning to Slide 12. 2025 lease capital spending of $1.5 billion was below the prior year, reflecting lower lease sales activity. In 2026, we are forecasting lease spending to increase to $1.9 billion, reflecting higher replacement activity. We expect the ending lease fleet to modestly decline in 2026. 2025 rental capital spending of $300 million was below the prior year, as expected. In 2026, we are forecasting lower rental capital spending of $100 million, reflecting lower planned replacement activity. Our ending rental fleet is expected to decrease 7%, and our average rental fleet is expected to be down 13%. The rental fleet remains well below peak levels as we manage through an extended market slowdown. In rental, in recent years, we shifted capital spending to trucks versus tractors, as trucks have historically benefited from relatively stable demand and pricing trends. At year-end 2025, trucks represented approximately 60% of our rental fleet. Our full-year 2026 capital expenditures forecast of approximately $2.4 billion is above the prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2026, in line with the prior year as we do not anticipate a meaningful recovery in market conditions. Full-year 2026 net capital expenditures are expected to be approximately $1.9 billion. Turning to page 13. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile of the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and, in turn, is deleveraging our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between two and a half and three times. As shown on the slide, over a three-year period, we expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over the same three-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends. This leaves around $5 billion, which equates to more than 60% of our year-end market cap available for flexible deployment to support growth and return capital to shareholders. We estimate about half of our flexible deployment capacity will be used for growth CapEx, and the remaining will be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain focused on profitable growth, strategic investments, and returning capital to our shareholders. Our top priority is to invest in organic growth. Aligned with these priorities, in 2025, we funded replacement CapEx of $1.8 billion and returned $664 million to shareholders through buybacks and dividends. In addition, earlier this year, we raised our quarterly dividend 12%, marking our third consecutive year with a double-digit increase. We also authorized a new discretionary repurchase program in the fourth quarter and approved our 198th consecutive dividend payment last week. Our balance sheet remains strong with leverage of 250% at year-end, at the lower end of our target range, and continues to provide ample capacity to fund our capital allocation priorities. With that, I will turn the call over to John to discuss our outlook. John J. Diez: Thanks, Cristina. Slide 14 highlights key aspects of our 2026 outlook. In terms of market assumptions, we are expecting modest U.S. economic growth in 2026 and no meaningful change in freight market conditions. Our outlook also assumes U.S. Class 8 production declines 4% in 2026. We remain confident that secular trends will continue to favor transportation logistics outsourcing and that our operational expertise and strategic investments will continue to enable us to deliver increasing value to customers and shareholders. In terms of our financial forecast for 2026, operating revenue is expected to grow approximately 3% as revenue growth from new business and supply chain is offset by near-term pressures in dedicated and fleet management reflective of the freight cycle. 2026 comparable EPS is expected to increase by 12% at the high end of our $13.45 to $14.45 forecast range, driven by $70 million of benefits from our strategic initiatives. Return on equity is expected to increase to a range between 17-18%, reflecting earnings growth and share repurchase activity. We expect our transformed business model to deliver ROE in the low to mid-20s when market conditions improve for our transactional rental and used vehicle sales businesses, which will enable us to achieve our over-the-cycle ROE target of low 20s. Free cash flow is expected to be between $700 million to $800 million, down from the prior year, primarily reflecting higher lease vehicle replacement CapEx. Overall, we expect to deliver earnings growth and increase returns in 2026, reflecting our upsized strategic initiatives and the strength and durability of our transformed and cycle-tested business model. Slide 15 provides outlook highlights for each of our business segments. In Fleet Management, operating revenue growth is expected to be below the segment's mid-single-digit target, reflecting freight market conditions. FMS EBT as a percent of operating revenue is expected to be up year over year, reflecting benefits from strategic initiatives but remains below the segment's low teens target, reflecting weak rental and used vehicle sales conditions. We are confident in our ability to reach our long-term EBT target in FMS over time, based on the demonstrated earnings power of our contractual portfolio and benefits from strategic initiatives, as well as the earnings uplift we expect when market conditions in rental and used vehicle sales normalize. Supply chain operating revenue growth is expected to accelerate throughout the year, reflecting the timing of new sales, which will begin to benefit results midyear. SES is expected to exit 2026 with an operating revenue growth rate approaching the segment's low double-digit target. Supply chain EBT percent is expected to be at the segment's high single-digit target, reflecting revenue growth as well as benefits from incremental operating efficiencies in our omnichannel retail network. In dedicated, operating revenue growth is expected to be muted and below its high single-digit target, reflecting freight market conditions. DTS EBT as a percent of operating revenue is expected to be in the segment's high single-digit target range in 2026, reflecting the strength of the contractual dedicated portfolio, which we expect will continue to benefit from pricing discipline and our strategic initiatives. We expect to continue share repurchase activity and are leveraging our zero-based budgeting process to manage discretionary spending and mitigate inflationary costs. Supply chain is expected to be the key driver of our operating revenue growth. Overall, we expect the ongoing momentum from our strategic initiatives and high-quality contractual portfolio to drive 2026 earnings growth, with segment earnings in line with our expectations. Slide 16 outlines the key changes from 2025 to reach the high end of our 2026 comparable EPS forecast. As previously noted, benefits from our strategic initiatives are a key driver of higher comparable EPS. Fleet Management contractual businesses are expected to contribute $0.7 in incremental EPS, primarily reflecting benefits from our lease pricing and maintenance cost-saving initiatives. Supply chain and dedicated are expected to contribute $0.55 in incremental EPS, reflecting improved performance in omnichannel retail and the initial benefits from the flex operating structure in Dedicated. Our transactional used vehicle sales and rental businesses are expected to deliver a net $0.5 EPS benefit due to improved rental performance partially offset by lower used vehicle sales results. In rental, we expect utilization to be higher than the prior year on a 13% smaller average fleet. We also expect sequential demand to return to historical seasonal trends. 2026 used vehicle gains are expected to be slightly below 2025 levels. Our full-year forecast assumes used vehicle prices begin to modestly improve in the second half of the year. We expect used vehicle prices to remain above residual value estimates used for depreciation purposes. A 23¢ EPS net benefit is expected from a reduced share count, partially offset by a higher tax rate. This brings the high end of our 2026 comparable EPS forecast to $14.45, with a range of $13.45 to $14.45. The transformative changes we have made to the business model continue to deliver strong results. The earnings power of our contractual businesses and our strategic initiatives are more than offsetting near-term headwinds in the transactional parts of our business. Turning to page 17. We expect 2026 earnings growth to be driven by incremental benefits from multiyear strategic initiatives, which began in 2024. These initiatives represent structural changes we are making to the business and are not dependent on a cycle upturn. We now expect to surpass our initial target of $150 million in annual pretax earnings benefits from these initiatives and have upsized our target to $170 million upon completion. To date, we have realized $100 million in benefits, leaving $70 million of incremental benefits expected in 2026. In fleet management, we expect our multiyear lease pricing and maintenance cost-saving initiatives to benefit 2026 results. In dedicated, we expect incremental benefits from acquisition synergies as well as initial cost savings from our Flex operating structure. In Supply Chain, we continue to focus on optimizing our omnichannel retail warehouse network through continuous improvement efforts and better aligning our warehouse footprint with the demand environment. In 2025, we downsized and exited select locations and expect to recognize incremental savings from these actions in 2026. In addition to driving our outperformance relative to prior cycles, our transformed business model also provides a solid foundation for the business to meaningfully benefit from the eventual cycle upturn. We have increased our initial estimate for the annual pretax earnings benefit we expect to realize by the next cycle peak to at least $250 million, up from our prior estimate of at least $200 million. The majority of the $250 million benefit is expected to come from the cyclical recovery of rental and used vehicle sales in FMS, with additional benefits from higher omnichannel retail volumes leveraging our rationalized footprint. We expect to recognize these benefits over time as freight market conditions normalize. In addition to benefiting our transactional businesses, we also expect additional opportunities for profitable contractual growth as freight conditions normalize. Supply chain achieved record sales in 2025, which is benefiting revenue and earnings in 2026. On the other hand, lease and dedicated have faced revenue growth headwinds as a result of the extended freight downturn. We expect contractual sales trends for these offerings to improve when the freight cycle recovers. We have been pleased by our resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well-positioned to benefit from the cycle upturn. Turning to Page 18, we are forecasting a comparable EPS range of $13.45 to $14.45 versus $12.92 in 2025. We are also providing a first-quarter comparable EPS forecast range of $2.1 to $2.35 versus the prior year of $2.46. As a reminder, the first quarter has historically been our lowest earnings quarter, and in 2026, we expect it will represent the most difficult year-over-year comparison. Expected first-quarter results reflect used vehicle sales and rental market conditions that remain weak and did not show improvement in January. Supply chain comparisons will also be challenged due to record first-quarter performance in 2025. We remain focused on our initiatives and expect to deliver another year of earnings growth and higher returns. We are confident that our transformed business model remains capable of performing across a range of business environments. At this time, I will turn the call back over to Robert. Thanks, John. Robert E. Sanchez: Turning to Page 19. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise, and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities, and technologies that will deliver value to our customers and our shareholders. That concludes our prepared remarks. Please note that we expect to file our 10-Ks later today. At this time, I will turn it over to the operator to open the call for questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. And first, we will go to Jordan Alliger with Goldman Sachs. Jordan Alliger: Hey, good morning. It is Andre on for Jordan. Thanks for taking our question. It is a helpful earnings walk on Slide 16 to get to the high end of your EPS guide for 2026. Just curious between the buckets you lay out in terms of the year-over-year earnings tailwind, if you could just share where the largest variability lies within those buckets with respect to getting to the low end versus the high end. And then maybe what is driving that variability. Just the puts and takes there would be really helpful. Thanks. John J. Diez: Sure. Hey, Andre, it is John here. If you look at page 16, I would say the biggest variability there is really tied to our transactional business. When you look at the improved earnings of the businesses, on the FMS side, a lot of it is coming from lease pricing and another year of maintenance, strategic initiatives. I would say we feel really confident in our lease pricing based on the momentum we had at the end of last year, and that will carry over into this year. Maintenance, there is some variability there, but we see that the business continues to execute at a better level than we were previously. If you look at supply chain, clearly, there you do have the omnichannel optimization. And you heard in our prepared remarks, we took some actions last year that really set us up to deliver incremental benefits from both the omnichannel as well as the dedicated flex structure activity that we made. So, overall, I would say probably the biggest variability in our strategic initiatives is probably tied to our maintenance organization and some of it tied to our omnichannel optimization activity. Clearly, Redwood and UBS, we have no meaningful improvement in those transactional businesses. The low end of our range does contemplate further deterioration from Q4 if rental and UVF were to pull back. And that is what is contemplated in the 13.45 at the low end. But we feel really good about the strong contractual portfolio performance and obviously the confidence we have in executing again on our strategic initiatives. Jordan Alliger: Appreciate the color. Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing the star key followed by the digit two. We will go next to Ben Moore with Citibank. Ben Moore: Hi. Yes. Good morning. Appreciate taking our question. Great print on the used gain of $12 million in 4Q. Wanted to ask, what is your view on cadence for that? You mentioned 1Q should be softer. Should we be looking at a step down not too much from that 12 mil? And then gradually improving beyond that 12 mil throughout the year, or what is your view on kind of 1Q through 'twenty-six for used gain, please? John J. Diez: Yeah, Ben. Let me make a few remarks, and then I will turn it over to Tom. We do see the environment on the used vehicle sales side kind of gradually improving as we get through the year. We do expect Q1 to be kind of consistent with what we saw in Q4. We are expecting tractor pricing to improve as a lot of capacity keeps coming out of the market, and that will bode well for tractor pricing going into the second half of the year. Trucks, which is the majority of our inventory today, we do expect trucks to continue to be kind of depressed at the current fourth-quarter levels. Which, as you recall, year over year, truck pricing was declining all of last year, so it is going to make the comparables a little bit more difficult. We do expect to improve retail mix next year, but I will let Tom talk about what he is seeing in the business. Thomas M. Havens: Yeah. I think your initial read on that was right. So what we saw in the fourth quarter, and I think you see it in the gain numbers where we did a lot less wholesaling in Q4. But Cristina also mentioned that in her opening comments that the retail pricing in Q4 actually fell a little bit. We are expecting that to continue into Q1. So the kind of first part of the year you see a little bit of decline in the pricing of retail. And then in the you get into the second quarter and beyond, you start to see that pricing improve, which then leaves you a full year that looks kind of flat and gains year over year. So that is what we are seeing. We are certainly not seeing any pickup in volumes or pickup in activity yet at our UTCs. We will see how that develops throughout the quarter and the rest of the year, obviously. Ben Moore: Great. Really appreciate that. And maybe just a follow-up on what you mentioned with capacity coming out of the market. The kind of the sense from the market is with government enforcement of nondomiciled CDLs, English language proficiency, ELD devices, you know, trucker schools, we may see, you know, the capacity exiting, drivers exiting, driving more used trucks flooding the market, depressing used truck pricing. But it seems like maybe there are kind of puts and takes there. And then maybe going into the second order effect, where for private and private fleets for hire, it carriers and private fleets would be buying trucks to pick up the associated freight from the, you know, operators who left, which could lift used truck prices. Can we get a sense of your views on that kind of tying in with the Cadence two twenty-six, tied in with this policy change? John J. Diez: Yeah. Ben, I would say, look, broadly, we do see evidence that capacity is coming out of the market, and we think even independent of those macro factors you talked about, we do expect that the capacity is going to get tighter as we look at 2026. As far as what we are seeing on the driver side with immigration, and some of the rules that have come out, I would just say that primarily impacts the for-hire carrier market, which is primarily impacting our sleeper tractor class. And if you look at our inventory of used vehicles today, it is predominantly a truck inventory. So the impact to used vehicles, even if we see a slight blip down, is going to be, I would say, minimal for Ryder System, Inc. going forward. Clearly, for us, we continue to look for signs that the market will take an upturn. We think overall capacity exiting the market will be good for us long term to not only impact our transactional businesses but also help grow our contractual businesses in both lease and dedicated service. Ben Moore: Great. Appreciate that. And maybe if I can just squeeze one more in related, for your SCS division. You have noted having signed new SCS business starting 2Q, 3Q this year. Can you talk to the magnitude of that business dollar-wise or percentage of revenue growth-wise? And any new signings on for, 1Q or April or February or March? Since then? Robert E. Sanchez: Hey, Steve. Ben, this is Robert. Look. I think the good news is we had a very strong sales year in 2025 in supply chain. It was a record year considering all the challenges in the economy. I think it is a great story. Those business those new wins start getting layered in throughout the year. And you will start to see the benefits of that more as I had mentioned in the last earnings call, probably more into Q2, Q3 is where you really start to see more of that layer. But, Steve, you can give them additional color there. Steve Sensing: Yeah. Think if you as you think about it, think about omnichannel retail where we are seeing an increase in sales. I think we are off to a really good start this year. At the end of the day, it is all about our people. The relationships that we have built, not only from the vertical leads in our sales team to the frontline operators. Because as we execute, that gains confidence from our customers. About 80% of our sales this year was expansion sales. So I think that drives to that execution. Continuous improvement and innovation that we bring to our customers. So you know, and on the backbone of our port to door strategy, you are seeing a good expansion, you know, across many of our service offerings. Ben Moore: Great. Really appreciate that. Thank you. Operator: We will go next to Jeffrey Asher Kauffman with Vertical Research Partners. Jeffrey Asher Kauffman: Thank you very much. Well, first of all, congratulations, Robert, on a tremendous run. It really transformed the company and also congratulations, John. We look forward to your leadership. So I guess two questions. All these trucking equities are going up. And spot rates are up and people are enthusiastic that maybe we are starting to see a bit of a turn. And I know they are more focused on pricing and driver constriction as opposed to vehicle demand that is actually shown signs of increasing yet. But it seems like your forecast is a little more dour than that. And particularly when I look at the ratio of rental equipment to lease, you know, normally, you have, like, 25% rental trucks to lease trucks because you are going to need full-service lease support, but you guys are down to 22% and it looks like you are headed toward 20, just based on the guide. So I guess kind of what are you seeing differently than the optimism that some of the freight carriers are seeing out there? Robert E. Sanchez: Let me let John give you a little more color. I will just start by telling you that clearly, the range that we have given for the year the top end of the range does not assume any significant pickup in the market. That is not because we have a different crystal ball than the rest of the market. We just have not seen evidence of that yet in our business. So clearly, things got better, there is an opportunity for things to get above that number. But given what we are seeing today, that is the guidance we are giving. But I will let John give you color on that. John J. Diez: Yeah, Jeff. If you look at rental for us and we made mention of it, we looked at January event. We have seen the spot market tighten up a little bit. We have seen capacity, I said, you saw the PMI print, come out a few days back. Which was fairly positive. We just have not seen it as of yet. We typically see about a six-month lag before really, market conditions improve show up in rental. So clearly, our guidance, you heard from Robert just now, does not reflect that. But if market conditions do show signs of improvement, we will see that in the second half at the earliest. The strength of that improvement also will dictate what we could see, come through to the bottom line. What we have done, back to your question on the fleet, and rental in particular, is we are looking to tie the fleet as we get through the first half of the year. And then in the second half with no meaningful improvement, you should see us return back to historical utilization levels of high seventies. And that is kind of where that self-improvement plan comes into play here. Clearly, if things if we see demand picking up, we could slow down some of that activity of defleeting and extend that equipment. And, clearly, we could go out and buy and look to buy additional equipment to introduce into the fleet. Jeffrey Asher Kauffman: And just one follow-up if I can. You guys talk about Baton from time to time. I am not so sure the rest of us really understand what differentiates it versus going out into the market and just looking for AI solutions, new type solutions. Can you talk a little bit about the advantage of Baton and what it means to the company? John J. Diez: Yeah. Baton was initially a Ryder Ventures investment we made. Working with them for a few years, we realized there was significant value for them to really be the catalyst for us to optimize and create solutions for our customers through digital technologies and optimize fleets. So they had that business know-how and some of the technology underpinnings. We bought them. We have obviously had them look at our Ryder Share platform. And really improve on that platform from being a visibility and event management tool to being an optimization transportation optimization tool. With their capabilities, the Baton Group's capabilities, we feel we have not only the skills to take advantage of even some of the emerging technologies in AI, so that we could deliver greater value into the future for our transportation. Jeffrey Asher Kauffman: Okay. Thank you very much, and best of luck. Thanks, Jeff. Operator: We will go next to Rob Salmon with Wells Fargo. Rob Salmon: Thanks, operator, and for taking our questions. Clearly, to piggyback on what was just being asked with regard to rental, clearly, we are seeing some elevated spot rates in the market. It would be helpful if you provide just a little bit more context of what you are seeing across your rental customers, i.e., the FMS customers that traditionally have equipment down or they are having surge business and operating in the rental versus your standalone rental customers just to get a sense of how that business is trending here? I will let Tom give you some color. I will just tell you that the three what we would call more like leading type indicators in our business are used vehicle sales, rental, and our leased power miles. And we have not really seen a meaningful move in those yet. Our used vehicle retail pricing was actually sequentially down a bit as Tom had mentioned. Rental utilization stable, but really not improving so far. Our lease miles were flattish. So that kind of gives you a bit of color on what we are seeing today. Obviously, with some of the early some of the early indicators around PMI and the tightening of the for-hire market. You could see some improvement later on in the year, but that is where we are now. But Tom, do you want to give color around rental? Thomas M. Havens: I will give you a little color on the utilization that we are seeing and the demand. I know you guys can see the year-over-year comp, but we were down 1% on utilization. On a smaller fleet. So the demand in total was down. The December utilization landed at about 74%. And as we stepped off and rolled into January, that went down to 66, which is pretty typical to what we see. But down a little bit worse than our historical seasonal trends. So what we have put in this forecast is a little bit lower seasonal trend in the first quarter, and then for the balance of the year, a very normal seasonal trend that we would see. And then to directly answer your question on the type of customers that we are seeing. I would say that our pure business or the non-lease customer down slightly year over year. So I would say that business has been somewhat stable throughout 2025. But really what has been impacting our demand is our lease customers have not had the need for lease extras like we have historically seen. That is a trend that we have had for a couple of years here. I think I have mentioned it on previous earnings calls where the biggest impact to our lease fleet is customers have been downsizing their fleets and not growing their fleets. That trend was the same in Q4. And of course, if they are downsizing their lease fleet, there is certainly no need for rental. So those are the trends we have been seeing for quite some time, and we have not seen any change to that yet. Hopefully, at some point this year that will change, but have not seen it yet. Rob Salmon: And just a quick follow-up. I think you guys measure your rental on just total days. Was January did we have an outsized impact in January because of storms? Driving that kind of worse than normal seasonality? Or was it are you looking at on a weather-adjusted basis? Thomas M. Havens: We did not look at it as an adjusted basis, but it did not seem that the weather impacted the utilization at all. Rob Salmon: Helpful context there. And, I guess, taking a step back, right now, kind of at the bottom of the market, DTS margins are at your target range over the cycle. Same with SCS. Should we be thinking that there is potential upside here relative to the longer-term targets given some of the internal initiatives and acquisition cost outs that you guys have been executing on? Or are there offsets that we should be thinking about as we get into a better demand environment where maybe we are seeing higher turnover, higher investment that we should be kind of cognizant of? Just your perspective on those two segments' longer-term margin opportunities. John J. Diez: Yes, Rob. For now, our long-term targets, I think, are still appropriate. We have seen margin expansion even within that high single-digit target within the supply chain business as that business has scaled and continued to grow. Dedicated is the one part of the business that does ebb and flow depending on where we are at in the cycle. And as you called out, typically, we are growing that business, initially, we are going to see some pressures and headwinds with higher driver costs because the level of turnover and cost to acquire drivers goes up typically. But that will oscillate the low end of the high single digits and then in a weak environment, you will see us climb up to the high single digits. So what you should expect is kind of more of that movement that we have seen historically on dedicated. And supply chain continues to really perform, and we are seeing that it consistently has been performing at that high single-digit level or to the upper end as of late. Rob Salmon: Appreciate the color. Robert E. Sanchez: Thanks, Rob. Operator: We will go next to David Michael Zazula with Barclays. David Michael Zazula: Hey, thanks for taking the question. Can I just ask about the Flex operating structure and the benefits you are expecting to see from that in Dedicated and you could you know, if dedicated, you know, sales ramp up and you start to get seeing some new contracts, could, you know, some of that structure offset some of the margin headwinds with normally expect? In an upswing of the dedicated business? John J. Diez: Yes, David. I think right now, what we have seen is really optimization in the back-office resources. As John talked a little bit a bit ago about LATAM, we are implementing some AI technology into the flex model that should allow us to, you know, reduce driver dwell time and better allocate drivers to the right operation. So certainly as the market comes back up, density comes into the flex model. And there should be some upside growth on the top line. David Michael Zazula: Awesome. Very helpful. And then yeah, with respect specifically I mean, we can see the global numbers. But to your auto customers, what has the conversation been like in trying to reduce the negative auto component? To SCS in 2026. John J. Diez: Yeah. I think if you look at the diversity of our portfolio five, six years ago, we really focused on growing CPG and omnichannel retail, and we have done that. I think the diversity in our OEMs that we serve is very well balanced. What we were challenged with in Q4 was a microchip shortage that impacted a few of our customers. And we are going through a retooling effort right now with many OEMs as they are converting away from EV vehicles into more ICE. So we expect that to kind of get back to normal in the back half of the year. David Michael Zazula: Very helpful. Much appreciated. John J. Diez: Alright. Thanks, David. Operator: We will go next to Ravi Shanker with Morgan Stanley. Ravi Shanker: Hi. This is Nancy on for Ravi. Thanks for taking my question. I just wanted to touch on your January commentary a bit more. Is sort of the lackluster January seen so far just because you are going to be seeing a delayed impact from the cycle? Just trying to hammer down the difference between what you are seeing and maybe others in the market. Robert E. Sanchez: Yeah. I think, Nancy, it is really more the service offerings and the products that we have. We are not in the spot truckload business. So there is a lag when there is tightening of the market. Between when you start to see that and you start to see an increase in our rental business in our used vehicle business. So part of it could just be that, that you are just not seeing it yet. We did we that is one of the reasons why we did not build into our full-year guidance any meaningful improvement in the market. Obviously, that holds and it continues to move in that direction, that could give us some benefits in the back half of the year. Nancy: Got it. Thank you. And then in regards to the full-year guidance, how do you think Ryder System, Inc. will perform if any inflection is predominantly supply-side driven rather than demand and rates go up because of supply rather than demand? Sort of helpful to hear your expectations if that is the case. John J. Diez: Yeah, Nancy. We are still going to benefit whether it is supply-driven or demand-driven, I would say, especially on the used vehicle sales side. If there are fewer vehicles out there to be had, you should see kind of a lift in these vehicle pricing over time. Clearly, the catalyst to the two fifty will be dictated primarily by demand-driven improvement, but certainly supply continuing to tighten up will also be helpful for us. And really start driving, hopefully, sales activity in both our lease and dedicated space. Nancy: Very helpful. Thank you. Robert E. Sanchez: Thanks, Nancy. Operator: We will go next to Harrison Ty Bauer with Susquehanna. Harrison Ty Bauer: Great. Thank you for taking my question. Robert, John, congrats on the upcoming transition here. I wanted to revisit UBS, but maybe in the context of what some of your fleet strategy is for the year. You discussed a dynamic where both your lease and rental fleet are likely to come down throughout or end of year to end of year with maybe a little bit more punitive coming down in the beginning part of the year and we have seen some other freight companies take some decisive actions, you know, through large impairments on some underutilized assets. Is your UBS certainly being negative in the upside of your case, does that include the potential for maybe Ryder System, Inc. taking some more decisive actions on moving some of that underutilized fleet into the wholesale channel in the first half of this year? And if we could potentially see something similar to the losses that we saw in 2Q of twenty twenty-five. John J. Diez: Yeah. Harrison, on the UBS environment, as we look forward, we do see a stabilizing environment. And as I mentioned earlier, we do expect actually tractor pricing to improve. So we are not expecting any sort of dramatic downturn on the upper end of our guidance. Clearly, if there is some pullback, and pricing does continue to move downward, we do not expect to have to take any sort of impairment charges. We think our residual values are appropriately set. So any level of pullback that is out there will be, in our opinion, will be, you know, low single digits. That being said, we do expect UVS to kind of, I would say, perform in line with what we saw in 2025. Yeah, you may see some unevenness as we go through the year depending on the retail wholesale mix that we implement in any one quarter. But you are going to see some performance similar to what you saw in 2025. That is what is in the guide. That we put out. Harrison Ty Bauer: Thanks. And maybe as a, you know, quick follow-up, curious if maybe you could answer this that you participated in bidding for one of your dedicated competitors made a pretty recent sizable acquisition in First Fleet. I know you guys have been hunting or considering more opportunities on M and A as a way to deploy capital? Can Curious if that is a process that you participated in and just maybe an updated appetite on where you might see m and a and the size of that, you know, as a potential way to deploy capital, you know, from all the cash you are driving? Thank you. Robert E. Sanchez: Yeah, we do not comment on any particular deal, but obviously we are in the market and we are going to continue to be looking for well-run companies in the target areas that we have outlined. And when we find the right ones, as you know, based on our balance sheet, we have got plenty of capacity to do the types of acquisitions that we are looking for. Operator: We will go next to Scott H. Group with Wolfe Research. Scott H. Group: Hey. Thanks. Morning or, I guess, afternoon. We have seen a pickup in the class eight orders the last couple of months. Are you seeing a pickup in leasing demand, leasing activity? What is your sense? Is this sort of just replacement or is there some growth? Do you think there is a big pre-buy coming this year? So that was the first question. And then just secondly, the comment in the bridge about lease pricing increases, is that sort of is that an incremental tailwind this year? Or is that more so carryover from last year? John J. Diez: Okay. Scott, let me answer the second question. I will make a remark on the first question and turn it over to Tom. The lease pricing and the reason for the upsize from the $1.50 to the $1.70 is largely due to the pricing initiative where we have seen that has come in stronger and obviously the replacement cycle of our existing portfolio has extended out to 2026. So the $20 million is predominantly the pricing initiative. As being incremental. And that is the reason for the upsides from $1.50 to $1.70. As far as what we are seeing in the class a, sales numbers, most of that, as we understand it, is coming from the for-hire carriers. That are, for the first time, kind of coming back into the market. And planning ahead for 2026. They may be getting their orders in. We are not seeing any sort of pre-buy activity from our customers on our lease side. So I will let Tom maybe provide a little bit more color, but that is kind of what we are seeing. Thomas M. Havens: Yeah. Not much more to add, really. Not seeing any meaningful change in customer behavior out there that maybe the only thing I could say is that our sales pipeline is at near record levels. Which might suggest some pent-up activity could be coming, but other than that, I would say no change to customer behavior and no change to incremental demand or activity at this point. Scott H. Group: Thank you, guys. Appreciate it. Operator: Thank you. At this time, there are no additional questions. I would like to turn the call back over to Mr. Robert E. Sanchez for closing remarks. Robert E. Sanchez: Okay. The only thing I will bring you back to is clearly as we did in 2025, 2026 is another year of initiatives-based earnings growth. If we get help from the market, that will be an upside positive. But we are certainly focusing on the things that we can control, continue to do that, and continue to execute on that. So thank you all for your interest in Ryder System, Inc. Have a great day. Operator: That concludes today's conference. We thank you for your participation.
Derek Everitt: Greetings and welcome to the Terex Corporation Fourth Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. We do ask you to limit yourself to one question and one follow-up. If you would like to ask a question, simply press star followed by the If you would like to withdraw your question, press star 1 again. Thank you. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations. Good morning, and welcome to the Terex Corporation Fourth Quarter 2025 Earnings Conference Call. Derek Everitt: A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined today by Simon Meester, President and Chief Executive Officer, and Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a Q&A. Please turn to Slide two of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to the risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings materials and in our reports filed with the SEC. Derek Everitt: On this call, we will be discussing non-GAAP financial information including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to slide three. I'll hand it over to Simon Meester. Simon Meester: Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex Corporation. Last week, we concluded our merger with REV Group, the defining milestone in Terex Corporation's transformation. With this combination, we've created a leading specialty equipment manufacturer with premium brands across multiple industries. With a strong manufacturing footprint, a leading technology play, and clear tangible synergies across the portfolio. We'll begin with our 2024 acquisition of ESG, which delivered value immediately. It is now being amplified by bringing Terex Corporation and REV together, creating greater scale and an even more resilient new company. REV generated approximately $2.5 billion of revenue and $230 million of adjusted EBITDA in its recently completed fiscal year, with the majority coming from essential low cyclical end markets. Beyond strengthening the predictability of our growing earnings and free cash flow, the merger also reduces our overall capital intensity, giving us greater flexibility to create additional shareholder value. Simon Meester: I want to thank both the Terex Corporation and REV teams for their tireless efforts to close this transaction ahead of schedule. It's only been a few days since closing, but the teams are already working hand in hand to execute our integration and synergy plans. We completed the ESG integration in 2025 and captured synergies ahead of expectations. We're using the same integration playbook for the merger with REV. The integration will be straightforward. REV businesses are joining Terex Corporation as a standalone operating segment with no organizational changes outside our corporate functions. Our new specialty vehicle segment will include emergency vehicles, and will continue to be led by Mike Vernick, and recreational vehicles, which will continue to be led by Gary Gunther. Both Mike and Gary bring deep REV experience, assuring continuity while driving further improvements. We expect to deliver roughly half of the $75 million run rate synergies within the next twelve months and the full amount by 2028. Most early savings will come from eliminating duplicate corporate costs. But the synergy potential goes much deeper. Over the last sixteen months, we have reshaped the Terex Corporation portfolio, creating what I believe is the most intrinsically synergistic, resilient, and competitive portfolio in our history. We now have significant scale in specialty vehicles that share similar operational and go-to-market characteristics. This creates not only near-term efficiencies, but also meaningful opportunities for operational improvement and long-term growth across Terex Corporation. With regards to the strategic review of the aerials business, which we announced during our last call, we have been receiving strong inbound interest from a number of interested parties. We're being deliberate in our evaluation of the interest and the best approach to maximize shareholder value. Turning to slide four. Combining with REV significantly shifts our end market exposure. We now serve a large diverse addressable market with stable, attractive growth profiles. Customers across these verticals value life cycle services, creating sizable opportunities to expand our aftermarket and digital offerings. Emergency vehicles benefit from stable and growing municipal budgets tied to maintaining required response times among the growing population. In waste and recycling, growth is fueled by population and recycling trends coupled with ongoing replacements. Customers also accelerate upgrades to unlock the value of new vehicle innovations and digital solutions where we are the clear industry leader. Utilities are poised for strong growth from 2026 onward as demand on the US electrical grid increases, particularly from data center expansion. Industry forecasts call for 8% to 15% annual CapEx growth through 2030. Altogether, we now have multiple channels into nearly every Minnesota municipality in the United States, which collectively spends $100 billion per year on capital equipment, a tremendous long-term opportunity. In construction, we continue to see robust infrastructure activity supported by government funding. The pipeline of mega projects continues to expand, providing a tailwind through at least 2030. We're seeing momentum building in Europe, and strong growth continues in the Middle East and India, where MP already has a solid foundation. Let's move to a summary of our financial results on slide five, handing it over to Jen to go into more detail. I'm proud of our team for delivering on our 2025 expectations, navigating numerous challenges throughout the year. Their performance and the strength of our portfolio enabled us to deliver earnings per share of $4.93, consistent with our outlook, EBITDA of $635 million or 11.7%, free cash flow of $325 million, and a cash conversion of 147%, all in line with our expectations. Looking to 2026, we see positive momentum across most of our segments, to varying degrees. Environmental solutions bookings grew 16% year over year in Q4, led by utilities. MP achieved its highest margins of the year in Q4 as efficiency and tariff mitigation initiatives took hold and bookings accelerated, particularly in aggregates and material handling. Aerial secured nearly a billion dollars of new orders in Q4, up 46% from the prior year, and specialty vehicles recorded strong bookings the last three months with a roughly two-year backlog coverage coupled with strong momentum on margin expansion. This positions Terex Corporation for a strong 2026. And with that, I will turn it over to Jen. Jennifer Kong-Picarello: Thank you, Simon, and good morning, everyone. Let's look at our Q4 results on slide six. Our fourth quarter financial performance was largely in line with our expectations. Environmental solutions continue to grow and deliver consistently strong margins. Operating margin of the year, Materials processing achieved its highest and our sales grew year over year in the quarter following four quarters of decline. Total net sales of $1.3 billion grew 6% year over year. Excluding ESG, our legacy sales grew by 5%. Q4 operating margin was 9.3%, up 150 basis points versus the prior year due to improved performance in all three segments. Interest and other expenses of $43 million was $4 million higher than Q4 last year. And the fourth quarter effective tax rate was 8.1% driven by favorable one-time tax attributes. EPS for the quarter was $1.12, or 35¢ higher than last year. EBITDA was $141 million or 10.6% of sales, 140 basis points better than last year. We generated $172 million of free cash flow in Q4, which was $43 million greater than last year due to higher operating income and improved working capital performance. Let's turn to slide seven for our full year results. Net sales grew 6% to $5.4 billion at the full year contribution from ESG acquisition more than offset declines in Aerials and MP, and legacy sales declined 11%. Operating margin of 10.4% was 90 basis points lower than 2024 due to lower volumes in Aerials and MP, and higher tariff costs which mainly impacted Aerials. This was partially offset by improved margins and tariff utility, and the accretive additions of ESG. Interest and other expenses of $172 million increased by $89 million due to financing costs associated with acquiring ESG. Our full year effective tax rate of 17.2% was consistent with last year, as favorable one-time tax attributes from the previous divestiture offset higher US dollar income. Earnings per share of $4.93 was consistent with the outlook we provided for the entire year. We improved our full year free cash flow by 71% to $325 million representing a conversion rate of 147%. Despite volume and tariff headwinds throughout the year, our teams continue to execute working capital improvement plans and delivered on a full year free cash flow expectation. ESG incremental cash flow more than offset the interest expense associated with the financing. We continue to improve our operating cash flow and working capital efficiency giving us more options to return value to shareholders. Please turn to Slide eight to review our segment results. Starting with environmental solutions. Our ES segment finished 2025 with another excellent quarter, generating $428 million of sales, representing 14.1% year over year growth on a pro forma basis. The strong growth was driven by improved throughput and delivery of utility and refuse trucks. For the full year, sales increased 12.7% on a pro forma basis to $1.7 billion. Q4 operating margins of 18.5% were 90 basis points better than the prior year, driven by improved performance in utilities, while ESG margins were consistent with the prior year. On a full year basis, the segment achieved 18.8% operating margin, 220 basis points better than the pro forma 2024 result, driven by improvements in both businesses. I was very pleased with the ES segment performance in 2025, particularly the high degree of collaboration with the ESG and utility teams, executing synergies, and operational improvements that will benefit Terex Corporation going forward. Turning to Slide nine. MP fourth quarter sales of $428 million were 2.5% lower than last year. Excluding the divested clean businesses, MP sales increased by 2.8% in Q4 on a like-for-like basis. Growth in aggregate was the primary driver, as sales grew in every global region, with the strongest growth coming from Europe. On a full year basis, sales of $1.7 billion were 11.6% lower than 2024, mainly due to channel adjustments we experienced in the first half of the year. As the operating margins continue to improve, reaching 13.7% in the quarter, as efficiency improvements and pricing actions ramped up in the quarter. The positive margin trajectory and increased bookings set MP well heading into 2026. Please turn to slide 10. Aerials closed at 2025 on a positive note with year over year sales growth of 6.9%, including growth in North America and EMEA. Average Q4 operating margins of 2.6% was consistent with our expectations, 200 basis points better than prior. Tariff headwinds, including the expanded 232 tariffs, that was implemented in August, could not be fully mitigated in the period. As ongoing supply chain and cost reduction will continue in 2026. Please turn to Slide 11. Q4 bookings of $1.9 billion grew 32% compared to last year on a pro forma basis, with positive trends across our segments. In environmental solutions, we continue to see positive momentum in bookings, which grew 16% year over year, up 13% on a trailing twelve-month basis, led by strong demand for utilities vehicles. A healthy backlog of $1.1 billion provides strong forward visibility for the segment heading into 2026. MP bookings increased 24% year over year or 32% when you exclude the divested clean businesses. The growth was flat by aggregate, and material handling, more than offsetting some moderation in concrete. MP ended 2025 with $71 million more backlog than the prior year, $100 million higher when you adjust out the divested clean businesses from 2024. Finally, Aerials bookings of $971 million was up 46% compared to prior year, driven by replacement demand from our national test branch. While growth was strongest in North America, we also saw growth in EMEA and Asia Pacific, providing good visibility into 2026. Now turn to slide 12 for our 2026 outlook. We are operating in a complex environment, with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. The outlook we are providing today reflects our current portfolio and does not account for any cost to achieve the synergies, purchase accounting adjustments, nor other nonrecurring items. Following the close of REV transaction last week, our 2026 outlook reflects the newly combined company, including eleven months of REV. With positive momentum from strong Q4 bookings and backlog in every segment, we expect 2026 sales to grow approximately 5% on a pro forma basis to $7.5 to $8.1 billion. We further expect pro forma EBITDA to grow by approximately $100 million or 12% year over year to between $930 million and $1 billion, or 12.4% EBITDA margin at the midpoint. Our EBITDA outlook includes approximately $28 million of synergies for 2026 in line with our goal to achieve $75 million of run rate synergies within two years. We anticipate interest and other expenses to be approximately $190 million, consistent with pro forma 2025 based on average debt outstanding of about $2.7 billion. The effective tax rate is expected to be higher at 21% driven by higher US dollar income. As expected, the merger has a modest 3% dilutive effect on EPS in 2026 due to higher number of shares outstanding post-merger. We expect 2026 EPS between $4.50 and $5 with a share count of 111 million shares, as compared to a legacy Terex Corporation range of $4.80 to $5.20. For modeling purposes, approximately 15% of our full year EPS is expected in the first quarter, as it will only include two months of specialty vehicles earnings and seasonally lower volume and legacy Terex Corporation. We expect 2026 cash conversion of between 80-90% of net income, including transaction costs, and cost to achieve synergy. Our net leverage is expected to improve over the course of the year. Looking at our segment, we expect environmental solutions to grow mid-single digits in 2026, led by utilities, where we continue to see strong demand for bucket trucks and digger derricks used in the electric power market. We are currently anticipating roughly flat sales on ESG, with upside potential in the second half as we get more clarity on fleet requirements for a second half prebuy and EPA emission regulations. We continue to see growth in our market-leading digital solutions in the waste sector and expanding into utilities and concrete. We would explore opportunities to expand this technology into emergency vehicles during integration. ES achieved strong profitability in 2025, and we anticipate similar full-year margins in 2026 as synergy execution and productivity offset the unfavorable mix from higher utility scope. Turning to MP. We expect the segment to inflect back to full-year growth in the high single-digit range in 2026 on a pro forma basis, excluding clean. Fleet utilizations and aging equipment resulted in strong bookings in aggregate, handling, and environment. We also expect margins to improve in 2026 due to higher volume, productivity, and pricing action. Our new specialty vehicle segment entered 2026 with roughly two years of backlog. We expect sales growth of high single digits from a comparable pro forma prior year total of $2.2 billion excluding divested Lund and Midwest RV businesses. We also expect meaningful margin improvement in SV compared to the prior year period EBITDA margin of approximately 12.5% on a pro forma basis due to higher throughput, price, and ongoing operational improvements. Finally, in Aerials, we anticipate 2026 sales and margins to be similar to 2025. We have good visibility heading into 2026, with $906 million backlog following strong Q4 booking. Overall, I'm very excited about our opportunity to grow and continue the financial performance of our new company in 2026. Turning to Slide 13. In 2025, we maintained our commitment to invest in our businesses to fuel organic growth, with over $118 million in capital expenditures, targeted at automation, innovation, throughput, and efficiency improvements among other growth accelerants. As expected, we returned $98 million to shareholders through dividends and share buybacks last year. We purposely structured the merger to maintain a strong balance sheet and flexible capital structure to enable organic investments and lower net leverage. That said, we have not assumed any since in debt repayments as they do not mature until 2029. Please turn to slide 14, and I'll turn it back to Simon. Simon Meester: Thanks, Jen. 2025 was a consequential year in the long history of Terex Corporation. We successfully completed the integration of ESG, navigated multiple macro and market headwinds, and ultimately delivered on our original 2025 guidance. We also announced and have now completed our merger with REV. With this merger, we have created a leading specialty equipment manufacturer with a highly complementary and synergistic portfolio serving a diverse set of attractive, resilient, and growing end markets. Our focus has already shifted to executing the REV integration, capturing at least $75 million of synergies, and delivering on the commitments we've made across each of our segments. I'm excited about the road ahead, and I know our team is energized as we continue to build the new Terex Corporation together. And with that, I would like to open it up for questions. Operator: At this time, I would like Your first question comes from the line of Tim Thein with Raymond James. Please go ahead. Timothy W. Thein: Great. Thank you. Good morning. First question on the MP segment. And you highlighted strength in aggregates in material handling within the order comments, which is it's sustained, would or should should be good in terms of product mix. I'm curious on the pricing side. And kind of what your visibility in terms of what you have in the backlog. With respect to, you know, crushing and screening being an important piece there, some of your larger international competitors are facing some sizable tariff headwinds in North America. So maybe you can just talk about kind of what you're seeing your expectations just around you know, that pricing, tailwind that you highlighted in the fourth quarter, how that's kind of influencing your outlook for '26? Jennifer Kong-Picarello: Hey, Tim. Good morning. This is Jen. So the pricing, we you know, we do not disclose them specifically on the segment basis. But you could see that we have a progressive step up in our margin profile in Q4 versus Q3 for MP, and a large portion of that is driven by price. Going through the P&L. We expect that with the strong backlog that we ended in December, that's slow to and it progressively step up again and throughout the year for 2026 by quarter. Timothy W. Thein: Okay. Good. And, Jen, I apologize if if I missed it. But within with the Aerials specifically, the kind of the interplay with tariffs and how you're expecting price cost to play out? Just more broadly for Aerials in '26? Guessing it's more of a second half story, but maybe you can just, comment on that. And, again, apologies if I missed that. Thank you. Jennifer Kong-Picarello: Right. So the Aerials in the prepared remarks, we say that we're expecting kind of flat revenue and also kind of flat margin profile. We expect that in 2026 that we have more headwinds in Aerials given that the tariff is gonna be twelve months of impact versus about approximately six months of impact in 2025. That translates rounding on a on a number standpoint about $60 million more and we're offsetting that to productivity and price. For a net impact of flat. Throughout the year. And first half of the year, we expect that that's the price cost neutrality to be more skewed towards the second half of the year. At the end of year, we're gonna be flat. Holding our margins. Timothy W. Thein: With a flat top line. A little less favorable in the first half, a little bit more favorable in the half. Got it. Thank you. Jennifer Kong-Picarello: Thanks, Tim. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Simon Meester: Hey. Good morning. Jerry Revich: Hi. Simon, I wonder if you could just talk about the REV integration. So I saw the divestiture, the business has been operating really well in terms of driving higher efficiency rates. Can you just talk about the plan for the business from here relative to what we heard from the REV team, maybe six to nine months ago, and any update on order cadence and expectations for bookings as well. It sounds like there's more opportunity from a manufacturing standpoint but I'm wondering if you could just expand on that, please. Simon Meester: Yeah. No. Thanks for the question. So it's been it's been nine days, now since we closed, so we're very excited. We yeah. Obviously, it's mostly a throughput story because again, going into 2026, our specialty vehicle segment legacy REV, if you will, that still operates with about a two-year backlog. And they they did report relatively strong bookings again in their last fiscal quarter. So it's mostly just to make sure that we we keep burning that backlog down as much as we can. So it's gonna be all about throughput. Now there's obviously price in that backlog, so it's gonna be a combination of price and volume that's gonna drive the the margin improvement in 2026. But it it's mostly just making sure we keep that operational momentum. That's why we were so eager on making sure that we you know, keep the that we keep the organization intact that we we can just purely focus on making sure we keep that momentum going into 2026. Jerry Revich: Super. And separately, in ESG, I was pleasantly surprised with the bookings, it sounds like, within the high part of the portfolio or more resilient than what I have thought three months ago given what the waste companies have been talking about. Truck plans, can you just expand on what you're seeing? Is that the impact of the EPA '27 certainty? Or if you wouldn't mind just double clicking on the Yeah. Really good performance within Heil. Simon Meester: Yeah. Obviously, I I I would say the segment, the environmental solutions segment, recorded outstanding performance in 2025, and a lot of that was driven by by Heil, by ESG. But, also, we saw synergies kicking in with utilities, so we saw the utilities business stepping up as well, but, you know, ESG is leading the charge, if you will, in terms of top line. And now in 2026, we see the kind of flipping. So utilities is now accelerating a little bit more than ESG. We're we're we're expecting ESG to be kind of flattish from a top line perspective. And most of the growth coming from coming from utilities. But, yeah, we're we're we feel that that segment has a has a lot of momentum. We don't see that slowing down any anytime soon. So we're very pleased with how ES is performing. Jerry Revich: Thank you. Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead. Angel Castillo: Good morning and thanks for taking my question. Just wanted to unpack a little bit more on the aerial side. So you had a very strong quarter for bookings there and you talked about replacement demand from the rental customer. Can you just talk a little bit more what you're hearing from the customer base broadly in this space? And one of your competitors talked about a little bit of pull forward potentially into the quarter. Did you see any of that? Or how are you seeing, in particular, maybe orders in January and February kind of following that stronger fourth quarter? Continuing that? Simon Meester: Yeah. If you look at our if you look at last year, we had strong book to bill in both Q4 and Q1. I think average both quarters was about a 150. This this year, Q4 coming in over 200%, we expect Q1 to be somewhat north of a 100%, but it's probably fair to assume that both quarters will average again at about 150% book to bill. So that kinda sets our guidance of being flat because we expect Q1 to be a little softer than 1100%. But overall, yeah, going into the year with five, six months of of coverage is obviously gives us a good forward good forward visibility. But the reality is most of the demand is still just coming from mega projects coming from the nationals, Europe is picking up a little bit. Not not that material. But we haven't baked any major recovery with the independents in into our into our guide for 2026. We we expect that to happen. More in 2027. Angel Castillo: That's very helpful. Thank you. And then could we just unpack a little bit more just on the commentaries around ES? I think if you could talk about the back there as well. It sounds like utilities are seeing a nice uplift. So just the shape of that into next year. And then if you could, I guess, Jen, if you could unpack the margin dynamic a little bit. It sounds like utilities should be a positive for margins, a nice tailwind there. And you expect, I think, if I heard correctly, ESG flattish, but it sounds like there's some factors maybe weighing on that margin and keeping the full segment more flattish for the full year. So if you just unpack the puts and takes and maybe talk about it on a quarterly basis, that would be helpful. Jennifer Kong-Picarello: Good morning. So I'll take the margin question, and then I'll let Simon take the backlog questions. So you're right. For the margin, when we said in the prepared remarks that the margin is flattish, I'm referring to a percentage wise. And value wise, it still increased. So the higher top line growth coming from utilities will drive an unfavorable mix. However, it's being offset by the synergies going through in the ES reportable segment. Also driven by the productivity that they have been working to. In 2025, we communicated that that a utility division within the ES segment has demonstrated progressive growth in the margin profile. We expect that to continue into 2026 as the team actually relay out the Waukesha factory and also, looking at, standardization. Simon Meester: Yeah. And then on the on the backlog so yeah. ESG did did an outstanding job in 2025 leading the industry, quite frankly, in terms of throughput and and reducing lead times. And so going into 2026, we see lead times now kinda have normalized in ESG. So we have we're back to kinda pre-COVID levels backlog coverage. So three, four months forward visibility. We didn't put any EPA pre-buys into our outlook for ES and that's why we're kinda holding them flat and and and utilities is actually the backlog continues to increase, hence the reason we're expanding our capacity in the particular segment which is already ramping up as we speak. So we're we're expanding expecting to add about 20 to 30% capacity in utilities just to keep up with the the rising demand. Angel Castillo: Very helpful. Thank you. Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead. Jamie Cook: Hi, good morning. I guess two questions. First, Simon, on the specialty business or REV Group, it sounds like the backdrop for 2026 is good with the extended visibility backlog two years out. I'm just wondering if there's obviously, it's a new acquisition. So to what degree is there conservatism in your forecast for specialty? And if there was, would that come from? Is it just getting more, burning through more backlog? You know? So just sort of your assumptions, you know, around there where there would be upside. And then my second question, just on Aerials, understanding you can't say that much, but it seems like the backdrop for selling that business is probably better versus when you initially announced it with a view that aerial markets have clearly bottomed potentially. You know, positive upside surprise. So anything you can tell us, is is that asset more to people just because it sounds like we should be getting some cyclical tailwinds? Thank you. Simon Meester: Yeah. Thanks for the question. So on on specialty vehicles, yeah, there's obviously a lot going on. The team is working you know, flat out to make sure that we we can actually start bringing the backlog down a little bit. So I I where where we see any upside, I mean, the the team actually performed really strongly year over year 2025, 2024. We just wanna make sure that we we maintain that that operational momentum. So I don't know if there's any particular upside I can call out. I'm very comfortable with the guide that we that we have laid out. And, you know, we it's now it comes down to execution. On Aerials, yeah, I mean, we've said this in in October. We believe it's a well-known asset. We we we believe it's it's well documented how how that how that business performs through the cycle. It's a very strong brand, you know, celebrating sixth year anniversary this year at at ARA, which we're looking forward to. I can obviously not disclose too much because it's an active process, but yeah, we were we were very pleased with the the inbound interest that that we received. And we're gonna be very deliberate in in evaluating the interest. And and and decide on the best approach for our shareholders going forward. Jamie Cook: And it's Jamie. If I could just add in the our new reportable segment of SV the incremental margin on the higher volume is gonna be in that range of 30% at the gauge. With the highest in Q2 and Q3 and tapering down to Q4 due to seasonally lower revenue due to the weather. So I think while we we have baked in a very strong margin profile, that's supporting our $100 million of EBITDA margin expansion in the midpoint of our range. Jamie Cook: Thank you very much. Operator: Thank you. Your next question comes from the line of David Raso with Evercore ISI. Please go ahead. David Michael Raso: Hi. Thank you. First on the dilution, a little bit less than, I think, The Street was thinking. And I took a notice the share count seemed to be a little bit lower when you said a 111 for the year. Is there maybe I missed it. Was there some share repo in that number? Just trying to get the math from now just doing the basic conversion of the of the, you know, roughly 49.3 million shares that REV Group had. Even the interest expense, little bit little bit lower than I would have thought. So I'm just trying to understand exactly the dilution being only about 25¢. Jennifer Kong-Picarello: Hey, David. Good morning. So the I think the two part of your question first one in terms of the 111 million of share count, that's because we only acquired that's a weighted average number. And because we only issued them in February. So that equates to a 111 million, but full year is a 115 million. I think that's maybe where you're looking at. Second question in terms of the dilution, yes. In fact, during the merger, I was we have alluded to the fact that it's gonna be a mid-single digit of EPS dilution given that the share count the higher share count cannot be fully offset by the eleven months of REV earnings. That translates to the to to be about 3%. Just for share count loans. And then 2% based on a tie higher tax rate that's where we are. David Michael Raso: Oh, that's helpful. Yeah. I I read the slide on 12 as share count 111 was for the full year. Not not just for the quarter. Okay. That Jennifer Kong-Picarello: That's weighted average for the full year. Correct. David Michael Raso: The the one the sorry. The the one eleven or the one fifteen, just to be clear? Jennifer Kong-Picarello: The one fifteen I'm sorry. One eleven is the weighted average for the full year. David Michael Raso: Okay. The proceeds from an aerial sale just curious now that you're know, a little bit further in the process, You own REV Group, the merger is done. You've obviously been able to move forward with some of the divestiture of a piece of the the RV business. Given where the state of the portfolio is, we can, you know, debate the the right multiple you could get maybe for Aerials. But when you think of the proceeds for that sale, whatever it may be, can you give us a little more clarity how you're thinking about that now? Jennifer Kong-Picarello: Yeah. So know, right now, on day one on day nine of our close, the immediate priority is to strengthen the balance sheet to preserve the flexibility. Given that we funded this merger to you both shares and and cash. It's right now still too early to tell depending, you know, when we actually find a strategic option for Aerials and at when where we're trading in terms of the share price. But we will have several options, you know, a a return value to the shareholders through the share buyback. We could do an early debt pay down to strengthen our balance sheet, reduce interest, and further improve our leverage, or we reinvest in our business especially in utilities and specialty vehicles that is going supported by the circular tailwind. But at this point, I think it's too still too early. We we really like Simon Meester: the optionality that is ahead of us here, but our immediate focus as you will appreciate, is on integrating REV focusing on execution, focusing on on delivering on our earnings and the cash conversion. And then we really like the optionality that at the end of the road here. David Michael Raso: I appreciate it. Thank you. Simon Meester: Thanks, David. Thank you. Operator: Your next question comes from the line of Mig Dobre with Baird. Please go ahead. Mig Dobre: Yes. Thank you for taking the question. Good morning. Sticking with specialty vehicles here, I I guess a a couple questions. First, how are you thinking about the recreation component of this business longer term? You're obviously in portfolio adjustment mode. Which is why I'm asking. And when we're kinda thinking about the moving pieces to margin here, if I heard you correctly, and better in your guidance, about 12-12.5% operating margin. Simon Meester: How do you view the longer term potential here if we're thinking two to three years out? Simon Meester: Yeah. Thanks, Mig. I'll I'll take the first one, and, Jen, maybe you can weigh in on the second question. So on on the RV business, yeah, first of all, the announcement that was sent out, yes, on Midwest that process was already was already ongoing. Before we closed the merger. So don't don't read too much into that that we are in adjustment mode. I would actually say we are in integration mode. We are much more focused on what's right in front of us, and that is making sure that we integrate the two companies that we build our synergy pipeline, that we focus on execution, of the four segments that we now own, and that's really our most immediate focus. And now going into 2027 or beyond, I can't say we won't be continuing to make some adjustments to our portfolio, but what's right in front of us is integrating REV and executing. Do you wanna take the more two questions? Jennifer Kong-Picarello: And, Mig, I think your question on the EBITDA for 12.5%, you're referencing to the new reportable SV sec and that is without Midwest and Lance, and that was last year on a pro forma basis, eleven months. As you know, you're very familiar with REV. We have publicly disclosed a 2027 target at the enterprise level ranging for that 280 basis point margin improvement from 2025 to 2027. And at this point, we see that they're at the top end of the range. And heading towards that direction. So I think for modeling purpose, you could do you know, model that out over the next two years. But they are in line with what they have communicated in their last December 2024 Investor Day, but at the top end of the range. Mig Dobre: That's helpful. Thank you. Lastly, you gave us some context on tariffs, which is good. I'm wondering more broadly from a price cost standpoint, how are you thinking about 2026 and what's embedded in here? Steel has gone up quite a bit of late, and maybe you can comment on any hedges or the cadence of price cost as the year progresses? Jennifer Kong-Picarello: Right. So the terms of steel, you know, we do not import raw steel. And 70% of what we use as an HRC you're right, Mig that you know, the the steel price has increased as expected. As vendors try to sell from The US. We will continue to monitor that closely and execute our hedging contracts. So right now, we have our Q1 and Q2 of our HRC consum still consumption hedge. At a favorable rate of 10 to 15% lower than the forward price. And any of the imported steel fabricated parts is really part of our $130 million of tariffs that we dig into our guide. Of this $4.50 to $5, and that includes REV. Simon Meester: Thank you. Jennifer Kong-Picarello: You're welcome. Operator: Your next question comes from the line of Avi Drosowitz with UBS. Please go ahead. Avi Drosowitz: Hey, good morning. Thanks for taking question. So in terms of the capacity increases within environmental solutions, how much are you expanding capacity are you expecting those to come online? How's that split between yeah. Simon Meester: We're expanding capacity in our utilities business, not in not not in ES per se. We're ramping up our facility in Waukesha, Wisconsin. And we're adding about 20 to 30% capacity over the next two years. And some of that roughly half of that will maybe slightly less half than half of that will come online in 2026. And sorry. I forgot. What was the second part of your question? Avi Drosowitz: Yeah. It was really how, you know, how is this split? And you know, what what is the overall capacity increase that you're thinking of? Simon Meester: Yeah. So it's it's utility says is the smaller segment within environmental solutions, and and we're adding about 20 to 30% over the next two years in utilities. And the reason we feel that that's a justified investment because I mentioned in my prepared remarks that we expect CapEx to grow 8% to 15% for the next five years in utilities just by the nature of upgrading the grid. And, obviously, we we we sell and make products that will help upgrade the grid. So we we expect that that market will be quite bullish for us for the next three to five years. Avi Drosowitz: That makes sense. And then I guess in the sec you had said last year that you were looking at about $25 million of synergies from environmental solutions. By the 2020 So just kinda curious where you are on that progress and if that $25 million plus number is still how you're thinking about for the exit rate for this year. Jennifer Kong-Picarello: Yes. Hi. Good morning. Yes. We actually exited our first year of integrations above that $25 million of run rate synergies. That's the reason why that even with the high utilities growth in 2026 that caused an unfavorable mix in terms of margin, we're still able to hold the margin percentage due to the synergies dropping to into 2026 within the environmental solution segment. Avi Drosowitz: Alright. Simon Meester: Got it. Great. Thank you. Jennifer Kong-Picarello: You're welcome. Thanks. Operator: Your next question comes from the line of Kyle Menges with Citigroup. Please go ahead. Kyle David Menges: And congrats on closing the REV Group deal. I did wanna just double click on the ESG guidance a little bit. I mean, talking about flat guide and I was thinking maybe that would imply that the OE sales portion of that could be down a little bit this year. So I'm curious just what should give investors confidence that this might just just be a blip here in 2026 versus maybe the first year of a softening of this refuse recycling cycle. Yeah. Just just so we're we're we're aligned here. We're we're guiding mid-single digit growth for the environmental solutions as a whole, and then ESG is within that environmental solution we're we're guiding flat for 2026, excluding potential prebuys in the second half twenty twenty six. That would be upside to the guide. So, yeah, we don't we see that that end market as fairly noncyclical. We don't see any kind of we actually see continued growth going into 2030, The only reason we we see ESG within environmental solutions kinda slowing down the growth rate a little bit is just because we're caught up on lead times. We're now back to largely being a a book to bill business, which which is where we were before COVID, So we don't take that as a leading indicator that business might be peaking. It's quite the contrary. We think that that business has a lot of upside. And for for more reasons than than than just GDP growth. There's also fleet modernization going on. There is all sorts of new technology going into that space. So we we see multiple angles for growth in that segment. Great. And then just a couple of questions on Aerials. Sounds like you're planning some pricing for '26. Just would would be good to hear how how the those negotiations have gone, and is as you're entering '26 with the the customers. And then just a a a quick one, just anything to call out in your mix in '26 versus '25 as far as nationals versus independents? Simon Meester: Thank you. Yeah. So for 2026, we we we continue to see most demand coming from replacement in North America and in in Europe and mostly from the the mega projects. We do not we did not bake in any kind of meaningful recovery in in local private construction spend in 2026. We see that more happening in 2027. Fleet utilization is is up year over year. Our our Our national customers are are are quite bullish for the next couple of years because of the mayor projects alone, but the real uplift for the segment will come when local and private construction comes back up. And we we see that happening in 2027 and not in 2026. So that's why the the guide is kind of a little bit of moving sideways here because because of the the private construction spend not not picking up until 2027. Thank you. Operator: Thank you. Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead. Steve Barger: Thanks. Good morning. Simon Meester: Good morning. Simon, on slide four in the emergency vehicle section, there's a note that there's a mandated replacement cycle. What category of vehicles is that, and what percentage of the fleet turns over annually because of mandates? Simon Meester: I that's a good catch. I think that is that every ten years, think you're talking refuse. Steve Barger: Just emergency vehicles. Simon Meester: Emergency vehicles. Let me just look that up where on slide four in the footnotes. Steve Barger: In the let me get back there. It's yeah, emergency vehicle. So the the leftmost box the second bullet large installed base with a consistent and mandated replacement cycle? Simon Meester: Oh oh, I'm sorry. I I got you now. I thought I was looking in the footnotes. You're talking on slide. Okay. Got it. Yeah. Yeah. Yeah. So so, obviously, needs to stay fresh and there is a mandated replacement cycle. There's not a a real number tied to it, per se, but, yeah, within emergency vehicles, municipalities, you know, wanna keep their their fleet with the maximum uptime possible, and that's why they have specific kinda goals and targets around their replacement cycle. That's what that means. Steve Barger: Okay. And I know it's really early in owning REV, but you are maintaining So my question is, just given the size of the backlog and where lead times in the industry are, do you see a path to accelerating production which can result in a higher growth rate maybe not this year, but as you look into '27, and and '28, Simon Meester: Yeah. I mean, the the the industry is obviously investing in in in adding capacity. And optimizing throughput as it should because backlogs need to come down. I mean, they're at two years plus and bookings continue to be strong. And so just to make sure that we, as an industry, industry, that we keep working on bringing our backlogs down, you know, we're we're in investing in capacity, and so and so are we. There's a there's a you know, our our main location in Florida, and our location in South Dakota, we're investing in capacity expansions and and capacity upgrades. And so we think that the kind of the sustainable target for backlog coverage is about a year. And but it it it might take another two years or so before we get to that kind of backlog level. But, yeah, bringing down the backlog is what the focus is right now. And that will lead to a more clear growth. Steve Barger: Right. So so is it possible that business could grow in double digits assuming orders hold up and the backlog coverage is there? While you try and bring those lead times down? And, again, not this year necessarily, but at some point, Simon Meester: Yeah. For now, we are already ahead of you know, specialty people. The segment is already ahead of their Investor Day kinda commitment. And so can we we we don't wanna count ourselves too rich here. We're guiding high single digits, and we think that that's probably a a more realistic outlook, and that's what we're guiding today. Steve Barger: Understood. Thanks. Simon Meester: Yeah. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Simon Meester for closing remarks. Simon Meester: Thank you, operator. If you have any additional questions, please follow-up with Jen or Derek. And with that, thank you for your interest in Terex Corporation. Operator, please disconnect the call. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Neal Nagarajan: Greetings. Welcome to Centrus Energy Fourth Quarter and Full Year 2025 Earnings Call. At this time, I will now turn the conference over to Neal Nagarajan, Senior Vice President, Investor Relations. Thank you. You may begin. Good morning. Neal Nagarajan: Welcome, and thank you to all of our callers as well as those listening to our webcast. Today's call will cover the results for the fourth quarter and full year 2025, ended December 31. Today, we have Amir Vexler, President and Chief Executive Officer, and Todd Tinelli, Chief Financial Officer, Senior Vice President, and Treasurer. This conference call follows our earnings news release issued yesterday. We filed our report for the fourth quarter and full year on Forms 10-Ks earlier today. All of our news releases and SEC filings, including our 10-Ks, 10-Qs, and 8-Ks, are available on our website. A replay of this call will also be available later this morning on the Centrus website. I would like to remind everyone that certain information we may include on this call today may be considered forward-looking information that involves risk and uncertainty, including assumptions around the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10 and quarterly reports on Form 10-Q. Finally, the forward-looking information provided today is time-sensitive and accurate only as of today, February 11, 2026, unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission, or rebroadcast of the call in any form without the expressed written consent of Centrus is strictly prohibited. Thank you for your participation. And I'll now turn the call over to Amir. Amir Vexler: Thank you, Neal, and thank you to everyone on today's call. 2025 was a milestone year for Centrus, punctuated by December's announcement to begin commercial centrifuge manufacturing to address the commercial LEU market and our substantial backlog. Shortly thereafter, in January, the Department of Energy selected Centrus for a $900 million HALEU enrichment award. Our build-out officially ushers in America's return to domestic commercial uranium enrichment with a de-risked, deployment-ready technology that can service both commercial and national security needs. Our first new cascade of centrifuges is expected to come online in 2029, with subsequent cascades to come thereafter. We are continuing to identify and implement opportunities to reduce both our lead time and the unit cost. This effort is being implemented day one. But first, let me turn to our results. There can be a significant amount of quarterly variability in our results due to the nature of our business, and we therefore believe our annual results are more indicative of our progress. For the full year 2025, we achieved $448.7 million in revenue, a gross profit of $117.5 million, and a net income of $77.8 million. The majority of our current revenue is derived from our LEU business, and during the third quarter, Centrus received waivers from the Department of Energy to continue to import LEU for all currently committed deliveries to US customers in 2026 and 2027. This announcement provided greater clarity and helps de-risk that side of our business. Now turning to our future commercial enrichment business and our go-forward roadmap. Our base case build-out will address our substantial commercial LEU enrichment backlog of $2.3 billion and the requirements to the Department of Energy under the HALEU enrichment award. Considering all factors, our base case will include 12 metric tons of HALEU. Further capacity additions will be progressive and depend on both our offtake demand and our capital resources. Importantly, I am pleased to announce that as we continue to pursue additional low-cost capital, our base case build-out is expected to be sufficient to reach our nth of a kind cost. We initially launched our commercial centrifuge manufacturing to address the growing demand for commercial LEU, where we have a time-to-market advantage. Demand for LEU from existing and growing electrification needs will only continue to increase ahead of any AI data center, advanced manufacturing, or hyperscaler demand, while LEU supply is rapidly becoming more constrained. Near-term domestic LEU demand alone is set to increase by approximately 6.5 million SWUs, stemming from Russia's exiting the market and the additional demand from restarts, upgrades, and new pledged reactors. The LEU pricing curve, which has experienced a 24% compound annual growth rate from 2019 to 2025, is an indicator of this increasingly constrained market and pent-up latent demand. National security is another potentially important market. We are currently the only production-ready option for the national security establishment, and in the fourth quarter, we were notified by the National Nuclear Security Administration of its intent to sole source certain uranium enrichment activities from Centrus. This could represent another source of low-cost capital. Speaking of funding, the $900 million HALEU enrichment award has the potential to exceed $1 billion and still needs to be finalized through negotiations. This potential funding, which comes through a procurement and involves neither debt nor equity, would serve two important points. First, it would be another pool of low-cost capital, and we are grateful to our government for recognizing the importance of Centrus to the market. And second, it is supporting the 12 metric tons of HALEU capacity ahead of a commercially viable advanced reactor market. We are positioned to capitalize on these opportunities because we have been laying the groundwork over the previous twelve-plus months. More specifically, these operational efforts include first, our November 2024 supply chain readiness program. Second, successfully completing phase two of the HALEU operations contract by contractually delivering 900 kilograms of HALEU UF6 to the Department of Energy and producing well over one metric ton of HALEU UF6 for the department as of 2025. Third, adding approximately $300 million to our $2.3 billion contingent LEU backlog and making strong progress towards removing these contingencies. Fourth, announcing that we are creating more than 300 new jobs at our Piketon facility and then hiring more than 50 of those new hires in Q4. In 2025, we added over 140 employees combined in Piketon and Oak Ridge. Fifth, initiating design work on our training, operations, and maintenance facility in Piketon, which will include the significant renovation and rehabilitation of existing facilities, and sixth, continuing to identify and implement opportunities to reduce our lead time and unit cost, a day-one activity. Likewise, from a financial standpoint, these efforts include, first, uplisting to the New York Stock Exchange to attract a more diversified set of institutional investors. Second, validating foreign direct investment as another potential source of low-cost capital by signing an MOU with KHMP and POSCO International. And third, raising capital to support the build-out, ending the year with a cash balance of approximately $2 billion. Todd will discuss this in greater depth shortly. Moving forward, we will continue to capitalize on our time-to-market advantage in the domestic LEU market and our first-mover advantage in a global HALEU market. Operational excellence is non-negotiable. Our first Cascade's timeline includes a significant amount of time, effort, and investment at both our facilities to build on our operational momentum. And as part of this effort, it is with great pleasure that I am able to announce that we just recently entered into an agreement with a best-in-class partner, Fluor, who will serve as our primary EPC at Piketon. In an effort to provide stakeholders with greater clarity, we are prepared to provide the following full-year 2026 guidance. From a financial perspective for the year, we are providing the following guidance: Total company revenue of $425 million to $475 million and total capital spend of $350 million to $500 million. And from an operational standpoint, we are providing the following guidance: First, finalizing contracts with our most critical partners, with a focus on those who will require long lead procurements, significant scale items, and complex parts. These will be suppliers for either parts or equipment at either facility. Second, workforce additions across both facilities to total at least 150 net new employees. At least 100 new employees in Oak Ridge, or roughly 25% of the announced 400, and at least 50 new employees in Piketon. Jobs across both locations will include engineers, assembly technicians, maintenance technicians, enrichment operators, lab technicians, project management, and project controls. And finally, and this will be a big achievement from a design perspective, we will be releasing our first certified-for-construction work package in Piketon. This is where the design for a key plant system has completed necessary reviews and is formally signed and stamped for use by construction crews. We additionally expect to have the majority of our construction partners' mobilization completed in Ohio by the end of the year. We expect to be able to provide more details as we continue to make progress, including a timeline for the completion of our first centrifuge produced by our commercial-scale manufacturing process. This will be another groundbreaking milestone as it represents the supply chain coming together and its ability to produce a centrifuge. With that, I will turn the call over to Todd and then come back with some final thoughts. Todd? Todd Tinelli: Thank you, Amir, and good morning to everyone on today's call. Let me first walk you through our results before providing more detail on some of what Amir discussed as well as our financial guidance. 2025 was another great year of execution both on the operational and financial fronts as we fortify and prepare the business ahead on this industrial build-out. Total revenue for 2025 was $448.7 million, a $6.7 million or 1.5% increase over full year 2024. The LEU segment generated $346.2 million in 2025, relatively flat versus $349.9 million over 2024 levels. Importantly, while uranium revenue decreased 54% year over year to $55.6 million due in part to a large one-time uranium sale in 2024, SWU revenue increased 21% year over year or $51.9 million, driven by a 23% increase in the volume of SWU sold. The technical solutions segment delivered $102.5 million in 2025, an increase of $10.4 million or 11% over 2024 levels, driven by a $10.5 million increase in the revenue generated by the HALEU operations contract. Total gross profit for 2025 was $117.5 million, a $6 million or roughly 5% increase over 2024 gross profit. The LEU segment's full-year 2025 cost of sales decreased $21.3 million or 8% to $234.7 million. The 2025 LEU segment gross profit increased $17.6 million or roughly 19% to $111.5 million in 2025, driven primarily by an increase in the volume of SWU sold and an increase in the margin on SWU sales due to contract and pricing mix, partially offset by a decrease in uranium gross profit. The technical solutions segment's 2025 cost of sales increased $22 million or 30% to $96.5 million, driven primarily by a $22.8 million increase in costs incurred under the HALEU operations contract, partially offset by a decrease in costs related to other contracts. That segment's 2025 gross profit decreased $11.6 million or 66% to $6 million due to the aforementioned factors. Phase two costs incurred subsequent to November 2024 have not been subject to a fee as this portion of the contract remains undefinitized and is subject to final resolution. Importantly, we had a scheduled and permitted fourth-quarter shipment from Russia that did not leave as expected due to a shipping issue. That shipment, which was pushed out to 2026, would have driven down the average cost per SWU and positively impacted gross margin and net income. In addition, in the year, we experienced nonrecurring G&A costs of $3.6 million and $1.1 million related to voluntary tax withholdings and CFO transition costs, respectively. To provide a better picture of our earnings and account for potential variances in future shipments, as well as our quarterly earnings fluctuations, next quarter, we will begin to present financials in both a quarterly as well as a trailing twelve-month format. Turning to our backlog. As of December 31, 2025, the total company backlog stood at $3.8 billion and extends to 2040. The LEU segment backlog was approximately $2.9 billion. This includes future SWU and uranium deliveries primarily under medium and long-term contracts with fixed commitments, as well as the $2.3 billion in contingent LEU sale contracts and commitments, with $2.1 billion of the total under definitive agreements and $200 million of the total subject to entering into definitive agreements. Our technical solutions segment backlog is approximately $900 million as of December 31, 2025, which includes funded amounts, unfunded amounts, and unexercised options. The options relate to the company's HALEU operations contract. Turning to our capitalization. In 2025, we raised gross proceeds of $533.6 million through two ATM programs. We raised gross proceeds of $390.4 million through our recently announced November 2025 ATM program at an average of $269.21 per share. Combined with our cash generated by our business and oversubscribed August convertible senior note issuance, we ended the year with an unrestricted cash balance of $2 billion. And as Amir noted, we were recently selected for the $900 million HALEU enrichment award, which could increase to just over $1 billion with $170 million of additional options. We are still in the process of negotiating our final contract with the DOE, which will be based on milestone payments. With our funding and our line of sight to customer demand, as of now, we plan to have HALEU production online before the end of the decade and to produce 12 metric tons of HALEU per year thereafter. Our war chest provides Centrus with the ability to begin funding our operations to stand up our supply chain while making the necessary investments in our facilities, machinery, partners, and workforce as part of the build-out. Going forward, we will continue to prudently shape our balance sheet to support this large, first-of-a-kind industrial build-out of one-of-a-kind centrifuge technology that can meet both commercial and national security requirements. We believe we are sufficiently funded to meet our near-term capital requirements, and our current LEU backlog and potential HALEU enrichment awards should allow us to meet our milestone of reaching end-of-a-kind cost. We are simultaneously pursuing other avenues of low-cost capital to continue to strengthen our capital stack, including national security-related funding, future prepayment or offtake arrangements, and potential foreign direct investments. Maintaining a healthy cash balance provides additional flexibility to negotiate with any of these potential partners while also moving us closer to removing the contingency around our LEU enrichment backlog. Turning to guidance. As Amir discussed, we are providing both financial and operational guidance. Let me dive deeper into the financial points we discussed. For 2026, we are providing the following financial guidance: Total company revenue of $425 million to $475 million, with the midpoint of $450 million representing flat year-over-year growth, and total capital deployment of $350 million to $500 million. 2026 capital deployment will also include prepaid expenses that did not prepare as CapEx but impact free cash flow as we invest in our partners as they scale up ahead of our production. With that, I will turn it back to Amir. Amir Vexler: Thanks, Todd. Our strategy to build both LEU and HALEU capacity is a clear signal to potential customers that Centrus has achieved an important inflection point and is prepared to meet future enrichment needs. Absent Centrus, the market must rely on a duopoly of state-backed competitors with a shared single point of failure centrifuge manufacturing risk. Providing Centrus with orders de-risks customers' businesses and provides us with the clarity needed to stand up our operations. On the LEU side, the technology was already proven, and so too now is our role in the LEU enrichment supply chain. The projected gap between supply and demand for both domestic and international markets is significant. Unleash American energy dominance and energy security. On the HALEU side, we are now going to build out capacity and capitalize on our first-mover advantage. We were already in conversation with hyperscalers for future prepayment or offtake-like agreements, another potential source of low-cost capital financing. Here, we demonstrate that we expect to have at least some capacity ready before the end of the decade and ahead of the advanced reactor market maturing. And for our government, we thank you again for the award and look forward to supporting the national security establishment to our fullest ability. We are embarking on a vital industrial build-out to support the global nuclear industry's growth and America's energy independence. We look forward to updating you with more as we embark on this exciting new step. With that, I will turn the call over to the operator for questions. Operator? Operator: Thank you. We will now 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. And for participants using speaker equipment, it may be necessary to pick up your handset. We ask that you please limit to one question. Our first question is from Ryan Fait with B. Riley Securities. Please proceed. Ryan Fait: Yeah. Good morning, guys. Thanks for taking my question. Maybe we could talk about the timeline a little bit more. It sounds like you're looking to improve on the forty-two-month forecast that you've talked about in the past. Can you talk about some of the potential initiatives that might help pull that forward, whether it's more funding, other federal programs, or anything else we should be aware of? Amir Vexler: Morning, Ryan. Appreciate your question. Thank you for calling today. You're pointing to an area that is increasingly important to us, obviously, as we now embark on actual manufacturing of centrifuges and fulfilling some of our commitments. Execution is becoming and has become a priority for us. And so, as I've stated earlier in the remarks, continuous improvement and the ability to reduce unit cost and go faster is paramount as we build out our capacity. We have to do it in parallel, and I will tell you that we have quite a few folks dedicated to this, and we're dedicating resources to this. And it is evident to me that we already have a good list of opportunities that we're executing on. We have a good list of partners that we've announced. For example, Fluor, which we're very proud of that partnership. They're best in class. Not announced and others that we're working with that we have the future, we'll make announcements related to that. All this to say that being able to go more efficiently, reducing unit cost, and going faster is a priority for us, as I said, day one, and we're executing on it in parallel. And stay tuned for more updates as we continue with the process. Ryan Fait: Great. Thanks, Amir. Operator: Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed. Rob Brown: Good morning, and congratulations on all the progress. On the commercialization side of the LEU commercialization, is that capacity ramp sort of similar timeline of the HALEU ramp? And when does that kinda reach a point where you have that backlog turn from contingent to sort of final? Amir Vexler: Well, good morning. Thanks for calling in and for the question. Let me just maybe repeat the question, make sure that I'm answering the right one. Your question, first of all, is around the contingency associated with our sales and when does that turn into a firm commitment. Did I get it right? Rob Brown: Yeah. Correct. Thank you. Amir Vexler: Yeah. So this is not something that, at this point, we will get into a lot of contractual details. Needless to say that we, as I stated before, we have the intention and the plan, and we're progressing towards fulfilling our commitments. This backlog of LEU commitments that we've announced is extremely important to us. And, again, I will not comment specifically on the details of the contractual arrangements. But this is exactly what we're executing towards in having a reinvention to meet our commitment. Rob Brown: Okay. Thanks, Amir. I'll turn it over. Amir Vexler: Thank you very much. Operator: Our next question is from Eric Stine with Craig Hallum Capital Group. Please proceed. Eric Stine: Good morning, everyone. So maybe just Hey, good morning. Good morning. Hey, on the CapEx, appreciate the CapEx guidance for 26,000,000. If you could talk about if possible, maybe the linearity of that CapEx expected throughout the year? And then also, as we think about the number that you gave, is that kind of a representative number you know, on an annual basis as you work towards that initial know, 2029 operational date, Or, I mean, is this a number that yeah, is more representative? It's the first year, and you likely you know, it either increases from there or is lower going forward. Todd Tinelli: Yeah. Thanks for calling in. What I would say is looking past 2026, obviously, CapEx spend and the manufacturing process gets more linear. Currently, right now, you know, the number that we have provided for guidance is capital spend. So that does include some long lead procurement, potential prepayments on supplier agreements, and also engineering work at our Piketon facility. So the first year is not indicative of the linear spend that I anticipate seeing in the twenty-seven through twenty-nine period due to those factors. What I will say is as we move through the year, anytime that we see an adjustment, we'll reflect that in the guidance. And we'll try to keep you it's why we wanna inform the investors the best way we can. On where we're gonna be over the next twelve months, but also on what demand shapes out to be you know, from a plant standpoint at both manufacturing and Piketon. And, you know, we'll work towards you know, fine-tuning that guidance. But the initial year does include some prepayments and long lead procurement. Eric Stine: Okay. Thank you. Operator: Our next question is from Jed Dorsheimer with William Blair. Please proceed. Jed Dorsheimer: Hi, guys. Thanks for taking my question. Congrats on the progress. I guess, you know, for my one question, just the achieving the nth of a kind, it you know, I'm just wondering if I'm reading into this correctly. I had always assumed that, you know, maybe it took the 3,500,000 SWU to achieve that, and it sounds like that's not the case. You can achieve that target with less capacity. And so I'm just curious if you might be able to give a little bit more framework on the relative capacity to achieving the nth of a kind target. Thanks. Amir Vexler: Yes. Good morning, Jed. Thanks for calling in. Good question. The nth of a kind will be achieved way before the 3,000,000. So as you mentioned, I would have to say that in my view, this is an important announcement to make to the analysts here, to shareholders and investors. As you know, one of the greatest obstacles for any new entry into the market is the nth of a kind cost. And the fact that we are commencing, we're building towards certain, you know, volume and capacity. And the fact that we are able to get through the first of a kind in this short period of time, I think, is remarkably important. As always, I'm very careful. We are not disclosing full costs, and so I will stop there. But I believe I answered your question. And like I said, the fact that we're crossing the nth of a kind cost is a big announcement, a big achievement for us. Jed Dorsheimer: You did. Thanks. Amir Vexler: Great. Thank you. Operator: Our next question is from Joseph Reagor with ROTH Capital. Please proceed. Joseph Reagor: I guess most of my questions have been answered, but just to kinda touch on, you know, looking forward a couple of years, has the government started to come around on this January 1, 2028, cutoff for Russia imports? Has there been any willingness to discuss that, you know, given domestically, you guys should be first to market that there isn't really gonna be supply in 2028, 2029 domestically? Amir Vexler: Yeah. Well, another good question, and thank you for calling in as well. I can give you my perspective from interfacing with customers, potential customers, be they on the LEU side, or on the HALEU side? In other words, the existing commercial fleet, or the advanced reactors that are being built, it seems like there's a lot of demand that is being stacked up in around those years towards the end of the decade. We are seeing a lot of demand there. On the government side, I really can't report anything because, you know, there's nothing really to report. We're not there's nothing out there in the public domain that expresses any concerns. But as you know, the real concerns and the real push will come from the customers, the industry, the utilities themselves if and when the problem presents itself. Some of the leading indicators, as I mentioned earlier, we are already experiencing in the form of intense discussions and discussions around HALEU. As you know, we're bringing HALEU supply ahead of advanced reactors being commercially viable. And so that creates a lot of demand as well. Just as a reminder, HALEU is not only enrichment of HALEU. It requires a significant enrichment of LEU and LEU capacity as well. So you have a force multiplier there that will only kind of reveal itself in the next few years. But back to your original question, nothing to report from the government side. And if the government will take note of it, they would most definitely will have to start from the utilities and the customers themselves pointing it out as a problem. Joseph Reagor: Okay. I'll turn it over. Operator: Our next question is from David Chloe with UBS. David Chloe: Hey, everyone. Good morning. Thanks for taking my question. I guess, quick, the 26 guide is flat year over year for revenue. Just wondering if you could kind of remind us of some of the contract dynamics for your long-term supply arrangements. And then also, if and when we should expect to see any kind of step up in line with some of the changes we've seen in long-term SWU prices in line with some of the indices. Thank you. Todd Tinelli: Yeah. So our guidance is flat. We picked the, you know, the midpoint and obviously, there's a number of factors, obviously, around that guidance. As we mentioned on the call, you know, we did have one shipment that obviously impacted our year-end results for gross profit all the way down to net income and earnings per share. And these are some of the challenges that we face just with normal shipping delays. I would say this was not due to any permitting or any waivers that had to go with wrong with any Russian material. But we see upside to our guide potential guidance. The market continues to improve itself. We've seen some record high spot prices in SWU. We hope those dynamics continue. And, you know, a lot of our supply is contracted both from two foreign sources. We feel comfortable with our supply side. Our goal is to maximize the margin on the revenue side and sales to our customer. Operator: Our next question is from Jeff Grampp with Northland Capital Markets. Please proceed. Jeff Grampp: Good morning. My question is regarding the timeline that you guys have put out to initial enrichment capacity. I'm curious, are there more important milestones or roadblocks that would more tangibly de-risk the timeline that you guys have put out that you could communicate along the way? And what might those be? Just kind of wondering how you guys are able to communicate publicly progress towards de-risking that timeline. Thank you. Amir Vexler: Yeah. Well, thanks for calling in. Another great question on execution here. So if you think about lead times to production, a lot of it has to do with our own cycle times, our supplier cycle times, the lead times that we can get our suppliers to commit to, how we configure our supply chain. All of these are being worked on, as I said, as we speak right now and in parallel with our actual initial build of the centrifuges. We do, as I said earlier, we do look at different partners, different ways that we can be more efficient and faster. I foresee that when those mature and there's something to report, we certainly will be very transparent in how we announce them. You know, we will uncover efficiencies as we go through the process, and I'm sure that there will be more announcements that will be made. I believe I answered the question. I think it's important to know that we do see demand peaking around the time of when we are bringing our capacity. And to the earlier question by the earlier analyst around issues around misalignment of supply and demand, we're predicting that that would be the case. We predict that there would be issues around supply and the ability to meet the demand. So we're doing everything in our power to be able to expedite that to the market. And, again, the example that I used there if we start seeing real committing demand for HALEU, which we're already in discussions with several OEMs, and we're starting to see that happen, especially after we got the announcement out on the award for the $900 million from the DOE. We're seeing great engagement from a lot of the OEMs. Once those start becoming reality, and I predict they will very soon, then that creates huge demand for LEU as well. And so I think all of that is going to become a lot clearer as we step through the major milestones this year and then in the next few years. Todd Tinelli: And I just will add that the importance of our supply chain is critical. We're working very diligently on making sure our supply chain meets national security needs. So, you know, those steps in order to meet that supply chain requirements we have to be careful with. We have to be prudent and make sure that we cover all of our bases. Once we achieve, you know, those supply chain requirements for national security, it allows us to move a little quicker. And so, you know, we'll continue to provide updates throughout the year and in future quarters on how those milestones can be tracked, and we'll hold ourselves accountable. Jeff Grampp: I appreciate those thoughts. Thank you, guys. Operator: Our next question is from Vikram Bagri with Citigroup. Please proceed. Vikram Bagri: Could you talk about the HALEU production target that you have on a metric ton basis? It looks like it's roughly enough for an initial load for one of the advanced reactors. So could you just confirm whether that quantity includes both an assumption of market demands as well as the demand that you see from the DOE task orders? Amir Vexler: Yes. Yeah. Good morning. Thank you for that question. The way I read your question is around the capacity and what that capacity actually means for the industry in terms of the ability to satisfy some of the initial cores or what they may be. We gotta remember the intent of the DOE program was to stimulate the market. So here we had a market where there was not necessarily demand that anybody could commit to. And the Department of Energy had widely said, well, we're gonna do is we're gonna invest. We're gonna create the capacity and then we're gonna allow the OEMs to contract for that capacity. And exactly as they planned, we're starting to see that. We're seeing the OEMs now lining up and having discussions and conversations for the capacity that's gonna become available. More specifically to what does that number represent, it depends on the design. It depends on the specific OEM, the size of the reactor, it depends on how they're gonna configure their supply chain and what enrichment they would require. I will point out two things to you that number one, we did say that it is our full intention to have both LEU and HALEU capacity, and we're progressing on those fronts. And it is our intention to serve the commercial and national security needs, and we're progressing on those two fronts as well. And so there's really no specific answer to that other than the fact that we will continue expanding our plans if need be, and we're pushing as hard as we can to get as much offtake as possible and in demand as possible. And if need be, our plans would be expanded accordingly. This is a good kickoff and starting point for us in terms of our capacity assumptions. Vikram Bagri: Got it. Very helpful. I have one follow-up. Just in terms of the guidance, could you just remind us how pricing is set in the contracts? Are you able to talk about what portion of the planned deliveries for 2026 already have the cost of supply fixed? Todd Tinelli: Yeah, so in guidance, we don't comment on the contractual makeup of our contracts. What we have said is we do have secure supply from two foreign sources. And, you know, that allows us to get comfort around our guidance and secured that we have everything in place, both waivers and, you know, as I said, normal shipping channels to move forward. Operator: Our next question is from Steven Gennaro with Stifel. Please proceed. Steven Gennaro: Thanks. Good morning, everybody. Amir Vexler: Good morning, Steven. Steven Gennaro: I was curious what you could tell us on this from when we think about the CapEx you're spending to build out capacity over the next decade, how do you think about the evolution of SWU prices to sort of support the economics behind it? And I know you're not gonna give me an exact number, but, like, how do we think about through for HALEU and LEU? And just in your mind, like, how does that dynamic play out? Amir Vexler: Yeah. Good. Thanks for that question, Steven. Thanks for calling in today. I think it's an important topic to discuss because, you know, we talk a lot about cost, which is a very important part of the project and the elements that we're considering. Likewise, the SWU prices out there and our ability to contract for higher SWU prices or more favorable SWU prices is a major consideration for us. So I think the question of, well, how do you see this SWU prices sort of momentum in the market, I think, is something we discuss and debate and monitor very closely internally. The SWU prices, in my view, are gonna adjust down only if one of two things happen. Well, if one of two things happens. Either demand goes down, in other words, we're gonna start shutting down reactors, or basically, the supply side is gonna outpace the demand. I sure hope that the former does not happen. There's no indications of that. And for the latter, most of the announced expansions, either it's us or our competitors, is based on contracted SWUs. So there is really nobody out there that is building what I call just-in-case or ready-to-serve SWUs that they will be eager to get off and sell on the market. All this to say that my view is that as supply becomes tighter towards the end of the decade, and as utilities start going out for bids, I think that would continue to apply upward pressure on SWU prices. And so that obviously strengthens our business case. That strengthens our investment, our case for our shareholders. And that really is how I view the situation. Now this doesn't even include some of the extra and the bonus and opportunities that are out there. So, you know, if advanced reactors become a dominant force in the market, you know, somebody comes out and announces a major build of advanced reactors, that is gonna apply even further pressure on not only HALEU and, as I mentioned earlier, on LEU SWU capacity as well. I think that that would be a big upside and a big opportunity as well. You know, we went through a major geopolitical event where the largest producer of enrichment in the world has really been not gonna be trading in the Western market. And I think the ramifications and the ripples of that are not gonna be settled for a long time in my view. Steven Gennaro: Great. Well, that's great color. Thank you. Operator: Our next question is from Sameer Joshi with H. C. Wainwright. Please proceed. Sameer Joshi: Thanks for taking my questions, and congrats on the good progress. The question is about the $900 million from the task order DOE task order. Given that advanced reactors are likely to come online towards the end of the decade, should we expect this ten-year contract to really be a five-year contract and, like, get the money upfront loaded? Amir Vexler: Well, good morning. Thank you for calling, and really good topic to talk about. So, as I mentioned earlier, we now are in discussions with numerous folks about their needs, what we can supply, and some commercial discussions are taking place as well. The way I view it is we will be looking to maximize the commitments from suppliers. Obviously, longer-term commitments are more favorable to us. That would be reflected in the pricing as well. I mean, when you look at contract pricing, it takes all of that into account. You know, your question was about front-loading some of these contracts from a cash perspective. I mean, obviously, these are all the things that we constantly try to optimize, and we will continue to try to optimize in the best interest of our shareholders. Particularly that most of the SWUs that we're selling is what I call expansion SWUs. These are SWUs that we're investing capital in. So absolutely, we will be looking to optimize all of these things. Beyond that, comments about any specific contracts or terms and conditions, I'll refrain from discussing here. Operator: Our next question is from Bill Peterson with JPMorgan. Please proceed. Bill Peterson: Yes. Hi. Good morning, Amir and Todd. Thanks for all the details, including the guidance parameters for the year. I was wondering if you can double-click on what opportunities you have to pull in the forty-two-month time frame you spoke of as well as, I'd say, to build out more broadly. I guess what I'm getting at is what's under your control versus suppliers or other third parties? How much is contingent on additional financing? Negotiations with suppliers and partners, or think you alluded to already, or government approvals related to national security? Amir Vexler: Yeah. Well, good morning, Bill. Thanks for that question. I think that what you're double-clicking on is exactly the areas of the most important conversations we're having internally right now. I said, execution is paramount. Meeting our commitments is paramount. In parallel with that, we gotta be able to generate opportunities and do better than what we committed to. If you look at what are those opportunities, and I'm just gonna general terms and general themes, we're very unique in that we're building our own centrifuges. We have the capability, obviously, to build our centrifuges. We have partners that are suppliers. And so a lot of what we do is really within our and we have a pretty wide range of motion in being able to generate the opportunities. So, for example, things like cycle time around some of the components that we manufacture. Working, incentivizing, and structuring contracts, and relationships with suppliers to incentivize them for shorter lead times, and ensuring that we structure our oversight, ensuring that we structure our own processes, to yield best quality first time, best yield that we can. To me, this is fundamental elementary manufacturing excellence. And we are partnering, bringing people that specialize in it, utilizing every piece of knowledge and experience that are out there to come and help us. And so far, I have been pleased with the progress. And as I said earlier, we are really looking forward to making more announcements around how we're doing, who we're partnering with, and what value that brings to the project and the shareholder. I don't know that I will be able to go more specific than that, but in general, these are the themes that we're attacking, and as I said numerous times, I think this is one of the most important topics that we're applying energy into at the present time. Todd Tinelli: And I'll just add, you know, one of the important factors on deploying capital is having a well-capitalized balance sheet. Our line of sight to our spend not only over the next twelve months but twenty-four months allows us to make sure that we can deploy capital without slowing down that timeline, regardless of market conditions. We do not wanna be forced in any downward market conditions to be raising expensive capital and negatively impacting our shareholders. So, you know, we'll be optimistic and opportunistic with, you know, our balance sheet to make sure we're capitalized to cover ourselves that we do not slow down that timeline in deploying capital to meet our manufacturing rates. Bill Peterson: Appreciate the color, Amir, Todd. Amir Vexler: Thank you. Operator: Our next question is from Lawson Winder with Bank of America. Please proceed. Lawson Winder: Operator, and hello, Amir and Todd. Thank you for today's update. I'd like to also say congratulations on the $900 million to support your HALEU buildout. In that vein, I'd like to just dig down on something that might be a really obvious question, but I'm just not totally clear on it. And that is longer term, what is your sourcing strategy for the LEU feed for the HALEU? And maybe put another way, how much of your LEU production will be captive to your HALEU production? And how much of that $3,500,000 SWU then will be available to satisfy LEU primary demand? And then further, if the LEU capacity isn't available to meet the HALEU feed, you know, what are the options, you know, particularly given that the Russian supply will be going away after 2028? Amir Vexler: Alright. Good morning. Good question. I'm gonna answer your question very generally. And please let me know if there's more specific details that I can provide. From a general perspective, it is our intention, our plan, our goal, our strategy to maximize the capacity of the facility that we're building. As I said, we kicked off with a certain base case from which we're gonna build progressively. And that would depend on customer commitments, which we are actively soliciting and getting great engagement as of the announcement of the $900 million. Those commitments would be able to drive our continued volume expansion of LEU and/or HALEU depending on the contract type. For our HALEU customers, just from general terms, it would be my intention to want to optimize the SWUs that we provide, which means that I would try to have a contract that includes providing HALEU and providing the LEU. And obviously, to be able to enrich both. So I'm not really commenting on any specific contract or any specific discussion or negotiation that we have in play, but it is our intention to be able to provide both LEU enrichment and HALEU enrichment to the optimal and maximal capacity that we can. And to your second part of the question, if, let's for example, hypothetically speaking, if you have a HALEU contract for which you don't have sufficient LEU feed, I mean, that usually contractually speaking is not an issue. You know? There are contracting mechanisms either by ourselves or the customers that are able to utilize other suppliers for that. Now I earlier said that I foresee that there's gonna be tightness towards the end of the decade. So notwithstanding that comment, we have the ability or the customers have the ability to contract feed should that be needed. But to my overall theme, we're gonna try to optimize the max both because economies of scale for the facility are important. Lawson Winder: Okay. Thank you very much. That's fantastic color. Thank you. Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to Neal for closing remarks. Neal Nagarajan: Thank you, operator. This will conclude our investor call for the fourth quarter and full year 2025. As always, I want to thank our listeners online and our analysts who called in. Look forward to speaking with you again next quarter. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Unity Software Inc. Q4 2025 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead. Alex Giaimo: Thank you. Good morning, everyone. Welcome to Unity Software Inc.'s fourth quarter 2025 earnings call. Today, I'm joined by our CEO, Matthew Bromberg, and our CFO, Jarrod Yahes. Before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends, and expectations for future financial performance, all of which are subject to risks, uncertainties, and assumptions. You can find more information about these risks and uncertainties in the risk factor section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. Finally, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is available in our press release and on the sec.gov website. And with that, I'll turn it over to Matthew Bromberg. Matthew Bromberg: Thank you, Alex. Good morning, everyone. On behalf of all of us at Unity Software Inc. from across the globe, I'd like to thank each of you for joining us today. When the environment gets noisy, it's always clarifying to tune back into performance and the underlying product and market dynamics that produce it. It's in that spirit that I'll begin this morning by offering some broader context for why we've never been more excited about Unity Software Inc.'s future. Our fourth quarter results once again comfortably exceeded the high end of our guidance, led by exceptional performance from Vector, which experienced its third consecutive quarter of mid-teen sequential revenue growth. Vector revenue has grown 53% in the first three quarters since its launch, and we believe we are still very much at the beginning of the trajectory. This January was Vector's best revenue month ever, larger even than the holiday record set in December, and 72% larger than January. By 2026, we expect the quarterly revenue run rate for Vector to be comfortably more than $1 billion a year. We could not be more optimistic about how this business is scaling and the value it is delivering to our customers. Throughout 2025 and into 2026, this incredible growth in Vector, the sharp decline in the IronSource ad network has at times masked that dynamic, however, is swiftly drawing to a close, which will materially enhance growth rates and profitability in our advertising business as a whole in the years ahead. IronSource ad network will represent less than 6% of total Unity Software Inc. revenue in the first quarter and will become an even smaller component of our financial profile over time. And this isn't just a shift in revenue, it's a shift in quality. We are displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. The success we're seeing in our advertising business has been mirrored by the return to growth of our software business, where 2025 showcased the fastest year-over-year growth in Create in more than two years. And this growth is truly global in nature. Over the course of the year, our Create business is up nearly 50% in China, the world's largest video game market, driven by our unique interoperability with local operating platforms like Open Harmony and compatibility with popular consumer channels like WeChat. Unity Software Inc. is the global abstraction layer that allows a developer to write once and deploy everywhere, so that no one has to choose, for example, between building a WeChat mini-game and a high-end iPhone release; they can have both at the push of a button. Unity 6 is being adopted more quickly than any version in our history, and as a reminder, it's for around 90% of our active creators completely free to use. Our customers typically only pay us once they've built successful games, which by definition includes wiring a full suite of infrastructure, modernization, and content optimization tools to the Unity Software Inc. platform. Tools which might be developed by us, but because we are an open and extensible platform, might just as likely be offered by third parties or even self-built. This is what we mean when we say we're the assembly point for interactive content creation. And when that creation is ready to meet its audience, the Unity Software Inc. runtime is the universal bridge that connects imagination to execution, ensuring that regardless of the hardware or platform, the experience remains seamless and performant. Our runtime doesn't just display pixels; it serves as the persistent foundation that manages the complex interplay of physics, input, and networking across devices, making Unity Software Inc. not just a tool for building, but the standard for deploying interactive content globally. New creative tools like emerging world models that make it possible to generate high-quality interactive assets from simple no-code prompts are a massive opportunity for Unity Software Inc. and should greatly increase the market for interactive creation. The Unity Software Inc. engine is not an asset generator, and it never has been. Assets have always been created largely outside of our software. We'll transform these new assets, enabling them to be brought directly into Unity Software Inc.'s platform and adding the physics, game logic, infrastructure, and distribution systems to turn them into full-fledged games, making it possible for our customers to run multibillion-dollar live service businesses. As we increasingly integrate native AI into the creation process, Unity Software Inc. will become easier to use, which will draw more customers into the world of interactive content creation than ever before. This explosion of new asset types, new creators, and new games will also drive our advertising business. The primary challenge then becomes discovery. As the amount of content multiplies, how will consumers find the next thing they really want to play? And that's where Vector comes in. As it grows and becomes ever more efficient at understanding consumer preferences, it will become more effective at making high-quality recommendations. We expect this dynamic will be a tailwind for Unity Software Inc. for many years to come. With all that as a context, now let's look ahead to what we're building and delivering to the market in 2026. We'll begin our advertising business with Vector. Last year was about laying the foundation, modernizing our tech stack, and improving our capabilities to customers by delivering both improved install volumes and ROAS across geos, genres, and platforms. 2026, however, will be about taking the next leap forward. Over the course of Q1, we will scale our testing of runtime engine data, with the expectation that it will be live in Vector during Q2. This milestone has been made possible through a great deal of hard work over the last two years, and we're really proud of the team for getting us to the launch threshold. As we've mentioned previously, we don't anticipate that the inclusion of runtime data will produce a lightning strike moment, but rather it's our conviction that the addition of highly behavioral data will result in significant compounding model improvements over time. What makes Vector different isn't just the quality of our AI model; it will also be the quality of the signal. We're moving beyond capturing clicks towards fully understanding how users interact with the game world, what engages them, how they progress, and where they find value. Our runtime will enable us to interpret this unique deep behavioral signal and provide more value to our advertising customers for years to come. As the signal improves, modeling becomes even more valuable. So we're optimistic about marrying these runtime data advances with the long list of planned product improvements to be delivered in Vector over the course of 2026. One of those product improvements already in beta and having a positive impact is our day 28 ROAS feature, which enables customers to manage their campaigns based on longer time horizons. There will be many such improvements over the course of the year, and we expect runtime data will boost the impact of everything we do. In our Create business, we expect 2026 will also be a year of fundamental transformation. While continuing to deliver a roadmap to customers that provides enhancements to the product they depend on every day, we will make fundamental advances in two areas: collaboration and AI authoring, both of which we expect will meaningfully grow our addressable market. Let's take collaboration first. In 2026, Unity Software Inc. authoring work will become largely accessible by web browser, no download required, with project and gameplay views shareable with a one-click URL. This shift will, for the first time, enable software developers, who are currently our only customers, to collaborate seamlessly with the artists, designers, product managers, back-end developers, and executives that comprise the full creative team, massively expanding Unity Software Inc.'s utility and the size of our addressable market. Our first steps in enabling this vision of the future can be glimpsed today in Unity Studio, our recently announced no-code 3D editor that's already in beta for industry customers today. By moving the Unity Software Inc. environment to the browser, we are moving 3D creation out of a siloed local install into a live collaborative workspace, bringing the business and creative stakeholders directly into the heart of the project. For every current Unity Software Inc. developer, there are a multitude of others working collaboratively on each project who will benefit from access. We're excited to drive this expansion of the Unity Software Inc. platform in 2026. AI-driven authoring is our second major area of focus for 2026. At the Game Developer Conference in March, we'll be unveiling a beta of the new upgraded Unity AI, which will enable developers to prompt full casual games into existence with natural language only, native to our platform, so it's simple to move from prototype to finished product. This assistant will be powered by our unique understanding of the project context and our runtime, while leveraging the best frontier models that exist. We believe together this combination will provide more efficient, more effective results to game developers than general-purpose models alone. AI inside Unity Software Inc. will lower the barrier to entry, raise productivity for existing users, and democratize game development for non-coders. When combined with our new web-accessible authoring environment, our goal is to remove as much friction from the creative process as possible, becoming the universal bridge between that first spark of creativity and a successful, scalable, and enduring digital experience. And to better enable these new creators to build their businesses, Unity Software Inc.'s toolset will include our newly enhanced in-app purchase commerce offerings. These also move into early access next week, with general availability in Q2. By integrating monetization and commerce directly into the AI authoring flow, we won't just make it easier to make games; we'll make it easier to succeed with them. When you look at all these pieces together, the compounding intelligence and performance of Vector, the accessibility of Unity Software Inc. in the browser, and the massive potential tailwind presented by AI authoring, the picture becomes clear. We're moving from a world where game development was the province of the few to one where it will be accessible to the many. This is what we've always called the democratization of game development, and it is in our DNA. Unity Software Inc. is the common denominator in this transition. We'll provide the platform to create interactive content, the engine that renders it, the runtime that connects it to players, and the advertising stack that helps consumers discover it. With that, I'll pass over to Jarrod Yahes for an overview of our financial performance. Jarrod Yahes: Thanks, Matt, and good morning, everyone. Unity Software Inc. had exceptional momentum in the fourth quarter, which translated into the fastest growth and the highest margin we've experienced in the past two years. Our execution and ability to hit our targets is improving, becoming more consistent. And as expected, that accelerating organic growth paired with high contribution margins is enabling operating leverage and driving free cash flows. In the fourth quarter, we had strong performance across both Grow and Create. Grow revenue in the fourth quarter was $338 million, up 6% sequentially and up 11% year over year. Revenue upside compared to our guidance was driven by the exceptional performance of Vector. Vector experienced yet another quarter of mid-teen sequential growth, its third in a row, driven in part by a robust holiday season. As a point of context, Vector added more incremental dollars in the fourth quarter than in any prior quarter. January was Vector's best month ever, and we remain extremely confident that our ad business remains in the early innings of a multiyear growth story. In the fourth quarter, Vector represented 56% of Grow revenue, up from 49% just two quarters ago. Grow results in the fourth quarter were impacted by a $7 million sequential revenue decline in the IronSource ad network, which represented 11% of Grow revenue for the quarter. Our internal analysis shows that Vector's ongoing strength is almost entirely coming from incremental advertiser demand and improved conversion performance rather than a shift over from customers who've been reducing spend with IronSource. In Create revenue was $165 million, up 8% year over year. As a reminder, we lapped $10 million in non-strategic Create revenue from 2024. Excluding the impact of non-strategic revenue, our Create business grew an extremely healthy 16% year over year, powered by strength in our subscription business. Revenue growth accelerated during 2025 as customer contract renewals and related price increases took effect. We also exhibited extremely strong growth momentum in our Create business in China this year. Our commitment to product stability and performance, coupled with a successful rollout of annual price increases and an improved go-to-market approach, has now translated into consistent steadier growth for our Create business. Turning from revenue to non-GAAP profitability, adjusted EBITDA for the quarter was solidly above our expectations at $125 million, representing 25% margins, an improvement of 200 basis points both year over year and sequentially. We were able to achieve this despite significant sales and marketing spend in the quarter for our UNITE conference in Barcelona and additional accruals associated with sales commissions and annual performance bonuses. We also experienced elevated R&D spend due to significant increases in cloud spend and additional AI hiring. I would like to touch on some key financial highlights from 2025 that underscore how our strategy is beginning to result in faster organic revenue growth and improved profitability and cash flow. Firstly, organic year-over-year revenue growth has been accelerating in each of Create and Grow as well as Unity Software Inc. in the aggregate. Year-over-year growth has accelerated every quarter throughout 2025. Secondly, our focus on cost discipline and prudent capital allocation has demonstrably benefited profitability and cash flow. In 2025, we increased adjusted EBITDA margins to 22% while converting an impressive 99% of our adjusted EBITDA to free cash flow. As a result, Unity Software Inc.'s free cash flow grew 41% in 2025 to just over $400 million. Free cash flow margins expanded more than adjusted EBITDA margins by 600 basis points, highlighting Unity Software Inc.'s ability to meaningfully scale flow as revenue grows. Cash flow benefited from positive working capital contributions combined with a significant reduction of restructuring charges. In 2025, we also made impressive progress in our path towards GAAP profitability, including reducing our stock comp expense by 19%. As a result, stock comp expense as a percentage of revenues declined from 33% in 2024 to 21% in 2025. And lastly, before turning to guidance, we exited the year with a strong balance sheet. And with that, future obligations using cash on the balance sheet and cash generated from our business. We successfully refinanced $690 million of our 2020 convertible notes, extending those maturities into 2030. And a highly cash flow generative business, we are confident in our ability to pay off with over $2 billion in cash on hand. I'd now like to turn to guidance for the first quarter. We're expecting total first quarter revenues of $480 million to $490 million and adjusted EBITDA of $105 million to $110 million. In Grow, we are forecasting revenue to be flat on a sequential basis, due primarily to seasonality as we come off the holiday-rich fourth quarter and with two fewer calendar days in Q1. Despite these dynamics, we expect Vector to grow 10% sequentially in the first quarter, and we expect Grow to return to sequential growth in the second quarter powered by continued strength from Vector. In Create, we are forecasting double-digit year-over-year revenue growth in the first quarter, excluding the impact of non-strategic revenue. This growth is driven by continued strength across our subscription business. We anticipate a similar cadence of growth throughout 2026, excluding roughly $40 million of non-strategic revenue and one-time items. We expect adjusted EBITDA margins to expand 300 basis points year over year in the first quarter. Similar to our 2025 trajectory, adjusted EBITDA margins should improve throughout the year and drive solid overall margin expansion for Unity Software Inc. in 2026. I would note that we expect healthy margin expansion despite a heavy investment in our product roadmap across Vector and a range of strategic AI initiatives. With that, I'd like to thank you for joining us on Unity Software Inc.'s fourth quarter 2025 conference call, and let me turn the call over to Alex Giaimo so that we can take your questions. Alex Giaimo: Thanks, Jarrod. Nicole, we are ready for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. Your first question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead. Matthew Cost: Hi, everybody. Thanks for taking the question. So I guess Grow grew double digits organically for the first time in four years. You know? And you mentioned kind of the consistent mid-teens to over the course of the past couple of quarters. So, you know, really meaningful improvement in the trajectory of this business. I think what the market is wondering this morning is where are we in the process of kind of harvesting the low-hanging fruit for Vector? And how many significant ongoing breakthroughs are there still ahead for Unity Software Inc. ads? And then how much of a drag is IronSource going to be as we move through the rest of 2026? Then I'll follow-up on commerce after we touch on that. Thank you. Matthew Bromberg: Good morning, Matt. Thanks very much for the question. Yeah. As you know, as we laid out during our prepared remarks, we are just thrilled with the continued strong growth of Vector. It continues to meet and exceed our expectations. You know, as I mentioned, January is a business up more than 70%. So it's extraordinarily exciting for us, and as we've indicated before, all of this growth predates any of the impact which we believe will be substantial over the long term, of including our runtime data in our models. I know that there appears to be some consternation of the market about the long-term ability for us to grow this business. I honestly have a difficult time understanding why. As you can see, quarter after quarter, this business is growing and delivering not just in the quality of the model, in the quality of the signal, in the amount of return we are offering to customers, both in the volume of new installs, but also on the ROAS of their spend. And we feel like there is no natural ceiling to what this business can do in the future. And we're incredibly excited about it. I called out at the top of my remarks the trajectory of the IronSource business only because, you know, my sense is that investors are overly focused on the performance of that business, which is a legacy business for us. And as I indicated, it will get smaller and smaller over time and won't be material to our overall picture, which was really the reason why I highlighted it. So I would just say that going forward, it's not going to be an important component of our revenue, and that has really strongly and completely been driven by the growth of Vector. And so that's just a statement of the obvious. Matthew Cost: Great. Thank you. And then just on commerce, you kind of head towards a GA launch, it sounds like, in February. What are you seeing so far in terms of demand and uptake of that business? Is it in certain segments of your client base that are interested in potentially testing it? You know? And how broadly do you think you might see your commerce tools adopted as you go into GA? Matthew Bromberg: You know, we've been extremely pleased by customer reaction to our product. We're, as I think I mentioned, moving into early access next week, and the product will be generally available by Q2. We've been talking to a very wide range of customers, and the interest is extremely strong. And the three primary benefits that we're hearing from customers that they're taking from this product. The first one is it dramatically accelerates the pace in which they are able to take advantage of sort of the changes in the regulatory environment related to storefronts and that enable them to control their own payment layer in their own storefronts. We're also really excited about the potential, continue to be excited about the potential for this, the purchase behavior to enhance Vector models over time, which is going to be great for customers. And because this product is organically integrated into our platform, it's extremely easy for our current and future customers to use in a way which is really streamlined. So we're super happy with the initial response we're getting, and we're really looking forward to launch. Matthew Cost: Great. Thank you so much. Operator: Your next question comes from the line of Alec Brondolo with Wells Fargo. Your line is open. Please go ahead. Alec Brondolo: Yes. Hey, thanks so much for the question. Maybe two for me. First, can you help us understand what you've seen in the market from Meta so far in the first quarter? Has it become meaningfully more competitive on iOS inventory? And has that impacted the growth of Vector at all? That's the first question. The second question, could you maybe talk about CloudX's entrance to the mediation market? How do you think about the trade-off between Level Play potentially losing share relative to the ability to partner with CloudX and have an independent platform to bid through over time? Thank you. Matthew Bromberg: Thanks so much, Alec, for the question. Let me take them in reverse order and start with CloudX. As I think everyone's aware, we are partnering with that team as one of their demand partners. As I think you also know, the founder of that business worked here with us. So we have a close relationship and are wishing him and his team all the best. As you've heard me say many, many times before in this call, we are supporters of any platform that desires to open up mediation and make it more transparent and effective for customers. We think this is going to be good for the industry and the mobile ecosystem, and that's the direction we want to see this go. You've also heard me say many times on this call that mediation is not a central piece of our strategy going forward because we feel comfortable that the first-party connections we have to our customers through our engine and the runtime are all that we need in that regard. As an ad network bidder, we are completely agnostic in terms of what mediation platforms exist and which ones we're bidding into, so long as they're fair and transparent. So that's the short answer there. Our mediation business is not in any way material to the overall result of Unity Software Inc. Not in any way. Second, Meta, I know there was a lot of consternation over the course of the quarter, which as far as I can tell was kicked off by a LinkedIn post. Let me just say this. Unity Software Inc. has and always will compete with some of the largest, most sophisticated companies in the world. It's our advertising business. We do that every day. We always have. Meta, Google, Applovin, and many others. We have nothing but respect and admiration for all our competitors. Meta has been competitive in iOS traffic for quite some time. This wasn't a new dynamic. It did not have a meaningful impact on us in any way. We are laser-focused on the games industry in our business, not e-commerce. Given our strength through Vector and the engine, the understanding we have in that segment, we feel very, very good about our ability to compete with anyone. And as I say, we've seen essentially no impact, and I would, in general, caution investors from overreacting to LinkedIn posts. Alec Brondolo: Yeah. Thanks so much. Operator: Your next question comes from the line of Brent Thill with Jefferies. Your line is open. Please go ahead. Brent Thill: Good morning. I think everyone would love to hear your thoughts on Google Genie and what that means going forward. And that was my question. Thank you. Matthew Bromberg: Thank you so much for the question. Let me start at a macro level. At a macro level, it's our belief that AI is going to be a massive tailwind for the video game industry. The first reason that's true is that leisure time is going to increase massively over time, and that's going to lead to an explosion of time spent in video games. The second thing is that AI is going to make the creation of video games much more efficient and less expensive. As you've heard, I think you guys have heard me say before, our bet is that the impact is going to be much more about what I would call the time to innovation than the time to market. And what I mean by that is the vast majority of time spent building games is spent building out the really complicated, sophisticated systems and features that power these games as live services, but many of which are at the base layer very common game to game. And so to the extent that AI helps to build those underlying systems quickly and to kind of remove some of the drudgery from the work, it will allow creators, which we believe will continue to be human-in-the-loop creators, more time to focus on differentiation and innovation and building new things. And we believe that it's going to have an extraordinarily positive impact on our industry over time. As I said about ten days ago and made a public post about this, I think it's just important for folks to understand what world models are and what they are. We believe world models are going to be a source of inspiration and assets for creators, but that they're not in any way going to replace game engines. They are complementary, not duplicative. The kind of video-based generation that world models are good at is exactly the type of input our AI workflows are designed to leverage. We're going to translate some of that rich visual input, which right now is less than a one-minute video, but will probably improve over time. Those types of 3D assets are going to be integrated into our engine where they can then be refined with the deterministic systems that Unity Software Inc. developers are using today. Interactive, camera-controllable video from world models is just going to enhance that pipeline. We think it's going to be a really meaningful step forward. So basically, we view our role as to operationalize these advancements. Outputs are converted into our real-time engine, where they're converted then into structured, deterministic, fully controllable simulations where creators are defining physics, gameplay logic, networking, monetization, live operation systems, all the things that are needed to provide consistent behavior across devices and sessions. In other words, the things that make something a game. So we see these developments as really complementary. We have a long-term relationship with Google, as well as developing relationships across the space. And I would just again say one thing I think I said in my prepared remarks. We are completely agnostic as to the nature of how 3D assets get created. We're an assembly point for building interactive experiences. We compile the pieces together after those assets are created, and we help creators turn those into real games. Unity Software Inc. is not an interactive video generator; it's a real-time 3D execution platform designed to build once and then run everywhere efficiently and seamlessly. So that's my feeling about Genie. Brent Thill: Thanks, Matt. Operator: Your next question comes from the line of Vasily Karasyov with Cannonball. Your line is open. Please go ahead. Vasily Karasyov: Hi. Good morning. I wanted to follow-up on what you said earlier on cross-platform commerce management solution. Would you mind giving us more details on a couple of points here? Number one, how does the economics generally in general terms work for you with this solution? And for example, your partnership with Stripe. And number two, how should we think about potential tangible and intangible benefits to the other business lines within Unity Software Inc. from this solution? Thank you. Matthew Bromberg: Yeah. We participate in the economics of the e-commerce transactions that have extremely high margin, but very modest. And so our goal here is not to make massive dollars on these transactions. It's really to deliver value to customers and to ensure that their commerce experiences can be built natively in a tightly integrated way with all the rest of the systems that they're building on Unity Software Inc. But to your point, we believe that over time processing and helping customers, most importantly, optimizing and improving their commerce capabilities and optimizing and improving engagement in their games, which leads downstream to more revenue, is going to both fundamentally enhance the operation of Unity Software Inc. itself, will make it more valuable to our customers, and also fundamentally enhance the value of Vector because optimization around engagement and the experiences which lead downstream ultimately to transactions and revenue growth are really important. Part of building a game and a really important part of forming a complete picture of the video game consumer. And as you guys know, our primary strategy here is to have the deepest and clearest and most accurate sense of every one of the billions of gamers globally that move through our product. Last count, more than about three and a half billion every month are in a made with Unity Software Inc. game. And the clearer we can understand those consumers and their behavior both with respect to commerce, but also more generally, the more value we're going to be able to deliver to our customers. Vasily Karasyov: Thank you. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead. Eric Sheridan: Thanks so much for taking the questions. Maybe one follow-up and then one more bigger picture. But on the follow-up, you gave a number for January growth relative to Q4 growth. And then you also talked about the quarterly growth of the Grow business that you would expect. Can you talk a little bit about what you're seeing in January relative to what you saw in Q4 and how it sort of informs your broader view for the Grow business in the whole of Q1 relative to January? Just want to make sure we sort of got the right messaging on that. And then I had a quick follow-up, if that's okay. Jarrod Yahes: Sure. So, you know, Eric, at the highest level, Vector as a business grew mid-teens in the fourth quarter, which is the third sequential quarter of that kind of growth. So we're extremely pleased about that. January was a record for Vector. That is to say that our January revenues were higher than December, which was also a record revenue for Vector. And we expect 2026 to be an incremental 10% growth, sequentially for Unity Software Inc. Vector on top of the three quarters of mid-teens growth that we've experienced. Such that January on a year-over-year basis is growing in excess of 70%. Suffice it to say we're, you know, elated that our largest business is growing at those extraordinarily rapid growth rates. We knew Unity Software Inc. was going to transform. We knew the underlying growth profile of the business was going to accelerate. I think we just are continually impressed by the success we're seeing in the market, and we're, you know, we're thrilled with the investment that we're making. Eric Sheridan: Great. Thank you for that. And then, just on the Create business, really building on Brent's question and sort of the way you framed Genie going forward. You know, I think there's a lot of investor concern about the long-term strategic positioning of Create. Maybe you just want to address a little bit what you're seeing across the base of customers in Create today relative to the broader narrative that maybe has sort of made its way into the investor conversations just to sort of tee up your view broadly over the longer term. Maybe not just about Genie, but just about what you're seeing across the customer base? Thanks so much. Matthew Bromberg: Yeah. Thanks, Eric, for the question. We are seeing incredible strength in our Create business. As Jarrod mentioned, it's really important to remember that just a few quarters ago, you know, both Create and Grow segments were shrinking. And you know, a year down the line, a little bit more than a year down the line, you know, our largest ad business is growing 70%, and the Create business is up 16%. So the strength in the business is obvious to us. The improvements in quality and stability and the clarification we are making around our investments and our roadmap for our customers have been extremely well received. We are delivering more value more consistently. We still have work to do, but our interactions with our customers and the time we spend with them is just radically more positive than it was when I arrived. It has really been a pleasure. And we're seeing strength across that business. And as I called out, not just in the West, but also in China. The time we spent, you know, I spent answering the Genie question is really nothing to do with Genie. Right? The reason I spent the time was to try to explain the depth of value that our software provides to makers of interactive entertainment. These are, and the distinctions are meaningful and important. So we are, and I also called out, you know, Unity 6, which is our most recent release, is being downloaded and adopted faster than any release ever. So it's, you know, we're seeing really positive results and we're getting really positive feedback on that business in general. I also called out in my prepared remarks that we're incredibly excited about the opportunity that our collaboration-centric enhancements to Unity Software Inc. are going to have. And again, for those maybe less familiar with how the product works, let me take a minute to explain why we're so excited about it. So if you imagine that, you know, at the present time, our only customers are software developers. The rest of the team that makes a game, everybody else, generally does not have access to Unity Software Inc. And making Unity Software Inc. accessible through the browser and moving it away from a kind of closed download-centric environment, everybody can share builds and share progress and work on projects together is going to be a massive unlock for our business. It takes us again from being able to appeal to just one part of the creative enterprise and opening up to everything else. Secondarily, we're incredibly excited about the progress we're making in AI and our product. And maybe it might have gone by a little bit quickly in my opening remarks, but we're really enthusiastic about, for example, in GDC, we're going to show Unity AI product that is where you're able to, with natural language, just prompt a full casual game into existence, but in a way that's inside Unity Software Inc. such that you are then able seamlessly to have the close control and to build the systems around that early prototype, to turn that piece of or the beginning of a project and turn it into a real game, which is what's critical. And then once you finish building that game, you're able to distribute it anywhere on any platform. So these are, you know, it's really funny. My sense of this market is really different from the kind of overall Internet vibe. There are going to be tens of millions of more people creating interactive entertainment, driven by AI making these tools more accessible. Tens of millions more people. We are the leading engine of creating interactive entertainment in the world. Especially on mobile, we are increasing our market share on PC, the leading engine in China, and we feel great about the product enhancements and the way we're moving forward. So as we set and look at 2026 and 2027, in general, we look at the acceleration of our advertising business, which we don't see any natural ceiling for, beginning to experience runtime in the Vector models in the middle of this year, and the likely extraordinary tailwind that both AI and opening up our products to many more potential users is going to have. We feel like the year and the year after especially are set up extraordinarily well for us. Operator: Your next question comes from the line of William Lampen with BTIG. Your line is open. Please go ahead. William Lampen: Thanks a lot. I have two as well. Maybe the first one, I guess, to sort of draw this Genie point out a little bit more. Matt, I think one of the things that the market is sort of wrestling with right now is what the end state of a lot of this ends up being, kind of as Eric alluded to. One of those things, I think, is also what happens from a pricing standpoint. And I'm curious if there is potentially an outcome where tens of millions more individuals are essentially creators here. Is there potential in a world where you have a much larger potential customer base that we either need to have more tiers of the product to appeal to a lower end of that potential new community, or does this, you know, if we also see the commerce business start to take shape and take flight, does that enable you potentially over time to be more competitive from a pricing standpoint? I have a quick follow-up after this, too. Matthew Bromberg: Thank you for your question very much. Yeah. Let me try to answer that in two ways. We do believe that the greater accessibility of our product that is being driven by AI is going to open up opportunities for us to monetize much more effectively the, you know, 90-ish percent of users that we have that don't pay us because we're able to deliver some value-added services to them, whether that be consumption-based or otherwise. And as I said, we also expect the addressable market to grow much larger, which makes that opportunity even greater. The other thing in your question, I think, is a really important point. We are extraordinarily flexible and open-minded about business models here. We are not dug in around a seat-based SaaS model. There's no reason for us to be dug in around it because, as I said, first of all, we have a very large freemium motion. Second of all, to your point, we have in commerce, AI enhancement in our advertising business in Vector, lots of really interesting ways to offer really high-value add products to customers that we can then generate meaningful business around. One of the things that's really interesting if you step back for a minute and think about just think about the tension that exists in our model as it exists right now. We charge for the engine, but the truth is, especially with respect to our commerce products and our ad products, mostly, we just want more people to use the engine. The more people that use the engine, the bigger our ad business is. The bigger our commerce products are, the more value we can deliver around a lot of the individual products we're building. So this is not a transition we're afraid of in any way. By the way, our advertising business is also significantly larger than our Create business. So when we start to see moves in opportunities to evolve business models, we will take them. And I think you've seen with us, we're not afraid of making fundamental shifts, which is one of the reasons why we see this landscape as so incredibly interesting for us going forward. William Lampen: That is very helpful. And maybe if I could just sort of follow-up quickly on IronSource. As part of some of the headwinds sort of drawing to a close, I'm curious if you could help us understand maybe what the derivative consequences might be to direct costs of operation for the ad networks that you're managing right now or, you know, sort of other segments of the enterprise right now? Is that an opportunity or how should we, I guess, in general, think about that and maybe what's baked into guidance? Thank you. Jarrod Yahes: Yeah. Sure, William. I think, you know, Matt partially addressed this in his prepared remarks where he spoke about displacing commoditized lower-margin ad network revenue for deeply differentiated AI platform revenue. We strongly believe that this is ultimately an opportunity over time for simplification of our business, streamlining of our business, and ultimately, this is going to result in a higher-margin business with greater scalability and leverageability. Today, we are spreading resources across multiple networks. As our business evolves and changes, we'll be able to ultimately concentrate those resources, leading to greater operating leverage and ultimately greater gross margins in our business. So I think we feel really good about that. The commentary on EBITDA margins for 2026 should reflect that. We spoke about operating margins improving over the course of the year. We spoke about 300 basis points of margin expansion year over year in the first quarter. And that's up to and including some of the changes that we expect in the mix of our business over time as Vector becomes a much larger piece of the overall portfolio. And really, we're getting to the core growth engines of our business by the end of this year. William Lampen: Thank you. Operator: Your next question comes from the line of Andrew Boone with Citizens. Your line is open. Please go ahead. Andrew Boone: Thanks so much for taking my questions. Matt, you talked about the developer data framework kind of layering that into the model in 2026. Is there any additional help you can provide us in terms of contribution from that or maybe a little bit more on the timing as we think about what that could mean for the ad model? And then you talked a little bit about increasing the collaboration tools across the platform and including more types that come and utilize Unity Software Inc. Can you talk about the opportunity there and the potential monetization as you bring on different types of developers and creators onto the platform? Thank you. Matthew Bromberg: Absolutely. Thank you so much for the question. So on runtime, just as a reminder for everybody, we rolled out the developer data framework first in August. So then we began collecting data on new games that were built with our 6.2 release. We've been really thrilled with the uptake. We've had opt-in rates in excess of 90%. And there are a lot of applications being created there. We also more recently rolled out a streamlined self-service feature that allows customers that are operating games using older versions of Unity Software Inc. to also take advantage of the developer data framework, which is critical. So in terms of testing, we are feeling now that we're reaching critical mass, and we're comfortable that this robust testing that we're seeing is ultimately going to yield meaningful results for us, which is a part of why we're kind of moving into the release of Q2, the runtime data into our models. So again, we plan to do that integration in the second quarter. The precise time will depend on, you know, on the testing and ramping, but we're feeling really good about that. As it relates to your question on collaboration in the model, there's a couple of things going on. So we believe we'll have the opportunity to sell in a more traditional seat model or what we call sort of a collaborator licenses to folks who are not our core software developer customers but sit around that customer. So in the initial instance, that is most likely the way we will monetize that additional consumer base. And around our AI products, we'll expect to, especially for our enterprise customers who are paying us already, they will likely get an allocation of tokens and consumption as part of their offering and then be able to buy additional tokens on top of that to use our product. So we're really excited about dimensionalizing kind of the connects we have with our customers and providing more opportunities for monetization and diversification of those revenue streams. And then, you know, we'll see ultimately over the year what model takes root, but in the near term, we see real opportunity in those two areas. Andrew Boone: Thank you. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead. Dylan Becker: Hey, gentlemen. Really appreciate all the detail here. Maybe, Matt, just kind of touching on the aggregate Grow business. I think you made some important comments here. I think you said that you're going to fiscal 2026 at $1 billion plus run rate within Vector. You gave us the 11% moving to 6% on IronSource, so maybe that natural attrition will allow Grow to properly reflect the recent Vector momentum. I guess, is that a fair characterization? Just making sure I heard that correctly first. And then second, as we think about kind of the third piece of the pie, the other non-Vector components outside of IronSource and the ability to layer in AI and see improvements in some of those assets, I guess, where we sit kind of on that adoption curve as well too. Thank you. Matthew Bromberg: Yeah. So thanks, Dylan. The answer to your first question is yes. You understood precisely what we were talking about. And the description you had of the growth of Vector and the sort of concomitant smaller piece that IronSource will comprise of the total is exactly right. And as Jarrod mentioned a little bit earlier, not only will that lift growth rates, it will increase profitability because taken as a whole, Vector is a more profitable product and business for us. We'll also drive additional efficiencies. To take your second point, outside of the IronSource ad network, all other Grow businesses actually showcased sequential growth in the fourth quarter and remain meaningful drivers of revenue and profit. So in fact, excluding IronSource, the Grow segment was up double digits sequentially in the fourth quarter. So we feel really well poised for sustained growth as this business develops. Dylan Becker: Very helpful. Thank you. Operator: Your final question comes from the line of Martin Yang with Oppenheimer. Your line is open. Please go ahead. Martin Yang: Hi. Thanks for taking my question. I want to touch on your observation on the mini apps growth in China. Can you articulate how Unity Software Inc. can benefit from the growth both on the Create and the Grow side of it? Matthew Bromberg: Yes, Martin. Thank you so much for your question. As I said upfront, we're really excited about the position we have in China, which is the largest and probably fastest-growing game market in the world. Unity Software Inc. is fully compatible with all the local platforms in that region, and we have really deep and long-standing relationships with that developer community. So we're seeing a lot of growth and expansion of customer revenue there on the Create side. And by the way, that is not just games-related. Our industry business is particularly strong in Asia. We are particularly well-penetrated, for example, in the auto industry in Asia. The majority of companies use Unity Software Inc. for their in-dash display and other things as well as more deeply across that region. So we're feeling very optimistic about that business. The growth of Chinese-built games that are then released in the West, just like with any other game that gets created on Unity Software Inc., that is also an opportunity to have additional customers for our Vector product and additional opportunities for us to integrate other tools, technologies, and products into those games. Operator: This concludes the question and answer session. I will now turn the call back to Alex Giaimo for closing remarks. Alex Giaimo: Thanks, everyone, for joining this morning, and we look forward to connecting throughout the quarter. Have a great day.
Operator: Welcome everyone. The Vishay Precision Group, Inc. Fourth Quarter 2025 Earnings Call will begin shortly. Hello, everyone, and thank you for joining the Vishay Precision Group, Inc. Fourth Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by 2 on your telephone keypad. I will now hand over to Steve Cantor, Senior Director, Investor Relations at Vishay Precision Group, Inc., to begin. Steve Cantor: Thank you, Claire. Good morning, everyone. Welcome to Vishay Precision Group, Inc.'s 2025 Fourth Quarter Earnings Conference Call. Our Q4 press release and slides have been posted on Vishay Precision Group, Inc.'s website. An audio recording of today's call will be available on the Internet for a limited time and can also be accessed on our website. Today's remarks are governed by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. Our actual results may vary from forward-looking statements. For a discussion of the risks associated with Vishay Precision Group, Inc.'s operations, we encourage you to refer to our SEC filings, especially the form 10-K for the year ended 12/31/2024 and our other recent SEC filings. On the call today are Ziv Shoshani, CEO and President, and William M. Clancy, CFO. Ziv, I'll now turn the call to you for some prepared remarks. Ziv Shoshani: Thank you, Steve. I will begin with some commentary on our results and trends for the fourth quarter and on our strategy. William will provide financial details and our outlook for 2026. Moving to Slide three. To summarize our Q4 2025 results, Q4 marked our fifth consecutive quarter with a book to bill over one, led by Sensors. While Q4 gross margin reflected a number of headwinds, we expect gross margin to improve in Q1. With sensors ramping and backlog at a multiyear high, we expect higher shipments beginning in Q2 and continued progress on our growth initiatives. Specifically, fourth quarter revenues of $80.6 million were up 11% year over year, and 1% sequentially, reflecting solid execution across the portfolio. We achieved another quarter of positive booking trends as our consolidated orders of $81.3 million grew 2% sequentially. This resulted in a book to bill of 1.01, the fifth consecutive quarter of book to bill of one or better. We continue to make good progress across our business development initiatives, including humanoid robots and semiconductor equipment. These efforts generated $11.8 million in orders during the fourth quarter, bringing total orders from these initiatives to $37.8 million for the full year of 2025, which exceeded our goal of $30 million for the year. Our fourth quarter adjusted gross margin of 37% was impacted by $3 million of headwinds, including unusual unfavorable product mix, inventory reductions, and discrete inventory and manufacturing impact. We expect gross margin to improve in Q1. We are currently ramping production of Sensors products and expect to realize higher sales in the second quarter. I'll now review the business performance by segment. Moving to Slide four, beginning with our Sensors segment, fourth quarter revenue was 4% sequentially, but was 18% higher than a year ago. Compared to the third quarter, continued strength in test and measurement related to semiconductor equipment was offset by softer sales to the AMS and the general industrial market. Booking for sensors continued its positive trend and reached its highest level in thirteen quarters. Sensor bookings rose 4% sequentially, and were 30% above a year ago, resulting in a book to bill of 1.15. The bookings growth from the third quarter was driven by higher orders in general industrial, our other markets for consumer electronics, and AMS. In addition, we are pleased with the demand related to the test and measurement market, particularly for semiconductor test equipment applications. Total sensors orders were up 18% in 2025 compared to the first half. With sensors backlog at the highest level since 2023, we are currently hiring to ramp up production to meet demand which should lead to increased sales beginning of Q2. A key highlight continues to be our growing momentum with humanoid robot developments. In Q4, we received $800,000 in humanoid related orders including a follow-on bookings for our first two customers and an initial prototype order for the third. This new customer is an emerging robotics company developing humanoids to enhance productivity and streamline daily operations in both homes and warehouse environments. In addition, in January, we received follow-on orders from one of our initial two humanoid customers of approximately $1 million. 2026 is expected to be a pivotal year for the overall humanoid robotics market as leading companies move decisively from prototype into early production and real-world deployment. Technical challenges remain, but they play directly to our strength and create strong demand for our high-value, high-performance solutions that solve their problems in advance dexterity, stability, responsiveness, and safety. While the timing and scale of production ramps across the humanoid robot market remain unclear, we expect 2026 to bring continued momentum for Vishay Precision Group, Inc. Our infrastructure and supply chain teams are prepared to support customers' production demands. Moving to Slide five. Turning to our Weighing Solutions segment. Fourth quarter sales increased modestly from the third quarter and grew 7.8% from the prior year. The sequential increase was primarily evident in our industrial weighing market. Weighing Solutions orders were up 14.9% sequentially to $28.2 million resulting in a book to bill of 1.02. Specific areas of strength were in our other markets for precision ag, medical, construction, and e-bike applications. Orders were also higher in the transport for onboard weighing systems for heavy-use trucks. While there are signs that some of these end markets have reached their cyclical bottom, we continue to see mixed trends across our OEM customers. Moving to Slide six. Turning to our Measurement Systems segment. Revenue in the fourth quarter of $22.4 million increased 9% sequentially and 6% from a year ago. The sequential increase reflected a record high sales for DSI R&D tool for the development of new metal alloys. We also had higher sales in AMS for testing new Avionics platforms. Fourth quarter measurement systems orders of $18.1 million declined 16% from the third quarter and resulted in a book to bill of 0.81. Lower orders in our steel market mostly reflected the timing of projects in the middle of a soft global steel market, offset by stronger sales of DTS products used in crash safety testing. Our pipeline remains healthy and given the timing of customers' projects, we expect to return to a positive book to bill in Q1. Moving to Slide seven. Looking at the year, in total fiscal 2025 was a year of transformation for Vishay Precision Group, Inc. While our revenues of $107.2 million grew slightly from the prior year, sales in the second half were up 9% from the first half. In addition, we had a steady improvement in orders through the year, particularly in the sensor segment. Our performance in our business development initiatives of $37.8 million in 2025 exceeded our goal of $30 million for the year. We also delivered $4.5 million of targeted cost reductions as part of ongoing cost efficiency plans. Moving to Slide eight. Most significantly, during 2025, we took steps to position Vishay Precision Group, Inc. for its next phase of accelerated growth. Over the past several years, we strengthened and streamlined our operation to support higher volume opportunities and sharpen how we develop and track our growth initiatives. Those efforts have prepared us to move into the next phase, which involves a fundamental rewiring of our business. As we announced in November, a key component is the creation of two new senior executive positions and corresponding organizations: the office of the Chief Business and Product Officer, and the office of Chief Operating Officer. Each organization has a clear mandate. The CBPO's focus is on accelerating growth by refining our internal sales and product development processes, thus expanding our opportunity set and increasing our conversion rate with both new and existing customers. The COO organization is supporting this accelerated growth by driving improvements in operational efficiency and readiness while also reducing our cost structure. Creating these cross-divisional centers of excellence organizations marks a major shift from the diversified operating structure that defined much of our history. The reason is simple. The opportunities ahead are being driven by large, mainstream market and technology trends and are bigger and more significant than ever. As we enter Q1 transition period, the new organization will work on the core and cross-company processes, redesigning them into standardized, scalable, unified, and up-to-date global processes while also implementing industry best practices. We expect an additional $3 million of SG&A cost. The new processes will be fully placed in Q2 in 2026 to support the new organizational structure as well as new IT platforms. As a result of the new organization, we expect $2 million in savings to cost reduction initiatives. The net effect is $1 million to support the new organization. A key trend driving our long-term opportunities is the emergence of physical AI technologies. Physical AI is the class of AI systems that perceives the real world, makes decisions, and drives physical actions through machine or control systems. It sits at the intersection of AI and machine learning, sensors, controls, and humanoids. As physical AI gains broader adoption, certain types are expected to have a bigger, longer-term impact than others. Vishay Precision Group, Inc. is looking to provide solutions in the humanoids and autonomous logistics. As a result, we are excited about our growth prospects. We have set an internal goal this year to grow our top line in the mid to high single digits as we anticipate a stronger second half reflecting strengthening economic trends and capital investments, as well as continued progress with our ongoing growth initiatives. Given our current pipeline from business development initiatives, we are setting a target of $45 million for 2026, which represents a 20% increase from 2025. Before turning the call to William, I would like to thank our employees for their dedication, their past year, and their embrace of the changes we are making. I want to thank our customers for their trust and confidence as we continue to work hard to exceed their expectations. I will now turn it over to William M. Clancy. William M. Clancy: Thank you, Steve. Referring to slide nine and the reconciliation tables of the slide deck, our fourth quarter 2025 revenues were $80.6 million. Adjusted gross margin of 37% in the fourth quarter decreased from 40.5% in the third quarter and was impacted by $1 million related to unfavorable product mix and $1 million due to inventory reductions. In addition, we incurred approximately $1 million of discrete inventory and manufacturing impacts as well as a $400,000 impact from unfavorable foreign exchange. Sequentially by segment, adjusted gross margin for Sensors of 28.5% declined due to lower volume and unfavorable product mix and foreign exchange rates. The Weighing Solutions gross margin of 33% decreased from the third quarter primarily due to one-time manufacturing fixed costs, a reduction of inventory, and higher logistics costs. Adjusted gross margin for the Measurement Systems of 53.3% increased from the third quarter due to higher volume partially offset by discrete inventory adjustments. Moving to Slide 10. Our adjusted operating margin was 2.3%, which excluded restructuring costs of $697,000 and $110,000 of purchase accounting adjustments. Selling, general and administrative expense for the fourth quarter was $27.9 million or 34.7% of revenues, which was modestly higher than Q3 reflecting hiring for the new organizational structure and higher travel and commission costs. Unfavorable foreign exchange rates impacted the adjusted operating margin in the fourth quarter by $600,000 and for the full year of 2025, by $4.7 million. Our GAAP net loss was $1.9 million or $0.14 per diluted share. Adjusted diluted EPS was $0.07. The GAAP tax rate for the full year was 39%. For 2026, we are assuming an operational tax rate of approximately 26%. Moving to Slide 11. Adjusted EBITDA was $6 million or 7.5% of revenue compared to $9.2 million or 11.5% of revenue in the third quarter. CapEx in the fourth quarter was $3.5 million and was $8.5 million for the full year. For 2026, we are forecasting $14 million to $16 million for capital expenditures. We generated adjusted free cash flow of $1.3 million for the fourth quarter, which compared to $7.4 million in the third quarter. As of the end of the fourth quarter, our cash position was $87.4 million and our long-term debt was $20.6 million. The resulting net cash position of $66.8 million and the unused portion of our credit facility provides ample liquidity to support our business requirements and to fund M&A. Regarding the outlook, for 2026, we expect net revenues to be in the range of $74 million to $80 million, assuming constant fourth fiscal quarter 2025 exchange rate. In summary, quarterly bookings exceeded $80 million for the first time since 2023, resulting in a book to bill of 1.01. We exceeded our 2025 goal for orders from business development initiatives and are targeting a 20% increase in 2026. And we entered into a new phase with key organizational and strategic changes focused on accelerating growth and cost efficiency. With that, let's open the lines for questions. Thank you. Operator: Thank you. To ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from John Edward Franzreb from Sidoti and Co. Your line is now open, John. Please go ahead. John Edward Franzreb: I actually want to start with the revenue guide. I am curious about if to achieve the mid to high single-digit AM guide that you are putting out there, how biased is that towards the Sensors segment given the recent bookings profile? Ziv Shoshani: Well, John, good morning. First, we are fairly optimistic regarding the recovery in the marketplace. We have seen many, many signs. It started with the initial sign in the Sensors, but we are also quite positive about the positive signs regarding Weighing Solutions. Also for Measurement Systems, some of the segments are showing early signs of recovery. The steel market is still fairly soft, predominantly in China. But overall, we are optimistic regarding the business environment. In addition to that, we are also expecting additional book to bill above one in the second quarter. Now regarding execution and revenues, this is correct that while we are working on ramping up production for Sensors, we would expect to see higher revenues mainly in Sensors as of the second quarter. But you are correct. In order to achieve the mid to high single-digit, the second half of this year, we are looking to achieve higher revenues than the first half since we are in a ramp-up mode currently. John Edward Franzreb: Got it. And regarding the gross margin impact, my back-of-the-envelope number was that it was roughly 41% in the quarter. Is that right to assume excluding some of those onetime items, if you will? And I am curious if any of them lingered or are lingering into the first quarter of 2026. Ziv Shoshani: We have identified kind of unusual effects in the fourth quarter at the level of $3 million, as I indicated, which were related to year-end closing and also to launching new RFP systems at one of our sites. Those one-time effects, we do not expect to see in the next quarter. Therefore, we should see an improved gross margin moving into Q1. John Edward Franzreb: Got it. And regarding the restructuring actions, and then I will get back into the queue. You expect $6 million. Is that $6 million expected to be realized in 2026, or is that an exit velocity coming out of the year? Ziv Shoshani: The $6 million of cost reduction is expected to be realized in 2026 and is expected to be in the 2026 P&L. So all the cost reduction initiatives in regards to efficiency, product streamlining of manufacturing locations, and all other related activities would result in a $6 million cost savings which we expect to see in 2026. John Edward Franzreb: Thanks, Ziv. I will get back into the queue. Ziv Shoshani: Thank you, sir. Thank you. Operator: Thank you. Our next question comes from Josh Nichols from B. Riley. Your line is now open. Josh Nichols: Yes. Thanks for taking my question. I want to dive into some pretty significant organizational strategic changes here that you touched on during the call. What does this mean, do you think, for betting on the company's growth prospects overall? And then two, it has been some time, but I think you used to put out some longer-term financial targets about operating leverage and what the company could achieve. With these new changes, could you touch on those two aspects and if you plan to put any updates out on those potentially? Ziv Shoshani: Yes. Absolutely. If you can recall, Josh, in November, we announced organizational changes in the company. The organizational changes were around two main new organizations, the COO and the CBPO. The purpose was to develop a new organization, which is a cross-divisional organization, which would allow us to standardize, unify, and improve and apply best practice processes. So to that extent, we are in the process of implementing the changes which we are going to see starting to take effect in the second quarter. The changes regarding the COO organization would be mainly around procurement, centralized procurement, supply chain, and also a much better organizational focus or operational focus around cost reduction, execution, and supporting our business organization. On the other hand, the CBPO's purpose is to create a centralized sales operation function to optimize centralized marketing and centralized business development to enhance our opportunities. In addition to that, I would like to state that we are launching a data project, an IT project, which would allow everyone to operate on one system. We are going to introduce more advanced BI and AI tools. So all in all, the whole organization focus is on execution from the cost side and to support the business on the other side, support the business in terms of better lead time, better quality, and enhance business development initiatives also from a cross-divisional and centralized marketing perspective. We see already that the new organization from a cost standpoint is building the foundation, and as we are moving ahead with the foundation, we are expecting, as I indicated, the $6 million. We have even a bigger target for the next three years to achieve a certain cost reduction. While also we have set internal goals for business development, for example, a 20% year-over-year, moving to a $45 million business development target for 2026. As you indicated, now we are in the process of changing the model to fit the new cost and the new financial model. So I would say that in the coming weeks, we are going to introduce a new model which will be based on the new organization. Josh Nichols: Good to hear that that is going to be updated. And then, good also, the new third humanoid development customer that you are getting some initial orders from. I know you provided some very high-level detail about using humanoids at home and also for manufacturing. Anything you could tell us about the size of the customer relative to the other two and potential timelines? Are they looking to scale up to larger-scale production in 2026? Or are they still in the earlier stages of development overall? Ziv Shoshani: The only thing I could say since we are under a very strict NDA is that this is a smaller customer than the other two. They are still in the design configuration stage. We are continuing the journey of engineering discussions with this customer to provide them with the best solution. I think that all in all, in the humanoid ecosystem, the ramp-up really depends on the customer commercialization and adoption of the humanoid-related application. We do not know when they are expecting to start reproduction or even ramping up. But I think that the important piece is that our infrastructure and supply chain are prepared to support them once they make the decision. Josh Nichols: Thanks. And then last question for me. This has been a big topic. You see a lot of humanoid CES and other events overall. Is it fair to say that you are in discussions with multiple other humanoid developers also, and potentially, we could see some additional customers now throughout 2026? Or what is your expectation on that front on building out your humanoid customer base? Ziv Shoshani: We do have a list of many humanoid manufacturers with whom we started a dialogue. At this point, we do not report that in our earnings call since they have not requested prototype orders. So the fact that there is a whole list of humanoid manufacturers in different parts of the world, we hope that we will be able to report that we are going to ship or start a more serious dialogue and ship prototypes to others. Yes. But no doubt, they are on our screen, and we are looking at many more humanoid manufacturers. Yes. Josh Nichols: Appreciate it. Thank you. Operator: Thank you. Our next question comes from Jason Smith from Lake Street Capital Markets. Your line is now open. Please go ahead. Jason Smith: Hey, guys. Thanks for taking my question. Just following up on that line of questioning. Beyond humanoid robots, where it seems like you guys are seeing some really nice momentum, can you talk about which verticals in your new business initiatives are exceeding your original expectations? Ziv Shoshani: As you know, in the past, we were looking at the ultra-high temperature ceramics, which is one of our products. We were also looking at some designs of precision resistors in the semiconductors. And very recently, we have also started a dialogue with what we call physical AI applications, which are autonomous logistics based on AI platforms, which some large manufacturers are looking at. That is an adjacent application to the humanoid but also based on AI. So we started a dialogue with one or two customers regarding autonomous logistics. Jason Smith: Gotcha. And then following up on your comments on additional hiring within the Sensors segment, is this to mainly just build out that infrastructure more? Or are you seeing demand pull from specific verticals or end markets that are really driving this? Ziv Shoshani: Hiring people at this point in time, the sensor business's main end sectors that are driving the demand are test and measurement, avionic military in space, and some general industrial applications. Those are the end markets where we did see some signs of recovery. We have seen much stronger order intake, and we are hiring direct employees and ramping up production. We do not believe that this is a short-term recovery. We believe that we should expect to see this recovery in the coming months. Jason Smith: Perfect. Really helpful. Thanks a lot, guys. Operator: Thank you. We will now pause for any questions to be registered. As a last reminder to ask a question, please press star followed by one. We currently have no further questions, and I would like to hand back to Steve Cantor for any closing remarks. Steve Cantor: Great. Thank you, Claire. Before closing, I do want to note that we will be at the ROTH Investor Conference in March. And, of course, we look forward to updating you next quarter. Thank you all for joining the call today, and have a great day. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Thank you for standing by or on hold for the Blackstone Mortgage Trust fourth quarter and full year 2025 investor call. At this time, we are gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Good day, and welcome to the Blackstone Mortgage Trust fourth quarter and full year 2025 investor call. Today's call is being recorded. At this time, all participants are in a listen-only mode. At any time, please press 0. If you would like to ask a question, please signal by pressing 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal. At this time, I would like to turn the call over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead. Tim Hayes: Good morning. And welcome, everyone, to Blackstone Mortgage Trust's Fourth Quarter and Full Year 2025 Earnings Conference Call. I am joined today by Timothy Johnson, Chief Executive Officer; Tony Marone, Blackstone's Global Head of Real Estate Finance; Austin Pena, President; and Marcin Urbasic, Incoming Chief Financial Officer. This morning, we filed our 10-Ks and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. I would like to remind everyone that today's call may include forward-looking statements, which are subject to risks, uncertainties, and other factors outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the risk factors section of our most recent 10-K. We do not undertake any duty to update forward-looking statements. We will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and 10-Ks. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the fourth quarter, we reported GAAP net income of $0.24 per share, while distributable earnings were negative $2.07 per share, and distributable earnings prior to charge-offs were $0.51 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the fourth quarter. With that, I will now turn the call over to Tim. Timothy Johnson: Thank you, Tim. Blackstone Mortgage Trust reported strong fourth quarter results, further building upon the positive momentum in earnings power and credit performance achieved throughout 2025. We reported $0.51 per share of distributable earnings prior to charge-offs in the fourth quarter, an increase of over 20% from Q1 and covering our dividend for the second consecutive quarter. Our loan portfolio is now 99% performing, reflecting strong progress on loan resolutions in the quarter. We have actively rotated our portfolio, concentrating new investment in our highest conviction themes. We closed approximately $7 billion of investments in 2025, nearly 85% of which were in multifamily and industrial loans, our growing net lease strategy, and two bank loan portfolios we acquired at discounts. We have strategically broadened BXMT's scope to target these complementary investment channels, supporting capital deployment over the past year and reinforcing earnings power, with greater diversification and duration. Turning to markets, the real estate credit market today is highly liquid and underpinned by solid real estate fundamentals, with new construction still sharply lower from pre-cycle levels and value steadily increasing. CMBS issuance accelerated in 2025 to its highest level since the GFC, up 40% year over year, demonstrating a significant increase in debt capital availability as performance in the sector has improved. As a result, we have seen the deal dam start to break, with more enthusiasm from investors to transact. We see this in our loan origination business, where new loan requests in January were up 50% from the prior year. Within this backdrop, the breadth and expertise of our global real estate debt platform, with over 170 professionals, is a differentiator, providing BXMT access to a proprietary pipeline of diverse investments across the US, Europe, and Australia. In 2025, our global platform closed over $20 billion of private loan originations and acquisitions and traded more than $15 billion of real estate securities. The robust data and insights gained from our private and publicly traded market activity guide our investment decisions and position us well to source attractive opportunities across various markets. With such a wide funnel and a well-invested portfolio, we can pick and choose our spots and lean in where we see compelling relative value. Our activity also informs our balance sheet and capital market strategy. BXMT has capitalized, executing over $5 billion of corporate and securitized debt transactions in the past twelve months, including $2.8 billion of corporate term loan repricings and extensions, which reduced our weighted average borrowing spread by nearly 90 basis points year over year. These transactions extended the duration of our liabilities, drove funding costs lower, and further diversified and strengthened our capital structure. Market tailwinds are also supporting performance within our portfolio, with no new impaired loans or watch list additions in the fourth quarter. We expect to see opportunities to selectively exit our owned real estate properties, further supporting earnings as we more efficiently redeploy capital into our core investments. We will remain patient and disciplined with our approach, focused on maximizing long-term shareholder value. While we delivered an attractive 21% total return for shareholders in 2025, we see a strong case for additional upside in the stock. BXMT shares still trade below book value. Our current dividend yield of 9.5% implies a 540 basis point spread to the ten-year treasury, approximately 40% above our tightest level, which was achieved when rates were much lower. In contrast, spreads in liquid real estate credit and the broader credit markets have tightened, with triple B CMBS spreads and high-yield bond spreads within 10 to 20% of their all-time tights. This valuation gap is wide and emphasizes the highly compelling relative value proposition of BXMT's stock today. We believe the credit trends in our portfolio and earnings power of the business should warrant further retracement to historical levels, a view we have expressed with another $60 million of share repurchases this quarter and approximately $140 million since establishing our program in July 2024. Before turning it over to Austin to discuss our fourth quarter investments and portfolio in more detail, I want to thank Tony Marone, who will be stepping down as CFO of BXMT to focus on other responsibilities within Blackstone. Tony has been instrumental in BXMT's growth since inception, joining us through the Capital Trust acquisition in 2012. I am grateful for his service to the company and our shareholders and wish him all the best. I would also like to congratulate Marcin Verbasic, who will be stepping into the role of CFO, completing the transition started when he joined the company in 2024. With that, Austin, over to you. Austin Pena: Thanks, Tim. Starting with our investment activity, we closed $1.5 billion of investments in the fourth quarter, including $1.4 billion of new loan originations and approximately $100 million of net lease acquisitions at share. Consistent with our approach in recent quarters, our Q4 loan originations were 100% secured by multifamily and industrial assets, about 80% of which diversified portfolios. This included a $419 million loan on a 94% leased 11-asset portfolio of high-quality industrial properties located across the US and owned by a top-tier sponsor. By leveraging the scale and sector expertise of our platform, our team was able to quickly underwrite this loan and provide certainty of execution, capturing an investment which we believe provides attractive relative value. We like lending on portfolios like this. They diversify BXMT's credit exposure across multiple markets and tenants, limiting the impact of idiosyncratic risks via cross-collateralization. In addition to our new origination activity, we continue to be successful in harvesting opportunities from within our existing portfolio, proactively working with sponsors to retain high-quality investments that were likely candidates to refinance. Given our position as the existing lender, we are able to modify terms and extend duration while maintaining attractive economics relative to new deals in the market today. Our investment portfolio stands at $20 billion, up from $19.5 billion last quarter, and includes our $18 billion loan portfolio, $1.3 billion of owned real estate, and over $900 million of investments at share held in our bank loan portfolio and net lease joint ventures. Today, the net lease assets and acquired bank loans now represent 5% of our portfolio, up from zero at the beginning of 2025. These strategies, which generate fixed or contractually increasing cash flow streams over time, naturally complement our floating rate lending strategy and provide strong relative value in today's investment environment. Our loan portfolio ended the year at 99% performing. We resolved $575 million of impaired loans during the quarter, reducing our impaired loan balance to just under $90 million, most of which relates to a loan secured by a San Francisco hotel, which we expect to take ownership of in the first quarter. We upgraded six loans in Q4, including one impaired office loan and one watchlist office loan, both demonstrating leasing progress and cash flow growth. As Tim mentioned, we did not impair or downgrade any new loans to the watchlist this quarter, and one of our watchlist loans repaid in full. We continue to apply a rigorous approach to managing our remaining watchlist loans, of which nearly half have been restructured or modified, with significant recent equity commitments, with several others in various stages of negotiation. Our loan portfolio is now 50% multifamily and industrial, while office exposure continues to decline, down approximately 50% since year-end 2021. So far, in Q1, we have collected over $300 million of additional office repayments, further reducing our exposure and driving turnover in the portfolio. Nearly half of our loans are located in international markets, with almost 40% in Europe, where over the past year we originated approximately $2 billion of loans backed by industrial portfolios. These investments have a weighted average LTV of 68%, strong in-place cash flows, and provide compelling relative value, with loan spreads nearly 100 basis points wide of comparable quality US transactions. Similar to the US, European industrial markets are benefiting from limited new supply and e-commerce tailwinds driving demand, resulting in positive net absorption and just mid-single-digit vacancy rates in our core markets. We continue to leverage the extensive resources of the Blackstone Real Estate platform to manage our owned real estate and execute business plans to best position them for an eventual exit. Importantly, we carry these assets at a 50% discount to values at the time of loan origination, and half are located in New York and the San Francisco Bay Area, markets where we see broadly improving fundamentals and investor demand. We currently have one multifamily property in Texas under contract to sell, with several other assets well-positioned for potential sale this year. Meanwhile, our net lease portfolio continues to scale, ending the year at over $300 million at share, with another $200 million in closing. Our strategy remains focused on essential-use retail with attractive credit characteristics. The portfolio our team has constructed to date generates over three times rent coverage, with 2% built-in annual rent escalators and lease terms extending over fifteen years on average. Importantly, we continue to acquire these assets at discounts to replacement cost. In 2025, we acquired two portfolios of granular low-leverage performing loans from regional banks at discounts to par. Today, these portfolios represent approximately $600 million of principal balance at BXMT's share, and our thesis is playing out as expected, with strong credit performance and improving real estate fundamentals and capital markets driving $80 million of repayments since acquisition, enhancing returns for BXMT as loans purchased at discounts repay at par. We expect a ripe environment for bank consolidation to bring additional opportunities like this to market. Our platform is an established leader in the space, having acquired $23 billion of loan portfolios from banks since December 2023, positioning us well for future transactions as a reliable and trusted counterparty. Overall, we are pleased with the strong investment and asset management results our company achieved in 2025, and our team is excited about the opportunities we see ahead in the coming year. With that, I will pass it over to Tony to unpack our financial results. Tony Marone: Thank you, Austin, and good morning, everyone. Starting with our fourth quarter results, BXMT reported GAAP net income of $0.24 per share and distributable earnings, or DE, of negative $2.07 per share. DE included $434 million of reserve charge-offs, largely related to the resolution of five impaired loans, as well as the write-off of three subordinate loans, which collectively drove performance of our loan portfolio to its highest level in three years. These subordinate loans were previously impaired, effectively carried to zero, and as part of our regular quarterly assessment, were deemed unrecoverable in the fourth quarter. Excluding these items, DE prior to charge-offs was $0.51 per share, up $0.03 from the prior quarter and $0.09 from the first quarter of the year. For the second consecutive quarter, DE prior to charge-offs covered our quarterly dividend of $0.47 per share, as we continue to drive earnings power through loan resolutions, capital deployment, and accretive corporate debt refinancings and stock buybacks. Notably, DE benefited from $18 million of NOI from owned real estate in Q4, up from $6 million in the prior quarter, as we recognized a full quarter impact from properties taken under the balance sheet in Q3. Our hotels represent one-third of our owned real estate portfolio, which ended the quarter at $1.3 billion across 12 properties. We anticipate cash flows from owned real estate to decline in Q1, which typically experiences seasonal softening relative to other calendar quarters. However, we expect the portfolio to consistently generate positive DE and provide further ballast to earnings and dividend coverage over time, as we eventually exit these assets and repatriate capital into new investments at target returns. We also recognized $21 million of depreciation and amortization, or D&A, related to our owned real estate in the fourth quarter, which is included in GAAP earnings but excluded from DE. Accumulated D&A is also reflected in our book value, which ended the year at $20.75 per share. In total, book value includes $0.47 per share of accumulated D&A and $1.76 per share of total CECL reserves, of which $1.24 is attributable to the general reserve and $0.52 to asset-specific reserves. Our total CECL reserve declined nearly 60% quarter over quarter as a result of the reserve charge-offs I mentioned earlier. Importantly, these charge-offs had a de minimis impact on book value, executed largely in line with carrying values. Looking back over the course of 2025, book value benefited from a net $33 million CECL recovery from resolutions executed above carrying values. This, alongside stock buybacks, added $0.30 per share to book value this year. Earnings from our unconsolidated joint ventures also continued to grow, generating $7 million of DE in Q4 versus $3 million in the prior quarter. This was driven by income and repayments in our bank loan portfolios, which accelerate their unamortized purchase discount, and the continued growth in our net lease portfolio Austin mentioned earlier. As a reminder, our balance sheet reflects our $217 million net equity investment in the net lease and bank loan portfolio joint ventures. But as also noted, on a gross basis, our share of the investments in these strategies totaled $940 million and are a growing component of our increasingly diverse investment portfolio. Turning to BXMT's capitalization, our balance sheet remains in excellent shape. We ended the year with $1 billion of liquidity, debt to equity within our target range, and weighted average corporate debt maturities of 4.3 years, with no maturities until 2027. As Tim mentioned, we have been active in securitized debt markets, positioning our balance sheet for further resilience. We priced a $1 billion CLO in January, our sixth CLO transaction, and completed our inaugural European CMBS issuance in December, which adds yet another tool to our toolkit and demonstrates the constant innovation of our financing strategies by our capital markets team. We ended the year with 15 bank counterparties providing $19 billion of total borrowing capacity. We added one new counterparty in 2025, and another just recently in February. Given our strong track record as a borrower and the deep relationships with these lenders across Blackstone, we have successfully added or converted nearly $6 billion of credit facilities to a non-mark-to-market construct, driving total non-mark-to-market borrowings from 67% at the beginning of the year to nearly 85% today. As my tenure as CFO comes to an end, I can confidently say that all aspects of BXMT's business are in great shape, and the company is on strong footing to capitalize on opportunities as real estate and capital markets continue to recover. I am thrilled for Marcin to take the CFO role at an exciting time for the company, and I look forward to watching him and the rest of the team continue delivering strong results for BX shareholders. I will now ask the operator to open the call to questions. Thank you. Operator: As a reminder, please press 1 to ask a question. We ask you to limit yourself to one question to allow as many callers to join the queue as possible. We will take our first question from Doug Harter with UBS. Doug Harter: Thanks. Obviously, you have been kind of showing your support for the stock through share repurchase. I am sure you saw what the actions of one of your competitors earlier this month. Just thoughts on other ways you might look to kind of validate or support the value of the loans in the portfolio? Timothy Johnson: Thanks, Doug. This is Tim. You know, I think that, you know, we certainly take a look at all opportunities to maximize shareholder value in the market. I think we feel really good about the direction of the stock to date given the performance in 2025 and where we stand. You know, we still have a discount to book value to make up, but a relatively modest one. So we will continue to look at all options during the quarter, as you mentioned. A really good tool in the toolkit was definitely stock buybacks, and we analyzed everything that we have in terms of optionality in markets, but we feel really good about where we stand today. Doug Harter: Great. I appreciate that. Thank you. Operator: We will take our next question from Jade Rahmani with KBW. Jade Rahmani: Thank you very much. Could you provide your views on the REO portfolio? Do you see upside in key assets? And can you also discuss the New York office REO that took place in December 2025 based on the disclosure? Looks like an attractive basis. So I wanted to get your thoughts there. Austin Pena: Yeah. Jade, hey. It is Austin. You know, I would say with respect to REO, I think the way we look at that, as we have discussed before, it is really a go-forward analysis in terms of our decision-making there. These are really investment decisions that we think are really well informed due to the really unique data and information that we have access to. Specifically, we are seeing some improved fundamentals and investor demand in places like New York. With respect to that asset, as you mentioned, it is an asset in New York that we hold at a very low basis, significant discount to the value when the loan was originated. We are seeing improvement in markets like that. As we think about the potential to exit these assets over time, as I mentioned in my earlier remarks, we do think several assets are well-positioned to look to exit over the course of the year. We will be very thoughtful and strategic about that. We are selling one asset in Texas. We are also seeing positive trends in San Francisco. As we go through the rest of the year, I think we will start to look at those sale opportunities as the market opportunities sort of present themselves. Jade Rahmani: Thank you. And just a follow-up on the New York REO. Could you give any color as to origination, vintage, current occupancy rate? And also, dollar amount of CapEx you anticipate spending on the asset? Austin Pena: Yeah. You know, this was a loan that we originated pre-COVID. As I mentioned, we hold it at a very significant discount to the prior value at origination. The asset is pretty well leased today. There has been strong leasing demand. To the extent further leasing were to appear, were to materialize, I think we would look at that and analyze whether that would be accretive for us to invest the capital to capture those leasing opportunities. That is really how we look at all investment in our REO assets. I would say to the extent you look at our prior disclosures, this loan was impaired and we had a significant reserve against it. When we think about the go-forward opportunity in terms of exiting the asset, I think that we do see the opportunity to capture additional upside potentially on that asset and others over time. Jade Rahmani: Thank you very much. Operator: We will take our next question from Chris Moeller with Citizens Capital Markets. Chris Moeller: Hey, guys. Thanks for taking the questions and congrats on really solid progress on loan workouts in the quarter. I see in the 10-Ks that you guys made a $75 million investment in the Blackstone fund. Can you just talk about the type of investments that will go into that fund? And if there is any overlap on what you guys are already doing? Austin Pena: Yeah. This is Austin. I can take that. As you mentioned, we did make an investment in a new Blackstone-managed real estate credit fund. That fund will be focused on high-quality core plus real estate in the US and Canada. We really think it is a great example of BXMT's ability to deliver unique and compelling investments for our investors due to the scale of our platform and our affiliation with the Blackstone real estate credit business. I should note that BXMT pays no fees for this fund commitment. The investments will be sourced, underwritten, and managed by our team. Ultimately, we do think that adding some exposure to this profile investment to BXMT is a good risk-adjusted return. Adding investments in a diversified way with this type of profile we think is quite attractive for BXMT. Chris Moeller: Got it. And that is a good segue into my follow-up. So I guess you guys have made some small relative to your size investments over the last year or so. The agency multifamily lending JV, the net lease, the investment, and the bank loan JV. So I guess my question would be, what do you guys expect BXMT to look like over the coming years? And I guess, how does the bridge business fit into that? Is it going to stay the primary focus? Or will those other businesses kind of grow over time? Austin Pena: Yeah. I think, as you noted, you have seen an intentional effort for us to diversify the portfolio. I do not think we are going to be, we are going to always be a large lender in our core lending strategy that is not going away. But when you look at the profile of the investments that we have been making, adding net lease, adding the granular bank loan portfolios, these other ways to further diversify the earnings composition and profile of the investments that we have within the company, that is definitely intentional. Over time, we would expect to continue to pursue that strategy. In any way, if there is any way for us to really just diversify our credit exposures and risks, and generate the risk-adjusted returns that we believe are compelling for the company, we are going to continue to pursue that. Chris Moeller: Got it. Makes a lot of sense. Appreciate you guys taking the questions today. Operator: We will take our next question from Gabe Pogue with Raymond James. Gabe Pogue: You guys provided some detail on the new origination front as it pertains to industrial. Can you put any color around what you guys are doing in multifamily? And then a second question, I will just give it to you now, is how are you thinking about total leverage? You are almost 3.9 times right now. How do you think about that going forward? Austin Pena: Thanks. Yeah. Hey, it is Austin. Thanks, Gabe. I will take the first part of that question, then I will pass it over to Marcin for the second point. In terms of multifamily, we really like the opportunity we see in multifamily today. With respect to the performance that we have seen in our portfolio, our multifamily is 100% performing. When we think about the opportunity set in that space, we really just like the setup for multifamily and rental housing in general. It is a structurally undersupplied market. New construction starts are down 60% from peak. It is a really highly liquid and granular asset class. That is why you see us lending in that space. When you look at the performance in our portfolio, I think that has been demonstrated. That is the profile, I would say, and the reason we are in that area. Maybe, Marcin, if you want to handle the second part of it. Marcin Urbasic: Sure. Happy to. Look, I think our leverage, we think of it in terms of where it is within our target, as Tony mentioned, it is within our target where we are. It is a function also of what type of leverage we have. As Tony mentioned, a lot of our financing is non-mark-to-market. We have been active in addressing different maturities within our corporate debt profile as well as reducing costs on both the asset financing and corporate financing. It is a function of investment opportunities, where the balance sheet is, what is available to us from a financing perspective in the market. We are very thoughtful about it. But, again, within our targets, and we will maintain where it is. Operator: Thank you. We will take our next question from Rick Shane with JPMorgan. Rick Shane: Thank you guys for taking my questions. And Tony, thank you for all your help over the years. And Marcin, congratulations on the new gig. Most of my questions have been asked and answered at this point, but, you know, as we sort of look forward to 2026, it feels like the expectation is given where you are in leverage and unless there is additional equity capital available at some point, the portfolio will be roughly flat in size, maybe modest growth. I am curious about the timeline as you resolve loans and redeploy capital potentially from REO resolutions, what you think the path back to normalized ROE might look like? Austin Pena: Yeah, Rick. Hey. It is Austin. I can take that. As Marcin mentioned, the portfolio is, we think we are pretty well invested. I do think that we have capacity. We have liquidity of $1 billion today. But we think that is actually a good position to be in. We have a very broad pipeline. There are a lot of opportunities. But given the position we are in, we can be pretty selective across that pipeline. In terms of the REO timeline and exiting those assets, as I mentioned earlier, I think some of those assets are pretty well-positioned for us to look at exiting over the course of this year. Some others may take longer. But we do think that those loans or those assets are earning, generating a below-target ROE. As we exit those positions and redeploy that capital at our target returns, that should be supportive of earnings over time. Rick Shane: Got it. Okay, that is helpful. And then just one other question. As you continue to or as you have substantially exited your nonaccruing assets and assets with specific reserves, and starting to deploy a little bit more capital, what should we think about as an initial general reserve on new loans, sort of ballpark range so we can start to sort of dial in what our overall reserves will look like? Austin Pena: Yeah. I think if you just look at the general reserve today, I think that is a pretty good proxy for where we see the reserve for the vast majority of the portfolio as being appropriate. As we grow the portfolio or shrink the portfolio, I think that is a pretty good place to look. Rick Shane: Right. Thank you guys so much. Operator: We will take our next question from John Nicodermis with BTIG. John Nicodermis: Thank you, and good morning. Obviously, we were encouraged to see the significant headway made on your impaired loan during the quarter. Was that more a matter of strategy and timing on your team's end or for the specific assets? Or was there a notable shift in the broader market as a whole that made these resolutions more achievable? Thanks. Timothy Johnson: Thanks, John. This is Tim. I would say it is reflective of a couple of things. One, just the strength of our asset management team and their ability to work through challenges pretty swiftly. We have a large-scale team. It is one of the benefits of our platform. That is certainly a part of it. I think market liquidity does help as well. There is more transparency in the market in terms of valuations today that makes decision-making a little quicker for both owners and lenders to figure out which direction to go in. I think that is reflective of a stabilized real estate market where we sit today with valuations steadily stable and increasing. That is just a better backdrop for quicker resolutions in general. John Nicodermis: Great. Thanks, Tim. Really helpful. And then the other one for me, your loan portfolio mix now sits at half collateralized by multifamily or industrial properties. Obviously, these are high conviction sectors for BXMT. But what are you thinking for the target allocation for your portfolio between those two asset classes going forward? Thanks. Austin Pena: Thanks, John. This is Austin. I would say first and foremost, our top priority in terms of capital allocation is really finding the right investments with the best risk-adjusted returns. That allocation will obviously depend on where we see those opportunities over time. As we said earlier, we are very focused on diversifying our portfolio across sectors and geographies. You see that in sector selection. You see it in the geographic concentration of the company. You have seen us further diversify into things like the net lease and the bank loan portfolios that we have acquired. You have also seen us allocate capital towards buying back stock. As Tim mentioned, $140 million since inception of that program, where we thought that offered a compelling risk-adjusted return. Ultimately, what really matters to us is performance. So, really just trying to set up our company to deliver for investors over the long term. John Nicodermis: Thanks, Austin. Appreciate the time. Operator: Thank you. We will take our final question from Harsh Hemnani with Green Street. Harsh Hemnani: Thank you. So you mentioned the transaction market in the US is becoming more transparent, more liquid. Does that sort of start to pivot some of the deal volume that has been more levered towards Europe over the last years? Does that start to shift a little bit more to the US? And then maybe how do you weigh the pros and cons between a more liquid transaction market, more visibility into values, but also somewhat lower spreads that are available today versus a year ago? Austin Pena: Yeah. It is a great question. I think you are right. You are seeing more liquidity in the US. You certainly have seen that in 2025 in our CMBS market and early in 2026. With much more liquidity. I think that is overall a positive for the business. It just means there is more velocity to the portfolio, and you see that in the loan repayment activity. You see that in loan repayments of loans that have been pre-rate hike cycle and pre-COVID repaying. I think that generally is helpful. We are in, I would say, a liquid but more normalized market today, which is a good operating environment for us. As we said at the beginning, having the scale of our platform, the different styles of investment capabilities we have, the global reach, we can really look across the full set of opportunities and pick and choose what we want to do. Austin referenced it before. We are pretty well invested today, so we have the luxury of looking for the best relative value out there in the market. Even though spreads have tightened, back leverage has tightened as well. So that is offset a bunch of that spread tightening. But the opportunity set today still feels compelling and deal activity is increasing. So that is a pretty good setup for us overall. Harsh Hemnani: Got it. And then maybe on you mentioned backlog with this as well. And it feels like the CLO market has opened up. Of course, you guys issued a CLO in January. How are you sort of weighing the cost of capital between CLOs and bank facilities today? And how should we expect that financing mix to shift over the course of the year? Austin Pena: Yeah. Harsh, it is Austin. I can take that. I think what you saw us really do over the course of 2025 was really a broad approach across all the different capital markets that we are active in. And a very proactive one. As we mentioned earlier, we accessed about $5 billion of transactions across term loan CLO markets. As we think about the CLO market versus where we can finance our assets on facilities, obviously price is important. Structure is also important. The goal is to build a well-structured, well-diversified balance sheet and really have a healthy mix across all those markets so that we can be nimble when the market opportunities present themselves. As we mentioned earlier, we reduced our corporate term loan borrowing spread by about 90 points over the course of the year. That is very significant. We have been adding more credit facility counterparties, 15 different counterparties today, which really allows us to drive down the cost of that capital. When we think about having all these different options available to us, we think that ultimately benefits the company. I think you will continue to see really a mix of activity across all those different channels. Operator: Got it. Thank you. That will conclude our question and answer session. At this time, I would like to turn the call back over to Tim Hayes for any additional or closing remarks. Tim Hayes: Thanks, Katie, and to everyone joining today's call. Please reach out with any questions. Goodbye.
Doug Black: 2026 with stronger teams, a more cost-effective branch network, good momentum with our commercial and operational initiatives, and a robust pipeline of potential acquisitions. Accordingly, we remain confident in our ability to deliver superior value to our customers and suppliers and achieve solid performance and growth for our shareholders in 2026 and in the years to come. I will start today's call with a brief review of our unique market position and our strategy, followed by highlights from 2025. Eric Elema, who was recently appointed Chief Financial Officer, will then walk you through our fourth quarter and full-year financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Salmon will discuss our acquisition strategy, then I will come back to address our outlook and guidance for 2026 before taking your questions. As shown on Slide four of the earnings presentation, we have a strong footprint of more than 670 branches and five distribution centers across 45 U.S. states and five Canadian provinces. We are the clear industry leader, approximately three times the size of our nearest competitor. Yet we estimate that we only have about a 19% share of the very fragmented $25 billion wholesale landscaping products distribution market. Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business: 66% focused on maintenance, repair, and upgrade, 20% focused on new residential construction, and 14% on new commercial and recreational construction. As the only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition, further strengthens this balance over time. Overall, our end market mix, broad product portfolio, and geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers while providing important resilience in softer markets. Turning to Slide five, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry, all in support of our talented, experienced, and entrepreneurial local teams. Consistently deliver superior value to our customers and suppliers. We have come a long way in building SiteOne and executing our strategy but have more work to do as we develop into a world-class company. Current challenging market conditions require us to adopt new processes and technologies faster and to be even more intentional in driving organic growth, improving our productivity, and mastering the unique aspects of each of our product lines. Accordingly, we remain highly focused on our commercial and operational initiatives to overcome near-term headwinds but more importantly, build a long-term competitive advantage for all our stakeholders. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne. Taken altogether, we expect our strategy to create superior value for our shareholders through organic growth, acquisition growth, and EBITDA margin expansion. On slide six, you can see our strong track record of performance and growth over the last ten years with consistent organic and acquisition growth. From an adjusted EBITDA margin perspective, we benefited from the extraordinary price realization due to rapid inflation in commodity products in 2021 and 2022. In 2023 and 2024, we experienced significant headwinds as commodity prices came down. In 2024, we also experienced further adjusted EBITDA dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit, and from our other focus branches, which resulted from the post-COVID market headwinds. Over the past two years, our pricing transitioned from negative 3% in 2024 to flat in 2025. And we anticipate that pricing will be up 1% to 3% in 2026. Furthermore, we achieved excellent progress with Pioneer and our other focus branches in 2025, and expect to continue achieving improvements over the next several years as we bring their performance up to the SiteOne average. In summary, we expect to drive continued adjusted EBITDA margin improvement in 2026 and beyond as we execute our initiatives as the market headwinds slowly turn to tailwinds. We have now completed 107 acquisitions across all product lines since the start of 2014, adding approximately $2.1 billion in trailing twelve-month sales to SiteOne, which demonstrates the strength and durability of our acquisition strategy. These companies expand our product line capabilities and strengthen SiteOne with excellent talent and new ideas for performance and growth. Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more companies in 2026 to support our growth. Given the fragmented nature of our industry and our current market share, we believe that we have a significant opportunity to continue growing through acquisition for many years to come. Slide seven shows the long runway we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, arsenic, and landscape supplies categories. We are well connected with the best companies in our industry and expect to continue filling in these markets systematically over the next decade. I will now discuss some of our full-year 2025 performance highlights as shown on Slide eight. We achieved 4% net sales growth in 2025, with an organic daily sales increase of 1%. Organic sales volume grew 1% during the year as our teams continued to gain market share, which more than offset the decline in our end markets. As I mentioned, pricing was flat in 2025, which was a significant improvement from the 3% decline we experienced in 2024. Pricing was up 2% in the fourth quarter, and with most of the commodity product deflation behind us, we expect that trend to continue into 2026, supporting stronger organic daily sales growth. Gross profit in 2025 increased 5%, and gross margin increased 40 basis points to 34.8%. The increase in gross margin was driven by improved price realization, benefits from our commercial initiatives, and a positive contribution from acquisitions, partially offset by higher freight and logistics costs to support our growth, including the establishment of our fifth distribution center during the fourth quarter. SG&A as a percentage of net sales decreased 40 basis points to 30.1%, as our strong actions to reduce SG&A in the base business were partially offset by the addition of acquisitions with higher operating costs. SG&A for the base business decreased 50 basis points compared to 2024 on an adjusted EBITDA basis. As we continue to optimize our branch network, reduce our net customer delivery expense, and closely manage labor and expenses in relation to sales volume. We reduced the cost of our branch network further in the fourth quarter and expect to continue achieving SG&A leverage in 2026. Adjusted EBITDA in 2025 increased 10% year over year to $414.2 million, and adjusted EBITDA margin for the year improved 50 basis points to 8.8%, reflecting positive organic daily sales growth, gross margin improvement, solid operating leverage, and good contributions from acquisitions. Given the challenging markets, we were pleased to achieve solid adjusted EBITDA margin expansion, and expect to continue driving our EBITDA margins toward our longer-term objectives in the coming years. In terms of initiatives, our teams are executing specific actions to improve our customer experience, accelerate organic growth, expand gross margin, and increase SG&A leverage. For gross margin improvement, we continue to increase sales with our small customers faster than our company average, drive growth in our private label brands, and improve inbound freight costs through our transportation management system. These initiatives not only improve our gross margin but also add to our organic growth as we gain market share in the small customer segment as well as across product lines with our private label brands like LESCO, Pro Trade, Solstice Stone, and Portfolio. In 2025, we increased our mix of private label products by over 100 basis points from 14% to 15% of total sales. To further drive organic growth, we increased our percentage of bilingual branches from 62% of branches to 67% of branches, while executing Hispanic marketing programs to create awareness among this important customer segment. We are also making great progress with our sales force productivity as we leverage our CRM and establish more disciplined revenue-generating habits and processes among our inside sales associates and our over 600 outside sales associates. Our digital initiative with siteone.com is also helping us drive organic daily sales growth, as our results have shown that customers who are engaged with us digitally grow significantly faster than those who are not. In 2025, we increased digital sales by over 120%, while adding thousands of new regular users. Siteone.com helps customers be more efficient and helps us increase market share, making our associates more productive. A true win-win-win. Through siteone.com and our other digital tools, we are accelerating organic growth, and we believe we are outperforming the market. With the benefit of Dispatch Track, which allows us to more closely manage our customer delivery, we improved both associate and equipment efficiency for delivery in 2025, while more consistently pricing this service. As a result, we reduced our net delivery expense by over 40 basis points on delivered sales, which represents approximately one-third of our total sales. This is a major initiative, and we expect to make significant progress again in 2026 and over the next two to three years. In 2025, we focused intensely on our underperforming branches, or focus branches, to ensure that they have the right teams, the right support, and are executing our best practices to bring their performance up to or above the SiteOne average. We were pleased to achieve an over 200 basis point improvement in the adjusted EBITDA margin of our focus branches in 2025. Going forward, we expect to gain a meaningful adjusted EBITDA margin lift for SiteOne in the coming years as we continue to improve the performance of these branches. Further progress in 2026 in the face of continued soft markets. We consolidated and closed 20 branches in 2025 and plan to serve existing customers through our remaining branch network at a lower cost. Taken altogether, we executed well in 2025 and are gaining momentum with our commercial and operational initiatives to drive organic growth, increase gross margin, and achieve operating leverage in 2026 and beyond. On the acquisition front, as I mentioned, we added eight companies to our family in 2025, with approximately $55 million in trailing twelve-month sales added to SiteOne. With the market uncertainty and with all our acquisitions being small, 2025 was a lighter year than typical in terms of acquired revenue. Given our current backlog and discussions, we expect 2026 to be a more typical year in terms of average deal size. With an experienced acquisition team, broad and deep relationships with the best companies, a strong balance sheet, and an exceptional reputation as the acquirer of choice, we remain well-positioned to grow consistently through acquisition for many years in the very fragmented wholesale landscape supply distribution market. In summary, our teams did a good job in 2025 managing through the headwinds, executing our strategy, leveraging our breadth of commercial and operational initiatives, and creating momentum as we move into 2026. After three years with no price benefit, we are pleased to be entering 2026 with positive pricing. And we are confident in our ability to continue outperforming the market and expanding our adjusted EBITDA margin as we grow. We are excited about our future and we continue to build our company and deliver superior value for our customers, suppliers, and shareholders for the long term. Now Eric will walk you through the quarter and full year in more detail. Eric? Eric Elema: Thanks, Doug. I'll begin on Slides nine and ten with some highlights of our fourth quarter and full-year results. We reported an increase in net sales of 3% to $1.05 billion for the fourth quarter and an increase of 4% to $4.7 billion for fiscal year 2025. There were sixty-one selling days in the fourth quarter and two hundred fifty-two selling days in fiscal year 2025. Both were the same number of selling days as the prior year periods. In fiscal year 2026, we have an extra week, which will result in an increase to two hundred fifty-six selling days. Unfortunately, Doug will describe in our outlook, the additional four days of sales occur at the end of fiscal December when there is little landscaping activity, which we expect will result in a $4 million to $5 million EBITDA headwind for the 2026 fiscal year. Organic daily sales increased 2% in the fourth quarter compared to the prior year, driven by improved pricing, our sales initiatives, and solid demand in the maintenance end market, especially for ice melt products. For the full year, organic daily sales increased 1% due to steady growth in the maintenance end market and execution of our sales initiatives, partially offset by softer demand in the new residential construction and repair and upgrade end markets. Price increases contributed 2% to organic daily sales growth this quarter. Price increases due in part to tariffs have now more than offset price decreases we are experiencing with select commodity products. We have positive pricing in almost all categories, while commodity products like grass seed and PVC pipe, which were down 12% and 10%, respectively, this quarter, are becoming less of a headwind. For the full year, we estimate the pricing impact on 2025 organic daily sales was negligible compared to the 2024 fiscal year, as deflationary impacts earlier in the year were offset by modest price inflation in the second half. Our current outlook for 2026 is for prices to increase by 1% to 3%. Organic daily sales for agronomic products, which includes fertilizer, control products, ice melt, and equipment, increased 11% for the fourth quarter and 7% for the full year due to strong volume growth and solid end market demand. In the fourth quarter, the strong agronomic sales growth was driven by the sales of ice melt products, which benefited from an increase in snow events during the quarter compared to a low number of events in the prior year period. While snow events are good for sales of ice melt, they generally have a negative effect on overall organic growth. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, decreased 1% for the fourth quarter and 1% for the full year due to softer demand in the new residential construction and repair and upgrade end markets. Geographically, seven of our nine regions achieved positive organic daily sales growth in the fourth quarter. We achieved solid growth in our Midwest markets due to the strong sales of agronomic products but continue to see pressure in markets like Texas and California that have been affected by softness in new construction demand. Acquisition sales, which reflects sales attributable to acquisitions completed in 2024 and 2025, contributed $12 million or 1% to net sales growth in the fourth quarter. For the 2025 fiscal year, acquisition sales contributed $111 million or 2% to net sales growth. Scott will provide more details regarding our acquisition strategy later in the call. Gross profit for the fourth quarter was $357 million, which was an increase of 6% compared to the prior year period. Gross margin for the fourth quarter increased 80 basis points to 34.1%. For the 2025 fiscal year, gross profit increased 5% and gross margin increased 40 basis points to 34.8%. The increase in gross margin for the fourth quarter and full year reflects improved price realization, benefits from our commercial initiatives, and a positive contribution from acquisitions, partially offset by higher freight and logistics costs. During the year, we added a fifth distribution center near Milwaukee, Wisconsin. We increased international sourcing to support the growth of private label products. Selling, general, and administrative expenses, or SG&A, increased less than 1% to $366 million for the fourth quarter. SG&A as a percentage of net sales decreased 100 basis points in the quarter to 35%. As discussed during last quarter's earnings call, we consolidated and closed 20 branch locations in the fourth quarter, which negatively impacted SG&A by $6 million, of which $4.5 million is reflected in adjusted EBITDA. In 2024, we took similar actions to consolidate and close 22 locations, which negatively affected SG&A by $16 million, of which $4.5 million was included in our adjusted EBITDA results. These actions reflect our continued efforts to optimize our branch footprint and lower our cost structure to match the current environment. As a reminder, in most cases with our consolidations and closures, we typically can serve customers from other branches in the same market, and therefore, we expect to retain most of the sales. For the quarter, base business SG&A as a percentage of net sales was roughly flat, reflecting our ongoing operating cost management actions, which helped offset higher incentive compensation expense. For the full year, SG&A increased 2% to $1.4 billion, and SG&A as a percentage of net sales decreased 40 basis points to 30.1%. Base business SG&A as a percentage of net sales decreased 50 basis points for 2025 compared to the prior year. This improvement reflects our continued efforts to increase productivity and better align our operating costs with the current market demand. Our effective tax rate for fiscal 2025 was 22.5% compared to 22.4% for fiscal 2024. A small increase in the effective tax rate was due primarily to a decrease in the amount of excess tax benefits from stock-based compensation. Excess tax benefits of $3.8 million were recognized for the 2025 fiscal year as compared to $3.3 million for the prior year. We expect the effective tax rate for fiscal 2026 will be between 25% and 26%, excluding discrete items such as excess tax benefits. Net loss attributable to SiteOne was $9 million for the fourth quarter compared to a net loss of $21.7 million for the prior year period. Net income attributable to SiteOne for fiscal 2025 increased to $151.8 million compared to $123.6 million for fiscal 2024. The improvement in both the fourth quarter and full year was primarily due to higher net sales, improved gross margin, and the achievement of SG&A leverage. Our weighted average diluted share count was 45.1 million for the 2025 fiscal year compared to 45.6 million for the 2024 fiscal year. We repurchased 322,000 shares for $40 million in the fourth quarter and 817,000 shares for $97.7 million at an average price of $119.62 per share for the full year. Adjusted EBITDA increased 18% to $37.6 million for the fourth quarter compared to $31.8 million for the prior year period. Adjusted EBITDA margin expanded 50 basis points to 3.6%. For the full year, adjusted EBITDA increased approximately 10% to $414.2 million compared to $378.2 million for the 2024 fiscal year. Adjusted EBITDA margin improved 50 basis points to 8.8% for the 2025 fiscal year. Adjusted EBITDA includes adjusted EBITDA attributable to non-controlling interest of $1.1 million and $4.2 million for the fourth quarter and full year, respectively. Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on Slide 11. Working capital at the end of the 2025 fiscal year was $1.01 billion compared to $909 million at the end of the prior year. The increase in working capital is primarily due to higher cash on hand and strategic purchases of inventory to support our growth. Cash provided by operating activities increased $165 million for the fourth quarter compared to $119 million for the prior year period. The increase in cash flows from operating activities for the fourth quarter reflects higher net income and improved working capital management. Cash provided by operating activities for the full year was $301 million compared to $283 million for the prior year. The increase in cash flow from operating activities in the 2025 fiscal year was primarily due to the improvement in net income. We made cash investments of $30 million for the fourth quarter compared to $37 million for the same period in 2024. We made cash investments of $83 million in the 2025 fiscal year compared to $177 million in the prior year. The decrease in both the fourth quarter and full year is attributable to lower investments and acquisitions. Capital expenditures for the quarter were $15 million compared to $10 million for the prior year period. Capital expenditures for the 2025 fiscal year were $54 million compared to $41 million for the 2024 fiscal year. The increase in capital expenditures for both the fourth quarter and full year reflects increased investments in our branch locations. Net debt at the end of the 2025 fiscal year was $330 million compared to $412 million at the end of the prior year. Leverage rates decreased to 0.8 times our trailing twelve months adjusted EBITDA compared to 1.1 times at the end of the prior year. We had available liquidity of $768 million, which consisted of $191 million of cash on hand and $578 million in available capacity under our ABL facility at the end of the 2025 fiscal year. On Slide 12, highlight our balanced approach to capital allocation. Our primary goal regarding capital allocation is to invest in our business, including the execution of our acquisition strategy. We're also committed to maintaining a conservative balance sheet demonstrated by our leverage ratio. To the extent we have excess capital after achieving these objectives, the share repurchase authorization provides us with a mechanism to return capital to our shareholders. In the 2025 fiscal year, we executed our capital allocation strategy, investing $93 million in CapEx and acquisitions, and conservatively maintaining leverage at 0.8 times net debt to adjusted EBITDA, which allowed us to complete share repurchases of approximately $98 million. I will now turn the call over to Scott for an update on our acquisition strategy. Scott Salmon: Thanks, Eric. As shown on Slide 13, we acquired three companies in the fourth quarter, bringing our total for the year to eight, with combined trailing twelve-month net sales of approximately $55 million in 2025. Additionally, we have acquired one company in 2026. Since 2014, we have acquired 107 companies with approximately $2.1 billion in trailing twelve-month net sales added to SiteOne. Turning to Slides 14 to 17, you will find information on our most recent acquisitions. On October 1, we acquired Red's Home and Garden, a wholesale distributor of nursery and hardscape products in Wilkesboro, North Carolina. The addition of Red's Home and Garden provides a strategic entry into North Carolina's Appalachian market, allowing us to offer all of our product lines in a new market. On November 13, we acquired CC Landscaping Warehouse, a wholesale distributor of nursery products, bulk materials, and landscape supplies in Bradenton, Florida. The addition of CC Landscape expands SiteOne's product offering in this fast-growing Florida market. On November 20, we acquired French Broad Stoneyard, a two-location wholesale distributor of hardscape products in Arden and Brevard, North Carolina. This acquisition expands our hardscape presence in the North Carolina mountain region. Finally, on January 13, we completed our first acquisition of 2026, adding Borje Flagstone Company, a division of Borje Brothers Building Materials, a wholesale distributor of hardscape products with one location in Santa Monica, California. Summarizing on Slide 18, our acquisition strategy continued to create significant value for SiteOne, adding excellent talent and moving us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. As we've discussed, the high-performing companies we acquired in 2025 were smaller than our historical average. As Doug had mentioned, given our active discussions, we would expect the average deal size to be more typical in 2026. Overall, with our strong balance sheet and a robust pipeline, we remain confident in our ability to continue adding outstanding companies to SiteOne for years to come. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they join the SiteOne family. I will now turn the call back to Doug. Doug Black: Thanks, Scott. I'll wrap up on Slide 19. As we move into 2026, there continues to be uncertainty with interest rates, consumer confidence, and the overall economy, which could affect our end markets. On the positive side, we are expecting pricing to increase in 2026 for the first time since 2022, which will support higher organic daily sales growth. In terms of end markets, we expect new residential construction, which comprises 20% of our sales, to be down in 2026. Continued elevated interest rates, lower consumer confidence, and high home values are constraining demand. This market was down in 2025, and with continued weakness in housing starts, we're expecting it to drop further in 2026. New commercial construction, which represents 14% of our sales, was solid in 2025, and we believe it will remain flat in 2026. Meeting activity from our project services teams continues to be slightly positive compared to the prior year, which is a good indicator of continued demand. While the ABI Index is showing weakness, our customer backlogs remain solid, and we believe the commercial market will remain resilient for the full year. We believe the repair and upgrade market, which represents 30% of our sales, was down in 2025 but seemed to have stabilized during 2026. Lastly, in the maintenance end market, which represents 36% of our sales, we achieved excellent sales volume growth in 2025 as our teams gained profitable market share on top of the steady demand growth. We expect the maintenance end market to continue growing steadily in 2026. In total, we expect end market demand to be flat, with growth in maintenance offsetting a decline in new residential construction. Given this backdrop, and with the benefit of our commercial initiatives, we expect to achieve positive sales volume growth, which when coupled with positive pricing, is expected to yield low single-digit organic daily sales growth for the full year 2026. We expect gross margin in 2026 to be higher than in 2025, driven by our commercial initiatives and the contribution from acquisitions, partially offset by higher freight and logistics costs supporting our growth. With our continued strong actions to improve our productivity and by continuing to address our focus branches, we expect to achieve operating leverage in 2026, yielding solid improvement in our adjusted EBITDA margin. In terms of acquisitions, as Scott mentioned, we have a good pipeline of high-quality targets, and we expect to add more excellent companies to the SiteOne family throughout 2026. Lastly, as Eric mentioned, we have an extra week in 2026. Unfortunately, this extra week occurs in fiscal December, during a very slow sales period, which is a traditionally loss-making period for SiteOne. As a result, we expect the extra week will reduce our adjusted EBITDA by $4 million to $5 million. With all these factors in mind, and including the negative effect of the fifty-third week, we expect our full-year adjusted EBITDA for fiscal 2026 to be in the range of $425 million to $455 million. This range does not factor in any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions. Thank you. Operator: We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys, we ask that analysts limit themselves to one question and a follow-up so that others may do so as well. One moment, while we poll for questions. Our first question comes from David Manthey with Baird. Please proceed with your question. David Manthey: Thank you. Good morning, guys. First question here, more of a statement. I mean, we're in the shoulder season obviously, but really encouraging results. So that's great to see. But focusing on the year that we just closed up, by my calculations, I think you did over 20% EBITDA contribution margins on just 1% organic growth in 2025. And if I look at the guidance you've given for EBITDA and low single-digit organic growth, I think that implies something in the mid to high teens, maybe even higher than that in 2026 again. So first question is just, is that your intent? And then I have a follow-up. Doug Black: Yeah. I think those are kind of the basic numbers. And we're able to get that obviously because we're improving our gross margin at the same time, we're getting SG&A leverage. And we have, as you know, we have the focus branches that we're able to improve. And so that gives us more than, say, a typical drop down to the bottom line on pretty modest sales. And we expect that to be the case in 2026 as well as 2025. Eventually, that will play itself out. But for now, we can get pretty outsized delivery on low sales because of the focused branch improvement and the other initiatives that we've got that kind of combine together to give us that pretty robust profit improvement. David Manthey: Yeah. Thanks, Doug. You almost answered my follow-up question, but let me just drill in a little bit more on that. So the factors that had depressed margin previously at the trough were weak market demand, negative pricing, we had this Pioneer overhang, structural investments you made in the business and distribution centers and technology, and that was offset by the cost reduction efforts that you mentioned. And maybe as it relates to those specific efforts, clearly, some of those are in the rearview mirror and no longer apply. But as you look at 2026, which are the key levers as we move forward? And then is there anything else from a cost standpoint that we need to think about that will be an offset in '26, just any sort of investment or anything else we should be watching for? Doug Black: Yeah. I mean, you pretty much hit the list, and that's why we're excited as we look forward. Pioneers delivered significant improved profitability in 2025. We expect that to continue in 2026. Deflation, which has been hampering us for several years, is largely behind us. And the investments that we've made during those periods, even when things were tougher, are starting to pay off, and we're getting the harvest. So a good outlook, I guess, going forward. One headwind we do have is a headwind. We mentioned we put in the fifth DC. We put that in the fourth quarter. Also expanding another one of our DCs. When we do that initially, it tends to be dilutive, you know, as a couple million dollars in the fourth quarter. There'll be another $8 million next year as a headwind that will offset some of the gross margin improvement. But we'll still see solid gross margin improvement on top of that. Last year, we had a bonus headwind with very little bonus in 'twenty-four. We paid higher bonuses in 25% on better performance. So it kind of, if you will, replaces that headwind in 2026. But that would be the one thing that's kind of that would still be going against us. David Manthey: Got it. Thanks, Doug. Operator: Thank you, David. Our next question comes from Ryan Merkel with William Blair. Please proceed with your question. Ryan Merkel: Hey, guys. Thanks for the question. Wanted to start with the first quarter outlook, if I could. Are you expecting low single-digit organic growth here in 1Q? And can you comment on how the start of the year has gone? Doug Black: Yes. I mean, we would expect our growth to be fairly balanced through the year. Pricing will be a bit stronger in the first half, just because of the way the tariff pricing hit kind of in May-ish, April, May. And the way the deflation of the commodity products has come off. We'll probably have stronger pricing in the first half than the second half. But overall, let's call it organic sales volume should be fairly spread out through the year. The start of the year has been very reasonable. We had a good January, February has been somewhat weather affected. But we're not seeing anything that doesn't line up with our guidance or outlook for 2026. Ryan Merkel: Okay. That's great to hear. And then for my follow-up, guiding '26 organic to low single digits, the flat market price of 2%, so what I noticed is it doesn't include a lot for share gains. So how are you thinking about share gains in 2026? And then maybe speak generally to competition if it's still rational or if you're seeing people get a little more competitive here. Doug Black: Yes. No, great question. Yes, we're confident that we can continue to gain market share. We're obviously very cautious on the market itself. We're calling it flat. But we do expect to gain market share. And so we probably put some cushion in there if the market ends up holding up, we should do well on a volume basis. We're very pleased with the 1% volume increase that we got last year when the market was down. So that looks optimistic. In terms of competition, it's the same, right? I mean, very competitive market, we have different competitors, some are more competitive than others. They're all kind of behaving the same. We're very good at battling it out for the large customers. We're taking share kind of with the small, mid customers where the competition is less or tends to be less. And so that's kind of our strategy. But the competitive environment is very similar, but it is a very competitive market. Ryan Merkel: Very good. Thanks for the thoughts. Best of luck. Doug Black: Thank you. Operator: Our next question comes from Jeffrey Stevenson with Loop Capital Markets. Please proceed with your question. Jeffrey Stevenson: Hi, thanks for taking my questions today. How should we think about the expected operating leverage benefits in 2026 from your internal initiatives focused on improving underperforming branches? And then, could there be additional opportunities to close or consolidate branches in addition to the 20 you did in the fourth quarter? Doug Black: Yes. Thanks, Jeff. I think focused branches will continue to contribute. We're expecting kind of a similar contribution in 26,000,000 as we delivered in '25. I think closures at this point, we're not expecting to do something that we have done in the last February. We'll continue to assess those opportunities, but it's part of our typical process to close branches and consolidate when leases come up. So we're not planning anything significant at this point. But in terms of other SG&A items, we do expect to drive productivity improvements on top of just the closures, cost management, our delivery programs, multiyear journey, and we expect that to contribute again. So we do have inflation not only in wages, but we are basing overall across our SG&A. So we do believe that our initiatives will overcome that and will achieve leverage. That's our plans in 2026. Jeffrey Stevenson: Okay. Great. Well, that's helpful. And private label growth has been a standout this year, increasing to 15% of sales. And it sounds like you have a long runway of opportunities in your core private label brands. Just, you know, is there a long-term target of, you know, what percentage private label sales could grow to over the coming years? Doug Black: Yes. I mean, I would think that 25%, 30% private label in the long term would be very doable. It will take us time to get there. We kind of have a goal of adding 100 basis points in our total sales mix a year, and we achieved that goal this year. We've got some terrific programs for private label products for '26. So we feel like it will be a steady, very long-term march but quite powerful over that period in terms of margin improvement. Jeffrey Stevenson: Great. Thank you. Doug Black: Thank you. Operator: Our next question comes from Collin Verron with Deutsche Bank. Please proceed with your question. Collin Verron: Good morning. Thank you for taking my questions. I just wanted to start on maintenance. It's really shown steadiness in this uneven macro backdrop. So I was just curious, can you quantify the organic maintenance sales growth you saw in 2025 and sort of what your expectations are? And in terms of magnitude for 2026? And then I guess just the offsets here on the new resi side, just any sense of order of magnitude for the declines that you're expecting there? Doug Black: Yes. Our organic growth for the products we sell into maintenance, so agronomics growth for the year was 7%, and that was all volume. Pricing came in flat for the full year. And in the fourth quarter, it was 11% on 9% volume with 2% price. So we feel like we're performing very well, taking share, penetrating adjacent markets, and driving a lot of improvements in our balanced mix of products. We think the base market demand is probably 2% to 3% a year in maintenance. It's 36% of our business, so that's a nice kind of powerful force. New res is 20% of our business. So it does allow us to kind of counterbalance that weakness. But coming in at 7% volume, we have been gaining market share in maintenance, and we think we can continue. We've been gaining market share there probably for the last two or three years and have great capabilities there. Collin Verron: Great. That's helpful color. I guess just pivoting to gross margin. I mean, it was a really strong quarter in the fourth quarter, and I think it was better than sort of the expectations coming out of the third quarter. So maybe can you compare sort of what transpired in the fourth quarter to what you were thinking in the third quarter and some of the puts and takes there and maybe how those will continue into 2026? Thanks. Doug Black: Right. Yes. So if you think about price, we had guided 1% to 2%. We ended up on the high end of that with a 2%. So it was a better contribution on price, price realization. Vendor support, we were conservative there. And things came in a little better. That can move around at the end of a seasonal quarter, not necessarily tied to sales. It's more purchasing volumes related. And then freight, freight impacts, which there's been some partial offsets there that wasn't as bad as we anticipated. And acquisitions contribution came in a little higher on the gross margin side. So overall, it was better than we expected. We enter the year on the high end of the pricing guide here for '26, we think that will be beneficial for price realization in the '20. Operator: Please proceed with your question. Our next question comes from Mike Dahl with RBC Capital Markets. Mike Dahl: Good morning. Thanks for taking my questions. First one on just the organic daily sales outlook. I know that with the branch closures, you typically expect to retain most of the sales, but given you've had at least two larger iterations of this now, I don't know if that may or may not be different than normal, but do you have any kind of stats that are showing you so far, maybe percentage-wise of what percentage of sales you're retaining and how that's influencing your, if at all, daily sales guide? And similarly, if we should think about that extra week in December as negatively impacting your daily sales guide? Doug Black: Yes. In terms of the closures, we typically retain 75%, 80% of the sale. I mean, that has been our history. And so we would expect something similar. It is baked into our guide. So that's a bit of a headwind that obviously we can overcome with share gains. And then I'll pass it to Eric for the effect of the fifty-third week. Eric Elema: Yes. The fifty-third week, obviously, it's an extra week of sales, but it's a very slow week. Think after Christmas wrap around New Year. So those four extra selling days, it's seasonally very slow. On the organic daily basis, it's about 100 basis negative drag on organic growth. For the and Eric, that's for the year or for the quarter, it equates to 100 basis points negative drag on on Yeah. That's that's the full year. That number. Mike Dahl: Yeah. That's what makes sense. That makes sense. That's what I I kinda figured. Okay. And then just pivoting to the margin side, you're not giving exact guides for SG&A and gross margin per usual, but you expect improvement in both. Can you give us a sense of whether it's more heavily geared towards one versus the other? Doug Black: It's pretty balanced across the two. As it was in 2025. So we feel like we're driving initiatives on both sides, and it would be pretty balanced, the contribution of each. Operator: Our next question comes from Matthew Bouley with Barclays. Please proceed with your question. Elaine Ku: Hi. You have Elaine Ku on for Matt Bouley. Thank you for taking my questions. I wanted to follow-up on private label. So within that, like, what category are you seeing the most opportunity to expand within? And can you walk us through maybe some of the margin differentials there for your business? Doug Black: I mean, the categories are, you know, we have strong private label in agronomics being with the LESCO brand. With the Pro Trade, that would be lighting and other landscape supplies like synthetic turf, erosion control, and fittings, etcetera. And then we have a strong private label brand, Solstice Stone in hardscapes. So that's high-end veneers and flooring, decking, etcetera. And then finally, Portfolio is our nursery private label, which is growing quite rapidly. So that gives you the full breadth of our private label brands. The differential, I would just say, is significant. It makes a difference. And when we move the percentage of private label, as a percent of total sales, it makes a material impact on our gross margin. Elaine Ku: Got it. And can you also touch on what you're seeing in terms of price increase announcements so far into like early 1Q? How has price realization tracked so far? And is there any difference between like finished goods and commodity pricing? Doug Black: Yeah. So price realization, I would say it's early, but it's tracking how we exited. Price increases so far in the quarter, it's early, largest suppliers guess we had one signal low single digit. So nothing significant so far in the quarter. And commodities? Yeah, commodities. Sorry. Commodities, so we exited the year the two that had been deflationary or have been deflationary, grass seed was down 12% and PVC down 10%. As we enter this first half of the year, grass seed will stay in that range. Kind of 10% to 15% reprices in June. We'll see we believe we're at a bottom there. Down to twenty thirteen pricing levels. So we don't believe that we're going to go down any further. After the first half of the year. And then PVC is kind of flattish right now in the environment. We're kind of monitoring haven't seen any price increases or any significant decreases at this point. So commodities right now, we believe we're exiting that deflationary impacts on the business. And then across the rest of the cost basket, more 90% positive price territory. And tariff affected products where price increases went in in the second quarter in twenty twenty-five. Those have remained in the positive pricing territory. Elaine Ku: Got it. Thank you. Operator: Our next question comes from Andrew Carter with Stifel. Please proceed with your question. Andrew Carter: Hey, thank you. Good morning. Regarding the digital growth that you cited, where is digital penetration today across the platform? And is it significantly different by markets to where there's a test case to show where this can be? Or is it pretty even at this point? Doug Black: It's pretty broad stretch, Brad, across products now and across geographics. We're very pleased. We're up 120% over 120% versus last year. We expect that to be double-digit penetration for total sales this year. We've got our regular users of siteone.com are up 60% or about 10,000 regular users in 2025. So, yes, we're very pleased at how digital is ramping up and becoming a very meaningful part of SiteOne. Andrew Carter: And regarding kind of the end market guidance that you gave, new construction to be down, how much in your guidance is factored in how deep the declines could go that you could manage and still stay within your guidance? And remind us, I think you have you're six months out from new construction. Census is delayed, but so that still gives you till April. So any help and clarity on that key market? Doug Black: Yes. I mean, it's hard to say, right? There's a lot of uncertainty with new res, but I would kind of we're looking at maintenance as a balance. Maintenance is 36% of our business, new res is 20%. Maintenance demand will be up 2% to 3%. So new res could be down more than that. And obviously, it balances, right? And it's so that gives you the math of how we're thinking about how things will play out. And we stand ready for if the market is worse than that, then we feel like our share gains can also help balance that. We're gaining strength there. But we'll see what we get. 2025 was we feel it down market where new res and repair and remodel were both down. And we were able to kind of drive out a 1% volume growth. So we're still optimistic even though we that the new res market is likely to be soft and down materially. Andrew Carter: Thanks, Pascal. Operator: Our next question comes from Charles Perron-Piché with Goldman Sachs. Please proceed with your question. Charles Perron-Piché: Good morning. First, I'd like to touch on the M&A pipeline. What gives you confidence in the normalization and activity this year? And should activity remain up, how would you consider other capital or allocation priorities given the strength of the balance sheet? Doug Black: Yes. Thanks, Charles. I would say, obviously, the M&A activity in the year varies significantly. But our long-term average is that the average size is $15 million to $20 million in revenue. And just to show the variability, in 'twenty-three and 'twenty-four, our average revenue was over $25 million per company. And this year, as you saw, it was well under 10. What gives us confidence is that our active discussions this year would lead us to believe that we'd be in a more typical range. So it's just our experience and our ongoing discussions. Then in terms of if it is a light year, we would be we would redeploy capital to return cash to the shareholders. Yes. We would fill in any space there. Charles Perron-Piché: Got it. Okay. That's helpful. And then just touching on the fifth distribution center that opened up in Q4, understanding the cost that will come through it in the near term. But can you talk about the expected benefit you're going to be able to generate from this and the improvement to service associated with that? Doug Black: Right. So, yeah, the fifth DC is in Wisconsin. It fills in the Midwest part of our business. It'll probably support 100 to 150 branches. And obviously, longer term, that will drive down our total delivered cost of goods sold and improve our margins. It is dilutive when we do it initially. But it improves the margins. But it also improves our stocking and our ability to service our customers with tremendous service at lower overall inventory levels. Because we get the inventory efficiency there. So adding the 50 EC will help us continue to lower our overall network cost over time. It will allow us to streamline our inventory turns. And increase our inventory turns. But in the short term, it's dilutive in the year where you put it in and wrap yourself up. Eric Elema: And I'd also add that it helps us continue to accelerate our private label strategy. So I think it gives us just another driver there. Achieve our objectives. Charles Perron-Piché: Alright. Thanks for your time, guys, and good luck for the next quarter. Doug Black: Thank you. Thank you. Operator: Our next question comes from Sean Callahan with Bank of America. Please proceed with your question. Sean Callahan: Hi, guys. Thanks for taking my questions. Just a follow-up on the M&A activity question. Do you have a target for the amount of capital you want to deploy this year or a target for the leverage ratio outside of the long-term number just so we could kind of think about total M&A and share repurchases together since you're below the low end of your target at this point? Doug Black: Yeah. I think the target is one on leverage. Yes. And so we would maintain that target. And so we'll see how the year develops in terms of M&A. M&A tends to average toward a mean. And so with last year being a lighter year and given the discussions that Scott mentioned, we feel like this is going to be a stronger year. And that's our first priority, right, invest in the business, value-added acquisitions that help us build our company. And then we do have strong cash flows. We expect them to continue to be strong. If we have capital that we feel is in excess staying within our target, we'll get share repurchase opportunistically through the year as well. Sean Callahan: Okay, great. And then the macro backdrop for large discretionary spend seems to remain a challenge right now. But you guys are guiding for repair and upgrade to be relatively flat this year. What gives you the confidence that it'll remain stable? And then what are you hearing in terms of backlogs on the repair and upgrade side? Doug Black: Yeah. It's a great question. I mean, we would say that flat is our best estimate. There certainly is some uncertainty around there. In terms of the market. What we're seeing in the market is that the very high end of remodel continues to be strong. Big backyard projects where folks aren't borrowing the money they can pay with cash, etcetera. So that continues to be strong. What became very weak was that middle-income, some smaller projects. That would have to be funded through either an equity loan or some type of interest rate device. And so that has been weak. As we mentioned, the remodel market was down, we believe, in 2025. We've seen some stabilization in our own numbers. Our hardscapes products, lighting products that tend to be remodel driven. Would have been less down as the year progressed through. And so we take that as a sign that the market's kind of bottoming out. Certainly, that could be a wrong progression, but that's what we're seeing. The backlog of our customers, they have decent backlogs. They're way smaller than they were in post-COVID and some of the heyday. But it seems like they've got reasonable backlogs to be able to deliver on a flat year. What we're seeing now obviously, there's some uncertainty there. But it gives us greater confidence that maybe we're hitting the bottom and that this year could be flat. Sean Callahan: Okay, great. Thank you. Operator: We have reached the end of our question and answer session now as there are no further questions at this time. I would now like to turn the floor back over to Doug Black for closing comments. Doug Black: Okay. Well, thank you all for joining us today. We appreciate your interest in SiteOne. And we look forward to speaking to you again at the end of next quarter. Again, a big thank you to all our terrific associates for all they do. Our suppliers and our customers. And we will talk to you next quarter. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning and welcome to Taylor Morrison Home Corporation's Fourth Quarter 2025 Earnings Webcast. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Please go ahead. Mackenzie Jean Aron: Thank you, and good morning. Appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session, includes forward-looking statements. These statements are subject to the Safe Harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those identified in the release, and in our filings with the SEC and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call. They are reconciled to GAAP figures in the release where applicable. Now, I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer. Sheryl Palmer: Thank you, Mackenzie, and good morning, everyone. Joining me is Kurt Van Hyfte, our Chief Financial Officer, and Erik Heuser, our Chief Corporate Operations Officer. I am pleased to share the results of our fourth-quarter performance and look forward to sharing an update on our strategic priorities for 2026. Our fourth-quarter results met or exceeded our expectations across nearly all key operational metrics despite challenging market conditions. These results concluded a solid year of performance in 2025, during which we delivered nearly 13,000 homes at an adjusted home closings gross margin of 23% and generated 40 basis points of SG&A expense leverage on essentially flat home closings revenue. Coupled with $381 million of share repurchases, these results drove a 13% return on equity and 14% growth in our book value per share. With the majority of homebuilders having already reported year-end results, it's clear that Taylor Morrison Home Corporation's 2025 performance stands apart. Among our peers, we delivered one of the highest home-closing gross margins in the industry. We were the only to achieve year-over-year SG&A leverage and modestly increased our closings volume, while the industry was generally flat to down, which together drove more resilient bottom-line earnings and returns. In a year characterized by softer consumer confidence and heightened pricing competition and inventory levels, we believe that these results reflect the effectiveness of our diverse operating model and broad consumer reach across our national footprint of well-located communities. Given the market's persistent affordability, which is felt most heavily among first-time homebuyers, our portfolio's unique concentration on move-up and resort lifestyle customers has helped us navigate the market's headwinds. We pride ourselves on developing thoughtfully designed communities, often with amenities in prime locations and offering a balanced mix of spec and to-be-built home offerings that meet the needs and aspirations of our customers. I believe this is perhaps Taylor Morrison Home Corporation's greatest competitive advantage: the desire to deeply understand our consumers, respond to their feedback, and deliver a home-buying experience that is second to none. It is this unrelenting focus on our customers that has recently earned us the reputation as America's most trusted builder for the eleventh consecutive year and to Fortune's most admired companies list. I believe these strengths—our diversification, attractive product offerings, and consumer-centric philosophy—will be even more critical to our success as we move forward. While there are reasons for optimism, industry-wide inventory levels remain elevated, and consumers remain highly attuned to competitive dynamics in the marketplace and are closely weighing incentives, pricing, and spec offerings in their purchase decisions. While affordability has improved over the last year alongside lower interest rates, wage growth, and price discovery, I believe consumer confidence in the broader economic and political outlook will be critical for further demand recovery. That said, I am cautiously encouraged by the sales success we achieved in 2025 and by the early momentum thus far in 2026. Our fourth-quarter monthly absorptions outperformed typical seasonal patterns as our pace held steady from the third quarter, defying the average mid-single-digit sequential decline historically experienced. This is notable considering that we carefully manage pace and price community by community and, in some cases, chose to be more patient as peers pushed through inventory into year-end and held incentives on new orders stable sequentially. This momentum continued into January, even with the winter storm disruptions, and early signs are positive as the spring selling season generally kicks off in full force this week. The fourth-quarter strength was driven primarily by our premier Esplanade resort lifestyle communities, which experienced 7% year-over-year net order growth. This was followed by a low single-digit decline in move-up sales, while non-Esplanade resort lifestyle and level orders were down in the mid to high single digits. On a mixed basis, our orders by buyer group stayed relatively consistent quarter-over-quarter at 31% entry-level, 49% move-up, and 20% resort lifestyle. From a market perspective, sales were strongest in our East and West areas, with most of our Florida markets, California, and Phoenix increasing year over year, while our central region was slower due to softness across Texas, particularly in Austin. As we look ahead, I expect 2026 to be another solid year for our organization, albeit one focused on setting the stage for a re-acceleration of growth in 2027 and beyond. I'd like to walk through the moving pieces that are influencing our outlook for this year, while Kurt will provide the specifics of our guidance in just a moment. Given slower sales of to-be-built homes in 2025, we entered this year with a lower-than-normal backlog of just over 2,800 homes. As a result, this year's home closing deliveries and margins will be more dependent on sales during the spring selling season than is typical for our business. Positively, we expect to accelerate the number of new communities in 2026 from 2025, with well over 100 new outlets planned, including over 20 new Esplanade outlets, which are already supported by deep interest lists. The majority of these outlets will open for sales in the first half of the year and begin contributing closings in the second half and into 2027. In addition, the improvement in construction cycle times over the last two years has greatly enhanced our production flexibility, with homes now able to start well into the third quarter and still close by year-end in many of our markets. Based on targeted consumer groups in the move-up resort lifestyle segment, where personalization is valued, we expect new community openings to help shift our sales mix back to a more balanced mix of spec and to-be-built orders. We are already seeing signs of this shift back to more historic preferences, with to-be-built sales in January gaining 700 basis points of share versus the fourth quarter when we sold a record number of intra-quarter spec closings. Given the meaningfully higher average gross margin on to-be-built homes, we believe this mix shift will be an important driver of our long-term margin potential. However, in the near term, while we have reduced our spec home inventory by 24% since 2025, we still ended the year with nearly 3,000 unsold homes, including just over 1,200 finished homes. We are focused on continuing to responsibly sell through this inventory while being highly selective in putting new specs into production. This inventory management is expected to temporarily impact our gross margins in the first half of the year. Looking further out, we continue to target growth over the next many years, including a continued aspiration to reach 20,000 closings, but we will not do so simply for growth's sake. Our capital allocation and strategic priorities are firmly rooted in generating attractive returns on our invested capital throughout housing cycles. With competitive pricing pressures unlikely to meaningfully abate in the foreseeable future and housing fundamentals continuing to evolve, we are taking proactive steps to ensure our portfolio remains well-positioned to perform regardless of the market backdrop. For one, we are limiting incremental land investment in non-core submarkets that primarily cater to the most price-sensitive buyers. While these locations make up only a small portion of our overall portfolio, greater pricing pressure and a reliance on spec inventory in these areas has compressed margin opportunities versus comparable core markets. Over time, this shift will allow us to concentrate our efforts on serving more discerning entry-level demand, where our offerings are more strategically aligned. As Erik will discuss, we believe we are best able to meet the need for affordable single-family housing through our differentiated Built-to-Rent platform, Yardley. With a model that is both financially sustainable and supported by compelling demand tailwinds, we also expect to reinforce our focus on the first and second move-up segments, which have long represented the core of our company's expertise and customer base. These buyers value the choice, community development, and prime locations that distinguish our offerings and often invest in lot and option selections that help sustain above-average margin and returns. In 2025, these combined lot and option premiums represented nearly 19% of our base price. In addition, demographics in the move-up segment are highly supportive of future growth, with outsized net population gains projected among 40 to 55-year-olds over the next decade, behind only those aged 70. At the other end of the consumer spectrum, we will also continue to invest in the differentiated strength of our resort lifestyle brand, Esplanade. Unlike traditional active adult offerings, Esplanade communities deliver a lifestyle-first experience, complete with luxury amenities and concierge-level services that extends well beyond the home itself. This unique value proposition drives superior home prices and gross margins that consistently exceed the balance of our business. With a strong pipeline of Esplanade communities coming soon and opportunities for brand expansion in many of our markets, we expect this segment's contribution to our bottom line to grow meaningfully in the years ahead. And finally, we are doubling down on innovation across the organization. From the sales floor to purchasing, land due diligence, financial services, and back-office functions, we have made significant strides in deploying our proprietary digital sales tools to reduce friction during the customer journey and AI-enabled processes to enhance efficiency and manage cost. For example, we have developed a proprietary AI-powered platform that today houses digital tools and AI agents spanning purchasing, sales, customer service, financial services, and employee resources. On the sales floor, our customer 360 agent gives field leaders a comprehensive real-time view of our customer's journey from contract through warranty. In purchasing, AI-powered tools allow our teams to analyze purchase orders and query procurement data using natural language, while also enabling our purchasing standardization initiatives. We will continue to scale these technologies to better serve our customers, streamline our operations, and strengthen our competitive position. With that, let me now turn the call over to Erik. Erik Heuser: Thanks, Sheryl, and good morning, everyone. At year-end, we owned or controlled 78,835 home-building lots, of which 54% were controlled off-balance sheet. This compares to 86,153 lots at the end of 2024, of which 57% were controlled. The decline in our controlled ratio, which we expect to be temporary, reflects the impact of normal course takedowns in a few of our larger assets that were being seller-financed, as well as recent walkaways from controlled lot deals as we have reevaluated our pipeline against current market conditions. Over the long term, we continue to target a controlled ratio of at least 65%, as we seek to optimize our capital efficiency and manage portfolio risk. Based on trailing twelve-month home closings, we owned 2.8 years of lots out of a total of 6.1 years of controlled supply at year-end. This was similar to 2.8 years owned and 6.6 years controlled at the end of 2024. The majority of our lots remain in prime locations within core submarkets, where we see the strongest long-term fundamentals. While we selectively invested in tertiary locations as work-from-home expanded, we have since shifted that limited portion of investment allocations back to core markets. Notably, 85% of our 2025 investment approvals were deemed to be in core locations based on consumer desirability. Core recent consumer research reinforces this focus. Most of our buyers view their chosen community as core, and they consistently tell us that the overall community design is as or more important than the home itself. Furthermore, 80% of our buyers say that wellness is important to their purchase decision, and even a higher percentage in our Esplanade communities, where hundreds of residents hold wellness club memberships. As a result, we believe our emphasis on prime locations, thoughtful community development, and amenity offerings positions us well, particularly as national new home supply remains elevated, especially at the entry level. In 2025, homebuilding land investment was approximately $2.2 billion, down slightly from $2.4 billion in 2024. This was below our prior full-year target of approximately $2.3 billion, reflecting our cautiousness in approving new land deals and additional phases in the current market environment. With a healthy land pipeline already controlled, we expect to invest around $2 billion in 2026, with a renewed emphasis on opportunities for move-up and resort lifestyle positions, consistent with the strategic priorities discussed by Sheryl. Before wrapping up, I'd like to now spend a moment discussing our build-to-rent business, Yardley. Yardley develops rental communities akin to horizontal apartments that lend a single-family living experience, complete with private backyards and amenities, with the affordability and flexibility of renting. Developed exclusively as rental homes, these communities provide a desirable and affordable solution for consumers looking for an alternative to traditional multifamily rental options. Unlike traditional single-family rentals of scattered homesites, our Yardley communities are zoned and mapped as single tax parcels and transact like multifamily assets. Representing approximately 10,400 home sites across nine markets in Arizona, Texas, Florida, and The Carolinas, and supported by our $3 billion land bank with Kennedy Lewis, we believe that we are well positioned to continue to efficiently and prudently scale this unique rental offering in the years ahead, as less than 10% of Yardley's total units are fully on our balance sheet. Now I will turn the call to Curt. Curt VanHyfte: Thanks, Eric, and good morning, everyone. I will review the details of our fourth quarter and full year 2025 financial performance. For the fourth quarter, reported net income was $174 million, or $1.76 per diluted share, while our adjusted net income was $188 million, or $1.91 per diluted share, after excluding the impact of pre-acquisition abandonment charges and the loss on the extinguishment of debt related primarily to the redemption of our 2027 senior notes. For the full year, reported net income was $783 million, or $7.77 per diluted share, while adjusted net income was $830 million, or $8.24 per diluted share. In addition to the fourth-quarter adjustments noted previously, full-year earnings were also adjusted for real estate impairments, additional pre-acquisition abandonments, and warranty charges incurred earlier in the year. Now to sales. Net orders in the fourth quarter totaled 2,499 homes, which was down 5% year-over-year. This decline was driven by moderation in our monthly absorption pace to 2.4 homes per community from 2.6 a year ago, partially offset by a 1% increase in our ending community count to 341 outlets. This was supported in part by improved cancellation trends. As a percentage of gross orders, cancellations were 12.5%, down from 15.4% in the prior quarter and 13.1% a year ago. As Sheryl noted, we have well over 100 communities expected to open this year, including over 20 new outlets in Esplanade communities. These openings are expected to drive high single-digit outlet growth to 365 to 370 outlets by year-end. For the first quarter, we expect to end with around 60 communities. Turning to closings. We delivered 3,285 homes in the fourth quarter, at an average price of $596,000, generating home closings revenue of approximately $2 billion. Compared to our guidance, closings volume was at the high end of our expected range, and the average price was slightly ahead of expectations. For the full year, we delivered 12,997 homes at an average price of $597, generating approximately $7.8 billion of home closings revenue. Cycle time improvements continue to be a major driver of efficiency. During the quarter, we achieved about one week of sequential improvement, leaving us more than five weeks faster year over year and over nine weeks faster than two years ago. These improvements enhance our ability to flex production and manage inventory, allowing us to start homes later for year-end closing dates. In the fourth quarter, we started 2.1 homes per community, equating to 2,136 total starts. We ended the quarter with 5,682 homes under construction, including 2,956 specs, of which 1,232 were finished. Our total spec count was down 11% sequentially as our teams continued making progress in rightsizing our inventory positions by community, with these focused sales efforts expected to continue through 2026. Based on our backlog, sales expectations, and cycle times, we currently expect to deliver around 11,000 homes this year, including around 2,200 homes in the first quarter. We expect the average closing price to be approximately $580,000 in the first quarter and between $580,000 to $590,000 for the full year. Turning to margins. Our home closings gross margin was 21.8%, slightly above our prior guidance of approximately 21.5%. This compares to 22.1% in 2025 and 24.8% in 2024, reflecting higher incentive levels and a greater mix of lower margin spec home closings. During the quarter, spec homes accounted for 72% of sales and 66% of closings, up from 61% and 54%, respectively, in 2024. For the full year, our home closings gross margin was 22.5% on a reported basis and 23% adjusted for inventory impairments and warranty charges. This compares to a reported margin of 24.4% and an adjusted margin of 24.5% for the full year 2024. In the first quarter, we expect our home closings gross margin, exclusive of any inventory-related charges, to be approximately 20%, reflecting a higher share of spec homes as we prioritize the sale of existing inventory. Beyond the first quarter, we expect gross margins to improve gradually throughout the year, driven primarily by an increase in the share of to-be-built home deliveries and a modest reduction in incentives as the year progresses. However, the ultimate level of incentives will be highly dependent on consumer demand during the spring selling season and interest rates. We expect construction costs to be relatively stable, while lot costs are expected to be up in the mid-single-digit range. As we gain greater visibility into the spring selling season, we will look to provide greater detail on our full-year margin expectations. We also maintain strong overhead discipline. Our SG&A ratio was 9.9% of home closings revenue in the fourth quarter and 9.5% for the full year, a 40 basis-point improvement compared to 2024. This expense leverage was driven primarily by lower payroll-related costs, while ongoing strategic consolidation efforts and efficiencies created by our digital tools further improved our cost management. For 2026, we expect our SG&A ratio to be in the mid-10% range. During the quarter, we incurred net interest expense of approximately $12 million, up from approximately $6 million a year ago due to an increase in land banking activity. In 2026, we expect net interest expense to increase modestly year-over-year. Financial services posted another strong quarter with revenue of approximately $49 million. The team achieved an 88% capture rate, supported by competitive mortgage offerings and strategic alignment with our homebuilding operations. Among buyers using our mortgage company, qualification metrics remained strong in the quarter, with an average credit score of 750, a down payment of 21%, and household income above $183,000. In addition to the strong average credit profile, our customers and backlog were secured by average deposits of approximately $44,000 at quarter-end. Now on to our balance sheet. We ended the quarter with strong liquidity of approximately $1.8 billion. This included $850 million of unrestricted cash and $928 million of available capacity on our revolving credit facility. At quarter-end, our net homebuilding debt-to-capitalization ratio was 17.8%, down from 20% a year ago. During the quarter, we repurchased 1.2 million shares of our common stock for $71 million. For the full year, we repurchased a total of 6.5 million shares, representing approximately 6% of our beginning diluted share count, for approximately $381 million. As seen in this morning's earnings release, our Board of Directors approved an increase and extension of our share repurchase authorization to $1 billion. This program expires on December 31, 2027, and replaces our prior authorization. We remain committed to disciplined and returns-driven capital allocation strategies, including the return of excess capital to our shareholders after investing in profitable growth opportunities and prudently managing our liabilities. In 2026, we expect to repurchase approximately $400 million of our common stock. Inclusive of this repurchase target, we expect our diluted shares outstanding to average approximately 95 million for the full year, including approximately 98 million in the first quarter. Now I will turn the call back over to Sheryl. Sheryl Palmer: To wrap up, I'd like to share a few closing thoughts on recent news headlines regarding the administration's focus on addressing the needs for greater housing affordability and accessibility. As I shared last quarter, we have been encouraged by constructive dialogue with the administration and progress being made in Congress to advance housing legislation, and we are prepared to participate in meaningful policy solutions. As you heard this morning, our focus on delivering the right product to our customers, whether that be home buyers or renters, is this organization's guiding mission. We believe we have the platform to greatly scale our business as market opportunities present themselves, and we will maintain our longstanding discipline around capital allocation and investment strategies to create long-term value for our customers, communities, and shareholders. Before I close, I want to express my sincere gratitude to our entire team for delivering a strong finish to 2025 and for the effort I know you will demonstrate as we move through 2026. Together, we will continue to push our company forward and achieve even greater success as we refocus and recommit to all that makes Taylor Morrison Home Corporation so unique. Thank you to everyone who joined us today. And let's now open the call to your questions. Operator, please provide our participants with instructions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, to withdraw your question, press star 1 again. Pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Matthew Bouley with Barclays. Your line is open. Please go ahead. Matthew Adrien Bouley: Hey. Good morning, everyone. Thank you for taking the questions. Wanted to start around sort of the long-term view around the mix of the business, the buyer segments, and geographies. Interesting commentary there around, you know, where you'll be leaning in and out of land investments in the future, and sort of the favorable demographics for the move-up population going forward. So I guess the question is, number one, where do you see the entry-level mix going over time? And number two, just kinda, you know, anything around the know, specific geographies or submarkets to kinda help us understand, you know, where do you think you have the right scale, where you continue to lean into, versus sort of where do you wanna deemphasize? Thanks. Sheryl Palmer: Thanks so much, Matt. Appreciate the question. As far as the ultimate mix of entry-level to the business, you know, we've generally been running something like a third, a third, and a third. And I would expect that you'll see the first-time buyer come down a bit. But once again, it's not it's not necessarily about departing from the first-time buyer business. It's refocusing the business geographically where we don't, you know, buy land in what I would call those more fringe or tertiary locations that attract a very different entry-level buyer. And as we see movements in the markets, I think we've been we've proven, we've seen over the years, and we thought maybe it could be a little bit different during COVID that those more tertiary locations might provide, you know, a different experience coming out of COVID. But the honest truth is it's just not the case. That the further out you get when markets slow down a bit, we see those come to a very different stock, and the level of incentives required to get those first-time buyers into a house. It's tough. So it's not necessarily about, once again, leaving. You've heard us over the years talk about the professional first-time buyer, Matt, where that's generally a dual-income. I mean, more than 50% of our business today is millennials. And we're seeing more than half, if I'm not mistaken, Erik, of those millennials already buying their second house. So it's really a subset of the first time. As far as geographic penetrations, I think we've talked over the last few quarters that we've pulled back some investment in California. A bit, recognizing some of the underwriting constraints that we've seen there. So I think you'll see that, you know, geographic shift mix. Beyond that, I would think you'll continue to see us invest across our markets. When I look at the business, Florida continues to be, you know, we continue to be very bullish on it. And it continues to be the home of our Esplanade brand. So I think you'll see continued penetrations Florida, Texas, you know, different slight different in California, Phoenix, very steady for us. Colorado, I don't think you'll see huge shifts in the geography. Matthew Adrien Bouley: Okay. No. That's perfect. Thank you for that color, Cheryl. Really detailed. Second one, spec versus to be built mix. Think I heard you say 72% spec sales in Q4, and that you've sort of mixed somewhat back towards to be built year to date if I heard you correctly. So is the intention to get back to 50%? And can that happen in 2026, or sort of what's the timeline and intention around that mix? Thank you. Sheryl Palmer: It's a great question. Hard for me to be 100% certain where that mix lands. What I'm excited about is we are seeing the consumer show up differently, Matt. I mean, last year, it's not like we ever changed our strategy and we wanted to sell less to be built. But what we definitely saw is the consumer you know, our industry trained them, and the honest truth is that the incentives were stronger with an inventory home. And the closer that home got to completion, the stronger the incentives. And the buyer really began to appreciate the impact of that. What we've seen since the first of the year is they're showing up with more of a desire to buy what they want, where they want it, how they want it. They want to appoint the house in a way, lot premiums, have become quite important again. So, yeah, we've seen 700 basis points in January over the average of to be built in the fourth quarter. We have seen that continue in February. So I'm very encouraged about that. I'm not sure we were ever 50/50. We were probably 60-ish, Curt. And, you know, it's kinda moved on the margin five percentage points. Fifty fifty would be ideal. And maybe over time, Matt, as we continue to evolve the portfolio further away from the more attainable buyer, we might see that. I would be pleased but surprised if we saw a 50/50 mix in 2026. Curt VanHyfte: Agree? No. I agree. And I think, Matt, over the course of the year, we're gonna work our way through that. That's something that's not gonna happen overnight. Just kind of where we've made great progress with our spec inventory. I think as Cheryl had some, but we still have a little bit higher number of finished inventory than maybe we would like. So we'll continue to work our way through that and balance that with bringing in some of these to be built sales, especially on some of the new outlets that we'll be opening over the course of the year. Sheryl Palmer: New Esplanade. So yep. I hope that helps, Matt. Operator: Your next question comes from the line of Alan Ratner. With Zelman. Your line is open. Please go ahead. Alan S. Ratner: Hey, guys. Good morning. Thanks for all the details so far. I it. Of course. First question, you know, similarly on the mix of the business. I just wanna make sure I'm thinking about kinda esplanade the right way in terms of, it it sounds like you know, a lot of the community growth or at least the the the share coming from Esplanade is going to continue to rise. I know you showed that off at your Analyst Day last year. '25 and where you see that in in '26 and beyond, should we think of any We look at absorptions, kinda where they were running at in mix shift there, either higher or lower as more of the business comes from Esplanade? I think generally those are higher absorption communities, but I just wanted to confirm that. Sheryl Palmer: I'd say, actually, Alan, I think they're actually quite consistent. With the rest of the business. You know, we might have a couple positions with I mean, as you know, we probably have four or five communities per Esplanade. So we might have some that, you know, run-in a low three, some that run in a high. But I think on average, they're pretty consistent. Just for clarity as we talk about those 20 new outlets, that's probably four or five new communities. But I wouldn't see any significant change in the pace. We'll continue to aspire as we see some market bend. To get back to that annualized pace of the low grade. As I said in the prepared remarks, it's just not our intention to just throw inventory in the ground and sell it all costs given, I think, the value creation that we have with our land holdings. Alan S. Ratner: Makes sense. Second question on on the cost side. I know you mentioned that your outlook is for pretty flattish construction cost this year. And certainly, I think cost has been a nice tailwind in general for builders over the last year or so. You know, we're starting to see lumber prices, tick back up again. There's a little bit of increased chatter about maybe some cost increase announcements around the New Year, which I think are fairly normal for this time of year. But, you know, you have the the the headlines around ice raids still out there. So just curious, is there any risk to that outlook based on what you're seeing here in the first six weeks or so of the year? And know, generally speaking, where do you see know, cost trending beyond? Curt VanHyfte: Hi, Alan. Great question. Just kinda a little backdrop on the cost side. You know, we saw tremendous you know, teams did a lot of work in 2025. On our house cost initiatives. Very proud of what we were able to accomplish. And to your point, lumber here more recently is starting to run up a little bit. But our teams continue to focus on house cost reduction strategies, working with our trade partners, working with our suppliers, and so we think we have the ability to hope you know, to offset some of those potential headwinds that are out there. Through just our continued work on optimizing the business, whether it's through our discussion with our trade partners or suppliers or just our continued work on optimizing our floor plans, you know, value engineering our new communities, know, all those different type of tactical things. So it's something that we're we're looking at and watching and something the teams are very focused on. Alan S. Ratner: Thanks a lot. Appreciate it. Operator: Your next question comes from the line of Trevor Allinson with Wolfe Research. Your line is open. Please go ahead. Trevor Scott Allinson: Good morning. Actually, you've got Paul Przybylski on. I apologize if I missed this. But morning. Could you bridge the sequential gross margin to decline for 1Q among leverage incentives, land inflation mix? Etcetera. And I think you said the incentive environment was stable in 4Q, if that remains the case. In 1Q, should we expect a gross margin in 2Q similar to 1Q? Curt VanHyfte: Great question, Paul. Yeah. We're not gonna probably talk further beyond Q1 today. I think in our prepared comments, we did talk about a gradual increase in margins over the course of the year just because of the change in mix to a higher concentration of to-be-built homes. And, of course, as we work our way through our existing inventory. You know, from Q4 to Q1 sequentially, the margins are down, I think, 180 basis points, and that is in large part from a mix standpoint. A, we pulled in some higher ASP and higher margin homes in 2025 into Q4, and as a result, now we have a few more of those entry-level kinda tertiary kind of community closings coming through Q1. And so as we work our way through that, you know, we'll see our margins in line with that guide that we put out there. And relative to incentives, as Cheryl alluded to in her talking points, they were modestly in line from an order perspective. But they were kind of they at the end of the day, they stay they're they're remaining elevated, so to speak, from Q4 into Q1 from a closing perspective. Sheryl Palmer: And maybe, Curt, the only other thing I might add is, obviously, Paul, we're gonna take price as the market allows. You know, I was interested that in the fourth quarter, we did see base prices increase in more than half of the communities that had been opened the prior year. And more than a quarter of our total communities. And so if the opportunity exists, we're gonna continue to take base price increases, reduce incentives, which is where we're getting the confidence to say we expect Q1 to be the low point of the margin. Trevor Scott Allinson: Okay. Thank you. And then I guess, you know, you talked a lot about, you know, the 100 new community openings this year. How have absorptions been performing in your new communities relative to legacy? Are they still seeing the historical spread? Sheryl Palmer: Historical spread. I mean, I'm excited about the new communities we're opening. I can give you a couple examples I might have mentioned in prior quarters that we were opening a new community in Phoenix. It's over 1,200 lots. I think we have five positions. We opened it in the fourth. Some of it the September, one or two one position in October. We've got well over 100. Units sold in there already. So I would say PACE is there really, really strong. One that's been a beautiful master plan called Verdin. When I look at some of our Esplanade preopening activities and what we call our signature VIP events, I mean, some of these communities have waiting lists or interest lists, not waiting. We haven't started sales. Interest list of hundreds to thousands of names. So there is this activity that we're seeing. We're also seeing traffic generally has picked up in the first of the year. When I look at web traffic, year over year up in most all of our divisions. So both new and old, I think we are starting to see a little traction and know, it's early days. Like I said, generally, we see spring kick off after Super Bowl, so here we are. So if we can continue that, then I think that gives us some upside to the year. Trevor Scott Allinson: Great. Thank you very much. Good luck. Sheryl Palmer: Thank you. Operator: Your next question comes from the line of Michael Dahl with RBC Capital Markets. Your line is open. Please go ahead. Michael Glaser Dahl: Thanks for taking my questions. Cheryl, just to pick up on the last comment around kind of the seasonal improvement and similarly, your opening comments about the improvement. Obviously, like, it hasn't been a very normal period of time the past number of months. So can you just help us dial that in a little bit more? Like, obviously, seasonally, you should see traffic pick up 4Q better than normal seasonal sequential change in orders, but off worse than normal. So what are we actually talking about in terms of quantifying kind of pace dynamics that you've seen over the past couple of months or or January into February, more specifically? Sheryl Palmer: Yeah. No. It it's a fair question. And, you know, you don't I don't wanna get too over my ski tips, Mike. But what I would tell you is, you know, the improvement we saw through the fourth quarter, December being better than November, that would be something relatively unusual in my tenure. January, better than December. Okay. We should expect that, and the good news is we got it. And like you said, given the volatility that we've seen over the last year, I take each of these as, you know, positive green shoots. I'd say it's a little and honestly, and I think we said it in our prepared remarks, what made January even more I wanna probably a better word than sensational, but strong was the fact that we had a real significant weather event and, you know, a large part of the country. We have we were closed in many of our communities for days in Texas and the Southeast, and we still saw a nice January finish. And I give a lot of credit to our virtual tools on the ability to be able to continue to work with these consumers even when they couldn't come into the sales office. February, we're ten days in, a little early. I would say, you know, generally similar. You know, I'm not I it's it's hard to make a trend in ten days. We've got some communities that are doing really well and ahead of pace and some that aren't quite there yet. We had a strong finish. We've also had weather into early February. So all in all, I'd say generally supportive of kind of normal seasonal trends to your point we haven't seen in some time. So it's nice to see that momentum building. Michael Glaser Dahl: Okay. Thanks. And maybe just one quick one on that just to put a finer point on that. Are we talking absorptions now flat year on year, up year on year? So down a little year on year, but then my second question is really then on the, I wanna make sure I understand your incentive comments appreciating you're not guiding beyond 1Q when you consider conceptually 1Q the low and incentives improving. Are are you really just saying incentives should improve as a function of your build-to-order mix, or do you also expect just from a market level incentives to improve through the year? Sheryl Palmer: Well, obviously, if we get continued traction, and continued pickup in market. Like I said, we'll continue to take price when we can use incentives. We've also seen some relief from interest rates. I mean, still somewhat volatile. I think we're probably in the 6.1 range over the last few days. Know, sometime last year, that was closer to mid to high sixes. I think you've got a number of things working, and I think, you know, once again, we have the programs, Mike, to help the customer and not spread those incentives like peanut butter. The to be built mix will certainly be a piece of it as well, but I wouldn't just point to that. I think there's a number of factors that would, help us. Now having said that, competitive pressure and seeing what others offer is gonna continue to also have an impact on the incentives the consumer continues to expect. But all in all, I'm hoping there's some discipline across the market and we see a pullback in incentives and have the ability to take price. Pace, I don't know that I've seen I've looked at Kurt year over year. I mean, I think you know, we had a strong first quarter last year. So my instinct, it's probably a little down year over year, Mike, but I I need to verify that. But just you know, going into the investor day last year, we had a really nice strong first quarter. But offsetting that, you're gonna see some good community count growth as you saw us going from a low 340 to something closer to 360 in the first quarter. Michael Glaser Dahl: Okay. Great. Appreciate it. Thanks, y'all. Sheryl Palmer: Thank you. Operator: Your next question comes from the line of Michael Rehaut with JPMorgan. Your line is open. Please go ahead. Michael Jason Rehaut: Thanks. Good morning, everyone. Thanks for taking my questions. First, I just wanted to make sure I heard it correctly, and and sorry if this is being a little repetitive. But just wanted to appreciate the trend of incentives that you guys have offered in from the beginning of the fourth quarter to the end of the fourth quarter. I think you said it was relatively consistent, but I just want to make sure I heard that right. And, also, when you think about the first quarter gross margin guidance, how much of that is reflective of just higher incentives flowing through more broadly versus mix and maybe flushing out some of the impact of selling some of the excess spec that you have in? Sheryl Palmer: I'll let Kurt get into the particulars, but, Mike, I I really as Kurt said in his prepared remarks, I mean, we have a lot of inventory that we want to even though we're gonna continue to get those to be built to hopefully a different customer, need to work through that inventory in the first quarter, so we are expecting some pressure there. And if you look at just the ASP that we articulated for the first quarter, and how far you know, it's slightly lower than what we saw in the fourth quarter. I think it speaks to the mix. And you know, as we've said, the more affordable positions we require greater incentives, so we're anxious to work through those. And then see the to be built be a healthier piece of the mix. Curt VanHyfte: Yeah. And then, Mike, on the incentives in our prepared comments you did hear it correctly. They were relatively flat Sequentially from Q3 to Q4. As we kinda I think we alluded to that last quarter that gonna con you know, that we would have elevated incentives to move through based on that spec penetration for Q4 closings as we work through the inventory. Operator: Your next question comes from Rafe Jadrosich with Bank of America. Your line is open. Please go ahead. Rafe Jason Jadrosich: Hi. Good morning. Thanks for taking my questions. Just for following up on the comment on incremental land investment in the non-core submarkets sort of shifting away from that. Obviously, it makes sense given the context of what's going in the market at the entry level today. When you think about are you finding better land deals at the move-up and resort lifestyle sort of price points? Is there just less competition in those markets? Or are you just more bullish on the long-term fundamentals on move-up with your lifestyle versus entry-level? Can you just talk a little bit more about the shift there and why the returns will be higher at move up and then compare it to entry level? Eric Heuser: Hi, Rafe. Eric. Yeah. Good question. It's really kind of a light pivot to where we've come from, right? If we were to look historically we've really been at that 15% kind of exposure to kinda to kind of that tertiary entry level. And, you know, coming out of COVID, as Sheryl suggested, we saw such strong demand there, and really we're discerning how much of that work-from-home was gonna be kinda sustainable. And so it moved up to 20 to 25%, call it. And so it's really a repivot back to 15%. Direct to your question, I would say, yes. When you think about the competitive landscape and some of the peer group that's very focused on that entry level I would suggest that the land market has yielded some opportunity for us, especially as the market has evolved. So I would say, yes, it's in it's what we're good at. It's what we've been historically focused on. From an opportunity standpoint, that's where we're seeing some of the opportunity, and I would expect some good performance looking forward. Sheryl Palmer: And the only thing I'd throw on top of that, Rafe, is you know, when we're talking about the first time buyer environment today, with every sale, it's really working through with them. Can they make this work? When you look at the move up and the Esplanade buyer, it's really should I? Given just the confidence things we've talked about. They have the capabilities. They have the balance sheet. They just wanna make sure that the time, it makes sense for them and they have the time. You know, it's the right time to do it. It's a very different formula when you're dealing with this first-time buyer and how many consumers we have to, you know, pre-approve to try to get the folks that actually can make the final purchase. And we don't see that that is gonna significantly change, in the foreseeable future. Rafe Jason Jadrosich: Okay. That's helpful, and that makes sense. And then just following up on the land side, mid-single-digit lot inflation for '26. For the land that you're contracting today, what's the inflation that you're seeing and is there a point here where we'd expect some relief like this rollover in 2027? How do we think about that through the year? Eric Heuser: Yeah. As far as the land conditions out there, yeah, and as you know, when we expressed in fourth quarter, you know, we really focused on pairing to really the core opportunities, the cream of the crop for us, and I think others have done that too. And so you are seeing kind of a stabilization in the land market, that's resulting in something that approximate zero. So kind of low single digits in terms of land appreciation expectations in the market today. So we are seeing and as we expressed in third quarter too, we've experienced a lot of success in working with sellers and renegotiating pretty much everything that comes through the investment committee. Rafe Jason Jadrosich: Thank you. That's helpful. Operator: Your next question comes from the line of Kenneth Zener. With Seaport. Your line is open. Please go ahead. Kenneth Robinson Zener: Hi, everybody. Hey, Ken. Could you comment on the I know and you mentioned Austin, but could you talk about what the dynamics were that Saudi order rates for that whole segment come down? First. And then second, are you guys going to try to it sounds like you're probably gonna run start in line. With orders, or is there gonna be more of a front end load this year? That's it. Thank you. Sheryl Palmer: Maybe I'll take the first one, and then, Kurt can grab the second. You know, when I think about Texas, it has been a little bit more of a mixed bag, Ken. You know, Austin has probably seen the greatest pullback of volume. But, honestly, our locations are, I believe, best in market. And so we continue to see a strong margin. So we've been okay holding the line a bit there and not giving away quality irreplaceable communities. The good news in Austin is we have seen spec inventory drop more than half over the last year. Land activity continues to be tough, and but the teams are being very diligent in making sure we don't get ahead of ourselves. Houston and Dallas, you know, slowed down year over year, but not what we saw in Austin. We did see Paces hold serve in Dallas. And Houston Paces are ahead of the company average. So like I said, a little bit of a couple of different stories. Similar to Austin, though, margins have held up well in all of Texas. So I think Texas provides the perfect example of the important trade-offs we'll make between price and pace, but we'll take a lower volume to protect the margin. As I look forward, Texas is an important part of the portfolio. I expect the state of Texas to be the highest population growth over the next, you know, three to four years. Curt VanHyfte: And then on the starts front, Ken, the last couple of quarters, we've, I guess, understarted to sales as we've kinda worked our way through our inventory. But on a go forward basis, I envision us being more sticky to the sales standpoint. From a start standpoint on a go forward basis. So that's what kind of we're looking at as we're sitting here today. Kenneth Robinson Zener: Thank you. Operator: Your next question comes from the line of Alex Barron with Housing Research Center LLC. Your line is open. Please go ahead. Alex Barron: Yes. Thank you. I think you just answered one of my questions. The other one was I think there was you know, more price discounting activity from yourselves and other builders in the fourth quarter, but you feel like that's mainly a 2025 thing and that the type of incentives that are now in 2026 has gone back to primarily, you know, rate buy downs and that type of thing, closing costs. Sheryl Palmer: Yeah. I think that will continue to be part of the mix, Alex, as we've said. We continue to personalize our incentives by consumer. You know, when you're dealing with the resort lifestyle, honestly, for them, it's not as much about mortgage buy downs as it is maybe a credit in the design center as they customize their home. I think the competitive market will help guide us there, but once again, I think we're gonna try to hold the line. Certainly, we have some quality assets and large master plans where we're gonna be very careful about the inventory we leak in to make sure that we can protect the values. Alex Barron: How are you guys thinking in terms of specs per community or spec starts? You know, I know there's different price points that you guys are working with, but maybe, like, especially at the entry level, how are you guys thinking about what's the ideal number of specs for your strategy? Curt VanHyfte: Yeah, Alex. We have what I would call a spec management kind of program that we kind of follow. It's a subdivision-by-subdivision or community-by-community kind of basis analysis. In entry-level communities or multifamily communities, we'll tend to have maybe a little bit higher spec counts in those communities. And then as we work our way up the consumer segmentation kind of profile, to the move up and resort lifestyle, we'll have fewer specs that we'll have in the program. But at the end of the day, it all comes down to it's a community by community analysis and what, you know, what the demand is. And so we're looking at those all on an individual basis. Alex Barron: Got it. Okay. Best of luck, guys. Thank you. Operator: There are no further questions at this time. I will now turn the call back to Sheryl Palmer, CEO and Chairman, for closing remarks. Please go ahead. Sheryl Palmer: Well, thank you very much for joining us today where we had the opportunity to share our 2025 results, and we look forward to talking to you at the end of the first quarter. Take care. Operator: This concludes today's call. Thank you.
Operator: Welcome to the Angi Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After introductory remarks, there will be an opportunity to ask questions. Note, today's event is being recorded. I would now like to turn the conference over to Andrew Russakoff, Chief Financial Officer. Please go ahead. Good morning, everyone. Rusty here, CFO of Angi Inc. And welcome to the Angi Inc. Fourth Quarter Earnings Call. Andrew Russakoff: Joining me today is Jeffrey W. Kip, CEO of Angi Inc. Angi has also published a shareholder letter which is currently available on the investor relations section of Angi's website. We will not be reading the shareholder letter on this call. I'll soon pass it over to Jeff for a few introductory remarks and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy, future performance, and are based on our current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K, and in the subsequent reports that we file with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which as a reminder include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release, shareholder letter, our public filings with the SEC, and again to the investor relations section of our for all comparable GAAP measures. And full reconciliations for all material non-GAAP measures. Now I'll pass it off to Jeff. Jeffrey W. Kip: Thanks, Rusty. Thanks, everyone, for joining. Just like to start, we are fairly happy with where we've gotten to right now over the last three years. We've given up about half a billion of lower quality revenue. But at the same time, we've doubled our EBITDA and cut our capital expenditures in half, meaning we've swung from real negative free cash flow to real positive free cash flow. At the same time, we moved our homeowner NPS more than 30 points. We've cut our churn by more than 30%. We've improved our customer success rates more than 20%. Actually, in the fourth quarter, we've turned our customer repeat rate positive, about 10%. So we're pretty happy with the progress we've made. We're making a material stair-step improvement in our year-over-year revenue changes, probably seven to 900 basis points. Actually, in January, we grew very modestly. Although year on year, we don't fully expect growth in the first quarter. But we're pretty happy with where we are. We're very optimistic. On top of that, we've reset our margins. We've cleared the capital to invest in long-term profitable growth. And we're just very excited about our prospects in the AI landscape. I'm gonna talk a little bit about that. I think there's a few things to talk about. I think we should talk about LLMs, marketplaces, software, and agentic coding. Different areas, different layers of emphasis there. First of all, when we look at LLMs, we see it as a great opportunity. We're very happy to see LLMs enter and be places where homeowners and consumers generally who have lower knowledge and maybe less frequent interaction go to discover and explore. We've been very successful, building an acquisition on Google, which is effectively the predecessor of the LLMs. Google obviously has its own LLM, where homeowners and customers go to explore, research, and discover. We've been very effective because we have built a network, a deep, broad, and skilled network which Google still finds very valuable as a partner to serve its customers, and we believe the LLMs will as well. We have started working actively, working with every LLM. We have had conversations that are in effective dialogue. We've announced a deal with Amazon's Alexa. We have an app submitted to another major LLM. We're talking live about two technical integrations based on the same technology we built for the app we submitted. And we feel very good about the opportunity there. We think that it's harder for LLMs to go out and build the deep and engaged customer base that we have. Again, we were able to do it and maintain it and sustain it. All the time while Google tried to do the same. So we feel pretty good about our competitive position. We think we can serve as excellent partners to LLMs. In fact, we've deployed LLM technology in our SSR path, in our SR path, in the core customer experience, which we are training with our own proprietary data and experience to make sure that we can land the homeowner to better match. About 35% of our homeowners touch that part of our technology and experience. They convert about 3.3 times as well to a pro selection as the customers that don't. And so as we train that technology, we think that's positioned us better to interact with the LLMs. Our approach with the LLMs is that we can pick up the context and the conversation that the homeowner is having with the LLM at the beginning when Rusty says, have water on my floor. What do I do? Or the LLM can have the full discovery with Rusty and get to the point where we say, okay. We think there's a leak at the base of your toilet. We need a plumber, we can take that information and bring the right plumbers. So we think we can do that effectively. Obviously, pros have separate marketing channels than we do. They go direct to Google. They do a number of things. We actually think longer term we can help them there because we think we're probably at scale, the best there is at finding homeowners who need help from pros. But we think that we will still exist and be able to grow in this environment and we're just very excited to have competition at the top of the funnel and be able to diversify our channels. Let's just talk briefly about then know, our role as a marketplace, some of the things that are being said about software out there and agentic coding. You know, fundamentally, let's focus on Angi as a marketplace. We are an agent. We tap customers on one side. We have data and systems of record. On the other side. We are effectively the execution layer and the UI layer in between. And we get the homeowner's job done, which is finding a pro who can do their home job well, and we get the pro's job done, which is finding a homeowner whose job they can do well. And we act as an agent. We believe that using agents will allow us to be even more effective at what we do and, again, use our proprietary data and systems of record and experience to be stronger and faster at development here in addition to the existing network and customers and the resulting network effects that we already have. A competitor may be able to build an alternate marketplace technology metaphorically overnight in their garage now but they cannot build our network nor our homeowner reach. Or our brand. So we think we're very well positioned. We think further that when you think about software, we think now we have the ability to extend our agents and actually integrate with all of the software out there that our customers use better. For example, we believe that we can act as the post lead communication between the pro and the homeowner to clarify things for the pro, to book the appointment into the pro calendar. Perhaps even book the appointment into the homeowner calendar, send follow-ups, etcetera. We believe we can ultimately integrate also with ERPs and HR systems and anything else that helps the pro move through the chain to get the job done. And so we believe we're well positioned to actually extend our mission. Today, if five homeowners come to us with a job, three of them hire a pro, which is not that different than what we study when homeowners call a pro. Get to something more like seven out of 10 hire a pro once they've made a phone call. But so that's pretty good. Of those three, only one hires a pro. We believe that by using agents we can drive that up to two and then towards three, which will dramatically improve the value created, the retention, the repeat, and our ability to extend the marketplace. So we're actually very excited about this. And then the final piece, I'll just briefly state obviously, there's a lot changed even in the last week or so with agentic coding and what's being written there and the possibilities. We're extremely excited here. Again, we can build something in our metaphorical garage over the weekend. We think this gives us great opportunities to extend our software by using agents and invest and regrow our whole network and business. So overall, we're very excited about the entire landscape. Let's talk a little bit about now, I'll talk a little bit about our business and revenue. And then we'll take questions. Trajectory and then I'm going to let Rusty talk a little bit about margins. First, I'd say we're roughly in the same place we were before. Maybe modestly lower. Previously, we were talking about getting to a little bit of growth in the first quarter and getting to mid-single digits in for the year. I think now we're looking at very modest negative growth but still a material sequential acceleration in the first quarter and maybe low single for the year? What's the difference? The difference is obviously we had pressure. We discussed it on our last call from growth Google SEO and our network channel. In the third and fourth quarters. Between our November call and now, we think that that pressure is extended and so we have gotten more conservative on those channels in the year. What we've historically been able to do is take actions to work on our product, etcetera, and actually change the trajectory of these channels. If you look at just Google SEO, we were down 35 to 40% year over year in mid-2024. We brought that into the double digits, mid-double digits by the end of the year and we expected to continue that trend. We were metaphorically punched in the mouth again in spring and fell to the range of 35 to 40 again, but then we sequentially improved into the low to mid-twenties by mid-year. Then we got hit again in the late summer and thus we were where we were going into the year. What we've done is we've essentially said we don't think we're gonna make progress back. Again, and we're gonna assume Google SEO stays down at that lower level for the year. We're doing something similar with our network channel where we basically have assumed we're not going to improve it in the rest of the year and we're going to kind of get to the second half of the year and stay at that lower level we were in the second half of last year. So we've effectively gotten conservative. We think it's more prudent to look at our full-year revenue that way. And really our focus is on our proprietary business which again we grew 17% in 2025. We're expecting high single low double digits in the first quarter there. We believe that that business can be a solid mid-single digit plus ideally double-digit grower long term. We put a great deal of investment there. We've executed very well and frankly, we've seen our repeat growth, turn in the fourth quarter. So we actually think that the high-quality branded traffic is coming back. And with all of our improvements in the customer experience and what we see in customer behavior, we think it's time to lean back into branded, advertising where we're running TV and streaming and social. We've done this effectively for years. We're basically in a return from the lower level we were at in 2025 to the level we're at in 2024. Which is an effective level for us to spend that, and we think we can do it well. Just talking about the quarters briefly and then I'll hand over to Rusty. In the first quarter, compares get more difficult February, March, in our proprietary channels. We ramped two areas of Google last year first in February, March, and then April, May, which was Google Display. And then Google Search Partners. We got some effective revenue growth, but as we watch that traffic season we actually saw lower win rates than the rest of our channel. And we effectively, scaled them both down. That makes the second quarter in particular difficult compare and a little bit more difficult compare in February, March. So we expect the first quarter with the kind of 60-ish percent, network decline baked in to come in at minus one to minus three. We expect the second quarter to come in at flat maybe a little bit down. And then we expect to get the mid-single digit in the second half of the year as the network channel stabilizes, flattens out and we're able to grow our proprietary and effective long-term rate. And we're optimistic we can do better but that is prudently where we want to guide right now. Again, looking out over the course of the year, we basically think low single digits, let's call it one to three. That's impacted by a few 100 basis points worse of Google SEO and network outlook. It's impacted to the positive side by our brand spend. And then in the first quarter, again, there's a little bit of delay in the product roadmap that came with a rift. Sometimes you have to make a short-term sacrifice for the long-term good of the business. And the first quarter is going to be a bit negative at minus one to minus three. So again, I think we're overall very pleased. It's not quite as high as we want it to be, but again 700 to 900 basis points of acceleration from Q4 to Q1, focused on growth in this year and very strong performance overall and our proprietary channels. And with that, I will let Rusty just talk about our margins and our EBITDA progressions. Andrew Russakoff: Great. So starting with Q1, as Jeff mentioned, we're gonna be deploying dollars for offline marketing which we had in Q1 of last year. We had pulled back on and spent virtually nothing as we were shifting to homeowner choice at that period of time. So that includes increasing our spend in the U.S. It also includes some spend internationally where historically, PV has worked well in Europe in Q1. We had backed off kinda during COVID and after COVID. And now we're reinvesting back, behind the brands. And it also includes $3 million of new creative. We're also begun to ramp up online pro marketing. All of that will drive revenue and profit but on a lag with only part of that returning in the quarter. And so quarter over quarter versus the fourth quarter, our sales and marketing goes up by about eight points as a percent of revenue. Then revenue increases seasonally as you get into Q2 and Q3 with some benefit as well from the Q1 spend flowing into the future quarters. Directionally, we should add $35 to $40 million of incremental revenue into Q2, versus Q1. Where we'd expect also to spend kinda $10 to $12 million more in marketing to acquire the extra SRs. But we won't have any additional creative to expense in the second quarter, and both pro acquisition and fixed costs will be directionally flat on a dollar basis. But better on a percentage basis as the higher revenue comes in, in Q2 and Q3. So together, that will deliver incremental EBITDA in the kind of mid $20 million range versus, Q1 EBITDA in Q2, and gets you to overall EBITDA in the mid-forties for both Q2 and Q3. Then as we go from Q3 to Q4, if we look at last year, our revenue declined seasonally by about $25 million quarter over quarter. If we assume a similar dynamic this year, and roughly kind of 50% margin flow through, and on top of that, we typically expect to pull back on offline marketing during the holidays about $5 to $10 million that directionally gets us back to low $40 million range for adjusted EBITDA in the fourth quarter. Next, I wanted to give a little bit of context as well about the restructuring and how the savings flow through in the context of our overall guide for the year. So the way to think about the restructuring at a high level is that the objectives were threefold. So one, get the cost structure in the right place. Two, create room to make the meaningful investments we're talking about, while, three, also delivering profit growth on a year-over-year basis. So the way to think about the $70 to $80 million of savings then is that first, it's on an annualized basis. So that results in in-year savings in the mid-sixties with $25 million of that as cap labor. And the right reference point for that is what our total cost base was going to be for the year. So if you look at 2025, we had $223 million of fixed OpEx plus $60 million of capex that gets you a total cash fixed cost basis of $283 million which is how we kind of view our capital our cost structure. Now prior to the restructuring, our exit rate finishing the year would have had our fixed cost base increased by roughly $20 million year over year. And post the restructuring, we now expect that number to be approximately $40 million lower year over year which means $60 million in total of reduction off of the pace. That allowed us to free up capital now for long-term ROI positive investment in growth. While still delivering the $10 to $15 million of profit growth year over year we've guided to in terms of higher adjusted EBITDA and lower capitalized wages. And the key investment areas are, as Jeff said, first, the brand marketing. It's an area where we took our foot off the gas in 2025. We pulled back pretty significantly from our historical trend levels. And we are leaning in now with all the positive trends in the customer experience. Second, the online pro marketing, which will be LTV positive, in network and SEO traffic. That we've been discussing for the past few quarters. And which we're forecasting conservatively as Jeff mentioned, so that there are no expectations of turnaround in these channels embedded in our guidance. Of low single-digit overall revenue growth for the year, and if you fast forward to the end of the year, we'll be a mid-single-digit grower, with proprietary growth higher than that and comprising over 90% of the business accelerating and now with better cost leverage, than 2025. So that the top-line growth can have more financial impact over the medium term. Alright. So with that, why don't we open up, go to the queue and we can open up for Q&A. Operator: Yes, sir. First question today comes from Eric Sheridan at Goldman Sachs. Please go ahead. Eric Sheridan: Thanks so much for taking the question and thanks for all the details in the shareholder letter and the prepared remarks. Just coming back to the broader discussion about AI, maybe two if I can. First, curious how we should be thinking about the rollout of AI features as you discussed on the customer side of the platform looking out over the next twelve months and how that gives you, some visibility or confidence interval in some of what you're talking about with respect to a return to growth on the platform more generally? And the second would be, how does owning a consolidated supply side data you know, sort of position you relative to what you want to accomplish when partnering with LLMs? Curious on that. Thanks so much. Jeffrey W. Kip: So I'd say on the first the main area where we put focus on AI in the customer path today is, the AI helper in our SR path. What we are doing with that is we're continuing to experiment with how we have more homeowners use it effectively because what we're interested in doing is driving up the number of homeowners who connect with the right pro. Again, 35% of our homeowners currently do it and are 3.3 times as likely to actually choose a pro in our, you know, UX and UI. We'd love to drive that to fifty and sixty and sixty-five, and we're currently actively running tests. We recently ran a test that picked up about 5%. And so we're pleased with that. And we're going to continue developing there. We are looking at other applications such as what I referenced with post lead communication which we think can again help stabilize and get the homeowner to meet the pro and move towards a job done well. And we're looking at how we might apply it in other areas of the product, what as well. That is as I said sort of a backdrop to integrating with LLMs, the more effective we are there, we're working with a white label LLM on our platform, the more effective we are there. The more trained our data and our AI implementation is when we interact with the context that comes to us from an LLM that a homeowners entered there. And your second question what was the second question? Eric Sheridan: About the supply side. Jeffrey W. Kip: Okay. The supply side. Sorry. Again, the way we look at the world is you have customers, you have agents which have generally historically been human agents or software algorithms with again, UX and UI in between, and you have a system of record or a data layer. The system of record or the data layer is what allows you to perform the agentic task well. If I have the data on the customers, I can be far more effective as an agent on the customer's behalf. If I'm a human agent and I don't know my customer, I can't really deliver my product or service well without understanding the customer. So we fundamentally already have a system of record about customer behavior, success, etcetera, where we can understand our customers. And so when we go and we take our pro customers and actually our broad homeowner experience, so when we go to an LLM and we see a set of context or searches or queries come in, we can take that and compare it to our customer data effectively, run it through algorithms, use an agent, and make the connection better than if we didn't have that. So that's a reasonable moat we have at the scale we operate at for the number of years we've operated at. And we think it puts us in a very good position to effectively partner with the LMs in the same way that we've effectively partnered with Google by taking clicks with some context from Google and matching the homeowners successfully on our platform. Worked well for them in terms of monetization, worked well for us and it's ultimately working better and better in terms of the customer experience. Eric Sheridan: Great. Thank you. Operator: Thank you. And our next question today comes from Sergio Segura with KeyBanc. Please go ahead. Sergio Segura: Hey guys, good morning. Thanks for taking the question. I had two. First, just hoping you can explain the rationale for tripling the brand's brand this year and why it's the right timing to do that now? And what kind of lag we should expect before that spend translates into incremental service requests? That's question number one. Then question number two is just on the proprietary channel as you lap homeowners choice this year, how should we think about the normalized growth rate for that channel? Thank you. Andrew Russakoff: Thanks, Sergio. It's Rusty. So first on the brand spend, if you put into the context of what this company has spent, on offline marketing over its history, we're really now just going to be, in 2026, returning to 2024 levels. So it's not last year, we took a step back as we were digesting the changes from homeowner choice but we're not stepping we're not increasing to levels that are you know, above anything where we've spent profitably in the past. I can talk a little bit about how our approach and how we, get confident with our ROI. So you know, in TV, in particular, we have a data partner that has, is connected through on a decent percentage of TV sets across America. And we're able to actually pair the IP addresses of people when they see our ads. And pair that against the IP addresses of people who submit service requests. So we have pretty good visibility into kind of the uplift from our TV spend. You know, it's not as precise as other digital channels, but we we've honed this over a couple of years. And we have pretty good visibility relatively to be able to measure the ROI from our TV spend. And then kinda at the back half of last year when we were spending TV at but at lower levels, we kinda dialed in, changed our strategy a little bit and our channel and station daypart mixes. And so we're getting a pretty good ROIs on that spend. So between that, the results, our ability to measure this, and having the the strongest brand in the industry, and be profitable. we feel pretty confident that we can spend at these levels. Yes, would just add it takes a little while to build. So your first quarter incremental spend is going to pay back the least well. But it's going to ultimately pay back long term. There's a tale of months on this stuff. And as we add the incremental is taking a little more to pay back. So, you know, we're gonna pay back, I don't know, three quarters in year with a tail outside of the year. But the the the other point I want to make is we we we kinda went on defense last year. We made a material change to the UX. We were working on correcting our customer experience. We wanted to ride through that in the first quarter and then we wanted to deliver our target adjusted EBITDA last year, which we did. And so we pulled back our marketing spend to sort of make sure we would do all that. I think with the way our customer experience has moved and with the upside we now have, with not only homeowner and choice in, but we've rewritten most of the questions in our Q and A. We've implemented the AI helper in the Q and A. We've moved all our pros into a product where they can choose task and zip. Our new pros who are coming in online are looking at the job before they opt into them. We have a multiplier effect on the level of matching, and we believe we should go back on offense. Going back on offense just means going back to the 2024 spend where over time we believe we were better than breakeven. Although, again, there is a tail on that. So we do feel pretty good about it and it is baked in to our overall revenue growth. Alright. And then, your second question, Sergio, was about kind of normalized growth rate for proprietary. So we're now we're splitting out and we're showing you our proprietary and network revenue on a revenue basis now. So Q4 was 23% and for the full year of 2025 it was 17%. So that's, you know, good visibility into kind of the two pieces of our business. And, you know, for 2025, you have a grower like that and you have decliner on the network side. That ends up combining to be a decline or overall. But as we kind of progress forward on the proprietary side, we're saying overall revenue and in the year in the mid-single-digit range. Probably be high single digits that means for for the proprietary business. And going forward, proprietary revenue, we think, is high single digits, continues there. Or even low double digits. Depending on where we can get with pro capacity. And continuing to make progress in our paid proprietary channels. And the impact of branded marketing. Sergio Segura: Okay. Thank you. You can go to the next question. Operator: Our next question comes from Daniel Kurnos with Stacks. Please go ahead. Daniel Kurnos: Great, thanks. Good morning. Rusty, you actually just brought up the first question I had, which is since you guys are leaning back in now and we're starting to see, you know, the advancement in proprietary SARs, just curious since the network is still declining nominally, what is happening with pro capacity? And then secondarily, you guys flagged on the last earnings call and in the shareholder letter that you're doing a global, platform consolidation. So maybe, Jeff, just give us an update where you are on that front, any disruptions that we might expect to see. I think you called out one in your prepared remarks but just curious if there's anything else we should be expecting on that front. Thank you. Jeffrey W. Kip: Let me take the second question first. By cutting the organization by 40%, we think we've extended by a quarter or two the timeline in getting to our final single platform. But we have built our timeline in a way that we do not believe there will be a disruption to the business. And what in fact we are doing is we are going to deliver in stages. So first up on the rebuild is our new homeowner experience. Our current homeowner experience, which comes from the start of what we call the SR path where the homeowner enters the funnel and starts answering questions to choosing a pro and then managing their post-selection project in a projects page. That's the core homework experience. That's the first thing we're gonna get rebuilt. It's rigid technology. It's old. It's very difficult to iterate quickly and improve, and we are rebuilding in what we would call a componentized way. But the componentized and more flexible way is we can skip steps we can pick up from different channels at different stages of the flow. If, for example, we had somebody in a hardware store and we had a QR code, and they were looking specifically at a mini split. To do heating and cooling in their addition. We could pick up right there that they're in the mini split aisle and be very clear very quickly on where to drop the mini experience, which would boost conversion, it would boost matching. We cannot do that today. Somebody who scans a QR code with a mini split in front of them has to start with you know, what's your zip code, what's your category. So it's gonna enable a bunch of things including making even better any integrations with LLMs and other partners. That is the first thing we're going to deliver and then we're going to move on to delivering the pro experience and so forth. Now we could change order. I think we're currently looking at software we might build with agentic coding and how that's gonna work. But that being said, we don't anticipate disruption to the business. We actually anticipate enhancing the business and the customer experience as we go. And maybe we're a quarter or two later than we initially anticipated. But there's a lot of green left to cover there. Andrew Russakoff: I'll cover pro capacity. So, the past couple of years, but in particular last year, we've completely changed the way that we acquire pros and organize our Salesforce. Especially with the single pro initiative where we're selling a single product or a sales force on a single platform. We've changed up the prospect mix and the kind of offer strategy. So we're selling much bigger pros. With bigger packages but less pros. So our nominal amount of average monthly active PROs is still down year over year. But the capacity per pro is up. Our revenue per pro is up. And the overall capacity of the network is actually up, when you net those two factors against each other. Now the complexion of that will change a little bit next year as we lean into selling more large pros and we're talking large pros, we're talking quite large pros. So those will be fewer in number, but much, much bigger. So they'll have less of an impact on our kind of nominal accounts, but they'll drive a lot of capacity. And then on the completely flip side, as we ramp up online enroll, we'd expect those to be kind of lower capacity, smaller pros but we'll be able to acquire them at a much greater scale. So then when you look at our acquired pros, you can see we've actually you know, we're we were down 23% this quarter but versus Q1 we were down 41%. So that those year over year declines have been narrowing. And as we roll out online enroll and ramp up that, we expect our acquired pros to flip over into year over year growth in 2026, and then that on a lag will result in the growth in our overall average monthly active pros in 2027. So that is how it all kind of comes together where we have capacity growth already right now in the network year over year just based on the mix shift in the pro base. We'll get to acquired pro growth in 2026 due to online enroll and then overall kind of nominal network growth in '27? Daniel Kurnos: Very helpful. Thanks, guys. Operator: Thank you. And our next question comes from Stephen Ju at UBS. Please go ahead. Stephen Ju: Alright, great. Thank you. So Jeff, so instead of just thinking about AI as being you know, a challenge, there's probably an opportunity for Angi to present a differentiated consumer experience going forward. Given the data that you have. So from a tech stack perspective, you know, what do you need to build or change to take advantage and move up the marketing funnel and become that destination platform. And secondarily, sort of a macro question here. We're, of course, getting different cost currents. So I was wondering if you can weigh in on what you're seeing. Thanks. Jeffrey W. Kip: Okay. I'll take the first question. I'll let Rusty take a shot at the second one and add, if I could be helpful. Look, think basically in terms of the tech stack, what we've said is we have legacy technology which we've got to replace with modern tech technology as a single platform. We are doing this all shall we say AI first. Which means our intent is to integrate AI. We've always used machine learning and algorithms but we can use effectively conversational AI interfaces and obviously the advanced capabilities of LLMs to improve the customer experience. So anything we do new, we are doing with the idea of being AI first in the product. I think secondly, we are thinking about how we build new pieces of software with the genetic code that may actually replace some of our legacy technology or augment. What we have to be able to do then is integrate effectively, through APIs or otherwise to deploy that new software. So I think we have to put some thought into how we do that. But this is actually sort of timely. We are in the middle of shifting to a new modern platform at the same time that really high-powered agentic coding has arrived and we are going AI first. So everything we are doing is with the thought of just as I described in response to Dan's question, we want to be able to deploy in a more componentized way to multiple surfaces and channels and we want to be AI first in the deployment in order to drive the right matching and actually ultimate job done well, which drives value and actually growth and long-term resilience of the business. Andrew Russakoff: Yeah. And then on the macro, reflecting back on 2025, there was kind of April Liberation Day volatility recovered a little bit from there. And then heading into the kind of the end of the year, you can see in the consumer confidence surveys, you know, kinda down 20 to 30% in the last couple of months of the year and pointing in the same direction for January. And so what we've seen and talking to partners and competitors and such is a little bit of weakness and pressure on volumes. We see a little bit lower mix down in kinda job values and consideration overall is what we're seeing and what's embedded in our in our numbers and our outlook. Overall, what we tend to see if it gets into a recessionary environment, is, you know, it gets a little bit harder to get SRs. It's a little bit easier to retain the pros. And our business generally has a pretty material amount of ballast due to the fact that we're two-thirds of the business is in kind of nondiscretionary tasks. Whether you cut it by service request, leads, revenue, and pros. Stephen Ju: Thank you. Operator: Thank you. And our next question today comes from Cory Carpenter at JPMorgan. Please go ahead. Cory Carpenter: Hey, good morning. I had two as well. Just hoping you could talk a bit about the revenue per lead decline. I know you called out that in the shareholder letter. So just maybe expand on what you're seeing there. Then secondly, with share repurchases paused, I think you're not able to do share repurchases for a period of time going forward. After the spin. So maybe just help us with how you're thinking about capital allocation. The coming quarters. Thank you. Andrew Russakoff: Thanks, Cory. Yes, so on the revenue per lead, we mentioned that it's we're delivering additional leads to subscription pros. The way the subscription product works is that pros pay kind of a fixed amount. And we deliver leads up to that value. If we're able to kinda optimally just get it exactly that amount, that's not really how it works. If we have a homeowner that comes in, submits an SR, and the only pros available are people who are already kind of at their subscription caps. We wanna deliver the best experience. And so we still will deliver that lead to these pros. So it's possible that subscription pros get additional leads that we're not able to monetize. So that'll show up as higher leads even though we're not able to get additional revenue for it at the moment. And, mechanically, that just results in downward pressure on revenue per lead. What's going on beneath the surface is that we have the ability, we have features and functionality that we'll be rolling out to allow us to monetize better monetize some of those additional leads similar to how the functionality and the product works. In Europe, and just in terms of the phasing of how we rolled out a single pro and the subscription product in 2025, it was on the road map, and it's just coming out, over the next couple of months. Okay. And then capital allocation. I think as you pointed out, we bought the prudent amount possible post spin. It's usually a two-year window, so that would put us at next April 1. And I think there's a couple of things. One is we have $500 million of debt on our balance sheet coming due in 2025. So we're keeping our eye on that. And thinking about where we finance. We think we're in great position with that. We think that between the cash flow, we generate year our balance sheet and our credit line we have that actually fully covered. So that's just a consideration in terms of capital structure and capital deployment. We would not be against value creating tuck-in acquisitions, but we don't have any in mind. We would do them at appropriate multiples and make sure that they weren't creating too much complexity in creating. So we'd never rule that out. And then I think we have to see where things play over the next year and where we get to in terms of next April 1. And I think long term, we would obviously with our ability to generate cash, if our stock stays at the levels it's at, we would still think about buying in the stock and I think you could never say that a dividend is off the table either. So there's nothing imminent on that. Again, we're more than a year away from doing more share buybacks but I think we're in a pretty stable position and I think that's how we're thinking about it. Andrew Russakoff: And I'll just jump in for one sec just because, Jeff, you said that the bonds are coming due in 2025, but there's 2028. But there's oh, I missed Yeah. I just wanted to correct the record. Sorry. Yeah. August 2028. Jeffrey W. Kip: Thank you. Yeah. No problem. Operator: Thank you. And our next question today comes from Brad Anderson of RBC. Please go ahead. Brad Anderson: I had a couple follow-ups. I sorry. On the first one, may have missed this, but can you just quantify what the current exposure is to the SEO headwinds at this point? And then just kinda how to think about how that evolves over time? And then second, on the Google competitive front, can you just remind us sort of or describe a little bit what's having kind of the most acute impact, whether it's just kind of the usual run of the mill algo changes, including content versus maybe Google advantaging some of their own service provider customers. Or maybe a bit of both? Just help us zoom in a bit closer on kind of what's happening there and how you manage that. Andrew Russakoff: Yeah. So, on SEO, currently at around 7% of SRs, leads revenue, is coming through SEO. So that that's kind of the current exposure that's obviously been coming down over the past couple of years. And the way as we mentioned, the way that we're thinking about it going forward is that you know, we'll continue to treat that as a source of homeowners that we wanna be able to continue to acquire. But, generally, Google is incented. To continue to capture as much on their own of their own real estate as possible and not make it available to everybody else. So we're planning the business accordingly. To be able to take as much of that share as we can. But we're, also focused, primarily on growing our proprietary sources of traffic through every other channel. And that's how we've been able to continue to we've been able to grow our proprietary revenue 17% overall this past year, and now notwithstanding that we've had kind of a piece of it, which was this SEO headwind. Working against us. Jeffrey W. Kip: Yeah. And I think if you look forward, you have to understand that there's a couple points of drag on our proprietary the next couple of years in our mid-single-digit plus outlook for proprietary that we gave for the back half of the year and we're hoping to exit higher. And obviously, that number shrinks every year as the percentage goes down. I think the way we look at this is that you know, unless there's some external intervention, we don't think Google has any incentive to give anybody any free traffic. It's obviously how they built their platform and their business, but they have somewhat aggressively moved away from it over the last period of years. So I think in general, the free real estate has receded a great deal and that's Google. I also think there's been some algorithm changes that have moved back and forth. I'm not sure that they've net impacted us a lot more than others over the last couple of years, and those are sort of always going back and forth and we have a team who's always working to try and make sure we stay on the right side of those, understand them and react. But in general, our approach is to put out high-quality pages that get good engagement and we think ultimately Google's algorithms are designed to reward that. That being said, we do not think they will increase free real estate and not only do they have a disincentive to do so, but now I think they have outside competition. I think secondly, everybody knows ten years ago or so they moved more aggressively into the local services advertising space in addition to their map product. And so they actually created a product which a lot of our pros use alongside of us. I don't think it's more effective than us. Know, some pros would argue we're better, maybe other pros would argue they are. But we've still effectively built our business with that going on, but they took more of the SERP that way. They've also pulled more paid ads up in the SERP. And then I think finally, obviously AI overviews are a different matter. We're actually surfacing really well there, but not getting the clicks. Again, Google doesn't have right now a lot of incentive to have people leave the AI overview or the Google AI mode ecosystem. They are working towards selling ads there and we are actively engaged in understanding how to buy ads there. I referenced their AI Max product, on the last call. And how we're expanding gradually wherever it makes sense. Into using that product versus the tROAS and the TCPA or some of their other bidding products and they would tell us that it gives us better exposure potential paid ads in AI mode and so we continue to lean in there. Again, we've been extremely effective buying on Google. We grew our SEM well over 50% in the last year. And we think we can be effective. We don't think they're taking ads away. So we do think that we'll be able to continue to buy, but we also think they have no incentive to let anybody drive down the highway for free anymore. Because they are trying to grow and be a business. Brad Anderson: That's great color. Thanks, guys. Operator: Thank you. And our next question comes from Youssef Squali with Truist. Please go ahead. Youssef Squali: Thank you so much. So maybe just a follow-up on that last question around AI and LLMs. Can you just remind us what are the various LM platforms you're integrated with today in the process of being integrated with and any early learnings or any early insights into kind of how that traffic is kinda behaving and, you know, kinda the the the the cost of customer acquisition through that Again, understanding it's pretty early. And then Rusty, remind us again of the difference in margin profile of service requests and leads across proprietary network channel, please? Jeffrey W. Kip: So Youssef, we're not going to name names publicly until we name names publicly. We have literally had some dialogue with every one of the major players. We've submitted an app to one of them. We're working actively on an with another one. We did make an announcement about Amazon Alexa who is in turn talking to another LLM and we've talked to the other. So we're looking across all of them. We do not have anything live right now, and we are getting a little bit of modest traffic free from some of the platforms, but it's sort of hard to parse and it's performing the same way as other organic traffic I would say. We don't have a lot to report, either naming names or we don't have much data because we don't have much actual flow. But we are actively in the mode of getting our app up and working and we've been able to test those in controlled environments and we think it's going to work very well. We think the best proof of concept there is what's happening when we deploy with an LLMR on our site where we, you know, 3.3 x our conversion to an actual, pro selected. Andrew Russakoff: Yes. And then on the profit profile of the of the SRs through the different channels, it used it previously was network channels were more profitable prior to homeowner choice. By introducing homeowner choice, part of the dynamic was intentionally was that we want to bring that experience to be to parity with our proprietary experience, which involves some intentional an extra step of choice where you have to choose the pros and it makes it you know, by by doing that, we reduce some of the profitability of the the network experience. And now it's pretty comparable between the two channels. Maybe a little bit higher on network channel. But it's pretty comparable. Youssef Squali: Okay. That's helpful color. Thank you both. Andrew Russakoff: Alright. I think we have time for one more question. Jeffrey W. Kip: One more, though, not a not a multi-question. Operator: Yes, sir. Our next question comes from Matthew Condon at Citizens. Please go ahead. Matthew Condon: Great. Thank you so much. Just wanted to ask maybe a follow-up on an earlier question. Just the leads per service request, that increased pretty meaningfully in 4Q. And I was just wondering if you could help explain the underlying dynamics there. And then maybe just a quick follow-up, just on consumer marketing expense, I know that you were leaning into brand spend in 2026, but 4Q also saw a pretty big step up or acceleration in consumer marketing expense. Just wanted to hear any thoughts or anything that you guys are seeing that maybe led you to lean in 4Q? Thank you so much. Jeffrey W. Kip: So in terms of the fourth quarter, I think we saw a couple 100 basis points of accelerated as a percent of revenue but it was actually consistent with the second quarter. So I don't think it was a material acceleration either. It was a decline in total spend and a modest increase, but consistent with the second quarter. I would say overall through the year as we lose SEO, and we lean into our paid channels where we're effective, we have seen an increase in marketing as a percent of revenue just as you follow through the year. I think that that's how we think about the third to the fourth quarter. And then the first question. Yeah. The leads per SR, Matt, it's very similar to the response to Corey's question. Where we have additional leads that we're sending to subscription pros. Right? So when the homeowners come in, we have subscription pros on the platform. And they're available even though that we've kinda capped them out and they're they're maxed out on what their contract values are. We're continuing to connect them to the homeowners and that just results in kinda mechanically more leads, on HSR. Jeffrey W. Kip: So look, let me just wrap up. With a couple of key points, which is when we started this year, think we said revenue growth would be minus 12% to minus 16 really driven by homeowner choice. We landed the plane, gave up over $250 million of the network revenue. We landed the plane at minus thirteen. The center of our range was kind of a 140 to a 145 of adjusted EBITDA. That did include too high confidence, $5 million one-time income items. We delivered one forty without those two tens. As we look out to next year, our one forty-five to one fifty excludes those two tens, which we still think are coming in. If you added them back in, we'd be at one fifty-five to one sixty. The other thing I just sort of point out in terms of profitability is finished last year with 140 of adjusted EBITDA and 60 of CapEx. The delta is 80 when you take the CapEx away from the adjusted EBITDA. We're going to 145 to 150 minus 55, which means we're gonna be solidly at mid-teens growth. On modest revenue growth, but we are returning to revenue growth. We've actually done it in January. We're just not forecasting it because of comparisons and product slippage in the first quarter. And then we're going to proceed essentially on the same path with some more conservative expectations going forward. So we entered the New Year having taken the action we took in January with the reduction in force and the restructuring with more durable margin, back to historical investment in our long-term brand asset. We are the leading brand in the industry. We let the investment slip last year for very specific reasons. But we're going back on offense because we feel extremely good about the movement we've made in customer experience. We believe we have a tailwind with all of the change that came in through the year. We believe we have material opportunity on the large pro side of the business. If you look at pros with 10, 20 employees or more, they're two-thirds to three-quarters of market. We're under 1% penetrated there. We're 4% plus penetrated in the small pro. We think we have very significant opportunity and we're investing there. And we think we have all kinds of opportunity. I won't go through my whole opening remarks on AI, think we're super excited and optimistic, and we think we're on the same trajectory but stronger in terms of profit and cash flow than we were before. And we think we have a nice solid durable business here that as an agent as we've always been can really accelerate in the AI world. So with that, thanks everybody, for coming. Appreciate your listening and we look forward to working with you and talking to you in the quarters to come. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. Operator: Everyone else has left the call.
Operator: Good day, and welcome to the Crown Crafts, Inc. Third Quarter Fiscal Year 2026 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 John McNamara, with Three Part Advisors. Please go ahead. John McNamara: Thank you. Good morning, everyone, and thank you again for joining the Crown Crafts fiscal year 2026 third quarter conference call. With us on the call this morning are Crown Crafts President and Chief Executive Officer, Olivia Elliott, and Vice President and Chief Financial Officer, Claire Spencer. During today's call, the company may make certain forward-looking statements, and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be beyond Crown Crafts' control, and the company is under no obligation to update these statements. For more information about the company's risk factors and other uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-Ks and the Form 10-Q for the quarter ended December 28, 2025. With that, I would now like to turn the call over to President and Chief Executive Officer, Olivia Elliott. Olivia? Olivia Elliott: Thank you, John, and good morning, everyone. As we noted in the press release issued earlier today, we believe our third quarter results demonstrate the resilience of our business model and the diligent efforts of our team as we work to overcome the challenging demand environment and the ongoing effects of higher tariffs. Net sales for the third quarter were $20,700,000 compared with $23,400,000 in the prior year quarter, while net income increased to $1,500,000 from $900,000 a year ago. We are committed to driving profitability as we continue to execute on pricing and cost actions to offset the sales environment. While we are encouraged by the positive performance in our bibs, toys, and disposable categories during the holiday season, the macro backdrop remains difficult for our category. Elevated U.S. tariff rates have raised product costs and contributed to uncertainty from certain China-based suppliers, while consumer spending remains uneven and price-sensitive. Third quarter gross margin was 23.5% compared with 26.1% in the prior year quarter, despite our ongoing mitigation efforts. Also impacting gross margin were certain one-time costs that Claire will speak to in a moment. Within this environment, we are staying focused on what we can control. For starters, we are very excited about our product pipeline. Earlier this week, we announced Manhattan Toys' relaunch of Groovy Girls, an iconic line of soft fashion dolls that will be available starting in May 2026. This relaunch reflects the strength of Manhattan Toy's portfolio and our commitment to internal product development. We believe Groovy Girls will create opportunities with specialty customers and in direct-to-consumer as we broaden our reach in the juvenile space. Operationally, our supply chain team continues to work closely with our sourcing partners in China and other regions to manage through tariffs, freight, and capacity constraints. The majority of our products are produced by foreign contract manufacturers with the largest concentration in China, and we remain focused on quality, compliance, and reliability while also continuing to evaluate alternative sources of supply where appropriate. Our inventory strategy has been deliberately conservative as we aim to minimize exposure to excess inventory in a volatile pricing and tariff environment. We also continue to execute on cost initiatives, with further plans to consolidate certain internal operations. During the quarter, we incurred $600,000 in severance expenses in connection with these consolidation efforts. These actions are designed to eliminate redundant activities, reduce payroll and administrative expenses over time, and create a leaner operating structure that can better absorb external factors such as tariffs and raw material volatility. Shifting gears, we ended the third quarter with a solid balance sheet and liquidity position. We continue to view cash flow generation, debt reduction, and disciplined capital allocation, including our regular quarterly dividend, as key pillars of our shareholder value proposition, and we believe our brands, customer relationships, and category positions have us well prepared to enhance long-term shareholder value as conditions normalize. With that, I will now turn the call over to Claire, who will walk you through the financial details for the quarter. Claire? Claire Spencer: Thank you, Olivia. For the 2026, which ended December 28, 2025, net sales were $20,700,000 compared with $23,400,000 in the third quarter of the prior year. Gross profit was $4,900,000 compared with $6,100,000, and gross margins were 23.5% versus 26.1%. The change in gross margin was driven primarily by higher tariffs on products imported from China and one-time licensing expenses in connection with the insurance claim I will speak further on in just a moment. Marketing and administrative expenses increased by $600,000 to $5,000,000 in the current year quarter due to severance expenses incurred in connection with operational consolidation efforts. As a percentage of net sales, marketing and administrative expenses were 24% in the third quarter compared with 18.8% in the same period last year. Other income and expense was a positive contributor in the third quarter. Other income benefited by a $2,500,000 insurance proceeds received during the quarter related to certain claims made by the company under a representation and warranties insurance policy, purchased in connection with the recent acquisition. The net impact of these insurance proceeds to income before tax expense, excluding certain legal and licensing-related expenses, was $2,100,000 in the current year quarter. Income before tax expense for the quarter was $2,100,000, up from $1,300,000 in the prior year quarter. Income tax expense was $600,000, up from $400,000 a year ago. And net income for the quarter was $1,500,000, an increase from $900,000. Basic and diluted earnings per share were $0.14 in the 2026, which was up from $0.09 in the 2025. Turning to the balance sheet, we ended the quarter with total assets of $76,100,000. We had $10,600,000 of additional availability under our revolving credit facility. Inventories were $31,200,000 at quarter end, compared with $27,800,000 at fiscal 2025 year-end, reflecting our seasonal builds ahead of Chinese New Year. Total debt at quarter end was $16,400,000, and we were in compliance with all financial covenants. Net cash provided by operating activities for the nine-month period was $7,100,000, up slightly from $7,000,000 in the prior year period. In summary, third quarter results reflect ongoing tariff-driven margin pressure and a continued soft demand environment, offset by cost actions and non-recurring items such as severance expense and insurance proceeds. We believe our balance sheet, liquidity, and disciplined approach to expenses provide us a solid foundation as we navigate the current environment and position the company for improvement as conditions normalize. With that, I will turn the call back to Olivia for some closing remarks before we open the line for questions. Olivia? Olivia Elliott: Thank you, Claire. We entered this fiscal year fully aware that we would be operating against a difficult backdrop, including elevated tariffs, shifting retailer behavior, and a cautious, value-focused, and uneven consumer environment. The third quarter did not change that reality, but it did reinforce our conviction that our strategy, anchored in strong brands and licenses, disciplined cost management, conservative inventory management and sourcing decisions, and a focus on cash generation, is the right one for Crown Crafts. At the same time, our capital allocation strategies focus on growth-oriented investments in our business and the return of capital to our valued shareholders. We remain confident in the long-term fundamentals of the infant, toddler, and juvenile category, in Crown Crafts' ability to be a trusted partner to our customers, licensors, and consumers. I want to thank our employees for their hard work and dedication, our customers and licensors for their continued partnership, and our shareholders for their ongoing support. With that, we'd now be happy to take your questions. Operator? Operator: We will now begin the question and answer session. Our first question comes from John Deysher with Pinnacle. Please go ahead. John Deysher: Good morning, everyone. Thanks for taking my question. Hey, John. Hello, Olivia. Just curious, the sales decline you had all your acquisitions for both quarters, I think. Where was the softness on the revenue line? Olivia Elliott: The softness is really in the bedding category. So from the toddler bedding perspective, it's a category of business that just isn't required. I mean, you need sheets for a crib, that type of thing, but you can skip the toddler bedding set altogether. And so in this environment, we're seeing where the consumer is maybe trading down and not buying the bedding set, but buying just a blanket instead. And so a bedding set can be maybe a $50 item, whereas a blanket is more like a $12 item. So we're still seeing the category be popular, it's just what the consumer is buying right now. John Deysher: Okay. So it was just about all bedding? Olivia Elliott: It was all bedding. John Deysher: Okay. Okay. And you mentioned China was a major source. What percentage of the product comes out of China roughly right now? Olivia Elliott: Almost all of it. I mean, it's in the high 90%. John Deysher: Okay. Alright. Gotcha. And then in terms of the reimbursement, not reimbursement, the benefit of $2,500,000 from insurance claims. Could you provide some color there? That's a big number. Fortunately, it went your way, but I'm just curious what the backstory is there. Claire Spencer: It relates to a product category that was dropped at retail not long after we did the acquisition. And so we made a claim under the reps and warranties insurance, and it went our way, as you said. That also included a couple of one-time costs associated with that same category of business, which was a licensing shortfall and then some inventory that we closed out at a pretty deep discount. John Deysher: Okay. So let me just make sure I understand that. So you made the acquisition and then a product was dropped and you submitted a claim because you thought you were going to have that product going forward? Is that right? Claire Spencer: That's correct. John Deysher: Okay. That's interesting. Okay. Alright. Well, I'm glad your agreement specified that. Okay. And do you expect any more like that going forward? Claire Spencer: Not that I'm aware of right now. John Deysher: Okay. Good. John Deysher: Okay, great. I appreciate the color. Thank you. Operator: Our next question comes from Anthony Lebensky with Sidoti and Company. Please go ahead. Anthony Lebensky: Good morning, everyone, and thanks. I just have a couple of things here. Can you just comment on the pricing? How much did that contribute to the quarterly revenue? Just wondering if you could comment on that. Olivia Elliott: You just mean on retail price increases? Anthony Lebensky: That's correct. Olivia Elliott: So as of October, we have pretty much gotten all of the price increases through all of our retailers. And I think we mentioned in the last quarter, the first quarter that the tariffs went through, was in our June quarter, we had tariff increases but not a lot of retail price increases. And so it takes a period of time to get all of those prices through. So as of October, the last of the major retailers took the price increases. And so third quarter was kind of a mix. We had half of the quarter where we didn't have them, and then half of the quarter where we did. Anthony Lebensky: Got you. Okay. Alright. And then in terms of the cost actions that you have taken, can you comment, can you give any specifics as to what the annualized cost savings might be as we think about the business going forward? Olivia Elliott: We're still working on that number. We're going through our budgeting process now for our next fiscal year, and we'll know a little bit more where we can make some of those cuts now. It will take a little bit of time. I think a lot of it's going to be in some of our IT contracts and other contracts where currently each of our subsidiaries has to have a separate agreement. But we can only do that when the current contracts roll out. So it's going to be something that you might see part of in this fiscal year, and then we won't really fully realize the full amount until the next fiscal year. So hopefully by June, when we have our next call, we'll be able to give more color. Anthony Lebensky: Alright. Well, thank you very much. Olivia Elliott: Thank you. Operator: The next question comes from Igor Navigordativ with Lares Capital. Please go ahead. Igor Navigordativ: Good morning and thank you for taking my question. I am a bit surprised that you still get 90% of all your products from China given the difficult trade relations between the United States and China. So what is your contingency plan if the tariffs will go up again to 100%? What would you do? Olivia Elliott: We are actively looking at sources in other countries. We've been doing that for some period of time and we have other contacts, etcetera. But right now, we stuck with China for several reasons. One, being the biggest is quality and safety. As you know, we deal with infant products, and so we have to take time to make any changes because we need to make sure that the product is very safe and that the proper quality control standards are in place. So while we're exploring those and we have been for the last year or so, we're taking it slowly. But we do have those contacts. We've been to Cambodia, Pakistan, India, any number of other countries that we're making those contacts. Toys would be the hardest, particularly the plastic toys, because those are molded and you can't just pick up your mold out of the current factory and move it to some other factory. So we would have to rebuild those molds. So that would be the toughest category for us. Igor Navigordativ: To follow-up on this, I know there's a lot of moving parts and tariffs have been moved back and forth several times. What is your effective tariff rate right now on average versus pre-April? How much would it be today? Claire Spencer: I do not have kind of an effective tariff rate. I mean, obviously, the current 20% rate is on all categories of business. But it varies widely. So for example, toys, the only duty and tariff on it is the 20%. Whereas on diaper bags, the total of all of that is above 60%. So it just varies very widely. Everything else kind of falls out in the middle. Igor Navigordativ: Do you have I see that you mentioned the price increases in October, the last price increases. Do you think you'll be able to raise prices further? Or do you think unless something changes, you're done for now? Other than normal pricing? Olivia Elliott: Unless something changes, we're done for now. I just don't think that the consumer can absorb any price increases right now, and the price increases that have already gone into effect are impacting sales. Igor Navigordativ: Understood. Okay. Thank you very much. Operator: Thank you. The next question comes from Doug Ruth with Lennox Financial Services. Please go ahead. Douglas Scott Ruth: Olivia, under difficult circumstances, I feel that you and the company have done a wonderful job. And I'm grateful for what you've done for the shareholders. I have some questions now. Where will the Groovy Girls be sold? Olivia Elliott: So initially, in specialty stores and on our own website, manhattantoy.com is the initial goal. I mean, the hope is eventually that we'll roll it out to some larger retailers, but we would need to change the product a little bit so that you don't take the same product to both channels or then you ruin one channel. Douglas Scott Ruth: Yes. I understand. How would you be selling them overseas as well? Olivia Elliott: Yes. So it will be sold internationally through our distributors. Douglas Scott Ruth: And then I noted that, year over year, the inventory was down about 4%. Are you is the company happy with the present inventory level? Olivia Elliott: I mean, I'll use the word happy, yes. I mean, I always think that we could have less inventory, but some of our planners disagree with me. So yes, I think overall, the inventory levels are good. Douglas Scott Ruth: Okay. And then, you had previously talked some about the international sales. Could you tell us some about what's going on with the Disney license? Like I know you got the Disney license in Canada, and how has that been going? Olivia Elliott: So the Disney license in Canada, our license for that started this calendar year, so just in January. And so we've already talked to some of the larger retailers, the product from the old licensor is kind of selling out and we're in process of putting the product in for our product. Douglas Scott Ruth: Okay. And then also I think you were talking about having a different distributor in Canada for the Sassy Toys and the Manhattan Toys. Is there any update on that? Olivia Elliott: Yes. So we think that's going well. That transition just also started happening, kind of in December, January. But I think that's going to be a very good partnership for us. Douglas Scott Ruth: And then, I also heard you mention that you had 33 international distributors for like the Fancy Toy and the Manhattan Toy. Can you give us some ideas of what's happening there? Olivia Elliott: I don't know if that's the exact number. We have more than 30 distributors in probably more than 50 international countries. And so, you know, that's going well. We're continuing to try to sign up more distributors and expand the countries. But that's certainly been a focus for us and I think it's going very well. Douglas Scott Ruth: And then how about the Q3 sales? Were the international sales higher in there any way you could maybe give us a percentage of how much they might be increased? Olivia Elliott: We don't have that number sitting here with us. And I don't think we've disclosed that specifically. So I think I'll have to pass on answering that question. Douglas Scott Ruth: Okay. I noticed that you had increased the advocate budget, and then I had heard you talk previously that you were doing some things, like, with Facebook and Instagram. Could you maybe tell us a little bit more about what's going on with that? Olivia Elliott: So we're continuously trying to increase our presence both in the marketing and the advertising side. I mean, it's just a part of doing business now. It's the way you get your consumer. And so we've increased it a little bit this year, and I think that you'll see us budget more and spend more in the next fiscal year. Otherwise, it's very hard to get the consumer now. Douglas Scott Ruth: Is the company thinking anything more about the warehouse? I believe that possibly one of the leases is coming up. Is there any talk about that at all? Olivia Elliott: We still put that on hold right now. We are extending the lease in Minnesota to coincide with the termination of the lease in California. And we'll pick back up on that conversation probably toward the end of this calendar year. You kind of need about an eighteen-month lead time to choose a location, do a lease, and then do whatever kind of build-out needs to go to the new location. So probably I'm going to say maybe November, we'll start that conversation again. Douglas Scott Ruth: Okay. With this insurance policy, the representation and warranty insurance policy, how who figured out to buy that? How did that come about? Olivia Elliott: You mean getting the policy itself? Douglas Scott Ruth: Is that a normal, is that something that the company maybe does when you make an acquisition? Or is this something that was unique? Olivia Elliott: It was something specific to this acquisition. It was just part of the agreement. Douglas Scott Ruth: Well, whoever came up with that, I would like to give I would like the company to consider giving that person a bonus. If it was you, I think you should get the bonus. That was an outstanding idea to come up with that. I've never heard of that before, and it really worked out for the company and the investors' favor. So that's really a great idea. Olivia Elliott: I don't think I can take credit for that one. It was kind of a mutual agreement. So, I appreciate the comments. Douglas Scott Ruth: Oh, okay. I want to thank everybody who is involved in it and, of course, the people that who did it know who they are. But thank you for doing that. And thank you, and thank you, Claire, for your contribution and you really did a great job. Thank you for that. Claire Spencer: Thank you, Doug. Operator: We have a follow-up question from John Deysher with Pinnacle. Please go ahead. John Deysher: My follow-ups have been answered. So thank you and good luck going forward. Olivia Elliott: Alright. Thanks, John. Thank you. Operator: Our next question comes from Greg Bennett with Retail. Please go ahead. Greg Bennett: Hey, good morning. I think in a previous conference call, there was some discussion about Target was going to get out of some of their, I guess, store categories and that they may be the impression I got is that they may be looking towards you or somebody else. Can you comment on that? Olivia Elliott: I think what you're talking about is just that Target's been taking a lot of their programs to private label and direct sourcing them. And so we've had a couple of categories in the past, one of them being our bib category, and then one of them being the diaper bags, that have been taken away from us and given, they've gone private label and gone direct source. Greg Bennett: So they're not bringing yours back? Because they were gonna get to somewhere like... Olivia Elliott: Right now, we have not been able to get those back. We certainly are trying, and we hope to. But at this point in time, we've not gotten them back. Greg Bennett: Okay. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Olivia Elliott for any closing remarks. Olivia Elliott: Thank you all for your support and interest in Crown Crafts. We look forward to updating you on our next call in mid-June. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to American International Group, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead. Quentin McMillan: Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. Peter Zaffino: These statements are not guarantees of future performance or events and are based on management's current expectations. American International Group, Inc.'s filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, American International Group, Inc. is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks may also refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release financial supplement, and earnings presentation, all of which are available on our website at aig.com. Following the deconsolidation of Corbridge Financial on June 9, 2024, historical results of Corbridge for all periods presented are reflected in American International Group, Inc.'s consolidated financial statements as discontinued operations in accordance with U.S. GAAP. Finally, today's remarks related to net premiums written are presented on a comparable basis, which reflects year-over-year comparison on a constant dollar basis and adjusted for the sale of Global Personal Travel and Assistance Business as applicable. We believe this presentation provides the most useful view of our results and the go-forward business in light of the substantial changes to the portfolio since 2023. Please refer to Page 29 of the earnings presentation for reconciliations of such metrics reported on a comparable basis. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Good morning, everyone. Thank you for joining us to discuss our fourth quarter and 2025 full-year financial performance. I will begin with prepared remarks after which Keith will provide a detailed overview of our financial performance. Jon Hancock will then join us for the Q&A session. On our call today, I will briefly share key highlights from our excellent fourth quarter performance, review our outstanding full-year financial performance, provide brief commentary on American International Group, Inc.'s January 1 reinsurance renewals, discuss our fourth quarter strategic transactions, and highlight our progress on our GenAI and data and digital strategies. Finally, I will conclude with how American International Group, Inc. is positioned for continuing momentum into 2026. Let me begin with a brief overview of our fourth quarter performance and some of our key highlights. We delivered adjusted after-tax income per diluted share of $1.96, a 51% increase year over year. Underwriting income was $670 million, an increase of 48% year over year. Global commercial net premiums written grew 3%, despite North America retail property contracting due to our reduced appetite given the current market environment. We had strong new business growth led by international commercial, which grew an impressive 14% year over year. The accident year combined ratio as adjusted was 88.9%, our seventeenth consecutive quarter with a sub-90% result. The calendar year combined ratio was 88.8%, an improvement of 370 basis points from the prior year quarter. Overall, our fourth quarter performance reflects our consistent underwriting and closes out an exceptional 2025 for American International Group, Inc. Now let me walk you through our full-year financial performance. Adjusted after-tax income per diluted share was $7.09, an increase of 43% year over year. Adjusted after-tax income for the year was $4 billion, an increase of 24% year over year. For the full year 2025, we generated underwriting income of $2.3 billion, an increase of 22% year over year. 2025 was the first year since 2008 that we delivered greater than $2 billion in underwriting income excluding divested businesses, an important milestone in American International Group, Inc.'s journey. For full-year 2025, global commercial net premiums written were $17.4 billion, an increase of 3% year over year. Adjusting for the large closeout transaction in our casualty portfolio that benefited overall growth in that prior year, net premiums written increased 4%. North America commercial grew net premiums written by 4%, or 5% when adjusting for the large closeout transaction. With balanced growth across the portfolio that was partially offset by retail property which contracted 8%. International commercial grew net premiums written by 3%, primarily driven by property and global specialty, and partially offset by financial lines, which contracted 5%. In global personal, net premiums written contracted 3%, driven by higher ceded premiums under the high net worth quota share reinsurance treaty that we entered into at January 1, 2025. In early January, Ross Buck Mueller was named executive chairman of Private Client Select. We have tremendous confidence in his ability to guide the high net worth business and believe he will have an immediate and positive impact in positioning the business for the future. Overall, global commercial new business grew 9% year over year, International new business grew 10%, driven by global specialty, which grew 15%. North America commercial insurance produced over $2.6 billion of new business in the year, an increase of 8% year over year. We made strong progress reducing our expense ratio which ended 2025 at 31.1%, down 90 basis points from the prior year, and remain focused on achieving our Investor Day target of a sub-30% expense ratio by 2027. Our full-year accident year combined was 88.3%, and our calendar year combined ratio was 90.1%. Both outstanding results. For the full year 2025, excluding North America property, global commercial lines pricing, which includes rate and exposure, increased 2%, with a 6% increase in North America and a 1% decrease in international. As we've discussed throughout the year, property markets in North America remained under pressure, with increased competition in both the admitted and non-admitted markets. Retail property pricing was down 10% and excess and surplus lines pricing was down 13% for the year. Keith Walsh: Despite the challenging market dynamics, the accident year and calendar year combined ratios remain excellent in property. In North America casualty lines, pricing remained favorable and continued to outpace lost cost trend with percentage increases in the mid-teens in wholesale and excess casualty. In North America financial lines, pricing was down 2% for the year, Pricing reductions moderated in the second half of the year with segments of our D&O portfolio ending the year with a positive rate change. In international commercial, overall pricing was down 1% or flat excluding financial lines, Unlike The US, pricing in international property was up 3% for the year, offset by energy where pricing was down 10% driven by abundant capacity. Net investment income on an APTI basis was $3.8 billion, an increase of 8% year over year, reflecting our shift to higher-yielding assets with strong financial ratings. Core operating ROE was 11.1%. A 200 basis point improvement year over year and American International Group, Inc.'s first adjusted ROE metric above 10% in over ten years. Peter Zaffino: Importantly, we delivered a strong performance in 2025 while maintaining our disciplined approach to capital management. We returned $6.8 billion in capital to our shareholders, including $5.8 billion in share repurchases and $1 billion in dividends. We also increased our quarterly dividend by 12.5%, the third consecutive year with a dividend increase of 10% or more. Debt outstanding at year-end was $9 billion, and our debt to total capital ratio was 18%. We continued to reduce our ownership of Corbridge Financial generating approximately $2.5 billion in gross proceeds over the course of 2025. At the end of 2025, our remaining ownership stake was 10.1%. Keith Walsh: This week, Nippon Life waived American International Group, Inc.'s 9.9% retention requirement which gives us the ability to sell down our position throughout 2026 which we intend to do, subject to market conditions and regulatory approvals. Since we announced Blackstone's purchase by 9.9% equity ownership in Corbridge Financial, in November 2021, American International Group, Inc. has realized nearly $20 billion from our Corbridge Holdings, when accounting for share sales, receipt of extraordinary and common dividends, and transition service fees. What's even more extraordinary is that American International Group, Inc. has been able to replace 100% of Corbridge Financial and Validus Re's earnings per share in just two years. Going forward, we're very well positioned with significant financial strength and liquidity to execute against our strategic objectives, our growth ambitions, and our capital management priorities. I'll now turn to reinsurance. But before I provide more details on our January 1 renewals, I want to share a brief context on the reinsurance market. 2025 started with the California wildfires, and that initially tempered reinsurance rate reductions for the industry. What followed was benign cat loss activity in the second half of the year resulting in increased reinsurance capacity. This dynamic drove a favorable renewal environment for insurers at January 1. As a general statement, although reinsurers were prepared to compromise on pricing, they remain disciplined on attachment points at one one. Our long-term belief in holding firm on attachment points has proven to be advantageous for American International Group, Inc. We've always said, once you give it up, you don't get it back, and that remains true today. Turning to our January 1 renewal outcomes, American International Group, Inc. achieved enhanced terms and favorable pricing. We benefited significantly from the current environment, with more aggregate capacity available in the market, or consistent buying, an attractive portfolio, and the exceptional relationships we've developed, with our reinsurance partners. Here are a few highlights. Our property catastrophe program continued to improve. The weighted average risk-adjusted rate decrease for American International Group, Inc. on property catastrophe is in excess of 15% yielding substantial year-over-year savings. The return periods of the attachments of our property catastrophe coverage is broadly lower across our geographies, and businesses. Our exhaust limit is at a comparable level for all regions worldwide. We were able to collapse the high net worth placement into our North America occurrence layer for the 500 x to 500 layer, And finally, we achieved further efficiency in our aggregate protection, including a single maximum contributing loss rather than a separate one for each of the North America commercial and global personal portfolios. For casualty, we're in a reinsurance market that differentiates for quality. And as a result, our treaty is renewed with exceptional pricing and terms and conditions. Our quota share in North America maintained a very attractive seating commission in the low thirties, Our excess of loss attachment and limits remain the same. As the expiring treaties. However, our rate on subject premium decreased year over year. Finally, we were able to add the Everest portfolio into the treaty at American International Group, Inc.'s pricing and terms without an increase in nominal cost. Overall, I'm very pleased with our one one renewals. Our approach to continues to be an important component of our strategy to minimize volatility in our portfolio and positions American International Group, Inc. well for 2026. In the fourth quarter, we announced several strategic transactions. These are innovative, capital-efficient deals without balance sheet complexity, technology debt, legacy liabilities, or meaningful expense investment. All are expected to contribute to American International Group, Inc.'s earnings, earnings per share, and return on equity in 2026 and we believe these transactions should be more accretive in '26 and 2027 than share repurchases. I'll take a moment now to provide an update on our progress. In October, we were very pleased to announce renewal rights deal for Everest's global retail insurance portfolio. The portfolio is well balanced across geographies and expands our global retail commercial footprint. And distribution access while adding business that is complementary to our portfolio today. As a reminder, the purchase price relating to Everest is calculated as a percentage of the total renewable premium of the Everest portfolio, which we now expect to be close to $1.8 billion after doing more work with Everest. This would adjust our purchase price down from a $300 million to $270 million with possible further downward adjustments of up to $70 million if less than 80% of the portfolio is renewed. We're making very good progress with the conversion of the Everest portfolio. We accelerated the conversion of $65 million in gross premiums written in fourth quarter, In January, we had a retention rate of 75%, reflecting approximately a $180 million in gross premiums written, an impressive result considering that we did not commence work to convert the book in Europe until we receive the required regulatory approvals in December. This is a terrific performance and a validation that clients and brokers want American International Group, Inc. to have an expanded role on their insurance placements. American International Group, Inc. has many advantages in executing this conversion. We have ample capacity to grow, reinsurance treaties that will benefit the business at a lower cost, and a more advantageous expense base given we did not need to replicate Everest's infrastructure to service the business. We expect the combination of these factors to drive a 10 benefit to the combined ratio of the converted business. To support the conversion, we leveraged our Gen AI capabilities to evaluate the Everest portfolio and prioritize the accounts we want to renew in a fraction of the time. As we've discussed, we've deployed a robust ontology of American International Group, Inc.'s businesses and we're able to quickly build an Everest ontology In essence, a digital twin of that portfolio, which allowed us to prioritize how the portfolios could blend together enabling us to deliver compelling solutions for clients and our broker partners. We reviewed Everest's portfolio to determine account limits. Attachment points, and pricing, and to identify conversion strategies. In addition, we leverage our GenAI solution underwriting by American International Group, Inc. Assist to accelerate the conversion process in key lines of business, increasing renewal speeds significantly. We're pleased with our progress and our focus on ensuring a smooth transition in the portfolio over the next three quarters. Now I'd like to share more detail regarding our investment in Convex Group, where we took an approximately 35% equity interest coupled with a 9.9% ownership stake in Comvex's majority owner Onyx Corporation. These investments closed on February 6 and they are expected to be accretive to American International Group, Inc.'s earnings within the course of the year. As part of the Convex transaction, we also took a 7.5% whole account quota share of Convex's business for 2026. Which will earn in over the year. Our share will increase to 10% in 2027, and 12.5% in 2028 and thereafter. This transaction was a rare opportunity to secure a long-term strategic partnership with one of the most highly respected specialty insurance companies and its majority shareholder. American International Group, Inc. has led the industry in utilizing third-party capital to develop innovative structures that create tailored risk-sharing solutions. After successfully launching Syndicate 2478 at the start of the year, We closed 2025 with the formation of Syndicate 2479, a new special purpose vehicle launched in partnership with Amwins and Blackstone in December, with a stamp capacity of $300 million of premium income. This partnership represents a differentiated model for portfolio underwriting supported by third-party capital including capital committed by the largest US wholesale broker. We expect it will generate premium growth and fee income for a modest incremental capital commitment. This is also the first time we've deployed our Gen AI capabilities in an SPV transaction. Partnering with Palantir, we use large language models to match data and define risk characteristics within Amwyn's program business. That were aligned with the syndicate's risk appetite. In addition to assessing future opportunities, this capability enables us to use advanced analytics to help shape the current portfolio. We have a strong pipeline of SPV opportunities, and we'll continue to pursue future opportunities for expansion in our specialty and other lines of business. I'll take a moment now to update you on our Gen AI initiatives. We've made significant progress embedding GenAI across our core underwriting and claims processes and expanding it across American International Group, Inc. As this work continues, our confidence has only grown our ability to drive industry-leading impact on our deployment of GenAI. Our top Gen AI priorities for 2026 include deploying underwriting by American International Group, Inc. Assist and claims by American International Group, Inc. Assist across the majority of our commercial businesses. Enhancing American International Group, Inc.'s ontology by developing a comprehensive digital twin of American International Group, Inc.'s processes, workflows, and data elements to drive enhanced speed and efficiency. Developing an orchestration layer to coordinate AI agents to drive better decision-making and reduce costs across the organization, and further utilizing GenAI for American International Group, Inc.'s SPV strategy portfolio analytics, and compute. Since our initial rollout of underwriting by American International Group, Inc. Assist, we've expanded its use to seven additional lines of business, including our Lexington business. We remain on track to complete our accelerated rollout to the rest of North America, UK, and EMEA in 2026. We're already seeing benefits from these efforts. For example, Lexington's business has seen a 26% increase in submission count year over year. As a reminder, at our Investor Day, we shared our ambition of reaching 500,000 submissions by 2030. As of the end of last year, we've already reached over 370,000 submissions demonstrating the robust opportunity. We believe our use of GenAI gives us a strong advantage going forward in this dynamic market. It's early days, but by deploying underwriting by American International Group, Inc. Assist in Lexington, we've delivered significant productivity gains. Quentin McMillan: Focus on the orchestration of AI agents that can act as a force multiplier for our team. To do this, we're building an orchestration layer whereby we assign responsibilities to AI agents and determine when these agents are activated. The sequence of their tasks, what information they can access, how work is handed, to other agents, and instances when greater human oversight is required. We think of these AI agents as companions that operate alongside our teams with specific roles such as knowledge assistance, can provide relevant information in real time, advisers that can provide additional insight based on historical use cases, and critic agents that challenge the knowledge and adviser agents as well as the underwriter's decisions. Through the orchestration layer, we can coordinate these agents to work together to help streamline simple, repetitive, and lengthy processes to support decision-making. We made substantial progress on our Gen AI strategy in 2025 and remain focused on continuing to pursue the opportunities we see ahead to support our business goals. 2025 was an outstanding year of accomplishment, in which we delivered against our strategic operational and financial commitments and position the company for an exceptional 2026. Overall, we remain on track to meet or exceed the financial objectives we outlined at our investor day. We have strong momentum, with growth expected to come from multiple sources including organic growth initiatives, savings from excess of loss reinsurance, the continued successful conversion of the Evers portfolio, our whole account quota share with Convex, our special purpose vehicles, and the repositioning of our high net worth quota share at one one. Given our strategic transactions and several of the drivers I just mentioned, we're well positioned to drive premium growth into 2026. Because it's always hard to forecast, I'd like to take a minute to provide some perspective on what we see for net premiums written growth for the full year 2026 noting that this guidance reflects our views and assumptions as of today. For the full year 2026, we expect low to mid-teens net premiums written growth in general insurance and we believe that 2026 is already off to a very strong start. Before I hand it over to Keith, I want to briefly speak about the leadership transition we announced last month. I'm incredibly proud of our colleagues, and the work we've accomplished together, and I could not be more confident in American International Group, Inc.'s future. With the company well positioned for its next pay I felt it was the right time to retire as chief executive officer and transition to the role of executive chair of the board. I'm very excited to welcome Eric Anderson to American International Group, Inc. on February 16 as president and CEO elect. Eric is the right leader to take American International Group, Inc. into the next phase of its journey. He's a highly respected executive with nearly thirty years of experience at Aon. His accomplishments are widely recognized throughout the industry and he has consistently made positive contributions in every role he's held. Eric will be on the first quarter call, can share his perspective then. I want to assure you that he's fully committed to our Investor Day financial guidance and strategic objectives. I look forward to working with him and our outstanding management team to drive American International Group, Inc. forward from a position of strength. As American International Group, Inc. enters this next chapter, I have great confidence in our company's leadership, the foundation we built, and our ability to drive sustainable, profitable growth and create long-term value for all of our stakeholders. Thank you, Peter, and good morning. We had a strong fourth quarter and full year. Starting with the quarter, we continue to make good progress. With 51% growth in adjusted EPS and solid investment and underwriting results. This marks another quarter of improvement in our key financial metrics, while continuing to build the financial strength of our balance sheet. Adjusted after-tax income for the quarter was $1.1 billion, an increase of 31% year over year. Underwriting income was $670 million, an increase of 48% year over year, and net investment income was $954 million, an increase of 9%. Turning to general insurance. Net premiums written were $6 billion, an increase of 1%. This was driven by global commercial with growth of 3%. We continue to post excellent underwriting margins across general insurance, building on our multiyear track record. Accident year combined ratio as was 88.9%. A 30 basis point increase year over year. Accident year loss ratio was 56.8% a 100 basis point increase year over year or 70 basis points excluding travel. The increase was driven by additional margin in our casualty loss picks, favorable loss experience in the prior year quarter in global specialty, and change in business mix, as we grow more casualty over property. Partially offset by underlying improvement in global personal. General insurance expense ratio was 32.1% a 70 basis point improvement year over year driven by the acquisition ratio partially offset by a higher GOE ratio due to the reapportionment of expenses into the business from other operations. This will be the last quarter we talk about the pushdown of expenses into the business from our lean parent initiative. We achieved this in 2025 and have a clean baseline to compare 2026. Total catastrophe losses for the quarter were a $125 million, or 2.1 loss ratio points predominantly driven by hurricane Melissa Prior year development, net of reinsurance, and prior year premium, was a $116 million favorable. Which included a $120 million of favorable loss reserve development $31 million of ADC amortization, and $35 million prior year premiums. The favorable development almost entirely stemmed from North commercial with $94 million. Primarily driven by US financial lines, property, and Canada casualty. Overall, the general insurance calendar year combined ratio was 88.8%. A 370 basis point improvement compared to the prior year quarter. An excellent result. Now moving to the segments. 3%. The growth was driven in targeted areas, notably programs, which increased 17% Western World was up 14%. And excess casualty grew 11%. This is partially offset by retail and Lexington property which declined 1910% respectively. These lines continue to be where rate pressure remains most prevalent. Retention in North America was 89% in admitted lines. And 76% in Lexington. An excellent outcome for an excess and surplus lines business. New business grew 8% year over year. Driven by financial lines and casualty. North America commercial accident year combined ratio as adjusted was 87.2%. An increase of 260 basis points over the prior year quarter. The accident year loss ratio of 62.2% was up a 100 basis points owing to changes in business mix as we reduced certain property lines and earning more casualty and captives business, which are benefit beneficial to the overall combined ratio but carry a higher loss ratio. The expense ratio of 25% was up a 160 basis points, including a 60 basis point increase in the acquisition ratio due to change in business mix, and a 100 basis point increase in the GOE ratio owing to lean parent. North America commercial calendar year combined ratio 84.7%. An outstanding result and an improvement of 14.1 points from the prior year, driven by continued strong margins, lower catastrophe losses, and favorable prior year development. Turning to international commercial. Fourth quarter net premiums written increased 4%, This growth was led by global specialty, up 9% driven by marine, and casualty, which increased by over 15%. This was partially offset by financial lines, which was down 6% as retention remained strong, but rate pressure continues to weigh on growth. International retention remains strong at 87% which was balanced across the portfolio. New business was excellent. Up 14% year over year. Accident year combined ratio as adjusted was 85.9%, an increase of 230 basis points. The accident year loss ratio was 54.2%, a 130 basis point increase year over year. This was primarily owing to energy. Where market loss experience in 2025 was higher compared to an unusually favorable 2024. The expense ratio rose 100 basis points to 31.7% due to movement of expenses from other operations. The international commercial calendar year combined ratio was 88.8%, underscoring the strength, and consistency of the portfolio. Turning to Global Personal. Net premiums written were down 6% year over year largely driven by the high net worth quota share reinsurance treaty which was a headwind in 2025. Accidenting your combined ratio as adjusted was 95.3%, a 360 basis point improvement year over year adjusting for the divested travel business. The accident year loss ratio of 52.9% improved 60 basis points driven by the personal auto portfolio both from rate and underwriting actions within certain international markets leading to stronger underlying profitability. The expense ratio improved 300 basis points to 42.4% as the acquisition ratio benefited from improved commission terms in The US high net worth business. The global personal calendar year combined ratio was 94.3% an improvement of a 110 basis points year over year. Moving to fourth quarter pricing starting with North America. Excluding the property business, our North America renewal pricing increase was 6%. In North America casualty, the overall pricing environment remains favorable. With retail excess casualty up 15% and Lexington casualty up 12%. Both remained above loss cost trend. In US financial lines, pricing was down 2%. In line with the third quarter. We continue to believe our portfolio is strong, and we are well positioned as a market leader. In North America property, competition persisted both the admitted and ENS markets with incremental softening in mid market from the third quarter. We remain disciplined in our underwriting standards, and focus on targeted areas where we can achieve adequate risk adjusted returns. Accumulative rate increases over the past several years and disciplined approach enabled us to maintain strong profitability across our admitted and E and S businesses during this market cycle. International commercial, overall pricing was down 2%. Casualty pricing increased 2%. Global specialty pricing was down 1%, an improvement from the third quarter. Overall pricing remains above our technical view, following several years of cumulative rate increases, and we to see global specialty as an area of growth. Property pricing was down 2%, and financial lines pricing was down 4%. Our well diversified portfolio allows to navigate different market conditions, prioritizing lines of business that offer the most compelling risk adjusted returns. Moving to other operations. Fourth quarter adjusted pretax loss was a $129 million versus the prior year quarter of $150 million Looking at full year results, adjusted after-tax income was $4 billion an increase of 24% year over year. The improvement was primarily driven by stronger underwriting results an increase in net investment income, and expense benefits from American International Group, Inc. Next. For 2025, general insurance net premiums written grew 2%. General Insurance full year accident year combined ratio adjusted was 88.3%, largely in line with the prior year. The accident year loss ratio was 57.2%, a 100 basis point increase year over year or 40 basis points increase excluding travel. The increase was driven by the reapportionment of unallocated loss adjustment expenses additional margin in our casualty loss picks, favorable loss experience in the prior year quarter in Global Specialty, and business mix change as we grew more casualty over property. This was partially offset by a 120 basis point improvement in 31.1% compared to 32% for the prior year. This is an outstanding result given the absorption of nearly $300 million of corporate parent expenses in general insurance in 2025. We are pleased with our progress and believe we are on track to achieve our target expense ratio of below 30% by 2027. Total catastrophe related charges were $920 million or 3.9 points of loss ratio. Prior year reserve development, net of reinsurance and prior year premium, was $472 million, a benefit of 2.1 points to the loss ratio. The full year 2025 combined ratio was 90.1%, an outstanding result and an improvement of a 170 basis points versus 91.8% in 2024. Moving to net investment income. The fourth quarter net investment income on an APTI basis was $954 million, an increase of 9% year over year. Internal insurance net investment income was $881 million. Growing 13% year over year. During the fourth quarter, the average new money yield on our core fixed income portfolio including the fixed maturity and loan portfolio, was roughly 65 basis points higher than sales and maturities. The annualized yield was 4.59%, a 68 basis point improvement over the prior year quarter. For the full year, General Insurance net investment income reached $3.4 billion. A 12% increase over 2024. This was primarily driven by our core fixed income portfolio, contributing $3.1 billion, up 17%. This increase reflects the execution of our strategy to reposition the public fixed income portfolio globally to capitalize on higher yields while maintaining a strong overall credit quality of a plus. We recently announced a new partnership with CVC a world-class global investment manager with deep capabilities across credit, and private markets and over €200 billion of assets under management. American International Group, Inc. will be a cornerstone investor in CBC's newly established private equity secondaries evergreen platform, providing up to $1.5 billion from our existing $3 billion private equity portfolio. In addition, American International Group, Inc. will invest up to $2 billion in a separately managed credit account. Of which $1 billion will be deployed in 2026. CVC's new secondaries platform allows us to rebalance our private equity portfolio while driving operational, Turning to other operations. Net investment income of $73 million declined $20 million over the prior year quarter and largely reflects income from our parent liquidity portfolio of $60 million and Corbridge Financial dividend income of $12 million. Turning to capital management. For 2026, we intend to repurchase at least $1 billion of common shares subject to market conditions. As Peter mentioned, we are no longer subject to the 9.9% retention requirement from Nippon on our core bridge ownership. As we receive proceeds from the sell down of our remaining Corbridge position, we expect the majority will likely be deployed to additional share repurchases. We continue to execute our balanced capital management strategy. Driving long-term value through investment in organic and inorganic opportunities as well as prudent capital return to shareholders. Book value per share at December 31 was $76.44, up 9% from December 1, 2024, reflecting strong growth in net income as well as the favorable impact of lower interest rates offset by $6.8 billion of capital return to shareholders through dividends, and share repurchase. Adjusted tangible book value per share was $70.37 up 4% from December 31, 2024. In summary, we delivered an excellent 2025 with disciplined underwriting, strong earnings growth, balanced capital management, and execution of our strategic initiatives while investing for the future. We are well positioned to meet or exceed all of our Investor Day targets by 2027 or earlier With that, I will turn the call back over to Peter. Keith, thank you. Michelle, we're ready for questions. Thank you. Operator: One one. If your question has been answered and you'd like to remove yourself in the queue, press 11 again. Our first question comes from Alex Scott with Barclays. Your line is open. Alex Scott: First one I had for you is on the expense ratio. Yeah. There's obviously a bunch of moving pieces with corporate expenses coming in and some work to remove a portion of those as well as some of the AI initiatives. So I was hoping you could sort of talk us through what we can expect from the expense ratio over the next few years as as you're working through some of that? Peter Zaffino: Thanks, Alex. If I start let's start with the fourth quarter. You know, one is it's like seasonally lumpy, and it's always usually the highest. So I wouldn't you know, really anchor off of the of the fourth quarter. I'll give you at least the variables. It's it's primarily and almost entirely the parent expenses. We had the last quarter in terms of taking a portioning and assigning expenses that sat in other operations in parent into the business, which has done an exceptional job of absorbing, creating bandwidth, you know, for the additional expenses. Also, in the fourth quarter, we had some onetime you know, approximately $20 million of PCS cleanup You know, there were some things that were left over in terms of the transition, and we just, recognize those in the fourth quarter. I would take a look at the full year. I mean, if you if you look at the full year, where, again, we were allocating parent expenses you know, north of $250 million You know, going from 12.6 to 13 was de minimis. The business did an exceptional job of you know, managing, again, additional expenses. It's fully loaded. We're not gonna be talking about this in 2026. As to additional, you know, allocations or expenses. And I would expect the expense ratio to be lower on a run rate basis when you compare 26 to 25. I mean, we're all over the expenses. We made enormous progress in terms of total expenses, and you know, this organization's incredibly focused on every single one of our investor day objectives. And and the expense ratio below 30 is a top priority, and and we will get there. Alex Scott: Very helpful. Thanks. The next one I wanted to ask on is is just at a high level, the general insurance net premium written growth that you mentioned. You know, sounded pretty strong relative to what I was thinking. So I'd be interested, you know, what what portion of that is from the deals that you've announced as opposed to the organic growth? And the organic growth, where are some of the places you're you're getting that? And do we need to consider you know, sorta new business penalty or mix shift or anything like that as we're thinking through our loss ratio trajectory? Peter Zaffino: Can I say nice try on asking for further guidance? No. I can't break out you know, look. We I wanna just make sure that we gave you a line of sight as to what we're seeing as of today. In terms of the growth. It comes from a variety of different places. I mean, we have absolutely, initiatives in place where we think that we can drive growth in the core business. You know, the reinsurance at one one was very beneficial for American International Group, Inc., and it was not dropping coverage, as I said in my prepared remarks. I mean, when I look at the return period attachment points on cap are lower, Exhaust is the same. We're not changing our, you know, risk tolerance. We kept the casualty the same. So it is really just on sort of same store sales getting, you know, the benefit of that. I don't know if we outlined it enough in terms of the convex, you know, sort of whole account quota share. And and the benefit of, you know, assuming that business you know, Amwins, you know, this was for the SPV, it was the first you know, one where we did third party risk. And so, you know, we are taking some of that on our balance sheet, and then the remaining is going into the SPV. So we'll see some organic growth from there. And you know, I I don't know how much I wanna go into this just because I wanna be able to take some other questions. But, you know, the high net worth was always supposed to be you know, I'd mentioned this well over a year ago that we were going to do a whole account quota share to bring in partners. We brought in five. And we would determine in a year or so if we wanted to reduce that. And so we did reduce it to three, and the three partners that we have you know, could be likely insurance company paper options down the road for the MGA. So there's will be less session you know, throughout you know, 2026. So I I think all of those are contributing in a way that is positive to growth and, you know, not one in particular is driving the outcome. Alex Scott: Very helpful. Thank you. Operator: Thank you. Our next question comes from Meyer Shields with KBW. Your line is open. Meyer Shields: Great. Thanks so much. Keith, in your comments, you mentioned additional margin in casualty lines. I was hoping you could add a little detail to that. Keith Walsh: Thanks, Meyer. Yes. We we did talk about that. You know, I wanted to just maybe level set a bit. One of the things we have talked about is you know, we've been very conservative, I think, on our casualty and probably ahead of the curve over the last several years. We talked about this at Investor Day. We raised our loss cost trend assumptions back in 2019 to double digits in this line. And so and by 2022, all excess casualty segments were at 10% or greater on our loss crush trend. But more recently, we're being we're being conservative in our accident year picks, putting extra margin in for our longer tail lines. It really, you know, puts us in a position where we view our reserves as a position of strength and we've put that additional margin in our casualty loss picks. And it's real largely related to macro macro uncertainties, and it's not related to any deterioration in our underlying portfolio. And while it's not specific to any risk, it's it's intended to cover uncertainties for things like social inflation and rising litigation costs. And so we feel really good about our positioning there. Wanted to highlight that. Meyer Shields: Okay. That's helpful. Also, within GI, there's a decent sequential step up in interest and dividends, and I was hoping you could break it down. Is there anything unusual in there? Is that like a good starting run rate? Keith Walsh: No. Thanks, Meyer. There's there's a lot going on in the investment portfolio, and the team really has done an exceptional job this year, in in really transforming Just to give you a little bit of you know, journey that we've been on, we we've gone from a largely in house asset manager when we owned Corbridge to largely outsourced at this point with key partners. And, you know, at this point, just to give you a stat, you know, CoreBridge of our $80 billion portfolio only manages, less than $3 billion at this point. And so we've really made that change. One of the things the team did this year is that we had many parts of the world we had much lower yields on the portfolio. We did actively turned over about 40% of the portfolio. And just to put that in in perspective, and and reinvest it in higher yields, of course, Just to put that in perspective, a normal turnover for us would be about 15% of the portfolio a year. That's an active 25% we turned over to reinvest at higher yields. Additionally, as you can imagine, we've been actively working with our private equity partners We've sold down our real estate portfolio, and and pushed the proceeds to one of our partners. And with the CVC deal we just announced, we're really cleaning up on the the PE secondaries where we just weren't earning an adequate return. On what on where we were, and we think we're better positioned there. So it's a combination of many things, but the piece you're talking about is really the reinvestment into higher yields around the world. Meyer Shields: Fantastic. Thank you so much. Next question. Operator: Thank you. Our next question comes from Bob Huang with Morgan Stanley. Your line is open. Bob Huang: Hi. Good morning. Just want just maybe dig a little bit deeper onto the the AI commentary, maybe starting with when you talked about 2026 being the implementation for orchestration layer on AI agents. Not not sure if you have an answer for this, but if we think about the infrastructure software side of things, would this be an orchestration that sits on top of all the technology for American International Group, Inc. and then thus manage that way, or is the orchestration layer just for localized AI systems? And then it essentially would manage localized AI initiatives. Like, is there a way to think about that? Peter Zaffino: So thanks for the question. I think what we were referencing you know, we have made incredible progress in terms of the implementation of Gen AI and also trying to stay aligned with the advancements of the tech companies that are making you can see it in this quarter, just massive CapEx but also making material progress on their their capabilities. So, like, when we talked out at Investor Day, didn't really even talk much about orchestration. And we thought that what we had outlined in March was aspirational and, you know, six to twelve months later, we see the capabilities are much greater. And so not only are we making massive advancements with data ingestion, shrinking digital workflow, but also in the large language models and the advancements, you know, I'll use Anthropic as an example. We start off with claude2.o, and know, we're now at four six. And so, like, know, a lot of those advancements. What I was referencing on the orchestration is just that the implementation of single agents throughout organizations is real. And there's great opportunities in functions, in mid office, in front office, but orchestrating that in an orderly way of being able to get that at scale is what we're gonna focus on in 2026. And so we've been experimenting with multiple agents on the underwriting side. Then the functional side. I'd also add into, like, you know, our back office You know, we outsource to Accenture. I'll give you an example there. And they're doing an incredible, you know, job in terms of reinventing themselves in their ability to, you know, create agent large language models. We share in the savings. We share in the design of the orchestration and how it actually comes into our workflow. So I would expect to be giving you updates throughout the year. Terms of the progress that we're making, and making sure that it's not only you know, it will be on the technology stack, but I'm talking more about orchestrating a significant amount of agents within the organization that are more organized. Bob Huang: Got it. So it sounds like a lot of opportunities on integration and AI side of things. Absolutely. But maybe just a follow-up on on that. You've been on this technology and AI journey for some time now. Given the progress you've made thus far, what are the low hanging fruits that you think that are you're readily that you're ready to take advantage of and then that can maybe show up in the numbers. What are more of the complicated projects that you're excited about that perhaps is more further out five years down the road? Peter Zaffino: Yeah. Thanks, Bob. I mean, the first one is absolutely to reduce cycle time with a higher quality data to the underwriter. I mean, we're seeing, like, a you know, massive shift in our ability to process a significant submission flow way beyond our expectations without additional human capital resources. So that's been the biggest surprise. There's some training that's gonna be required for us in terms of know, what does the underwriter you know, look at if it has all of this rich information in a fraction of the time. So that's a part of, you know, our training, and we've been doing that in in '25, and we'll accelerate in '26. I I wanna repeat the answer that I you know, just you know, gave you, but I think the the real long-term opportunity is going to be you know, getting the orchestration of agents in in an organization, to be able to scale and, you know, be able to analyze that information that's not biased in a way that's through the entire workflow. So I think of, like, you you think of a digital workflow from front to mid to back, you can shrink all of that with the implementation of GenAI and multiple agents with a proper orchestration. And there's a lot of companies that actually have orchestration capabilities. It's just a matter of doing it within your own sort of framework, and making sure that you're working with the regulators and being, you know, very you know, forward-thinking in the partnership there. But I think the acceleration and the opportunity is greater than I thought at Investor Day. Bob Huang: Got it. Really appreciate that. Thank you. Operator: Thank you. Our next comes from Elyse Greenspan with Wells Fargo. Your line is open. Elyse Greenspan: Hi, thanks. Good morning. My first question is on the expense ratio. Do you guys, you know, thirty one one for for 25. You know, you guys reaffirmed the thirty percent twenty twenty seven target. Should we think of that as the improvement split between the next two years? Or is there anything, I guess, you would highlight with the expense ratio we think about getting you know, from where you guys are to your your target. Peter Zaffino: No. I think, Elyse, I I think I outlined, you know, that really, the expense ratio was a direct correlation to the parent expenses being taken from other operations and putting into the business. And, again, I have to say the business did an exceptional job We will not have that, headwind in in 2026. I think from the expense discipline I think this company deserves a lot of credit for its ability to execute transformations, whether it was 200 or what we did in the underwriting or what we did with American International Group, Inc. next. This is in the DNA of the company. We will get the expenses out. We'll also get leverage from, you know, very strong premium growth. So I I I think that there's I don't wanna revise guidance, but we are not nervous about getting to this in '27, and we expect to see meaningful improvement in in 2026. And and it'll be much more predictable. Elyse Greenspan: Thanks. And then my second question is just on the the capital color. Keith, I think you said a minimum of $1 billion. I just wanna make sure I'm understanding. So that's the the baseline. And then if the Corbridge stake is monetized, that would come on top of the $1 billion in 2026? Keith Walsh: Hey, Elyse. Yes. That is correct. So we said at least a billion is our baseline. And then any core bridge proceeds the vast majority of that will be deployed into additional share repurchase. Elyse Greenspan: Thank you. Operator: Thank you. Our next question comes from Paul Newsome with Piper Sandler. Your line is open. Paul Newsome: I was hoping Peter, to maybe, ask a big picture question as we get closer to end of the call. About your experience in the soft market and, you know, what you think generally how things will evolve You can tie it to what you think what's gonna happen with revenues and in the next year or just in general if you think that this extension this is an extended top market or something that could be short. Peter Zaffino: Thanks, Paul. I'm gonna ask Jon. I can't have Jon fly all the way from London and not answer a question, and he has more experience on the underwriting side than I do. But I I the one big material item is you have to prepare for this well in advance. I mean, so in in terms of how you're shaping a portfolio, if you wanna be opportunistic I think we've been incredibly thorough throughout the globe in terms of looking at and being very consistent on underwriting standards we always talk about getting the best risk-adjusted returns. We look at volatility. We look at loss cost. We look at margin on loss cost. And we look at our ability, you know, to scale And, also, a very real and, you know, honest with humility discussion around our relevance on those products in the marketplace. And I think we have leadership on so many of the products. And, also, you know, not always looking at just the index. In other words, like, you know, we've seen property you know, come off with rates. We wanna be very careful. We're not looking to grow it. The property had its best year on an accident year basis, on a calendar year basis, from a combined ratio, across American International Group, Inc. I mean so, like, we wanna make sure we're not overreacting but being very conservative in terms of how we're actually you know, deploying capital. So I don't think the entire market's in a soft market. I mean, property always gets the headline where the, you know, minus tens and E and S might be slowing down. But I'm like, E and S again, I like to look at submission count retentions and our submission counts, you know, and parts of Lexington are up 30%. That's a positive, and then you wanna make sure that you're positioned in a dislocation I think when I look at, like, Lexington, global specialty, next time there's a market turn, you know, we are gonna be able to grow substantially. Jon, maybe you could talk a little about cycle management. Jon Hancock: Yeah. Thanks, Peter. And I and I agree with you. I know we all talk about the market. I don't I don't think you know, for twenty, thirty years, there's been such a thing as the market. There's multiple markets, multiple cycles going on at any one time. And it's not the entire market that's dipping now. And this is all about being ready for it, isn't it? We we have had in some places when sales and people are talking about the hard market for the last years, not everywhere it's been hard in rates. So we've been planning for for this for a long time. We've changed some of our processes, robustness over our reserve reviews, our our loss picks, our inflation planning, our margin planning is has been strong anywhere. We've improved hugely in readiness for for for this. We monitor micro segments. We monitor new versus new. We monitor different, geographies. And we really do know firstly, where the big growth opportunities are and also where the highest margin opportunities are. But we're also very, very clinical on where our risk-adjusted returns are and what we will and won't write. So and we we talk a lot on these calls and and then and then other forum. We we have this diverse portfolio across the whole globe. And there is no single market going. There are rate pressures. Of course, Rob. We're not in denial about that. It's not everywhere. It's not at the same time. Different products, different geographies or at different stages of of the cycle. So we react to that, and we we go looking for where the best opportunities are that that suit us. And I'll just finish then. And I think it's important to know you know, that the risk of sounding arrogant. We are really well positioned to manage this. And we are not an index for the market. If if I saw our rate, our risk-adjusted returns exactly the same as the market. Yep. I'd be very disappointed actually because we we try and do things differently and use our capacity and our capability together. Peter Zaffino: That's great, Jon. And I think also, Paul, I'd just add one other thing is that you set the entire company up for these markets, just not the underwriting portfolio. What's your leverage? What's your cash flow? Know? What do you have for liquidity? How strong is the balance sheet? How strong have your loss picks been? How confident you're on the accident year loss ratios, when you're looking to improve combined like we are, we're taking it out of the expense because of efficiencies. And how much have you been investing for the future as the world changed at a rapid pace where I think we've been a leader in Gen AI? So I think that we do a kind of, like, look at it really broadly and then making sure that, you know, the underwriting are really focused on, you know, delivering those returns. Paul Newsome: Okay. Want Paul, you want a last follow-up? Paul Newsome: Was just gonna ask you about M and A. You you you may send in your comments that the recent deals have been or you're doing hopefully better than buybacks. Is that kind of the baseline if you think prospectively for any Peter Zaffino: Not always. I mean, but I think it's a you know? Wanna be able to tell you, you know, how do we think about it in terms of earnings, EPS, ROE, and how is it you know, compared to share repurchase for sure. I I don't I don't wanna say always or never, but in today's environment, that's why Keith gave the guidance he gave is we think the best use of the proceeds from Corbridge today is in share repurchases that we've done some compelling investments that are gonna help propel American International Group, Inc. over the next two years. And then as we get to the back half of twenty six, we'll look in terms of, you know, what those trade offs are in the future. Paul Newsome: Appreciate it. Thank you very much. Peter Zaffino: Okay. Thanks, everybody. We really appreciate you participating today, and everybody have a great day. Operator: Thank you for your participation. You may now disconnect. Good day.