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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.
Operator: Hello, everybody, and welcome to the SharkNinja's Fourth Quarter 2025 and FY 2025 Earnings Call. My name is Elliot, and I will be coordinating your call today. If you would like to register a question during today's event, I would now like to hand over to James Lamb, Senior Vice President of Investor Relations and Treasury. Please go ahead. Good morning, and welcome to SharkNinja's Fourth Quarter 2025 Earnings Conference Call. James Lamb: Earlier today, we issued our Q4 earnings release, which is available on the company's website at ir.sharkninja.com. A replay of today's webcast will also be available on the site shortly after the call. Let me remind you that today's discussion will include forward-looking statements based on our current perspective of the business environment. These statements involve risks and uncertainties, and actual results may differ materially. For more details, please refer to our earnings release and the company's most recent SEC filings, which outline factors that could impact these statements. The company assumes no obligation to update or revise forward-looking statements in the future. Additionally, during the call, we will reference non-GAAP financial measures, which we believe provide valuable insight into the underlying growth trends of our business. You can find a full reconciliation of these measures to their most directly comparable GAAP measures in the earnings release. Joining me today are our Chief Executive Officer, Mark Barrocas, and Chief Financial Officer, Adam Quigley. Mark will start by providing a business update, followed by Adam, who will review our Q4 and full year 2025 financial results and share our outlook for 2026. Mark will then offer some closing remarks before we open the call up to questions. During the Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to Mark. Mark Barrocas: Thank you, James. Good morning, everyone, and thank you for joining us today. 2025 concluded on a high note for SharkNinja. It was an outstanding holiday season driven by broad-based strength across product categories, geographies, and channels. Our remarkable fourth quarter and full year performance reflect many factors, but the simplest are the most crucial. Consumers want Shark and Ninja products, and they are discovering them in more places than ever before. We believe we are meeting consumers where they are by delivering accessible innovation and exceptional value. We are incredibly proud of what SharkNinja accomplished this year. Record financial results, swift and decisive execution, and an ever-growing array of groundbreaking products that consumers love. Our most important objective this year and every year is building trust with consumers. We win when consumers around the world get excited to buy our products and feel delighted when using them. To this day, nothing makes me happier than reading a five-star review online, and nothing gets me more motivated than feedback telling us where we can improve. Obsession with the consumer is in our DNA. It powers everything we do. We believe that when we successfully captivate consumers, we earn permission to expand further into their lives. With a never-ending spectrum of consumer problems to solve, we feel the opportunity ahead of us is enormous. Our Q4 results were excellent across the board, with net sales increasing nearly 18% year over year, the fastest growth rate of 2025. Domestic growth accelerated to almost 16%, complemented by international growth of over 21%. Adjusted gross margin expanded by nearly 40 basis points, and adjusted EBITDA increased 36% year over year. This performance reflects our third consecutive quarter of leverage in adjusted operating expenses as a percentage of net sales, a pattern we believe demonstrates the scalability of our model. Importantly, this performance came against a challenging macro backdrop. While our markets remained under pressure throughout 2025, on top of declines in both 2024 and 2023, we continue to rapidly gain share. According to Surcana, the total US market that we participate in declined in the low single digits year over year for the full year 2025, excluding SharkNinja's performance. Q4 was even more challenging for the industry, with mid-single-digit declines year over year, again excluding SharkNinja. The magnitude of our outperformance is noteworthy, with market share gains across each of our four category groupings in 2025: cleaning, cooking and beverage, food preparation, and beauty and home environment. Despite macro headwinds, SharkNinja delivered its eleventh consecutive quarter of double-digit top-line growth. And we did it while staying true to our core strategy, continuing to invest to drive innovation and maintaining our marketing momentum. We kept executing the same tried and true playbook even with every challenge presented in 2025. In the face of uncertainty, our goal is consistent execution and durable performance, not just for one quarter, but for every quarter. We are confident in our ability to operate in tough consumer environments, and diversification is a central reason why. Diversification is the foundational driver of success across our business. The most obvious benefit is revenue growth. We have more products, more channels, and more geographies, giving us multiple paths to expand. I'll return to this when I discuss our three-pillar growth strategy, but first, let's look at the several ways diversification differentiates SharkNinja, starting with the consumer. Consumer diversification allows us to reach a broader demographic than ever before. Years ago, our core customer was typically a 35 to 55-year-old woman. Today, we have high school students asking for 60-year-old men sharing product reviews on social media, and everything in between. As we enter new categories, especially in beauty and outdoor, we expect this reach to expand further. Most importantly, a more diverse consumer base generates deeper insights that fuel our disruptive innovation engine. Supply chain diversification is another major differentiator. Our work here began more than five years ago, driven by significant investment in people, infrastructure, and time. Today, we have the ability to manufacture nearly 100% of our US volume outside of China. We think our multi-country sourcing footprint across Southeast Asia gives us a meaningful advantage in supply predictability, cost efficiency, and risk management. With this supply chain transformation largely complete, 2026 represents our first full year of optimization, unlocking even greater potential benefits ahead. Marketing diversification continues to expand our reach and engagement. From Tom Brady spots during major football events on connected platforms to our engineers engaging directly with consumers on forums like Reddit, SharkNinja's marketing ecosystem is both expansive and distinctive. Our social-first ecosystem has been deliberately built to foster affinity and loyalty amongst consumers. One analyst recently highlighted our social media momentum. SharkNinja reached 3.9 million followers across Instagram and TikTok in 2025, reflecting a 119% year-on-year growth, far outpacing peers, who averaged just 8% growth on these platforms on a much smaller base of followers. Reaching consumers broadly requires an equally diverse go-to-market strategy. In 2025, we deepened partnerships with key retailers, gaining increased flexibility in pricing and promotions. At the same time, we significantly enhanced our direct-to-consumer capabilities. Our newly redesigned sharkninja.com is already delivering strong early results, with higher engagement, improved conversion, and increased average order value. Finally, investment diversification, particularly in technology, is strengthening our foundation for long-term growth. In 2025, we completed the final stages of our global Oracle implementation. We launched Salesforce in the US and Canada to power our new DTC platform. We rolled out advanced ROI dashboards for social media spending. We also leaned in materially with artificial intelligence, from product innovation to consumer experience. Our goal is to embed a greater level of AI capabilities in all of our products going forward, some of which will debut as early as 2026 in categories like coffee, air purification, and robotics. We're on track to hire 100 new software engineers to help drive this AI ambition. From more intelligent user interfaces to greater automation, to app-based companion features, we believe consumer experience is another rich area of AI-powered potential. As an example, we moved from sampling under 5% of contact center calls to AI scoring nearly 100% of interactions for quality, empathy, and listening. Additionally, we feel the massive amount of consumer insight data that SharkNinja processes can benefit from AI applications. Our objective is faster, more precise product innovation to improve messaging and content to resonate in a stronger way with consumers. This is the SharkNinja flywheel: consumer insights, a resilient global supply chain, always-on marketing, and omnichannel distribution. We believe it's a competitive advantage that is exceedingly difficult to replicate at our scale. The diversification shows up very clearly in our financial results: sustained double-digit growth, expanding margins, and strong free cash flow. I'd like to spotlight our balance sheet, where years of compounding success have put us in a net cash position as we exit 2025, an achievement that opens meaningful new options for SharkNinja. Today, the leadership team and I are thrilled to announce that our board of directors has authorized an inaugural $750 million share repurchase program. We're excited about the potential that our record levels of cash and equivalents and our anticipated future cash flow could have to drive shareholder value for years. We intend to utilize this authorization to repurchase shares opportunistically while also planning to offset the natural dilution from stock-based compensation. We believe this is a significant milestone for SharkNinja and a testament to our operational discipline and cash management execution. With that, let me turn to our three-pillar growth strategy, beginning with our first pillar, expansion into new and adjacent categories. In 2025, we met our goal of entering two additional subcategories, finishing the year at 38 with the addition of propane grill and outdoor fire pit. We plan to add two more categories to our portfolio in 2026 with significant excitement around both launches. Category expansion is one of our most foundational differentiators. It grows our addressable market and reshapes how consumers perceive the Shark and Ninja brand. A standout example is Shark Beauty, which we feel is rapidly emerging as a leader in beauty technology. We view this opportunity as a massive global white space. In 2025, we established Shark Beauty as a disruptive innovator in skincare with the global launch of Shark TrioGlow. The recent debut of Shark Facial ProGlob with Depuffy, a revolutionary at-home hydro-powered facial device with contrast therapy. These products were runaway holiday successes, complementing our strong hair care performance and helping to cement Shark Beauty as the number one skincare facial device brand in the US. We see clear runway ahead not only in hair and skin but across the broader health and wellness ecosystem. The Ninja Fireside 360, our combo smokeless fire pit and propane-powered outdoor space heater, exemplifies how new categories bring new consumers into our brands. For many buyers, this innovative product was their first Ninja purchase, opening the door to a lifetime relationship with SharkNinja. It also demonstrates how we build new technical competencies. By investing in propane expertise, we successfully paved the way to launch the Ninja FlexFlame and Ninja Fireside 360, creating a foundation for future innovation. This model of engaging experts, learning deeply, and innovating boldly is core to SharkNinja. It underpins our expansion across heated cooking, frozen treats, food prep, and beyond. We believe our 2026 pipeline also reflects years of capability building, and we're exceptionally excited about what lies ahead. Our second growth pillar is growing share in existing categories. Maintaining leadership in large, mature categories requires relentless innovation, execution, and focus. Two standout examples from 2025 are the Ninja Christie and the Ninja Lux Cafe. Ninja Crispy represents the next generation of air frying, promoting healthier cooking with the benefits of glass. Our larger format, Christie Pro, delivered a strong holiday performance, setting the stage for broader global expansion in 2026. Ninja Lux Cafe is one of the most exciting success stories. By reimagining the at-home espresso experience, we've created the best-selling espresso SKU in the United States in under one year. In 2026, we will extend this platform with two major renovations, positioning Lux Cafe as a powerful growth engine across a wider spectrum of consumers. Our Shark cleaning franchise also delivered outstanding results with continued market share gains across corded and cordless vacuums. In 2026, we plan to introduce breakthrough innovations across several legacy categories, including corded uprights and traditional blending, reinforcing our leadership positions. Our third pillar, international expansion, delivered another year of strong performance. The most important takeaway is that our model can scale globally. We believe the most critical parts of our strategy are applicable worldwide, not just to a few countries. Driving widespread consumer demand with five-star reviews, expanding retail partnerships, and producing viral local language markets are all key elements to our international playbook. These attributes can be scaled even more as we evolve from a distributor-led to a direct model in more countries. In Q4, we successfully transitioned to direct operating businesses in the Nordics, Poland, and Benelux while preparing to convert Italy and Spain in 2026. To serve fragmented customers and a direct relationship with larger retailers, we're upgrading our DTC platforms across major international markets. In each case, we've established a hybrid model, distributor partners creating a powerful growth combination. The UK delivered another strong quarter with over 9% year-over-year growth, while EMEA saw robust results across multiple geographies and channels. Our Latin America business also performed exceptionally well. In Mexico, we believe triple-digit growth underscores the strength of our momentum and exciting opportunities ahead. The success that we're seeing across Latin America is fueling consumer interest for our products in places we don't currently sell, like Ecuador and Peru. In 2026, we're focusing more attention on expanding our reach by ramping a new partnership with the dominant e-commerce player in the region. Stepping back, diversification remains the central theme. While it introduces complexity, it is powered by constants: experience leadership, an innovation-driven culture, unwavering consumer focus, and disciplined execution. This approach has enabled us to build two multibillion-dollar brands, and we believe we're only at the beginning. This momentum carries directly into our outlook for 2026 with yet another year of double-digit growth reflected in our net sales guidance. We also remain committed to expanding profitability on the adjusted EBITDA line with an even faster rate of expected growth versus the top line. As our track record demonstrates, SharkNinja is focused on delivering consistent quarter-after-quarter performance. With that, I'll turn it over to Adam, who will walk you through our financial results and share our outlook for 2026. Adam Quigley: Thank you, Mark, and good morning, everyone. I'm excited to review our results for the fourth quarter and full year 2025. Starting with a summary of 2025, SharkNinja achieved $6.4 billion in net sales, up nearly 16% year over year. Our domestic net sales grew 13.5%, and international net sales increased 20%. Adjusted EBITDA increased more than 19% year over year to $1.14 billion for the full year, with adjusted EBITDA margin expanding approximately 50 basis points. Finally, adjusted earnings per share reached a new record for Shark at $5.28, up nearly 21% year over year. A moment ago, Mark highlighted the consistency SharkNinja strives to achieve in our results. We think our sales growth this year is a powerful proof point of this model in action. On a rounded basis, our year-over-year total net sales increased 15%, 16%, and 18% through April 2025. Now let's dive into more detail about our performance in Q4 specifically, starting with sales. Net sales in the fourth quarter increased 17.6% year over year to $2.1 billion. By geography, domestic net sales increased 15.7% to just over $1.37 billion. International net sales were $729 million, up 21.4%. Our UK business grew nicely in Q4, with net sales up 9.2% year over year to $326 million. For the full year, our UK business grew 7.3% year over year. Even while air fryers, our single largest category in the UK, declined throughout 2025, the rest of our portfolio of categories more than offset the headwind, a testament to the power of our diversification. Our global category performance further reinforces how SharkNinja can win through diversification. Our overall air fryer sales increased in 2025 despite the tough comparables in the UK. Across the rest of our international business, we experienced a robust holiday selling season with high retailer enthusiasm to partner with SharkNinja. The EMEA region performed well with strength across multiple countries. Latin America continues to grow rapidly, led by Mexico. Overall, we expected our international net sales growth to accelerate exiting 2025, and we accomplished just that. Year over year, net sales grew 23.2% in the second half of 2025, compared with 17.3% in the first half. We see enormous future growth opportunity within the international segment for 2026 and the years to come. Turning to performance by category, net sales in the cleaning category increased 3.4% year over year to $670 million. Carpet extraction was a particular standout, partially driven by disruptive innovations like the Shark Stain Force cordless spot and stain cleaner. Net sales in the cooking and beverage category increased 11.7% year over year to $667 million. As we've seen in prior quarters, the 28.1% year over year to $438 million. Our frozen treats business saw further global momentum in the quarter to help propel this category. As we progress throughout 2026, we are excited to introduce new innovations in frozen treats and beyond. Finally, our beauty and home environment category increased 3.2% year over year to $326 million, our highest growth rate of the year. Importantly, this strength came from multiple subcategories, including fans, air purifiers, and our portfolio of Shark Beauty tech products. Now let's move to the gross profit, where our results in the quarter exceeded our internal expectations driven by two primary factors. First, our international gross margins expanded nicely based on a number of elements, including cost optimization and channel mix. Secondly, our overall sales mix was more favorable than anticipated, driving margin upside. We did start to see the increased impact of tariffs on our domestic gross margin in Q4, partially offset by this mix benefit on top of the robust and evolving set of mitigation strategies that we have spoken about previously. Adjusted gross margins in the fourth quarter increased nearly 40 basis points year over year to 48.2% of net sales, and GAAP gross margins increased roughly 90 basis points to 47.9% of net sales. Similar to last quarter, the difference between our adjusted and GAAP gross profit results is negligible and should diminish further as 2026 progresses. For the full year, our adjusted gross margins improved approximately 30 basis points year over year to 49.4% of net sales. This outcome exemplifies SharkNinja's core competency on gross margin and our diversified approach to driving upside even in a challenging environment. Moving down the P&L, our adjusted operating expenses this quarter totaled $645 million or 30.7% of net sales. This compares to 33.5% of net sales in the year-ago quarter or nearly 280 basis points of favorability year over year. We have now produced adjusted operating expense leverage for three consecutive quarters, a clear demonstration of our continued cost discipline balanced with considerable reinvestment in the business to fuel growth. Research and development expenses increased 13.1% year over year to $98 million compared to $87 million in the prior year period, leveraging 20 basis points year over year. We believe investing behind R&D resources such as personnel and prototypes remains critical to power our innovation engine. Sales and marketing expenses increased 8% year over year to $459 million compared to $425 million in the prior year period, leveraging almost 200 basis points year over year. Our performance this quarter is a great example of the balance I mentioned a moment ago between cost control and investment for growth. Relative to last year, we have internally developed more sophisticated social media optimization tools. These help us more efficiently spend advertising dollars in social channels to drive strong ROI. At the same time, we've added meaningful global talent to our Shark Engine team, content creators in cities across the world. We believe our sales and marketing capabilities provide a key competitive differentiator for SharkNinja, one that we will work to enhance globally into the future. General and administrative expenses decreased 13% year over year to $107 million compared to $123 million in the prior year period, leveraging about 180 basis points year over year. The bulk of the decrease this quarter relates to lower expenses on personnel, including stock-based compensation favorability year over year. At SharkNinja, our ultimate goal is profitability growth in excess of net sales growth, with adjusted EBITDA as our key metric. We emphatically succeeded on this dimension in Q4, with adjusted EBITDA growing 36% year over year to $395 million, roughly double the rate of top-line growth. This represents an 18.8% adjusted EBITDA margin, up approximately 250 basis points compared to the prior year period. For the full year 2025, our adjusted EBITDA margin reached 17.7% of net sales, up roughly 50 basis points year over year. As we enter 2026, we will continue to utilize our diversified set of gross margin levers and operating expense discipline to keep laser-focused on adjusted EBITDA margin improvement potential. To wrap up the income statement, our GAAP effective tax rate in Q4 was 22.6%, while our non-GAAP effective tax rate was 21.9%. Adjusted net income for the period was $275 million or $1.93 per diluted share compared to $198 million or $1.40 per diluted share in the year-ago period. Our adjusted earnings per share in Q4 grew 38% year over year, while GAAP earnings per share nearly doubled from $0.91 per diluted share to $1.80 per diluted share. Turning to the balance sheet and cash flow, total inventories were $1 billion exiting the quarter, up 11.4% year over year. With all the tariff prebuilt stock now sold through, our inventory levels exiting the year reflect a healthy position to support our future growth plans. Our strong fourth-quarter results across net sales and profitability delivered record cash flow performance for SharkNinja. In 2025, we achieved $634 million of cash from operating activities and ended the year with over $777 million of cash and cash equivalents, up more than 100% year over year. Total debt outstanding at the quarter-end was $739 million, and we continue to have nearly $490 million of capacity available to us on our $500 million revolving credit facility. We feel this level of cash generation and balance sheet strength gives us the durable financial foundation to invest in growth, thoughtfully deploy capital, and maintain optionality as the environment evolves. As Mark touched on, we have deliberately strengthened SharkNinja's profile through years of disciplined execution. We have long viewed our balance sheet as a key advantage relative to peers. In 2024 and 2025, we prioritized flexibility around elements like inventory and working capital. In 2026 and beyond, we feel we are in a prime position to remain nimble while also prioritizing capital allocation in a more meaningful way. This is why we are so excited about the $750 million share repurchase authorization. We view it as another means by which we can drive long-term value for our shareholders. Mark Barrocas: Let's move to our outlook. We entered the year excited about the multiple growth opportunities ahead and cognizant of the tariff-related headwinds that are now fully manifesting in the P&L. Consistent with prior quarters, our initial 2026 outlook assumes current tariff levels persist, including minimum rates of 20% for China, 20% for Vietnam, and 19% for Indonesia, Thailand, Malaysia, and Cambodia. For the full year 2026, we expect our net sales to increase between 10-11%, adjusted net income per diluted share to be in the range of $5.90 to $6.00, an increase of 12% to 14% year over year. Adjusted EBITDA to be in the range of $1.27 billion to $1.28 billion, representing growth of 12% to 13% year over year. Net interest expense to be flat relative to 2025, our GAAP effective tax rate to be approximately 22% to 23%, and capital expenditures to be between $190 million to $210 million for the year. Adam Quigley: To close, performance in Q4 capped off a truly remarkable year for SharkNinja. In the face of extraordinary challenges, we relentlessly drove value for our consumers, retail partners, employees, and shareholders. 2025 will likely be remembered as an exceptional and unique period, but in many ways, it has been business as usual for SharkNinja. We remain squarely focused on delivering our goals, quarter after quarter, year after year. With that, I will now turn it back to Mark. Mark Barrocas: Thanks, Adam. During our Q1 conference call back in May, I reflected on some of the major macroeconomic challenges during my seventeen-year tenure: the great financial crisis, the COVID-19 pandemic, component shortages, and now the tariff-related upheaval of 2025. Our tremendous results this year reinforce our perspective that these are not roadblocks. They're opportunities. We believe SharkNinja has emerged from this period stronger, smarter, more agile, and unwaveringly committed to winning. All powered by our diversification strategy across the business. This is why I'm so excited for 2026 as a fresh chapter in SharkNinja's evolution as a company. On the business side, we're now a direct operator in more markets than ever before. There is a huge opportunity ahead to scale our international business, supported by the success in Mexico and early indications in EMEA. We also entered the year with a meaningfully stronger omnichannel presence, more placements at retailers, and momentum with many of our largest partners. This was complemented by our revamped direct-to-consumer presence rolling out across the globe in early 2026. On the financial side, we've achieved our goal of becoming a domestic filer. This is an exciting milestone for SharkNinja and the final step needed to earn consideration for broader index inclusion. Keep an eye out for our annual report on Form 10-K in the next few weeks and our proxy later in the spring. Across all facets of our business, we believe SharkNinja is set up incredibly well for success for years to come. I'm often asked by investors how and why we continue our pattern of strong net sales growth and profitability improvements going forward. We think the answer is simple. We focus on two foundational cornerstones: disruptive consumer-focused product innovation and viral marketing capabilities that create consumer demand. We feel the combination of these driving forces is powerful and differentiated, especially when considering how much white space we see. New categories to pursue, existing categories where we can go deeper, and new countries to enter. With so much opportunity ahead, we think our culture is a key enabler of success as long as we stay grounded in what matters the most. Positively impacting people's lives every day in every home around the world, and the existential need to be the very best. These mantras permeate everything we do: our focus on the consumer, our multilayered flywheel, our growth pillars, our ability to execute, and our guiding principles. To the over 4,000 team members committed to the outrageous and extraordinary mindset, I thank you for a truly incredible 2025. We feel like we're still at the beginning of an exciting journey and a bright future for SharkNinja. Operator: Thank you. We will now kick off the Q&A. This concludes our prepared remarks, and I'll now turn it over to the operator to begin the Q&A session. Operator? Operator: To ask a question, please ensure your device is unmuted locally. And today, we ask you to limit yourself to one question and one follow-up. The first question comes from Brooke Roach with Goldman Sachs. Your line is open. Please go ahead. Brooke Roach: Good morning, and thank you for taking our question. Mark, given the momentum in the business, I was hoping you could outline what you believe is an appropriate medium-term growth algorithm for your US business. What does that mean for US growth in 2026? And what contribution do you expect from units versus price? Mark Barrocas: Brooke, I'm sorry. At the end, what contribution do you expect from units versus price? Brooke Roach: Correct. Yes. Thank you, Mark. Mark Barrocas: Yeah. So, Brooke, look, we came out of Q4 and delivered great growth in the US. Our D2C business is growing nicely. Our retailer partners gave us tremendous support in the holiday season, and they're continuing to do that into 2026. New channels are emerging, like TikTok shop, as we talked about. So, we think the US business is a double-digit growth business. We delivered that in '25, and we expect to continue that momentum into '26. Operator: We now turn to Steven Forbes with Guggenheim. Your line is open. Please go ahead. Steven Forbes: Morning, Mark, Adam. I'm trying to get through this. We're having a little trouble hearing you guys on the call here, but my question really is about the international segment growth. So you mentioned triple-digit growth in Mexico. A lot of excitement around LatAm, but you also commented on the recent transitions to a direct model in a variety of countries. As we think about the first quarter in particular, given that we're cycling the disruption from Mexico last year, any way to help us just think through how you guys are planning for the international segment growth profile to evolve as we work through 2026? Adam Quigley: Yes, that is much better. So we'll try this. I think I got most of your questions, Steve. This is Adam. So as we look at the international growth profile, we do continue to see international growing at a faster rate than the domestic business. We're seeing incredible momentum out of the LatAm business, specifically in Mexico, continuing to accelerate as we entered and exited the second half of this year. We do expect that to continue into 2026. And we've really laid some really great framework and foundations in that market to continue to build upon. Over on EMEA, I think what you've seen is an acceleration overall from the first half into 2025 as well. Obviously, we've talked a lot about lapping pretty strong air fryer comps overall. Pleased with the diversification that we're seeing, particularly in the UK. The UK is in a really good growth position now, having lapped and continuing to lap pretty strong air fryer comps there. Similar trends in Germany and France, where, again, our focus is on diversification in those markets. Continuing to bring the wealth of category expansions that we have across our developed markets into some of those new and expansion markets. Mark Barrocas: Look, Steve, I mean, we grew in the fourth quarter 21%. We said that there was going to be some noise in the numbers due to the transition of Benelux, Poland, and the Nordics. In Q1, there's some disruption as it relates to the movement of Spain and Italy. So, yes, we are comping the Mexico transition. There will be some kind of transition impacts that are going to happen in Q1. By the end of Q2, we're still on track to have a normalized business moving forward. And so we think this was the right thing to do. We're up and running now on a direct basis in the Nordics, Benelux, and Poland. By the second quarter, we'll be up on a direct basis in Spain and Italy. We think these distributor-to-direct major transitions will be gone as we come out of the second quarter. But overall, the UK growth was very nice. Our European business continues to be very strong. Latin America, we pointed out. And I'm very excited as we go into the second half of this year to the Middle East. I mean, I think we're seeing some really good signs out of some products that we launched in Q4 in the Middle East that our distributor will start getting back into inventory toward the end of Q1. So I think there's a lot of pathways for growth for us in the international business. Steven Forbes: Maybe I'll just stick, Mark, with the international commentary because it's sort of where I was getting with the question. You think about the success in Mexico post the transition, post the disruption that you experienced. I don't know if you can maybe frame up for us here on the call how much visibility do you have into those countries that you've transitioned as you look out to '26 into 2027, you're planning for 2028. I mean, you're on record talking about the mix of the business eventually getting to fifty-fifty. Obviously, that's some pretty exciting international growth implications. So maybe I'll just leave the question there and have you comment on just the visibility behind the growth profile as we get past the disruptions. Mark Barrocas: Look, Steve, I think the biggest thing is let's start off with do consumers love the products? Okay? Like, first and foremost, are they resonating with the products? And I think we've got really good visibility as it relates to that. I mean, I think if you go online and you look at online reviews in Norway or you look at online reviews in Mexico, the products are really resonating with consumers and not just across one or two categories, but across lots of categories. The second is, is our demand generation model resonating and working? And while Adam pointed out the great Q4 that we had in Mexico, all of that Spanish language media is spilling over into the rest of Latin America as well. I mean, our PriceSmart business was very strong in Q4. We talked about expanding quite a bit with MercadoLibre in 2026. That's all coming because demand is being generated throughout Latin America by the social media and the demand generation that's happening in Mexico that's spilling over into these other markets. So I think we have great visibility on the consumers loving the products. I think we have really good visibility on is our demand generation model working? I think it's always slower to get into brick-and-mortar retailer placement. But our pure player business is growing quite a bit. Our D2C business is growing quite a bit. And look, the brick-and-mortars will come online as their planograms set and things like that. But at the end of the day, it's a matter of how are we resonating with the consumer, what kind of relationship are we building with the consumer. And I think whether it's Norway or Poland or Belgium or Mexico or Colombia, the consumer is resonating with our model and with our products. And so we're excited as we go into 2026. Operator: We now turn to Jonah Kim with TD Cohen. Your line is open. Please go ahead. Jonah Kim: Thank you, Mark and Adam, for taking my question. Just wanted to double-click a little bit on the beauty segment. Could you talk about the customers you're acquiring to the Shark brand through beauty? Any notable characteristics of these customers versus your other brands and products? And then also just related to that, how do you see the distribution opportunity within beauty? What are some white spaces both domestically and internationally? Thank you so much. Mark Barrocas: Look, what is the difference? I mean, we're obviously attracting a younger demographic. I mean, we're attracting a young female demographic in particular. You'd be surprised, actually, in our skincare business, we're also attracting a young male demographic. I think that we're creating lots of social media excitement, whether it's CryoGlow or whether it's FacialProGlow. But I'll give you a couple of interesting points about the beauty business. I mean, let's think about Christmas 2024. If you wanted to buy an LED mask, it was a fringe product that was sold online, mainly sold with some no-name brands. In 2025, we led the category. You could buy a Shark Cryo Glow at Costco in Bloomington, Indiana. And I think what bodes so well for this is that we're enlarging the size of the market. I mean, the total LED mask market in the United States was $35 million in 2024. We did more than two times that just in '25 ourselves. So what we're doing in skincare is a lot like what we did with the creamy or a lot like what we did in other categories where we're developing the category. I mean, we're the number one skincare facial device in the US coming out of the holiday season. But more than that, our goal is we want to be the number one beauty tech company in the world. And we think it starts with hair, and we think it extends into skin. We think there's a lot of other places for us to go within the beauty space. I mean, scalp, I think, is an interesting place. I think nails is an interesting place. I think wellness is quite interesting, and we're looking into it. So I think it bodes really well for a big expansive global category for us to develop, but it also opens up the next doors for us as to where does SharkNinja go next. Operator: We now turn to Andrew Tadora with Bank of America. Your line is open. Please go ahead. Andrew Tadora: Good morning, everyone. So Mark, I guess, in 2025, you launched several new celebrity campaigns for both the likes of Tom Brady and Kevin Hart. I guess, how would you define the success of these campaigns? And maybe what new initiatives do you have to continue to engage your customer this year? Mark Barrocas: Okay. I think in '25, we absolutely became more part of culture. Our social media followers grew over 100%. Our engagement with consumers grew over 100%. Everything from how consumers viewed us in the F1 movie, which was a tremendous success for us. I think Tom and Kevin and David and what we're doing with those celebrity partnerships are kind of the tip of the pyramid. But I think it's all part of a campaign that starts at the celebrity level and looks at macro influencers like people like Alex Earl. We work with tons of micro-influencers that have very high engagement and followership in specific categories. I mean, that could be in something like outdoor cooking, or that could be in something like clean talk or food prep or other areas. But I think it's all part of how do we meet the consumer where they're engaging in content. Whether that is ask me anythings on Reddit, whether that is TikTok shop, whether that is Instagram, whether that's outdoor billboards. It's all part of a total demand generation approach. And I'll tell you something that I think is really exciting as we look at our business right now heading into 2026. It's the spillover effect of all the media. This social media has no borders to it. And so when you run social media content in the US or the UK, it's being viewed in places all around the world. I mean, we're now tracking influencer content based on what countries viewed their content and engaged with their content. We're getting much more sophisticated in does an influencer only have followership in the United States? Or if we hire them, does the influencer also have followership in Mexico and France and Germany and in other places? So I think the whole approach to our demand generation strategy is getting much, much more sophisticated. The analytics behind it are getting much more sophisticated. That's going to allow us to make sure that we're targeting the right content with the right influencers to the right consumers to drive POS. Andrew Tadora: That's great. Very helpful. Follow-up for Adam, and sorry if I missed this. I think things were cutting in and out a little bit. But can you speak to any gross margins, kind of headwinds and tailwinds that you see for this year? And how would you characterize your ability to grow gross margins in 2026? Thanks for taking the questions. Adam Quigley: Yes, certainly. Thanks, Andrew. And a good piece to hit on. So as we look at 2026, we will be normalizing tariffs as we go into the year and having them come through the P&L in a way that we didn't have last year in the first half. We, of course, didn't really start to see those flow into our P&L until Q3 a bit and then into Q4. And so the first half, we expect a decent gross margin headwind driven by tariffs with slight offsets driven by all the cost optimization efforts that we have talked about before. And we've continued to ramp up. The other piece is that you will continue to see the operating expense leverage from us in the first half and into the second half as well. As we continue to not only optimize across various initiatives and spend areas, but also continue some of the initiatives that we've been doing for years now. So our goal overall remains, and you'll see it obviously in the guidance, is that our goal is to expand EBITDA rate as a percentage of sales, and we're certainly intent on doing just that, and you'll see that in the first half right out of the gate. Operator: We now turn to Phillip Blee with William Blair. Your line is open. Please go ahead. Phillip Blee: Good morning, guys. Thanks for the question. So the fourth quarter was very strong. Domestic growth of almost 16% is very impressive. So how do you think about that momentum flowing through into the first quarter, first half of this year? And then how do you think about lapping any retailer stockpiling ahead of tariffs or potentially some sales lift on the table from inventory constraints last year? And then just want to confirm since we had some sound issues earlier. You mentioned the US growth should be sustainable in the double-digit range, correct? Mark Barrocas: Yes. I mentioned, Phillip, that I think the US should continue to grow at double digits. We saw strong momentum coming out of '25. We feel good about our placement in '26 with retailers. We feel good about the momentum that our D2C site is going to continue to get as we get through the year and we stand that up with additional functionality. Look, I mean, there's always issues that you're lapping or constraints or one-offs or one-times. I mean, that's part of the diversification across the business that we're managing. I mean, it's hard for us to comment on any one specific thing at a quarterly level. I think the more important thing is that our business has multiple pathways of growth. I mean, we're going to enter into two new product categories this year in '26. We've got a really great pipeline of innovation in '26. We're going to be bringing to market with 25 new products. We're building our base business. We're continuing to take share in the base business, not just in North America, but in Europe and Latin America as well. We think there's a lot of continued pathways for international growth. So it's hard to comment on any individual one-time blip quarter to quarter. I think at a macro level, how do we feel about our three-pillar growth strategy? I mean, we feel like it's strong, and we feel like we've got good momentum as we head into '26. Phillip Blee: Okay. Great. Very helpful. And then you've spoken a bit about how you're getting smarter about social spend, how you're paying affiliates. We saw quite a bit of leverage done in the sales and marketing line this quarter. How should we think about the impact of those efforts, both from maybe a marketing effectiveness standpoint, but then also a financial perspective? Should we expect that line to remain more flattish as a percentage of sales for the time being, or how should we think about that? Thank you. Adam Quigley: Yeah. Thanks, Phillip. So as we look at sales and marketing, again, you saw significant leverage in Q4 across that line item. And that's really driven by a number of different factors. It's the media optimization type efforts that Mark talked about earlier. It's allocations between media spend and price and promo, depending on the category, depending on the region. And so that bucket has a lot of different moving pieces within it. But also, as we look ahead and move forward, there's a lot of great optimization efforts that will allow us to continue to leverage that line item. We're at a point of scale now that we can leverage some of these global campaigns. Mark touched on earlier, the F1 movie as an example. Some of the global brand ambassadors that are on board. Those are all assets that appeal across many different markets. So sales and marketing is certainly a line that, while it is a competitive advantage and will remain one that we continue to lean in on via investment for new geographies, new categories, it's also a massive area of leverage. So it's not about harvesting any sort of forced leverage there. It's really about optimizing what is a very large and healthy base of investment. Operator: And our final question today comes from Rupesh Parikh with Oppenheimer. Your line is open. Please go ahead. Rupesh Parikh: Good morning. Thanks for taking my question. So just curious, as you guys think about this upcoming fiscal year, how are you thinking about the consumer category backdrop? Do you expect it to be the same or better than the prior year? And then just any thoughts on whether your category could benefit from stimulus in the US market. Thank you. Mark Barrocas: Look, Rupesh. I mean, I think I've mentioned this. Other than the eighteen months during COVID, I don't remember kind of a frothy consumer time for us. So I would say the consumer is going to be kind of expected to be flat to where we were last year in general. Listen, when there's stimulus in the United States, it does seem like that stimulus does flow through the economy quite fast, and consumers use that money to spend on things that they want. I can't comment until we understand what that exactly looks like, but I would expect the consumer to be flat, and I think it's our job to earn the consumer's hard-earned dollar by making great products and delivering them at a great value and letting them choose as to whether they go out to dinner two times more or they buy a SharkNinja product. I mean, I don't think we're competing against our industry per se. I think we're competing against the pool of consumer discretionary dollars and how do we make sure that we put our best foot forward in making the case as to why they should invest in SharkNinja. Rupesh Parikh: Great. Thank you. Operator: Ladies and gentlemen, that's all the time we have for questions. This concludes our Q&A and today's conference call. I'd like to thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to The Kraft Heinz Company Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, As a reminder, this conference is being recorded. It is now my pleasure to introduce Anne-Marie Megela, Vice President of Investor Relations. Please go ahead. Thank you. Anne-Marie Megela: Thank you everyone for joining us today. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our Chief Executive Officer, Steve Cahillane, and our Chief Financial Officer, Andre Maciel. Operator, please open the call for the first question. Operator: Our first question is from Andrew Lazar with Barclays. Andrew Lazar: Great. Thanks so much. Good morning, everybody, and welcome back, Steve. Thanks, Andrew. Yep. Maybe to start off, Steve, in the remarks, you mentioned a bunch of times for how The Kraft Heinz Company is sort of underinvested in its brands and the incremental $600 million is an effort to sort of correct that. Guess, much of this is simply the company catching up to where investment levels should have been so more company-specific, versus maybe acknowledging that the currently more challenging industry environment in which other food names have also raised investment levels. Including making price investments. And then following on that, how do you see this level of investment? Or do you see this level of investment as sort of the right base of spending to be able to grow from or you have to reassess that as you go? Thanks so much. Steve Cahillane: Yeah. Thanks for the question, Andrew. What I tell you is when I came in, I knew that the company was underinvested. That had been widely reported. You guys have all written about that. We know the history of The Kraft Heinz Company over the last ten years. So I came in with the expectation that I would find underinvestment, and indeed, I did find underinvestment. But I also found a lot of opportunities. And I think the biggest change over the last six weeks has been the exploration that I've been on and what I have found in terms of brands that truly respond to investment, green shoots that the company was already working on, and areas where we could do a lot of self-help and fix the business and, you know, point ourselves in a more positive direction. And I'm talking about meaningful things that I've seen. And so we went through that exploration and did a lot of work around what would be required in order to invest appropriately against the business to return it to organic growth. And so I'd say the bulk of your question the real answer to your question is we're really getting back to where we ought to be, not necessarily, looking at the challenging environment saying we need to do something different. We're getting back to where we ought to be in terms of sufficiency against our brands, capability building, in the commercial area to really put ourselves in a position of competitiveness. And that led to the decision to pause the spin because we want to put 100% of our focus 100% of our time, our people, our investment against returning the company to growth and not be distracted by the massive amount of work that's required in the separation. And, obviously, I know what it takes to have a successful separation. You need stable businesses. You need a lot of things that we're gonna be working on right now to preserve the optionality that we have going forward. And so the real answer to your question is we're getting back to where we ought to be. And I do think it's a level of sufficiency that is appropriate for us going forward. And I have a lot of confidence that we're gonna be able to return this company to solid profitable, organic, margin-enhancing growth. Andrew Lazar: Great. Thank you, and see you next week. Anne-Marie Megela: Thanks, Andrew. Operator: Our next question is from Peter Galbo with Bank of America. Peter Galbo: Steve, Hunter, good morning. Thanks for taking the question. Guess, Steve, just going back on your comments in regarding to Andrew's question just now, when we all met, a number of weeks ago with you, I think your commentary was you know, hey. I had to sign off on the spin before coming on board. And, obviously, today, you know, you're announcing a pause. So just maybe help us understand a little bit more even what's happened in the last four weeks to kind of cause that change in terms of the thinking. And then as a secondary kind of follow-up to that, just how should we be framing a temporary pause versus maybe a more indefinite pause? Would be helpful. Thanks very much. Steve Cahillane: Yeah. Thanks, Peter. So when I was in discussions with the board of directors to come here, I came with eyes wide open and recognizing that there was a lot of opportunity and endorsing the strategic rationale around the separation. And what I said to you guys when we met a couple of weeks ago, four weeks ago, or whatever it was, that, you know, I fully endorse and understand the industrial logic of the separation, and I still do. I think it makes logical sense, and I think the board came to the right conclusion at the time. What I've since learned is how much opportunity there is to fix the business in the short term and to turn the business around in a more positive trajectory. And because resources are finite, I came to the conclusion that this was the best outcome for us. And I should backtrack because when I agreed to come on board and the discussions I had with the board, they said, you know, we reserve the right to get smarter. And as you get under the hood and really explore, you know, everything from what's in perimeter, how we could go about the separation, everything should be on the table. And so it was an iterative process that we came to, and I understand that when you're not going along with us through those four or five weeks of process, it can seem rather sudden, but this was something that was explored in-depth. We've all been working twenty-four seven. To come to this conclusion and build the plan that we're very confident in. And it preserves optionality for doing any other portfolio optimization things that you might imagine in the future. So I wouldn't put an end date on anything that we're going to say this is the date when we're going to reexplore whether or not a separation is the right thing. We're gonna get smarter each and every day. We're gonna turn the business around organic growth, and that will, as I already said, preserve optionality to do any number of portfolio optimization activities in the future. You know, we in companies like ours, we have to evaluate and reevaluate on a regular basis where we are and where we want to go. Where we wanna go right now is this investment against the business to drive organic growth. Anne-Marie Megela: Great. Thanks very much, Steve. Operator: Our next question is from David Palmer with Evercore ISI. David Palmer: Thanks. Good morning, Steve. And welcome. I wanted to ask you about the investment and maybe what we're gonna see in the market, in the scanner data. You know? How to first of all, you know, how did you arrive at $600 million being the right number? But also perhaps discuss the phasing of that spending and maybe even categories and brands we could expect to see results earlier versus maybe later. And thank you. Steve Cahillane: Yeah. Thanks, David. So you're going to see the spend really start to ramp up in the second quarter. We've been in the planning process right now, and we would hope to see meaningful results in the back half of the year, meaning, you know, when I say meaningful results, I mean a change in trend and bending the trend in market share. And we're gonna be talking a lot about value market share and holding ourselves accountable to that. I think we said in the prepared remarks that, you know, about half of this would be against price and product and packaging, improving the way we show up for our consumers at store. That's gonna be very important. It will be across the portfolio. But a lot will be against what we, heretofore had been calling the North American grocery company where we've got some opportunities to really do better. But equally, brands like Heinz and Philadelphia cream cheese have already been showing in the last thirteen weeks, in the last four weeks, some meaningful improvement based on things that the team had started to do in the back half of last year. So we'll continue against that. And we arrived at the $600 million really through, you know, as much science as we could and then a lot of experience, in the company and the experience that I bring as well. So we'll be about five and a half percent against, you know, against a ratio of our top line. In terms of what we're spending against the brands. We'll put meaningful investment in and A. We're lean. You know, you can look at any metric and understand that The Kraft Heinz Company is lean. We don't wanna be lean in the commercial organization, so we'll be hiring, sales and marketing professionals. To beef up our capabilities there. That takes some time, so that'll be more like a third and fourth quarter, spend. But altogether, the $600 million, I think, gives us a lot of confidence that we've got what it takes against the entire company with, half of that being, as I said, against the brands and showing up for consumers with the right opening price points, the right price, the right promotional, opportunities, and the right brand marketing against what are really a collection of iconic and wonderful brands that I've already said do respond to investment. Andre Maciel: Maybe to build on that, I think we will continue we have seen, as Steve pointed out, good momentum in our base elevation business, sauces, cream cheese. We the last thirteen weeks, we flipped to market share growth. And 70% of the revenue in data elevation is now gaining market share, which very solid in The US. And as we look at even at early reads, into January, we see that the momentum continuing. In fact, a total portfolio in The US, we have seen the market share now back what it was. Until from three years ago. So it's good to be in that position. And, obviously, you work to do. I think the objective with all this investments is to position to grow the company to be delivering volume-led profitable growth and have a much higher percent of the portfolio gaining market share like it was back in 2017, nineteen. We should continue to as Steve pointed out, we're gonna see this ramp up happening in the second half of the year. You should see emerging markets continue to deliver strong results. If you look in 2025, aside from Indonesia, we grew close to double digits including with volume growth, gonna continue to see our emerging markets delivering that level of growth apart from Indonesia from Q1 and building from that There's a very good momentum there. We're gonna see our Canadian business continue to deliver growth as they had delivered the last three years. So there are good parts of the portfolio that have good momentum. We are also part of that investment is to further accelerate those bright spots But as Steve said, there is a good portion of this investment as well is on the opportunities that we have seen on the North American grocery portfolio. Operator: Thank you. Our next question is from Stephen Robert Powers with Deutsche Bank. Stephen Robert Powers: Great. Good morning. Thank you very much. Steve, so I wanted to just follow-up on Peter's earlier question. You talked about how this decision to postpone the separation was either you know, kinda premised by premised on the opportunity you've to turn around the business in the short term. And I guess the natural follow on question to that for me, my perspective is, what how do we define short term? Is that know, do we need to see results, you know, in the next couple of quarters, in the course of 2025? And therefore, the separation is postponed. It's sort of in until '26, or is there a different timeline associated with sort of the short term response that you're you're expecting. And then if you I could, then the second question would be, you talked about where these investments will be focused. Kind of by brand, I'm assuming that these are disproportionately focused on The US, but maybe just a little bit of elaboration if there's investment, whether brand or commercial investments that you see overseas as well. Thank you. Steve Cahillane: Yeah. So I'll start with the second one. These will be disproportionately against The US. Where we need, a level of investment, in order to turn the trends that we've had. Andre, I think, just outlined very well. The rest of the world where we've got a lot of strengths. But there will be opportunities to invest outside The US, but predominantly, this will be in The US. And we would expect to see, as I mentioned, a change in trend in the back half of this year. You see our guidance. We would hope to do better end of that guidance always, but, you know, these investments take time, and they take commitment, and they take, you know, a level of sticking to it. And, reallocating as necessary as we learn what's working better than what may be not optimized. And so as we think about 2027, you know, we would aim to be in a position where we turn the we return the company to growth. We exit 2026, with the best trends that we've had, during the course of the year. That would be our expectation, and we go to 2027 with an eye towards growth. In terms of any kind of separation in the future, as we today, we're pausing and not putting an end date on that. When this business is successful and growing organically, in 2027, we'll have all sorts of optionality to think about portfolio and the way we wanna think about our portfolio going forward. But job one right now and why we've made this decision is to put all of our attention and resource against this stepped-up plan to return the company to organic growth. Stephen Robert Powers: Great. Thank you. I think I had said 2025. So thanks for correcting me on what year we're in. Appreciate that. Thanks. Andre Maciel: You bet. You bet. Operator: Our next question is from Robert Moskow with TD Cowen. Robert Moskow: Hi. Thanks for the question. Hey, Steve, you mentioned that you wanna put the resources against brands that respond to investment. And I was wondering in the work you did internally, did you find brands that have not responded well to investment as well. I think the nagging concern among many investors is that portfolio has a lot of antiquated brands. The quality gap with competition has widened too far. And that they just won't respond. And then secondly, I wanted a follow-up on comments on the last earnings call from Carlos about investing in better coordination for your commodity exposure. Like, I think he said that he thought the company had fallen behind vertically integrated players and Meet coffee, and cheese. And, just wanted to know if if I didn't see that in in the comments. You feel like you have to invest in that too? They're kinda related. Steve Cahillane: Yes. Thanks, Rob. I'll let Andre take the second part of the question. I'll take the first part of the question. We focus more on what's working, where the best investments are. But know, I've said in the past, when you have a portfolio as broad as ours, you're never gonna be in a situation where every brand is growing. Know? We all know that. So we're focusing our attention on where we can get the best responses. And, you know, and, obviously, those are some of the brands that have already been invested in, like, Heinz and Philly Cream Cheese, which we've already mentioned. But we've got mac and cheese a huge brand of ours that I have seen does respond very well. We've got a great innovation in, 17 gram protein super mac. Coming out this year. We're gonna make sure that that is more than sufficiently supported in the marketplace, and we're gonna look for other opportunities. And we have other opportunities like that so we can get the totality of the portfolio growing which doesn't mean there might be a 20% of the portfolio that is more challenged. That's gonna be the case in a portfolio like ours. But we need to make sure we're doing portfolio management and optimization such that the winners, far outpace, the ones that are more challenged. And, Andre, you wanna take the commodity? Andre Maciel: Yeah. Sure. And to build on what you just said, like, we are seeing good momentum on our taste elevation portfolio worldwide and including The US. Return hydration desserts, back to share gain, which is good. So it is responding well to investments, so there is more get there. It's a very profitable part of the portfolio. Mac and Cheese, there is a lot of investments you put in the back half of last year. We're starting some signs of traction and have an innovation that we feel very strongly about. So there is a lot that is about fueling those places where I have good momentum. But it's also about, as you pointed out, Rob, deploying some of the resources to improve the rest of the portfolio as well. There are opportunities on continue to invest in the product and in packaging. That's where a portion of $300 million is going to get deployed against. So I think all of that to allow the whole portfolio to start to move in a more positive trajectory. Regarding the commodity question, look. Nothing really changes, Rob. Like, we have been, over the years, very disciplined about following the commodity. And when we price, and we should want to continue to remain disciplined. We cannot control how other competitors might react to commodity curves and they do or not. I think what we can do is what we can control, which is continue to be disciplined around falling the commodity. Anne-Marie Megela: Okay. Thank you. Operator: Our next question is from Michael Lavery with Piper Sandler. Michael Lavery: Thank you. Good morning. Just wondering if you could give us any sense of where you land long term. Do you think the long term algo changes? Is this plan set to put you on algo? And if so, with what timing? And then maybe just a follow-up on this year. Would you have any repurchases considered in the guidance? And how should we think about that? Steve Cahillane: Yes. Thanks for the question. We're not prepared, and it's too early to talk about long term algorithms. I just you know, underscore what I said in terms of bending the trend and the year with momentum and looking at 2027. As a year where we can turn to organic growth. Perhaps at that time, we'll be in a position to talk more about long term algorithms. And the second part of the question was Andre Maciel: Yeah. Look. On the capital allocation priorities, we have stated for a long time our number one priority is to deploy excess cash on the business and that's exactly what we're doing right now. Followed by maintaining our net leverage at approximately three times. And we've what we're expected EBITDA to land in '26 with the guidance we're providing, we will deploy excess cash to pay down debt this year. You know? And we will deploy part of the excess cash next year to pay down debt as well. Because we want to count our policy does not change, so we continue to target the net leverage to be at three times. So once we believe we have now the sufficient level of the business needs on the organic front, and reinstated the debts to our target leverage, then if you have excess cash beyond that, you can deploy in alternative forms. Steve Cahillane: Okay. Great. Thank you. Operator: Our next question is from Leah Jordan with Goldman Sachs. Leah Jordan: Good morning. Thank you for taking my question. I wanted to ask about SNAP given you added a headwind to your outlook this year. What is your SNAP exposure today? How much have the recent SNAP changes impacted your business so far? And I think ultimately, how do you think about addressing the needs for this customer cohort for balancing the broader needs we've talked about so far this morning across your portfolio? And I guess, ultimately, how does this impact your view on the need to invest in base prices versus promotions as well? Steve Cahillane: Yeah. Thanks for the I'll start, and I'm sure Andre can build on it as well. You know, snap does obviously a headwind in consumer goods because the consumer that's under the most pressure is having money removed from their household budget. But it also presents an opportunity for us to compete for that consumer, with opening price points, with small pack sizes, with all the things that we talked about doing. And so there is a headwind, but that's before we work against mitigation and how we mitigate against those headwinds. And so, we're all in the same boat in terms of this, this particular issue, but we've got a lot of plans in place, and we'll continue to develop plans. To meet that consumer where they are with the right price points, the right entry price points, the right pack sizes. Andre Maciel: Yeah. Our exposure today, about 13% of The US retail business comes from Snap. Compared to 11% in the industry. So we do over index a little bit. Part of the $600 million investment is on opening price points. And we do anticipate roughly 40% of the category is not of the SKUs. 40% of the categories will have some specific strategy around opening price points, and that's part of what in the plan right now. We do expect, and it's contemplated in the guidance, a 100 bps headwind coming from SNAP as a function of the level of funding being reduced. But I think a part of the investment, as we said, is about getting that being throughout the year, more concentrated in the second half of the year so we can mitigate or partially mitigate that impact. Operator: Great. Thank you. Our next question is from Christopher Carey with Wells Fargo. Christopher Carey: Hi, good morning everyone. I wanted to ask about the you know, investment into the concept of value pricing, In the prepared remarks today, you talked about leaning in on promotional activity You talked about opening price points. You talked about revisiting base prices. Where necessary. Those all kind of have different lead times associated with them. Was just curious how this how you envision this playing out. Will you Lead with more promotional activity early starting in Q2? We expect price rollbacks beginning in Q2? And and the fields with the packaging investments, it certainly feels like there's gonna be some revenue growth management associated with this, which tends to have longer lead times. So maybe, you know, price pack is is a bit later in the curve. Right? So obviously, I'm just trying to understand how the implementation of the concept of value is gonna happen. As you phase through this between promotions, price rollbacks, and some of the price back architecture initiatives you might have? Any clarity there would be helpful. Steve Cahillane: Yeah. I think you did a very good job answering your question because, you're exactly right. Some of the price package architecture takes some time. We're working on it already right now. The company understood about the importance of opening price points and pack sizes and so forth before I got here. And so we're working to accelerate some of that work. We can make very quick adjustments, though, in pricing and opening price points and nothing crazy or irrational here. You've heard me talk in the past maybe about, the importance of earning price in the marketplace giving consumers a reason to pay more, through innovation, through product, through, performance. And what's happened over the course of the last several years industry wide is because of the massive amount of input cost inflation. You know, we busted through four or five levels of price points in a very accelerated fashion, and the consumer was left very disappointed in that. And that's been very, well understood and obvious. And so as we continue to work on our productivity programs, the company has done a very good job at, delivering productivity. We aim to do that again. And, you know, between the productivity, between the investments, we believe we can get back price points that are more friendly to consumers, and we can do that pretty quickly. Andre, if you wanna build on that? Andre Maciel: Yeah. So to build on Steve is saying, a disproportional amount or the majority of $600 million is really deployed about what we believe are healthier ways to grow the business in the long term. So that is about more marketing, more R&D, investments in the product and packaging, and increasing the infrastructure or head count around sales and marketing so it can show up with better execution. So but there is a portion of the investment that is geared toward price. As you expect, given that you're saying that we expect to build share momentum heading to the '2. However, you remember that we did step up investment on price in 2025 Not everything that work work the way we anticipated. There was a lot of lessons learned there. And so there is a portion of that investment that is starting, earlier in Q2. That is already about optimizing the tactics that we have deployed last year. K? So you could expect us to see improvement in what you have deployed last year, but then the incremental really focus on the 40% of the categories, not 40% of the revenue. Okay. 40% of the categories. We do have very selected places where base price makes sense. So we wanna talk the specific categories here on this call, but there are a couple of spots where it makes sense to do that because we crossed some thresholds, and we believe it's not in a healthy level. But, again, this is very selective. We should expect that the majority is really around building momentum in ecommerce. That's where I think we had a lot of traction in the second half, show up with bearings, store execution, and deploy on the opening price points. Christopher Carey: Makes sense. Get one. Anne-Marie Megela: For one more question. Operator: Thank you. Our last question is from John Baumgartner with Mizuho Securities. John Baumgartner: Good morning. Thanks for the question. Steve, I'd like to ask about the reinvestment. You're ramping the financial resource but if we could focus on the softer skills, how you connect with how you stand out to retailers on merits other than just maybe scale and trade promotion, are the soft skills, those consumer-facing skills, when you improve those, is it a matter of, like, technology and insights at this point? Is it a matter of augmenting personnel, changing the culture? Just, you know, where do you see the company needing to improve aside from financial support in the P&L? And how much of a heavy lift do you anticipate that to be? Steve Cahillane: Yeah. Thanks for the question, John. You know, this company has great capability and great people. We're just very lean. And so we need to supplement and bolster the people that we have against our commercial activities and we need to continue to invest in technology and where the world is going. You know? It's well documented. AI is changing everything, and we need to be on the forefront of the way we think about technology and deploying it against our brands and with our customers. You know, we start with the consumer first mindset. No question about that. This investment is against making sure that we can attract consumers and drive greater household penetration. And I'm very confident that when our customers hear today, what we're doing, reinvesting against this wonderful portfolio. I've had lots of conversations with all these customers already. I think this is gonna be very welcome news. And so that's perhaps what we haven't talked much about, but this means a lot to our customers. When The Kraft Heinz Company shows up with this type of investment plan against brands that matter. And so we're excited about the future, and appreciate everybody's interest in the call today. John Baumgartner: Thank you. Operator: Thank you. This concludes our question and answer session. I'd like to hand the floor back over to Anne-Marie Megela for any closing comments. Anne-Marie Megela: Thank you everyone for your interest today, for your questions, and we will see you all next week. Have a day. Operator: This concludes today's conference. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Hello, everyone, and thank you for joining the O-I Glass, Inc. Full Year and Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one. If you change your mind, please press star followed by two. It is now my pleasure to hand over to your host, Christopher Manuel, Vice President of Investor Relations, to begin. Please go ahead. Thank you, Lucy, and welcome everyone to the O-I Glass, Inc. fourth quarter and year-end conference call. Christopher Manuel: Our discussion today will be led by Gordon J. Hardie, our CEO, and John A. Haudrich, our CFO. Following prepared remarks, we will host a Q&A session. Presentation materials for this call are available on the company's website. Please review the safe harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. I would now like to turn the call over to Gordon, who will start on Slide three. Good morning, everyone, and thank you for your interest in O-I Glass, Inc. Today, we will review our full year and fourth quarter 2025 results, discuss recent business trends, and provide an update on our strategic initiatives. Also outline our 2026 outlook, and progress towards our 2027 investor day target. Before we begin, I want to recognize the of the entire OIT. Your commitment and execution continue to strengthen our performance. Last night, we reported full year adjusted earnings of $1.60 per share. Supported by stable top line, adjusted earnings nearly doubled versus 2024, Gordon J. Hardie: and free cash flow rebounded to $168,000,000. These results reflect meaningful progress against our strategic objectives and were in line with our most recent upgraded guidance. A key contributor was the continued outperformance of Fit to Win, which delivered $300,000,000 of benefits in 2025, and more than offset ongoing macroeconomic pressures. We exited the year with positive momentum as fourth quarter adjusted earnings increased meaningfully versus the prior year period. Looking ahead, expect continued progress in 2026 including another strong year of Fit to Win execution even as market conditions remain challenging. Are reaffirming our 2027 Investor Day financial targets. Despite challenging end markets, have increased our cumulative Fit to Win benefit target reinforcing our confidence in achieving our 2027 adjusted EBITDA goal. As a result, we expect to continue improving earnings expanding economic profit, strengthening free cash flow, and delivering sustainable long term value for shareholders. John and I will provide more detail on recent performance and our outlook. Let us now turn to Page four, to recap our strong full year 2025 results. As you can see, our performance improved across our key financial metrics. We created intrinsic value with economic spread, expand expanding by 200 basis points, driven by stronger earnings more disciplined capital allocation, and continued network optimization. As intended, we maintained a stable top line. Average selling prices were steady, while favorable FX largely offset a decline in volumes. Our shipments and tons were down 2.5% amid a 3% decline in consumer consumption. A few insights to add. On a unit basis, our shipments were down only 1.5%, reflecting our deliberate shift towards lighter weight and smaller format bottles with strong margins. And major projects startup in Europe impacted shipments nearly 1%. And finally, we capitalized on emerging opportunities and pockets of growth as higher value categories such as premium spirits, food, NEBs, and RTDs outperformed trends in mainstream beer and wine. So we shifted our mix about 1% towards a higher quality book of business. Overall, we believe O-I maintained our modest modestly improved market share as we continue to upgrade our business portfolio. Adjusted EBITDA increased 11% with margins expanding 220 basis points as Fit to Win benefits more than offset modest pressure from net price and volumes. Adjusted EPS nearly doubled driven by stronger operating performance and a lower effective tax rate. Free cash flow improved by approximately $300,000,000 supported by higher adjusted earnings, favorable working capital management and a 30% reduction in capital expenditures. This improvement was achieved despite $128,000,000 of restructuring payments which are expected to taper after 2026. Finally, leverage improved by nearly half a turn to 3.5, and we remain on track to reach approximately 2.5 leverage by year end 2027. Stepping back, we continue to operate in a challenging environment as the value chain works through the long tail of post-COVID normalization. Against this backdrop, we are taking a highly disciplined approach enhancing our portfolio, executing Fit to Win, and maintaining rigorous capital allocation which positions us well as markets eventually recover. The common thread behind these results is execution. Particularly Fit to Win, which we will now discuss on page five. Fit to Win is a core value driver for our business. The effort continues to deliver significant cost reductions while optimizing our network and value chain. Cost discipline is not just defensive. Our cost mindset and discipline strengthens our competitive position, which is a critical engine to enable future profitable growth. In 2025, Fit to Win delivered $300,000,000 of savings exceeding our original target of at least $250,000,000. Momentum remained strong in the fourth quarter with benefits of approximately $80,000,000. For 2026, we expect at least $275,000,000 of additional savings. Given this progress, we have increased our three-year cumulative Fit to Win target to at least $750,000,000 up from $650,000,000. Let us discuss progress across the different phases of the initiative. Phase A focused on SG&A streamlining, and initial network org optimization. Generated approximately $180,000,000 of benefits in 2025. We expect an additional $135,000,000 in 2026 as we advance later stage SG&A initiatives and finalize previously announced elimination of approximately 13% of excess capacity by mid 2026. With remaining actions primarily in Europe. Phase B, targets the end-to-end value chain transformation delivered approximately $120,000,000 of benefits in 2025, ahead of expectations. We anticipate at least $140,000,000 of savings in 2026 as we progress through the rollout of total organization effectiveness across the plant network with full implementation expected by year end. We are also accelerating procurement and energy initiatives to drive incremental savings. Importantly, the upside opportunities in phase B drove or increased 2027 target. Overall, Fit to Win is delivering faster and stronger results than planned, notably in our phase B project. And we remain fully committed to achieving our 2026 and updated 2027 targets. With that, I will turn it over to John to review fourth quarter performance and our 2026 outlook, starting on Page six. John A. Haudrich: Thank you, Gordon, and good morning, everyone. I will start with a review of our fourth quarter performance as Gordon has already covered full year 2025 results. O-I delivered a solid fourth quarter with higher earnings supported by a stable top line. Net sales were approximately $1,500,000,000 and average selling prices were essentially flat. While favorable FX largely offset a mid single digit decline in volumes. Adjusted earnings rebounded meaningfully improving from a net loss in the prior year to $0.20 per share. This improvement was driven by strong Fit to Win benefits, higher production levels, and a lower effective tax rate, which more than offset modest net price pressure and softer volumes. Overall, we delivered another solid quarterly performance reflecting disciplined execution, continued cost reduction and sustained momentum from our strategic initiatives. Now let us turn to page seven to review segment operating profit. Momentum remained strong in the fourth quarter. Segment operating profit increasing 30% to $177,000,000 and margins expanding 280 basis points. In the Americas, segment operating profit rose 40% driven by higher net price and continued Fit to Win benefits. Volumes declined 10%, which was concentrated in beer and spirits, while other categories like food and NAB were more stable. Based on market data, about half of this decline was due to lower consumption given ongoing affordability challenges, change in consumer behavior affecting many markets and weather-related disruption in Brazil. Evolving U.S. trade and immigration policies also impacted consumption and drove inventory adjustments across the value chain in the U.S. and Mexico. Which also weighed on shipments. Additionally, results benefited from a onetime $6,000,000 insurance settlement related to a prior year event. In Europe, segment operating profit increased 8% reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind, and volumes declined 3.5%. Based on market data, consumption was down low single digits while shipments were also impacted by a shift in order patterns and other factors at a few customers. Shipments were stable or slightly higher in wine and food, while beer and spirits remained soft. Trends were weaker in the UK and Italy, but stronger across other markets. Importantly, all actions to eliminate excess capacity are expected to be completed in 2026 materially improving Europe's operating trajectory. Overall segment operating profit increased solidly demonstrating disciplined execution and the continued success of our initiatives. Taken together, these trends inform our expectations for 2026 which we will discuss on page eight. Looking ahead, we expect to build on our momentum and deliver improved results in 2026. The top line should be stable, or modestly higher, supported by slightly better gross price and favorable FX as sales volumes are expected to be flat or slightly down. As markets gradually stabilize, we will continue to optimize our portfolio including exiting unprofitable business to improve economic profit. While maintaining or growing market share. We anticipate adjusted EBITDA of $1.25 to $1.30 billion representing up to 7% growth versus 2025. This includes an estimated $150,000,000 energy cost step up as favorable European energy contracts expired at year end. Excluding this impact, adjusted EBITDA would increase by up to 22% highlighting the strength of our underlying operating improvements. As Gordon noted, we expect to benefit from at least $275,000,000 of incremental Fit to Win actions which should support improved performance despite modestly lower net price and flat or slower slightly lower volumes. We project adjusted EPS of $1.65 to $1.90 representing up to 19% growth assuming a tax rate of 30% to 33%. Free cash flow is expected to approximate $200,000,000 reflecting higher earnings partially offset by slightly higher CapEx which should approximate $450,000,000 and about $150,000,000 of restructuring cash costs which should decline after 2026. The first quarter will be our most challenging year-over-year comparison, due to tariff prebuying, a onetime insurance recovery in the prior year, and a seasonally higher tax rate. So volumes will likely be down mid to high single digits given tough comps sluggish demand. Over the balance of the year, results should improve as comparisons ease and Fit to Win benefits continue to ramp. Particularly as European capacity actions and TO implementation progresses. Additional guidance details are included in the appendix. I will now turn it back to Gordon to discuss progress towards the 2027 targets and concluding remarks starting on Page nine. Christopher Manuel: Thanks, John. Gordon J. Hardie: Reflecting on our solid momentum, we are reaffirming our 2027 Investor Day targets. As you can see, we are making solid progress across our key objectives. Adjusted EBITDA and margins are improving. Fit to Win is accelerating. Free cash flow conversion is improving. Our balance sheet continues strengthen, and our economic spread has rebounded. Importantly, the business is moving in the right direction across all dimensions. Let us conclude on Page 10. In summary, we are making solid progress in building a stronger foundation for the future. While conditions remain challenging, we are focused on improving competitiveness, and preparing for volume recovery beyond 2026. Importantly, Fit to Win is a new discipline management system that drives consistent performance improvement regardless of market headwinds. As a result, margins and adjusted earnings are rising, free cash flow is improving, and our balance sheet continues to strengthen. Most importantly, execution is strong and momentum is building. You for your continued support. We are now happy to take any questions. Operator: Thank you. To ask a question, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Ghansham Panjabi of Baird. Your line is now open. Please go ahead. Ghansham Panjabi: Yes. Thanks, guys. Thanks, operator. Good morning, everybody. Gordon, just going back to the fourth quarter and the 10% volume decline in the Americas, how much of that do you attribute towards just year-end inventory adjustments? Obviously, it was a very tough year for many of your end markets throughout 2025, and I assume there was fair amount of cleanup going into 2026. So just curious as to your thoughts. And then how are volumes in the region performing thus far in 2026? I know you have a tough comp from what you mentioned in terms of the prebuy, etcetera. Gordon J. Hardie: Yeah. Thanks, Gansham. You know, we we continue to see sort of inventory adjustment in North America, particularly in spirits. And and and in beer, particularly on beer originating from Mexico given some of the changes in consumer behavior. So, you know, we would say, you know, somewhere up to maybe half of that was an industry or or inventory adjustments. So, they are the two main drivers of that. There there was also a bit of destocking in wine, but I think we we believe that is largely clear. So the big areas, have been beer and spirits. We we continue to see fairly high stocks in spirits. You know? I think the, inventory to sales ratios still running above the 1.7, 1.8. Which is historically high versus the long run average of above 1.3. So it continues to be a challenge. However, you know, as as we laid out our, segment profit, you know, is continues to improve in the Americas as we as we drive Fit to Win and that helps us overcome these kind of short term, industries inventory adjustments. We expect those to continue in the first quarter. You know, given the high level of stock in North America. But, you know, we continue then on the other hand to, know, to to drive Fit to Win and also eke out you know, pockets of growth across food, across NAB, particularly waters is particularly strong for us. In North America. So, yeah. That that is how we see the, the the first quarter in in North America, Gantrum. Ghansham Panjabi: Got it. Thanks for that. And then for as it relates to the, you know, the expanded savings, you know, $750,000,000 versus $650,000,000, plus before. Is that just a function of just the volumes being lower than you thought and so you are taking additional actions? And then just one final clarification on the energy headwind of $150,000,000 for 2026. Is that just a one and done? Will it just be specific to 2026? Or will there be any sort of lingering impact, 2027 onwards? Thanks so much. Gordon J. Hardie: Yeah. I will take the first part. So so would you take the energy question? Yeah. I will take the energy. Okay. John A. Haudrich: Let me just start with that one. On the energy side, yes, the $150,000,000 energy reset is pretty much a kind of a one and done. You know, the contracts that we had that were multiyear contracts that expired at the end of the year, were rates before the Ukraine war with Russia, war with Ukraine, I should say, and then and then, which were at low rates. Those expired at the 2025. We have since been basically layering in contracts and hedges over the course of the last year. So we are substantially contracted on our energy exposure in 2026 in Europe. So we are confident about the $150,000,000 which is substantially at prices below current TTF but still a ramp up from where we were in the past. Gordon J. Hardie: And, Gautam, with regard to you know, the additional savings, it it really is not not of the volume. I think we pointed out, you know, you know, in in earlier calls and particularly on Investor Day, $650,000,000 was the original target. And, obviously, we would have we would have bigger bucket to go off. As the savings came faster than planned, you know, almost 50% of the savings in the first fifteen months and the the organization's ability to you know, go after and execute those savings, then we are we are able to get after, you you know, some of the stuff that we saw embedded but did not have a clear line of sight to, say, a year ago. Now coming to fruition and being able to execute that. That obviously helps offset the volume, but it is not because of the volume, so to speak. I I think there are separate separate issues, but but, certainly, it underpins our confidence in delivering our 2027 number. Ghansham Panjabi: Okay. Perfect. Thanks for that. Gordon J. Hardie: Thanks, Ghansham. Operator: The next question is from George Leon Staphos of Bank of America. Your line is now open. Please go ahead. Kyle Benvenuto: Hi. Good morning. This is Kyle Benvenuto stepping in for George. Regarding the flat to slightly down volume outlook, does this include the impact of exiting unprofitable business? Or is that excluded? And what is the volume impact associated with walking away from that business? Thank you. John A. Haudrich: Yes. I would say, Kyle, yes, thanks for the question. The outlook for 2026 where you say flat to slightly down, does incorporate our mix management efforts, which also includes our efforts to improve our premium and mix of business, grow market share in this area, but also exiting unprofitable negative EP business. So for example, if you go back to our Investor Day, over about about a year ago or so, we had said that there was about 4% of our total volume that was deeply negative EP. And we wanted to address that. We want to address it either by rating prices in those books of business or exiting them. And over this last year, we probably saw about a 1% movement in that book, and we expect to continue to chip away at that. And so, yeah, that is included in in that outlook for the next year. So so maybe there is another 1% or so type of movement as we continue to mix manage Kyle Benvenuto: Thank you. And then just to follow-up, the Fit to Win was designed to lower your cost position and open up doors to new volume opportunities, why was not that sufficient to retain this volume? And thank you. I will pass it over after that. Gordon J. Hardie: Yeah. What I am what I might do is if you look at the know, the volumes probably down, you know, 2.8%. And I might unpack some of that to give you maybe some insight as a as a as a oneself insight at year end. But if you look at our total volume, you know, off about 2.20.8%, within that. There was, you know, directionally above one to one and a half percent sort of share gain that translated into into you know, 1.5% volume. We we we also had some you know, restocking in certain in certain regions that probably added about another one to 1.5%. And then on the on the minus side, you know, we we had some customer events where customers were managing their inventory, you know, taking some capacity down in the short term. That that was about you know, a decline of about 1.5%. You know, we we mentioned a a start up of a fairly large capital project we had in the region that is and maybe some some furnace repairs we had during the year. That was above 1%. So when you net that off, that nets to about 2.5%. But would within that, we we had, you know, we think somewhere in the region about a a 1.5% growth in in in volume and and that was high quality, high EP growth. So we we are seeing growth start to come through, but it is being offset by by other events in the in the market. John A. Haudrich: And and to build on that, what I would say is we we really wanted to take a very in the marketplace. If you take a look at given the challenges in the macro environment, you know, we we held the top line steady, which was exactly what we wanted to achieve. And and and you look at that, hey. Net price was basically kind of flat in the marketplace. Volumes were down a couple percent. Given the context of the market, we think that that is good discipline in execution. And really the concept of growing notwithstanding the mix management and everything that is going on right now, is really kind of our horizon two effort that we are working on. We are building the system for that right now, and we are finding those pockets of growth as Gordon alluded to in the commentary. We are starting to execute on them. Some of them take time to be able to translate into to into demonstrated volumes and things like that. But, you know, we are working on things like design and innovation, leveraging our record you know, our industry high net promoter score with our customers. To find those opportunities for growth. But it is we are just starting that journey to to start to leverage Fit2Win as we go forward. Yeah. Gordon J. Hardie: And just to build on that, Kyle, I think we mentioned in, in our investor day and in subsequent calls we really had mapped all of the categories and segments across all the markets in which we compete. We, we know her very, very clear view on where the pockets of growth are. Where we have a right to win, and we are now adjusting or or revamping our go to market model across all of our sales force in in all of the markets. And that is just starting to to to hit and be rolled out. We we are and we are we are having some wins on that. To to give you an example, you know, with a regional, beer customer where our expected growth would be, you know, somewhere in the high to mid or mid to high single digits this year. We are seeing, you know, other spirits customers in in certain regions where we we would expect again high to mid single digit growth this year. So it is starting to come through. But, really, it will be, you know, towards the back back half of the year and probably the the the last quarter of the year before we we see that gain real momentum and then into 2027. You know, as we look ahead for the year, we have the World Cup coming up. Where we would start to see inventories building kind of late late April in into May. We have got the 250 year celebration here in the U.S. We we think that is going to have a a kind of a positive impact. So so we see it starting to build. We we spent the first kind of fifteen, eighteen months on on the back end of the business and and getting PoE right. I know there is a huge focus on getting the go to market piece of the business right so we can execute on where we see these pockets of of growth. Kyle Benvenuto: Thank you. Operator: Thank you. Thanks, Kyle. The next question comes from Joshua Spector of UBS. Your line is now open. Please go ahead. Hi. Good morning. It is Anojja Aditi Shah sitting in for Josh. I wanted to ask about 750, the new cost savings target, not to take away Anojja Aditi Shah: from how impressive this performance has been, but you basically raised the cost saving target by a $100,000,000, but kept the 2027 EBITDA the same. I assume that means that maybe you are know, volumes are gonna continue to offset. But is there anything else in there, or what explains that that can you reconcile that for us? John A. Haudrich: Yeah. Yeah. This this is John. I can touch base on base on that. You know, yes, the the end target of at least $1,450,000,000 remains in place. Right? So we are not limiting ourselves to $1,450,000,000, at least $1,450,000,000. So we have increased a Fit to Win by a $100,000,000. That does help mitigate the uncertainty around the commercial environment. Of course, we are working to drive improved commercial outlook for the business. It is just back to the last discussion. We are building this system to be able to grow as we always said. It is going to be a little bit more of a horizon two, you know, a target to drive drive the top line growth. But we are making some room given given the uncertainty and the continued prolonged, you know, affordability challenges out there in the marketplace. Anojja Aditi Shah: K. Thank you for that. And then in the past, you talked about working with customers and, I guess, the whole supply chain to get better as an industry of forecasting demand. I think you had said that you were only about at a 50% success rate. A while ago. Can you give us an update on that and maybe where you are now and any financial benefits you are seeing from that? Gordon J. Hardie: Sure. You know, so when we when we kinda begin the journey, it was it was running at about 50%. You know, I am glad to report that as we move through 2025, that is jumped to about 68, 69%. And with many of our our customers, you know, at the most at the most senior level, we have had discussions about the need to, you know, improve the the the supply chain efficiency. You know, if I compare it to other industries, I I think there is a big opportunity for ourselves working with customers and suppliers to strip out waste and inefficiency in the in the in the value chain. And and that is what we are, we are focused on. I think when we last spoke, our our new chief supply officer had not started. He has he has now begin. Or begun. And you know, that is a key focus for for him and his his team is how how do we strip cost and waste out of the supply chain and then share that with with with customers and suppliers with a view to to growing, growing volumes in in the different categories. So we have we have made good progress. Still a lot of work to go and still a lot of to take over the next eighteen, twenty four months, Lucia. Anojja Aditi Shah: Great. Thank you. I will turn it over. Operator: Thank you. The next question is from Michael Andrew Roxland of Truist. Your line is now open. Michael Andrew Roxland: Yes. Thank you, Gory, John, Chris and team for taking my Congrats on all the progress. Thanks. Gordon, I wanted to follow-up if you just wanted to follow-up with you, Gordon, on some really interesting color. In terms of mentioning where the pockets of growth are, where you have a right to win. And then you you mentioned revamping the go to market model. So what are you doing differently And what are you trying to, you know, encourage the Salesforce to do differently to drive better volume? And as you think about your portfolio, I know you mentioned, yeah, you had some beer sounds like you had a beer win and maybe some spirits wins as well. That are gonna hit later this this year. But as you think about your portfolio, are you looking to reorient maybe toward more growth markets like food and maybe these RTUs, maybe minimize beer, may maybe minimize spirits particularly given the elevated inventories that that category has experienced? Gordon J. Hardie: Yeah. I will take the second piece first, Mike. So, yes is the short answer in terms of reorienting the portfolio to, you know, higher higher growth and higher margin segments such as, nonalcoholic beverages, you know, premium nonalcoholic beer, waters, juices. We are we are seeing, you know, you know, significant growth opportunities, in the in the Americas on that. Food is growing particularly in the Southern Half Of Europe, and in markets like like Brazil and and Mexico. And indeed here in in North America. So that is that is very much part of a a focus strategy, and we are starting to see results come come through. With regard to, you know, the the go to market model, You know, I I I probably would have viewed the the organization of the sales forces in the different market to be somewhat traditional. You know, and probably had not changed over a period of ten to fifteen years. And we are we are we are being bringing in much better sort of insights, sharing those insights with with the sales force and and bringing kind of modern methods of sales management into into the business, and equipping then or or sales force with with insights and and, and, you know, opportunities by customer on how the customer can either you know, improve their growth or improve their cost or both. And then a much more rigorous system of review and accountability building from daily sales to weekly sales to monthly against targets. And a and a much tighter, account management. Now in many industries, this is old hat. But this is, this is a this would be a big step forward for us in how we we we drive focus on on performance. And And yeah, we we have some fantastic insights and data in the business, It is now how do we turn those into, opportunities for our customers. And we are already starting to see, you know, green shoots coming through in in that system. It is it is early days in embedding it. We we should be well underway by end of the second quarter, and that system should be in place across all the markets, and functioning accordingly. We are also upgrading some of the, you know, some of the the commercial leadership in different markets. And bringing kind of better better and best practices into the business. So so that that is a bit of flavor on on that, Mike. Happy to to elaborate on any of that. Michael Andrew Roxland: No. That is very helpful. But would it really be fair to say that the changes you are pursuing are going to lead you to that volume growth that you are targeting for 2028 and beyond, the 1% that you outlined at iDay? Sounds like you are getting an earlier jump on doing these things, particularly bringing forward the Fit to Win benefits, such that you are starting to move forward at a faster pace on commercialization, trying to streamline the organization and bring in business wins. Is that is that a fair assessment? Gordon J. Hardie: Correct. Yeah. That that is a fair assumption. And just to add a bit of color to that, So, you know, the the the the first area of focus really was on the you know, the supply chain and strengthening the supply chain and getting the cost loan. And that is what really we have been focused on, you know, over the last eighteen months. And as we have made sort of faster progress than expected, that allows us to, you know, orient more focus to the front end of the business. It is very difficult to, to to make moves on the back end and the front end at the same time, that that risks also sorts of, supply chain snafus and and and customer issues, and we were very deliberate in staging how we would do this. So we we we got the back end in order on on much better order. There is still a lot of opportunity there for us. And that allowed us then to to switch, the the focus to front end of the business, you know, probably maybe six to nine months ahead of what we we we might have thought in the early days. So so, really, it is a sequencing thing. That allowed us to go faster as we made faster progress on on the back end. John A. Haudrich: Got it. Very helpful. Thanks very much, and then good luck in 2026. Gordon J. Hardie: Alright. Thanks, Mike. Operator: The next question comes from Arun Shankar Viswanathan of RBC. Your line is now open. Please go ahead. Arun Shankar Viswanathan: Great. Thanks for taking my Hope you guys are well. Guess, first off, I just wanted to understand how the the volume trajectory would progress through 2026. So I think last year in the first half, you were up, you know, 2% to 4%. And and then now you do face those tougher comps. And then, you know, the back half of 2025, you were down. So should we expect kind of reversal of those trends in 2026? And if so, given that you would be exiting maybe at a positive rate, do you expect that positive volume growth to continue in 2027? Thanks. John A. Haudrich: Yes, Arun, thanks for the question, John here. Yes, you are basically spot on. The first quarter, as we had indicated, is going to be their toughest comp period. Our volumes were up between 4%–5% last year. We believe that was substantially due to tariff prebuying. So so we kind of you you work off of that tougher comp. So that is where we said we are gonna be done mid debt. Even high single digits depending on on on the consumer. We transition in the second quarter to something as closer to flat. And in that in the back half of the year, you are at low to mid single digit type of growth numbers against obviously easier comps that we had over the next year. And, yes, I think that this develops into a bit of commercial momentum. And so, you know, we are we are to continue to try to to improve the the the top line. Obviously, the you know, a little bit of help from the consumer will be good and and, you know, if there is macros that need to be addressed on the affordability side. But as we work through that on macro basis, you know, that could, result in a in a tailwind down the road as as markets recover. And and we we get this engine that Gordon was talking about also know, fine tuned. Arun Shankar Viswanathan: Great. Thanks for that, John. And then, the free cash flow, I think the guidance is is somewhat in line with our expectations. Any opportunities there for upside. You know, I guess, maybe it could come from maybe net price not being as as negative. I do not know if that is one opportunity, but or working capital kinda harvesting a little bit more. Any opportunities there where you could see upside to that free cash flow maybe? Or how do you feel about that the level of guidance for twenty June. John A. Haudrich: Yeah. Yeah. So so clearly, the, the biggest lever is going to be on the EBITDA side if we can perform on the top end of the range and get some of that higher end of it it it improved cost performance. We are obviously we have $275,000,000. We are always aiming for more, right, as as we have delivered the past. We are we are always aiming for more, so there is there is continued opportunities to work there. I would also, profile, as you mentioned, working capital. We we do have efforts to continue to reduce inventory this next year. We have made a provision for additional receivables towards the end of the year as we are talking about the growth, but but we are also working on, for example, nonfinished good inventories, other things to line be below the line that that that could could generate additional cash. And so I think those are your biggest variables and we continue to work on the, you know, the balance sheet, and and we will probably have another year of of refinancing going on. So we will look for opportunities to improve improve the you know, p and l and cash management there. Gordon J. Hardie: Excellent. John A. Haudrich: You know yeah. You know you know, one other thing, you you talked you you asked about net price. I do think, you know, you know, price is probably less of the moving piece on the gross price, but inflation, you know, if if inflation continues to to trend off, that might be an upside, but I think that is a little early to determine. Gordon J. Hardie: Thanks. Operator: Thank you. The next question comes from Anthony Pettinari of Citi. Bryan Nicholas Burgmeier: This is Bryan Burgmeier on for Anthony. Thanks for taking the question. Maybe just kind of following up on Arun's question. Just considering the 1Q outlook, do you anticipate any curtailments kind of continuing into 1Q or 2Q? Or do you think those curtailments, if they are going to be there, would kind of taper off throughout the year considering your footprint actions are going be I think, wrapped up by midyear this year. Any detail on kind of the curtailment or operating rate would be helpful. John A. Haudrich: Yeah. Let let me step back and and talk about As as you recall back in 2024, we had about 13% of underutilized capacity, and that that is what drove our program to eliminate the capacity, which we have been working on. You know, that 13% in 2024 dropped to about 6% in 2025, primarily as we made progress on the Americas. Took us a little bit longer in Europe giving you know, complying with labor regulations. So we expect that 6% to drop in 2026 as we complete that activity over in Europe. So that 6% maybe goes down to about 3% or so. We are we also have efforts to kinda reduce some inventories, as I mentioned. And that that that also that extra, you know, you know, downtime actually provides some swing capacity for us, which is pretty important. So as as markets recover that you have the opportunity to take advantage on the upside. So we might be carrying a little bit of of downtime, but we are getting into the into the short strokes there. Bryan Nicholas Burgmeier: Got it. Thanks for that detail. That makes a lot of sense. Then last question for me. You know, you mentioned the the prebuy impact from tariffs. And maybe just as we start to closer to kind of lapping Liberation Day, are you seeing kind of stability or or maybe even potentially a modest recovery in some of those impacted markets? I guess there is maybe still not the full clarity some customers are looking for, but not sure if it has been stabilizing throughout the year. Thanks. I will turn it over. Gordon J. Hardie: Yeah. I would I we are seeing some stabilization, and, certainly, it is it is there is more certainty here than than a year ago. And then we are we are seeing other sort of geopolitical moves, you know, which we would say you know, the UK, which is a an important source market, obviously, for Scotch. You know, opening up, you know, agreements with India and and with China. And depending on how quickly they come to come to action, then that that is that creates sort of opportunities for for the Scotch industry to export more to India and China. And that obviously, you know, then has an impact on on us. Same thing with French spirits, you know, in into China. Particularly cognac. And the higher end wines and things like champagne. So so those those those things help for sure. They were not on the radar. This time last year. They are now. And at least we you know, we are working with you know, the certainty of the system that is there at the moment. So I I think the big challenge in in the U.S. market is is to increase consumer offtake and to drive down the inventories that are in the system. We are seeing, you know, customers make moves to, you know, change in in marketing strategies and and increasing their spend behind that, increasing promotions. You know, to to drive that. So you know, I I I would say the outlook is is certainly more stable, and and I would say probably more positive than than it was this year and last year with all the uncertainty. Operator: Thank you. The next question comes from Francisco Ruiz of BNP Paribas. Your line is now open. Please go ahead. Francisco Ruiz: Hi, good morning. Most of the questions have been answered, but I have I have I have two. First one is is if you could give a little more detail on the European market supply and demand dynamics. I mean, you you commented that mainly before the cut in supply would be in in Europe. How you expect the the volume to perform there? Gordon J. Hardie: Yeah. So happy happy to do that, Ruiz. So what what we are seeing in Europe is well, let me stand back. So in in the Americas, we we see capacity probably tighter and more aligned with with demand and, you know, less sort of price pressure, I I would say, in general across the the markets. There are some pockets where that that does not hold. But in general, I think capacity and and and demand is is pretty tightly matched in the Americas. With regard to Europe, there certainly is more spare capacity. We have obviously, you know, taken, down what we feel is surplus to us. There has been some other capacity taken out across the markets. But if you look at categories like wine in France and Spain, there is still a significant overcapacity, and and there is price pressure in in those categories in those markets. Also, you know, in in sort of mainstream lower lower kind of beer, where we are seeing some, some capacity come on. But it is certainly has tightened up significantly year on year. Okay? And I would say, you know, pricing has has firmed up whereas last year, you are probably looking at a situation of more over and therefore more pressure on pricing. So again, I I would see the situation has has has improved year on year. Obviously, you know, our focus is on what we control and, you know, we are taking, you know, the the actions we have outlined, which should all be completed at the latest, by by the half year. And that would make our network, you know, you know, pretty, pretty, pretty tight. John A. Haudrich: I would add, you know, if you take a look at the trajectory of kinda net price performance, 2024 was a was was was a kind of a reset year. 2025 was significantly better, and then we expect 2026 to be better than than than than 2025 even though we are seeing a little bit of still net price pressure. So it is gradably getting better and normalizing. Gordon J. Hardie: Yeah. And, you know, you you see the significant uplift in in Americas in in 2025. And not so much in in in the EU, and that really is just a factor of timing know, you can you can get to take actions in the Americas that are at a much swifter rate than than in Europe, as you well know. But we have worked through that process, you know, diligently in in a disciplined manner. And we are we are well down the path. To executing, you know, on on the kind of actions that that, that drove the uplifts in America with with or the Americans we will see those coming through now in Europe, in 2026. Francisco Ruiz: Okay. Thank you very much. My my second question is is from one of the drivers that you commented on your Capital Market Day. Which is the move from from can to to glass, which mainly, you highlighted this on a better improvement of your profitability. And now given the the high cost of the of the raw material of the aluminum, it it is making this way alone. I mean, mean, there are there are more opportunities for big companies to to move that way. Are you seeing this this driver already this year, or is it something that is still pending to be seen? Gordon J. Hardie: Yeah. Look. We, certainly in the categories in which we operate, we we have seen a very big slowdown, particularly in North America of that switch. And, you know, if I take a look at the price cap, which I think we outlined about 35%, at IDE, That that is certainly, you know, with the movement in aluminum on paper anyway, to you know, you know, 10%–12% mark. And and historically, you know, when it is been around that level, you see a shift over time, from cans to to glass. Right? However, we are still focused on driving our own internal opportunities to rule know, to reduce costs, and we are not going to stop there. But but, yes, yes, absolutely, it helps. You know, there is can growth in Europe, but it tends to be in the categories where, you know, where glass is not either not highly represented or it is not fit for purpose for a specific channel. Right? And there is there is growth in in kind of CSDs and particularly energy drinks, which is nearly exclusively can. And a lot of those consumption moments are in areas where you cannot use glass, like concerts and beaches and and stuff like that. But, you know, where in terms of of cost gaps to, to cans in Europe, you know, we are we are in a very good position as well. So, so so yeah. So let us see what plays out this year, in terms of of drafts to cans. But, again, certainly in a much better position than we were this time last year in that regard. Operator: Thank you. The next question comes from Richard Carlson of Wells Fargo. Your line is now open. Please go ahead. Richard Carlson: Good morning, guys. I am sending in for Gabe Hajde today. Most of my questions have been answered, but I did want to ask. Hey. Good morning. So inventory was up looks like, $20,000,000 quarter over quarter. We normally would have expected it to be, but down by about that much. So call it about a $40,000,050 million dollars delta there. You actually tracking ahead of your free cash flow guidance earlier in the quarter? It seems like maybe surprise with some of the volume in Americas might have been to blame there. And then, I guess, if so, does this set you up a little better to start 2026 since maybe some of the inventory build into Q1 is already done? John A. Haudrich: Yeah. One thing I was would would would say is when you take a look at those balance sheet numbers, there is a hell of a lot of FX flushing through there. Okay? So on an FX neutral basis, we were able to reduce inventory some last year. Now keep in mind, we did not achieve the the IDS targets we were hoping to at the end of the year. We, you know, we we ended in 2024 at 57 IDS. Were hoping to get that down to 50. We did not get there because of the softness in the back half of the year. But to your point, that does set us up for continued progress. Be made this next year. In 2026. So, yes, we we are anticipating and included in our guidance right now is us getting that fifty days of IDS plus additional progress on on non finished good inventories, things like raw materials and and machine parts, spare parts and things like that, that also can contribute some upside opportunities to cash as we go forward. Richard Carlson: Understood. That is helpful. And then and, John, also, your your quarterly cadence guidance is is reflecting pretty well balanced H1 versus H2. I think based on some of the volume comments you made, I would have been surprised. And and also, based on some of your your peer commentary about, you know, most most are expecting a stronger back half. So maybe can you help us reconcile some of that? And then also, where is is the World Cup contemplated in this, or is that just representing potential upside? John A. Haudrich: I I think it is more of a potential upside. I mean, there is a lot of variables out there. You know, obviously, if if we are talking about flat to slightly down volumes, there is not a lot of those event specific things considered into the into the guidance right now. As we take a look at the the know, the reconciliations and things like that, you know, obviously, some of this has to do with with prior year comps and where we were earnings wise in the prior year. We also are looking at the cadence of a Fit to Win. Obviously, we got a lot of activities here in the first half of the year, especially with Europe. That will start to track into the second quarter. But again, you know, if there is upsides in the markets and they recover, then then that probably, as I mentioned, is not comprehended in the outlook that we have right now. So we are trying to be a practical on our on our outlets right now, and and and, that that includes the the sales volumes at flat to down. Richard Carlson: Thanks, guys, and best of luck in Q1. John A. Haudrich: Thank you. Thank you. Operator: We have no further questions at this time. So I would like to hand back to Chris for closing remarks. Christopher Manuel: Thanks, Lucy. That concludes our earnings call. Please note that our first quarter call is currently scheduled for Wednesday, April 29. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: Morning, and welcome to Criteo S.A.'s Fourth Quarter and Fiscal Year 2025 Earnings Call. All participants will be in listen-only mode. After the prepared remarks, there will be an opportunity to ask questions. For a question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Melanie Dambre, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead. Melanie Dambre: Good morning, everyone, and welcome to Criteo S.A.'s fourth quarter and fiscal year 2025 earnings call. Joining us on the call today, Chief Executive Officer Michael Komasinski, and Chief Financial Officer, Sarah Glickman, are going to share some prepared remarks. Joining us for the Q&A session is Todd Parsons in his role as Chief Product Officer. As usual, you will find our investor presentation on our IR web now as well as our prepared remarks and transcript after the call. Before we get started, I would like to remind you that our remarks will include forward-looking statements which reflect Criteo S.A.'s judgment, assumptions, and analysis as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo S.A.'s business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release as well as our most recent Forms 10-Ks and 10-Q filed with the SEC. We will also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all gross comparisons made during this call are against the same period in the prior year. With that, let me now hand it over to Michael. Michael Komasinski: Thanks, Melanie, and good morning, everyone. 2025 unfolded a bit differently than we had anticipated. Even so, we delivered solid execution and made good progress against our strategy, closing the year with momentum across our key initiatives. One year into my role, we are aligning the company around commerce intelligence and AI decisioning to simplify the business and scale our opportunity as a commerce AI platform for the future of shopping. Consumer attention is more fragmented than ever—websites, apps, social feeds, connected TV, and now AI-powered assistants. That fragmentation increases complexity for advertisers, but it creates an opportunity for us to help them navigate it. We reach shoppers wherever they are with personalized advertising and deliver the outcomes that matter most to brands. All of this is powered by our unique commerce data foundation, an AI-driven performance engine that increasingly acts as an orchestration and decisioning layer across the ecosystem. Operating at global scale, our data foundation gives us visibility into over $1 trillion in e-commerce transactions annually, or roughly $3 billion per day. With reach across more than 3 billion daily active users across channels, including social, and 5 billion product SKUs, we have a global view of how shoppers discover and buy products. That scale and capability translate into $39 billion of commerce outcomes for more than 17,000 customers, reinforcing our critical role to help them grow their businesses. Our diversified reach continues to stand out as a core strength and a differentiator, driving consistent, measurable returns across channels. Simply put, fragmentation favors platforms that can orchestrate decisions and outcomes holistically. That foundation positions us well for the next major shift shaping our industry: the rise of agentic commerce. Against this backdrop, we enter 2026 with conviction and focus. Despite low expected growth in 2026 already well understood by the market, we are strongly confident in the potential of our business beyond the current transition. Our priorities are clear, and we have a world-class team to execute against them. Across each priority, our strategy is consistent: apply proprietary commerce intelligence and AI decisioning to optimize performance at scale. Michael Komasinski: First, we aim to be at the forefront of agentic commerce as AI assistants open new pathways for discovery and purchasing. Second, we are focused on scaling our AI-powered performance engine across channels, across the full funnel, and through self-service. Third, we are reinforcing our retail media leadership by leveraging AI to help retailers shape the future of commerce and deliver measurable outcomes for brands. Agentic commerce marks the next evolution of digital shopping, where intelligent assistants increasingly influence how consumers discover and choose products and services. Winning in this environment requires turning intent into outcomes, informed by real purchasing behavior. As large language model platforms scale and advertising becomes an important monetization model, delivering relevant product recommendations with measurable outcomes sits squarely in our wheelhouse. We are prioritizing agentic commerce now because our commerce intelligence and AI decisioning give us a path to win. And we are moving decisively across three focused areas. First, we are developing an agentic commerce recommendation service designed for prospective partners, including LLM platforms and personal shopping agents. The objective is to enable these platforms to surface product recommendations that are not only accurate, but highly relevant to purchase intent. In broad offline testing, our approach outperformed baseline large platform recommendations, delivering materially higher relevance. We observed an average uplift of 60% in prioritizing the products most likely to be purchased. This reflects the value of Criteo S.A.'s access to real-time purchase data and proprietary AI models optimized for buying behavior. This capability is intended to broaden our partnerships across the ecosystem. And we are already engaged with several potential partners. During the fourth quarter, our proof of concept with an LLM partner advanced into extended testing, and we are preparing additional testing with other partners. Second, agentic environments create additional monetization opportunities. We are testing new conversational shopping experiences including conversational ads and sponsored products within retailer agents. We have progressed a proof of concept and are seeing strong client interest pointing to a path for monetization within these new experiences. Over time, we see meaningful opportunity for sponsored discovery as retailers extend their agentic shopping experiences through retailer-owned apps embedded in LLM platforms. Together, these efforts position agentic commerce as a natural extension of our strategy, reinforcing Criteo S.A.'s role at the center of discovery, relevance, and measurable outcomes as shopping continues to evolve. And third, we are embedding agentic capabilities directly into our solutions for marketers. Our model context protocol infrastructure allows agents to interact with Criteo S.A. in new ways, enabling more dynamic demand creation, activation, and optimization. Agentic workflows are already live across multiple campaigns and expected to drive broader adoption of our solutions among agency partners and brands. We now have multiple agents live across the platform, including audience and insights agents, helping clients reduce manual effort and move more quickly from insight to action. We are extending these agentic capabilities into creation and reporting, to make activation more efficient and scalable. Agentic commerce is a strategic pillar for Criteo S.A. in 2026 and a long-term growth opportunity. Michael Komasinski: Turning to our second priority, scaling our performance engine. We believe performance media has a strong future, and we are reenergizing the business through focused execution across three areas: expanding self-service, increasing cross-channel activation, and extending performance further up the funnel to capture discovery budgets. Early traction across each of these levers reinforces our confidence. And the addition of Ed Denisher, as Chief Customer Officer last month, further strengthens execution. At the center is Go, our AI-powered automation and optimization toolset that enables advertisers to launch high-performing cross-channel campaigns in just five clicks. Go is scaling and progressing as planned, and we remain on track to launch our full self-service offering at the end of the first quarter. Go campaigns deliver stronger results, with higher spend, lower churn, and better return on ad spend. On average, Go campaigns that include social activation deliver more than 20% higher ROAS than traditional campaigns. Today, 37% of Go campaigns include social, supporting our cross-channel strategy. Adoption continues to accelerate. In the United States, one in two campaigns from small clients now run through Go. Our self-service launch expands our addressable market among small and medium-sized business advertisers and represents a significant multi-year growth driver for performance media. Cross-channel execution remains a key differentiator and an important growth lever for Criteo S.A. We dynamically allocate and optimize spend across channels through a single performance-focused orchestration platform. Social continues to scale with double-digit sequential growth in every quarter of 2025, supported by strong momentum with Meta and expanding engagement with additional partners. New video formats launching this quarter for Instagram and Facebook expected to support continued growth. We are extending performance further up the funnel as brand performance becomes increasingly important. In 2026, we plan to test new discovery solutions designed to introduce brands to new customers, with a broader rollout in the second half of the year. While still early, CTV is a growing part of our mix and represents a multi-year opportunity given our under-penetration in one of the fastest-growing segments of digital advertising. By combining the reach of traditional television with the precision of digital targeting, CTV is emerging as an increasingly important performance channel. We are launching new campaigns that reflect growing enterprise adoption and continue to onboard premium CTV publishers globally. Together, these strategic initiatives are expanding our addressable market and broadening adoption, positioning performance media for stronger growth in the second half of the year. Michael Komasinski: Turning to Retail Media. Retail media is the fastest-growing segment of digital and a growth engine for Criteo S.A. We have a clear leadership position and unmatched supply at scale, including 70% of the top 30 retailers in the U.S. and half of the top 30 retailers in EMEA. We are executing with focus and expect revenue to return to growth in the fourth quarter as we move past previously communicated near-term headwinds related to scope changes at two clients. As a trusted partner to 235 retailers, we see agentic commerce reshaping how consumers discover products, not where commerce happens. Agentic capabilities are emerging as an incremental layer on top of existing retail experiences, improving discovery while engagement and conversion remain anchored on retailer-owned sites across an expanding set of formats and touch points. This dynamic is driving retailers to invest further in their own digital storefronts, unlocking new surfaces for sponsored discovery and monetization, and supporting continued growth in e-commerce traffic. Retail media remains integral to retailer economics and margin profiles, reinforcing the durability of the category. We help retailers deliver a superior discovery experience compared with generic LLM outputs. To support this, we are developing an AI-driven optimization layer that allows retailers to balance organic and sponsored content, expanding monetization opportunities while maintaining full control over product selection and ranking. This positions retailers for agentic commerce and reinforces our role as a long-term strategic partner. Agentic systems are designed to preserve this retailer decisioning, whether through retailer chatbots or integrations with third-party LLM platforms. This control is essential for long-term success and creates clear opportunities for Criteo S.A. to help retailers maximize value. We are seeing traction across our strategic initiatives, and we expect retail media growth in the underlying client base to accelerate in 2026 versus 2025. On the demand side, we are enhancing Commerce Max for brands and agencies with new features like search questing, advanced analytics, deeper insights, and AI-powered optimizations to further simplify holistic activation regardless of budget source. Demand partnerships are unlocking incremental budgets. We completed our Google SA360 integration in the fourth quarter and saw strong early performance, including 600% ROAS with a leading global CPG brand. We are working closely with Google to build adoption. Our Mirakl partnership continues to expand long-tail demand and support retailers as they scale their marketplace. We expect our demand partnerships to contribute approximately two points of growth this year across the underlying client base. On the supply side, we are strengthening our global leadership with new wins such as Lidl, Europe's leading retailer, and JB Hi-Fi, leading Australian consumer electronics retailer, alongside major multi-year retailer renewals. Auction-based display continues to lead our retail media growth. Media spend on this new solution increased 65% this quarter, building on last quarter's momentum. Adoption is accelerating with 49 retailers live today, and eight new additions this quarter, including Ulta Beauty. During Black Friday week, on-site display spend powered by Criteo S.A.'s technology more than doubled year over year. We are also rolling out auction-based display to our API demand partners, expanding access to incremental advertiser demand. For retailers using auction-based display, the format now accounts for 21% of on-site media spend, up from 13% last year, highlighting strong performance. Shoppable video is also gaining traction, with video spend up 30% sequentially and acceleration expected in 2026 as retailers move towards full-funnel on-site strategies. Off-site, which extends retail media beyond retail properties, is becoming more strategic and increasingly always on. One of the world's largest computer brands partnered with us on our largest Commerce Max off-site activation to date this quarter. The campaign reached 7 million unique Costco shoppers and delivered more than 2000% ROAS during Cyber Week. All of this translated into disciplined execution in the fourth quarter, with solid contribution ex-TAC and adjusted EBITDA supported by a strong holiday season. Our capital allocation reflects our confidence in the underlying value of the business and the path ahead. The Board increased our remaining share buyback authorization to up to $200 million, and we continue to focus on portfolio and corporate structure optimization with the redomiciliation process on track. Looking ahead, we see meaningful opportunities as we move through 2026. By serving as the AI-driven commerce intelligence and orchestration platform across an increasingly complex ecosystem, Criteo S.A. is well positioned to benefit from one of the most important shifts in commerce and advertising. We are confident this will deepen our role with clients and partners and drive durable growth and long-term shareholder value. With that, I will hand it over to Sarah for more detail on our financial results and outlook. Sarah Glickman: Thank you, Michael, and good morning, everyone. We delivered record results in 2025 with strong margins and robust cash flow generation. Starting with our financial highlights for 2025. Revenue was $1.9 billion and contribution ex-TAC grew 3.5% at constant currency to $1.2 billion, reflecting a year-over-year tailwind from foreign currencies of $14 million. In Performance Media, revenue was $1.7 billion and contribution ex-TAC was $915 million, up 4% at constant currency with our Commerce Growth Solution up 5% and ad tech services down 3%. In Retail Media, revenue was $264 million and contribution ex-TAC was $260 million, up 2% year over year at constant currency. Excluding the two clients with previously communicated scope changes, Retail Media contribution ex-TAC grew 16%. We delivered a strong adjusted EBITDA margin of 35% driven by operational leverage enabled by top-line growth and operational productivity while we strategically continue to invest in agentic AI to fuel our future growth. We delivered free cash flow of $211 million, up 16% year over year. This represents 52% of adjusted EBITDA. Our adjusted net income was $253 million and adjusted diluted EPS increased to $4.62 in 2025. Sarah Glickman: Turning to our fourth quarter performance. Revenue was $541 million and contribution ex-TAC was $330 million, including a year-over-year tailwind from foreign currencies of $8 million. At constant currency, Q4 contribution ex-TAC was down 4% as expected, reflecting a $25 million headwind or about 700 basis points related to previously communicated scope changes with two retail media clients. Client retention remained high at 90%, underscoring the resilience of our model. Macro trends remained stable throughout the quarter with a solid holiday season. In Performance Media, revenue was $465 million and contribution ex-TAC was $255 million, up 2% at constant currency. This was driven by our Commerce Growth Solution up 3%, which uses large-scale commerce data and AI-powered audience modeling to drive cross-channel full-funnel activation. We had a strong Cyber Peak. Travel remains our fastest-growing vertical with growth accelerating to 37%, followed by classifieds, which grew 12%. Retail was softer overall, including a 13% decline in department stores and a 12% decline in fashion. Overall, we continue to benefit from a diversified client base and a global footprint. By region, media spend growth accelerated in EMEA, while trends were softer in the U.S. and Asia Pacific. Similar to last quarter, ad tech services reduced Performance Media contribution ex-TAC growth by approximately 100 basis points due to lower spend in our media trading marketplace. In Retail Media, revenue was $76 million, and contribution ex-TAC was $75 million, reflecting the previously communicated $25 million headwind. Excluding this impact, trends were consistent with last quarter and contribution ex-TAC grew 20% in Q4 across the underlying client base. This growth was driven by continued strength in retail media on-site. We benefited from the traction of our auction-based display offering and newly signed retailers. Growth from existing clients was strong, with same retailer contribution ex-TAC retention at 99% or 110%, excluding our largest retailer, driven by multiyear contracts and exclusive partner with most of our retailer clients. We had another strong holiday season and saw advertising spend grow in all categories and across all regions during the traditional Cyber Six peak. Media spend in Q4 grew 25% year over year as our 4,100 global brands are prioritizing retail media as a key channel for their investments, to reach relevant audiences and sell more products. We delivered an adjusted EBITDA of $120 million in Q4 2025. Non-GAAP operating expenses increased 12% year over year, driven by planned growth investments and a foreign exchange headwind on our euro-based costs, partially offset by our continued focus on productivities. Moving down the P&L, depreciation and amortization was $31 million in Q4 2025, and share-based compensation expense was $7 million, down 67% year over year. Our income from operations was $73 million in Q4 2025, and our net income was $46 million. Our weighted average diluted share count was 53.1 million. This resulted in diluted earnings per share of $0.90 and adjusted diluted earnings per share of $1.30 in Q4 2025. In the fourth quarter, we canceled a total of 2.2 million shares. We benefit from a strong financial position with solid cash generation and no long-term debt. We had $891 million in total liquidity as of December, which gives us significant financial flexibility to execute our growth and capital allocation strategy. In the fourth quarter, we generated $134 million in free cash flow and $161 million in cash from operating activities, driven by disciplined execution and record-low day sales outstanding. Criteo S.A. continues to be a resilient, cash-generative business with the financial strength to invest for growth and return capital to shareholders. In 2025, we deployed $152 million of capital, or 72% of our free cash flow for the year, to repurchase 5.4 million shares. As of 12/31/2025, there were $67 million remaining under the current authorized share repurchase program, and the Board increased our remaining share buyback authorization to up to $200 million. Our capital allocation strategy demonstrates our confidence in our business strategy, financial strength, and our ongoing commitment to enhance shareholder value. Sarah Glickman: Turning to our financial outlook, which reflects our expectations as of today 02/11/2026. For 2026, we expect contribution ex-TAC to be flat to up to 2% at constant currency. As you know, we anticipate low overall growth this year due to retail media client scope reductions. Excluding this $75 million headwind, underlying contribution ex-TAC is expected to grow high single digit. We expect a low point in the first quarter given the one-time tiered fee revenue recognized in January 2025, and we expect sequential improvement through the year with a return to growth in the second half. Our guidance does not assume any revenue contribution from agentic commerce initiatives given their early stage. We estimate forex changes to drive a positive year-over-year impact of about $8 million to $12 million on contribution ex-TAC for the full year. In Retail Media, we expect to drive media spend growth ahead of the market and contribution ex-TAC is expected to decline year over year in the mid to high teens at constant currency due to the $75 million impact from client scope reductions. Excluding the two clients, the underlying Retail Media contribution ex-TAC growth for 2026 is expected to accelerate into the high teens to 20% range compared to 16% in 2025. In Performance Media, we expect contribution ex-TAC to grow mid-single digit at constant currency in 2026. This reflects the expected ramp up of Go over the course of this year while we are experiencing lower spend in certain categories including fashion and department stores in the U.S. Overall, we anticipate an adjusted EBITDA margin of approximately 32% to 34% for 2026. This reflects continued disciplined investments in agentic commerce and AI innovation and key growth initiatives, costs associated with our return to office, and a foreign exchange headwind on our euro-based costs, partially offset by productivity actions. We prioritize high-return investments that lead to sustainable growth enabling margin expansion. We anticipate that the investments we are making this year will position us for continued top-line growth and strong cash flow generation for the coming years. We expect a normalized tax rate of 27% to 32% under current rules, driven by a revolving revenue mix and certain one-time items related to our redomiciliations. As mentioned last quarter, we anticipate higher CapEx in 2026 primarily related to the renewal of certain data centers, with total CapEx expected to be approximately $190 million as we continue to invest in and to optimize our AI infrastructure. We expect a free cash flow conversion rate of about 40% of adjusted EBITDA before any nonrecurring items. For modeling purposes, we assume a flat number of shares outstanding in 2026. For Q1 2026, we expect contribution ex-TAC of $245 million to $250 million, down 9% to 11% at constant currency. As a reminder, Q1 is expected to mark the low point of the year, reflecting an approximately $27 million near-term headwind or about a 10 percentage point drag on growth related to the two retail media clients. Our Q1 guidance also reflects lower spend for department stores in the U.S., soft trends in Asia Pac, and continued softness in ad tech services. We estimate forex changes to drive positive year-over-year impact of about $8 million to $10 million on contribution ex-TAC in Q1. We expect adjusted EBITDA between $50 million and $55 million in a seasonally low quarter, reflecting lower top line, the timing of certain corporate initiatives, and a foreign exchange headwind on our euro-based cost of $12 million. We are pleased that our proposed redomiciliation to and direct Nasdaq listing are progressing as planned with no material tax impact. We continue to expect completion of this redomiciliation to Luxembourg in 2026 subject to shareholder approval later this month and other conditions. Looking ahead, we plan to pursue a further redomiciliation to the United States as early as 2027 to broaden our access to U.S. capital markets. In closing, we have strong conviction in our strategy. We are excited for agentic commerce and we remain focused on disciplined execution and capital allocation while delivering strong margins and cash flow generation. And with that, I will open up the call for questions. Operator: Then 1. If you are using a speakerphone, please pick up your handset before pressing the key. To queue your question, please press star then 2. At this time, we will pause to assemble our roster. We will now open for questions. Our first question comes from Thomas Cauthorn White with D.A. Davidson. Your line is now open. Thomas Cauthorn White: Great. Thanks for taking my question. Maybe two, if I could. I guess, first off, Michael, on the agentic offerings that you touched on at the top of the prepared remarks, could you maybe just talk a little bit more about kind of your end targets or sort of prospects, I guess, for the AI recommendation service and you talked about helping surface sort of more personalized product recommendation. Like, if it is the LLMs, I guess I am just trying to understand, like, sort of how realistic it is that you are going to I guess, be able to convince them to I guess, help influence the way that their search results look in such a meaningful kind of an important way. And then just on the maybe a follow-up on the department store weakness you cited. I am just curious if there is any if that is related to the Saks Global bankruptcy or maybe there is something broader going on there. And maybe you could just quantify your exposure, Sarah, to Saks and all the various brands it has. Thanks. Michael Komasinski: Yeah. Happy to address those, Thomas. Good questions. Look, I will start on the agentic topic and then hand to Todd, and then Sarah will address the department store question. But as we said in remarks, right, we have broadened out our partnership discussions on the product reco service now to be with multiple partners. And it is driven by the hypothesis that the fidelity and relevancy of product recommendations that comes out of those platforms is essential for them to compete for daily active users. And so it is a really important use case for them. And we thesis goes further to say that there is no way for those platforms to surface high-quality recommendations without access to product recommendation engines that are grounded in commerce data. Right? Semantic sort of scraping and compute alone will not get to the fidelity of answers that are required to really win in the commerce recommendation category. So it is early days in terms of how that revenue model might manifest. But it is important for us to expose the deep capabilities that we have and, you know, really embed ourselves deeply in that ecosystem as it evolves. I will let Todd talk a little bit about sort of the reco engine itself and kind of where we see that going with the partners. Todd Parsons: Yeah. I would just add to that that because the reco service in our system is application agnostic, Tom, it extends our data distribution advantage for merchants across the full ecosystem, not just LLM agents. So everything that Michael said about improving the experience and the results of a query in an LLM agent is true. But the service itself is adaptable to all the rest of our cross-channel full-funnel mix. So whether social platform, CTV, or other advertising related services, we are able to deliver outcomes in recommendation with an ad payload or not wherever consumers decide. So the flexibility of the service itself supports multiple monetization models as the agent ecosystems develop. Not just the LLMs, which gives us a great deal of leverage. Sarah Glickman: Hello, Tom. Just to comment on or maybe not comment on specific clients, I would say that in our prepared remarks, talked about department stores being down 13%. And also fashion, which is a vertical for us, being down 12%. So we do continue to see, I would say, headwinds that started in Q4 that will continue into 2026. Thomas Cauthorn White: Okay. Thanks, Michael. Thanks, Todd. Thanks, Sarah. Operator: Your next question comes from Mark Patrick Kelley with Stifel. Your line is now open. Mark Patrick Kelley: Great. Thank you. Good morning, everyone. A couple of quick ones. Or maybe not quick. The first one, just on Retail Media specifically, I appreciate all the color about the moving pieces for Q1 and as we move throughout the year. I guess, maybe can we put maybe a finer point on how we expect underlying growth to, you know, is it linear throughout the year or is it more of a step up in Q3 and then Q4 as you add these, you know, two new partners and we start to lap the other, you know, the two partners that, you know, changed the way they work with Criteo S.A.? I guess that is the first one. And then the second one, can you just remind us the incremental opportunity in Commerce Go as you, you know, move to a self-serve offering and, you know, that kind of removes the minimum spend requirements from some of the cohorts that maybe were not able to use Criteo S.A. in the past. Can you just walk through those dynamics for us one more time? Thank you. Michael Komasinski: Sure. Mark, I will just start the Retail Media question and then hand off to Sarah. But there are several growth drivers for that business over the course of the year. And Sarah can then sort of talk about phasing. But we continue to scale the products that we introduced last year, in particular the auction-based display product. We continue to win new retailers, as we mentioned in the script. And actually, Q4 tends to be a quieter quarter for winning new retailers given their focus on holiday operations. And then, you know, as we get into this year, the investments in Commerce Max, the additional rollout of features like conquesting. Like, we continue to have a really robust pipeline of products to roll out that are going to drive growth against that scaled client base. So a lot of confidence in how that business will perform ex the headwind that we have talked about. You want to talk a little bit about the phasing and assumptions? Sarah Glickman: Yeah, we—I believe we put in the slide the breakdown, the quarter-by-quarter impact of the two largest clients, but it is certainly front-loaded. And, yes, we do anticipate growth kind of pacing throughout the year. So the Q1 and Q2—Q2 more impacted, so it is about $27 million in Q1, and then it will start to ramp down. But we do continue to have an impact even into Q4 of next year. Also, I would say that Q1 is our smallest quarter, and we obviously have more seasonality going into the second half. So there is a bigger impact, if you will, on the percentile just given that dynamic. Michael Komasinski: Right. And, look, I can just start the Go answer real quick and then hand to Todd for some extra color on that. I think when we think about Go, we do get very focused on the SMB opportunity and the self-service rollout. I think that is really the new and exciting part. But more fundamental part that I would share is Go starts to really be an expression of our cross-channel full-funnel strategy. With this sort of very highly automated and decisioning engine that sits in it. It really starts to transition us from a managed service offering, some self-serve. And as we really stand up supply channels at scale, the efficacy and power of that cross-channel optimization really starts to come through. And I think that is what we will see across 2026, and that actually will be applicable to our entire client base, not just limited to SMB, although that tends to be the focus with the self-service launch. But I believe that that optimization engine really gets expressed through Go in a more powerful way. Todd Parsons: I would only add one point to that, which is that as we are seeing clients opt in and use the Go product, we are seeing some of those larger clients take advantage of the fact that they can advertise cross-channel full-funnel, as Michael said, and maintain constant performance for whatever KPI it is that they are advertising against. That is what really sets Go and our cross-channel full-funnel strategy apart. It is making it impossible to think about all of the complexities of the single channel because the product is helping make those decisions and dynamically reallocating budgets for our advertiser. And big and small advertisers are tending to like that. Both of them. Mark Patrick Kelley: Thank you very much. Appreciate it. Operator: Your next question comes from Justin Tyler Patterson with KeyBanc. Your line is now open. Justin Tyler Patterson: Great. Thank you. Could you expand a little bit more on how you are seeing retailers and brands adopt their own kind of internal LLM agentic tools right now. I thought it was a good characterization you had of just kinda dimensioning between the broader chatbots that are in the market and then some more retail-specific solutions. So would love to hear a little bit more about just what stage those clients are in their journey. And then just, you know, stepping back, it does seem like agentic has gotten very good at—or, excuse me, just broader AI has gotten very good at—personalizing ads for international markets, making them hyper localized. So I would love to hear just kind of what experience Criteo S.A. has had around that, whether it is just local language, adoption, more more kind of targeted scenery with an ad, so on and so forth, and how that is influencing conversion rates. Thank you. Michael Komasinski: Yep. Great questions, Justin. I will take the AI retail question, and then Todd will take the global personalization question. I think what is interesting about retailers in this sort of AI and agentic conversation is the starting point. Right? They are already very bought in on serving relevant sponsored ads as a core part of the experience and as part of their business model. So they do not really have any, like, you know, tension about whether that is something they are going to do or not. It is fundamental to retailing, and the capabilities that have built up to show sponsored ads in, like, say, on-site, those capabilities are directly applicable to the new services. And so if you are a retailer, you are not gonna sit back and surrender the discovery layer to other platforms or customer journeys that you want to own. And so they are all aggressively investing in shopping agents or more agentic or AI-enabled front ends that allow discoverability, a more curated experience, and Criteo S.A. is right there powering the way that relevant, sponsored opportunities show up in those surfaces. So in terms of innings, it is early innings, but we have several pilots underway with very large-scale retail clients around different versions of that, whether it is conversational ads, sponsorship inside of chatbots that are on-site, or sponsored products that are going to show up in apps that are hosted on the LLM platforms. So there are a few different flavors of that. But they are all rushing to make sure that they maintain share of customer journey and our relevancy engine and data feeds power that. So we are excited about this, and I think you will see retailers continue to make really good strides with this across the year. Todd Parsons: Yeah. I would just add on the creative piece. So it is not just a regional thing that we are seeing show up. It is really affecting our entire business across the board. Just wanted to seize on Michael’s mention of Go, where we are using AI for not just localization and personalization, but auto-generated creation, whether it is text to image or whether it is image to video. What we are seeing in practice is that our customers that are self-serving into Go are using those products incredibly fast. And that the results of using those products—take image to video, for instance—are really driving higher rates of performance across the board. So this is showing up across our whole business. But in the self-service context, specifically, it is very exciting. Operator: Thank you both. Your next question comes from Alec Brondolo with The Benchmark Company. Your line is now open. Alec Brondolo: Good morning, guys. Thanks for taking the questions. This is Alex on for Mark. First, I was hoping you could qualify or quantify the implied decremental adjusted EBITDA margin impact for Retail Media predicated within guidance for the year. And perhaps what the incremental investment profile for agentic looks like this year relative to last. Then second, with Off-site becoming more of an always-on budget, if you will, what level of contribution is implied within guidance this year relative to 2025 extra large client transition? And understanding you are not factoring incrementality from agentic? Thank you. Sarah Glickman: Hello, Mark. Just to—on—we actually put in some slides into the deck related to the walk. We put out the Retail Media related to EBITDA, but we do talk about obviously, the more muted growth rate. So we have assumed that including the growth net of Retail Media is about 170 basis points. And outside to the year, and then you will see from the walk that we have also incorporated within our EBITDA guidance—so a growth investment of about 260 basis points, kind of going up. Our assumption is that we are highly focused on the productivity actions within the entire company to ensure that we, I would say, mitigate and transform from where we are to move forward, and that there has been a deliberate shift in focus into agentic AI investment. And more productivity actions in terms of there being less now retailer—sorry, Criteo S.A.-sold within our Retail Media pipeline. Alec Brondolo: Got it. Thank you. And then just curious if you could elaborate on the implied mix of Off-site within guidance this year, just directionally how to think about incremental drivers 2026, considering you are not implying or factoring any incrementality from agentic. Michael Komasinski: Yeah. Yeah. Like, we did not load the plan with any agentic upside from things like the product recommendation engine, but in terms of, like, retail off-site, and just kind of off-site more broadly, I do not think we break that out specifically, but let me comment. The Retail Media off-site market is still in the early innings. Only about 15% of that market is off-site. But it is starting to get traction as platforms mature and look for additional revenue sources beyond sponsored products and on-site opportunities. So we have got 40 retailers participating in our off-site program. And we mentioned the great case study with the global computer brand and Costco in the prepared remarks. It is a great example. Our value prop is differentiated because agencies and brands basically get to approach retail marketing with a fully integrated capability where they can integrate off-site and on-site and have better measurements across how those two are working together. And we leverage, you know, unique third-party audiences for off-site. We have got full-funnel closed-loop measurement. And we also have several retailers running off-site monetization through our SSP, which gives us another way to approach that market depending on how retailers want to scale that. So in the SSP, we enable brands to access retailer audiences via third-party DSPs if that is the path we go. So early innings, but I think we will get more focus on this from the industry in 2026 and 2027. And we have got two paths to execute on that between Commerce Max and the SSP. Alec Brondolo: Very helpful. Thank you, guys. Operator: Your next question comes from Tim Nollen with SSR. Your line is now open. Tim Nollen: Hi, thanks so much for taking the question. I would like to dig a little bit more into a couple of topics that have already come up on the call. And it is really about how do you make money from your clients doing these AI initiatives? So a previous question was about kind of focusing on the retailer client side and these new products that you are launching. Can you explain, you know, what is the pricing model? How are you charging for that? Is it a transactional-based business as you have typically done, or is there, like, a service element that you are making money off of? And then on the kind of the big AI company side, I guess they are not necessarily customers of yours, but you need to be integrated with them to make sure that all these agentic processes work. Just help us understand, is it more the retailer traditional customer side that you will make money from or is there a revenue opportunity from the native AI companies as well? Thanks. Michael Komasinski: Yeah. I am happy to take that. I am just making a couple of notes here. So the—yeah—the monetization opportunities obviously vary. So in retail, surfacing sponsored product in those interfaces is largely the same fee structure that we have today for serving those on-site. It is a take rate model, not dissimilar from how that works today for on-site products. As we think about the LLMs, like I said earlier, really the play right now is to get out to an industry leadership position with our offering, get deeply embedded into that ecosystem, and then as they develop their monetization models, we will figure out how we participate in that. It could be a continuum from paying for that API access, almost like, you know, fee for content, all the way to some kind of participation in their economic model as their monetization strategies evolve and mature. So it is early days there, but there is a continuum of paths forward. And there certainly needs to be a monetization on that at some point in time. Todd, you have anything you wanted to add? Todd Parsons: Yeah, would just add one thing, Tim. What we know from operating our business for years is that brands want to be discovered. They want new audiences to discover their product or discover them for the first time, independent of whether it is a paid or an organic discovery. And what you hear Michael saying is that we have two paths to get to those outcomes of a brand being discovered and their product being bought. One is to take advantage of the traditional paid approach that we have done well for years, and that will show up in the LLMs that are developing advertising solutions. And the other one is organic, and you are seeing that from the recommendation service today. We can get a brand discovered organically, and that is where the pricing model is a little bit less clear. That has not been part of our core business. It is still representative of an outcome for that brand being discovered. And we know we will monetize it but it is an organic discovery rather than a paid discovery. Tim Nollen: So that is why we are a little loose on what we are doing there. The experimentation now is focusing on making sure the discovery works better and we know the monetization will come right after that. Unknown Analyst: Thanks. And can I just follow-up? To be clear, you mentioned—I think, Sarah, you said—there is no assumption of any upside from agentic tools. I guess you are referring to the new things that you have rolled out recently. Some of the announcements that you have made. It feels like you may be holding back on the quantification of that given how enthusiastic you are about some of these tools and processes. Am I reading that correctly? Sarah Glickman: I would say yes, but to Todd’s point, we have not monetized it yet. So it is—yeah—we cannot assume something that we have not got, I guess, signed contracts for at this point. So we are very excited about it. We believe we are in a really, really strong position to be, I would say, the ad tech company of choice to partner with the agentic commerce. But, yes, I would hope that you will see more announcements and more upside going forward. Operator: Again, if you have a question, please press 1. Your next question comes from Richard Alan Kramer with Arete Research. Your line is now open. Richard Alan Kramer: Michael, maybe you could shed a little light on the lower take rates that we saw across Retail Media and Performance Media. Historically, Q4 would see stronger take rates in both segments. And what was driving that weakness? Is it competitive pressure? Is there some other factor here in terms of wanting to lock down business? I mean, what explains that? And maybe one for Sarah. Given the weak first quarter 2026 guidance and your comments about Retail Media growth during the year, how much of the 2026 budget do you have currently committed or do you have visibility on? And how much still needs to be determined over the course of the year? Thanks. Sarah Glickman: Yeah. I will take the take rate questions and I just want to clarify your second question. So I think I missed some of that. But in terms of take rate, we do continue to have strong take rates within Performance Media. As we move further up the funnel, those take rates change, so there is some mix related to we are serving more social, more CTV. So we kind of are moving into new areas with, I would say, just a different—a different mix of take rate, but we feel very good about the mark we are getting in Performance Media. On Retail Media, we do see the, I would say, the expected compression of the take rate year on year. That does largely relate to the change that we did in the rundown—Oh, sorry—in the large retailer contract. And so that is part of that impact. And we do also see a mix issue there as we continue to add more display advertising that would be at a lower take rate than the on-site sponsored ads. And just to add one comment on on-site, we see a massive moat for us that we do own the on-site space. So further to the question kind of earlier in terms of as we continue to transition and move into these new spaces, they will likely have a lower take rate. However, there is clearly more scale there. Richard Alan Kramer: Then the visibility? Could you just repeat the second question? I did not hear the whole question. Richard Alan Kramer: Yeah. I mean, you know, given the—obviously, you are having what is gonna be a pretty slow start to the year and your comments about growth over the course of the year, how much of the 2026 budget that you are looking for is currently committed? Or do you have line of sight visibility on And, you know, I guess we are all concerned about how that progresses over the course of the year. Sarah Glickman: Yes. I mean, I would say we have very strong forecast capabilities. But as you know, most of our revenue is recurring revenue and tends to shift season to season and product by product. So we do not have full visibility to the year’s forecast, and that is very usual for us. However, we do have—especially with Ed coming in as well as the commercial leader—we have a very strong focus on our planning cycle with our large retailers and with our large customers. Kind of at the start of the year, a lot of that starting now, either for January or February as they move into their new year. So the visibility is strong. I would say the AI tools that we have to understand forecasting along with our clients is also stronger. But same as usual in terms of a high-rate recurring revenue base. Operator: K. Thanks. Thank you, Michael. Sarah. That concludes our call for today. Thanks again to everyone for joining. If you have any follow-up questions, the Investor Relations team is available to assist. Operator: Have a great day. The conference has now concluded. Thank you for attending today’s. You may now disconnect.
Operator: Good morning, and welcome to the Hilton Worldwide Holdings Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's prepared remarks, there will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Mr. Charlie Ruehrer, Vice President, Corporate Finance and Investor Relations. You may begin. Charlie Ruehrer: Thank you, Chuck. Welcome to Hilton Worldwide Holdings Inc. fourth quarter and full year 2025 earnings call. Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-Ks. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.hilton.com. This morning, Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment and the company's outlook. Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then review our fourth quarter and full year results and discuss our expectations for the year. Following the remarks, we'll be happy to take your questions. With that, I'm pleased to turn the call over to Chris. Christopher Nassetta: Thank you, Charlie, and good morning, everyone. We appreciate you joining us today. We're pleased to report a solid end to what was another strong year for Hilton Worldwide Holdings Inc. In 2025, we expanded our portfolio of brands, grew our pipeline to a new record, and strengthened our nearly 125 million member loyalty system with new partnerships and loyalty tiers, all of which we believe sets us up for continued growth in 2026 and beyond. Together with our team members and owners, we have delivered a solid year on both top-line and bottom-line performance. For the full year, system-wide RevPAR growth was up 40 basis points year over year, driven by strong performance in EMEA and growth in group and leisure transient. Industry-leading net unit growth outperformance in non-RevPAR business lines and cost discipline drove record adjusted EBITDA of $3.7 billion, up 9% year over year. In 2025, we returned $3.3 billion to our shareholders, the highest total capital return in our history, even with the softer than originally anticipated RevPAR, demonstrating the power of our capital-light business model. Turning to results for the fourth quarter, system-wide RevPAR increased 50 basis points year over year. As strong international performance and solid group demand were offset by softer U.S. government demand and weaker international inbound into the U.S. In the quarter, leisure transient RevPAR was up 2.3%, driven by international strength, especially in EMEA. Business transient RevPAR was down 2.1%, driven primarily by headwinds from the U.S. government shutdown. Group RevPAR was up 2.6%, driven by strong international group growth and company meeting demand. System-wide RevPAR for the quarter was strongest in December, up 1.7%, with strength in leisure and group and a meaningful pickup in business transient. Positive trends continued into early 2026, with group leading, including strong in-month group bookings, solid leisure demand, and continued business transient improvement. For the first quarter, we expect RevPAR growth of between 12% year over year, including the impact from the recent storms in the U.S. As we look to the year ahead, we feel optimistic that 2026 will be stronger than 2025. We believe this will be driven by continued strength in EMEA, improvement in APAC, and an improvement in the U.S., driven by stronger economic conditions, major events, easier comps, and continued limited supply. For the full year, we expect system-wide top-line growth of 1% to 2%, with international performance stronger than in the U.S. Turning to development, during the fourth quarter, we opened nearly 200 hotels, totaling nearly 26,000 rooms. For the full year, we added nearly 100,000 new rooms to our global portfolio, representing full-year net unit growth of 6.7% and our biggest year of organic openings. We achieved several milestones in the year, including reaching 9,000 hotels globally, celebrating 44 brand country debuts, opening our first property in four new markets, including Tanzania, Rwanda, Pakistan, and the U.S. Virgin Islands, and opening our 1,000th luxury and lifestyle hotel globally. Our luxury lifestyle brands continue to expand around the world, comprising nearly 30% of our total openings in the quarter. Lifestyle had a strong year, with all eight brands reaching record room counts and nearly all expanding their presence in new markets. Within our collection brands, for the full year, we opened over 11,000 rooms across 18 countries, including nine country debuts. It was a record year for tapestry growth, opening over 40 properties in the year, including most recently the debut of Tapestry in Japan. Within luxury, we continued to build strong momentum after the Waldorf Astoria New York opening, and in the fourth quarter, we opened our second Waldorf Astoria in Shanghai and celebrated the brand's debut in Helsinki. Strong interest in Waldorf Astoria continued into the fourth quarter as we announced agreements to expand Waldorf Astoria into several iconic cities across Greece, Spain, Oman, and Malaysia. In 2025, we also expanded our LXR footprint with new openings in France and Greece and announced plans to debut the LXR in the Turks and Caicos in the next few years. Conversions remain integral to our growth and accounted for roughly 40% of room openings in 2025, demonstrating the strong value proposition our system continues to deliver for owners. Against this backdrop of continued owner demand for conversion-friendly brands, we have been evolving our brand portfolio and creating opportunities to build the next chapter in Hilton's growth. We recently launched Apartment Collection by Hilton, which marks Hilton's entry into the fast-growing apartment-style lodging segment that represents a clear white space in the market. As a collection brand, it provides owners with flexibility to preserve a property's unique character while benefiting from Hilton's powerful commercial engine, global distribution, and award-winning Hilton Honors loyalty program. Apartment Collection by Hilton, alongside our other newly minted brand, Outset Collection, will be incremental drivers of our conversion momentum in the years to come, as will new brands, several of which we expect to launch later this year. Even with robust openings in the fourth quarter, our pipeline reached the highest level in our history, surpassing 520,000 rooms, reflecting both year-over-year and sequential growth driven by expansion across strategic markets and brand categories. New development construction starts in the U.S. were up over 25% in 2025, a trend that we expect to accelerate even further into 2026. Globally, for 2026, we expect new development construction starts to be up over 20%, bringing us back close to 2019 levels, signaling healthy developer appetite. As we look ahead, we expect that our robust global pipeline, strength in conversions, construction start momentum, and industry-leading brand premiums will support sustained net unit growth of between 6% to 7% for 2026 and beyond. We also remain focused on initiatives to drive increased loyalty, engagement, and guest satisfaction. In 2025, we strengthened our Hilton Honors Program by making loyalty both more accessible and more rewarding by introducing a faster path to elite status and a new premium tier in our program. We also launched Hilton Honors Adventures, an extension of Hilton Honors that invites travelers to immerse themselves in bucket-list-worthy travel, elevating loyalty benefits across land and at sea. Hilton Honors Adventures partnerships now include Explorer Journeys and AutoCamp, and we expect more to come as we continue to prioritize ways Honors members can earn and redeem points. Overall, we continue to see extraordinary performance of Hilton Honors in 2025, with the program now approaching 125 million members. During the quarter, Hilton was again named the number one world's best workplace by Fortune and Great Place to Work for 2025, becoming the first and only hospitality company to top both the global and the U.S. list twice. Our brands continue to receive recognition as well, and in 2025, Entrepreneur's Franchise 500 extended our seventeenth consecutive year run with Hampton by Hilton ranking number one hotel franchise in the lodging category. In total, 12 brands were recognized in the 2025 rankings for their performance and franchise value. Overall, we are proud of our performance in 2025 and believe our results continue to reinforce the power of our business model. Our brand-led, network-driven, and platform-enabled strategy will continue to help us achieve our robust growth trajectory and meet the evolving needs of our travelers around the world while delivering great returns to owners and shareholders. We're confident that we're well-positioned to continue driving strong performance in 2026 and beyond. Now, I'm going to turn the call over to Kevin, who will give you a few more details on the quarter and expectations for the full year. Kevin Jacobs: Chris, good morning, everyone. During the quarter, system-wide RevPAR increased 50 basis points versus the prior year on a comparable and currency-neutral basis. Growth was driven by strong international performance and solid group demand. Adjusted EBITDA was $946 million in the fourth quarter, up 10% year over year and exceeding the high end of our guidance range. Our performance was predominantly driven by strong performance in EMEA, non-RevPAR driven fees, and continued disciplined cost control. Management and franchise fees grew 7.4% year over year. For the quarter, diluted earnings per share adjusted for special items was $2.08. Turning to our regional performance, fourth quarter comparable U.S. RevPAR decreased 1%, largely driven by pressure across business transient and group, which underperformed expectations due to the prolonged government shutdown. For full year 2026, we expect U.S. RevPAR growth towards the low end of our 2026 system-wide guidance. In The Americas outside the U.S., fourth quarter RevPAR increased 3.8% year over year, driven by strong demand in both leisure and group segments. For full year 2026, we expect RevPAR growth to be in the low single digits. In Europe, RevPAR grew 5.3% year over year, led by strong leisure activity in Continental Europe due to events and holiday-driven demand. For full year 2026, we expect low single-digit RevPAR growth in the region. In the Middle East and Africa region, RevPAR increased 15.9% year over year, driven by strength in leisure and group demand due to major events. For full year 2026, we expect RevPAR growth in the mid-single-digit range. In the Asia Pacific region, fourth quarter RevPAR was up 9.2% in APAC ex-China, led by growth in Australasia from major events and strength in Japan and South Korea. RevPAR in China declined 1.4% in the quarter, an improvement to prior quarters, but remained constrained by weaker group demand due to the government travel policy. For full year 2026, we expect RevPAR growth in Asia Pacific to be in the low single digits, with RevPAR roughly flat in China. Turning to development, as Chris mentioned, for the quarter, we grew net units 6.7% and now have more than 520,000 rooms in our pipeline. We continue to have more rooms under construction than any other hotel company, with approximately one in every five hotel rooms under construction globally slated to join the Hilton portfolio. We expect to deliver 6% to 7% net unit growth for the full year. Moving to guidance. For the first quarter, we expect system-wide RevPAR growth to be between 12%. We expect adjusted EBITDA to be between $875 million and $895 million and diluted EPS adjusted for special items to be between $1.91 and $1.97. For the full year, we expect RevPAR growth of 1% to 2%, adjusted EBITDA of between $4 billion and $4.04 billion, and a diluted EPS adjusted for special items of between $8.65 and $8.77. Please note that our guidance ranges do not incorporate future share repurchases. Moving on to capital return. We paid a cash dividend of $0.15 per share during the fourth quarter, bringing dividends to a total of $143 million for 2025. Our Board also authorized a quarterly dividend of $0.15 per share. For 2026, we expect to return approximately $3.5 billion to shareholders in the form of buybacks and dividends. Further details on our fourth quarter and full year results can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Chuck, can we have our first question, please? Operator: Thank you. The first question will come from Shaun Clisby Kelley with Bank of America. Please go ahead. Shaun Clisby Kelley: Hi, good morning everyone. Thanks for taking my question. Chris, like, would love to start with you both in the prepared remarks and overall sound a bit more optimistic. So we always value your kind of overview of where we kind of sit with the broader economy and the lodging industry. If you could just kind of give us your kind of latest thinking there and maybe specifically, a few thoughts around the business transient environment, particularly large versus small corporate. I think on the small or medium size, we've seen some weakness. Wondering what you think about that as we kinda turn the page into 2026. Thanks. Christopher Nassetta: Yep. Great question. And, obviously, probably what's the number one thing on everybody's mind. So a lot of this I covered on our last call and as I've talked to individual investors, you know, have shared these thoughts. But you know, if you think back about what I said, you know, on the third quarter call, I was reasonably optimistic about '25, you know, being a decent year, but '26 and, frankly, beyond, you know, at least for the next couple years. Being better. And my underpinning of that, which you know, I still believe is that you have some macro forces and some micro forces that are converging in a really positive way. Number one, being, you know, inflation does structurally continue to come down. If you really factored for the lag effect of the housing input, is over 30% of the contribution to the inflation numbers and you factor for what it is real time, would argue it's actually lower than, you know, than is being reported. So that's a good trend. What does that mean? That means expectation which I believe that rates will continue to come down, which will be stimulative and positive in a bunch of ways. You see it this week and broadly, you know, you're in, you know, a very big deregulatory environment under, you know, in The United States under this administration, which is obviously I think, real positive in a bunch of different ways, whether that's financial services, energy, AI, you know, basic and infrastructure, reshoring, you know, there is a massive amount of that is going on. You have fixed tax policy that got done last year that is just you know, that is super business favorable and investment favorable and, you know, you expect to see that start to benefit. And then a massive investment cycle, the obvious being like the AI complex, just the major tech companies in the last two weeks alone, I think, when I finished adding it up, they are going to spend this year $700 billion. So let's just say there's gonna be a lot more than a trillion dollars spent on that. In you know, by that complex all of the energy that goes along with it, all you know, everything around the AI complex, I think, is huge. But then the other things going on more quietly are reshoring, whether that's in rare earth minerals and pharma, chips, all of that stuff is going on. I mean, the chips act that got passed during the Biden administration, very little of that money has been spent. And then you have core infrastructure where we approve, you know, congress approved $1.6 trillion when you add up all the pieces. Again, a very small part of which has been invested at this point. When I talked in the third quarter, I said like, intellectually, it's really hard for me not to be you know, when I lift up above the noise of day to day politics to not feel like those things are gonna be really good for the economy and it's undeniable. But at the same time, I said, you know, I don't know exactly when it's gonna come, And at that point, we were not seeing a whole lot of evidence that that that was sort of seeping into the economy. Although I was very confident, as you remember, that that it would. By the way, the other thing going on is we're at the beginning of one of the greatest productivity booms in American history with the, you know, the whole AI Once those investments get done and over the next several years of adoption, you have massive opportunities on productivity. My belief then and now was that we will have economic growth picking up, and most importantly, because it impacts our business, that it would be broader based economic growth. It would not be as much this K economy where the very high end, the very wealthy keep doing well, and the middle class and below continue to struggle to pay for groceries and gas and their utilities. But that you would start to ultimately because the middle class has to be involved to make all this happen, particularly the investment side that you would start to enter a world where you would see middle class real wage growth. By the way, I think right now, you're starting to see the first prints of middle class real wage growth. That means people have more disposable income, and they will be spending more money including on our products. When you really get down to it, the bulk of our system, I think everybody's system is more concentrated because the middle class is the biggest percentage of the population in the mid market. And so, That's what I thought last quarter That's what I think now. The only difference I would say, is that we're starting to see it. Now I'm gonna be really honest. That and it's obvious, so I should be honest, is the data set that I'm looking at are not you know, months and months, quarters and quarters. What I'm really looking at as I said a little bit, when we talked about December is the end of the year got got a lot better than we thought. Even with the storms, the beginning of this year has been better. And it's been better in the ways we'd want to see it. What does that mean? That means midscale, upper mid scale, You know, it means midweek, it needs it means business transient to your question, Shaun, we're seeing a meaningful change from what we were seeing earlier in the fourth quarter and certainly in the third quarter. Whether that's sustainable or not, I don't know. But it feels to me if all the other macro conditions that I was talking about, if those continue to develop it sort of has to be the beginning of a trend. By the way, the other thing it's not macro, it's micro, but I said micros, we have a bunch of like, benefits this year, which you guys are aware of. Number one, the comps is said, are easier because I mean, you could have other things happen, but liberation day was a pretty big deal and the biggest government shutdown in American history was a pretty big deal. You hopefully don't repeat those at that, you know, at that scale. And we have a bunch of unique events, which you're well aware of, with the World Cup, America's 250, that are really stimulative to travel at the same time all these other things are going on. And so you know, I you know, yes, I have you know, we're at the beginning, I think of a trend. We have to get more data, you know, and, like, see it really sort of continue. But I I like what I'm seeing right now. And and as a result, you saw in our guidance that we think that 26%, as I had thought last quarter, will be a lot better than than 25. And I think we have very solid underpinnings to back that up. In the first quarter, by the way, in the guidance we're giving, super solid. At this point, we're halfway through the quarter. We have very very good sight lines into the rest of February and even into March, and it feels that it feels good in all the ways I just described. So that's the reason for my increased optimism is data. That I'm actually able to see data that says what I hoped and thought would happen is starting to happen and hopefully is sustainable. Operator: Your next question will come from Daniel Brian Politzer with JPMorgan. Please go ahead. Daniel Brian Politzer: Hey, good morning, everyone. Thanks for taking my question. You touched on this a bit, but maybe in a different lens. The AI and technology front, I mean, this continues to obviously evolve at a very rapid pace. So I guess the question is, how close are you to maybe announcing some partnerships there, if that's on the horizon? And then how do you think about the opportunity here both from the OpEx side internally and then externally from the revenue side in terms of distribution. Christopher Nassetta: Yeah. I mean, I talk we talked a lot about I think on the last call too and I suspect we'll be talking about this on every single call because, obviously, it's important. And as you can imagine, we're spending a huge amount of time on AI throughout our whole organization. And one of the things that I believe gives us a meaningful competitive advantage is that we have a modern tech stack. And relative to our competitive environment, I don't think anybody can claim what we can claim. And what is that? Well, you know, it's not me just patting my chest. It affords us much greater flexibility and agility to adopt AI in a bunch of really interesting ways. And so you can imagine we're exploring all those. As I said last time, there's sort of three big buckets of things. The first is just like creating efficiencies in the system. Some of that could benefit G and A. By the way, you've seen some of the benefits. I mean, G and A is lower than it was six seven years ago, and that's not all AI, but part of it is process reimagination, making ourselves better, applying the use of technology in ways been doing that forever, and AI is just another amazing tool that allows us to speed some of that up. And so we're looking at tons of things, like, you know, hotel openings is the one that we our teams are deep in the middle of. Like, you know, so many people touch you know, the process of opening a hotel, dozens and dozens, like, you know, creating, you know, massive efficiency around connecting all those dots. And we have dozens of other use cases in that area. And then there's the whole distribution space, which is the crux of your question. We tend not to make big announcements until we've done things. We're working with many of all the big players out there, the OpenAI, the jet, you know, Google. We're working with all of them. We're part you know, not not but the big ones that are big in the travel or trying to either are or trying to be. We're involved in all of their tests and, you know, we're developing the connectivity with those platforms, and I'm super optimistic about that. We're also because we have a very modern tech stack, doing some really interesting things in sorta natural search connected to booking and the experience within our own platforms some of which you'll start to see, you know, at some point in second quarter, which I think are really cool. My own view on the distribution space is quite I said, probably said this last time is simple. Like, we believe we have the best products, deliver the best service with the best culture. Our loyalty that continues to be super relevant, and the customers want what we do because we're good at it. We do a good job. Like, if you look at the hard data, market share, review site index, we perform really well. Customers wanna find us. We believe what's going on with AI is spectacular. There's always risk, by the way. You know, like, not don't have my head in the sand nor does anybody here. But I think in our space, which is very hard to disintermediate because it's physical business, The opportunities are far greater, both in distribution and otherwise than the risks are. And why? Because if we keep doing a really good job the way we do it and customers want our stuff, they're gonna be able to find our stuff in what will be frankly a more competitive environment that we've seen heretofore. They'll be able to find it in a way that's easier with less friction and that's more efficient. And so my belief is this is a pathway to lower distribution costs broadly, for our owner community if we're smart, never forgetting that the one thing at our scale, I mean, look at The US alone, we're 13 plus percent of the market, If you look at the quality market, no offense to the whole market, we're probably well over 20% of the market. We have complete control over rate, inventory, pricing, availability, and if we don't want to share it, nobody can get it and we have products that people want. I view that as super valuable. So as we think about how we engage with everybody in this space, and we are, as I said, already engaged in all the ways you would think with the big players I think it's a very symbiotic relationship. I think customers, for them to have platforms that are in travel, they sort of need our product and for us to show up we want to work with them. Think it's quite a balanced equation, as I said. I think the net result is generally good on distribution cost. The last bucket I talked about, which is super exciting and we're doing a bunch of stuff, is just the whole customer experience. I mean, so I talked a little bit about, like, the dreaming function in our own systems, a being able to not just dream and you know, sort of natural search and AI enabled, but then, you know, have it be seamless to booking, have it then be seamless to pre-arrival and planning your stay, on property experience problem resolution, post stay, you think about with the use of AI, the data, the tools that we already have and that we're building out in a much more fulsome way with a fully modern tech stack that we can put so much where we have an experience with our customers that is digital with AI and with our platform, we can really revolutionize how customers interact with us. And then we're at the physical side of it, we have the ability to create tools and we are doing it that enable our teams to have so much more information for people to plan their stay, on property, problem resolution, etcetera. That I think it's really, really game-changing. And we've been, I'm not gonna get into everything we're doing. Obviously, it's competitively set. But we're doing a whole bunch of stuff. We have I don't know, 40 use cases plus and growing, in all of those buckets around AI working with a bunch of great partners, many of the names that you read about. In the news every single day and have super close engagement. And I feel really listen. They were in the early days of AI, like, you know, for sure. But I feel like we're in a really good position based on the platform, the efforts we're making, yeah, and progress we're making as this evolves. Operator: The next question will come from David Katz with Jefferies. Please go ahead. David Katz: Hi, good morning, everyone, and thanks for taking my question. Noting in the press release and what you talked about with the outsized amount of investments going toward lifestyle and luxury and some of the commentary this morning. I'm wondering whether both the duration and the economic intensity of those contracts continue to grow over time. And whether there is kind of an acceleration in trajectory as more and more of those rooms come online. Obviously looking at fees and cash flow, etcetera, the output of the NUG, but I'd love some further insight there. Thanks. Christopher Nassetta: Yes. I think I understand the question. I'm not 100% sure I do. But I think if the basic question is, as you now have 1,000 hotels and it's becoming a real business and each of the individual brands within the category, which eight brands start to get scale and momentum, they sort of feed on themselves, you know, in the sense of delivering. You know, they build out a network. They build market share even higher. As they build market share even higher, they get adopted by more and more owners. And, you know, ultimately, the economic model, you know, starts the flywheel starts spinning. I think that you're right. Yes. So many of these brands, while we have a thousand hotels in luxury lifestyle, it's a lot of hotels. I mean, but still, you know, we have 9,409 thousand 400 and change. We are we're open two or three a day, so I always lose track. It's still a relatively smaller percentage. Many of the brands, you can think of like Tempo and Motto and even Canopy that are doing really well. They're very they're still graduate for that matter. They're still relatively you know, small brands. Even though they're performing well. And so, yeah, I do believe like we've seen in every other brand, and it won't be different particularly in lifestyle. Luxury luxury is a little bit different game, but in the lifestyle categories, as you start to build these out and create real network effect, you hear me say network effect a lot in a broader context, but in a more micro within individual brands that customers ascribe meaning to, you know, if you don't have enough locations, it's hard to sort of serve their needs. And the more you build that network effect, it does have sort of an effect of creating, you know, of spinning the flywheel faster. So I think a bunch of those brands, are early days and getting ready to really explode. You know, certainly some of the ones that have larger footprint potential like Tempo and Motto, and that's why we are looking in that space at a brand between which I've talked about, in between Motto and Canopy because we think it has a TAM that is very large. Luxury, listen, doing I mean, we've got in terms of dots on the map at this point, we got like 600 dots on the map, 650, I think, close to that as of today. We've got another 100 plus in the pipeline mean, the Waldorf Astoria New York opening was magical. I know some of you were there, and hopefully, you enjoyed it. You know? And that's the grand dame that started the whole brand. And so while it's one it makes a big difference. If you look at the openings, I noted a few of them. That we had over the last year. If you think about the openings we're going to have this year, and you look at the pipeline, like, Waldorf's on the move. Like, Waldorf is it's take it takes time. Luxury is a hard space. It takes time. It's one of the first things I got here eighteen years ago, and I remember saying to John Gray, we got to really get luxury, And we had, like, basically one molder of Astoria, you know, and here we are today with Open and in the pipeline, you know, close close to a 100 of them. So we have good things going on with Conrad, LXR, I mentioned that in the prepared comments. So I feel super good about what's going I mean, I think from a loyalty point of view, we have as many dots on the map as anybody in the products that if I look at redemption behavior, our customers are really loving particularly with the SLH relationship. And then I look at our core, you know, the core three brands we have in luxury, you know, they're performing well, They're pipeline is spectacular. Growth growth rate, you know, Growth rate looks really, really good over the next few years. So We're getting momentum across all of them. We're when you wake up in ten years, you know, I think it's like by volume and numbers and economics, it'll be you know, the upper mid market, you know, lower upper ups market where you're gonna have the most action just because that's where you know, the largest segment of customers is. And then the others will do great, but, you know, the volume the volume ends up where you would think it would end up. It ends up where the population you know, demographically is. Operator: The next question will come from Stephen Grambling with Morgan Stanley. Please go ahead. Stephen Grambling: Hey, thanks. Maybe another angle on Nug. You've been able to build, as you said, a best in class pipeline while just as importantly keeping CapEx and key money effectively flat in the guidance. So love to get your latest thoughts on how overall development environment is changing both in terms of competition and then also the use of key money as rates and liquidity are improving? And any thoughts on the balance of new development versus conversions from here? Christopher Nassetta: Yeah. I'll start. Maybe Kevin will finish whatever I miss. Listen, we have been really disciplined. I'd say it every time about key money. If you look at the broader market, key money is definitely edged up, but if you look at you know, if you look at our numbers, like, rooms under construction, the numb the percentage of deals that key money is, like, 9%. Hasn't really changed a lot. If you look at the average, we're saying up a couple 100,000,000 this year. Our average over the last bunch of years, it goes up, it goes down a couple years ago, we were 100. Last year, we were a little high. It's sort of as average plus or minus a couple 100,000,000. And if you look at the types of deals that we're doing, like, last I look at the data, I think it's 85% or 90% are in the upper upscale or above in terms of where we utilize key money. So That's where it's always been, the more complicated, bigger, full service, convention, and luxury. That's where, you know, historically, there's been more demand for key money to get deals done. It's much more competitive. And that's still where we see it. I mean, is there a has it creeped in a little bit? Yeah. But listen, when it comes down to it, like, we think our brands perform better. And we you know, with a little bit of key money versus a lot of market share, we think, is a bad trait for most owners. And we do we I you know, our teams are well equipped to sort of, you know, discuss that discuss that trade off. But in the end, owners as you are, as as buyers of the stock, they're trying to make money, and they're ultimately gonna I think, evaluate most owners are going to evaluate that trade off in a rational way. So you know, we we we feel good about our ability to keep doing what we're doing. It's not without some pressures and market dynamics, but if we keep delivering, you know, profitability the way we are, I feel I feel good about it. In terms of conversions, I think maybe the only thing I missed you know, obviously, last year, you know, was a big number, 40%. You know, we tend to see in, you know, more challenging environments, those numbers go the numbers go up. That's sort of a standard thing, which wouldn't be surprising. Now at the same time, we have a lot more shots on goal. We been adding brands. I talked about a couple of departments in outset, So we do think, know, conversions are gonna be a bigger part of our future than they might have been on average over the last ten years. I do not believe they will stabilize at 40%. You know, I think they will be in the range of 30 to 40% and it'll depend on, you know, sort of what's going on in the world. But I don't think anytime soon, we'll go back down into the twenties. If you look back you know, on average over know, over, you know, an extended period of time, it's been more in the mid to upper twenties. I do think we're sort of more permanently above that, both because the performance of the brands just more shots on goal with varied conversion friendly brands. So what did I miss, Kevin? Kevin Jacobs: I just on the financing environment, I'd just add. I think it's good and getting better and I think convert that supports conversions because the cash flow producing assets easier to finance than ground up. Although we did, know, we we referenced the ground up improvement stats in our prepared remarks for a reason that, you know, our brands the other thing in addition to conversions with them being cash flow producing assets, our brands are more financeable, right? So just in the same way that owners think they're gonna make more money with us and they do, lenders have more confidence that they're gonna get repaid if our if our brands associate with it. And so it becomes that much easier to finance. That's the only thing I know. Good to add. Operator: The next question will come from Steven Donald Pizzella with Deutsche Bank. Please go ahead. Steven Donald Pizzella: Hey, good morning, everyone, and thank you for taking our question. Just thinking about the 1% to 2% RevPAR guide for the full year in the first quarter, can you talk about how you expect RevPAR to play out from a quarterly cadence perspective throughout the year? Knowing the comps do get easier, you get the World Cup in the middle of year. And then it sounds like increased optimism in select service RevPAR accelerating. Could the RevPAR outlook be conservative? Kevin Jacobs: I would give Kevin the first part and I'll take the second. I mean, I'd say it always can be. Right? I mean, I think we you know, Chris talked a lot about the underpinnings that we see in the economy and it will it's we're halfway through the first quarter, right? So there's a lot of year but I think I would say they always can be if the things that we're seeing in the data persist, you know, of course, it could be better. And then in terms of the quarter, know, there's a lot this is you know, we've been doing this a long time. I think this is probably the year with the most complicated puts and takes on calendar that that I can remember in a while. But, you know, yeah, World Cup is second going into third, the government shutdown was fourth. So I think it's pretty well balanced over the course of the year in terms of the way it's gonna play out. And, you know, you could always surprise to the upside. I mean, World Cup's a good example. Right? Depends on who makes it through in into the final rounds and which countries are those, and it'll generate more demand. It can always vary, but I think it's pretty well balanced for the course of the year. But well said. I mean, I you know, when you look at everything I covered you know, answering Shaun's question about the macro, I applied and Kevin just reiterated some of the micro things. And then you apply you know, the comp issues that you had last year. Again, that's not to say we won't have other new things this year. It's hard not to feel pretty good about that range of I mean, not going go so far as to say I'd take the over versus the under, but I probably would. Operator: Next question will come from Robin Margaret Farley with UBS. Please go ahead. Robin Margaret Farley: Great. Thank you. I have a small question for Kevin and maybe a medium-sized question for Chris, if that kind of adds up to one question. Kevin, EPS two, but give it a shot. Yeah. The you know, your EPS guide typically, EPS grows at a higher rate than your EBITDA growth. And just kind of wondering what it's not obvious like your share count is down, looks like your tax rate is going be down. So the EPS growth rate sort of not not being higher than EBITDA growth? Is there just something obviously I'm not seeing? And then the medium-sized question for Chris. Chris, you mentioned your in your remarks, that you'll have more brands later this year. And I know last year, you talked about some things that you were gonna launch that you have, and it's not like maybe that would sort of have filled out your portfolio. So just wondering what is it that is it like white space things like apartment by Hilton or like because it it had seemed like maybe your portfolio would be pretty filled out with the brand launches you had talked about for last year. So just kind of your thoughts on that. Thank you. Kevin Jacobs: Kevin, answer the first the part of your first part of your one question. Yes. Robin, I don't know if it's a small question because EPS growth is pretty important to us and to investors, but it's a relatively small answer. It's I mean, you mentioned share count. We guide the share count. And then you got a couple of onetime items primarily related to interest expense associated with not just re-leveraging as EBITDA grows, but also implied in our guidance is moving closer to or actually at the midpoint of our range of our guided range for leverage is close to three and a quarter. So it's just those two factors, and that's all there is to it. If you adjust it for those two things, EPS growth is in the low double digits. The is always gonna happen just because we're always gonna be buying back shares. And the and the second At some point, we're not gonna keep increasing leverage. So that's having the effect. So it's those two things and that's it. Yeah. Just transitional. And second, I mentioned one. I mean, we have we're always in the skunk works looking at lots of things. The things that I think are most imminent are another lifestyle brand in between Motto and Canopy. So know, sort of say, upper mid scale, lower upper upscale, segment. We think there's a huge TAM for that as we've been thinking about, you know, both Motto and Canopy, which are doing great. You know, there we just think there's a big white space as we talk to customers and do the research. And as we talk to owners around the world, we think there's a lot of demand. And we think, as I said before, there there's a big TAM undergraduate, which I, you know, has, I guess, been written about because I have talked about it. I think I talked about it on the last call. We're really excited about that. That's imminent. You know, in the next sixty days. Again, you know, graduates fabulous, performing super well, pipeline's building really well. But they're, you know, but they're a whole bunch of markets hundreds and hundreds just in The US alone, probably 400. That really you know, can't afford to build a full graduate, which is an upper upscale brand. And need something more in the mid scale space. But they like the theme and the idea of what graduate ethos of the brand. And so we're gonna we wanna give all those college towns the same opportunity to have a really great graduate approach, and undergraduate, we think, is a fabulous way to do that. We have a couple other things we're working on. We you know, that are you know, will be a you know, we'll talk more about as as we get a little further along. Student housing associated with graduate something we're working on. I wouldn't say it's imminent, but we think the TAM is reasonable and you know, and worth doing, and so we're doing the work. And you know, a couple of other ideas, but I'll leave it. The two that are coming soon, you know, are the lifestyle and well, they're both in lifestyle category lifestyle upper mid scale and grad undergraduate. Operator: The next question will come from Elizabeth Dove with Goldman Sachs. Please go ahead. Elizabeth Dove: Hi there. Good morning. Thanks for taking my question. I wanted to touch on the non-RevPAR fee side of things. I think back at your Investor Day a few years ago now, you'd called out the algo in the kind of low double-digit range back then. You mentioned this morning, it was kind of an outperformer. Last year. Anything you'd share on how this evolves and the outlook for that over time, I guess, on the credit card side of things? Kevin Jacobs: Yes, Lizzie. I think we probably will stick to generally you referenced the Investor Day generally what said and what we said has sort of played out that we think that our non-RevPAR driven fees will continue to grow at above algorithm. Some of that's a credit card, some of that's timeshare. Some of that's our purchasing business. We've got some other ideas that we're working on in terms of, you know, commercializing our customer base to continue grow the business. I think we've done a pretty good job of that over time. And then our credit card program, I'm sure Chris may want to add something to this. Look, we have a fantastic credit card program that continues to be among the best and most popular cards in our industry and with Amex. Drives a lot of customer engagement, drives great economics both for our system and for us. And beyond that, we don't we tend to not talk all that much about it in terms of you know, some some of the details are competitively sensitive, but we think that that will continue to grow above algorithm as well for a long time. Operator: The next question will come from Brandt Antoine Montour with Barclays. Please go ahead. Brandt Antoine Montour: Hi, good morning everybody. Thanks for taking my question. I wanted to ask about group business. I don't think you guys gave a PACE number, but a PACE for 26 would be would be helpful. And then and then the real question though is really about how, you know, we came into last year, right, with really good group pace and then, of course, group in The US specifically did not it wasn't realized to that level because obviously because of tariffs. Would you say sitting here today knowing what you know about how that business works, we would need a shock to the demand side kind of like something we saw last March for group not to be an acceleration this year versus last year. Christopher Nassetta: Yes. You would. I mean, right now, we feel really good. I say coming into the year, relative to our expectation for the year, we feel great. We're in sort of like mid single digits system wide group position. Up for the year, you know, and that's against, obviously, with a one to 2% RevPAR guidance, you know, something you know, an expectation that when we finish the year, it would be somewhat lower than that. We'll see, but we feel yes, we feel like we got the solid base on the books. We think group will be the outperformer this year. We would have thought that last year, but for the reasons you described, it didn't end up being the case. But if you look at the categories, I'd say we believe all three other major categories, group leisure and transient are going to grow for the reasons I've spent too much time talking about, you know, driven by the macro tailwinds. We do think it will be in that order. You know, we do think it will be group at the top, short any sort of unforeseen events leisure, and then and then business transient. But we think we'll see healthy healthy growth across all segments of the group. Leading the way. Operator: The next question will come from Michael Joseph Bellisario with Baird. Please go ahead. Michael Joseph Bellisario: Thanks. Good morning, everyone. Just sort of along those same lines, just in terms of the booking window, maybe what changes have you seen recently? How has that evolved or improved? And then more confidence from meeting planners? Maybe what are you hearing from them recently? Thanks. Christopher Nassetta: Yeah. But the booking window is a been stable. It actually extended, by one day since last quarter. So not, you know it went from twenty six days to twenty seven days. So, I mean, not I would say that's relatively stable. But and what we're hearing from frankly across the board, what we're hearing from all in all segments feels pretty good. If you think about the business transient, we're talking to those customers all the time. I think the general theme is they all believe they're gonna travel more. This year for all the reasons. Like, you know, everybody's gotta get out than what they think gonna be a little bit you know, stronger economy. And they know they're gonna have to pay a little bit more because that's life and the environment we're in. And I'd say same on the group side, you know, we talk I'm talking to our head of sales all the time and I think I think, you know, his view is, you know, the trajectory you know, again, short, unforeseen circumstances that rattle that rattle, people, in terms of broader macro stuff. The sentiment the sentiment is quite good and, you know, people people have a healthy attitude about continuing to to book business. So it all feels pretty good. Operator: The next question will come from Patrick Scholes with Truist Securities. Please go ahead. Patrick Scholes: Great. Thank you. We certainly missed your Pollyanna polyaneism at the ALICE conference two weeks ago. I take any offense at that. How about instead of Pollyanna's? I you know, my my vocabulary that in a positive way. Wasn't the most upbeat conference. I get certainly could've used your mean, if we could've used your enthusiasm there, that you spoke about. I was otherwise occupied doing during my day job. Understood. Understood. A credit excuse me. A question on your credit card contract. Is there anything in your existing credit card contract that would allow for a step up in the royalty rate? And if so, how likely might that be that it would get triggered? Christopher Nassetta: Okay. After yesterday, I suspect that we might get this question. Let let's Sure. We Kevin gave the answer. We're not gonna get into, like, and can't legally get into all the terms of Gotcha. It's contractually we redid our suffice to say, we read redid our deals and then many years ago, and then redid them again again a couple years ago. We feel really good about the contract relationship we have with all of them, Amex obviously being the most dominant We feel really good about the growth rate that's built in you know, to the contract as well as the natural growth that's coming because the cards and acquisition of customers and the spend on the cards given given customers love the cards. Is very favorable. So I would not set an expectation that there's some big announcement coming from us You know, we're we're doing great. It's growing above algorithm, and we are highly confident it will continue to grow above algorithm for many years to come. Patrick Scholes: Okay. Thank you. And I'll also take the over on RevPAR as well. Christopher Nassetta: Good. I like it. Why are you being such a Pollyanna? Oh, well, no. I mean that in a positive way. Patrick Scholes: No. The the the perfect perfect storm of holiday shifts and World Cup and Christopher Nassetta: Alright. We'll see. Thank you. Operator: The next question will come from Trey Bowers with Wells Fargo. Please go ahead. Trey Bowers: Hey, guys. Thanks for the question. Lot of what I was gonna ask has been asked already, but I guess it's been pretty quiet from you guys on an inorganic basis for the last year. And you haven't really needed it. Organic growth has been best in class. But just curious what you're seeing out there in terms of opportunities, you expect that that should pick up over time? Just in anything around the M and A environment as we go forward. Thanks so much. Christopher Nassetta: Yeah. I get asked a lot, obviously. You know, if you look at the history, of the time, I and we have been here you know, eighteen going on nineteen years, other than two years ago with two, what I would describe, one micro transaction and one you know, relatively small transaction. We have not done any M and A, so all of our growth where we're, what, I don't know, two or three times system size in that timeframe has been organic. Where we've gone from eight brands to 26 brands You heard me talk about another couple babies were getting ready to birth. So we think that we have built a very, very good skill set. I would argue industry leading skill set to drive organic growth, which is not just, you know, development teams doing a great job, which of course they are. It's about our commercial teams doing a great job delivering performance. It's about our brand teams doing a great job, you know, delivering great products that customers want. We think it is you know, it is our alpha. That is that is what we've done, I think, with all respect. A bunch of great competitors. We've done more of and better than our competition. And as you know, that is a heck of a lot better way to drive overall returns. Because every time we do it, the returns on that are infinite versus going out and buying things. We found unique circumstances in the two we did a couple of years ago that were really driven by the times, like interest rates spiking, the environment slowing down, you know, things got a bit rattled, we we found some, like, unique seams that on things that we really liked. But that is not the core of what we do. I would I would say we look at everything that's out there. I don't see anything. I would not I would be I would be I would say I don't see anything on the horizon. I always have to say, because in this seat, you do never say never, but don't miss that. Not working on anything that I think is real. I think you should think about us as an organic growth story. We'd love what we have. We love you know, the skill set we've we've built, and we think it is the best way to drive the best returns, and we are you know, equally focused on capital allocation to the running the business. Obviously, the more we can do this organically, the more free cash flow spits out the more shares we buy, the more we become an even better serial compounder and that's our strategy. So you know, it you know, I grew up long ago as a Kappa. It's like, you know, we gotta run the business well, got to drive share, drive growth, have great brands, do a great job for customers. Have a great culture, all that. But when we spin it out the other end, we got to allocate capital really in intelligently and you know, again, we think we're pretty good at that think we can keep growing at this level. That we're talking about, the six to seven range for an extended period of time without having to buy growth. And we think that's going to drive a better outcome in terms of how we perform over the next one, two, three, five, ten, fifteen years. As it as it has over the last ten years. Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the call back over to Chris Nassetta for any additional or closing remarks. Please go ahead. Christopher Nassetta: As always, we appreciate you guys spending the time with us. As been a dynamic environment. Obviously, over the last year, you could sense my and our optimism about seeing sort of, you know, things turning the corner. We'll look forward to hopefully how we continue to see the first quarter. things improve along the lines that I described after we finish I hope everybody has a great day and a great week. Take care. Thanks. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Srini Gopalan: Hello. Welcome, everyone, and thank you for joining us live right here in New York City for our year-end earnings call and Capital Markets Day update event. Before we get started, I'll draw your attention to our safe harbor statement. This presentation includes forward-looking statements that may differ materially from actual results as well as certain non-GAAP measures. Please see our SEC filings for a review of risk factors. Please also see our investor relations website for all related materials, including a GAAP and non-GAAP reconciliation. Okay. Let me walk you quickly through our agenda today. Srini is going to begin with a halftime check-in since our September 2024 Capital Markets Day. Before turning to our widening differentiation across best network, best value, and best customer experiences. He's then going to talk about growth. He's going to talk about how our growth opportunities across our core wireless business, across our broadband business, and in new growth areas are going to continue to drive sustained outperformance for the Un-carrier. And then Peter will wrap it all together with a financial update. We'll then have the broader leadership team join us right here on stage to answer your questions. Okay. Let's get the show started. Srini Gopalan: Good morning. How are you all doing? Well, you all for being here. It's a unique occasion. Few of you have asked me why are we doing this event? Well, it's Q4 earnings. It's halfway through our Capital Markets Day cycle, so felt it was good to do a halftime check-in. And there's the small thing that Mike and I did back in November, the CEO transition. And I'm excited to talk to you guys about the future, about my vision for this phenomenal company. And talk to you in detail about some of the unparalleled growth we have staring at us. So I'm excited to be here and excited to spend the next couple of hours talking about a business I've grown to love over the last ten years. Let's get started. I'm gonna kick off with a quick kind of halftime check-in. So how are we doing halfway through our capital markets day cycle? And the short answer is incredibly well. You've all seen these numbers. But every time I look at them, I'm awed with what we've achieved already. We're growing four times faster in service revenue than any of our competitors, twice as quickly on EBITDA, We've returned over $20 billion to our shareholders. Our free cash flow generation and our conversion of service revenue into free cash flow is an industry benchmark and continues to stay really strong. And that's where the rubber hits the road, right? You can report multiple things differently. Ultimately, what matters is free cash flow conversion. So incredible results and we've either met or beaten pretty much everything we've guided to. From a Capital Markets Day guidance perspective. As of this point halfway through the cycle. Srini Gopalan: And what lies underneath that is the incredible ability we've built to not just bring in new relationships, new families, new businesses, into the T-Mobile US, Inc. fold, but also grow and deepen those relationships. So if you look at our performance over it's a bit stubborn, the clicker. But if you look at our performance over the last five years, we've bought in over a million new prepaid relationships every year. Right? That's new businesses. That's new families, Right? One, 1,200,000 new relationships every year. There's only one of our one other competitor who reports that. And you can see those have been negative. And it's not just bringing in these relationships that matters. It's what we do with them. It's the extent to which we nurture existing relationships. Our ARPU has grown by 13% since 2020. And in an industry where people worry about deflation, where people worry about pricing power, our ability to drive these relationships. T-Mobile US, Inc. stands out. As the one carrier who's not just grown volume, but also grown the nature of that relationship driven more CLV, into these relationships. So all that's great. Those are the headline numbers. Right? Great financial performance, great revenue, solid work on volume and value, wanna talk about something different. What underlies this? Right? What's the secret sauce that drives a lot of this? And the thing that's driven all of this performance is our widening differentiation. Now there was a law of physics in this industry which is there has to be a trade-off. You can either have the best network, in which case, customers have to pay a premium for it, or you can deliver best value and best experience, but the network kind of sucks. Right? That was the law of physics of this industry. And the reason for our outstanding results is we've challenged and broken that law of physics. Because at T-Mobile US, Inc., our customers have no trade-off to make. They get the best network, the best value, and the best experience from one provider. And that widening differentiation underlies all of our results. What I'll talk to you about is we don't take that differentiation for granted. We fight every day to widen that differentiation. It's widened over the last three years, and you'll see it widen even further. That's what opens out the unparalleled growth opportunities that we're staring at. Gonna double click you through each of these elements, best network, best value, best experience, what we've done, how we're gonna widen that differentiation further, and then convert that into what does that mean in terms of growth opportunities for us. Let's start with the best network. Historically, through the storied history of the Un-carrier, the one thing we didn't have was best network. Over the last five years, we have quietly built the best network. And that changes our proposition fundamentally. It's what takes us into the no trade-offs territory. Let's talk about the best network. Right? Building the best network starts with having the best assets. And what are the best assets? Spectrum, We have more spectrum than anyone else. Importantly, we have better spectrum than anyone else. Our 2.5, which we often call the Goldilocks spectrum, r 2.5 covers 70% more area. Than C band. And that's just one example It's a very big important example of where we have not just more spectrum, but better spectrum. Our grid, now, our history, with mid-band frequencies meant for a long time, this was a bit of a disadvantage. We needed a denser grid to cover this air same area. In a 5G world, the density of that grid is a huge positive for us. It allows us to generate speeds and capacities that others can only dream of. And pulling all of that together, is the brain of the network. Our core, Now we moved to a 5G stand-alone core back in 2021. Our competitors got there sometime in '25. That's a three to four year lead on the quality of our 5G network. 5Gs SA, now 5Gs Advanced, the number of capabilities we're building into our core gives us the ability to take these best assets and put the best brain to it. Now, all of that is kind of the asset side of the story. Spectrum, towers, core, it's all great, pulls together to give us the best assets. But in the classic Un-carrier manner, what we've done different is we've turned those assets into something that makes the customer experience better. Now we talked at Capital Markets Day about our vision for customer-driven coverage. That vision today is a reality. We use AI and huge amounts of customer data to deploy capital in our network based on what's right for customers rather than chasing a vanity stack like pops. I'll give you an example of where this makes a real difference. Let's take Sacramento. Now, the traditional way of thinking about improving the network and is densify the network, cover more box. The reality is to improve the customer experience, for the people in Sacramento, where you actually need to double down on coverage. It's not just Sacramento itself, but Lake Tahoe. Given the amount of time they spend in Lake Tahoe. Right? And that understanding of where people work where they live, where they play, that combination of things is really what drives network experience. And using AI, using scale machine learning, all of our site deployment we deploy almost 4,000 greenfield sites a year now. All of our site deployment is surgically planned to improve our customer experience. That's been the heart of what's driven the best network. Great assets, a fabulous score, and the ability to use all of this to meaningfully change the game on customer experience. And what that's resulted in is a true ultra capacity network. Now the proof of capacity, the best way to think about capacity, is speed. So what speeds can your network deliver is the best way of thinking about what is it actually that this network offers in terms of capacity. Now you look at our median download speeds. Our median download speeds are, get this, twice as much as our nearest competitors. That gives you a sense of the amount of capacity this ultra capacity network has today. It's phenomenal. And speed, again, for me is not just a vanity stat. It's not a esoteric number. It's a really good indication of capacity, And when you have a new phone like the iPhone 17, it's great to compare what happens on our network versus other networks. We're 85% faster than one competitor. And nearly 50% faster than the other competitor. That's true network differentiation. And it's not just us saying it. Many of you in this room, the experts, have known for a while that we have the best network. We won Ookla. We won OpenSignal, speed tests. What gives me real pride today is J. D. Power. After 35 reports over seventeen years, the erstwhile number one network has been unseated, T-Mobile US, Inc. today is the number one in network quality as judged by J. D. Power. That's after 35 reports, seventeen years, We are number one. As a network. What's even more important than what the experts say, however, is what customers say. And this is we talk about these money slides. This is one of those graphs that I look at very, very often. Because this is what translates into customer perception. Network switches amongst the most sensitive, amongst the people who do most research, network switches when we ask them, what is the best network? Right? Now back in 2020, one in eight thought T-Mobile US, Inc. was the net was the best network. One in two and a half thought Verizon was the best network. Today, we're at a place where one in four believe that T-Mobile US, Inc. is the best network. Slightly more than one in four. And you can see that gap is closing. And you can see there's a long way for us still to go. We have the ability to meaningfully expand this lead. With our ultra capacity network, with all of the features that 5Gs SA gives us, with 5Gs Advanced, with our continued investment and doubling down on what this network is. We're not standing still. We're committed to network leadership. And we're committed to expanding this lead. And the best indication of that is how we think about the next wave of network innovation. 6G. 5G we own 5G. We still own 5G. 5G has allowed us to build a business called FWA from a standing start. To close to 8,000,000 customers. In three to four years. It blows my mind. Right? 5G, was the core of how we started competing in a segment we didn't exist, T-Mobile US, Inc. for Business. Our 5G superiority has driven a lot of the industry-leading growth. And we're not standing still. 6G opens up multiple possibilities for us. Whether that's AI, physical AI, edge AI, and we're right there defining the standards of 6G. I'll talk a bit more about specific opportunities with 6Gs later. One thing to remember, though, is our lead in 5G does mean that our RAN refresh cycle runs significantly ahead of the rest, and we start with an unfair advantage on 6G. It's an unfair advantage we love, The fact that people like John Saw saw the vision for 5G way before the rest of the industry did, puts us in a fabulous place to drive the next wave of innovation. And that 26% of network switches see us as the best network only going in one direction. It's going this way. And that unlocks phenomenal amounts of growth. And I'll come back and talk about where those growth opportunities exist. So best network, after thirteen years of the Un-carrier to be able to say that, I relish it. And if you notice, I'll say that a few times today. But it's not just best network. Having no trade-offs is more than best network. It's also best value. And we are in a truly unique place on Best Value. We provide best value not just for new customers, but also for our existing customers. We provide best value not just in terms of the freest iPhone, but in terms of value that you can count on every day. Savings, value that you get every hour. Let's talk about existing customers. Our existing customers pay between 12-15% lower than AT&T and Verizon's. That is a massive factor in terms of the flexibility it gives us It's also something that we zealously guard and protect. Because it's the heart of enabling us to claim no trade-offs, It is at the heart of flexibility that it gives us in terms of how we price new customers and importantly, it's the heart of the relationship. It's making sure that we can reassure people every day that they get not just best network, but also best value. And when we look at new customers, we the val the holistic value we provide is substantially better than AT&T and Verizon. And you can compare the experience beyond plan here where you not only get all of our services, but you also get Netflix on us. You also get Hulu on us. You also get Apple TV. You also get T Satellite. The bouquet of things that we offer and the savings we drive every day because there's a 20 to 30% gap new customers. in terms of value we're able to provide So you've got existing customers who save every day, and you've got new customers who save every day. Not just on the free phone you get every three years, but in terms of meaningful things that drive your life every day. And that best value is something we're going to guard zealously That's something we will protect. That is our heritage. And that's something we will not give up purely because we have best network now. Now you think about value in network, and there's a third thing customers care about. Experience. How do you treat me? Now, our experience story over the last thirteen years has been built on two things: incredible people and an incredible culture. Let's start with our care centers and retail. Now typically, when you talk about taking cost out, people go at this from saying, let me take cost out of experience. Let me kind of shave this much head count off. That's not how the Un-carrier thinks of it. We think of it as costs come because we've created a problem for people. And the question is, what can we do with our incredible frontline to enable them to solve those problems better? You can see on the call reduction front through a real focus on eliminating force, on working with our frontline to solve people's problems better ensuring that they don't need to call twice the same problem, equipping them with better tools, you're seeing a 50% reduction in calls. Had committed to 75% in the Capital Markets Day, at the halftime, We're making great progress on this. And this is not simply about technical things. There's a There's a great element of culture to this. One of the things that happens at T-Mobile US, Inc. is when this team visits an experience center You know, normal big companies kind of the big shots show up. Present for fifty-five minutes, and then they need to be somewhere else So they'd love to take questions, but they don't have time for it. Does that sound familiar? At T-Mobile US, Inc., this works very differently. I get on a good day, maybe eight minutes on stage, John Fryer fires them up for maybe two minutes. And then we have fifty minutes of our frontline relentlessly pounding us on what have you done recently for me in terms of solving customer problems. And their expectation is very simple. That as far as we can, they'd like us to solve the problem there. This isn't a let me take this with that's a really good point. Let me take this back home with me, and I'll get my assistant to do something about it. Our frontline is demanding They want an answer now. And they want to know why you can't send an email when you're sitting at that stage to solve my problem. That's a huge part of what's enabled all of the stuff that you're seeing. And the same thing plays out in our retail stores. Our company-owned retail, our experience stores, give us a significantly better NPS than our authorized retailers. That's down to culture. That's down to the incredible empathy our people show. And we're stoking that. We have cut back on some of our authorized retail and driven even more investment. Into our experience store. That's a big part of the secret sauce of what's driven our best experience. And it's not just that. A big part of our culture is how we think about rewarding existing customers. Unlike other companies, we don't believe customers need to prove their loyalty to us. We believe we need to prove our loyalty to them. Which is why all of our plans compact with things that they don't get elsewhere. And then there's my favorite, the money can't buy stuff with magenta status. And T-Mobile Tuesdays is probably a great highlight of that. We do wild stuff on T-Mobile Tuesdays. Free Slurpees, Actually, we give away we work with Wingstop. To give away free chicken. And Wingstop actually ran out of chicken. Which gives you a sense of the again, Fryer and Kat got lots of emails from angry customers demanding more free chicken. But that gives you some sense of When we talk about experience, this is a lot of fun for us. This is about how we work with our front This is about what we put into our product. This is about genuinely committing to giving our customers an experience that special, unique, edgy, that surprises them, that brings our relationship to life. And we're not stopping. We're now taking the best technology digital, AI, putting that in the hands of our incredible frontline, to drive an even sharper and even more differentiated experience. And at the center of all that is TLife. TLife, more than a 100,000,000 downloads, and, there were weeks last year when we were the most downloaded app on the App Stores. Both the App Stores. That's not the most downloaded telco or carrier service app That's the most downloaded app, full stop. Now we've got 34 odd million relationships, businesses, families, And typically, the primary account holder is the person who accesses TLife, 24 out of those 34,000,000 order of magnitude, use TLife every month, and they use it four times every month. It's an incredible source of engagement It's a huge portal into our experience. It's game-changing for us in terms of the nature of the relationship. Srini Gopalan: And with intense CX, which is AI that we've developed working really closely with OpenAI, where the objective is simple. It is to personalize the experience. We've raised the bar on what a carrier experience should look like, and using AI and digital we're taking it to the next level in terms of making that experience feel a lot more personal, feel a lot more tailored to the individual. This gives us lots of opportunities but first up, it changes the nature of our core consumer wireless business. You look at the extent of self-service now. We started off this journey with 22% of our upgrades being done through TLife, and they were all assisted. Which is an agent would show the customer what to do. That was in Q4 2024. Just a little more than a year ago. Today, we're sitting at 73% of our upgrades being done on TLife, and 39% of them unassisted consumers doing it themselves. And this unlocks a huge amount of efficiency as well as satisfaction. Peter will talk in detail about this. But across our AI and digital initiatives, we expect close to $3 billion in savings by the '27, in our '27 run rate. Which is incredible, because this has not been a slash and burn let's take out x thousand people. This has been how do we go after the experience, how do we make that experience a win-win, where consumers enjoy it, where they naturally move towards this, while at the same time making us significantly more efficient as a business. And that's the heart of the unlock, and we'll see the same story play out through Adaline, which is our second biggest transaction in retail, as well as with acquisitions. We announced breaking through another big consumer pain point the ability to switch easily with easy switch back in November, and as easy switch scales, we'll see even more transactions move on to TLife, and TLife will be the center of our relationship the portal into T-Mobile US, Inc. And again, we're not stopping here. Because like I said, we're about continuing to widen differentiation. Across network, value, and experience. One of the most personal things as we talk about personalizing experience is language. We have over 6 billion international calls every year on our network. More than 40% of our base travels internationally. And I'm proud today to introduce for the first time across the world on any network using AI Live Translate, built right into the core. Of our network. I'll let this video explain it and then come back and talk to you about it. Srini Gopalan: Now there's a there's a few things that get me incredibly excited about that. The product itself, live translation, suddenly, you kind of moving across barriers, You're enabling people to speak to each other, which at the end is the core purpose and mission of our industry. What gets me even more excited is this is the first scale use case of AI being built directly into the core network. Which is why the only thing you need to use this product is one person on the T-Mobile US, Inc. network. You don't need an app. You don't need to type something in and pass it to someone else to trans using translate. You just need one person on the T-Mobile US, Inc. network. And you can speak the other language. And it's an incredible capability But what I like even more than this is underlying this we've built a platform that allows us to build multiple AI services, directly into our core network. And as we talk about personalizing an experience, as we talk of kind of raising the bar on what you can expect from your carrier. This is a great example of where we're going. So we pause for a minute. Kind of talk about our journey from where we were the best network, the fact that we're not stopping there, the fact that that is even going to broaden further as we get into the 6G age, The ultra capacity network that we already have is only gonna get better. Best value, which for us doesn't mean simply new customers getting great value. And getting great value once in three years with a phone. It means delivering value every day It means delivering value to our existing customers and new. Talked about experience and how we're transitioning from a lot of that being driven purely by our people and culture to empowering those people kind of stoking that culture with the best in technology, and making that even more personal. How does all of this come together? Right? It's easy to talk about widening differentiation, but do we have any evidence of it? My favorite number is our NPS. It measures what people think about our relationship. Would they recommend us? To someone else? And here's what's happened to NPS over the last three years. If you look at where we were in twenty-three, it was we were kind of in the same place as our competitors, give or take a bit. You look at where we are in '25, We've opened up. This is what widening differentiation looks like. This is what happens when you break out of the pack. This ultimately is the biggest driver to all of the outsized financial performance that you saw. It's the fact that we're able to take these relationships use our unique combination of best value, best network, best experience, to widen that differentiation. And that differentiation are we happy with where we are today? Absolutely not. We'd love to see those bars especially the magenta bar. Grow significantly and widen the space between us and our competitors. And that's what moving our network forward moving our value forward, and moving our experience forward is. It's all about taking that and widening that differentiation. Because our strong belief proven by the results that we've seen, is what keeps driving us what drives our success is not the promotion that we did last month. What drives the tide of momentum and moves it in our direction is that widening differentiation. And that widening differentiation for us opens out unparalleled growth opportunities. And I want to spend a few minutes talking about the differentiation is great. What does that mean in terms of growth opportunities? We are convinced that we are staring at a set of growth opportunities that no one else in our industry has. Let's talk about them. Let's start with core consumer wireless. Historically, we've over-indexed on the value seeker portion of this. Today, network seekers see T-Mobile US, Inc. the home of the best network. Over 20 million families and businesses shows AT&T and Verizon mostly in the 4G era, because they were happy paying a premium because they wanted the best network. That is no longer true. And that opens up a massive growth opportunity for us. You take New York City, We are by far leaders here. With significant share Even in New York City, we're under-indexed on network seekers. And that's why we're continuing to grow share as of today. in New York City even with significant lead over the over the rest The opportunity on network seekers exists across geography exists across types of customers. Our second big opportunity small markets in rural areas. Just to be clear, because we call them small markets in rural areas, it doesn't mean a lot of people don't live 40% of America lives here. Our share used to be 13% back in 2020. Including 24%. But 24% means there's a lot of headroom to grow here. Again, these markets tend to over-index on network seekers, and moving to the best network opens up massive opportunity here. And that's not all. Even within core consumer wireless, You look at our back book pricing. And we'll talk in more detail about this. That opens up a lot of headroom in terms of value growth, in terms of how we can deepen that relationship. So if I look at core consumer wireless, there are three significant drivers of growth. And again, that's not all. Because we have T-Mobile US, Inc. for business. Here, our customers rigorously test networks before buying. And we love that. Because we know our odds of winning with a customer who's rigorously tested the network are very, very high. Again, New York's a great example. The first responders here depend on key priority. And they picked t priority after rigorous testing. Lots of runway here in terms of share growth. Moving on to broadband. Now our broadband business for the most, our FWA product is based on this ultra capacity network. And a lot of you have asked us, so, you know, where does FWA go? How do you think of capacity in this context? We've said 12 million customers in 2028. Today, I'm delighted to tell you that we believe this business will go to 15 million customers in 2030, and that there's a lot of runway even beyond that. Fiber, we believe, will add three to 4 million customers. Which will give us a broadband business of 18 to 19 million customers by 2030. I'd like to pause for a minute. We would have built a business with 18 to 19 million customers in seven years. Not sure is any company of our size and scale that's done that. 18 to 19 million customers in this industry in broadband, and remember for us, this is all incremental. None of this is an overbuild of copper and cannibalization All of this is incremental revenue. Is incremental customer relationships that we can nurture. And the growth in this business and the upside still left in it is substantial. And I'll double click on this in a little more detail. And then there's new growth areas, T ads, we've talked about. We've just launched our financial services. And we're really excited about where 6Gs goes. This last part, only a small proportion of it is captured in our guidance, as we build these businesses. But again, I'll double click through each of these to give you a sense of why I'm so excited by the growth that lies ahead of us and why I'm convinced that the best lies ahead. Let's talk about core consumer wireless first. We've grown sorry. I clicker. Yeah. We've grown really quickly and we've talked about why NPS being a big driver the network seeker population whether it's in TFB, whether it's in SMRA, or in our top 100. Is a huge unlock for us. Now let let me give you some stats. Right? New York City, talked about. We're continuing to grow share. Because we're still under-indexed with network seekers. An interesting fact is in areas where our competitors have built fiber, we have gained share. Now I'm not suggesting that there's any causality there. Right? But we have gained share even in areas where our competitors have built fiber because we continue to attract the network seeker population in those areas. And our historical under-indexation gives us share growth opportunities. This collection of opportunities across top 100 and when you look at our top 100, all of you are familiar. We split it into three kinds of markets. Markets where we're number one, number two and number three, and we're growing across all three. We're continuing to win household share. All of this gives us a significant opportunity and from a unit economics perspective, it's very, very accretive. Because under-indexing and network seekers when you're looking at future growth is a good thing. Because I in compared in comparison with value seekers, you do see accretion in terms of the relationship. And ARPU and ARPA. That's on the volume side. On the value side, our front book, back book pricing equation is a huge positive. It means that when we think about new customers coming in, as a group, they're actually accretive to both ARPU and with time ARPA. Because of the pricing of our back book. And it allows us a lot more flexibility in terms of pricing of the front book It also gives us runway in terms of deepening our relationship with existing customers and from time to time, we will look at some of our legacy plans and optimize our rate plans. In the context of more for more. So that combination of things gives us a lot of runway on the RPAS side, which is kind of the value, the p times q the complement to what I talked about on the volume side. I do want to spend a couple of minutes on one thing, though. The one tenant that has been fundamental to the Un-carrier is win-win economics. Which is economics that create really strong CLVs combined with economics that deliver unparalleled value to our customers. And from time to time, the industry loses its way and we kind of get into some bad practices, and that's when, as the Un-carrier, we step in and change the course. And what typically happens is other people follow. As I look at the industry today, I believe we're at another such point where we as an industry have gotten over-focused on how free the newest phone is, and we've lost track of some of the incredible things that we bring to the customers in terms of value. And I'm not going to say a lot more about this right now, but we will change that. The Un-carrier will make another move which will take us much more towards the direction of where we create value which will take the emphasis back to win-win economics things that are good for the customer and things that lead to more sustainable CLVs with time. Because we believe maintaining win-win economics things that are good for investors as well as customers, is critical to driving a healthy environment in this industry. But you'll hear more from us in the next few weeks and months as we drive this journey forward. But that's consumer wireless, and the broader wireless opportunities in TFB. So we've got clear line of sight to strong volume growth, especially with network seekers, and we've got the advantage of our back book combined with, as you can see here, strong premium plan loading on our front book, and the ability to grow relationships. All of which makes our p times q equation look really strong Peter will delve into that in a lot more detail. But we believe we will continue growing ARPA in the range of 2.5% to 3%. Even as we go through this journey and that'll get powered by some of the things we're talking about here. Let me move next to broadband growth. And how do we create this business with 18 to 19 million customers by 2030? Our broadband business to date, largely has been phenomenal. We've led the industry in broadband new customers. And that's from a standing start. You can see, really, we started scaling in 2022. And this business has been running at a real clip. Close to 2 million new customers every year. The industry leader in broadband net adds. And what's driven that again is NPS. What's driven that again is the simple reality of when you give customers a great product, you win. Our NPS today is higher than fiber. That's a composite of the product the value we provide, the experience, the ultra capacity network, that is the that is the source of the unlock for us on FWA. And that product has only gotten better. And this is kind of to me, the best demonstration of what an ultra capacity network is. When you look at what's happened, we have a 77% growth of customers a 27% increase in usage per customer, and our speeds have gone up by 50%, during that period of time. And if you take our newest routers, it's gone up nearly we've nearly doubled speeds. At the same point in time that we've seen 80% more customers using 2030% more. That is incredible in terms of the amount of capacity our ultra capacity network has. That's what makes us really confident that we can get to 15 million customers in 2030 and our speeds will be higher than this. Let me walk you through kind of how we think about the 50 million customers we step back for a minute first. As all of you know, we've run this business with a fallow capacity model. What does that mean? It means at a hex bin level, and there are 30 million hex bins, it's a small geographical area. Each of those 30 million hexbins what we do is we look at our wireless usage today, We project that forward for growth. And all of this is done at peak hour because that's the only thing that matters for a wireless network. So we look at wireless usage and peak projected for growth going forward. Reserve that capacity for wireless. Whatever is left, is then used for FWA. When we talk about 15 million customers in 2030, at higher speeds than what we have today, it still assumes fallow capacity. It does not assume any of the spectrum acquisitions that the one big beautiful bill will land up doing It doesn't assume any spectral ink efficiency increase because of 6Gs. What it does build for is the fact that we're broadening our our our product range. So as we sell more into businesses, for example, they don't use between seven to nine. So that create that is fallow that is true fallow capacity. It does build in the increased spectral efficiency because of better routers. It does build in the increased spectral efficiency as a result of being on 5Gs advanced. Features like L4S, which allow us to use our existing assets even better. And so when we look at that 15 million number, that's on a very conservative basis. And when I look at FWA as a category, I think the days of asking the question of, you know, is this a temporary category? Is this here to stay? Those are gone. Right? The speed of evolution of mobile technology as we look forward convinces me that this category is going to have a lot more upside. At this point in time, we can see line of sight to the 15 million, and that's what we'll go for by 2030. But that creates itself remember again, all of these are incremental. None of this is overbilled. None of this is compromising legacy revenue. And in addition to that, have a business we're really excited by, fiber, T Fiber, everything we've done to date has only confirmed our expectations in terms of the power of our brand, the relevance of our distribution, our ability to convince customers that this is the next stage in their journey, We've also been super thoughtful about the capital intensity of this. And we've picked partners who we can trust where they bring expertise that we don't have. We expect just based on our current assets, to scale to 12 million to 15 million homes passed, and three to 4 million customers by 2030, which would leave us with a broadband business of 18 to 19 million customers largely built over a seven year period. Which is again testament to the value of that NPS chart what we can do with our relationships, the power of our brand, and the power of this team. I'll spend my last few minutes now on new growth opportunities. As I said, the vast majority of these are not built into the numbers that Peter will show you. Let me just back up and tell you how we think about new growth opportunities. For us to do something other than consumer wireless business wireless and broadband. We start with kind of three questions. How large is the TAM or the target market in the business we want to be in? Is it big enough for us to play? Like, when we asked the question on broadband, the answer was clearly yes. Second, can we use our existing strengths our network, our customer relationships, do they make a difference in this industry? Does it help us win? And third, can we disrupt the industry? Because, again, we believe producing me too product in a new industry is not what T-Mobile US, Inc. is about. When the answer to those three questions is yes, then we double down and focus on that. Three areas that excited by. Advertising, T ads, You know we acquired Bliss and Vistar? That business is tracking It's in line with all of the things we talked to you about at the last Capital Markets Day. It's a business that we think has a lot of upside, and we're continuing to drive that. Financial services, we're working with Capital One. We launched our credit card in November. That's gone really well. We're excited about all of the stuff we're seeing in our first results. And we think there's there's a lot more to do in financial services because it ticks those three boxes. We believe that we can meaningfully reinvent, It's clearly a large enough TAM We have a huge amount of credit information and our existing customer base is massive, and our ability to leverage that is substantial. So again, that's a business we're excited by. And last but not least, physical and edge AI, and everything that a world that becomes increasingly connected brings to us as an opportunity both in terms of the way I think of this is in an AI RAN, we will be using we will be using a lot more compute. And if you were to think about this, what 6Gs will be, is a network that not just processes bits and bytes, but also tokens. And effectively, what physical and edge AI will do a bit like FWA, we landed up using fallow capacity here you will land up having fallow compute. That we could then put to use both in physical and edge AI. But I'm rapidly getting to kind of out of my depth on physical and edge AI, so we thought we'd invite a close friend of T-Mobile US, Inc. a man who probably knows more about physical and edge AI than anyone else, Jensen Huang, to share his thoughts on 6G and physical AI. Hello, Srini. It's great to join your Capital Markets Day. T-Mobile US, Inc. is the world leader in telecommunications networks. You did it by rethinking innovation, and how networks are engineered. A year ago, T-Mobile US, Inc. and NVIDIA announced the opening of the AI RAN Innovation Center. Together, we quickly moved from idea to making live calls over NVIDIA's aerial AI ran computer. AI continues to transform every industry. And will also revolutionize telecommunications. Like electricity, the Internet, AI is essential infrastructure. Every consumer will use it. Every company will be powered by it. And every country will build it. Now intelligence is moving into the physical world. With robots, autonomous vehicles, and cities. A billion cars, billions of robots in the future, millions of factories, and hundreds of millions of farms will all be connected to intelligence. AI will be distributed at the edge. Present at the location and understand the logic of the physical world. This is where AI RAN and 6G change everything. The radio network becomes a distributed AI. T-Mobile US, Inc. has recognized this shift. Every base station with NVIDIA aerial becomes an AI computer. And 6G is the connective fabric. Computing sensing, and connectivity converge. This creates entirely new opportunities for the telecommunications industry. That's why this moment matters. I'm thrilled to see our vision of AI RAN taking shape in T-Mobile US, Inc.'s Seattle Labs. Together, we're demonstrating how telecommunications is an essential platform for AI. And together, T-Mobile US, Inc. and NVIDIA are building this future. Srini Gopalan: So let me just pull this all together. The foundation of everything that we've built the foundation of everything we're building, is our NPS. It is our ability to continuously differentiate. You can see that gap widening and we've only just got started. Our fundamental capabilities across network, value, and experience is something we're working at every day. To make that gap widen even further. And what that gives us is the plethora, the unparalleled set of growth opportunities that you can see above. And we're only scratching at the surface here. One of the big advantages is you get all of those growth opportunities with no drag of legacy. And that combination of huge differentiation that will only widen with time unleashing a set of growth opportunities is the heart of our story. That in combination with this team in front of you, who have constantly set really big goals, gone out, smashed them, and strive every day to exceed every number we give you. Is the heart of the T-Mobile US, Inc. story, and that's what drives outsized financial performance. And talking of outsized financial performance, I'd like to invite Peter Osvaldik on stage to talk to us. Thank you. Thanks. Peter Osvaldik: Alright. You can tell we're just a little bit excited, and it's not just because the Seahawks won Super Bowl. Whoo. Whoo. I thought that'd be a little dangerous. We're close. That's good. Alright. Well, let's get into it. You know, I thought I'd start a little bit with a look at you know, Q4 and twenty twenty-five. And as Srini had said, you know, Srini said, it's a little hard to click this clicker. Anyway, you know, what did that strong differentiation deliver? It delivered industry-leading results yet again. 261,000 postpaid net account additions in Q4. Think about that. That's 10 times What the other competitor who reports this delivered in Q4. And that's important because as Srini said, this is the center of value creation for the industry. And this proves consistently and at scale that customers are choosing T-Mobile US, Inc. Combined with that growth in postpaid net accounts, we delivered postpaid ARPA growth of 2.7% on a year-over-year basis. And importantly, the organic growth was 3.6%, If you recall, as we had talked about before, our acquisitions of both MetroNet and US Cellular came with a base that had lower ARPA. Allowing us to run our playbook of ARPA expansion that we did so successfully both with Sprint as well as our base over time. That momentum between growth and ARPA expansion led to service revenue that was up 10% year over year on a reported basis and 5% year over year on an organic basis. That's 10 times and five times the next highest competitor for those keeping score. And I am. So that strength flowed through to adjusted EBITDA, which grew 7% year over year or 4% on an organic basis. And of course, the most defining metric for us is our ability to convert service revenue into free cash flow. Which we did at 22% in Q4 topping off a year where we delivered it at 25%. And that's important because it highlights a lot of the things that Trini was mentioning. The structural advantage of T-Mobile US, Inc. as expressed in terms of the best metric for value creation provided of course you're not cutting CapEx and going backwards. If you're investing in the core business appropriately like we are for expansion, you're delivering 25% free cash flow margin that's the best measure of are you able to create value shareholders. Alright. So let's look ahead. What does this all mean? How does this formula this growing differentiation, going to result in updated twenty-six and twenty twenty-seven figures? So for '26, we now expect approximately $77 billion in service revenue, representing 8% top-line growth, That includes about $3.6 billion of contribution from M and A, So we have 6% organic growth and acceleration from what we just delivered in 2025. In 'twenty-seven, we now expect between 80.5 and 81 and a half billion in reported service revenue 5% top-line growth, and includes $4 billion in contribution from M and A so delivering 5% organic growth significantly ahead where we gave you just in September 2024 our projections at Capital Markets Day. I think it's important if you step back think about what we're delivering here. At the high end of this guidance, from 2025 to 2027 we're going to deliver more than $10 billion of service revenue growth. Supporting that growth, as we've talked about, is strong postpaid net account growth. And our expectations for 2026 as we enter the year are to generate between 900,000 and one million postpaid net account additions. And for those of you who are curious, and I know you are, implicit in that guide is an expectation of about two and a half million postpaid phone net additions. Combined with that growth in postpaid net account additions, we anticipate postpaid ARPA growth of between 2.5% to 3%. And that's from all of the elements and ability to expand that Srini mentioned. It's new account inflow, taking our premium plans at 60% plus It's our base as they interact with TLife and our experience stores taking on premium plans. It's continued expansion of connections per account and introducing new products and services into account, which you can only do when you have the trust of customers, and that's evidence from MPS. And I'm pleased to share that we're now going to raise the bar on ourselves once You've heard a lot today about how we believe and we've long discussed and reported that postpaid account net additions and postpaid ARPA. Are the real correlation to value creation in this industry. Think about that. You have another competitor who delivered 600 some thousand postpaid phone net additions, but only 26,000 postpaid net account additions. The way you correlate how we're growing the service revenue and then translation profitability is how we're actually able to attract and expand customer relationships and that's best expressed by accounts and ARPA. As we said, over 90% of our postpaid phone lines are actually on a line account. And a vast majority or a substantial portion of our 34 plus million postpaid accounts actually have products beyond just postpaid phone. So when you think about it that way, that's really the unit at which you create value as Srini has long said. Beginning in Q1, long standing we've been focused on postpaid accounts and postpaid ARPA and that will be our sole focus going forward. So we'll no longer be reporting subscriber level elements. Again, I've given you the underlying assumption, two and a million postpaid phones and that very strong 900,000 to 1,000,000 postpaid net account additions. But this is what you should expect from us. This is the bar you should hold to. This is the bar you should hold the rest of the industry to. Who can attract customers switch full relationships who can grow those relationships in ARPA, that's how you get service revenue growth like we're delivering here. Peter Osvaldik: What does that mean? Adjusted EBITDA? So in 2026, we now expect between 37 and 37 and a half billion that includes about 1.3 billion from M and A contributions, so 10% reported growth. And 7% organic growth, an expansion again from what we delivered in 2025. 2027, including $1.7 billion from M and A contribution, we expect 9% reported growth and 8% organic growth the midpoint. Again, further expanding on the growth that we're delivering in 2026 which is further expanding on the growth that we just delivered in 2025. And again, if I step back, at the high end of the guidance, this means from '25 to 2027, we'll have delivered more than $7 billion of incremental core adjusted EBITDA. Getting us to between 40 billion and $41 billion This is of course driven by a number of things. One, continued profitable service revenue growth and operating leverage as you've seen from the ability to attract customers generate postpaid account net additions and continue to expand ARPA. But it also comes from contributions of our unique approach to how we put the customer at the center of everything digitalize, create efficiencies, utilize AI not for cost cutting as the primary focus, but for customer experience as the primary focus which generates significant efficiencies as a benefit. While at the same time enhancing their experience continuing to increase their NPS scores, continuing to allow us to deliver customer switching. We now expect between 2026 and '27 relative to 2025 these initiatives are going to deliver 1.3 billion of incremental savings in 2026, and 2.7 billion in 2027, but we're not done there. It's just the beginning of the journey. There's a lot more expansion beyond 2027. And those come from a lot of the things you've been hearing from us. Our progress on digitalization and enhancement of the customer experience through, as I experienced, through TLife, beginning with upgrades, what we've been able to do with first assisted and then unassisted upgrades. Now add a line some prospects that allows a whole new world of how do you approach retail. And approach retail with a focus on creating experience stores, a rationalized retail structure more in sourced, more focused on customer experience, that at the same time drives efficiencies and value. You heard Srini our incredible frontline and how they've reduced inbound customer contact but there's more to be done. Powered with Intense CX now that Frontline will be able to further reduce inbound customer contacts on the way to the goal that John Fryer should with you at our Capital Markets Day in 2024. Customer-driven coverage. We've been talking about this since Capital Markets Day in 2024. A proprietary AI infused model that allowed us to begin focusing CapEx dollars on where they matter most to customers. And if you put the CapEx dollars where they enhance customer value in experience the most, you get the most efficient deployment of CapEx. We've now been able to apply that model to the existing entirety of the network base. And we'll be able to start generating OpEx savings to allow for reinvestment, and the way we're doing that is we apply the same view to every one of our towers. Every one of our small cells, and said, which of these are driving the most customer value and concurrently which are not driving the most customer value. And we can streamline and optimize the network to reduce those and reinvest in those that are driving the most value. And of course, as you'd expect like everybody else, but probably in a leadership fashion, there's a lot of efficiencies in the back office, in IT, through utilization of simplicity, efficiency and AI. If you do it from a customer centricity lens first, you get differentiated results. Now, 2026 is going to have a slightly different phasing to core adjusted EBITDA than 2025 had, which you'd expect because we're both delivering on synergies in the U. Cellular and those will expand as we go through the year, but we're also going to harvest more of these AI and digitalization and simplicity savings as we go through the course of the year. So we expect Q1 core adjusted EBITDA to be between $9 to $9.1 billion There's a few below the line items in 2026 I wanted to highlight as well. Beginning with, we expect approximately 1.2 billion in merger-related costs primarily related to U. S. Cellular. As you recall, we had an exciting announcement around our acceleration of the timeline integrate U. S. Cellular at two years. Network optimization that I just mentioned, this CDC-based network optimization to generate value. Is going to result in a network optimization cost of approximately $450 million will be done through that primarily in Q1 and Q2 we'll harvest those savings and reinvest into the network. We'll have workforce restructuring charges of approximately 150 million in Q1 as we go through our simplification initiatives and conclude what we began in Q4. Alright, CapEx. No big surprises here. We've mentioned to you before, we expect CapEx of $10 billion in 2026, and that includes Between $9 billion to $10 billion and again, all of this from a network perspective will be deployed through the customer-driven coverage lens. Means that every single dollar we put into the network goes to accrue to the highest customer experience improvements and hence the best value delivery for us. While simultaneously expanding the network leadership and allowing for long-term growth. Okay. Let's tumble down to adjusted free cash flow. And the short story here is we continue to deliver a cash generation profile and margin that is industry-leading. Free cash flow is expected to be between 18 billion to $18.7 billion in 2026 growing to between 19.5 billion to 20.5 billion in 2027. Now there's a number of things as you go through an integration that I want to highlight for 2026. We anticipate approximately $1.3 billion of merger-related cash outlays. Again primarily associated with that acceleration of The U. S. Cellular integration. Also expect approximately $1.2 billion of cash outlays for the network optimization and workforce restructuring costs that includes the workforce restructuring charges that we took in Q4 where the cash outflows will happen in twenty-six. And because we're accelerating that integration so dramatically, now expect those costs to drop down significantly in 2027 to $1 billion Cash taxes are expected to be 1 and a half billion for 2026 and 3.5 billion in 2027 fully integrating the benefits we anticipate from the one big beautiful bill. Now, one important note is around cash interest. I know a lot of you in this room like to model rapid deleveraging for us. So I wanted to just highlight that we take a very prudent approach our guidance assumptions that we're delivering to you. What we do is we assume leverage at two and a half times, which means we assume utilization of the entire strategic capacity envelope. We don't put any benefits into service revenue or core adjusted EBITDA for but for purposes of cash interest modeling as we give a free cash flow guide, we assume full utilization of that. And so that results in an assumption of 4.3 billion in cash interest outlays in 2026 stepping up to 5 billion in 2027. Just for perspective, on an you know, it's apples to oranges in terms of what you're seeing in consensus because of that desire to deleverage us rapidly. And that means relative to consensus, this was about 500 million higher in 2026. And 1.1 billion higher in 2027. If you're trying to get an apples to apples comparison and understand what the underlying business expansion is doing. You know, that's something to look at given how we prudently and I think conservatively guide and assume the full utilization of the envelope. But again, the most important part here is our ability to convert service revenue into free cash flow at industry-leading pace. That's a key differentiator for T-Mobile US, Inc. and as I mentioned before, highlights the structural advantage that this business has and the ability to create shareholder value. Alright. Well, certainly, that growth core adjusted EBITDA and a delivery of free cash flow and industry-leading service revenue margin means there's a lot of capacity And so, how do we think about it? Well, we think about it very consistently with how we've shared it with you before. Capital allocation philosophy hasn't changed. It's disciplined. It's consistent. It's focused on maximizing value creation for shareholders. Begins with always setting a prudent leverage target which we continually reassess both on our belief of the internal forecasts of the business as well as what's happening from a macroeconomic perspective. We then prioritize investment in the core business. As you see, not only can we deliver in the short term, but our ability to enhance and expand this network leadership by investing in the business prudently, it's what's going to generate continued differentiation for customers even beyond 2027. We focus on high ROI strategic investments. I'll get into some of the ones that we've done there. And then our focus is to deliver with excess stockholder returns a very balanced approach between dividends and share repurchases. And all of this is done with an eye on maximizing both midterm, short term, but just as importantly, long-term value creation. Alright. So with my last Super Bowl pun, let's do our own halftime show of what have we done. Since our Capital Markets Day in 2024, we funded strategic investments of approximately $12 billion. That included our acquisition of US Cellular, included establishing the JVs with MetroNet, Lumos, Bliss, Vistar, as well as investing in Spectrum, for the long-term continued network leadership. We returned over $20 billion to shareholders, balanced between dividends as well as share buybacks which puts our total now since the program inception 2022 to over $45 billion. As we look forward, for the balance of 2026 and 2027, we have a remaining envelope of over $52 billion, driven again by that core EBITDA expansion in the free cash flow delivery. Our initial view of this is allocating up to $30 billion towards shareholder returns. That currently includes an assumption of approximately up to $10 billion in share repurchases per year. And I'm excited to announce today that we are accelerating our Q1 share buybacks to $5 billion. Up to $5 billion. Or double our run rate. And you might have seen Deutsche Telekom's announcement this morning given the strength of the business and their belief in where we're going as we've laid out for you today, they are not planning currently to sell any T-Mobile US, Inc. shares in 2026 and in fact, they're looking at strategic alternatives to further deepen their investment. I think between the acceleration of share buybacks in Q1 that you're seeing from us, as well as DT's statement that you can see the conviction in the business. And most importantly, we're always guided with respect to share buybacks as to where our belief of the intrinsic value of this company is and where the trading dynamics are today. Alright. Well, what does that leave? That leaves over $22 billion a flexible envelope. And we'll deploy that much as we've done in the past. It can be deployed for strategic ROI investments. It can be deployed potentially for further stockholder returns. And this all assumes a prudent two and a half times leverage assumption. healthiest And we're focused again on all of this. The focus remains on ensuring that we have the and the most strategically flexible balance sheet in the industry allowing us to capture opportunities for shareholder value creation as they come. Alright. I know you're very curious to get to q and a, so let me just summarize quickly. I think we've as Srini mentioned, we have a tremendously growing differentiation. Not only has our current differentiation and where we've arrived with best network best value and best experiences continue to deliver industry-leading results, both from customers selecting T-Mobile US, Inc. and our ability to translate that into outsized financial growth, top line, bottom line, free cash flow. But we see the ability to grow this differentiation and continue to deliver outsized results in 2627 and beyond. So with that, we're going to get to q and a, so if you give us just a second to set up here, we'll get the team up and get to your questions. But thank you. Srini Gopalan: Okay. Let's get to q and a. We'll have Mike runners across the room. Please raise your hands if you've got a question. And please also introduce yourselves once you have the mic. I'll start with Peter since he's right there. Peter Supino: Can you hear me? Yeah. Yeah. Thanks for the great presentation. I wanted to ask about the change in your disclosure about the elimination of postpaid phone subscriber reporting and, I guess, ARPU If you could just expand on your thoughts behind that and how you think it allows you to run the business better and ultimately benefit shareholders. Thanks. Srini Gopalan: Maybe I'll kick off Yep. And then hand off to you, Peter. So the change in reporting to me is actually comes from a conviction of what do we want to focus on. Do we want to double down on. Accounts, and I think of them as relationships because these are really families and businesses. That's the fundamental way in which consumers buy. 90% of our postpaid lines belong to a multiline account. It's how consumers buy, and it's where value gets created. It's the thing that's most correlated with CLV. And from our perspective, this team and everyone on the front line is incentivized on accounts. Is incentivized on relationships. We want that alignment to exist between how consumers buy what creates value, how this team is incentivized. And that in our minds, raises the bar on the industry. Because it drives this conversation on how many relationships have you actually bought in. Right? And that's, to us, the fundamental unlock and the most transparent way of thinking about the p times q equation. Peter? Peter Osvaldik: Yeah. I mean, as I mentioned, and fundamentally, what underpins that is the fact that the vast majority of our customer accounts have deep relationships. So you need to think about both as your approaching new accounts coming in, but also as you're thinking about the base and expansion of ARPA, over 90% of our postpaid phone lines are on multiline accounts. A significant portion of our accounts have products beyond you know, phone lines, whether that's tablets, watches, our very successful broadband offering where we're the most bundled player in that space so we can get into that. I'm sure there'll be questions around that later. So when you think about how do I one, think about the customer relationships. Customers don't think about their relationship with T-Mobile US, Inc. as I have three different relationships or three and a half different relationships, they think about it as one. And when you win that trust over demonstrated by NPS, that allows you to expand and give them new products, whether it's connectivity products, or more importantly, as we demonstrated, when you have a platform like TLife, with 24 million monthly active users, meaning they're using that thing four times a month. It allows you a completely differentiated experience. They're not it's not just I interact with my customer base once every couple of years when they come into the store. Now I can interact with them on a multi-monthly basis to introduce them, one, into new products like T-Mobile Visa, but also help them understand how we can expand in a win-win a more for more construct the relationship with them and that's what gives us the confidence to in think about ARPA expansion the way we are. So it's really fundamentally how the customer It's how we're thinking about the relationships. And honestly, when you think about it, just focusing on postpaid phones and postpaid phone ARPUs is one small portion of the postpaid service revenue line and doesn't really correlate as well as accounts and ARPA what you've been able to do with service revenue growth over time. That's why you see such different how can you be 600,000 and 900,000 and suddenly have such different wildly different expectations for 2026 service revenue delivery. It's because we're focused on the actual unit of value creation and how customers think. Srini Gopalan: And even when you're restricted to postpaid phone, very few people go out and buy one line. Phones shopped as family. As a business. That's what drives consumer behavior. And that's what our North Star should be. Srini Gopalan: Hi. Hi. Thank you for taking the question. Can you just help us think about the long-term penetration rate implied within your broadband guidance of 12% to 15 million passings is how you at least discussed it in the past and it implied penetration below 30%. And so just help us maybe contextualize that what you're seeing in the market today as well with the type T Fiber launch. Srini Gopalan: Yeah. The T Fiber is tracking all of the things that we set out to do with it. And we're tracking well on plan. When you think about long-term penetration, though, the thing you need to remember is we'll still be building. Right? And so if what you're looking at is what is cohort level penetration, then it will be higher than that number you're looking at purely because we'll still be building. Srini Gopalan: So I think what we're seeing in terms of how the brand translates, how channel translates, we're seeing everything we expected to see and we're very happy with the progress. As Srini said, we need to look at this in a prospect of still going to be building at a relatively fast pace as we go to 27, 28, 29, 30. So for a lot of the cohorts we will have, we won't be at terminal penetration, which usually happens more towards year three, year four. So that's why you have these numbers that look to be below 30%, but they won't be on a terminal cohort perspective. They'll be significantly higher than that. Srini Gopalan: First, a follow-up to that. How many homes passed you guys have now? So what's the build rate going forward? And do you guys talk about the cost per build? And then just maybe a broader question on know, the wireless market. Just what are you seeing in terms of competition? Do you still think that the business has pricing power? I know we're trying to get away from ARPU here. But know, just sort of the drivers are clearly churn and ARPU. How do you see ARPU trending and your ability to price? And then maybe this is for Cathy. Are we gonna get churn account churn going forward to be able to sort of assess the health of the business? Thanks. Srini Gopalan: K. Maybe I'll start with the phone competition and the and the wireless market. Then you can talk about account churn. And, Andre, you can pick up the broadband question there. Three in-one question. No. Why am I getting So let's start with the first one. What are we seeing in the wireless market? Look, as always in this market, you kind of go through cycles of promotions. You kind of go through periods in time when there are lots of free phones. We saw that happen in Q4. We're feeling very good about where we are. Now in Q4, specifically, like Peter said, in a very competitive cycle, we outgrew the only other person who reports accounts 10 to one. Right? So we're feeling really good about the strength of this business. The momentum that it's driving. And I've said this before, Look, promotions are things we over rotate on. There is a direction of travel, and that direction of travel is driven by differentiation. That's why you get this exceptional performance This was our highest postpaid phone lines even though we don't talk about that that much. Since the merger. Right, in the context of record-beating accounts. Right? And when you're talking about pricing power and kind of our ability to grow the relationship, it's a composite of three different things. It's the fact that our pause naturally tend up because of our back book, front book dynamic and the premium plan loading. Which is why we're guiding to 2.5% to 3%, on ARPA. The Our back book also means that there are opportunities for us to look at pricing. Underlying our guide of where, and Peter unpacked, the 2,500,000.0 is also an ARPU of one to one point five. So we do see ARPU growth happening in 'twenty-six, even though that's not the primary thing that we're focused on. And the last bit is expanding our relationship. Which is through fixed wireless, which is through fiber, which is through everything else, we do. So we see a lot of ability to grow both volume and value in this market. I'll leave you with one final piece, which kind of reflects our value-oriented view of the world. When you look at just the month of December, and this is something we track very closely, Mike and I were talking yesterday. The value of our port-ins was 15% higher than our port-outs. So when you think of what drives value creation in this business, even in an intensely competitive month like December, we saw significantly higher values in than out. Peter, you want pick up a comment? Sure. Absolutely. Yeah. To give transparency around this metric, we'll absolutely be reporting account-based churn. Srini Gopalan: And on homes passed, don't we don't disclose if these are joint ventures. The only thing we can say is we're tracking to where we want it to be tracking and we will hit the $12 million to 15 million homes passed by 2030. So that's something we are very confident about. Srini Gopalan: Thanks. Just on the 6% service and 5% service in 2627, respectively. Any com is that mostly core? Right? So can you give us a sense of, like, the size today of the advertising business? You know, you talked about tea life 24 million. It seems like monetization there. Edge compute, maybe some monetization there. Are any of these things maybe you can rank order them that could add 50, 100 basis points to service revenue growth. So maybe, like, size what you got now in advertising and then anything that's that material not even can go beyond 27. 28, 29, anything that can give you 50, 100 basis points. Thanks. Srini Gopalan: Yeah. I would say, as you're you're absolutely right, Walt. It's majority of it is core growth. And I think as Srini mentioned earlier on, there's actually nothing in the plan with respect to Edge, or AI RAN or any of that opportunity Now we see it and we're in a leadership position. I think it's going to drive fundamental growth. Whether any of it comes in, in a meaningful manner by '27, I don't know. That's potential upside. I think you've seen us talk about a lot of other new business opportunities, including the very successful early, but tremendously successful launch of the first foray into financial services with T-Mobile Visa. That's potential upside to the plan. That's not incorporated into it. Versus how much of that is potential outperformance? Mike? Srini Gopalan: Good morning. Thank you for the question. I wanted to ask about the comments around potentially moving away from devices subsidies Is that something that you see happening industry-wide potentially? And you know, what are the implications of that, you know, just given where we are in the you know, product upgrade cycle and how you see that impacting the gross ads or jump all opportunity for next year? Thank you. Thanks, Mike. I'll keep this brief, and I'll hand off to Mike Katz to talk a little more about it. There's not that much we're going be able to say about this right now. For obvious reasons. But I think there's the principle for us is really important. We think when the industry starts moving away from win-win economics, for investors and customers, We need to step in and change the direction of And our sense is this is a point in time where we're beginning to see some of that drift. Right? I'll let Katz talk about that in more detail. Mike, do you want Mike Katz: Yeah. Srini talked a lot about differentiation. How important differentiation is for us and for and for customers, and I think that's a great example of You know, like can't make iPhones any freer than they are today. And the truth is is customers you know, phone purchase is a point in time. You know, happens once every couple, three years. And between those times, they're living with their wireless service every single day. And we think customers expect and demand more from us than just a free phone deal every three years. And that's why what the value that we've built into the plan is so important because it's a reminder to customers every single day of these incredible benefits that they're getting. Incredible benefits. You know, T-Mobile US, Inc. customers save a thousand bucks a year. Relative to competitors. Both because of the core rate plan savings, the front book, back book dynamics that Srini talked about, but incredible, not niche benefits, incredible benefits that our customers use at scale. In fact, T-Mobile US, Inc. customers of these Magenta status and T-Mobile US, Inc. two Mobile Tuesday's benefits on average, most of our customers use multiple of those every single month. So that's where we think we can create the real differentiation And, you know, phones, everybody does great deals on phones. It's what happens between the phone purchases, I think, where T-Mobile US, Inc. really stands out. Srini Gopalan: And to your point on subsidies and kind of what that means for jump balls and the rest were. And when we plan the year, when we plan ahead, we look at jump balls. We look at competitive intensity. And our guide incorporates all of that, both the 900,000 to a million and underlying that order of magnitude, 2 and a half million debts, which is kind of where we're positioned right now. And on subsidies, we will always be competitive with phones. It's really changing the center of gravity of the conversation. To stuff that creates sustained value, which is all the stuff Mike's talking about. Because also from an economics perspective, that's where we believe real CLVs are. Srini Gopalan: So I guess a couple of questions on the broadband business. The first is when you look at the service revenue mix going forward, I mean, the guidance that you guys have provided, how much of that growth comes from you know, the broadband business specifically and more in general, the newer businesses, if you can help us understand that. And then from a margin perspective, I mean, there's a lot of things you mentioned today, like focus on ARPA, you know, less subsidies potentially. More focus on the back book price and so on. All of this would imply that your core organic wireless margins should at a faster pace going forward? Than it's been so far because, you know, there's less focus potentially on volumes if you could just help us parse through some of these details to understand in the mix of EBITDA and revenues, that would be helpful. Srini Gopalan: So we take the first, but thanks, Karan. So the question really on wireless you're asking is an operating leverage question. Right? And you are seeing, as we move from 26 twenty-five to twenty-six to twenty-seven, really strong improvement in operating leverage. At the EBITDA level. So you're going from 5% and change because you shared the XM and A numbers as well to seven to seven and change, almost eight. And that's a reflection of the fundamental operating leverage improvement. Both in terms of our focus on ARPA the ARPA growth, as well as some of the cost reductions that Peter talked about. In terms of the broadband piece, Peter, do you wanna pick that up? Yeah. It's all you know, we we don't report segments because we don't run the company that way. We run the company, as you heard today, in terms of customer relationships and ARPA expansion. So broadband is an important element of how we get to ARPA expansion. In fact, again, we're the most bundled in terms of successful ability to take customers and either customers and then sell our broadband product into it or have broadband-only customers get introduced to the power of the T-Mobile US, Inc. network and then expand their products up there. So it's all implicit within the ARPA guide in there. And then when you run the business inclusive of synergies and integration and all of that, we're really thinking about it as one. Business and one operating leverage. Even for example on new businesses, ability to utilize TLife, as I was speaking about earlier, not only self-serve or help improve the with our amazing frontline and customer-owned retail stores and our experience stores, it also then provides a platform for new business growth cross-sell all that. So that's why we think about it in totality. And I think when you step back, what I'd look at is driving again at the high end. From '25 to '27, $10 billion of service revenue growth and you're going to drop $7 billion of EBITDA growth as part of that. That's the all-in number that we're looking at as well as are we actually able to deliver in an industry-defining way free cash flow margins on service revenue. Srini Gopalan: Greg Williams, TD Cowen. Just wanted to get your updated view on your appetite for additional spectrum. There's presumably more spectrum out in the marketplace todaySrini Gopalan: Well, for that. The way we've thought about spectrum historically, and we'll be consistent with that, is every piece of spectrum that comes up, we look at it on a build versus buy basis. Right? What would it cost to densify versus buying the spectrum? And that's why we walked away from things like the EchoStar We fundamentally believed it was too expensive. Now that said, we're incredibly committed to maintaining spectrum leadership. And network leadership. And we're looking forward to how this plays out in the auctions Our view on that, again, is we'll do the same There's kind of three things, right? One, the build versus buy. Two, looking at the spectrum that comes up in terms of consistency with our existing spectrum holding, And three, a commitment to maintaining our spectrum leadership. Those three things together will drive what we do with spectrum acquisitions. And you've seen where needed, we've been incredibly disciplined about the valuation of that spectrum and where it makes sense. The good news is there's a lot of new spectrum coming with the one big beautiful bill, which will drive valuations of that spectrum. As well, just from a supply perspective. Peter Osvaldik: Yeah. And the beauty of it is, of course, we only guided through 27 today, but obviously, we have aspirations of growing beyond 27, both from a core EBITDA perspective and free cash flow perspective. And so you just see how much capacity this business is creating. And because we're so prudent and strategic with how we allocate capital, that creates capacity for all of the things, so to speak. And when you think about run this out to twenty-eight, twenty-nine, thirty, when, you know, who knows the timing of all the potential spectrum opportunities. You're creating a lot of meaningful capacity to think about wisely in terms of investment. Srini Gopalan: Great. Let's go over to Frank and then two down from Frank. Frank Louthan: Great. Thanks. So can you walk us through the economics of the financial services business with the credit cards? What is sort of the opportunity there in terms of revenue and EBITDA? And is that something that would get folded into ARPA? Srini Gopalan: Yes, we're not we haven't broken that out separately. It's early days. But just think about what as we mentioned, the way we look at new business and this is very consistent with how Mike Katz laid it out at Capital Markets Day in 2024. Where can we bring significant scale and the assets that we have, meaning we have trusted customer relationships. We have our network assets. We have our distribution assets. We have now an app that has 24 million multiple times a month monthly active users. Which means you can and we have data particularly on our base, meaning we can do advantage credit decisioning. There's a reason. I mean, you know, we've been really tremendously strong in the capabilities we've delivered. Some by necessity from where the Un-carrier began in terms of being able to deal with subprime and near-prime populations. Q4 was another quarter we delivered much lower bad debt as a percentage of total revenue than AT&T or Verizon. It's because of the capabilities in the datasets and making sure that we create better customer value and better customer experiences. So think about financial services. One, there's a lot of great ideas out there. And I think we have them too. One of the big barriers to great ideas getting in the hands of customers And changing and improving the customer experience in financial services, is honestly CAC. Right? I mean, a lot of these business ideas get killed because of customer acquisition costs. We can change that whole paradigm. We have TLife, you have trusted relationships with 34 million accounts, If you're thinking about postpaid phone, that's 85 million postpaid phone users out there. And they're using TLife. And now you can bring them a better product perhaps even something they can't even get in the financial service space because of our advantage credit decisioning and data. Opportunities. And you can do it at a customer acquisition cost that nobody else can touch. So that's those like, that's one way to think about that opportunity. That's how we're thinking about the financial service opportunity. There's very little in the plan from a financial service perspective. But I know Andre, I'm just curious. I know when the CFO is the biggest of this, I don't have to say much. All the time, But listen, fully aligned. I think, as Peter said, we always look at this as win-win for the customers. And what we're seeing today is the ability to not have some of these industry legacy, either revenues in the back book like you see it in FWA. Right? There's a great advantage of being able to flow through all this growth Greenfield. Because we don't have a backbone to protect. Now when new in some of these industries like financial services, we have no backbone. The second thing is our clear advantage in terms of access to customers, leveraging our NPS scores that are leading industry-leading and the fact that we have acquisition capabilities both on retail and on digital with TLife, allows us to create these win-win relationships that we were talking about when we were talking about wireless, the same approach to this industry. Alright? And you think about credit card industry, financial services, or advertisement, these are all industries that have opportunities to create a lot more win-win with customers, and that's what we're focused on. That's what's gonna guarantee us growth beyond what we're putting in the targets we have today. Avi Gringard: Yep. There we go. Avi Gringard, Tech's Financial. So we've been talking mostly about consumer. I was curious how your expectations of business or enterprise growth play into your guidance going forward? Srini Gopalan: So we see a huge opportunity in business. We've talked about double-digit revenue growth. For the next three years. It'll probably run for the next five. The reality The reason we see that huge opportunity comes back to the position we've put ourselves in from a network perspective. A lot of our growth today is coming from differentiated things, only our network can offer. From the most obvious example of that, key priority, where our ability to slice and our ability to build that network creates a clear win with TFB customers. But it also goes through things like when people do RFPs, based on large-scale testing of networks. Right? We clearly win in those cases. So we see a lot of upside across everything from SMB to enterprise to David Barden: Hey, guys. Thanks so much. Dave Barden from New Street Research. Guess my first question would be, Srini, could you elaborate a little bit on your understanding with DT about how long they will cease to contribute their shares into the stock buyback program and kind of the framework that that we should expect that that will operate under as we forecast? And I guess the second question would be, with respect to presumably any incremental ambition for fiber expansion, Is the best way for fiber expansion for T-Mobile US, Inc. to use the existing Lumos and Metronet partnerships to let them do the expansion or do you wanna create or would you be willing to create new partnerships to go and take advantage of other opportunities to kinda create a portfolio fiber companies? Thank you. So thanks for the question. I'll pick up the fiber piece and maybe you can talk about, the share buyback. Srini Gopalan: Stuff. So on fiber, our view on this has been clear. We see fiber as a real opportunity to create customer and equity value. We're not targeting a number certainly not targeting a number of homes passed. Right? So we're not kind of keen on how much fiber lays outside multiple buildings. Right? We're keen on building a business that creates equity value and creates value for customers. Today, everything you saw was based on the Lumos MetroNet expansion. So all the numbers we presented today is the assets we have currently. Are we open to looking at more assets? Yes, at the right price. Because we're not going to sit here with a gun to our head on we're going to cover this many streets, forget customers. And then work back from that while people inflate their prices. When they have a discussion with us. Are we open to more assets? Yes. They need to be at the right price. Just from our the way we think of the way this market works, our 15 million FWA customers that we've now announced till 2030 if you were to equate that to fiber homes passed, that's above 40 million already. You take 12 plus 15 of fiber homes passed, where We're going to be in 50 plus million from a homes passed count perspective. It's a count we think is actually precisely relevant, but if that's the count you want to do, that's order of magnitude where we are. So my view on fiber is absolutely interested in looking at other assets and other scalable platforms, but they need to be at the right price to create value. Peter Osvaldik: Yeah. Look, as our majority investor, I can't really speak to their intention. Right? I mean, we're focused on running and creating value creation for T-Mobile US, Inc. shareholders and Deutsche Telekom as an investor obviously has their own motivation. So I can't speak to their long-run thought process or their decision-making around it. That really is something you have to ask DT. What I'd step back and say is, what they laid out and what they disclosed this morning, I think it's driven by what we laid out here and shared with you. Is we created a great vision for outsized growth in our September twenty twenty-four Capital Markets Day and today increased that vision. I think give you all the kind of pieces around how we believe this growth can continue way beyond 2027 and deliver industry-leading results beyond. We're not sharing that guidance here today. We're focused on 'twenty-six and 'twenty-seven. And then our own conviction. Again, we're always guided by how the plan that we've put together including our internal views of it informs us around the intrinsic value range of this company. And where are the shares trading today And if we believe there's a significant discount to that, that informs our approach to what we recommend to the board from a share buyback perspective. I imagine, since obviously Deutsche Telekom has the ability to see all of this as in their roles on our Board. They're also convicted with the plan. In fact, they said so, to be able to say, we're not actually going to sell any of our shares in 2026. Whether that's into the share buyback or on the open marketplace. And in fact, we're going to look at strategic opportunities to potentially enhance our shareholder holdings. So it's our long-run belief in this business, That's what convicted us to actually double the pace of Q1 share buybacks to $5 billion And I think those statements will have to speak for their own. But I think it's a similar mindset. Srini Gopalan: For a minute there, I thought Peter was going to guide for twenty-eight. Srini Gopalan: Hi. Mike Funk from Bank of America. So I think last Capital Markets Day, there was a slide where you showed the drivers of switching activity in wireless. The primary drivers I believe were network quality, customer and then kind of pricing value were lower down. So based on the K shape economy that we're in, have those drivers changed? And how does it inform your comments about device subsidy? Srini Gopalan: So everything we see suggests those are still the big drivers. I want to double click on a couple of them. Right? So network quality, we spent a lot of time on. On value, just to be clear, we will zealously guard our value position. And one of the reasons Mike and I talked about how value is being interpreted in this market That reflects our focus on continuing to guard that value position. What's important to us, though, is to guard it where it matters for customers. Not to guard it in places which destroy value. Either for customers or us. Like And that's part of the debate on the whole subsidy piece in terms of if phones are lasting longer, if they're becoming more expensive. If what you're finding is more freer but then baked into price and there's a gotcha somewhere. How do we move this industry to a place where we truly deliver value? Because we think value is always important irrespective of the state of the industry. And we will stay at the forefront of it. It's how we do it that really matters. And doing it in a manner that resonates with customers. Still see those as the big drivers, and we'll be will be the best of all three. Srini Gopalan: Chetan, did you have a question? Chetan Sharma: Thanks for taking the question. A couple of questions around AI RAN. How are you thinking about AI RAN going and connect the dots for us going into 6G. And what what can we expect in 2026? And then question around T Satellite. The impact you have seen of T Satellite the last six months. Srini Gopalan: K. So let me do the T Satellite piece and then hand over to John Saw. Depends on how long you have because he can You get him started talking about AI RAN and 6G, we could be here for a while. Let's talk about T Satellite. Look, T Satellite from our perspective, has been a huge success. It was a world first when we worked with Starlink to create a functioning direct-to-cell service. It's it's hard to do. We're actually making a satellite going at high speed, talking to a moving mobile phone. Is not easy to do. It is fundamentally a complementary product. And the physics and the economics of that business will make it stay that way. I mean, it's great for the 500,000 square miles of uncovered America. To have an alternative. But let's be realistic. Manhattan, I want my wireless network. Right? And that's our understanding, and that's, I think, the emerging understanding across the industry. That this is a great complementary service We love the work we've done. We like our partnership very much. With Starlink. So that's kind of where I am on satellite. And now over to Doctor. Sohr for 6Gs and AI RAM. John Saw: So gentlemen, AI RAN we think, has a tremendous potential to transform the future of mobile networks. Especially 6Gs. At our last Capital Markets Day, we announced the creation of the AI RAN Innovation Center, with some of our key partners like NVIDIA, Nokia, and Ericsson to develop and test a new architecture We really wanted to push the industry to think about a new architecture with more powerful compute. That allows us to actually not just process telco workloads, but also AI workloads at the same time. And like Srini said a little earlier, you know, we see a future network where you are able to not just process bits, but also tokens. And why is that important? I think you heard Jensen and Suneet talk about the emergence of physical AI. Right? Today, as big as AI is, it's focused on generative AI. TAM is about four to $5 trillion, which is huge. But it's really a digital space enhancement. It's focused on the IT economy. And wait till you see physical basically, AI moving into the physical world. And start interacting with it, and that's physical AI. And that's why we see the potential there. You know, if you believe some experts, hundreds of trillions of dollars, that's a total TAM. Right? And we believe that 6G is the connective tissue for physical AI. Right? And it is going to be the intelligent fabric that connects data centers, network edge, as well as AI devices itself. Right? So 6G is not just the connecting pipe, but really the nervous system for physical AI. That is why we are focused on AI around. We wanted to change the way compute is done in telco for generations now and bringing a more powerful powerful compute model that does tokens, and bits. So we're making good progress. Since then, we have got both Nokia and Ericsson now being able to make full voice calls through the NVIDIA platforms. And towards the 2026, we expect to start some field trials. Jonathan Keys: Great. Thanks for working me in. Jonathan Keys, Diowa Capital Markets. Great presentation. Wanted to ask specifically, I guess follow-up on a question earlier about churn. Q4 churn was pretty elevated for both postpaid and prepaid. For 2025 and for 2024. And that's with your NPS scores going up, with rolling leveraging your differentiation of the value add that you provide. I guess, how do you see churn going forward? And from what I heard earlier, sounds like you're just gonna be giving churn of accountants versus per phone. Going forward. And then the second thing I wanted to ask is how much are you going to leverage price increases, especially the legacy plans? Terms of the service revenue growth? Srini Gopalan: K. So let me start with churn. So clearly, NPS and churn are hugely correlated. What I think we saw in '25 was also a normalization of churn as an industry as a whole. Because you went through these years with thirty-six-month contracts and suppression of churn. Now when you look at '25 as a whole, our increase in churn which is seven bps, is the lowest amongst the three players. Right, which is just indication of the NPS stuff playing through. Even in Q4, when you're talking about elevated, I think we went up 10 bps, and everyone else went up for 10 to 14 bps. But importantly, if you look at full year '25, I think what you saw was a normalization of overall churn rates. They went back to what they were effectively before the suppression. Of the thirty-six-month contract. Right? And our view on account churn, again, is that's the big number to look at. Because again, if you look at the value loss that happens, when an entire account leaves you, that truly hurts CLV. Versus you take an inactive account, which somebody suddenly realizes this line I'm not using, and decides to move away from it. Actually doesn't cause any value loss. That's why we're focused on account churn rather than online churn. The other question, Peter? Rate increases as per Oh, yeah. So on look, our view on this is what will drive ARPA is a composite of three things. The biggest two will be the fact that we have this front book, back book dynamic, which means as your premium plan load in the front book, you naturally see a growth in ARPA. The second is expanding our relationships. From time to time, we will look at specific cases, and we did one in January. Where we think there is a case with the legacy book to look for price changes, and these are really rate plan optimizations. Mike Katz: Yeah. One other thing I'd say is this really underscores the importance of the strategy that we have about the included services and differentiation in our premium plans. Because it gives reason that customers a reason to move up in rate plan by choice. And that strategy has been really successful. I mean, there's meaningful differentiation between our Experience More plan and our Experience Beyond plan. And customers that are looking for those benefits buy up themselves both at acquisition but also during their life cycle. And, you know, that is unique to T-Mobile US, Inc. You know, nobody else packs these benefits inside the play. And just to underscore Mike's point, that natural upgrade cycle is not purely an acquisition play and premium plan loading. It also happens in the life cycle. Which is why we're guiding to 2.5% to 3% ARPA, 1% to 1.5% underlying that from ARPU. Peter Osvaldik: It's also you know, there was a tidbit you dropped I'm not sure everybody picked up and that is the delta in the value we saw with switching. So churn isn't always unhealthy. We've been very successful in the pre-reduction of churn environment and now back to the normalized churn environment. And you saw in December, a 15% delta between the value of accounts coming in and the value of accounts leaving. And there's a lot about this in the industry, we're trying to be very transparent around it. That's how you get the growth, that's then when you combine it with ARPA, you get the service revenue that's completely different from a profile perspective. We just promised you 8% service revenue growth versus one competitor who said 0% for wireless service revenue growth This is where it comes from. Just promised you service revenue growth actually going into core EBITDA growth and 10% headline growth and 7% organic growth. And that's with contract assets flat. That's assumed in our guidance unlike some others who are really loading more and more discount onto the balance sheet. Another way to move around core adjusted EBITDA which is why you need to think and look all the way through free cash flow generation. Again, provided you're making the right investments in the business, and you think you've seen today from us, we certainly are to expand our network margin of leadership. How much free cash flow you can generate out of service revenue is probably the best predictor. Ben Swinburne: Thank you. Serena, I wanna ask you about TLife digitization. And I think I think it connects to the I think Peter said 2.7 billion of savings, I believe, is 2017. Know that's not all TLife, but that's a piece of it. What are you doing to make sure that this migration is customer-led I think it's pretty clear it's good for your business to move to a digital provisioning model, but your retail distribution, your frontline people are obviously core to your NPS, your strong position with the consumer. And I guess I would imagine there might be some risk you sort of push the consumer in places that maybe impacts that NPS score. How are you guys managing all that? Because those are some big savings Peter's outlined. Srini Gopalan: Absolutely. Look, we've been incredibly thoughtful about this. We haven't driven digital and AI from a we're going to lay off this many thousand people because we need the cost from it. We started with and this is why this has been a three-year journey. Step one was building the capabilities. Having our IT in place, having the digital in place. Step two, was customer adoption, which is actually working with customers in the moving them to assisted digital. And step three is now scaling. But really, the person who should talk about this and the most remarkable transformation I've seen in a frontline and customer-centric way is John because he's driven a lot of this, John. John Fryer: Yeah. It's a great question, and it's something that we are tackling ourselves which is really what we wanna do is we wanna meet customers where they are. And we need to be honest about this, that, like, stores open from 10 AM to 8 PM, that's the only time you can do business or when you call 611 and you reach one of our that that's not meeting customers where they are. People want more power and capability right on their smart screens to be able to do things access T-Mobile US, Inc. Tuesdays, all the Magenta status benefits, transacting, changing a plan, adding a feature, removing a feature, all those things, we wanna be able to do that. At the same time, there's a lot of customers who have some anxiety about like, hey, all these promotions and the complexity, I need someone to help me with that. And what we want to also do is lean in to this experience store format. We've got hundreds of these stores up and running and then in-source more of our selling and service versus outsourcing. You know, strategy one zero one, you outsource what you're not core competent on and you insource what you are core competent on. And what we feel just incredibly proud of is the way that we go to retail, the way that we do customer care, and we want to do more and more of that ourselves. And I said this the Capital Markets Day back in September 2024 that ultimately the role of retail is changing. We don't want it to be a center of just transaction. That's thirty years ago. What we wanted to be is a center of experience How do you discover? How do you experience new products and services Think about everything that John talked about just a few moments ago and what's coming with 6G. And physical AI and understanding and learning about that in our stores. We want that to happen. And at the same time, we wanna build more and more expertise We're proud of this 45 net promoter score that we have. You saw what Trini just shared just a little while ago in terms of how that is really separated. Not only in the top 100 markets, also in smaller markets of rural areas as well. We're leading in NPS versus our principal competitors versus everybody in those markets. We see an opportunity to further that gap. Not like reading our press comments at 45. We're like, okay, that's good. But we have ambitions to push that past 50. And we are sweating everything that we can do between the digital experiences and the technology that we're building in TLife then empowering our people and creating TLife as a platform so no matter if you call customer care, or walk into a store or do it yourself at 11:00 at night after you put the kids to bed, it's the same system, the same platform if you need our help and you need our expertise, we're gonna be there for you. If you can do it on your own, we wanna meet you where you are as well. Sam McHugh: Thanks, Ben, and congratulations on your new role. Sam McHugh here from BNP. Okay. Careful. Did I say something wrong? Is it okay? Sorry. Two quick questions. The first one on guidance and phone nets. Think I think we've got pretty comfortable. Repeat that, Sam. Yeah. We've all got pretty comfortable in the last few years. Kind of having a good feel about what the guidance implies and then the end result and the on the beats on phone nets. Is there any reason to think that the way you're guiding on postpaid accounts is kind of conceptually different from how you used to guide on postpaid phones? And then the second question was on the better value plan that you launched a few weeks back. And if there's any early signs on kind of upsell in the existing base or if it's having any meaningful impact yet. Thanks. Srini Gopalan: Just coming so to your question on phone nets versus accounts, Sam, Look, our guidance philosophy remains the same. We go out and put a tough number out there, and then this team works its socks off to beat that. That will remain the same. In terms of historic ratios, they've historically, we've had 2.8 phones per account. Now you can see with our guide, about two and a half with 900 to a million. We're also assuming a certain amount of growth on fiber. We're assuming a certain amount of growth on fixed wireless, which may not on day one come with a bundle. So that's the way you should think about Nothing changes from the way we guide. Right, in terms of our philosophy of setting a number out there, which we think is the right number given what the industry where the industry is at, given the number of jump balls, given the competitive state of it, and then going after and working our socks off to beat it. Better value, Mike? Yeah. I mean, I think better value is a good example of a lot of things that we've been talking about here today. Where we built a plan that was really built around family savings. And switching your family over to T-Mobile US, Inc. and how much you can save with that plan Not just not just today and not just this year, but every year relative to the competition. And, you know, like we've said here many, many times already, we think that's important because customers aren't just picking based off of a free phone in a point of time. It's what what can we deliver for customers every day, both in value and in network. And that plan was designed to do that. So, I know we're not gonna get into a lot of details this quarter, but so so far the plan's doing exactly what we expect it to. And it's been great. Eric Luebchow: Eric Luebchow from Wells Fargo. I wanted to dive into the 15 million fixed wireless target you have by thousand thirty. Maybe you could talk about kind of the pacing to get here as we look out in 2020 You've been adding close to 2 million new fixed wireless subs a year. And maybe you could talk a little bit as well about the distribution of geography. I think, historically, this has been a product that's been more in urban areas. It's been more consumer-led. Are you seeing any broadening of that as you move into more rural markets, as you sell more into the enterprise that'd be great. Thank you. Srini Gopalan: So I guess a few things. One, phasing of that move that's look. You we are where we are right now, and we've constantly outrun whatever phasing we had on this product because the demand has been so strong on the back of NPS. We'll see what that phasing lands up playing out like over the next few years. We'll also see that 15 looks like with time. That's all we can really see at this point in time. It's our it's our most conservative view on where we'd get to based on the assumption of no additional spectrum, based on assuming no spectral efficiency with 6G, All of those, honestly, will have a bigger impact. Than purely our run rate. Right? On geographies and kind of segments we're in, we're absolutely going to expand that product into business. Which is great because that is the definition of fallow capacity. I think increasingly and Andre, you might want to comment on this. I think the urban versus rural SKUs are less true, especially as we grow into SMRA. Andre Almeida: Yeah. So both, as Srini said. I think one is the SKU will always exist. It's a matter of density. But you saw Srini and John talk about the progress we're making in sMRI, and that obviously translates with time also in our ability to compete in those markets. Again, we go back to we have the highest NPS in these markets, we have the strongest network position. So that translate is translating and will continue to translate again, another opportunity to that gets us comfortable with the 15 million number, which is we're still under indexing areas where we have the best network and we have the best NPS. In b two b, it's a something that we've launched and we've been successful at. We're still in early days of this. I think b to b in in wireline is a is a great opportunity for for fixed wireless And you will see us over the next couple of months. Innovating a lot what broadband and what Internet connection means for b to b. So stay tuned. But there's a big opportunity. As you know, there's a big and you see it in sort of what other players have have are putting out. There's a big transition of technology happening in b to b. From traditional connectivity based on Ethernet and PLS towards much more of an underlay overlay split where you start seeing more traditional Internet connections being the baseline of connectivity, and then being complemented with SD WAN and SASE solutions. That's a huge opportunity because that allows us to get into that space, without having to carry the legacy and the complexity of having to run complex support systems for customers. So that is opening up. Technology is moving in a way both on FWA capacity capabilities but also on the way customers want to buy that technology that gives us opportunity in B2B connectivity as we go forward. Matt Harrigan: Matt Harrigan, Stonix. Simple question. When you look at the simple math on the switching effects, it's much more powerful than unit growth in the market. You've got some huge tailwinds, 24% penetration Device innovation helps you. You look at iPhone 17. You got the still very sticky lag in the network. Perception. But if we did have unthinkably an economic slowdown on the low end of the K at least, probably already having that, Maybe you couldn't hit the two five, but do you think you could get near that number? Because and, honestly, maybe your other actors would be more price rational in that environment. Who knows? Do you think you can get substantial growth even if we do finally get a recession? Thanks. Srini Gopalan: Yep. This is why I mean, thanks for the question. This is why we have zealously protected value over the years Right? We've always believed that we need to be resilient to any economic climate. Even though we understand that our category in many ways is the most resilient to economic change. We are, as a category, we're never a lot of people ask us, you know, what's happening with bad debt? Are there any signs of a consumer slowdown? And my response to that typically is, we're never the canary in a gold mine. Right? We're just it is such an essential that we're very, very resilient to economic cycles. That said, what this team is absolutely passionate about is not losing our value heritage. And that's why over the years, as our competitors at various points in time, have used their pricing power, quote unquote, which has put up prices on existing customers without really doing more for more, We've been very thoughtful and choiceful we will be going forward as well. On where we do any rate plan optimization. Because staying best value is absolutely critical to our ethos. And that's what even in a world where economic times get harder and even in the off chance that the category gets more value seeking. Think we're incredibly well cushioned and protected. Against that eventuality. Peter Osvaldik: In fact, you know, we're certainly not forecasting that, but if you see a world future where there might be more of a consideration and flight to value because of macroeconomic changes well, then T-Mobile US, Inc. is probably best positioned to actually a more meaningful share of that given where we're at particularly as you have more consumers doing consideration of switching and they start asking around the way they do and now you've come to the place where you have best network and still offer the best value. Srini Gopalan: Alright. Well, that's all the time we have. Thank you all for joining us. There's light refreshments over there if you want something on the way out our team will be available to mingle for just a little bit. Srini Gopalan: Thank you. Thank you. Okay. Thank you, guys.
Michael: Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2025 Fourth Quarter and Full Year Results Conference Call. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. Patrick Nolan: Thank you, Michael. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our homepage and our Investor Relations homepage. With regard to our upcoming investor calendar, we will be attending multiple investor conferences seen now in our next earnings release. Please see the events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks as detailed in our 10-Ks. Our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and any net M&A. We will also refer to our incremental large performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth versus our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we've posted today's earnings call presentation to the IR page of our website. I encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe. Joseph Fadool: Thank you, Pat, and good morning, everyone. We are pleased to share our results for 2025 and provide a company update starting on slide five. I wish to begin by thanking our employees, our customers, and our suppliers for all of their trust and efforts during the past year and for their continued support. In 2025, we delivered approximately $14.3 billion in net sales, which was up approximately $200 million year over year. This increase was supported by a 23% increase in our light vehicle e-product sales, which demonstrated the strong demand for our hybrid and BEV products. Despite challenges in our battery business, we delivered modest organic growth. Excluding the decline in our battery and charging system segment, our organic sales were up approximately 1.6% year over year, led by outgrowth across both our foundational and light vehicle e-product portfolios. Despite modest sales growth, we significantly improved our overall financial profile by increasing the earnings power of BorgWarner. We expanded our adjusted operating margin by 60 basis points despite a 20 basis point net tariff headwind. We achieved 14% EPS growth year over year and generated more than $1.2 billion in free cash flow. Additionally, we returned over 50% of our free cash flow to shareholders through a balanced capital allocation approach. In my view, our 2025 financial performance was outstanding and positions us for continued momentum into 2026. Looking to the drivers of our future performance, we finished the year by securing our record number of new product awards across our foundational and e-product portfolios. All of our business units contributed to our record wins, and I expect a robust pipeline of further opportunities in 2026 and beyond. Additionally, I am truly excited to share with you a new product that will serve as a power generation solution for the data center market and other microgrid applications. As many of you know, the demand for on-site power generation is growing significantly. We believe this product could open up an additional avenue of significant profitable growth outside of our core automotive markets. I will provide more detail on this exciting news in a few minutes. Looking back on our 2025 performance, I'm very proud of our team and our results. As Craig will detail, we believe we remain well-positioned to continue to expand margins, grow adjusted EPS, and generate strong free cash flow in 2026. We expect to do this while also investing in our business to support our focus on long-term profitable growth. Now let's look at some new light vehicle product awards on slide six. First, BorgWarner has secured a conquest award with a major European OEM to supply a variable turbine geometry turbocharger for one of their hybrid electric vehicle platforms. This business win positions BorgWarner as part of the supply base that will power this OEM's first hybrid electric offering in North America. We are proud to extend our long-lasting relationship with this OEM. Next, BorgWarner has secured a contract with a major North American OEM to provide an 800-volt secondary IDM and a generator module incorporating a dual inverter. These products will be integrated into a series of the automakers' range-extended electric vehicle trucks and large-frame SUV models. I believe this award showcases our product breadth in the electrified propulsion space. Next, BorgWarner has secured an award with a premium European OEM to supply an IDM supporting a hybrid range-extended powertrain architecture. The IDM features BorgWarner's innovative single motor and integrated drive module. By enabling a single electric motor to perform both power generation and driving functions within a very compact package, the solution provides greater flexibility in vehicle platform design, system integration, and performance optimization. Next, BorgWarner's battery management system has been selected for an expanded program with a global OEM. The system will support additional B-segment and C-segment passenger cars as well as light commercial vehicles for battery electric and plug-in hybrid electric vehicle applications. Finally, BorgWarner has secured a new electric cross differential program with a leading Chinese OEM. This EXD solution is designed for a 48-volt system and is integrated with the customer's electrical and electronic architecture. This program represents BorgWarner's first 48-volt EXD application and expands the company's torque management capabilities for electrified vehicles. Next on Slide seven, I'm extremely excited to share the details of our new product for the data center market and other microgrid applications. BorgWarner has signed a master supply agreement with TurboCell, which is a subsidiary of data center infrastructure developer Endeavor. Under this agreement, BorgWarner will supply a highly modular turbine generator system. This exciting new technology leverages many of BorgWarner's core competencies, including our world-class turbocharging, thermal management, power electronics, advanced software controls, and high-speed rotating electric capabilities. It also leverages our deep manufacturing footprint. As many of you know, the power generation market is expected to grow significantly over the next decade. We expect roughly a mid-teens annual growth in demand for on-site power generation through 2035. This is where we expect our turbine generator system to be a transformative solution for the data center market, as we believe our product addresses the growing demand for alternatives to traditional on-site power generation. Within the US, we expect our turbine generator system to help support the acceleration of the power and energy solutions needed to strengthen our grid. For those of you unfamiliar with Endeavor, let me provide some background. Endeavor provides turnkey facility solutions to data center and microgrid customers. The company has twenty-five years of experience in the data center market and operates multiple facilities both in the United States and Europe. BorgWarner has worked with Endeavor and their TurboCell subsidiary for more than three years to bring this turbine generator system to market. Throughout this time, we found them to be a thoughtful partner that supports our vision of a clean, energy-efficient world. I look forward to all we can accomplish together as we bring an innovative lower emissions power generation platform to the data center market. From a financial perspective, we expect production of the turbine generator system to begin to ramp up in 2027 with sales expected to be more than $300 million during the first year of production. Now let's turn to Slide eight and discuss some of the advantages of the turbine generator system compared to existing power generation solutions. As you can see by the image on the left side of the slide, the turbine generator system leverages many of our foundational and e-product capabilities. And we believe the breadth of our capabilities is a competitive advantage that will be difficult to replicate. We believe the turbine generator system offers unmatched adaptability for diverse applications, including backup and primary power, advanced controls, and quick transient response to manage power and grid peaks. Based on our analysis, we also believe the turbine generator system provides a lower emission solution relative to other options. Importantly, it also allows for flexible fuel types including natural gas, propane, diesel, and hydrogen, giving additional options to the end user. BorgWarner expects to leverage our robust automotive supply base and world-class manufacturing capabilities to maximize vertical integration, allowing us to control approximately 65% of the content. I'm excited to update you throughout the year as we move closer to the start of production in 2027. I believe the development of the turbine generator system and securing the TurboCell supply agreement is a powerful representation of the BorgWarner team proactively identifying and seizing opportunities that fit our growth criteria, and I anticipate future opportunities for other industrial applications for BorgWarner products over time. Congratulations to our entire BorgWarner team. To summarize, the takeaways from today are the following. BorgWarner ended 2025 with strong results. We delivered $14.3 billion in net sales, a 10.7% adjusted operating margin, which was up 60 basis points compared to 2024. We also grew our full-year free cash flow to $1.2 billion, an increase of approximately 66% compared to last year. We secured a record level of new business by leveraging growth across our foundational and e-product offerings, which we believe demonstrate our focus on product leadership. And we announced the signing of a master supply agreement with TurboCell for our turbine generator system, which expands our product reach into new and growing data center and other microgrid markets. We expect this transformational and innovative system will further support our focus on long-term profitable growth by addressing the growing need for a superior power generation solution. As I reflect on my first twelve months as CEO, I'm so proud of our continued progress on three key factors I believe will drive long-term shareholder value. First, we delivered strong financial performance as evidenced by our 2025 results. Additionally, we expect another year of further operating margin improvement and EPS growth in 2026, despite declining markets and lower battery sales. Second, we secured record new business wins across our foundational and e-product portfolios, which we expect will support our ability to deliver long-term profitable growth. The 30 awards that we have announced over the past four quarters give me great confidence in our strategy. Our business units are embracing the challenge to find additional growth opportunities through new product developments like our turbine generator system and our EXD solution. And in 2026, we expect to launch new products like our innovative battery cooling plates. And third, we remain focused on delivering incremental shareholder value through our free cash flow generation. As Craig will highlight, we returned over 50% of our free cash flow to shareholders over the course of 2025. And we continue to prudently explore accretive inorganic opportunities to grow our capabilities. By continuing to focus on these priorities in 2026 and beyond, I believe we are well-positioned to continue growing the earnings power of BorgWarner, which we believe will drive long-term value for our shareholders for years to come. With that, I will turn the call over to Craig. Craig Aaron: Thank you, Joe, and good morning, everyone. Let's jump into our fourth-quarter financials by turning to Slide nine for a look at our year-over-year sales. Last year's Q4 sales were just over $3.4 billion. You can see that stronger foreign currencies drove a year-over-year increase in sales of $104 million. Then you can see a modest increase in our organic sales, which was primarily driven by turbocharger outgrowth and customer recoveries in North America, partially offset by foundational production headwinds in Europe and China. The sum of all this was just under $3.6 billion of sales in Q4. Turning to slide 10, you can see our earnings and cash flow performance for the quarter. Our fourth-quarter adjusted operating income was $427 million, equating to a strong 12% adjusted operating margin. That compares to adjusted operating income from continuing operations of $352 million or a 10.2% adjusted operating margin from a year ago. On a comparable basis, adjusted operating income increased $67 million on $29 million of higher sales. This performance benefited from more than 100 points in customer recoveries, primarily for a North American new product program that has seen significant volume shortfalls, as well as $11 million of positive net tariff recoveries. Our adjusted EPS from continuing operations was up 34¢ compared to a year ago as a result of higher adjusted operating income and the impact of over $500 million in share repurchases during 2025. And finally, free cash flow from continuing operations was a generation of $470 million, which drove our full-year 2025 free cash flow to over $1.2 billion, or a 66% increase from 2024. Now let's take a look at our 2026 full-year outlook on Slide 11. We are projecting total 2026 sales in the range of $14 to $14.3 billion compared to $14.3 billion in 2025. Starting with foreign currencies, our guidance assumes an expected full-year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. Dollar. We expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted light vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year over year, which is roughly in line with our market excluding the decline in battery sales. Now let's switch to margins. We expect our full-year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect an exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full-year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls. We view this as strong underlying performance building off of 2025 that well exceeded expectations. Based on this sales and margin outlook, we're expecting full-year adjusted EPS in the range of $5 to $5.2 per diluted share, or approximately a 4% increase versus 2025 at the midpoint of our range. This once again demonstrates our focus on consistently driving earnings expansion despite lower industry production and battery cell declines. We expect full-year free cash flow to be in the range of $900 million to $1.1 billion, with a 2026 midpoint being a decline versus 2025's strong results, mainly due to an expected increase in capital spending as we support our upcoming turbine generator system launch and other light vehicle launches around the globe. We expect these investments to accelerate our top-line growth in 2027 and beyond. With that, that's our 2026 outlook. Now let's turn to slide 12 and review our share repurchase progress. First, we successfully repurchased $400 million of BorgWarner stock during 2025. This was ahead of our October guidance, supported by our stronger-than-expected free cash flow during the fourth quarter. Combined with our second-quarter repurchases and common stock dividends, we returned approximately $630 million to shareholders in 2025, which was approximately 52% of our free cash flow during the year. This demonstrates our focus on a balanced, disciplined, and consistent return of cash to our shareholders, which we expect to continue in 2026 and beyond. I would also highlight that we have repurchased over 31 million BorgWarner shares since 2021, or a 13% reduction in our outstanding shares over that period. This represents a $1.3 billion return of cash to our shareholders over the past four years and shows our confidence in the strong and sustainable cash flow we believe we will generate for years to come. As we look forward, we are pleased that we have $600 million of remaining availability under our current share repurchase authorization to support additional shareholder value creation. We continue to see a consistent and disciplined cash return to shareholders as an important component of our balanced capital allocation approach. So let me summarize my financial remarks. Overall, we delivered strong 2025 results. Sales were up modestly, supported by 23% growth in our light vehicle e-product sales. We delivered a very strong 10.7% adjusted operating margin, which was 60 basis points higher than 2024. And importantly, we saw operating margin expansion across all business units and appropriately reduced corporate overhead. 2025 adjusted earnings per diluted share increased 14% year over year, supported by our focus on margin expansion and returning cash to shareholders through share repurchases. And finally, we generated over $1.2 billion in free cash flow, or a 66% increase year over year, and approximately $630 million of this cash was returned to shareholders through share repurchases and dividends. Now as we look ahead to 2026, our outlook aligns with our focus on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth, despite our expectation that market volumes and battery sales will decline in 2026. Second, we continue to make important product investments that leverage the many mechanical and power electronics core competencies that BorgWarner has developed over decades of product leadership. These core competencies will help us continue to secure new business awards throughout 2026 and beyond. Today's turbine generator system announcement is a great example of finding new avenues of sales growth that provide a strong return on invested capital. And finally, with another year of anticipated strong free cash flow of $1 billion at the midpoint of our guidance, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earning power and execute a balanced capital allocation approach that rewards shareholders. As I look back, our 2025 results and our 2026 outlook, I'm extremely proud of the BorgWarner team around the globe and their ability to deliver strong financial results in an uncertain light vehicle production environment. We believe we have the right technology-focused portfolio, financial discipline, and global team to continue to drive the long-term earnings power of the company. We're excited about 2026, and we look forward to executing another strong year. With that, I'd like to turn the call back over to Pat. Patrick Nolan: Thank you, Craig. Michael, we're ready to open it up for questions. Michael: If you would like to ask a question, at this time, we'll pause momentarily to assemble our Q&A roster. And your first question comes from Colin Langan with Wells Fargo. Please go ahead. Colin Langan: Great. Thanks for taking my questions and congrats on a good quarter. Can we dig in a little bit more into the data center opportunity? Obviously, you gave a lot of color, but how should we think about the margins of that business as it launches? Is the $300 million a target, or is that already booked with an upside if you book more business? And is there any CapEx that we should be worried about as you need to invest to develop this business? Craig Aaron: Sure, Colin. Thanks for the question. So we announced the data center win of $300 million in revenue as we look out to 2027. As you think about the margin profile, what you should assume is a mid-teens incremental conversion on an extra $300 million of sales, which is consistent with our automotive business. What you should think about from an EPS perspective, we believe it will be EPS accretive immediately, and we see a strong return on invested capital for that program. From a CapEx perspective, you could see our CapEx guide is four and a half percent of sales, which is up from 2025. And that's because we're investing in the 30 plus wins we've announced publicly last year as well as the turbine generator system that Joe spoke about in his script. Colin Langan: Got it. That makes sense. Then if we could just dig into the PowerDrive, you kind of commented in your commentary, you mentioned something about a recovery. I mean, I guess that would explain why sales EBIT rose about 70 on sales up 40. Any way to frame the size of the recovery? Is that repeat into next year? Wouldn't that be a headwind if you had a one-off recovery this year? How should we think about the sustainability of growth in the segment given the slowdown of EV? Craig Aaron: Sure. So in the quarter, we had about 100 basis points of benefit in the fourth quarter. But as you look at power drive systems, I would encourage you to look at the full year. Joe and I were really watching power drive systems this year not just from a growth perspective where we saw substantial product growth, 23% product growth on the light vehicle side, a lot of that in PDS. But also ensuring that we incremented on that growth in the mid-teens. And if you look at PDS results for the full year, that's exactly what you see. So we feel really good about the progression of that business throughout 2025. As we look at 2026, we continue to expect light vehicle e-products growth in that low double digits, and we expect power drive systems to convert in the mid-teens off of that 2025. That's how you should think about that business as we move into 2026. Colin Langan: That's very helpful. Thanks for taking my question. Michael: Thank you, Colin. Your next question comes from Chris McNally with Evercore ISI. Please go ahead. Chris McNally: Thank you so much, team. Just a quick follow-up to Colin. So I mean launching the turbine business out of 3T at auto-like margins given the shared technology. I mean, it's obviously just fantastic. Can you give us a sense for that $300 million revenue? Don't need a hard number, but like a couple of years past '27, just the opportunity because it's, you know, whether this is a, you know, a triple or a home run. But it seems like there's a lot of runway here. Joseph Fadool: Good morning. I think the way to think about that business, we announced today $300 million in the start of production year. So, you know, this program, like many others, has a ramp-up phase to it. When we look more broadly at this market, you know, the data center market is growing in the mid-teens per year for the ten years is what most people believe. We think it's applicable to over 90% of the data center markets globally. And it's a product that is really differentiating us versus some of our competitors, you know, to give you some color on the technology. It incorporates a very fast transient response to support the load imbalances that happen quickly in data centers. We have a very integrated approach to the system. One of the slides in the deck, page eight, highlights really all the BorgWarner content that's helping us bring this to market. So, you know, from my perspective, this is exactly what we asked our business units to do. And that is drive top-line growth, increment in the mid-teens, and we feel very optimistic about this new entry into the industrial market. Chris McNally: Okay. That's great detail. I'll definitely follow-up offline. And then just the second one, going back to the auto side, so growth over market minus one, you talked about the battery drag, right, which is a multiyear unclear when we hit sort of bottom there. But I think you said that's 150 basis points. If you ex that out, you're still only really growing 50 basis points on the other three divisions, where there's basically good secular tailwinds in both ICE and hybrid. So can you just an order of magnitude when we may see those get back to that sort of low single digit that we were doing sort of consistently? And what would get us back to that level? What is the market driver? Thanks so much. Joseph Fadool: Sure. As I look back first at the last couple of years, 2024, 2025, it's clear to me that our outgrowth was impacted by EV programs that we booked several years ago. And as we know, the volume of many of these programs, at least in the Western world, has been lower than we expected. So what I can see now is that dynamic's gonna continue into '26, and that's what we're living with at this point. And I can also say I'm not satisfied with the outgrowth we've been seeing. So what I am pleased about, however, is all the booking strength in both the foundational and e-product side we've announced over the last eighteen months or so. So I expect these bookings to support our midterm objective. For our foundational e-product businesses to outgrow their respective markets, and we'll start seeing that top-line benefit in 2027 and further in 2028 and beyond. Chris McNally: Okay. Excellent. Thank you. Michael: And your next question comes from Joseph Spak with UBS. Please go ahead. Joseph Spak: Thanks. Good morning. It's helpful your slide that sort of shows the content you're getting on the power gen opportunity. And I know you have this comment 65% of the content controlled by BorgWarner. I guess I just wanna understand that a little bit more. And please correct me where I'm wrong because, you know, again, I'm sort of still getting familiar with the side of the business. But $300 million two gigawatts, that's like a $150 a kilowatt. I thought the rule of thumb on industrial scale powered, you know, gen was something like $900 per kilowatt. So that's, like, 15% of the value. So where am I off there and or what am I missing for your content opportunity within this power gen opportunity? Joseph Fadool: Yeah. Good morning, Joe. So first of all, the $300 million does not relate directly to the two gigawatts. So $300 million, the way to think about it, that's our initial year of production. So we're not going to have a full year. It's going to be our ramp-up year. We have kicked off and we'll install the two gigawatts of capacity. In addition to that, there's a backlog there that we expect to make some future decisions about additional investments. So our focus right now, though, is on the launch and making sure it's flawless and we deliver that $300 million more during that initial year. But I wouldn't directly correlate those two figures. One is a capacity figure, which we're installing. The other is the initial revenue from the start of production year. Joseph Spak: Okay. Well, then maybe just to follow-up there. Like, what does it correlate to? Or put another way, like, at capacity, how do you sort of size the revenue opportunity? Joseph Fadool: Yeah. We'll size it as we get closer to 2027. What we're announcing today is what we see as the initial revenue during the launch phase. And our teams are super focused on making sure that launch goes well. But we're really optimistic about this product and this market. As we all know, the power generation market needs more innovative and alternative solutions. And we believe, you know, at the end of the day, this is just a better mousetrap than many of those that are out there. It has fuel flexibility, fast transient response, it's very flexible and modular. It can support the small microgrids all the way up to serving multiple generative AI farms. So from our view, we think we have a lot of room and runway in the market, and we expect we're gonna capture our share of that. Joseph Spak: Okay. Maybe just, on the core business. You know, if we're how just broadly, I guess, how are you sort of thinking about the Turbo's outlook over the coming years and the competitive dynamics, I guess, within that market. And, you know, I guess one of the reasons I ask and it's a question we get a lot from investors is you have companies like Stellantis in the U.S. sort of coming back with the V8 and that sort of looks if you look what the V8 share of those on some of those vehicles used to be, it was quite high. And obviously, that was sort of replaced by, you know, a V6 Turbo. So it seems like there's some replacement going on. I know that's just one example. I don't mean to sort of over extrapolate, but if at a high level, if you could sort of talk about what customers are doing on the turbo side. Joseph Fadool: Sure. So we still see growth in the Turbo business line. So just as a reminder, you know, we're in the top two market leader in that product space. We love turbochargers. We see penetration continues to increase. We also see the adoption of more complex highly efficient turbines, like the one that we announced today, the variable turbine turbocharger, which improves performance at the low end. And on top of that, being one of the market leaders, we expect to conquest business often from some of the weaker players. And we think that trend will continue. And that was one of our announcements today with a European OEM. So from our position, we're really leading from a position of strength in turbochargers. We see that there's going to be a few more generations of technology. We're prepared to make that investment. So globally, we feel we're in a really great place with that business. Joseph Spak: Okay. Thank you. Michael: And your next question comes from James Picariello with BNP Paribas. Please go ahead. James Picariello: Hi, everybody. I want to double click on the business, the battery systems business. So yes, revenue down 35% to 40% year over year. Just what's next for this business? I assume there's an additional restructuring effort in place or underway to address the declines and yes, curious how you're thinking about the loss rate relative to what we saw in 2025. You know, with the business down as much as it is. Joseph Fadool: So we continue to see sales headwind in this business. As we've talked about today, mainly due to the challenges in North America, but to a lesser degree, demand in Europe is also down. So we expect the decline in this business to be about a 150 basis point headwind in our '26 growth. And in the near term, sales trends are a little bit difficult to predict. But what I'm very pleased at are the tough decisions and the actions that our team has taken to really minimize the losses and adjust the cost structure in this business. What that does for us is it also poises us well for future growth. So near-term sales trends are difficult to predict. However, I'm pleased with the actions we're taking, and I do feel still optimistic about this business. I believe we've got opportunities not only to continue as one of the market leaders in CV battery packs but also look outside of the commercial vehicle space for other opportunities for battery storage. James Picariello: Okay. Understood. And just I mean, I know you guys don't guide foundational growth versus product, but maybe can you just provide some thoughts on what's embedded in the 2026 outlook? Respect to the e-Propulsion sales that revenue stream. Craig Aaron: Sure. So when you look at the light vehicle e-product relative to 25% to 26% versus expecting low double digits, that's the way to think about it. Obviously, we gave you the details on the battery business. So we see another year of growth primarily in Europe and China, and we expect to convert that growth on the light vehicle side in the mid-teens. That's what's implied in the guide. James Picariello: Great. Michael: And your next question comes from Dan Levy with Barclays. Please go ahead. Dan Levy: Thanks for taking the questions. I want to go back to a question that's been asked on past calls about your M&A strategy. And, obviously, we see the stock today. It's, you know, and what's doing to your multiple. And I see, you know, some of the multiples of other companies that are levered to data centers and, you know, the question really is, if we are seeing an increase in your multiple, how does this potentially change your M&A playbook that all of a sudden there's a wider set of targets that would allow for accretive deals as opposed to when your was more compressed. And you have limited upside on how much you could do deal. So how does the opportunity set on M&A change here? And we'll start there. Joseph Fadool: Hi. Good morning, Dan. So, you know, as we've stated in the past, we still remain active but are very disciplined in our M&A approach. So we believe there's, you know, great compelling opportunities out there for a company like BorgWarner with financial strength and operational strength. So just want to remind us the three priorities that Craig and I have set are first any acquisition needs to really leverage our core competence. It has to make industrial logic at the end of the day. The second is we're looking for near-term accretion. So we're really pleased with our portfolio. We did a lot of heavy lifting in the last five years. As I sit here today, we want to make sure any acquisition not only strengthens the portfolio, we see near-term accretion and expand the earnings power of the company. And then finally, we want to pay a fair price at the end of the day. We don't want to overpay for anything. So we're going to continue to keep those criteria in front of us. As we've mentioned in the past, we've passed on some deals that didn't meet one or more of those criteria. And lastly, I'll just say, you know, we've really opened up the aperture when we talk about leveraging the core competence of the company, but we've significantly raised the hurdle. Using those three criteria to make sure we're adding to shareholder value and expanding the earnings power. Dan Levy: Okay, great. Thank you. The second piece is, I think just touching on some of the prior questions, the core business alongside this power gen opportunity, obviously, you know, there's a growth slowdown this year, and that's why the core business is flat. Sounds like you're talking to some opportunity for incremental launches beyond this year, and you have the opportunity from power gen. What is the right way we should be looking at the growth over market beyond this year, which has been compressed but sounds like you're talking about some tailwinds beyond this year that could get you back to maybe that three to four points of outgrowth that you had done previously? Joseph Fadool: So as we mentioned in the remarks, you know, Craig and I are not satisfied with our growth or outgrowth, and we're still living with a little bit of this overhang from the EV business outside of China. And that'll continue into '26. But if you look back in the last twelve to eighteen months, especially the last four quarters and the 30 wins that we've shared, we are very optimistic about the future launches of those programs. I think it really speaks to the portfolio strength and the flexibility that independent if a region is looking for combustion products, or EV products or hybrids, which pulls from both sides, we are very well positioned to capture that growth. So of course, it takes time for these new product wins to get to the launch phase and ramp up. And that's why we said, we expect to start to see some of that growth in '27 and even more in '28 and beyond. Dan Levy: Great. Thank you. Michael: And your next question comes from Luke Junk with Baird. Please go ahead. Luke Junk: Good morning. Thanks for taking the questions. Maybe if we could start, just hoping to unpack some of the margin dynamics around this modular turbine effort. Craig, you mentioned that you'd characterize it as a mid-teens incremental margin. I just want to think through maybe some of the elements in terms of leveraging your existing production for, let's say, some of the thermal products and the model itself? It sounds like this is sort of an assembly model ultimately, and if we think about that mid-teens, is it safe to say this is a piece of business you would expect to be above the corporate margin at maturity as well or even earlier stage? Thank you. Joseph Fadool: Yeah. Good morning, Luke. So let me start first with this is a great example of not just leveraging our but leveraging our manufacturing footprint and supply chain and automotive. The way to think about it is you may have noticed in the fourth quarter there was an announcement put out about a new plant in Hendersonville, North Carolina, which is just about twenty minutes from one of our larger turbocharger plants. That's where we're gonna do the final assembly, the test, and pack out of the complete system. Now leading into that factory, we've got four other factories around the globe that we're leveraging. These are existing automotive factories where we've got lots of manufacturing competence and depth. And they're producing some of the subcomponents that will then go into this final assembly in North Carolina. So that's how we're really leveraging the strength of BorgWarner. We are making a new investment in this factory in Hendersonville. It's a brand new Greenfield site. The team is making great progress on it. But I'm really proud of the fact we're able to leverage some of our automotive footprint and supply chain, by the way, so that we can get off to the right start and profitably grow this business. I'll let Craig comment on the incremental. Craig Aaron: Yes. And as Joe mentioned, this year, 2026, we're focused on successfully launching that product. And as we get into market in 2027 and you see that $300 million of sales growth, again, Luke, you should expect mid-teens incremental conversion. You should expect immediate EPS accretion. And you should expect a strong return on invested capital. We feel really good about the financial profile of that business. And we're excited to launch it in 2027. Luke Junk: That's all very helpful. Thank you. And then I want to switch gears. Craig, you mentioned that within the margin range this year, I guess, when I just pick out two things. One, that, you know, the path to the high end of the range is fully offsetting the organic decline, and I'm just wondering if there's anything you call out there. I know the company has some early-stage efforts around AI in particular that are interesting both on the manufacturing floor and within R&D? And then just to clarify, the mid-teens expectations for PDS specifically, is that including getting up and over the customer recovery that you had this quarter? Thank you. Craig Aaron: Sure. So I'll start and maybe Joe can provide some highlights from an AI perspective. When you look at our margin expansion, and first, I want to highlight margin expansion in 2025. Up 60 basis points year over year. Fantastic job by the team, and we saw margin expansion across every business unit as well as managing corporate overhead and program. So great job in 2025. As we move into 2026, we see another 10 basis points of expansion at the midpoint, and I'll kind of walk you through that, Luke. First, charging access, that's 10 basis points of margin expansion. Additional cost controls across our entire business, that's another 10 basis points of margin enhancement. And then, obviously, we have the lower sales, but the teams are doing a nice job of decrementing in the mid-teens on both the decline in the battery business and industry production. You go through the math that takes you to 10.8%, get to ten nine, it means we're gonna take additional cost measures, and I see the team is really rallying around that. With that, I'll turn it over to Joe to maybe talk about our AI efforts and what we're doing as a company. Joseph Fadool: So we are using machine learning and generative AI. We started about two years ago on some of the new generational AI technologies. And we started with some pilots. You know, we had pilots in our plants, we had pilots in our back office, and also some in R&D. And out of those pilots, let me estimate about 30% of them looked really positive. So that's where we're continuing to invest and scale those pilots so we can see more comprehensive improvement. Now some of the improvements are in quality, like if you think about visual inspection. We also have areas where we're able to reduce cost, labor costs, and more scrap costs. We're finding opportunities on the R&D side. So if you think about when we win a new program, we're producing highly engineered products. So the stack of requirements from a customer is pretty high. And engineers have to go through those requirements and turn them into specifications. We have found a great application of using GenAI to really simplify that process, which frees up our engineers to work on higher-level things like innovation and bringing the product to launch. So as we think about generative AI, it'll continue to help us not only improve our quality but our cost structure. And some of that falls to the bottom line. Some of it we're using to fund some of these future projects to drive long-term growth. So we're excited about what we're doing with generative AI, and we think it could be a major lever for the company. Luke Junk: Yeah. Just on the just lastly, the, yeah, the PDS margin expectations, specifically that mid-teens is all in including the recovery, just to clarify? Craig Aaron: It is. It is. So when you think about that jump-off point for BorgWarner, we're jumping off that 10.7% margin that we ended 2025 with. And so that obviously is inclusive of that recovery. And we expect to increment above that level as we move forward, including PDS. Luke Junk: Understood. Thank you. Michael: And your next question comes from Mark Delaney with Goldman Sachs. Please go ahead. Mark Delaney: Yes, good morning. Thank you very much for taking the questions. Was hoping to start first with your outlook for your business with the China domestic auto OEMs. We've seen vehicle sales in China soften in recent months and decline year on year, but the Chinese auto OEMs are increasingly expanding their export business and growing internationally. And just given how important of a customer set that is for BorgWarner and your strong presence with a number of those China domestic OEMs, can you help us net out what that might mean for your business with that sort of customers this year? Joseph Fadool: Sure. So good morning. So the way to think about our China business and just as a reminder, it's roughly about 20% of our overall business. So it's a very important market for us. And about 70% of that China business is with the domestic. So as we know, the domestics are just about at that 70% of the total market. One of the things you noted is although the local market there has slowed down, the exports have hit another high. Last year, over 7 million exports from China. So, you know, we're pretty excited about the work our team is doing in China. Most of our business is with the leading seven Chinese OEMs there. I would say over half of our electrification business is in China, and that's where the music is playing very loudly. So, you know, for us, having them grow outside of China is a great strength for us. We're even in discussions with the Chinese OEMs about localization outside of China, given our strong global footprint and technology. Mark Delaney: That's helpful context. Thank you. Other question was a follow-up on some of the prior commentary and questions around the M&A opportunity and understand the high-level criteria that BorgWarner's previously articulated. But as you think about expanding into the data center market and with the new offering today and turbine generator systems, you mentioned not having all of the content. Is that in maybe an area where you can augment or are there adjacent areas within that broader data center space that you may look to do M&A? Thanks. Joseph Fadool: Yes. First, I just want to double down on how proud I am of our team and how they are just leveraging so much of our portfolio. I mean, you think about 65% of the content we're controlling, that's tremendous. So I'm really excited about what we are doing with the turbine generator. You know, I'll just bring us back to the criteria we're using for M&A. We want to stay very disciplined and, you know, really, the first is leveraging our core competence. We want this anything we'd look at to really make industrial logic for anyone that looks at it. We want it to be near-term accretive, and, you know, we want to pay a fair price. So we haven't limited ourselves to automotive, but I would say, you know, the TG is a great example of what we can do organically. And many of our business units continue to look for growth opportunities. This is just a great example of what we can do with the current portfolio that we have. Mark Delaney: Thank you. Michael: We have time for one final question. And that question comes from Alex Potter with Piper Sandler. Please go ahead. Alex Potter: Awesome. Thanks very much. So one question, additional question here on the turbine generator. I know permitting and the timing of, I guess, data center rollout as a result of permitting constraints has historically been sort of a headache for this industry. How does your product address that? Or is it potentially exposed to some of those same headwinds? Joseph Fadool: So we're working, first of all, with our partner Endeavor, who really has a lot of experience in the data center market. Over twenty-five years. They bring tremendous customer intimacy. Knowledge about the real estate market and what it requires to install a complete data center. Now specifically for our product, we're gonna ensure it's UL certified. And it meets any of the requirements in any country that we plan to deploy it in. We don't see that as a real constraint for us. Again, you know, it's together with Endeavor who's bringing the customer side also, their innovation approach to the market is very similar to us. We have a similar vision and path to go to market with them. Of course, BorgWarner brings not only great technology but our automotive scale and manufacturing footprint. So it's really together. We think we're able to capture this unique part of the business. Alex Potter: Okay. Very good. And then maybe one last question here. Topical issue lately, I noticed that the word DRAM never came up in your prepared remarks or anywhere else. Just interested if you could quantify, or maybe ring fence your exposure to that shortage, which has been making a lot of headlines recently. Presumably, it's not a huge deal for you, but just wanted you to maybe put a finer point on that. Thanks. Joseph Fadool: Sure. We don't use DRAM in our products, but, of course, we're monitoring the overall market for any impacts the OEMs may incur in production. Alex Potter: Okay. So as of now, there's no impact on your production timelines or you're not hearing anybody flag this as a potential risk to the business in any way? Joseph Fadool: No. Not from our view. Alex Potter: Okay. Very good. Thanks, everyone. Patrick Nolan: With that, I'd like to thank everyone for their great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can go ahead and conclude today's call. Michael: This concludes the BorgWarner 2025 fourth quarter and full year results conference call. You may now disconnect.
Operator: Good morning. My name is Nick, and I will be your conference operator for today. At this time, I would like to welcome everyone to the United Fire Group, Inc. Fourth Quarter 2025 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Thank you. I will now turn the call over to United Fire Group, Inc. Vice President of Investor Relations, Timothy Borst. Please go ahead. Timothy Borst: Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press release on our results. To find a copy of this document, please visit our website at ufginsurance.com. Press releases and slides are located under the Investors tab. Joining me today on the call are United Fire Group, Inc. President and Chief Executive Officer, Kevin Leidwinger, Executive Vice President and Chief Operating Officer, Julie Stephenson, and Executive Vice President and Chief Financial Officer, Eric Martin. Before I turn the call over to Kevin, a couple of reminders. First, please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates, forecasts, and projections about the company, the industry in which we operate, and beliefs and assumptions made by management. The company cautions investors that any forward-looking statement includes risks and uncertainties and are not a guarantee of future performance. Any forward-looking statement made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. These forward-looking statements are based on management's current expectations, and the company assumes no obligation to update any forward-looking statements. The actual results may differ materially due to a variety of factors, as described in our press release and SEC filings discussed specifically in our most recent annual report on Form 10-K. Also, please note that in our discussion today, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings. At this time, I will turn the call over to Mr. Kevin Leidwinger, CEO of United Fire Group, Inc. Kevin Leidwinger: Thank you, Tim. Good morning, everyone, and thank you for joining us today. I will cover a few highlights this morning, then Julie Stephenson will discuss our underwriting results and Eric Martin will discuss our financial results in more detail. Over the past three years, United Fire Group, Inc. has undergone significant transformation as we have deepened our underwriting expertise, evolved our capabilities to attract a more expansive customer base, enhanced our actuarial insights, and improved alignment with our distribution partners. I am proud to see the cumulative effect of our work reflected not only in our strong fourth quarter and full year 2025 results but also in the company's significantly improved financial performance since 2022. In 2025, we grew our business to record size while delivering the best annual underwriting profit, investment income, and return on equity in a decade or longer. Underwriting profit grew from $9 million in 2024 to $67 million in 2025. Net investment income grew by nearly 20% while our full-year operating earnings per share improved by 80% and book value per share grew by more than $6. Full-year net written premium grew by 9% to more than $1.3 billion from record new business production, strong retention in our core commercial business, and continued renewal premium increases as our underwriters remain diligent in an evolving market. The annual combined ratio improved to 94.8% with ongoing improvement in the underlying loss ratio, catastrophe loss ratio, and expense ratio. Consistent execution of our reserving philosophy across the year has afforded us the opportunity to deliver stability in financial results while advancing to a more conservative position in our range of actuarial estimates that reinforces the portfolio and strengthens our balance sheet. Improved underwriting profit and sustainable growth in net investment income contributed to an annual return on equity of 13.7%, the best in nearly two decades. At the same time, our strategic investments in technology are improving operational efficiency and expanding our underwriting capabilities, allowing our people to focus on delivering the strong personal relationships and responsive service our partners and policyholders value. A few examples include our new policy administration system, underwriter workbench, and artificial intelligence-based tools augmenting processes to better serve our customers today. We believe these investments will generate significant operational efficiencies as our capabilities mature. With 2025's record year behind us and our focus squarely on 2026, our eightieth year in business, I could not be more pleased with the progress we have made since our transformation began in late 2022. I would like to take a moment to highlight some key financials that illustrate how far the company has progressed over the last three years. Between 2022 and 2025, net written premium has grown from $984 million to $1.3 billion, an 11% compounded annual growth rate as our distribution partners have embraced United Fire Group, Inc.'s transformation. Our combined ratio has improved from 101.4% to 94.8%, rebounding from an underwriting loss to an underwriting profit of $67 million. Our annual investment income has more than doubled from $45 million to $98 million. Operating earnings per share have increased more than fourfold from $1.09 to $4.00. Return on equity has climbed from 2% to 13.7%, and book value per share has increased over 25% from $29.36 to $36.88. In addition, we have greatly enhanced the company's reserve position since 2022 as part of our ongoing commitment to maintaining strong and stable reserves. We are excited about the company's improved financial performance and momentum we established with our distribution partners. As we focus on the strategic execution of our business plan in 2026, we believe United Fire Group, Inc. is well-positioned to deliver continued profitable growth as a disciplined, solution-oriented underwriting company capable of more broadly serving our distribution partners than ever before. With confidence in our future financial performance and an enduring commitment to creating long-term value for our shareholders, I am pleased to share that the board of directors has declared a 25% increase in our quarterly cash dividend from 16¢ per share to 20¢ per share. And with that, I will hand the call to Julie Stephenson to discuss our underwriting results in more detail. Julie Stephenson: Thanks, Kevin. The company's transformation over the past three years and the collective hard work and engagement of our employees have been nothing short of astounding. We are very pleased with our financial results. The improved underwriting practices we employ today will serve to support these positive outcomes in future results. From a growth perspective, the headline net written premium growth numbers Kevin quoted have played out in a strategically differentiated manner across our business units that span much of the commercial market. Growth remains strongest in our core commercial business, which includes small business, middle market, and construction. We continue to benefit from the greater number of opportunities our distribution partners are providing as they embrace our expanded capabilities and deeper expertise and are more aware of our desired risk profile. We capitalized on these opportunities in 2025, delivering record new business of $247 million, nearly twice the amount of new business generated since the beginning of our transformation efforts. Rate increases moderated to 4.8% for the quarter, reflecting a more competitive environment. This is mostly observed in property, with casualty lines experiencing a more modest impact, with the exception of umbrella, which returned to double-digit increases on the heels of recent rate actions in that line. While the market has become more competitive, we believe current pricing continues to be attractive, and our efforts to rebuild this portfolio positioned us well heading into this market. In addition to benefiting from a strong rate environment over the last several years, we have been building increased rigor in our underwriting practices, with an insistence on excellent risk selection, adequate price for exposure, and contractual integrity. We have instilled these practices as fundamental principles in our underwriting processes that will serve to provide sustainable results through any changing market dynamics. Specialty E&S net written premium grew at a double-digit pace in both the fourth quarter and full year. Although competitive pressure is emerging in the E&S market, our casualty pricing remains robust. As property rates moderate further, we continue to actively pursue moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time. Our surety business also delivered double-digit net written premium growth for the quarter and full year. Our rebuilt surety organization is generating strong momentum while demonstrating the underwriting discipline necessary for ongoing success. Alternative distribution continues to provide United Fire Group, Inc. with profitable business through three primary channels: treaty, programs, and funds at Lloyd's. Premium volume grew across all three channels in the fourth quarter compared to the prior year. For the full year, Lloyd's and programs grew net written premiums in the mid-single digits, while treaty reinsurance was down slightly year over year, as we chose to non-renew a small number of treaties that no longer met our profitability objectives. Moving to profitability, our loss ratios are fully reflecting the quality and composition of the portfolio developed over the last three years. The underlying loss ratio improved to 55.4% in the fourth quarter and improved 1.6 points to 56.3% for the full year. The book of business continues to benefit from earned rate achievement, stabilized severity trends, and favorable frequency across our portfolio that remain better than our forecast. The business written over the last three years under our improved practices and more specifically defined appetite now accounts for 43% of the portfolio. New business written in 2025 is outperforming the renewal portfolio on the whole, as synergy between our new underwriting habits and enhanced analytical capabilities are maturing. Overall, prior year reserve development was consistent with prior quarter observations, yielding an overall neutral result in the fourth quarter. We are committed to maintaining a conservative posture with our reserves in order to better protect our balance sheet. The fourth quarter catastrophe loss ratio was 1.2%, and the full-year catastrophe loss ratio of 3.2% outperformed our expectations for the year. Considering the first quarter wildfires accounted for one point of our full-year loss ratio, these results are truly exceptional. While our results benefited from favorable industry-wide conditions, we saw significant impact from our ongoing underwriting and portfolio management efforts, including recent improvement in deductible profiles across the property portfolio. These actions, along with our exposure management improvement in prior years, are expected to generate sustainable benefits to our property catastrophe risk profile and results going forward. This is reflected in our modeled annual expected catastrophe loss ratio of below 5% in 2026. Regarding the renewal of our 1/1 reinsurance treaties, we were very pleased with the outcome. It was a highly successful renewal resulting in lower ceded margins, expanded coverage, and improved terms and conditions. We experienced exposure-adjusted rate decreases in all of our major programs this year, including double-digit decreases across our natural catastrophe treaties. Coverage was expanded in many areas to keep pace with our growing portfolio, and broadly, our program generated increased interest in the marketplace. While we benefited from the overall market dynamics, our improved experience helped drive additional savings across our program. We received a 10% exposure-adjusted rate decrease in the core multi-line treaty, our largest program. This renewal included a modest increase in our retention as our increased confidence in our portfolio and stronger capital position allowed us to improve the economics of this program. We also received a 10% exposure-adjusted rate decrease along with expanded coverage for our surety program, reflecting our improved results and execution in this line. I will now turn the call over to Eric Martin to discuss the remainder of our financial results. Eric Martin: Thank you, Julie. We continue to deliver sustainable improvement in net investment income in the fourth quarter, with our high-quality fixed income portfolio generating 17% more income than in the prior year. Improved profitability has allowed us to grow the size of our fixed maturity portfolio by approximately 10% in the fourth quarter as a virtuous cycle of improved underwriting profitability benefits all aspects of enterprise value creation. The elevated interest rate environment continues to provide opportunities to sustainably grow fixed maturity income and overall earnings, with new purchase yields steady at approximately 5% and exceeding the overall portfolio average. Outside of fixed income, our portfolio of $100 million of limited partnership investments generated a strong return of $2.4 million in the quarter, an annualized return of approximately 10%. Turning to the expense ratio, the fourth quarter result of 35.7% improved 1.4 points from the prior year, reflecting the benefits of ongoing growth and disciplined management actions. While there will be occasional noise in the expense ratio, we expect our ongoing actions to result in a gradual reduction of the expense ratio over time. Fourth quarter net income was $1.45 per diluted share, with non-GAAP adjusted operating income of $1.50 per diluted share. This quarter's earnings improved book value per common share to $36.88. Adjusted book value per share, which excludes the impact of unrealized investment losses, grew to $37.87 at year-end. From a capital management perspective, during the fourth quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of December 5, 2025. Our capital management priorities are to fund profitable growth in the business and then return excess capital to shareholders. Our capital position continues to strengthen, and as a result, our financial flexibility continues to improve. With conviction in the sustainability of United Fire Group, Inc.'s improved profitability, our Board of Directors has authorized a 25% increase in our shareholder dividend to $0.20 per share to be paid on March 10 to shareholders of record as of February 24. As it relates to share repurchases, our current board authorization of 1 million shares provides ample flexibility to optimize how we deploy capital to shareholders. With United Fire Group, Inc.'s return on equity exceeding 13% in 2025, and our stock price trading near adjusted book value, we are well-positioned to deliver compelling growth and shareholder value over time. This concludes our prepared remarks. We will now have the operator open the line for questions. Operator: Thank you. We will now begin the question and answer session. The first question today will come from Matthew Erdner with Jones Trading. Please go ahead. Matthew Erdner: Hey, good morning, guys. Thanks for taking the question and congratulations on a great end to the year. You guys touched a little bit about the rate increases, how it is more competitive, you know, mostly in the property segment there. But, you know, as that seems to kind of be leveling off in the near term, can you talk about current pricing, you know, the expectations there going forward? You know, and the effect that that may have on achieving the mid-teens ROEs that you guys are targeting? Julie Stephenson: Hey, Matthew. It's Julie. I will start. You know, certainly, we have seen the market demonstrating more competitive behavior. But we believe it is still reasonably rational. We are still achieving positive rates in the market, and we are approaching it, I think, confidently. We are sticking to the underwriting discipline that we have instilled over the last few years, at least the last few transformative years. And we think that through disciplinary selection and just making sure we are getting the right price for the exposures that we are underwriting, we will be able to navigate whatever the market throws at us in the near term. I think more importantly, we believe there is still business to be written at attractive margins. And we will pursue that diligently. Matthew Erdner: Got it. That's helpful there. Yeah. Yeah. No. That makes sense. And then, you know, I guess going to the underwriting expense ratio, you mentioned the gradual reduction over time. And then saving with technology operational efficiencies. You know, what's the long-term target there? And then, you know, I guess, what should we be thinking about of, you know, how you guys are looking at that? Eric Martin: Yeah. Matt, this is Eric. Thank you for that question. You know, when we look at our expense ratio, I would say over the past three or four quarters, I have been targeting a run rate of about 35%. I think Q2 and Q3 were just a little bit below that. Q4 is a little bit above it. But as we look forward here for the next couple of quarters, 35% is a good target run rate. But over time, that will come down. As we see growth at a 10% clip going forward, we would think the expense ratio would tend to come down over the next several years, and we are going to take all the right actions for the company investing in our future and that sort of thing. But that will continue to clip down, I mean, call it roughly a half a point a year, we think, going forward here at that 10% growth. Matthew Erdner: Awesome. That's very helpful. Thank you, guys. Operator: The next question will come from Paul Newsome with Piper Sandler. Please go ahead. Paul Newsome: Maybe a few more thoughts on the reinsurance business. Is it fair to assume that just given what's going on with the market, we should expect at least some margin compression in those books overall? Julie Stephenson: You know, we took a hard look at every single treaty we write with this 1/1 renewal that we just experienced, and we certainly are seeing the dynamics that we actually benefited from on our ceded program play through in our alternative distribution book as well. We did see increased competition. I mean, it certainly affected rates and terms and line sizes. But we think we will continue to succeed in this environment. You know, our playbook emphasizes disciplined underwriting, relationship quality, and an aligned risk appetite. We are looking to long-term commitments, and we continue to price every treaty over treaty, and we insist on certain profit expectations. We do not expect those to change. And if that means that we are putting, you know, fewer treaties on the books going forward, then so be it. We are prepared. But we still believe that there is attractive business to be had. We had a nice 1/1 season. We bound new business. Paul Newsome: Could you not so much on a quarterly basis, but maybe on an annual basis, dive a little deeper into the other liability line, the other parts of your business that's showing really wonderful profitability. But that seems to be the one area where you have less profitability. I'm just curious if what the dynamics of that are causing the differentiation. Julie Stephenson: We have certainly seen some pressure on profitability, mostly in the umbrella line. We have seen a few large umbrella losses, and so we have taken a very conservative approach. You may have noticed that we have made new rate filings, raised our minimum premiums on Umbrella, so we are confident that we will be pricing the business appropriately moving forward. And as you would have observed, we have been strengthening our reserves ever since 2022. We have strengthened those other liability reserves practically quarter over quarter. So we believe that we are, you know, protecting the profitability on a go-forward basis by right pricing and appropriate capacity deployment, and then we feel like the reserve position puts us in a good spot. Paul Newsome: Is this the nuclear verdict problem that we've seen many places that's affecting that umbrella, or is there something else in your book that's different? Julie Stephenson: You know, I do not think so. I mean, given the book of business that we have and the amount of capacity that we deploy risk over risk, we have not seen big nuclear verdicts, but we are certainly subject to the other impacts of social inflation in general. So yeah, we are guarding against it through how we price the portfolio and how we pull the reserves together. Paul Newsome: Great. Congratulations on the year. It was definitely a wonderful turnaround. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Kevin Leidwinger, CEO, for any closing remarks. Kevin Leidwinger: We had a great fourth quarter and a record-setting year in 2025, and we believe we are exceptionally well-positioned to continue to profitably grow in 2026. So thank you for joining us today, and we look forward to talking with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Carrie Gillard: We will now open for questions. Colin Sebastian: Thank you for taking the question. I wanted to ask about the pace of AI integration going forward. How do you see Shopify balancing between innovation and ensuring that existing infrastructures are not disrupted as you introduce more AI capabilities? Harley Finkelstein: Thanks for the question, Colin. As we integrate AI into more of our processes, our primary focus is on ensuring a seamless transition that supports our merchants without disrupting existing operations. We are leveraging our decades of experience to ensure that AI is carefully implemented, allowing us to enhance functionality while maintaining the reliable services that our merchants expect. Our efforts are centered around ensuring that our merchants consistently benefit from both the stability of our platform and the dynamism of AI-driven enhancements. Craig Maurer: Hi, thanks for taking my question. As you continue expanding in international markets, how does Shopify plan to tackle the challenges specific to different regions, especially concerning regulations and payment systems? Jeff Hoffmeister: Great question, Craig. Our approach to international expansion is built on understanding and adapting to regional specificities systematically. We're committed to working closely with regulatory bodies, ensuring compliance with local laws, and continuously expanding our payment systems to accommodate various preferences and regulations. Additionally, with Shopify Payments now available in 60 countries, our expansion strategy focuses on supporting the specific needs of merchants in each region while maintaining global standards. As we advance, we’ll continue prioritizing localized solutions to support our diverse merchant base effectively.
Espen Nilsen Gjøsund: To SFL Corporation Ltd.'s fourth 2025 conference call. My name is Espen Nilsen Gjøsund, and I am Vice President of Investor Relations in SFL Corporation Ltd. Our CEO, Ole Bjarte Hjertaker, will start the call with an overview of the fourth quarter highlights. Then our Chief Operating Officer, Trym Otto Sjølie, will comment on performance matters, followed by our CFO, Aksel C. Olesen, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of The US Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. Please note that forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual resources to differ include, but are not limited to, conditions in the shipping, offshore, and credit markets. You should therefore not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties which may have a direct bearing on operating results and our financial condition. Then, I will leave the word over to our CEO, Ole Bjarte Hjertaker, with highlights for the fourth quarter. Ole Bjarte Hjertaker: Thank you, Espen. We are pleased to announce our 88th consecutive dividend. We continue to build SFL Corporation Ltd. as a maritime infrastructure company with a diversified high-quality fleet. For the fourth quarter, we reported revenues of $176 million and an EBITDA equivalent cash flow of $109 million. Over the past twelve months, EBITDA amounts to $450 million, reflecting the continued strength and stability in our operations. In recent quarters, we have taken decisive steps to strengthen our charter backlog, securing long-term agreements with strong counterparties and deploying high-quality assets. We have made significant investments in efficiency upgrades across the line of the fleet, which has enabled a very strong fleet performance. Chief Operating Officer, Trym Otto Sjølie, will elaborate on this later. In December, we announced two transactions with a charterer of four Suezmax tankers where we agreed to sell a pair of 2015-built Suezmax tankers in the market at a very strong price. The vessels were acquired for $47 million per vessel back in 2022, and we agreed to sell the vessels to a third party for approximately $57 million per vessel with a profit share agreement with the charterer. One vessel was delivered in December, and we recorded a book gain of $11.3 million in the fourth quarter. Net cash effects after repayment of debt and profit shares to the charterer were approximately $26 million. The second vessel was delivered to the buyer earlier this week, and a similar gain will be reported in the first quarter. This transaction has been very profitable for us, with an annualized return on equity above 25%. In parallel, we also agreed to release the charters on two other 2020-built Suezmax tankers against a compensation of $11.5 million per vessel instead of selling the vessels in the market to a third party. Similar to the two other vessels, the return on this investment has been very strong based on prevailing values at the time of the agreement in December. We decided to keep these vessels as they are Korean-built and very fuel-efficient. They are also newly dry-docked and more attractive for new potential long-term charters compared to the two older vessels. Based on US GAAP accounting rules, the full settlement compensation was expensed as a cost in the fourth quarter, which turned a net profit into a net loss for the quarter, despite the very strong return on investment so far. The positive side of this is that we have the vessels on our books at only $55 million, while charter-free values according to ship brokers are currently in excess of $80 million. The vessels are currently traded in the spot market, and the market has strengthened significantly since the deal was agreed upon less than two months ago. Net cash flow contribution is currently higher from these two vessels alone than all four vessels in the original charter agreement. I would note that charter hire from vessels in the spot market is accounted for on a load-to-discharge basis based on US GAAP, so we can expect some volatility in the profit and loss statement from quarter to quarter due to vessel positioning. We will look for new long-term charter opportunities in due course, and market analysts predict a very strong tanker market in the next few quarters. We have seen unprecedented consolidation recently in the supply side for the larger 2 million barrel VLCCs, and very high charter rates in that segment, which is expected to also have a positive spillover effect on the 1 million barrel Suezmax market as these two segments over time have shown a high correlation. Turning to our offshore assets, the harsh environment drilling rig Linus performs very well on the long-term contract with Conoco, while the harsh environment drilling rig Hercules remained warm stacked in Norway pending new employment. The offshore drilling sector is gaining tangible structural support driven by recent strategic industry developments that underscore higher day rates, extended contract duration, and rising demand for premium high-specification rigs. First, the announced all-stock merger between Transocean and Valaris announced earlier this week marks a pivotal consolidation in the space. Secondly, a recent new three-year contract for the Noble Great White drilling rig in Norway, which starts up in 2027, illustrates the strengthening contract fundamentals. With this backdrop, we remain optimistic about securing new employment for Hercules in due course. With the announced 20¢ dividend, SFL Corporation Ltd. has now returned more than $2.9 billion to shareholders over 88 consecutive quarters. This represents a dividend yield of around 9% based on yesterday's share price. Our charter backlog stands at $3.7 billion, with two-thirds contracted to investment-grade counterparties providing strong cash flow visibility. Over time, we have consistently demonstrated our ability to renew and diversify our asset base, supporting a sustainable long-term capacity for shareholder distributions. Our solid liquidity position, including undrawn credit lines and unlevered assets at quarter-end, ensures that we remain well-positioned to continue investing in accretive growth opportunities. With that, I will now hand the call over to our Chief Operating Officer, Trym Otto Sjølie. Trym Otto Sjølie: Thank you, Ole. We have a diversified fleet of assets chartered out to first-class customers on mostly long-term charters, and the majority of our customer base is large industrial end-users. After the sale of two Suezmaxes in Q4, our current fleet is made up of 57 maritime assets, including vessels, rigs, and contracted newbuildings. Our backlog from owned and managed shipping assets stands at approximately $3.7 billion, and the fleet following Q4 is made up of two dry bulk vessels, 30 container ships, 14 large tankers, two chemical tankers, seven car carriers, and two drilling rigs. Our charter backlog is mainly derived from time charter contracts, and with the exception of four container ships on bareboat leases, the rest are on time charter or in the short-term or spot market. The charter revenue from our fleet was about $176 million, and we had a total of 4,808 operating days in the quarter. Our overall utilization across the shipping fleet in Q4 was about 98.6%. Adjusted for unscheduled technical off-hire only, the utilization of the shipping fleet was about 99.8%. This quarter, we had two vessels in scheduled drydock at a cost of about $4.2 million. Furthermore, we had a chemical tanker in the shipyard to carry out upgrades to the LNG dual-fuel system to better handle gas boil-off. A sister vessel will have the same upgrade done in Q1. This is part of our drive to ensure we can fully utilize our dual-fuel capabilities. All of our six LNG dual-fuel vessels are actually operating on LNG, which aligns with our ambitions to reduce greenhouse gas emissions from our fleet. I will now give the word over to our CFO, Aksel C. Olesen, who will take us through the financial highlights of the quarter. Aksel C. Olesen: Thank you, Trym. Turning to this slide, we present a pro forma illustration of our cash flow for the quarter. Please note that this is only a guideline to assess the company's underlying performance. It is not prepared in accordance with US GAAP and excludes extraordinary and non-cash items. The company generated approximately $176 million in charter hire during the quarter. Of this, around $81 million came from our container fleet, including profit share related to fuel savings on seven of our large container vessels. The car carrier fleet generated approximately $26 million of charter hire compared to $23 million in the prior quarter, reflecting that all vessels were fully back in service during the period, following a scheduled drydocking last quarter. In tankers, the fleet generated approximately $42 million in charter hire, down from around $44 million in the previous quarter due to a scheduled drydocking. In dry bulk, we have divested the majority of the fleet over recent quarters and now have two Camsimax vessels remaining, while trading in a short-term market. Revenue from these vessels was approximately $2.7 million, or the equivalent of approximately $15,000 per day per vessel. Revenue from our energy assets was approximately $23 million, mainly generated by the Linus, which is in a long-term contract with ConocoPhillips through May 2029. Net operating and G&A expenses for the quarter were approximately $67 million, broadly in line with the previous quarter. Overall, this resulted in an adjusted EBITDA of approximately $109 million, which is in line with the third quarter. Turning now to the profit and loss statement and the US GAAP. For the quarter, we reported total operating revenues of approximately $176 million compared to $178 million in the previous quarter. The net result for the quarter was impacted by several non-recurring and non-cash items, including a gain on the sale of Suezmax tankers of approximately $11.3 million, settlement compensation of $23 million relating to two Suezmax tankers, positive mark-to-market effects from hedging derivatives of $600,000, positive mark-to-market effects from equity investments of $700,000, and an increase in credit loss provisions of $200,000. As a result, under US GAAP, the company reported a net loss of approximately $4.7 million or $0.04 per share. Turning to the balance sheet. As of year-end, cash and cash equivalents totaled approximately $151 million, with an additional $46 million available on the undrawn credit facilities. The facility related to the Hercules rig, which matured at year-end, was repaid using balance sheet cash, leaving the rig debt-free at quarter-end. We have since negotiated a new financing facility, which we expect to execute during the first quarter, subject to customer closing conditions. The remaining capital expenditures for our 5.1 newbuildings of approximately $850 million are expected to be funded through a combination of pre and post-delivery financing. We are experiencing very strong interest from lenders, reflecting a strong financing market for these assets. Finally, based on quarter-end figures, the company's book equity ratio stood at approximately 26%. To conclude, the board has declared the 88th consecutive cash dividend of $0.10 per share, representing a dividend yield of approximately 9%. The charter backlog stands at approximately $3.7 billion, with more than two-thirds linked to customers with investment-grade ratings, providing strong cash flow visibility. We have a solid balance sheet and liquidity position, and we remain well-positioned to act on accretive investment opportunities. With that, I will hand the call back to Espen, who will open the line for questions. Espen Nilsen Gjøsund: Thank you, Aksel. We will now open it up for a Q&A session. For those of you who are following this presentation through Zoom, please use the raise hand function under reactions in the toolbar to ask a question. If your name is called out, please unmute your speaker to ask your question. Gregory Robert Lewis: Thank you, and good afternoon, everybody, and thanks for taking my questions. Thanks for highlighting the activity with your Suezmax ships. I guess I would be curious how you are thinking about those vessels. Clearly, the crude tanker spot market seems to be surprising to the upside. Everybody's expectations. Rates are strong. I know that the focus is on putting out long-term charters. We have definitely seen some short, I guess, twelve-month charters for some of the larger vessels, some VLCCs, but I am just curious, given the strength in rates and where we are in the first part of 2026, are we starting to see signs or interest from customers or charters around multi-year contracts, or should we just be thinking more, hey, the spot market is good, the outlook is good for the next couple of years, and we are just going to use this kind of as a trade? Ole Bjarte Hjertaker: Hi, Greg, and thanks. Yes, we find that market segment quite interesting right now for a couple of reasons. Just to also be clear about that, when this transaction opportunity came about, this was really backed by the agreement we had with this customer where we, after a certain period of time, gave them the opportunity to effectively trigger a sale with a profit share as long as we were over a level that gave us a very good return in the first place. The market had been moving up, and they were interested in doing that. So we sold two older, Chinese-built vessels, and if you look at the equity returns we generated on those with the implied profit split that we got out of it too, we are talking sort of high twenties in return on equity on those deals. So you could say it was a really strong deal and much better than we anticipated when we did that deal back in the day. They also wanted to do the same with the other two, but the other two, the Korean-built vessels, are more attractive for long-term charters. They are Korean-built, they are sort of eco design, they have scrubbers, we just had them through a dry dock, and we believe they are more attractive also for longer-term charter opportunities. What we did not anticipate back in December was the way the market moved upward sharply. Over this two-month period, both one-year charters indicated by brokers and also the index, the TD20 index that is used for hedging this market, is up 20% in that short period of time. A couple of reasons for that, you have some trading pattern issues, but I think one very important underlying factor here on the tanker side, which I would call almost unprecedented in the market, at least in the history I have seen, is that you have one party or group of people who are working together who effectively control around a third of the available or traded tanker VLCC fleet out there. We believe they are willing to hold back ships if they do not get the charter rate where they want it to be, which implicitly would give also the other owners out there confidence to hold back and not just drop their, drop their pants, so to speak, and fix at lower levels. I think that is a very fundamental shift in the market. Then we have to look at the correlation between the VLCC market and the Suezmax market where over the last twenty-five years, the Suezmaxes have earned around 85% of the VLCC charter rate. We believe that with the dynamics on the VLCC market and also trading patterns, which is quite interesting for the Suezmax size, we think the market could remain firm for some time. Our ultimate objective here is to find new longer-term charters for these vessels, but in the meantime, we enjoy the spot market. Just to be clear, we used to have four vessels. The two vessels that are remaining are generating more net cash flow than all four did in the previous chartering arrangement. So far, we are generating more cash out of two vessels compared to four vessels in the past. Gregory Robert Lewis: It is definitely good to be a tanker owner at the moment. I was hoping, I realize that it is always the board's decision, there are lots of variables that go into how the company thinks about dividends. As we think about the dividend over the next twelve months, how are we thinking about it? Is one of the factors the market looking for in the secondhand market, i.e., opportunities clearly in tankers, prices are high, charter rates are catching up? How is the opportunity for growth looking in the containership market, which seems to be maybe where numbers, the economics might look a little better in doing a purchase and charter out? Ole Bjarte Hjertaker: Thanks. To start with the dividend question, the board never guides on dividends going forward, but the underlying structure or what goes into that evaluation is long-term sustainable cash flows. If you look at the last year, we did sell a number of vessels, some that were coming to the end of the charter period. We sold some older feeder container ships, etc. which freed up quite a bit of capital. To have a sustainable distribution, you have to have producing assets generating those returns. That is one thing. Also, I would say last year, for geopolitical reasons, with that sort of trade war or at least trade friction mounting, we sensed that many of the players out there were stepping a little bit back. They were very uncertain about how this all would evolve. It is difficult to get counterparties to commit long-term. We sense now that the dynamics are better. We see more engaging for new business, but we cannot really comment on anything before we potentially do it. From a board perspective, it is very disciplined. We try not to run out and just spend the money we have capital available. It is all about trying to do the right deals, long-term deals. From time to time, you may get lucky like we did on the Suezmax tankers with a much stronger return than we expected. That is what you should expect from us. We should try to deploy the capital in a balanced way, build the distributable cash flow. We still have the drilling rig Hercules idle that used to produce a lot of cash flow for us in 2024. There are a few factors here going into that. Still, we are looking at north of $100 million in dividends per year even at this level. We are paying a lot of cash flow out to shareholders. It is more than $2.9 billion over the 88 quarters. We have shown a disciplined approach to it that we have been standing firm through pretty rough cycles, and hopefully, we will have a good capacity also going forward. Gregory Robert Lewis: Super helpful. Thank you for taking my questions. Espen Nilsen Gjøsund: Thank you. Then we will also have a question from Mr. Climent Molins. Kindly unmute your speaker to ask your question. Climent Molins: Hi, Ole and team. Thank you for taking my questions. I joined a few minutes late, so you may have touched upon this, but I wanted to follow up on Greg's question on the charters you terminated. Could you remind us what was the rate on the previous contract? Secondly, could you talk a bit about the fixtures you have secured to date in the spot market? Ole Bjarte Hjertaker: Yes. This was a deal that was done back in 2022. The two Chinese-built vessels were acquired for, at that time, around $47 million, if I am not mistaken. We had them on charter rates of around $27,000 per day for that period, and then we sold them now for $57 million net. We have enjoyed strong cash flows, depreciated the assets, and then sold them for 20% more gross than we bought them for three years earlier, hence the very strong returns on that deal. Similar dynamics on the newer vessels. They were more expensive, so we bought them for around $64 million, if I am not mistaken. If you look at the broker reports now, and you have, for instance, the broker firm Fearnleys, they just increased their valuation on tanker assets, and they now guide five-year-old Suezmax tankers at $85 million. It is a significant uplift also for these assets. If you look at the spot market, we typically will not guide on spot market there and then. You can look up to the brokers. They will typically guide you on what the charter rates are. Just to give you a guiding, right now, and this is just from our broker report, they guide a one-year TC for a modern Suezmax tanker would be in the high forties. They guide $47,500. While if you use the Suezmax TD20 index, you could do twelve months now in excess of $60,000 per day based on the index alone. The market is quite strong as a guide. As I mentioned, we were below $30,000 in the old structure. Remember also on those vessels, you have to subtract operating expenses, interest, and amortization on the loans. We are now in this market generating more than we did from the two vessels than we did from all four vessels combined on a net basis. I would mention, though, that based on US GAAP, first of all, we had to expense the termination fee on the two modern vessels despite having a very low book value level on those vessels. Because we own them already, it had to be taken straight through P&L in the fourth quarter. That had that effect. Also, when you trade in the spot market, being tankers or bulkers, based on US GAAP, you have to account for the revenues on a load-to-discharge basis. Typically, these assets go empty and ballast, as we call it, one way, and you load it, and then you go loaded the other way. You will see some volatility in the P&L effect for these assets, all depending on the position they are in, whether they, through the specific quarter, were more loaded than empty in that rotation. When we got them back off the charter, and this is, again, a coincidence, but both vessels were just coming off a loaded journey, and therefore started with some ballast days. This is something that will balance and equal out over the year. From quarter to quarter, there may be some earnings volatility due to US GAAP. Climent Molins: Makes sense. Thank you. After recent sales on the dry bulk side, you only have two remaining Panamaxes. Those seem clearly non-core. Is that a fair assessment? Secondly, there has seemingly been some interest from potential charterers on long-term contracts on Newcastlemax new builds. What are your thoughts on potentially reallocating some capital towards dry bulk? Ole Bjarte Hjertaker: Thanks. We have always been invested in the dry sector. You could say it is more of a coincidence now that we are down to two vessels. We are segment diagnostics, so we would look at deals in all the segments, including the dry bulk segment, and have a look at multiple transactions. To get to a deal, it has to make sense for us from a purchase price, charter rate, counterparty, financing structure we can build around it, and, of course, our charterer would want to pay the charter rate we need to have to make that work for us. This is a balance, and you are correct. We have only two vessels left now. I would not say they are non-core. Those vessels were on ten-year time charters and have been over time quite profitable for us, but we are traded more in the short-term market currently. We look at opportunities on the dry side, as we do in other sectors, and as I said, the diagnostics, it is all about getting a good risk-adjusted return. Climent Molins: Thanks for the color. I will turn it over. Thank you for taking my questions. Espen Nilsen Gjøsund: Alright. Then we have some written questions. Could you please share any updates on the Hercules? Ole Bjarte Hjertaker: Yes. The Hercules has remained idle since November 2024, so it was idle through 2025, generating very strong cash flows when it was working. Now it has remained idle. We have been looking for employment. That market has been a little slow, it is fair to say, but we now see signs both from a consolidation perspective where we had the big merger announced earlier this week, Transocean and Valaris. We also saw a drilling rig with, I would call it, similar harsh environment, ultra-deepwater features. That was recently fixed on a three-year charter with startup in 2027. Based on what we see from brokers, it looks like there are more market dynamics and more employment opportunities there going forward. We cannot comment specifically on the rig or the discussions we may have on this rig specifically. We will announce contracts if and when they materialize. Espen Nilsen Gjøsund: Thank you. Also have another one here. How do you see the long-term evolution of the contract revenue mix across the different shipping segments? Do the container new build orders signal the strategic direction the company intends to pursue? Ole Bjarte Hjertaker: The new build container ships were ordered in 2024. It is typically what we like to do, long-term time charters to investment-grade counterparties. Modern technology enables us, and through the long-term charter, we are able to pay that investment down significantly. We are not specifically focused on one single segment. We try to position ourselves as logistics partners for strong, industrial-focused partners. The containership market has been an interesting market for us, but we would be happy also to look at other segments. Espen Nilsen Gjøsund: And related to different segments, what segment are you currently most optimistic about in relation to potential future growth? In what niche do you see the best economics? Ole Bjarte Hjertaker: It is almost an impossible question. As we look across the board between the segments, we do not have any favorite. What we have seen over time is that there have been more longer-term charters in typically liner-type assets, container ships, car carriers. We also see that from time to time on tankers where you see longer-term charters and also on dry bulk. We also have some chemical carriers in our portfolio where we also have good interaction with logistics players. We look across the board, and hopefully, we will build the portfolio in more than one segment. Espen Nilsen Gjøsund: Thank you. We also have a question. What is the status of SFL Composer? Trym Otto Sjølie: Right. I think I will interpret that question as after the collision that we had in Q3. The vessel was going into dry dock when she was hit by another container vessel or by a container vessel. We were going into dry dock anyway at that time, and we had a slot available, so we did not really lose any time. All of the damage repairs were covered by insurance, including also the off-hire related to the incident. For SFL Corporation Ltd., we did not lose out on this at all. The vessel is now back in service with Volkswagen and operating in the Atlantic as normal. Espen Nilsen Gjøsund: Thank you, Trym. And last question here. Can you say something about the size of the new rig financing facility? Aksel C. Olesen: Sure. You are relating to the new Hercules facility that we are being kind of regurgitated and prepared, and that is in the amount of $100 million. Espen Nilsen Gjøsund: Thank you, Aksel. As there are no further questions from the audience, I would like to thank everyone for participating in this conference call. If you have any follow-up questions for the management, there are contact details in the press release. Or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you all.
Operator: Good morning, and welcome to the Agree Realty Fourth Quarter 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star 1 a second time. Please limit yourself to two questions during this call. Note, this event is being recorded. I would now like to turn the conference over to Reuben Treatman, Senior Director of Corporate Finance. Please go ahead, Reuben. Thank you. Reuben Goldman Treatman: Good morning, everyone, and thank you for joining us for Agree Realty's fourth quarter 2025 earnings call. Before turning the call over to Joey and Peter to discuss our results for the quarter, let me first run through the cautionary language. Please note that during this call, we will make certain statements that may be considered forward-looking under federal securities law, including statements related to our 2026 guidance. Our actual results may differ significantly from the matters discussed in any forward-looking statements for a number of reasons. Please see yesterday's earnings release and our SEC filings, including our latest annual report on Form 10-Ks, for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition, we discuss non-GAAP financial measures, including core funds from operations or core FFO, adjusted funds from operations, or AFFO, and net debt to recurring EBITDA. Reconciliations of our historical non-GAAP financial measures to the most directly comparable GAAP measures can be found on our earnings release, website, and SEC filings. I'll now turn the call over to Joey. Joey Agree: Thanks, Reuben, and thank you all for joining us this morning. 2025 represented yet another year of consistent execution for our growing company. In a dynamic macro environment, we remain disciplined, continued investing in our future, and delivered over 4.5% AFFO per share growth. The $1.55 billion invested across our three investment platforms was the second highest total in company history, representing more than 60% year-over-year growth. As demonstrated by our 2026 guidance, the fundamentals supporting our outlook are very strong. Our portfolio has never been better positioned. The depth and strength of our team is exceptional, and our balance sheet is in tremendous shape. We have commenced numerous IT undertakings, including the construction of the next iteration of ARC, and continue to drive efficiencies through systematic process improvement. These initiatives will support bottom-line growth this year and beyond, driven by ongoing efficiency gains and a material reduction in G&A as a percentage of revenue. During the course of the year, we once again proactively fortified our balance sheet, raising roughly $1.5 billion in capital. We concluded 2025 with over $2 billion of liquidity, including over $715 million of outstanding forward equity. With no material debt maturities until 2028, our balance sheet is in tremendous position to execute on our 2026 investment guidance and provide significant flexibility. At year-end, pro forma net debt to recurring EBITDA stood at just 3.8 times, enabling us to execute on the high end of our 2026 investment guidance without incremental equity while staying within our targeted leverage range of four to five times. Our pipeline has expanded significantly over the past month and now represents over $500 million and provides us confidence in increasing our 2026 investment guidance to a range of $1.4 billion to $1.6 billion. Our updated investment guidance represents approximately a 10% increase from our prior range, and the high end of the range is slightly above our 2025 investment activity. With yesterday's release, we have initiated full-year AFFO per share guidance of $4.54 to $4.58. At the midpoint, this represents 5.4% year-over-year growth and two-year stacked growth of 10%. When combined with our current dividend yield, this implies a total operational return of our target of approximately 10%. Combined with the fortress balance sheet, best-in-class portfolio, and historic track record of execution, we believe that ADC offers one of the most compelling value propositions in the REIT sector. Turning to our three external growth platforms, our partnerships across the real estate spectrum have never been stronger nor more productive. Today, Agree Realty is the preferred one-stop shop for the country's largest retailers. These partnerships are translating into actionable opportunities, including one-off acquisitions, sale-leasebacks, blend and extend transactions, programmatic development, and high-quality DFB projects. As a result, all three external growth platforms are accelerating and see increasing transactional opportunities. Moving on to recap last year, during the fourth quarter, we invested approximately $377 million in 94 high-quality retail net leased properties across our three external growth platforms. This included the acquisition of 94 assets for over $347 million. The properties acquired during the quarter were leased to leading operators in home improvement, auto parts, grocery store, farm and rural supply, convenience store, and tire and auto service sectors. Fourth-quarter investment activity was of very high quality, evidenced by the largest quarterly percentage of ground lease acquisitions since 2021 at over 18%. Notable transactions included three geographically diverse ground leases leased to Lowe's, as well as a Home Depot in Michigan paying under $5 per square foot rent. The acquired properties had a weighted average cap rate of 7.1% and a weighted average lease term of 9.6 years. Investment-grade retailers accounted for nearly two-thirds of the annualized base rent acquired. For the full year 2025, we invested nearly $1.6 billion in 338 retail net lease properties spanning 41 states. Over $1.4 billion of our investment activities originated from the acquisition platform. The acquisitions were completed at a weighted average cap rate of 7.2% and had a weighted average lease term of eleven and a half years, with roughly two-thirds of rents coming from investment-grade retailers. As a reminder, we do not impute credit ratings for non-rated retailers. Our development and DFP platforms had a record year with 34 projects either completed or under construction, representing approximately $225 million of committed capital. We're continuing to see increased activity across both these platforms, as we partner with retailers and developers to execute on their store growth plans. During the fourth quarter, we commenced four new development and DFP projects with total anticipated costs of approximately $35 million. The new projects are with leading retailers, including Boot Barn, Burlington, Five Below, Ross Dress For Less, Ulta, and 7-Eleven. Construction continued during the quarter on nine projects with anticipated costs totaling approximately $59 million. Lastly, we completed construction on three projects during the quarter with total costs of $29 million. On the asset management front, we executed new leases, extensions, or options at over 640,000 square feet of gross leasable area during the fourth quarter, including a Walmart Supercenter in Rochester, New York, and a Lowe's in Roland Park, Kansas. For the full year 2025, we executed new leases, extensions, or options in approximately 3 million square feet of GLA with a recapture rate of 104%. We are very well positioned for 2026 with only 52 leases or one and a half percent of annualized base rents maturing. During the past year, we disposed of 22 properties for gross proceeds of just over $44 million at a weighted average cap rate of 6.9%. This includes nine properties that were sold for $20 million during the fourth quarter at a weighted average cap rate of 6.4%. Our capital recycling efforts will continue to focus on select non-core assets as well as opportunistic dispositions. At year-end, our best-in-class portfolio is approaching 2,700 properties and spanned all 50 states. The portfolio includes 251 ground leases representing over 10% of annualized base rents. Our investment-grade exposure at year-end stood at nearly 67%, and occupancy increased to 99.7%, reflecting a 50 basis point improvement since the first quarter of the year. Lastly, I want to recognize Peter and his team for their exceptional work in 2025. We achieved an A-minus rating from Fitch and successfully launched our commercial paper program, both milestones that will deliver meaningful savings and long-term benefits to our cost of capital. With that, I'll hand it over to Peter, and then we can open up for questions. Peter Coughenour: Thank you, Joey. Starting with the balance sheet, we had a very active year in the capital markets, raising approximately $1.5 billion of long-term capital, including roughly $715 million of forward equity, a $400 million bond offering, and closing on a $350 million term loan. Additionally, we established a $625 million commercial paper program, becoming one of only 19 US REITs with a commercial paper program. This has become our preferred source of short-term capital, enabling us to issue approximately $28 billion of notes during the year and generate over $1 million in savings compared to borrowings on our revolving credit facility. During the fourth quarter, we sold 1.5 million shares of forward equity via our ATM program for anticipated net proceeds of approximately $109 million. We also settled 5.9 million shares of forward equity, receiving proceeds of over $428 million. At year-end, we had approximately 9.6 million shares of outstanding forward equity, which are anticipated to raise net proceeds of $716 million upon settlement. During the quarter, we closed on the previously announced $350 million five-and-a-half-year term loan. Prior to closing the term loan, we entered into $350 million of forward-starting swaps to fix SOFR until maturity. Including the impact of those swaps, the interest rate on the term loan is fixed at 4.02%. The term loan fits well into our debt maturity schedule and demonstrates continued strong support from our banking partners. Today, no amounts have been drawn under the term loan, which has a twelve-month delayed draw feature. We also entered into $200 million of forward-starting swaps during the year, effectively fixing the base rate for a future ten-year unsecured debt issuance at approximately 4.1%. This is consistent with our proactive hedging strategy and combined with our outstanding forward equity provides over $915 million of hedged capital to fund investment activity in 2026. As of December 31, we have over $2 billion of liquidity, including approximately $1.3 billion of availability under our revolving credit facility and term loan, the previously mentioned outstanding forward equity, and cash on hand. Pro forma for the settlement of our outstanding forward equity, net debt to recurring EBITDA was approximately 3.8 times at year-end. Excluding the impact of unsettled forward equity, our net debt to recurring EBITDA was 4.9 times. Our total debt to enterprise value was approximately 27%, while our fixed charge coverage ratio, which includes principal amortization and the preferred dividend, was very healthy at 4.2 times. Our floating rate exposure remained minimal, with approximately $321 million of outstanding commercial paper borrowings at year-end. And as Joey mentioned, we have no material debt maturities until 2028. We are in an excellent position to execute on our increased investment guidance this year without having to raise any additional equity capital. The strength of our fortress balance sheet was further validated by the A-minus issuer rating that we received from Fitch in August. The rating makes us one of only 13 publicly listed US REITs to carry an A-minus credit rating equivalent or better. This achievement reflects the prudent, disciplined way we continue to grow the company and stands as a testament to more than fifteen years of thoughtful portfolio construction and disciplined capital allocation. Over that period, we have invested nearly $11 billion in best-in-class retailers while maintaining a preeminent balance sheet and consistently leading the way in capital markets execution. Moving to earnings, core FFO per share was $1.10 for the fourth quarter and $4.28 for the full year 2025, representing 7.35.1% year-over-year increases, respectively. AFFO per share was $1.11 for the fourth quarter, representing a 6.5% year-over-year increase. For the full year, AFFO per share was $4.33, which reflects the high end of our guidance range and 4.6% year-over-year growth. As Joey mentioned, initial AFFO per share guidance of $4.54 to $4.58 for 2026 represents approximately 5.4% year-over-year growth at the midpoint, which would be our highest earnings growth since 2022. We provide parameters on several other inputs in our earnings release, including investment and disposition volume, general and administrative expenses, non-reimbursable real estate expenses, income and other tax expenses, as well as treasury stock method dilution. Our guidance for treasury stock method dilution relates to our outstanding forward equity. As a reminder, if ADC stock trades above the net price of our outstanding forward equity offerings, the dilutive impact of unsettled shares must be included in our share count in accordance with the treasury stock method. Provided that our stock continues to trade near current levels, we anticipate that treasury stock method dilution will have an impact of approximately 1p on full-year 2026 AFFO per share. That said, the impact could be higher if our stock price moves significantly above current levels. Our accelerating earnings growth supports a growing and well-covered dividend. During the fourth quarter, we declared monthly cash dividends of 26.2¢ per common share for each of October, November, and December. The monthly dividend equates to an annualized dividend of over $3.14 per share and represents a 3.6% year-over-year increase. Our dividend is very well covered with a payout ratio of 71% of AFFO per share for the fourth quarter. With that, I'd like to turn the call back over to Joey. Joey Agree: Thank you, Peter. Operator, at this time, let's open it up for questions. Operator: We will now begin the question and answer session. We ask that you please limit yourself to two questions. Our first question will come from the line of Michael Goldsmith with UBS. Please go ahead. Michael Goldsmith: Hi. Thanks. This is Amy Proven on with Michael. I was hoping to start, we could dig in a little bit on the increase in the 2020 investment guidance just thirty days after providing the initial guide. How was this increased split across the platforms? And were there any large transactions identified, or is this more of an increase in one-off opportunities? Joey Agree: Good morning, Amy. Since the initial release in January, we've secured a number of transactions, including a couple of sale-leaseback transactions that will close in Q1 and Q2, respectively, as well as some single credit portfolio transactions on the acquisition side. From the development and DFP side, we just have more confidence, frankly, in those projects commencing in Q1 and subsequently also in Q2. So all three platforms have seen accelerated activity. I would note that the increase after approximately thirty days in the investment guidance is primarily due to those sale-leaseback transactions, that's in the credit portfolio. Operator: Great. Thanks. And then on the non-core asset sales, you highlighted these dispositions of some retailers that I think we were expecting and some that we weren't, maybe Family Dollar, a fitness operator, a Goodyear store. What makes some of these tenants more right for capital recycling than others? Joey Agree: Yeah. So capital recycling, as I mentioned in our prepared remarks, the portfolio is in tremendous shape. There are opportunistic sales that were taking place in Florida, California, and Texas on Goodyears, as you noted. We pared back Advance Auto Parts exposure as well. And so you'll see us continue to pare back exposure to retailers that we don't either have full confidence in on a go-forward basis, select non-core assets within I would say the predominance of our disposition activity this year will just be valuation that are driven by the 1031 market or the big beautiful bill where we don't see the value of the asset matching our prospective purchase. Operator: Great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Jon Golan with Bank of America. Please go ahead. Jon Golan: Thank you. Good morning. I was hoping you can maybe talk about, you know, the cap rate on acquisitions where you kind of see that trending. And then any other maybe there is cap rate stability, but anything changing on the escalators, lease terms, or options at expiration when you're speaking with your different retailers? Joey Agree: Oh, good morning, Anna. Don't see anything materially changing on the cap rate front. Obviously, it's the beginning of the year. We have, I say, complete, but pretty know, our Q1 pipeline is effectively filled at this point. No material cap rate deviations. Obviously, we won't move up the we won't change our parameters and move up the risk spectrum. So no change there. Also, I think the rent escalators have been embedded with the historic inflation that we've seen post-pandemic, and we haven't seen any reversal of that trend or increase in that trend in terms of size of escalators or frequencies. I think most tenants have agreed today that escalators of seven and a half to 10% every five years are appropriate given just the inflation that we're seeing currently and as well as historically on a funeral basis. Operator: Okay. Thank you. And then can you just share some information with us on construction costs? We're hearing those are increasing. Joey Agree: They certainly aren't going down in the hundred years fuel capacity up to the past hundred years, while commercial rental rates have peaks and valleys, construction costs just continue to migrate upwards. And so we're seeing construction costs that are fairly in line with last year. We've looked at some alternative, you know, engineering and alternative mechanisms to reduce those costs in conjunction with our retailers. Those costs are embedded, obviously, in our development budgets. They certainly aren't going down. As I mentioned, the typical junior box in this country today is approximately $160 per square foot vertical cost. That's an off-price retailer today. Pre-pandemic, those were $95 per square foot. Obviously, a constrained labor environment doesn't help that. Tariffs don't help that. Since we've been able to look at sourcing domestically and, like I said, other alternatives here to try to reduce those costs, different construction methodologies, reducing labor when appropriate, using some prefabricated materials. And Jeff Conklin, our construction team, have worked diligently with our retailers to value engineer any buildings. Operator: Thank you. Joey Agree: Thanks, Anna. Operator: Our next question will come from the line of Smedes Rose with Citigroup. Please go ahead. Smedes Rose: It's Nick Jusz here with Smedes. Just on the sale-leaseback, is that more timing-driven that you've seen those deals come through? Or are you seeing more interest broadly from corporates on that structure? Joey Agree: Next, great question. It's really just frankly specific. We haven't seen a multitude of sale-leasebacks come to market, certainly not within our sale within our sandbox. There are two in our two that we will on in Q1 and Q2. Q1 will have the larger sale-leaseback. A core tenant of ours, a relationship tenant of ours who we are very fond of and very close to an existing top 20 tenant of ours. So haven't seen an increase in the sale-leaseback velocity, but two tenants that we have historical relationships with will on here in the first two quarters of the year. Smedes Rose: That's helpful. Thank you. And then you mentioned the potential for G&A savings with some of the efficiencies. How does that look medium and longer term versus where you are today as a percentage of revenue? Joey Agree: So last year, we were very clear that it was an investment year for us. Coming off of 2024, we started with the do-nothing scenario. We had effectively net new zero net new team members incremental to the team. Last year, we added almost 25 team members to the organization. We're approaching 100. As I mentioned in the prepared remarks, and we're in a terrific position to continue to execute with depth across all areas and functional areas of the organization. At the same time, we continue to benefit from our IT improvements. The team here has done a really terrific job. I mentioned we're working on the ARC 3.0 next iteration of ARC, we put a Microsoft backbone in place, and they have a number of projects that the team is executing on. For data efficiency and access. Will continue to make us faster and more efficient. We're utilizing AI as we mentioned on prior for higher calls for the last three and five years for lease underwriting checklists. We've deployed AI for lease abstraction. We anticipate deploying artificial intelligence for purchase agreement drafts and other form documentation this year. And so I would anticipate that approximately 30 plus basis points of G&A savings relative to total revenues. And so I think we'll continue to see that on a go-forward basis. On top of that, as Peter mentioned, we're seeing just from our size, scale, obviously, obtaining the A-minus credit rating, a million dollars in savings from the commercial paper program. And so our size and scale now is giving us access to different tools, different capital raising, short-term capital, in this case, it saves a million dollars, so almost a penny last year. Subject to the curve and, obviously, the commercial paper program that can move up and move down. But we just have more tools, frankly, at our disposal to drive savings. And so this year, I would anticipate single-digit hires, and I think we are in tremendous position to execute across all facets of the business on a go-forward basis and continue to benefit from those efficiencies. Smedes Rose: Thank you. Joey Agree: Thanks, Dave. Operator: Our next question will come from the line of Spencer Glimcher with Green Street. Please go ahead. Spencer Glimcher: On the four DSPs commenced in the quarter, are you guys able to share if these are one-off projects for these tenants? Or are they part of larger store count expansion for the retailers? Just trying to get a sense if there will be, you know, opportunity for more projects alongside these retailers. Joey Agree: They are not one-off projects. There will be, I think, significant opportunity for us. What we're seeing is retailer, and many of these are publicly issued statements. Retailer expansion with the desire that is greater or greater than any time since prior to the GFC. So if we look across the board, Home Depot, Walmart, Kroger, Keepgoing, Tractor Supply, O'Reilly, all the off-price operators have realized in a twenty-first-century omnichannel world their store base is critical. And so absent construction costs getting in the way of project feasibility here, we're gonna continue to see that. I would anticipate us breaking ground on 10 plus projects over the course of the first and second quarter. And so we're excited about both the development pipeline. We've announced 3711 Speedway projects last year. We will continue to execute those in the first and second quarter this year. As well as some significant DFP projects where we'll step in and finance any of the developer and know them upon completion. Spencer Glimcher: Okay. Great. Thanks for the color. And then just on the ground lease market, maybe first on the transactions that you've executed on recently. Are there purchase options on any of those at the end of the lease? And then just maybe more broadly, if you're able to share any color on the ground lease market in general just in terms of opportunity set and or pricing that you're seeing. Joey Agree: Yeah. No purchase options at the end of the lease. That I can think of. That's very atypical. The ground lease market per se isn't really a market. I mean, oftentimes, sellers aren't even, frankly, cognizant of the ground lease structure and look at it as a net lease transaction. We did one unique transaction, I would say, during the quarter in Flanders, New Jersey, which had a number of ground leases, driven by a Lowe's ground lease, as I mentioned. In the prepared remarks. There's also a ground lease to Panda Express there, a ground lease to Wells Fargo, a ground lease to Wendy's there. And so a number of ground leases all pads to that Lowe's. Obviously, 18% was elevated in Q4 driven by that. The other Lowe's I mentioned as well as the Home Depot about twenty minutes from here. We'll have more ground lease opportunities in Q1, but I think, you know, thinking of it as a market is pretty challenging. Many times, we're working with retailers on early extensions or short-term either retail or directed. And so it's a unique seller pool all the way from institutions to mom and pop owners here. Spencer Glimcher: Great. Thank you. Joey Agree: You. Operator: Our next question comes from the line of John Kilekowski with Wells Fargo. Please go ahead. John Kilichowski: Great. Thank you. This is actually Jamie Feldman here, pinch-hitting for John. So how much of the high end of your investment guidance range, the $1.6 billion, is dictated by the available forward equity you always already have. Versus what you think the true opportunity set could be this year? Joey Agree: None of it's driven. I mean, I would say they're all they're really separate. Peter, feel free to chime in. But I think we're confident in the uses with the 1.4 to 1.6 billion. As we mentioned in the prepared remarks, we can stay under our targeted leverage range of four to five times. Really excluding dispositions, we anticipate having significant free cash flow after the dividend, even increasing the dividend this year. Obviously, with $700 million plus outstanding of forward equity, we're in tremendous shape. Peter Coughenour: Yeah. Jamie, just to echo Joey's comments, you know, we have over $2 billion of total liquidity, but thinking about it from a leverage perspective, we have $1.6 billion of buying power without having to raise any additional equity. And we can end the year at the high end of our stated leverage range of four to five times while executing really on the high end of our investment guidance range. And so we're very well positioned for this year from a balance sheet perspective. Given that liquidity and outstanding forward equity. I think that's really only one factor as we think about setting guidance. John Kilichowski: Okay. So if I heard you right, you really feel strongly one six is kind of the max of what you see out there? Joey Agree: Definitely not. I think it's our yeah. It is our guide at this time. We have no visibility outside of development into Q3 or Q4. We started commencing sourcing Q2 acquisitions fifteen days ago. What I can tell you is there's a half billion dollars in the pipeline, as I mentioned. That we are very confident in, and we'll continue to source across all three platforms. And update the market and everybody on this call as we continue to see activity. But no visibility outside of development in a couple of DFP projects beyond let's call it, May right now. John Kilichowski: Okay. Thank you for that. And then secondly, I think we had expected yields to compress more than they have. Any thoughts on why you think that hasn't been happening? Given there is more competition in the space? And then the developer funding program, you think that's better in a low rate regime or a higher rate regime? We think about you growing that business? Joey Agree: In terms of competition, we haven't seen any increase in competition due to the private capital that's entered the space. I think everyone on the call is familiar with the numerous different sleeves and operations that have launched. These you know, our transaction is 4 to $5 million. 20 people touch it from letter of intent in our underwriting. A letter of intent execution to close. We're a horizontally integrated machine that's closing two transactions per day. It's high touch, frankly. We are working with retailers to extend deals, to identify dealers, working directly with developers. We overcome obstacles and hurdles that are again, high touch real estate exercises, not just sale-leasebacks with middle market credit. And so it's a very different business and the preponderance of capital that has entered the space is chasing. In terms of our DFP platform, I think what's really driving the increased activity is one, our own efforts. Those are critical. But two, we already touched on construction cost today. And so with vertical construction cost, primarily vertical, I should say, penciling these projects is extremely challenging. You combine that with the availability and the cost of capital, as you mentioned, partly driven by the tenure, which drives equity return to fill any gaps or potential mezz debt. These projects are very difficult to pencil for private developers. And so our developer funding platform provides a unique solution to finance the entire project and to own it upon completion. Really taking the risk off the developer unless they blow their budget. And then it comes out of, frankly, their profit payment. And so we're entering with a fixed return. We're providing not only our balance sheet as well as an exit, but our relationships with retailers, many of which we have formed leases and very strong relationships with, so we can expedite or accelerate that project. And so we see that looking pretty stable, and our goal is to continue to ramp it. John Kilichowski: Okay. But I guess the question on just why yields have been so sticky. Are you saying because you haven't seen that much competition? Or is there anything else we should be thinking about? Joey Agree: I think the ten years obviously traded within a band. Right? We've seen the ten-year trade within a band. There's no you know, there's no material increase in competition. In the sandbox that we are operating in. And so we really haven't seen anything deviate over the past, I hope, call it year plus here now. John Kilichowski: Okay. Great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Brad Heffern with RBC Capital Markets. Please go ahead. Brad Heffern: Yes. Hey, everybody. Thanks. You've had the medium-term goal of $250 million in development investment commitments per year. You think this will be the year that you see that number? And does that represent a steady state, or should we expect a higher goal at some point? Joey Agree: We're always raising goals here. We are built to scale as we talked about. On prior questions. I'm hesitant to say this will be the year because due to third-party timing, that's retailer approvals, municipal approvals, access approvals often from DOTs and county. Think this will be a continued year of growth for us. Our pipeline is large. The timing of those projects is often subject to third parties. But our pipeline continues to grow across development as well as developer funding platform projects in all stages from the shadow pipeline to breaking ground as we speak. Brad Heffern: Okay. Got it. And then, Peter, can you talk about what the assumed credit losses and guidance and where you ended up 2025 as well? Peter Coughenour: Sure. In terms of our AFFO per share guidance for 2026, we're assuming at the high end of that guidance range, 25 basis points of credit loss. Which is relatively in line with where we ended up for 2025. I believe we're at 28 basis points to be exact. And then at the low end of our AFFO per share guidance range for 2026, we're assuming 50 basis points of credit loss for the year. So overall, the portfolio continues to be in great shape. It was 99.7% occupied. As of year-end and is performing well. We're not seeing any significant changes to our watch list or any new entrants that are material from an exposure perspective, and anticipate the portfolio should continue to perform well in '26. Brad Heffern: Okay. Thank you. Operator: Our next question comes from the line of Bacon with Baird. Please go ahead. Bacon: Hey, thank you for taking my question. So you just mentioned, talked about how the development and pipelines are growing. I'm curious now that you're, as you said last year, a full suite real estate platform. How has that maybe changed conversations or seen other retailers that you haven't worked with come to you seeking out your full suite of capabilities? Joey Agree: No. It's a timely question. The team was down with a number of retailers yesterday that we are working with currently and aren't working with currently across all three platforms. I think most importantly, it provides a holistic conversation with retailers. I would add our asset management platform. And so everything we manage is internally property managed, lease administrator, internally, taxes, insurance, any ancillary responsibilities. The ability to sit down with any retailer in the country and provide an entrepreneurial platform that can across all phases of the life cycle of a transaction. From net new development to extensions of short-term leases for sale-leasebacks. Is just a unique value proposition that is one of one. And so you combine the entrepreneurial DNA of a real estate company, a private real estate company, with a $1.213 trillion dollar balance sheet of an A-minus rated company that is a publicly traded REIT with significant liquidity, access, and a premier cost of capital. And opportunities will arise. And so we continue to maintain dialogue with retailers, grow those relationships, that are existing. We're always talking to retailers about net new projects and launching a vertical with them in conjunction with our standard acquisition third-party activities. Bacon: Thank you for that. That's it for me. Joey Agree: Thank you. Operator: Our next question will come from the line of Upal Rana with KeyBanc Capital Markets. Please go ahead. Upal Rana: Great. Thank you. On the forward equity, you've got $700 million remaining to deploy. Is there any timing when you need to settle those shares? You've done some significant forward offerings. During 1Q last year and April. So just wondering if there's any timing related to those shares settling in expectations on when you need to deploy that capital. Peter Coughenour: We have a lot of flexibility in terms of settling the $750 million plus of outstanding forward equity. I think the earliest tranche matures in June. The latest tranche matures in May 2027, and so have a lot of flexibility in terms of when we settle those shares. I think it's fair to assume that most of those shares get settled at some point, and in 2026 subject, obviously, to uses and other capital sources. But have a good amount of flexibility in terms of when we decide to settle those shares and receive the proceeds. Upal Rana: Okay. Great. That was helpful. And then just given that we're halfway through one Q already and you've already increased your investment guidance by almost 10%, could you share any preliminary 1Q or even visibility you're seeing on investment activity? Joey Agree: Yeah. As I mentioned, there will be a sale-leaseback in there. With an existing top 20 tenant of ours, in the first quarter. The second quarter, we'll have a sale-leaseback with another top 20 tenant. There are two or three single credit portfolios, one with the largest retailer in the world from a third-party seller, another with the leading paint manufacturer and retailer in the world. Those are primary drivers, I would say, in there, and then one-off transactions on the acquisition front that are typical of everything we do. Upal Rana: Okay. Great. That was helpful. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Mitch Germain with Citizens Bank. Please go ahead. Mitch Germain: Thank you. Joey, you've been pretty good at predicting retail trends. And I'm curious if there's, like, a tenant or maybe a sector that you think could become a bigger piece of the portfolio on a go-forward basis. Joey Agree: So I'm gonna hesitate to look. We've talked about Boot Barn. We've talked about our increased exposure there. We foreshadowed Gerber Collision. We foreshadowed Tractor Supply. Obviously, we're extremely acquisitive with off-price, that TJX concepts. Burlington roster, tenants that we're always looking at. That are I would tell you on the periphery of our sandbox, or potentially even on the cusp of entering that sandbox, I'm hesitant to mention them because as soon as we start, frankly, targeting them, it seems that we get some copycats out there that then start chasing those credits. And so there are always tenants that we're looking at. We've been pretty outward with Five Below in terms of developing, acquiring. So there's always tenants on the outsides of that sandbox that are making their way in. I think we'll hold off disclosing them until they are in our table. Mitch Germain: Appreciate it. Congrats. Joey Agree: Thank you. Operator: Our next question comes from the line of Eric Borden with BMO Capital Markets. Please go ahead. Eric Borden: Great. Thanks. Joey, CVS performance appears to be improving. You know? Have the CVS's recent initiatives begun to show up in the performance metrics within your portfolio, and how does your exposure compare to their broader store base? Joey Agree: Yeah. We've look. We've got a tremendous CVS. I would note that pharmacy exposures at 12/31 was down to 3.6% in totality. Again, that's in as versus in 2010 when I launched the acquisition platform of being 43% Walgreens exposure. There's a case study in the deck about that. The very de minimis for us now. Our focus with CVS is acquiring high-performing stores where the fixed cost, the rents make sense, the days of dual, dueling suburban pharmacies on opposing corners, we believe, is over. Ground leases, super high-performing stores, and then stores that have an extremely low rental basis and are productive. And so we're not interested in the suburban $400,000 per year pharma. It's 14,000 feet on two acres. Yeah. Those are readily available on the market for anyone who wants to roll back the clock to ten, fifteen years. We're more interested in the pharmacies that are either on a ground lease or paying a couple $100,000 in rent or have outperformance twenty-four-hour operations. Or early extensions with our tenants there. And so it's a very selective acquisition process for us. It's a very informed acquisition process for us. We'll make select additions to the portfolio, but it's not a focus for us. Will not see any material growth in our pharmacy exposure CVS exposure at this time. Eric Borden: Yep. Great. And then just on the quick service restaurant side, noticed that the exposure increased to 2.3% of '4. Joey Agree: So the Flanders Outlaw, the Panda Express, the Wendy's, We acquired an Olive Garden ground lease with a garden guarantee during the quarter. Restaurants, a McDonald's ground lease. So I would tell you restaurants for us. We will continue to stay away from outside of the ground lease structure. Or a very unique opportunity. Not a focus for us, especially in today's economy. And then more important, when we look at the fungibility of the box, the rent per square foot, we just don't see the residual values there. To mark to market. And so restaurants will be on the perimeter. If you see us acquire a restaurant, or any such single-purpose type structure or fit out, it will generally be on a ground lease. Eric Borden: Alright. Thank you very much. Appreciate the time. Joey Agree: Thank you. Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Okusanya: This is Sam on for Tayo. Was wondering if does the exposure to lower-income consumers present you know, some sort of down risk, particularly around categories such as dollar stores, off-price retail, or discount stores? And, like, what are you guys doing to mitigate this risk? Joey Agree: I think it's the absolute on last call, I said we are the trade-down effect. What we're seeing in 2026 is just the steepening of decay. The theme in 2024, and I don't wanna get, you know, this is about affordability, and I'll put it in quotes. The theme of 2024 and 2025, was the low-income consumer and the challenges they were having. The theme of 2026 and hopefully, it gets resolved, but I don't see any resolution in the near term, is the middle-income consumer. We have dual working parent households in this country. Costs are increasing, whether it's automobiles, health insurance, residential costs. Right? Costs cost of living across the board. Inflation, the cumulative inflation that we've seen since the pandemic has been devastating for these families. And so if you look at the print of the targets of the world, and you juxtapose that against the prints of the Walmarts of the world and the dollar stores of the world, the trade-down effect is palpable. You can see those consumers looking for bargains, for discounts. You see it, frankly, in the size, the basket size, the ticket size. And the frequency of the trips. You see Five Below retailers, like Five Below, really thriving in this environment. Our general performing extremely well, and Walmart, frankly, kicking ass, crossing a trillion-dollar equity cap. And so you'll continue to see us focused on those retailers that cater to that consumer. We avoid luxury. We avoid experiential. We avoid fun. It's goods and services that are necessity-based. And if they're not the lowest-priced operator, they have a unique value proposition. And so that's our focus. It has been our focus. I think it inures to our benefit what we're seeing out there given the portfolio composition that you see obviously, in our materials. Omotayo Okusanya: That's all I got. I appreciate the time. Joey Agree: Thank you. Operator: Our next question comes from the line of Linda Tsai with Jefferies. Hi, good morning. Earnings growth was over 4.5% in 'twenty-five and you're guiding the midpoint to 5.4% in 'twenty-six. You view this 4.5% to 5.5% earnings growth cadence as a sustainable state? Joey Agree: Yeah. Good morning, Linda. We've been very clear for months that our earnings algorithm would kick in this year. And we drove over four and a half percent AFFO growth per share last year after only deploying $950 million. Approximately in 2024. And while investing and dealing with the big lots, bankruptcy machinations. And so we were very clear that our earnings algorithm would kick in this year. We have no upcoming material debt maturities, and so we're all systems go. Let's be clear. Across all three external growth platforms, as well as from a balance sheet perspective. And so our goal has consistently been to deliver 10% operational returns. We will deliver ten percent two-year stacked AFFO growth, whether it's last year, this year, this year, next year. We've been very clear about that while maintaining a defensive posture from a portfolio position maintaining our strict underwriting criteria and a fortress balance sheet. Linda Tsai: Thanks. And then in terms of new-to-market customers, not sure if you track it this way, but what percentage of ABR came from new-to-market in '25? And would you expect to increase your exposure to these customers in '26? Joey Agree: New to market, meaning new to our portfolio. Linda Tsai: Yes. Peter Coughenour: Peter, I can't think of one new tenant to the portfolio that we added. Can you? Joey Agree: No. If we did, it would have been in a pretty de minimis way. Peter Coughenour: Yeah. Extremely de minimis. We took out a bank ground lease for, I think, 80,000 or a $100,000. As an outlot to one of the Lowe's that we acquired. So it would be an ancillary small piece, but really no new tenants or new entrants of any substance at all in the portfolio in 2025? Linda Tsai: Just one last one if I could. So Walmart's 5.6% of your ABR, obviously, gold standard in terms of tenant credit. But any ceiling which you'd be comfortable with, you know, any specific tenant exposure? Joey Agree: To Walmart specifically? Linda Tsai: Just anyone. Joey Agree: Look. Walmart is the only tenant, as you mentioned, over 5% of the portfolio. We've thought that that was a gray line for a while. It was breached by different operators within the space. We also look at 10% as a great threshold for sector, line of trade, groceries just over 10%. We feel very comfortable there. I'm happy to add more Walmart exposure on a percentage basis as we go forward. We're always working on Walmart transactions, frankly. Across our platforms. There are Walmarts in our pipeline right now. So with the percentage basis, we feel very good with where Walmart is. I mean, they are also our top three or top four ground lease tenant in the portfolio, number three, actually, in terms of ground lease ABR. And so we're very confident in our Walmart exposure. The company continues to perform tremendously. And so we're comfortable. I think at the peak during COVID, it went off almost up to nine, Peter. Correct me if I'm wrong. Up to 9%. I wouldn't anticipate that occurring. But we'll certainly pursue Walmart transactions aggressively. Linda Tsai: Thank you, and good luck. Joey Agree: Thanks, Linda. Operator: Our next question comes from the line of Rich Hightower with Barclays. Please go ahead. Rich Hightower: I want to go back, I think, was Jamie Feldman's question just on sizing sort of the forward equity component of the total sources. And so, you know, is the gating factor there at any given time related to the deal pipeline? Is it market impact on the share issuance? Is it, you know, something else? Just what would prevent you from taking, you know, 700 something million in ATM, I'm sorry, in the forward, you know, unsettled shares today to a billion, 1,000,000,001 half or something like that. Joey Agree: Well, you get the confluence of factors. Most importantly, ultimately uses. Right? Do we have the uses of that capital? Obviously, we have the liquidity and the balance sheet tolerance, full flexibility to do whatever we want. The most important thing is to have that flexibility and never raise any type of capital. We wanna continue to be opportunistic, but think, ultimately, it's sources. So with no material debt mature uses, excuse me, ultimately, with no material debt maturities, in all of the capital that we raise effectively going toward net new investment activity. We'll monitor those that the pipelines across all three verticals, but that's the driver. Peter, anything else you wanna add? Peter Coughenour: No. I agree with that. I think staying ahead of our uses is ultimately most important, and that will allow us to continue to be opportunistic in terms of how and when we raise capital. And, today, with over 2,000,000,000 of liquidity and a billion 6 of buying power, as I referenced earlier, we are well ahead of our uses and well positioned for the year. Rich Hightower: I guess just to follow-up on that. I mean, is it a safe signal for the rest of us, I guess, on this side of the phone call that, you know, every quarter or so, you know, as you're kind of issuing forward shares, that a signal that the pipeline is indeed sort of growing above and beyond the current target, or is that not really the right way to interpret some of those movements? Joey Agree: We'll look at all capital sources. I hope we get back to the day where we can issue a perpetual preferred at four in a quarter. We'll look at all capital sources, see how they fit within our capital stack. Last year was the first year in a number of years with the five and a half year delayed draw term loan. We have a full suite, obviously, access to all four quadrants of longer-term capital. Short term, we have the line of credit, the commercial paper program, significant free cash flow, as well as dispositions, which we anticipate ramping a little bit this year. So, you know, there's really no direct causation. Are they correlative? Sure. I would say it's correlative. As we see our investment pipeline grow, further, it's wholly possible that we'll add incremental equity to fund that subject to other capital sources and obviously, the respective cost of those capital sources. But, look, we have been at the forefront of capital raising in the net space, and I would argue read them today, utilizing forward equity. First in 2018 on a regular way, and then subsequently, off of the ATM. And so we anticipate continuing, obviously, in an external growth business to be raising capital. We have swaps in place, as Peter mentioned, to tap the unsecured long-term unsecured bond market this year as well. And as the year progresses, we'll look at all, obviously, the sources and the uses and to match them to create an A-minus balance sheet that's on par. With our expectations. Rich Hightower: That's helpful. If I could sneak in one more just on development and DSP. Know, just maybe help us understand where, you know, kind of across America, you know, this sort of development is taking place. You know, because I think, otherwise, you know, retail, commercial real estate, you know, obviously, is being underdeveloped more broadly, but you guys are finding these sort pockets. I mean, is it infill? You know, is it redevelopment of sort of existing underperforming real estate? Is it, you know, green kind of associated with new residential development in different places? Just what does that composition look like? Joey Agree: Interesting question. Look. The constraint today and net new development is not desire from retailers. It is cost and the fee project feasibility driven by the vertical construction cost primarily. And so we are operating from the West Coast to the East Coast, all the way down South. There are tertiary markets. There are primary markets. There are redevelopment of existing structures, splitting up larger boxes into junior boxes. There's ground-up projects that have tips or outlots or extremely low land bases to support it. It's highly diversified. It's hard corners. For c stores. It is exit ramps for CFLC stores. Larger commercial fueling locations that provide for diesel. And so if you look at the c store sector today in the growth of the regionals and the nationals, the off-price sector, their voracious appetite to grow, whether it's TGX's buy banners, Ross's too, or Burlington's desire to get to a thousand stores. Then the big box space, Lowe's, Home Depot, as I mentioned, Walmart, Costco, Kroger are even announcing net new stores. We see the tremendous appetite to growth to, again, get the permutation correct, in an omnichannel world. I would tell you all retailers have recognized that free shipping and then a 40% return rate does not work. And so they're trying to get stores in place to get our butts to the store to pick things up. And if it is delivered, to deliver from the store to fulfill that last mile or two in the most efficient way possible. Whether that's tertiary or primary. And so there's tremendous appetite for growth. Again, most of these retailers are public. They're out there with their stated store goals. We can we're in a really unique position to fulfill that appetite through with our three vertical external growth platforms. Rich Hightower: That's great. Thank you. Joey Agree: Thank you. Operator: Our next question will come from the line of Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: Hey, this is Jenny on for Ron. Thanks for taking my question. The first is we noticed the weighted average lease term on 4Q acquisition was nine point six years versus, like, ten point seven years in Q3. I'm just curious more broadly, how do you think about lease terms when you underwrite acquisitions? Like, what's the right balance between lease duration and returns? Thank you. Joey Agree: All project-specific or opportunity-specific will buy short-term lease when we like the real estate, the mark to market, or have strong performance feedback. We'll obviously, the sale-leasebacks will have longer term. Some of my favorite opportunities are pre-inflationary or construction cost inflation opportunities in the junior box space. They're paying $10.11 dollars per square foot on a short-term deal. When mark to market is $17.18, $19 just due to those construction costs I've been talking about on this call. And so you'll see a variety of lease terms. This is a real estate operation here. Lease term is one input. Store performance, underlying real estate fundamentals, access, visibility, fungibility of the box, signage, traffic counts, demographics are all playing a part into that role as well. So, I wouldn't think of Q4 as a static state at all. I think if we dive into the individual transactions, you'll see really what the driver was and really push it over through the approval threshold. Ronald Kamdem: Appreciate the comment. The second question is how should we think about the releasing spread for investment-grade tenants? I see you only have 1.5% of ABR being renewed next year, but how should we think about the releasing spread? Joey Agree: No difference. I think the one zero four has been improved. A 104% recapture rate has been pretty static. Over the last few years, we've been at a 103 or a 104% each year. It doesn't seem to be moving, the vast majority of our upcoming expirations which will be handled with favorable outcomes here, will you know, think that blended will fall into the same range. We don't anticipate many of these tenants leaving here. Ronald Kamdem: Gotcha. Thanks so much. That's all for me. Joey Agree: Thank you. Operator: Our final question will come from the line of John Kilekowski with Wells Fargo. Please go ahead. John Kilichowski: Great. It's Jamie again just with a quick follow-up. The disposition guidance 5 to 75,000,000. I think you had mentioned, you know, $10.31 and even OBVA being a driver of demand. How are you thinking about that range? And then, you know, can you talk more about what's changed and, you know, what if you might be ramping up that pipeline due to pricing. Joey Agree: Well, I think I hadn't heard the acronym. I think the OBVA is the driver there for us. And so we have what I would call not or not economically rational real estate purchasers that are benefiting from accelerated depreciation that they're taking aren't looking at the real estate fundamentals. And if someone wants to buy a Goodyear with a five handle in front of it, we're sellers. I'll be honest. Yeah. We're big fans of Goodyear. We're their largest landlord. We obviously did sale-leaseback with them and took the real estate that they owned on balance sheet. And did a sale-leaseback at extremely low rents, but they have control of that property through options. We see redevelopment potential. They're contractual rental increases. And so if someone wants to pay something that we don't think makes sense relative to, where we can redeploy that capital, we'll do that. So a lot of it is the one big beautiful bill purchasers. Then you have some interesting, I'll call it, purchasers that seem to traverse Florida. That doesn't seem, the pricing often doesn't seem to make sense, and we take advantage there. California as well and Texas as well. In some of these states. Now you're not gonna see and then I'll tell you what we'll look at opportunistic sales on larger price point assets as well. And so if we think we can redeploy the capital at a material spread while increasing the credit profile and the real estate fundamentals, the tenant we're gonna jump on that opportunity, and then overall, it's an accretive transaction for us. So many of these are inbound, not even listed. Would you have a portfolio of 2,700 properties, there's always inbound activity. You know, we'll listen. We'll look at those and vet those opportunities and the qualifications of the purchaser and have an appropriate, we're gonna strike to drive ultimately accretion. John Kilichowski: Okay. But it still sounds like it's more that smaller buyers rather than institutions when you think about the sales? Joey Agree: Yeah. Generally, it's the smaller ten thirty-one net lease dominated ten thirty-one purchaser or tax-motivated purchaser. As you mentioned. You know, occasionally, there is some institutional inbounds for a variety of reasons. Maybe they own the adjacent property. Maybe there's an overall redevelopment that they're trying to execute upon. But the vast majority of transactions, just like the entire space, is individual, individual purchases. John Kilichowski: Okay. And then I know it's a small dollar amount, but what are you targeting for cap rates and dispositions? Joey Agree: I would say on a blended basis in the sixes. Right? Again, we'll pare down. I anticipate advanced auto exposure to a frankly, a material level and not very material today. There are some Goodyear transactions in the pipeline, which are nonrefundable, which will close in the first quarter or have closed already. I don't see anything different in the second quarter or beyond this time. John Kilichowski: Okay. Alright. Great. Thank you. Joey Agree: Thank you. Operator: This concludes the question and answer session. I'll hand the call back over to Joey Agree for closing remarks. Joey Agree: Well, thank you all for joining us this morning. Good luck to the rest of earnings season, and we look forward to seeing you at the upcoming conferences. Appreciate your time. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Operator: I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure. I am joined today by Anastasia Mironova, our Chief Financial Officer. In light of our recent announcement to sell ARI's loan portfolio to Athene and the call we hosted on January 28, I will provide a brief update on the four REO assets ARI will retain, and then we'll turn the call over to Anastasia to review our Q4 financial results. ARI continues to actively manage its real estate owned portfolio with a clear focus on improving run rate cash flow and maximizing value at exit. With respect to the Brook, which is a reminder, is a newly built class A multifamily tower with 591 residential units and approximately 20,000 square feet of ground floor retail in Brooklyn, New York. The property is currently approximately 56% leased across market rate units and is experiencing strong leasing momentum. The retail component is 88% leased, to Dingtai Phung with occupancy expected next year. Management remains focused on completing lease-up and achieving stabilization which is expected later this year, while also evaluating options to unlock additional value from an adjacent owned land parcel. With respect to the two hotels, starting with the Mayflower, management has implemented cost savings initiatives, which should provide a notable pickup in net cash flow once completed. In Atlanta, ARI is executing value-add upgrades to the rooms and common areas of the Cortland Grand aimed at driving group business in 2026. Following a fire in October 2025 that temporarily took some rooms offline, the company is receiving business insurance proceeds and continues to evaluate restoration and insurance recovery paths to maximize value. Finally, ARI has a minority interest in a Massachusetts predevelopment portfolio consisting of two former hospital sites, owned through a joint venture with other Apollo affiliated vehicles and is actively working through zoning changes to increase the value of each site. With that, I'll turn the call over to Anastasia to walk through our financial results for the quarter and the full year. Thank you, Stuart. Anastasia Mironova: Good morning, everyone. In the fourth quarter, ARI reported distributable earnings of $37 million or $0.26 per diluted share of common stock. For the full year, distributable earnings totaled $139 million or $0.98 per diluted share. GAAP net income available to common stockholders was $26 million or $0.18 per diluted share for the fourth quarter, and $114 million or $0.81 per diluted share for the full year. During the fourth quarter, we recorded a specific CECL allowance of $3 million associated with the 2019 vintage commercial mortgage loan secured by a hotel property in Chicago. The loan has an outstanding principal balance of $45.5 million and is expected to pay off over the course of the next few months. There were no other charges to specific CECL allowance during the quarter, and the overall credit profile of the portfolio remains stable. The weighted average risk rating of the loan portfolio was at 3.0, unchanged from the previous quarter and prior year. The balance of loans on nonaccrual decreased by over $170 million year over year driven primarily by net proceeds received from unit sales at 111 West 57 and partially offset with the addition of the Chicago hotel loan to the population of loans on nonaccrual. Our exposure to 111 West 57 decreased by $250 million year over year and $105 million quarter over quarter, with six contracts closed during the fourth quarter. The general CECL allowance was flat compared to the previous quarter end at approximately $45 million. Total CECL allowance stood at $383 million at year end. This equates to 418 basis points of the loan portfolio's total amortized cost, down from 450.7 basis points a year ago. The decrease is attributable to sequential portfolio growth year over year. Turning to the portfolio, the fourth quarter and the full year 2025 were highlighted by strong loan origination activity. During the quarter, we committed $1.3 billion to new loans with $1.1 billion funded at close and completed approximately $200 million of gross add-on fundings for previously closed loans. For the full year, ARI committed $4.4 billion to new loans with $3.3 billion funded at close and completed about $900 million of gross add-on funding. Loan repayments and sales totaled $852 million in the fourth quarter, and $2.9 billion for the full year, reflecting continued borrower execution and portfolio rotation. Notably, over 60% of our loan portfolio is now represented with post-2022 originations. This activity resulted in the overall growth of the loan portfolio, which increased by approximately $1.6 billion year over year on an amortized cost basis. We ended the year with a total loan portfolio of approximately $8.8 billion by amortized cost, with a weighted average unlevered all-in yield of 7.3%. The portfolio has 99% first mortgages, and 96% floating rate exposure. The weighted average loan-to-value ratio is approximately 59%. Shifting to the right side of our balance sheet, ARI ended the year with $151 million of total liquidity. We also held over $430 million of unencumbered assets primarily represented with first mortgage loans and cash flow in REO assets. During 2025, we added $1.8 billion of net financing capacity including the closing of four new secured credit facilities, the extension of our revolving credit facility, and the upsizing of several other credit facilities. Book value per share was $12.14 at year end, relatively flat to the prior quarter end. With that, I would ask the operator to open the line for questions. Thank you. Operator: 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Rick Shane with JPMorgan. You may proceed. Rick Shane: Hey, everybody. Thanks for taking my questions. Probably not a ton to ask here, but I am curious what sort of feedback you are getting from investors and given the gap between the implied value of the transaction and where the stock's trading right now, what do you think is driving that in investors' minds? Anastasia Mironova: Hello? Hey, Rachel. This is Anastasia with Jeff. We have a technical difficulty. One second. Stuart Rothstein: Can you guys hear me? Hey, Rick. I can hear you, Stuart. Okay. Hey. Just quickly. Look. Overwhelmingly, the feedback has been positive. I think people greatly appreciate the efforts to unlock value. Obviously, as you might expect, there's also been a number of questions around what we envision doing with the capital. Broadly speaking, what type of strategies are in mandate, not in mandate? We've revealed, you know, as expected, not a lot at this point and are more focused on getting through the go-shop period and then, obviously, getting to a proxy filing, which will provide more information to people. Not for me to say exactly what is driving the disconnect between, you know, the announced book value of 12 plus and a stock which sort of has been bouncing between $10.70 and $10.80 other than, I would say, people still looking for further clarity on what the strategy may or may not be going forward versus our further comments on dissolution also being a potential strategy. But I think as we provide more clarity on what we're thinking about and where we're headed with the vehicle, I would expect the gap to narrow over time. Rick Shane: Got it. And as you think about alternatives, I guess the question, and I realize you have to be pretty circumspect about how you answer this, but at this point, are there clear options on the table for you that you were evaluating? And, you know, do you have three plans and pros and cons? Or is it still, hey, we don't know what we're gonna do, and we are seeking a solution in the abstract? Stuart Rothstein: I would say we're exactly where we thought we would be, which is I would say there are some specific ideas that have germinated organically internally that we are evaluating, but I would say too early to whether one of those ideas will ultimately be what we decide to pursue or not. And then not surprisingly, post the announcement, a lot of incoming phone calls around ideas that people would like to propose to us, which was very much expected, and we will very much engage in a number of dialogues just to hear people out on what other thoughts they may have. So a bit for two at this point. Rick Shane: Great. I appreciate the answers, and I thank you for taking the time this morning. Operator: Thank you. Our next question comes from Doug Harter with UBS. You may proceed. Doug Harter: Thanks. Stuart, can you talk about kind of how you think about ultimately marketing the REO assets? I appreciate the update you gave. If we take the Brook, as you get the stabilization, how much longer after that do you look to monetize the asset? What are the key signs to think about there? Stuart Rothstein: Yeah. Look. I think with the Brook, let me respond a couple ways. I think for the Brook itself, lease-up is going as expected and overall is pretty strong. We're leasing, you know, depending on the month, 20 to 40 units a month. Rents are where we expected them to be. And as I indicated in my comments, I think we'll hit stabilization the latter part of this year. At that point, it really becomes sort of an assessment of what does the market look like in terms of the transaction environment, the interest rate environment, etcetera, as we think about maximizing value. On the Brook, the one caveat I would add is I think those of you that follow the company closely are aware, there is a parcel adjacent to the that the expectation was always that that would be a call it, jewel box retail site adjacent to the Brook. We are exploring some other strategies to create more value on that vacant site. And if we thought we could increase value of that vacant site, we might factor that into our decision around timing of when we book to exit the Brook. I think with respect to the hotels, I think the Mayflower has been performing quite well as a hotel in general since we've taken it over. We think there's a real opportunity to move net cash flow significantly over the next twelve months or so with strategies around efficiency and cost savings that we want to implement. As soon as those are implemented and a higher run rate net cash flow is achieved, I would say we're ready to bring that to market. And then I think with respect to the Cortland Grand, I think, you know, unfortunately, the fire on a portion of the hotel has given us an opportunity to sort of rethink through the best way to achieve value at the Cortland Grand, but I would say given where we're currently carrying the Cortland Grand, we feel pretty good about the value there. Doug Harter: I appreciate that, Stuart. And then do you think about making decisions to monetize? Will you wait to determine what the future of ARI is? In case some of those assets might fit into that future? Or would you know, just how are you thinking about the sequencing in that construct? Stuart Rothstein: I think right now, obviously, we're not making any decisions in a vacuum. But I think, you know, sitting here today, given my comments to Rick on strategies going forward, I'm not sure I envision any of the REO portfolio as critical to where we think we're taking we may take ARI in the future. So in some respects, I think, you know, exit strategy and maximizing value for the REO is very much sort of a walled-off decision as we think about just maximizing value. Operator: Thank you. Our next question comes from Jade Rahmani with KBW. You may proceed. Jade Joseph Rahmani: First one would be a quick one is on the dividend. What will happen post the portfolio sale? Will there be a period in which there is no dividend? Because otherwise, it will be coming out of book value. So the $12.05 will presumably go down by the dividend. Stuart Rothstein: I think all we've disclosed at this point, Jade, is we do envision paying a Q1 dividend of this year. Still subject to board approval, but envision paying a Q1 dividend consistent with the run rate for the past number of quarters, which is $0.25 a share per quarter. Beyond that, the remarks we made on the call, whatever it was, a week, two weeks ago, indicated a desire to keep paying a dividend, but also subject to board approval and fully appreciate your comment on return of capital. And I would say we will have further discussions with our board as we move towards any type of Q2 decision, which is in the latter part of the second quarter. Vis a vis the interplay between dividend thoughts on ongoing strategy versus dissolution, and the right way to provide capital back to shareholders if, in fact, we end up in a situation where any type of distribution would be a return of capital. Jade Joseph Rahmani: And then following up on Rick Shane's question about strategy and thinking about potential options if you do not choose the dissolution path. Wanted to see how if you agree with these broader themes. I mean, to create an entity that would create trade above book value, you know, I think you would need to create an earning stream that offers a return that's higher than what the public market discount rate is for these kinds of stocks. And so that higher return might look along the lines of what ARI actually originally started out doing, mezzanine and construction lending, because I think that's one of the only ways to generate very high returns today. Otherwise, you could go the super safe return path and perhaps use leverage in a way that private players aren't able to access, you know, using Apollo's access to business to bank lines and other businesses like Atlas via securitization. Or third, invest in operating companies that have franchise value and perhaps retained earnings or potential for equity gains. So I just wanted to see if you agree with those things, if there's anything that jumps out that you know, I didn't cover. Just your overall thoughts. Stuart Rothstein: Look. I think at a high level, what I'd say is and you got to it with your last point, is I think we are spending a lot of time these days debating the public markets and the value of being in a, call it, price to book model versus a multiple of earnings model? And which affords the better opportunity for future growth, better trading opportunities, ability to continue to capitalize opportunities to the extent you see them in the market. I would say both are within purview today, and I guess the last thing I would say, you know, is the notion of trying to come up with a strategy that we think will trade better is to indicate that what we're trying to spend time on is an opportunity for something that has more legs than just being a one-off trade to put a billion and a half dollars worth of capital to work. Right? Like, there's plenty of places to put a billion and a half dollars, but if long term, if we don't view it as an opportunity to invest in something that we think has continued growth trajectory and an ability to, as you put it, either generate outsized returns or create some sort of operating company slash platform value, you know, I don't think we're just gonna do it. Quote, unquote, print a ticket to say we printed a ticket. Jade Joseph Rahmani: Thanks a lot. Operator: Thank you. I would now like to turn the call back over to Stuart Rothstein for any final remarks. Stuart Rothstein: Thank you, operator. Obviously, always appreciate people getting on a call to discuss. We are always available, myself, Hillary, Anastasia, to the extent people have follow-up calls. Thanks all. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to InvenTrust Properties Corp. Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Becky, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and a replay will be available on the Investors section of the company's website at inventrustproperties.com. All lines will be muted throughout the presentation portion of the call, with a chance for Q&A at the end. I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Dan Lombardo: Thank you, operator. Good morning, everyone. And thank you for joining us today. On the call from the InvenTrust Properties Corp. team is DJ Busch, President and Chief Executive Officer, Mike Phillips, Chief Financial Officer, Christy David, Chief Operating Officer, and Dave Heinberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainty. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials which are posted on our Investor Relations website. With that, I'll turn the call over to DJ. DJ Busch: Thanks, Dan, and good morning, everyone. Appreciate you joining us today. 2025 was an exceptional year for InvenTrust Properties Corp., marked by strong operating performance and disciplined execution. Same property NOI grew 5.3%, marking our second straight year above 5% and our fifth consecutive year of growth exceeding 4%. This performance speaks to the quality of our portfolio, the strength of our platform, and the consistent execution of InvenTrust Properties Corp.'s team. NAREIT FFO finished the year at the high end of our guidance range of $1.89 per share, representing 6.2% growth year over year. Our balance sheet remains well-positioned with sector low net debt to adjusted EBITDA and ample liquidity to support our expansion objectives. From a strategic standpoint, the year was equally transformative. We completed the successful sale of five California assets and efficiently redeployed that capital into higher growth Sunbelt markets. In total, we acquired 10 properties, including two in the fourth quarter, representing more than $460 million of gross acquisitions during the year. These investments deepen our geographic concentration and grocery exposure in areas where we see long-term population expansion, limited new supply, and the ability to leverage our operating platform. Christy will walk through our most recent acquisitions in more detail shortly. Institutional and private capital remains active in the open-air retail space, particularly in grocery-anchored assets. While that interest validates positive trends in our sector, it also reinforces the importance of discipline. We remain selective in our acquisition approach, focusing on opportunities that meet our return thresholds, enhance our operational footprint, and offer clear avenues for value creation through leasing and asset management. Our objective is to grow over time in a thoughtful, prudent manner. Beyond acquisitions, we continue to invest internally through targeted initiatives designed to maintain the overall quality and competitiveness of our portfolio while driving incremental NOI. These projects focus on remerchandising, repositioning anchor space, and selectively adding outparcels at existing centers. While redevelopment is not intended to be a focal point of our business model, we expect these efforts to contribute approximately 50 to 100 basis points of incremental NOI growth annually over the next couple of years. The retail landscape continued to demonstrate notable resilience in 2025. While store closures increased year over year, new retail construction stayed at multi-decade lows, development economics remain challenged, creating a constructive backdrop for owners of high-quality, well-located centers. At the same time, retailers are operating with better information as it relates to real estate decision-making, applying clearer return thresholds, and benefiting from more flexible supply chains. These factors favor landlords who can provide the right space in the right trade areas, a dynamic that aligns well with our focus and footprint. According to CoStar, top-performing retail markets in 2025 included Charlotte, Tampa, Orlando, and Dallas. Charlotte, where we acquired two properties during the year, stands out for robust population growth, job creation, and suburban development, ranking first among major US markets for retail rent increases. We are seeing similar trends in Phoenix, another area where we continue to expand our presence. Our strong performance in 2025 positions us well into 2026. That outlook is reflected in our guidance with core FFO per share growth expected to be in the mid-single-digit range and net investment activity of approximately $300 million. As always, strategy remains simple. Continue to expand our Sunbelt-focused portfolio and execute at the proper level to drive sustainable cash flow growth. With that, I'll turn it over to Mike to walk through the financials in more detail. Mike Phillips: Thanks, DJ, and good morning, everyone. For the full year, same property NOI totaled $171 million, representing growth of 5.3%, driven primarily by embedded rent escalations, which contributed approximately 160 basis points. Occupancy gains added about 80 basis points, while positive leasing spreads contributed roughly 90 basis points. Redevelopment activity provided an additional 70 basis points, with percentage and ancillary rents adding around 20 basis points, and net expense reimbursements contributing 130 basis points. These drivers were partially offset by a 20 basis point headwind from bad debt reserves. Same property NOI for the fourth quarter was $44.3 million, up 3% year over year. For the full year, NAREIT FFO totaled $147.8 million or $1.89 per diluted share, reflecting an increase of 6.2% over 2024. Core FFO rose 5.8% to $1.83 per share year over year. FFO growth was primarily driven by same property NOI net acquisition activity, partially offset by the impact of a higher weighted average share count. In the fourth quarter, NAREIT FFO came in at $36.8 million or $0.47 per diluted share, representing a 4.4% increase compared to 2024. Core FFO increased 7% to $0.46 per diluted share for the three months ending December 31. Our balance sheet remains exceptionally strong, providing InvenTrust Properties Corp. with flexibility and liquidity to execute our long-term growth strategy. At year-end, total liquidity stood at $480 million, including $35 million in cash and $445 million available under our revolving credit facility. Our weighted average interest rate is 4%, and our net leverage ratio is 26.3%. Net debt to adjusted EBITDA remained at a sector low 4.5 times on a trailing twelve-month basis. During the quarter, we completed two acquisitions totaling $109 million, funded with our available liquidity and the assumption of approximately $30 million of secured property-level debt. The board of directors approved a 5% increase to InvenTrust Properties Corp.'s annual cash dividend for 2026. The new annualized rate of $1 per share will be reflected in the April dividend payment. Turning to 2026 guidance, we expect full-year same property NOI growth in a range of 3.25% to 4.25%. This outlook incorporates a bad debt reserve of approximately 30 to 70 basis points. For NAREIT FFO, we are providing guidance in a range of $1.97 to $2.03 per share, representing a 5.8% increase at the midpoint compared to 2025. Our core FFO guidance is $1.91 to $1.95 per share, reflecting a 5.5% increase at the midpoint year over year. As discussed previously, the interest rate on our $200 million term loan swaps reset from approximately 2.7% to 4.5%, which will create a modest headwind to FFO for the last three months of the year. And with that, I'll turn the call over to Christy to discuss our portfolio activity. Christy David: Thanks, Mike. The retail landscape in 2025 was marked by steady execution and improving operating momentum. Our leasing teams performed well, converting renewals at attractive spreads and filling small shop vacancies with high-quality operators that enhance tenant mix and support the long-term performance of our centers. Leasing activity remained positive across the portfolio, with grocery, health and wellness, specialty food, and value-oriented concepts showing the strongest demand. Throughout InvenTrust Properties Corp.'s asset base, foot traffic and retail sales have remained durable, while our watch list of at-risk tenants is minimal. One area where execution has been particularly evident is in the performance of our acquisition properties acquired in 2024 and 2025. New and renewal lease spreads have averaged approximately 21%, demonstrating our ability to identify below-market opportunities. This showcases our leasing team's ability to unlock growth even in well-occupied centers. From a tenant health perspective, the story remains resilient. Retail sales are up, and announced store openings continue to exceed closures, signaling sustained confidence in physical retail. While turnover is a normal part of the strip center business, our tenant rosters are as strong as they have been at any point. Across our markets, retailers are increasingly focused on optimizing store fleets rather than pulling back, with new concepts actively pursuing space in well-located centers. The strength is evident in our leasing results, with several key metrics reaching their highest level since our listing in 2021. New leases executed in 2025 achieved a 30.9% spread, while renewals averaged 10.9%, resulting in blended comparable leasing spreads at 13.3%. Small shop lease occupancy also reached a new all-time high of 94%, and annual rent escalators on new and renewal small shop leases executed in 2025 averaged over 3.1%, the highest level since our listing. At year-end, total lease occupancy was 96.7%, and our retention rate was 85%, reflecting the planned departure of a single anchor at our Gateway Market Center property in Saint Petersburg, Florida, which is currently in the early stages of a transformational redevelopment. Excluding that space, our retention rate would be consistent with previous quarters at approximately 90%, and our lease occupancy rate would have been flat sequentially. Turning to acquisitions, we added two high-quality assets to the portfolio during the quarter. The first is Mesa Shores in Mesa, Arizona, a rare dual grocery-anchored center by Trader Joe's and Sprouts Farmers Market. We also expanded our Florida presence with the acquisition of Daniel's Marketplace in Fort Myers, anchored by Whole Foods. Both assets align with our Sunbelt necessity-based strategy and tenant mixes weighted toward national and regional brands, with upside through small shop leasing and merchandising. As we head into 2026, operating fundamentals for shopping center REITs remain solid and supportive of our platform. InvenTrust Properties Corp.'s portfolio is well-positioned for tenants focused on essential uses and services, omnichannel fulfillment, and seeking benefit from long-term demographic growth across the Sunbelt. Operator, we are now ready to open the lines to take questions. Thank you. Operator: If you wish to ask a question, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question comes from Andrew Reale from Bank of America. Your line is now open. Please go ahead. Andrew Reale: Good morning, everyone. Thanks for taking my questions. I guess, first, I was just wondering if you could maybe talk a little bit more about your funding sources for the $300 million of net acquisition activity. I mean, it sounds like you have some capacity on the balance sheet, might lean into that a bit. So I was wondering kind of what type of debt would you look to issue? What type of pricing would you expect? And then just with the greater interest expense assumption in the guide, what portion of that is from the swaps rolling over and what portion of that would be from incremental debt? Thank you. Mike Phillips: Yeah. Andrew, this is Mike. I can start. So, yeah, you hit on the ad. We have plenty of room on the balance sheet to fund acquisitions this year. That's kind of the plan going into the forecasting. We have $300 million kind of at the midpoint net acquisitions. What you could see from us this year is using our line of credit probably a little bit more than we have in the past. And then opportunistically hitting the market, probably the two options that are best for us are in the private placement market or you could see some more bank debt. We'd probably prefer to use more permanent long-term financing through the private placement market. And that pricing right now is probably depending on anywhere between a 125 and a 150 basis point spreads. I think you asked about, like, the headwind for the swap spreading off in 2026, obviously, those don't burn off until September, so it's probably about a 1 to 1.5 penny headwind going into the year. Andrew Reale: Okay. And then maybe just a follow-up on that. Could you just help us think about if you have a new leverage target range and I guess just, you know, how high you'd be willing to take up that leverage in aggregate? Thanks. Mike Phillips: Yeah. Yeah. So the good thing is we can kind of fund through the balance sheet and not really come up to our leverage targets by the end of the year. So we can do the $300 million this year, and that's helped with us on a forward basis at kind of five times net debt to adjusted EBITDA, and we'd be comfortable really not going above 5.5 times on a forward basis at any given time. DJ Busch: Yeah. Maybe just to add on that, Andrew. I think, you know, when we think about the balance sheet, obviously, you know, being one of the lower levered companies, we do have the ability to self-fund through that incremental debt, which is an important avenue for us over the next couple of years. You can see that as it relates to the investment activity that we're trying to accomplish this year. You know, we're very protective of the balance sheet. Obviously, we try and keep it very simple. The maturity schedule is extremely manageable. And as Mike said, you know, we're always trying to gear towards that, you know, mid-fives on a forward basis. You know? But on any given quarter, you know, we're going to be opportunistic while protecting, you know, the balance sheet. Andrew Reale: Okay. Thank you. Operator: Our next question comes from Linda Tsai from Jefferies. Linda Tsai: Hi, good morning. On Amazon Go and Fresh closing stores, does that open any opportunities to open more Whole Foods, increase that 2% as a percentage of ABR in your portfolio? DJ Busch: Well, we don't actually have any of the Amazon Go's or any Amazon brick and mortar, I guess, in our portfolio. We obviously did a site analysis as it relates to our portfolio, specifically as it relates to our Whole Foods locations to make sure that we weren't at any type of risk if and when they decide to start transitioning some of those boxes. The good news is we are very well protected with our Whole Foods. Every Whole Foods in the InvenTrust Properties Corp. portfolio operates exceptionally well. Most of them are looking to add additional square footage if they can, but they're very profitable and have high sales volumes. The more interesting thing is, you know, the Whole Foods banner is obviously one that's, you know, done quite well for some time. It serves a very particular part of the market very well. And I think seeing Amazon lean back into that banner is positive for institutional quality shopping centers. Linda Tsai: Thanks. And then one of your larger peers discussed recently seeing lower CapEx requirements in their portfolio, and you highlighted the characteristics in your own portfolio previously. Are you seeing 26% as largely a renewals business again? And is this percentage of CapEx 20% of NOI continue to come down? DJ Busch: Yeah. So good question. I think that's a fair statement. We expect, and I think we've talked to you, Linda, and many others about the dynamics going forward as we get closer to kind of frictional vacancy. We see that as a very positive outcome for free cash flow for our business. The extent, you know, if you think about where our credit quality is, and obviously in our guidance, we've got into a lower credit loss this year versus the previous years. And a lot of that's due to the better credit quality and merchandise mix in the portfolio. So as that merchandise mix has improved, as the bankruptcy risk has been reduced in the InvenTrust Properties Corp. portfolio, we expect to, with the success that our retailers are having, we do expect renewals to be a bigger part of our business as we look forward. And what that means is growth with lower CapEx, to your point. So that 20%, which is inclusive of incremental redevelopment opportunities as well, but that 20% should continue to come down in the form of the two major categories being landlord work and tenant capital. So as we see that, we're really optimistic and excited about the ability to just have our current tenants be successful with us for the coming years and growing free cash flow without spending as much capital as we have in the past. We're trying to grow occupancy and fill backfill spaces that perhaps were bankrupt. Linda Tsai: Thank you, and good luck. Operator: Thank you. Our next question comes from Cooper Clark from Wells Fargo. Cooper Clark: Great. Thanks for taking the question. I wanted to ask about the $300 million net acquisitions guide. Curious if you could speak to the acquisition pipeline as it stands today in terms of volume and pricing. Curious how much of the acquisition volume within guidance is either under contract or deals where you have some certainty of closing as opposed to more speculative acquisitions? DJ Busch: Yeah. No. Good question, Cooper. Thanks. And so what I would say is, you know, as we do every year, we come into the year, we look at our pipeline, we evaluate the current opportunity set, and we try to provide a guidepost or a benchmark of what we're trying to accomplish this year. I think with the $300 million net investment activity, what we really are trying to show is that we're expecting to continue to grow our business, leverage our platform, and use the balance sheet, which we haven't done in a material way in the past, while still managing at a very low leverage level. Directly to your point, almost half of that $300 million has either been ordered or is under contract. We expect to close probably in the early part of this year. So we have really good visibility on about half, just under half of that $300 million. As we look further into the pipeline, there's a lot of exciting opportunities. It's still a very competitive market, but we've continued to find assets and opportunities that fit our criteria, which is a going-in yield, you know, in the high fives, low sixes, with great growth that supplements or complements, I should say, the portfolio quite well, and getting into the unlevered returns kind of in that low to mid-sevens range. And that's what we continue to see. You're going to, you know, as Christy alluded to in her prepared remarks, Phoenix, the Carolinas, smaller secondary markets that are very complementary to our portfolio, all being in Sunbelt, where we're seeing demographic trends that are still very favorable relative to elsewhere in the country. You're going to see a lot of the same. So if you look at the 10 assets that we acquired in 2025, you should see a very similar kind of opportunity set as we move through 2026. Cooper Clark: Great. And then just switching to the disposition cadence. Just curious how we should think about dispositions this year within the context of your last property in California and then potentially recycling out of some other lower growth assets? DJ Busch: Yeah. That's a good question. So last year was unique, right, with the California opportunity. That was something where we saw an opportunity to recycle capital in a creative manner, and we decided to jump on that. Obviously, the success of California front-loaded our acquisitions in 2025. That's not the strategy for 2026. What you should see is we will kind of pull forward and push back dispositions as it relates to the opportunities that we're seeing in our acquisition pipeline. With the exception of California, obviously, we have one asset in California that we've had an identified buyer for for quite some time. We're just going through some administrative and environmental stuff that is unique to California, and we do expect to close that in 2026. Beyond the last California asset that we have, the dispositions will be a source of capital once acquisition opportunities are identified. Cooper Clark: Great. Thank you. Operator: Thank you. Our next question is from Michael Gorman from BTIG. Your line is now open. Please go ahead. Michael Gorman: Yeah. Thanks. Good morning. Mike, if we could just go back to the same store for a second. I apologize if I missed it. But did you mention on the revenue side, any potential impact from the signed to not open pipeline the 2026 growth? And then maybe on the expense side, are there any same store expense headwinds just from some of the weather that we saw go through the Southeast earlier this year? Mike Phillips: Yeah. I'll start with that part, Mike. So nothing material on any of the weather events that happened in the South and Southeast. We're seeing in our portfolio right now. As far as signed not open, I don't think I mentioned it. We have about 2% of ABR, just $5.5 million. We do expect that mostly small shops. So it's like 80% of that is small shops. So we expect most of that to come online this year, about 95%. I think, importantly, of that 95%, about 50% of that will actually be revenue recognized this year. Michael Gorman: Okay. Great. That's helpful. And then maybe switching back to the transaction side. For the Fort Myers acquisition, I'm curious. It's an interesting asset. Obviously, it's grocery-anchored, but then a lot of very recognizable high-end discretionary brands. I'm just wondering maybe how that impacted the competitive set for an asset like that and then also how the assumable financing played a role in how competitive it got for an asset like that and maybe how that translates into other opportunities that you're seeing where it's assumable financing versus not and where you feel your advantage is in the transactions market there. DJ Busch: Thanks. And, Michael, no. I'm happy to take that. You know, Daniels was something that we identified and were excited about. Obviously, we have one other or another asset, and it's a market that we're trying to grow in as well. West Florida is something that has been of interest to InvenTrust Properties Corp. As you mentioned, it is grocery-anchored, but there is, dare I say, a little bit of a lifestyle component with some of the merchandise mix there. It's a great complement to our portfolio. You know, if you think about the construct of the InvenTrust Properties Corp. portfolio, about two-thirds of it is kind of right down the fairways. Grocery-anchored neighborhood types of centers that are going to be very stable growth, albeit maybe a little bit lower because there's a bigger percentage of the income coming from the grocer itself. And then the other third is it can be, you know, bigger box, lifestyle center, unanchored. So what we've built here is a portfolio that has kind of graphs from all different pieces of the open-air shopping center segment. All have different somewhat characteristics and growth profiles. But it fits really well, you know, when you blend it all together. So we'll continue to look at assets like Daniel's. But what you'll see as you know, we move in 2026, you'll see some of those neighborhood core grocery food centers as well. Oh, and let me address from a financing standpoint, we don't let that really change the way we underwrite properties. We look at it as if we look at it on an unlevered basis. We want to make sure that we're getting to the types of returns that make sense for the portfolio and the growth profile that makes for the portfolio. Having said that, with the competition, you will see some of these ones that have assumable financing get more competitive than others. That necessarily wasn't the case for Daniel's because we were able to get comfortable with the returns that were on the road, and we're excited about the opportunities that we're already seeing there. Michael Gorman: That's helpful. Thanks. And I have to agree. Was up by the Daniel's Marketplace about a week ago, and it's a great asset and a great location on a great corner. So congrats on that one. Thanks for the time. Operator: Thank you. Our next question comes from Hong Zhang from JPMorgan. Hong Zhang: Yeah. Hey. I guess, if I look at your redevelopment pipeline, the majority of your projects are expected to complete in the first half of the year. How should we think about your activating future projects in the pipeline in the near term, especially as it relates to Gateway Market Center, which I think is a chunkier asset? DJ Busch: Yeah. So like I mentioned in the prepared remarks, you know, the reason all the pipeline is interesting is, you know, it's really just reinvesting in our centers and improving the merchandise mix. You know? And like I said, you know, some of that will be added to GLA, but a lot of it's not. You know, one of the things that has been the most important tailwind in our business over the past couple of years, which has allowed us to grow same store by 5% the last two years and 4% over 4% for the five previous years, is the scarcity of quality space. And having that leverage is really what's been driving the growth across the shopping center sector, but certainly for the higher quality portfolios in markets where, you know, there's been really good demographic trends. As it relates to Gateway, that's one of the larger opportunities for us. And it's really going to be, you know, the relocation and remodeling of a high-quality Southeastern grocer and reimagining the center for the long term. So what we're going to do there is just fortify that asset for the many years to come. And those are the types of opportunities that we, you know, we're patient, and that one will probably start later this year, but it's going to take a while to stabilize. But once it does, it'll be an asset that, you know, will serve that submarket at Saint Petersburg, you know, for decades to come. Hong Zhang: Got it. Thank you. Operator: Thank you. Our next question comes from Paulina Rojas Schmidt from Green Street. Your line is now open. Please go ahead. Paulina Rojas Schmidt: Good morning. Most peers have highlighted a very competitive market. Do you think pricing has shifted over the past three months? Or has the level of competitiveness largely remained consistent? DJ Busch: I would say it feels consistent, and it really depends on what comes to market. And I think last year, we were very fortunate with some of the opportunities that we were able to run down, whether it be on market or off market. Would expect 2026 to be similar. But I will say it's hard to pay whether, you know, at the 30,000-foot level of pricing has moved in a material way. The competition is still very strong. We're seeing it across different the different kind of asset types that we or property types, I should say, that we've been looking at. Fortunately, we've had some repeat with the same sellers in some cases and off-market opportunities, which will continue to bet those huge those tend to take a little bit longer. But I will say, we always feel when we kind of do a postmortem on the assets that we have bought over the last couple of years, we always feel better six months later. So that's an indication of feeling that we got in at the right time. I think that would suggest that competition is going to continue to be there, perhaps pricing is going to continue to remain pretty sticky in our space. And there is private capital formations, as I know many of our peers have talked about, that's a real thing. Many of those folks are, whether they're looking for platforms or single assets, you know, there's a lot of excitement and rotation of capital. I think they could be coming in retail, which should benefit us longer term from a valuation perspective. Paulina Rojas Schmidt: Thank you. And my other question is, I feel like we have gotten used to rates bidding and raising guidance. Given the background has been so positive, what would take for you to exceed your high end of same property NOI guidance? DJ Busch: Well, yeah, it's a great question. And, you know, look, I think one of the things that we tried to do at the beginning of the year is we want to be, you know, we're we set guidance to make sure that we're setting expectations appropriately. The reality is, and I think I speak probably for most of the shopping center REITs in the sector, is that bad debt is surprised, you know, in a material way to, I guess, downside less credit loss. And it's hard to come to any given year and say, look, we're not going to have any credit loss. But that's almost been the case when you offset it with, you know, some of the cash receivables that you get tenants that you don't expect to pay you. And that's been the case for the last couple of years. It's hard to start at the beginning of the year and say that that's going to be continuous. I think most of us, including InvenTrust Properties Corp., expect there to be a more normalized level of credit loss because that's just the normal nature of our business. It just hasn't been the case. But as you saw in our guidance, we do we have reduced our credit loss because of the underlying quality of the merchandise mix and how that's improved over the last couple of years. And the fact that we're going into this year with no real foreseeable imminent anchor issues, at least in the InvenTrust Properties Corp. portfolio. So that gives us confidence that we the confidence that we needed to bring in that credit loss and loan in is reflected obviously, you know, that 50 basis points is reflective of the midpoint of our same store guide. To go through the high end, it's very simple. Can we get things open and red paint earlier? And is credit loss going to stay immaterial? Paulina Rojas Schmidt: That makes sense. Thank you. Operator: Thank you. Our next question comes from Floris van Dijkum from Ladenburg. Your line is now open. Please go ahead. Floris van Dijkum: Hey. Thanks, guys. People can't get my name right, but that's okay. I'm used to it by now. I had a question, DJ. You know, more philosophical. I mean, look. By the way, so, you know, I don't know if you if you think back on your time when you started here, that you would have gotten the company in the shape that's in right now, like, you know, kudos, for, you know, for spearheading that. So as you think about your market penetration and your market exposures, how should how do you think about that? Do you think about, you know, market size in terms of ABR or in terms of number of properties or percentage of NOI or ABR, and where do you see smaller markets like Phoenix, which I guess you just bought an asset in Mesa, you know, where is that going to grow just like what you've done with Charleston and some of the other newer markets in your portfolio? DJ Busch: Hey, Floris. It's a great question, and thank you for those comments. Let me start there. I think when we started when I started here in 2019 and more importantly, when we listed the company in 2021, the company was in great shape, but, you know, I would I'd be lying by saying I didn't think that this platform could get to where it is today, and I'm more excited about where we're going. And it really is, I think, one of the things that is underappreciated will continue to prove to our investor base and our tenants is the quality people and the platform at InvenTrust Properties Corp. It really is something special, and we want to continue to that year in, year out by growing cash flow and serving the communities the way we have been, and we will continue to commit to do so. As it relates to the portfolio, I think like I mentioned earlier, we love the opportunity set that we see across Sunbelt even though the market is competitive. That's okay. We've been used to finding opportunities that fit our criteria in a competitive environment. You know, I would say, Phoenix, it's a yeah. Obviously, it's a larger market. So when we think about that, you know, we don't mind growing continuing to grow Phoenix. And then using places like Tucson or perhaps Flagstaff as, you know, satellites, you know, maybe having one or two assets in those smaller markets and operating out of a large market like Phoenix. It's really that hub and spoke strategy that you see us do in Charlotte with Asheville. And with Charleston and Savannah. Those are the types of things where we can operate at a very efficient level, and we don't mind going into some of those smaller complementary markets that have, by the way, really strong growth characteristics based on some of the migration trends just at the state level. As long as we're buying one of the higher quality or the highest quality grocery or, you know, essential services types of center in those markets. And I think that that's what you'll continue to see from us as we look for new markets, as we look to further invest in some of our current markets. And then looking for those kind of spokes that spoke strategy as an offshoot to some of those markets where we already have pretty good concentration and exposure. Floris van Dijkum: Thanks. Maybe if I can add a follow-up by the way, I like your disclosure on your splitting out your anchor and your small shop tenants. Your lease economics and your spreads, etcetera. It gets me to think that, you know, your leasing spreads on your shop tenants are equal to your anchor tenants, despite the fact you're probably getting significantly higher fixed rent bumps during the period of the lease as well, highlighting the attractiveness of this particular segment. As you think about unanchored, I know you talked a lot a little bit about, you know, acquisitions with grocery anchored. There's a peer of yours that's pursuing this unanchored strategy. I think you have a couple of those kinds of centers in your portfolio. What are your thoughts on that? And maybe leading into your into shop heavy assets in your existing markets? DJ Busch: Floris, it's a great question, and it's always been a really interesting conversation and debate because on one hand, getting income through anchors or even, like, we have about, you know, call it 10 to 11% of ground lease income that comes predominantly from anchors. On a ground lease. That income is so sticky. But to your point, it is more. But in certain parts of the cycle, it's nice to be on anchor rents because, you know, they are the highest credit and the most resilient in the different parts of the real estate cycle. Having said that, you know, to your point, we do have a couple shadowing centers, and I think that's a strategy that works as well. I think one of the things that's most important to us is understanding the ownership structure of the anchor itself. We have no issue or very little issue with anchors that are owned by the operator. So if a grocer owns its own real estate, that's completely fine. A lot of the control dynamics of the center itself are very similar to whether they lease or own the space from us anyway. So it doesn't really change the conversation from a leasing dynamic or our ability to operate the property. It's very similar to what you're just getting. You're getting income or you're not. So we do look at continued shadow opportunities as long as we're comfortable with the infrastructure and the like. So I think I know who you're speaking of. I think that's a sound strategy. It can help from a growth perspective, but it does come with a little bit more volatility because you're not sitting on that anchor income. Floris van Dijkum: So I take that. That would mean that you're not pursuing an unanchored unless it's a shadow anchored grocer or something like that. DJ Busch: No. No. That's not necessarily true. We have done some unanchored acquisitions. They tend to be more unanchored, like, smaller lifestyle, if you will, as opposed to let's call it, you know, 10 to 15,000 square foot strip unanchored retail. Those things tend to be competitive. They're smaller dollar types of acquisitions, so there is a lot of competition in that market. But if we found one, especially one that was complementary to something that we already own, perhaps across the street or something like that, that's something that would be very interesting to us. So the one thing that we love about, you know, the canvas of opportunities that we have in our acquisition pipeline is it kind of runs the gamut from larger scale big box down to unanchored strip and everything in between. The most important thing is it meets the market criteria that has proven to be successful in our portfolio. Floris van Dijkum: DJ. Thank you. Operator: We currently have no further questions, so I'll hand back over to DJ Busch for closing remarks. DJ Busch: Thank you, everyone, for your participation and your questions. We look forward to seeing many of you in, I guess, the several conferences that are coming up in the next couple of months. So until then, have a great day. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Operator: Greetings, and welcome to The Chefs' Warehouse Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead. Alex Aldous: Thank you, Operator. Good morning, everyone. With me on today's call are Christopher Pappas, Founder, Chairman, and CEO, and James Leddy, our CFO. By now, you should have access to our fourth quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout the conference call, we will be presenting non-GAAP financial measures including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales, and as a percentage of gross profit, net debt, net debt leverage, and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and fourth quarter 2025 earnings presentation. Before we begin our formal remarks, I need to remind everyone part of our discussion today will include forward-looking statements including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance. And therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-Ks and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our fourth quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs' Warehouse website under the Investor Relations section titled Fourth Quarter 2025 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Christopher Pappas. Chris? Christopher Pappas: Thank you, Alex, and thank you all for joining our fourth quarter 2025 earnings call. Business activity and demand remained consistently strong through the fourth quarter amidst a healthy environment for our core upscale casual to higher-end dining customer base. Our teams across domestic and international markets provided excellent product and service amidst a busy holiday season. During the quarter, we continued growing market share, closing the year with strong year-over-year organic volume growth, unique item placements, and new customer acquisition. I'd like to thank the entire Chefs' Warehouse team for their dedication and commitment in delivering a strong 2025 for our team members, our customers, supplier partners, and our shareholders. As a reminder, earlier in 2025, we eliminated two non-core programs in Texas that came with the acquisition of Hardee's in 2023. These programs, one protein program focused on high volume, low dollar poultry and another a produce processing and packaging program, together only represented approximately 1% of our full-year revenue. As such, until we lap this attrition in 2026, we will present price and volume metrics as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume changes for our business overall. With that, please refer to slide three of the presentation. A few highlights from the fourth quarter include organic net sales grew 9.7%, organic specialty sales were up 6.4% over the prior year which was driven primarily by unique placement growth of 4.2%, reported specialty case growth of 3.3%, and price inflation. Excluding the elimination of the Texas produce process and packaging program, specialty case growth was 5.4% up versus the prior year quarter. Unique customers grew 1.2% year over year. Reported unique customer growth was impacted by the Texas commodity poultry attrition. Excluding this impact, fourth quarter year-over-year unique customer growth was approximately 3.5%. Pounds in the center of the plate were approximately 2.4% lower than the prior year fourth quarter. Excluding the attrition related to the Texas commodity poultry program, center of the plate pounds growth was 7.5% higher than the prior year fourth quarter. Gross profit margins decreased approximately eight basis points. Gross margin in the specialty category increased approximately 45 basis points as compared to 2024 while gross margin in the center of the plate category decreased approximately 50 basis points year over year. Jim will provide more detail on gross profit and margins in a few moments. Now please refer to Slide four for an update on certain of our operating metric improvements. Chart one shows continued improvement in gross profit dollars per route. Fourth quarter 2025 trailing twelve months was 6.2% higher than full year 2024 and 7.4% higher than 2023. Chart two shows fourth quarter 2025 trailing twelve months adjusted EBITDA per employee increased 13% versus full year 2024 and 27% versus 2023. Fourth quarter 2025 trailing twelve months adjusted operating expenses as a percentage of gross profit dollars improved 176 basis points versus full year 2024 and 200 basis points better versus 2023. Before I turn it over to Jim, I'd like to highlight some of the accomplishments our teams across all divisions of The Chefs' Warehouse delivered in 2025. They delivered 9.1% full-year organic revenue growth exceeding $4 billion in revenue for the first time in our history. Approximately 18% increase in adjusted EBITDA growth. Adjusted EBITDA margin of 6.2% and adjusted EPS growth of 29% versus 2024. Strong free cash flow generation. Providing for continued investment in regional growth with the acquisition of Italco Specialty Foods in Colorado. We continued investment in distribution center capacity expansion and facility consolidation. Strengthening our balance sheet with net debt to adjusted EBITDA approaching two times leverage. And the return of cash to shareholders via our share buyback program. Once again, I thank all of our teams across The Chefs' Warehouse for their continued investment in talent, technology, category growth, and operational efficiency. All these areas and many more allow our businesses to continue to provide our growing customer base with the highest quality product and service, supplier partners with market share expansion, and our team members with opportunities for career enhancement. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim? James Leddy: Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to slide five. Our net sales for the quarter ended 12/26/2025 increased 10.5% to $1.143 billion from $1.034 billion in 2024. The growth in net sales was a result of an increase in organic sales of approximately 9.7%, as well as the contribution of sales from acquisitions, which added approximately 0.8% to sales growth for the quarter. Net inflation was 8.3% in the fourth quarter, consisting of 3.4% inflation in our specialty category and 16.1% inflation on our center of plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the fourth quarter versus the prior year quarter. Center of the plate inflation was impacted by the commodity poultry program attrition in 2025. Excluding this attrition impact, net inflation in the center of the plate was 9.5% versus the reported 16.1%. Continued growth in specialty cross-sell as we further integrate CW and Hardee's causes elevated reported specialty inflation for the fourth quarter. Excluding this impact, specialty inflation was approximately 0.8% and overall inflation for the company was approximately 4.3% versus the prior year quarter. Gross profit increased 10.2% to $276.6 million for 2025, versus $251 million for 2024. Gross profit margins decreased approximately eight basis points to 24.2%. Selling, general, and administrative expenses increased approximately 8.9% to $225.2 million for 2025 from $206.8 million for 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments, and higher self-insurance related costs. Adjusted operating expenses increased 7.4% versus the prior year fourth quarter and as a percentage of net sales, adjusted operating expenses were 17.2% for 2025. Operating income for 2025 was $43 million compared to $46.5 million for 2024. The decrease in operating income was driven primarily by a $10.5 million increase in other operating expenses, which reflects an impairment charge on a non-core customer relationship intangible asset of $8 million partially offset by higher gross profit versus the prior year quarter. Our GAAP net income was $21.7 million or $0.50 per diluted share for 2025 compared to net income of $23.9 million or $0.55 per diluted share for 2024. On a non-GAAP basis, we had adjusted EBITDA of $80.3 million for 2025 compared to $68.2 million for the prior year fourth quarter. Adjusted net income was $29.9 million or $0.68 per diluted share for 2025 compared to $23.9 million or $0.55 per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide six. At the end of the fourth quarter, we had total liquidity of $280.5 million comprised of $121 million in cash and $159.5 million of availability under our ABL facility. Subsequent to the close of 2025, on January 20, 2026, we completed the repricing of our term loan maturing in 2029. The fixed spread above SOFR was reduced from 3% to 2.5%. As of 12/26/2025, total net debt was approximately $529.5 million inclusive of all cash and cash equivalents and net debt to adjusted EBITDA was approximately 2.1 times. Turning to our full-year guidance for 2026, based on current trends in the business, we are providing the full financial guidance as follows. We estimate that net sales for the full year of 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion, and adjusted EBITDA to be between $276 million and $286 million. Please note for the full year of 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares. Thank you. At this point, we'll open up to questions. Operator? Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press 1 on your telephone keypad at this time. You may press 2 if you would like to remove your question from the queue. 1 to register a question at this time. Our first question is coming from Mark Carden of UBS. Please go ahead. Mark Carden: Hi, this is Matt Rothway on for Mark Carden. Thank you for taking our questions. So with the extreme winter weather that we saw in January and early February, how have your year-to-date sales tracked versus your expectations? Christopher Pappas: Thanks for the question. January was obviously, January is seasonally the slowest or weakest month of the year in the industry. But our January was actually very, very good, very strong. The storm impacted February and it'll be a temporary impact. It really impacted that one week. And February bounced back really nicely. Mark Carden: Great. Thank you. And then as the follow-up, at the midpoint of your guidance, it implies a flat gross margin for the year. And some healthy operating expense leverage. Can you talk about some of the drivers of that operating expense leverage? Christopher Pappas: Yeah. You know, if you look at us, we tend to keep gross profit margin fairly flattish when we guide forward versus the prior quarter or the prior year. Because product mix and changes in the category growth at different products through our markets that have various levels of maturity always tend to move margin around. So we will, you know, basically, we're focused on growing gross profit dollars higher than our adjusted OpEx year over year and ideally quarter over quarter and month over month. So that's really the only reason. The range reflects, you know, various levels of volume, product mix changes, and market factors that could change gross profit margin through the year, but we still expect to generate pretty good operating leverage. Mark Carden: Great. Thank you. Christopher Pappas: Thank you. Operator: Thank you. The next question is coming from Alex Slagle of Jefferies. Please go ahead. Alex Slagle: Thanks. Good morning. Christopher Pappas: Morning. Alex Slagle: Congrats on 2025. It's certainly a year of uncertainties with the tariffs and commodity volatility shopping consumer. So I guess just stepping back as you look ahead, I mean, what do you think are gonna be some of the bigger challenges or uncertainties to overcome in 2026 if you had to sort of rank what keeps you up at night or might impact your business more than others? Christopher Pappas: Yeah. Well, I mean, besides the storm that hit us, what we saw, as Jim said, you know, we had a really strong January, and you know, besides the storm, the next follow after the storm, February was really strong. So I mean, we're seeing our customers doing really well. You know, the continued growth, you know, the numbers we saw from hotels coming out, you know, strong bookings. They had a good season. So as always, Alex, I mean, we're cautiously optimistic. I mean, you know, after COVID, you know, nothing seems like, you know, an insurmountable headwind to deal with. So, you know, some inflation, deflation, some, you know, tariff noise. You know, our folks again is, you know, upscale casual to, you know, the finest dining in the world. You know, from our collection of customer base, you know? So we're so diversified now that I think we have a really good balance, you know, to, you know, to have, you know, more and more customers and we're cautiously optimistic. You know? I mean, the little tariff noise, a little of this, you know, our diversified portfolio, you know, thousands of suppliers from over 45 countries. I think gives us a really good base that at least we sleep with one eye closed. So hopefully that answers your question. Alex Slagle: Yep. Got it. As a follow-up, wonder if you could talk about capital allocation priorities kind of buyback to bid pretty measured, and the debt leverage now at the lower end of your target range, looks like another strong year of free cash flow generation that you're looking for. Just how much are you focused on, like, keeping dry powder for potential acquisitions? Or you know, what's the thought process heading into '26? James Leddy: Alex, I think you put it really nicely. All of the above. I think, you know, we definitely wanna keep dry powder to take advantage of some acquired growth that could be accretive and strategic. We definitely wanna continue to strengthen the balance sheet gradually. And we expect to continue to return some cash to shareholders opportunistically. We don't have a scheduled program in place or an ASR or anything like that. So we do it, you know, when we can and when the market provides a good opportunity to. So I just think we're gonna continue on the path that we've been for right now until something would change that. Alex Slagle: Okay. Thanks for the color. Christopher Pappas: Thank you. Operator: Thank you. The next question is coming from Brian Harbour of Morgan Stanley. Brian Harbour: Thanks. Morning, guys. Maybe just on that point quickly, Jim. I mean, you are down to two times levered. Do you think that or I guess, you know, within your guidance, do you think that there would be more buyback this year, for example? James Leddy: Yeah. I mean, there definitely could be. But once again, we look at it opportunistically. We take a look at what's the return estimate on share buyback versus doing an acquisition that, you know, has presented itself and could be a possibility versus continuing to delever. And as we delever, we put us in an even better position to take advantage of market opportunities. So I think, you know, I don't think we're gonna send a message today that we're gonna drastically increase our buyback. We do have to get the renewal of our program in place. And we'll do that, at our board meeting, coming up. We expect to. So, yeah, more to come on that. Brian Harbour: Okay. And, as you, you know, think about your guidance for this year, I guess, is there any, you know, notable shape you'd call out to kind of the sales growth cadence or the margin cadence? I know you'll, you know, lap some of those business exits in 2Q. Could you sort of just talk about how you've kind of thought about that? Also maybe how inflation factors into that if you expect that to be sort of steady through the year or fading perhaps? James Leddy: Yeah. Yeah. Thanks for the question. No. I think the guidance is pretty consistent with what we've done historically. You know, we tend to, I think, be a little conservative. You know, we're coming off a very strong 2025. I think we feel pretty good about '26. But, you know, the guidance implies, you know, year-over-year revenue growth of between six to 8%. That's the higher end and even a little bit higher than our long-term algorithm that we put out to 2028. Obviously, we had, you know, higher growth in '25, but, you know, we tend to add a little bit of risk adjustment. We just think that that's prudent. In terms of inflation, we assume, you know, kind of a normal level of, you know, kind of call it two to 4% and the remainder, you know, being product mix changes and volume growth. And we'll adapt and adjust that as we pace through the year. But, you know, being just through 2026, we tend to not adjust the guidance significantly. Operator: Thank you. The next question is coming from Peter Saleh of BTIG. Peter Saleh: Great. Thanks and congrats on a great quarter. I was hoping you guys could comment a little bit on any regional variances and performance that you're seeing, any notable call outs particularly in, you know, your large growth markets, you know, California, Texas, Florida, anything to note there? Christopher Pappas: Yeah. It's, you know, Peter, I really don't have any bad news. I mean, it was a great quarter. The team did a great job. You know, they're really focused. Again, you know, we've built some new facilities, and we're getting great returns on them. We continue to hire more and more salespeople, you know, in those markets that we see a lot of growth opportunity. We continue to hire into our digital team, right, to reinforce, you know, our presence online where a lot of our customers are going and more and more orders are coming through and we're able to communicate with the customer between our outside sales force, our inside sales support, and our digital presence. I think you see that, you know, our strategy is working. Right? We're able to sell more items to more customers. That's our job. And as we get better and better, you know, I call it a family of companies from our protein division to our fresh produce division to our specialty. It's all working, you know, I think, as planned. And, you know, the goal for 2026 is to keep getting better and better at that and to keep increasing our share of wallet. And keep taking market share and winning, you know, new customer openings. And expanding our territory. So, it's a playbook that, you know, we put in place. As we continue to get more and more synergies, you know, more products on the same trucks, I think you're seeing the results. Peter Saleh: Great. And anything you can comment on the Middle East business? I know that business has been rather strong past, you know, several quarters, year or so. Any update you can provide on that trajectory as well? Christopher Pappas: Yeah. So, again, we've made large investments there. We've had a lot of the CapEx cost from last year, you know, is done. And the business continues to perform. We think the region will continue to grow. You know? I actually just did a trip out there and was very pleased with what I saw. You know, strong management team. Continue to expand the sales force. And, we see a very, very long road of positive growth. So it's an exciting territory for us. Peter Saleh: Thank you very much. Christopher Pappas: Thanks, Pete. Operator: Thank you. The next question is coming from Margaret-May Binshtok of Wolfe Research. Margaret-May Binshtok: Hey, guys. Thanks for taking my question. I just wanted to ask, I know you guys have talked a little bit about AI deployment with the opportunities for dynamic pricing, some customer behavior analysis. I just wanna know going into '26, how do you expect, I guess, the ramp of some of these potential initiatives? And, I guess, like, what inning are we in in terms of, you know, realizing some of the benefits here? Christopher Pappas: Yeah. And, you know, you know, that's a great question. And, you know, we've used AI. We used to just not call it AI. So we've had a lot of, you know, focus on improving, you know, the insights into our customer behavior. And, you know, the way we look at all our business and, you know, continue to improve our functions and our capabilities and efficiencies. So it's, I think it's ingrained now into our daily lives. You know, those departments, you know, report in and we continue to measure, you know, the information we get. You know, sometimes it's overload. You know, at the end of the day, we can only, you know, look at a customer and speak to a customer so much. You know? I think they have the same tools now looking at their business, but it's, I would say, what inning are we in? I think we're always back at inning one. You know, because the technology just continues to evolve. You know? It's how do we use the information, and at a certain point, it's, you know, my speech is to when I'm addressing our sales teams is you have the information. Use the technology. It's improving your life. Your quality of life too. It's doing a lot of the work that you used to have to spend hours and hours, you know, doing your own summary reports and research. And utilize that time to go see more customers and sell more items. And I don't think that's ever gonna change. Margaret-May Binshtok: Awesome. Thanks, Chris. And just a follow-up. Jim, I think previously, you had kinda described the M&A environment as being frothy. I just wanted to know heading into 2026, would you say you have, like, a similar comment? James Leddy: I don't think anything's changed in terms of the market or outlook on M&A. As Chris often says, he has a pile of opportunities on his desk really consistently. We're just being very, you know, cautious and looking for the right opportunities. I know, Chris, there's anything you wanna add around M&A. Christopher Pappas: Yeah. You know, I mean, we're in such a great spot right now that, you know, we've done so much M&A. And, you know, when your organic growth, you know, can be, you know, my goal is always to try to hit 10%. You know, things have to make a lot more sense now than when we were trying to grab new territory or build categories. So cautiously optimistic that, you know, we will get some really good M&A deals that are synergistic and give us something that we're missing or enhance the territory. You know, always say that a good fold-in, I would do it every week because they're low risk and they just supercharge our organic growth in most cases. So we're constantly looking and constantly speaking to a lot of people that, I am sure there'll be some really good M&A, but I really love where we're sitting right now. And, it has to be something that makes great sense. So, you know, we continue to talk, and I think there'll be some good deals done. But right now, we're really happy where we sit. Margaret-May Binshtok: Thanks, guys. James Leddy: Thank you. Operator: The next question is coming from Kelly Bania of BMO Capital Markets. Please go ahead. Kelly Bania: Hi. Good morning, and congrats also on a strong year and a strong finish to the year. Was curious as you kind of think about your 2026 guidance outlook, just how much new market investment is built into there? And maybe you can just kind of fold in with that just an update on Italco and if Denver is, you know, in a market that is going to, you know, get some more investment or what are the priority investment regions for this coming year? Christopher Pappas: Yes. Well, thanks, Kelly. Obviously, we've made a lot of investments in a lot of territories, from The Middle East to California, to Portland, Oregon to Florida. So we're expecting to continue to get an ROI on all those investments, and we are. You know? The team is doing an unbelievable job and, you know, you're seeing the results. You know, Colorado is a long-term investment. You know, we're getting ready to move that business into a much bigger facility and really, you know, go after that market. So, we're really excited about that, but, you know, we're in the really early innings. You know? I would say Texas is the investments that we're continuing to make. You know, we have to synergize a lot of those businesses. You know, we have multiple warehouses and we're probably in the second inning of that business. It continues to grow, continues to do well. It continues to be profitable. So I think that's a big, big opportunity. You know, as we continue to chefesize, you know, the businesses that we bought in Texas. But, you know, what's driving, you know, what's driving a lot of the, you know, positive momentum that you're seeing is, you know, is Florida. Is New York, it's California, you know? Chicago's doing really well. So we really don't have any, you know, too many, you know, spots that we're, you know, at that beginning where we're just getting our arms around it. We still have to synergize New England. We have to synergize what we do in the Mid-Atlantic. And we're looking at even New York where, like, you know, so successful. How do we double that? Right? So I think we continue to invest in all our businesses, and what we're seeing now is, you know, the opportunities yet. We still have to go into the South. Right? We're small in Tennessee. Tiny in The Carolinas. Connect the dots from Florida all the way up to Virginia. You know, to make sure that, you know, we are able to service all our customers who are growing nationally. And look for opportunities overseas. We see the success we have in The Middle East, and we think that, you know, we can have success. We think the chef model works in more and more places. So we're, you know, keeping our eyes open and the phone lines going. Kelly Bania: Thank you. That's helpful. And just in terms of the Salesforce, are you able to share just a figure on what you're targeting for headcount? Or maybe you're not targeting. Maybe that's more kind of a bottoms-up culmination of the different markets. But just kind of wondering how that looks in '26 versus '25? Christopher Pappas: I think the strategy is the same. If you find really, really good people, hire them. You know? It's a, you know, they're hard to find, you know, and it takes time to develop somebody into someone that could sell the chef book. Right? You know, we're selling to the best chefs in the world. So you gotta be knowledgeable when you do go out or knowledgeable when you're on the phone, and that takes time. So, you know, job one is to make sure that, you know, great people stay. Often say that I think, you know, once you get past, you know, year two or three, a lot of people are here for, you know, I don't wanna say for the rest of their lives, but it's, you know, one of the best jobs you can get in the food industry. Right? You're talking to great chefs. You're around great ingredients. You're talking to great farmers. So, you know, people that enjoy that environment, it's a great place to be, and they rarely leave. So The Chefs' Warehouse is hiring. If we could find, you know, if you're great, we wanna hire you. So, we go as fast, you know, we're hiring as fast as possible. Kelly Bania: Thank you. Christopher Pappas: Thanks. Operator: Thank you. The next question is coming from Todd Brooks of Benchmark Stonix. Please go ahead. Todd Brooks: Hey, good morning, and I'll add my congratulations on a really great year. So thank you, sir. Couple questions. If I look at the kind of the KPI chart in the deck around the gross profit dollars per route and the adjusted EBITDA per employee. What strikes me as kind of the consistent improvement you've seen annually over the two-year basis that you present as you start to look forward are we far enough into the wave of some of the bigger facility consolidations that maybe should we be thinking about that same level of contribution from a gross profit per route standpoint? Or is that something that just moderates as some of these bigger investments in Southern California and Florida mature over time. And then the rate of average EBITDA per employee improvement, how much of that is facility related versus technology? Versus scale? James Leddy: It's a good question, Todd. It's a powerful. Yeah. But I think I'll let Chris, you know, add. I'll just say that in terms of the go forward, it's really gonna align with our execution against our guidance. If we continue to execute, you know, with operating leverage of, you know, 150 to 200 basis points, a year, kind of in the range that we delivered the last two years. You know, then you'll continue to see those metrics improve. I think Chris mentioned we're in the early innings in terms of a lot of the investments that we made in facility expansion, facility consolidations, most of those are in the last two years. As we came out of COVID and we started to leverage those. So I think we're in the early innings. We're gonna continue to improve on those metrics. We still have some more, gonna consolidate our specialty facilities in Portland this year. We'll be working on the expansion of our Las Vegas Processing Center. We're expanding freezers in a number of markets. So we're continuing to, you know, Chris talked about Denver. And what we have to do in some of the other markets like New England. So we're gonna continue to have a moderate pace of investments that involve not only route consolidation, facility consolidations, as well as expansion for growth. So I think those metrics will continue to improve. Christopher Pappas: Yeah. I don't think there's a ceiling, Todd, you know, to, you know, how much better we can get and how much more to the bottom line, you know, percentage-wise we can deliver. I think we're realizing, you know, when we went public, in 2011, we had a mountain to climb. Right? You know, trying to open up new facilities, buy companies, put technology in, you know, we had tremendous headwind, you know, in trying to deliver on the numbers, I think, and the expectations. But, you know, we stayed true to our strategy and the course. In the belief that, you know, what we do and, you know, building moats around our model at a certain point, we would start to get that leverage. And I think, we're starting to see, you know, we're delivering on our expectations that incrementally we would get better year in. You know, and keep, you know, that EBITDA margin would continue to improve. You know? So, obviously, we wanna be competitive. We don't wanna slow growth down by pushing it, you know, too high. You know, we're really comfortable where we are right now, but we still have a good road of synergistic improvement as, you know, we consolidate facilities as, you know, we consolidate Salesforce. You know, more and more, you know, technology goes in and gives us that, that efficiency, right, to scale more efficiently. So, we're really excited about the possibilities of how much better we can get. Todd Brooks: That's great. Thank you both. And then just one more quick one, and I'll hop back in queue. You're talking to your customers, Chris, are you seeing it seems like the consumer and it feels maybe beyond fattish at this point. There's focus around protein consumption and the whole kind of food pyramid and how people are eating. Are you seeing menus change? Or I'm just trying to think within the concept of the center of the plate protein part of the business. Are menus maybe coming your way to kind of drive that piece of the business in '26 with more proteins focused on your client's menus? Thanks. Christopher Pappas: Yeah. I think the right way to look at it is, you know, you've had so many fads and so many, you know, it's always about, you know, how's the shot affecting the business, how is the, you know, you know, we went through that. Everybody was gonna become a vegan. Everyone's gluten-free. Everybody is, now high protein. What I think it's just normalizing. You know, you have great options now on most menus. If you're a vegetarian, you have great options. You don't have to go to a vegetarian restaurant. You know? I'm out just about every day. And if I don't really feel like eating a high animal fat protein dinner, there's great options on the menu. You know, to satisfy you. If you want a steak, most menus have a great steak or a great piece of fish or chicken. You know, we sell to great Indian type restaurants and great Asian type restaurants. So I think that, you know, chefs are very creative and restaurants are very entrepreneurial. And I think you're starting to see that blend in menus that can, you know, if you're a party of four, everybody can get what they want. And I think it's really evolved in a very positive way, and I think a lot of that the chef's warehouse, the way we go to market, and our portfolio of ingredients, and the way we, you know, come in with all our experts and that team sell, I'm very excited. You know, of what I'm seeing and, you know, the growth. And I think we, you know, can keep that up for many, many years. Todd Brooks: That's great. Thanks, Chris. Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Pappas for closing comments. Christopher Pappas: Sure. Well, we thank everybody for joining our first quarter call. Really proud of what our team was able to accomplish in '25 and in the fourth quarter. And, you know, besides, mother nature giving us some challenges, we are really excited about what we saw in January and continue to see in February. And I think our team is just doing an unbelievable job and we look forward to having a great year. And thank everybody for joining today's call, and look forward to our next call. Thank you. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time. And enjoy the rest of your day.
Operator: Hello and welcome to the Welltower Fourth Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Matt McQueen, Chief Legal Officer. You may begin. Matthew McQueen: Thank you, and good morning. A reminder, certain statements made during this call may be deemed forward-looking statements in the meaning of the Private Securities Litigation Reform Act. Although Welltower believes any forward-looking statements are based on reasonable assumptions, the company can give no assurances that its projected results will be attained. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. And with that, I'll hand the call over to Shankh for his remarks. Shankh Mitra: Thank you, Matt. And good morning, everyone. This morning, I'll provide some high-level thoughts on the business, our recent capital allocation priorities, and a recap of what proved to be a truly transformational year for our company. 2025 not only marked the ten-year anniversary of the refounding of our company by the current management, but also proved to be the most pivotal year in the company's history. We're pleased to have delivered 36% revenue growth, 32% EBITDA growth, and a 22% FFO per share growth, while deleveraging our balance sheet and investing significantly into our future systems and talent. We launched our private funds management business, overhauled our internal and external incentive structure, made substantial progress on Welltower Business System initiatives, and created our tech quad to take our technology journey to the next level. However, these exceptional achievements made across the business are frankly in the rearview mirror. Our focus is firmly and intensely on what comes next. What truly excites us is the deliberate actions we took in 2025, which we believe will meaningfully amplify the trajectory and duration of our long-term cash flow growth. These actions were part of a decade-long effort to transform our firm from a real estate deal shop when we arrived at the company to an operations and technology-first business, with the maniacal obsession of delighting residents and prioritizing site-level employee experience. There are very few businesses in which earning the trust of customers is more important than senior living. Each day, our team shows up with one question in mind: How do we support our best-in-class operators through the Welltower Business System to provide a killer value proposition to residents, their families, and site-level employees whom the residents rely on every day? As an operating company in a real estate wrapper, it is of utmost importance that we get this right. Only then do we have a shot at achieving our North Star: the long-term compounding of cash flow growth for our existing investors. Before providing some additional commentary on the events which led to this juncture, I'll quickly review our fourth-quarter results. In terms of our senior housing operating portfolio, we ended the strongest year in our company's history on a high note, reporting the thirteenth consecutive quarter in which same-store operating net operating income growth exceeded 20%. Our organic revenue growth continues to hover around 10%, driven by 400 basis points of year-over-year occupancy gains and healthy rate growth. And as Tim will outline for you shortly, we expect another year of strong occupancy upside in 2026 along with strong pricing power. Additionally, I would be remiss not to mention the continued outsized expansion in operating margins, increased by another 270 basis points in the fourth quarter. As John will describe to you shortly, we continue to see multiple opportunities to drive margins meaningfully higher in the coming years, including continued implementation of the Welltower Business System, our proprietary operator-tailored end-to-end operating platform. Looking to 2026 and beyond, against a macro and geopolitical backdrop fraught with uncertainty, the end market demand for our product is highly visible and only expected to improve as the 80-plus population continues its pace of rapid growth. And with new construction remaining at trough levels, and long-term interest rates and construction costs remaining stubbornly high, we continue to feel good about the supply side. While the demand-supply picture continues to improve each passing day, we're laser-focused on execution at the granular level alongside our operating partners with whom we stand shoulder to shoulder no matter what. Despite the true joy and satisfaction of helping residents to live well, the underlying business of senior living is a hard one. Needs are very different and nuanced from resident to resident. And our predecessor company, HCN, entered into equity ownership post-GFC from a historic lease or credit model without appreciating it was a completely different game. For the last decade, the current management team completely overhauled this organization, turned over two-thirds of our asset base and operators, 90% of the people, and transformed their contracts and so on and so forth. The transition has been and continues to be incredibly difficult. We built out a vertically integrated hardware plus software model to navigate this treacherous water. The hardware is our best-in-class real estate that we curated over the past decade. The software is comprised of the Welltower Business System, along with the execution of our best-in-class operating partner ecosystem. We see the light at the end of the tunnel, but we still have a long way to go even after almost two decades of accumulated battle scars and paying dumb taxes. This is not a complaint. The management team of this company, including yours truly, deliberately sought out this industry because it is a hard problem to solve. And our competition is forced to follow us in these difficult terrains. This vertically integrated software plus hardware model aims to reduce latency across the stack of decision-making and put network effects into operational execution. This directly feeds into our capital allocation flywheel, driving execution into high gear in 2025, which we are likely to observe again in 2026. We ultimately completed nearly $11 billion in net investment activity for the year, consisting primarily of high-growth senior housing properties across all our regions, which were funded in large part through the sale of our outpatient medical business for $7.2 billion. We thus far sold the first four tranches of the portfolio for $5.8 billion, significantly ahead of our prior expectations, with the remainder set to close in the first half of the year. And it's worth repeating that we were able to execute this massive capital rotation and shift in our long-term growth profile without incurring any near-term earnings dilution. Historically, in the corporate world, these types of mix shifts to higher growth businesses from lower growth ones almost invariably come with some degree of dilution, as lower growth businesses generally trade at lower multiples. It stands in stark contrast to what we pulled off. Importantly, we continue to be extremely discerning in our evaluation of prospective acquisitions, having passed on billions of dollars of opportunities which simply did not meet our criteria in terms of location, quality, operator contract, or pricing. We recently saw some high-quality assets where we wouldn't sign even an NDA because they are encumbered by long-term management contracts, wherein, in exchange for writing the entire equity check, you get the honor of sitting in second position on cash flow and a hope note that someone else will get it right. We do not buy assets with liens on them, which is exactly what long-term management contracts are. Nonetheless, we have started off 2026 with a bang, with $5.7 billion of acquisitions and with $2.5 billion of new deals completed or under contract in just the first six weeks of the year, and a robust pipeline that can be described as granular, visible, and highly actionable. Needless to say, 2026 is quickly shaping up to be another banner year for us in terms of acquisition activity. Importantly, capital allocation does not solely involve acquisitions but also includes disposition activity to methodically shape the portfolio for future growth. It is not about here and now, but the duration of growth that will be the key determinant of long-term success. And through these efforts, we have been able to intensify our focus on rental housing for the rapidly aging population. So in addition to the sale of our outpatient medical portfolio, which I mentioned earlier, we sold another $1.3 billion portfolio of skilled nursing assets, which marks one of the most successful full-circle transactions executed by our management team. We bought this portfolio as a part of the UCP transaction in 2018, which is the only public-to-public M&A transaction executed by this management team. As most of you are aware, the period from 2020 to 2022 was exceptionally challenging for that sector, driven by the impacts of the COVID pandemic and resulting labor shortages. However, due to the structure we created in 2018, including a parent guarantee, we did not lose a dollar of cash flow despite substantial cash flow deterioration incurred at the property level. At the time, many folks had encouraged us to simply rip the band-aid off and dispose of this portfolio given the headache it was creating for us in the public market. Instead, we rolled up our sleeves to determine the best path forward for the portfolio and for our owners, with the firm belief that volatility is not risk. Ultimately, we embarked on an arduous process of recapitalizing this portfolio with Integra, which then brought its network of regional and local operators to turn the portfolio around. And over the subsequent three and a half years, the portfolio witnessed a massive $500 million rebound in cash flow, which we believe is close to stabilization. The return achieved by the sale is a function of basis structuring and sheer grit and tenacity displayed by our team to achieve the best possible outcome for our owners. I would note that the unlevered IRR of 25% and a 3.1 times unlevered money multiple achieved on this portfolio over seven years compares highly favorably to a proxy of public SNF peers, whose equities, when levered, delivered an approximately 10 to 11% return over the same time. Collectively, these bold capital allocation moves, both acquisitions and dispositions, have enabled us to remove organizational complexity and narrow our focus on senior housing with the goal of elevating the customer and employee experience through better operations and technology. At the same time, we fundamentally enhanced the terminal and growth rate of our enterprise. Lastly, I'm pleased to announce the closing of Senior Housing Equity Fund One and the launch of Senior Housing Debt Fund One, our foray into capitalized businesses. Nikhil will provide you with more details, but this business vertical represents a natural extension of our balance sheet strategy, allowing us to jump-start a significant capital allocation business. We're incredibly grateful to Adia and our other LPs who have entrusted us with their capital in this new endeavor. And with that, I'll turn it over to John. John Burkart: Thank you, and good morning, everyone. As Shankh described, 2025 marked a truly transformational year for Welltower. Not only did we deliver another period of exceptional results, but we also witnessed the benefits of our Welltower Business System initiatives starting to bear fruit. As we discussed in the past, the backdrop for growth remains, but our goal is to drive meaningful alpha for our owners through the full-scale modernization of the senior housing portfolio via the Welltower Business System. More on that shortly. In terms of our fourth-quarter results, we delivered total portfolio same-store NOI growth of 15%, driven once again by another quarter of strong senior housing operating portfolio growth of 20.4%. Remarkably, this marks the thirteenth consecutive quarter in which our portfolio same-store NOI growth has exceeded 20%. Demand for our needs-based and private-pay senior housing product continues to strengthen, as reflected by continued gains during a seasonally slower period of the year. From a year-over-year perspective, the portfolio delivered another quarter of 400 basis points of occupancy growth, amongst the highest levels achieved in our history, and combined with healthy levels of rate growth, we achieved same-store revenue growth of 9.6%. Notably, top-line growth was consistent across all three senior housing acuity levels. With respect to expenses, we continue to see favorable trends across key line items. Expense per unit growth increased 0.8%, one of the lowest levels achieved in our recorded history. As the spread between revenue per occupied room and expense per unit growth remains historically wide, we were able to post another quarter of strong margin expansion of 270 basis points. As Shankh mentioned, given the high fixed-cost nature of the senior housing business, we expect operational leverage inherent in our business to continue to play an important role in driving margins meaningfully higher in future years. Additionally, our regional densification efforts continue to create significant top and bottom-line synergies while we also recognize meaningful efficiencies from our Welltower Business System-driven initiatives. Going forward, we remain highly confident in our ability to continue to deliver outsized NOI growth. We take nothing for granted and remain intensely focused on driving excellence in all aspects of operations. Organic revenue growth should remain strong, with significant occupancy runway ahead coupled with healthy rate growth. Similarly, there is ample room for margin expansion from current levels for the reasons I noted a moment ago. As I think about the next few years and beyond, our focus is simple: People, optimizing the human interaction to provide a delightful experience; Processes, removing bottlenecks and streamlining flow; Data, providing our operating partners with robust objective data to drive positive outcomes; and Technology, leveraging technology to improve the customer and employee experience, automating processes, and providing personalized experiences. Reinventing a business like senior housing is by no means an easy one, and we have not been shy about adding necessary resources, including extraordinarily high-caliber talent, to effectuate this change. As Shankh described, the Welltower Business System, along with our operating partnership relationships, serve as the backbone of the software side of our vertically integrated hardware and software model. We are methodically removing time-consuming administrative burdens that employees contend with on a daily basis, freeing them to focus on what they signed up for: taking care of residents. In terms of recent talent we have brought into Welltower, we have already witnessed a strong impact from Jeff Stock, our new Chief Technology Officer from Extra Space Storage, along with his first prominent hire, Braun McCall, himself a former CTO of Extra Space. Together, they are leading the digital transformation of the business and integration of our enterprise systems, areas where they bring deep expertise and a strong track record from their prior roles. The early contributions from other members of our tech quad cannot be overstated either. Additionally, the decision to transition some of our strongest internal talent into operational roles, including Russ Simon, our EVP of Operations, is already being validated by the meaningful value they are creating. In our continued pursuit of higher standards across every aspect of the organization, particularly in operations, we remain fully committed to investing the time, talent, and resources necessary to deliver a truly superior experience for senior housing residents and the employees who serve them. The future of our company has never been brighter, driven by the dedication of our internal Welltower team and the unwavering commitment to our operating partners, who share our vision for transforming the industry. More to come in 2026. And with that, I'll turn the call over to Nikhil. Nikhil Chaudhri: Thanks, John, and good morning, everyone. As I reflect on 2025, it was a marquee year for the company, one that fundamentally changed the long-term growth profile of our business. We deployed $11 billion of net investment capital and, together with strong organic NOI growth, increased our SHOP concentration by roughly 12 percentage points to circa 70%. On the investment side, we closed 90 different transactions, acquiring over 1,000 properties, more than 175 of which are either under construction or recently delivered. While these assets are not meaningful contributors to near-term results, they are expected to significantly bolster our already industry-leading growth for many years to come and were underwritten to achieve attractive risk-adjusted returns. To put the quality of our recent acquisitions in context, the average age of our SHOP portfolio today is sixteen years, compared to nineteen years in 2021. On the disposition side, we continue to create shareholder value by monetizing mature or slower-growing assets and redeploying capital into higher growth, higher total return opportunities. As a result, the assets we acquired are budgeted to generate approximately 10 times more growth in 2026 than the assets we sold. Our previously announced $7.2 billion outpatient medical sale to Kayne Anderson, which generated a $1.9 billion gain on sale, remains on track and ahead of schedule. To date, we have closed approximately $5.8 billion, with the remaining assets expected to close during the first half of the year as tenant estoppels and ground letter of consents are finalized. I also want to highlight our progress on the Integra portfolio, or what some of you may remember as the former ProMedica QCP, or HCR Medicare portfolio. We have entered into $1.3 billion of asset sales across 12 different transactions, representing approximately half of the portfolio. With these sales, as Shankh mentioned, we have achieved an unlevered IRR of approximately 25% or a 3.1 times unlevered multiple on invested capital. Returns that are exceptionally difficult to generate at this scale. Candidly, this transaction has not always been a popular one with many of you. The initial announcement in 2018 was met with skepticism, and during our restructuring period in 2022, many investors would have preferred that we exit the assets at bottom-of-cycle values. Our team took a different view. We went back to first principles and asked whether the underlying thesis had changed: owning assets at an attractive basis in a supply-constrained sector with durable, needs-based demand. It hadn't. Rather than reacting to sentiment, we focused on execution, stabilizing operations, partnering with strong regional operators, maintaining a conservative rent load, and aligning incentives across the platform. Following these sales, the remaining Integra assets continue to perform well, with in-place EBITDAR coverage greater than two times. Staying the course wasn't the easiest decision in the moment, but it was a disciplined one, and it reflects how we approach capital allocation over full cycles, not short-term pressure. Turning to 2026, we are off to a great start. While the back half of the fourth quarter can often be a quieter period for deal activity, our momentum carried through the holidays and into the New Year. We have already closed on or are under contract to close on $5.7 billion of total acquisitions, including the previously announced $3.2 billion Amica Senior Lifestyle transaction, and new activity of $2.5 billion over the last few weeks. This new activity spans more than 30 different transactions and is comprised primarily of newer vintage assets with blended occupancy in the low 80% range. Most of these transactions were sourced off-market, which continues to reflect the strength of our relationships and origination platform. I am pleased to provide an update on our private funds management business, which we launched roughly one year ago. As we have mentioned several times, our approach to capital-light strategies is simple. We are moneymakers, not asset gatherers, and we seek opportunities that are compelling, durable, and complementary to our balance sheet. We are thrilled about adding another business vertical, which we believe will benefit our existing owners over the long term. We recently held the final close of our US Seniors Housing Fund One with approximately $2.5 billion of equity commitments, marking one of the largest recent first-time real estate fund launches. The fund was significantly oversubscribed, which we believe is a reflection of our data science capabilities and capital allocation track record. The fund includes approximately $2.1 billion of third-party capital with blended management fees of 1.35% and eight third-party limited partners representing some of the most thoughtful and significant global capital providers. We are already approximately 50% deployed and, similar to our balance sheet strategy, investing in opportunities where we have high conviction. Building on the success of our equity fund, during the fourth quarter, we also launched and held the first close of the Welltower US Senior Housing Credit Fund. I'll close with this. Our mandate is simple: From the moment we wake up to the moment we go to sleep, we aim to create value for our shareholders. Our entire organization is focused on unlocking additional value, whether that comes from the assets we already own through operations and disciplined portfolio management, or through thoughtful capital allocation, acquiring, lending, selling, or building assets, and by growing our capital-light business. Our thesis is straightforward: When we stay focused on simple goals, apply discipline, and keep emotion out of decision-making, good outcomes tend to follow. With that, I'll turn the call over to Tim to walk through our financial results and 2026 earnings guidance. Tim McHugh: Thank you, Nikhil. My comments today will focus on our fourth-quarter 2025 results, performance of our triple net investment segments, our capital activity, our balance sheet and liquidity update, and finally, the introduction of our full-year 2026 outlook. Welltower reported fourth-quarter net income attributable to common stockholders of 14¢ per diluted share and normalized funds from operations of $1.45 per diluted share, representing 28.3% year-over-year growth. We also reported year-over-year total portfolio same-store NOI growth of 15%, driven by 20.4% growth in our SHOP portfolio, which now makes up circa 70% of our in-place NOI. Now turning to the performance of our triple net properties in the quarter. In our senior housing triple net portfolio, same-store NOI increased 2.6% year-over-year, and trailing twelve-month EBITDAR coverage was 1.19 times. Next, same-store NOI in our long-term post-acute portfolio grew 2.6% year-over-year, and trailing twelve-month EBITDAR coverage is 1.53 times. Moving on to capital activity. We financed our investment activity in the quarter with dispositions and equity, with $9.5 billion of combined gross proceeds. This allowed us to fund $13.8 billion of investment activity and end the quarter with a net debt to adjusted EBITDA ratio of 3.03 times, representing a roughly half-turn reduction from 2024. We ended the year with $5.2 billion of cash on hand, together with approximately $3.5 billion of disposition activity we expect to complete during the year, providing funding for roughly $5.7 billion of investment activity. This includes the $2.5 billion of net investment activity closed in Q1 or under contract to close, as we announced last night, and the $3.2 billion Amica transaction that was put under contract last year. Taken together, this net investment activity, continued cash flow growth from the in-place portfolio, should leave us exiting 2026 at a net debt to EBITDA level consistent with where we finished this year. Before turning to our guidance, I want to highlight how our recent portfolio activity is changing the growth profile of our enterprise. Even with the same initial growth outlook for our senior housing operating portfolio as we started last year, 18% at the midpoint, our total portfolio same-store NOI growth is more than 200 basis points higher. This faster growth reflects the continued mix shift towards higher growth senior housing communities and the flow-through impact this has on organic cash flow growth. In turn, this is driving a higher FFO growth assumption versus last year. As we further intensify our focus on senior housing, we believe Welltower 3.0 is positioned to compound cash flows at a meaningfully higher rate than the portfolio's prior growth profile. As I turn to our initial 2026 guidance, which was introduced last night, I want to remind you that despite the robust pipeline that both Nikhil and Shankh described, we have not included any investment activity in our outlook beyond the $5.7 billion that has been closed or publicly announced to date. Last night, we introduced a full-year 2026 outlook for net income attributable to common stockholders of $3.11 to $3.27 per diluted share and normalized FFO of $6.09 to $6.25 per diluted share, or $6.17 at the midpoint. Our normalized FFO guidance represents an 88¢ per share increase at the midpoint from our 2025 full-year results. This increase is composed of a 58¢ increase from higher year-over-year senior housing operating NOI, a 30¢ increase from investment and financing activity, and 2¢ from higher triple net income. This 90¢ of growth is then against 2¢ of G&A offsets. For context, the net G&A assumption, we expect general administrative expenses to be approximately $265 million at the midpoint, with stock-based compensation expense of approximately $60 million or an 8¢ per share drag to normalized FFO. Underlying this FFO guidance is an estimated total portfolio year-over-year same-store NOI growth of 11.25% to 15.75%, driven by subsegment growth of outpatient medical, 2% to 3%, long-term post-acute, 2% to 3%, senior housing triple net, 3% to 4%, and finally, senior housing operating growth of 15% to 21%. This is driven by the following midpoints of their respective ranges: revenue growth of 9%, made up of RevPOR growth of 4.8% and year-over-year occupancy growth of 350 basis points, and expense growth of 5.5%, equating to expense per unit growth of just below 1.5%. And with that, I will hand the call back over to Shankh. Shankh Mitra: Thank you, Tim. Before we open the call up for questions, I'd like to discuss two topics that many of you have recently asked about: one, talent density and incentive design, and two, increased competition for acquisitions. I'll address the first topic in two parts: Wall Street and Main Street. After announcing the ten-year executive continuity and alignment program last quarter, I sat down with the majority of our large shareholders. While we received significant support for the plan's philosophical underpinnings, we have also heard a desire for expanding the group of participants and increasing the performance-based portion of the total plan. I'm delighted to inform you that, working with our board of directors, we swiftly applied this feedback. We broadened the plan to include seven additional leaders, with 70% of the payout now performance-based, up from 50% that was announced in Q3. This group also gave up a substantial portion of the promoted interest in our first fund vehicle and all of their interest going forward, with those economics redirected towards attracting and retaining talent at the next level of leaders within the organization. We expect little to no turnover at NEO and EVP levels over the next decade and have designed long-term, highly aligned incentive plans to retain the strongest talent at all levels of our organization. Make no mistake, this is a team game. In terms of Main Street, the Welltower grant, which was announced in Charlie's memory, has been a huge hit with our operating partners and at our communities. We're expanding this program beyond the originally announced 10 communities and are exploring mechanics to expand it internationally. Engaging with these frontline employees about Charlie and his philosophy of compounding has, in many cases, prompted them to think for the first time about investing and long-term wealth creation beyond just wages alone. And it has been personally extremely gratifying for me. We believe we're onto something here. Regarding the announcement of several healthcare REITs and private funds jumping onto the SHOP bandwagon, I would offer the following observations, strictly my personal opinion. These are capable organizations, and many will find their niche to do well. Others will appreciate that writing credit checks is very different from owning equity in a complex and operationally intensive business that cannot be addressed simply by hiring a few asset managers to manage the managers, as HCN did. These are full-cycle lessons and will be learned as such. I have repeated this point for a decade and perhaps will continue to do so for another one, like a broken record. Exposure alone does not define success in these challenging terrains. As I've mentioned in my earlier remarks, we deliberately sought out this industry because it is a hard business. Even in highly competitive industries with largely undistinguished end products, elite long-term compounders still emerge. Costco, McDonald's, Glenair, QuikTrip, Cintas exist for a reason. If we take a step back and look into the relatively nascent senior housing industry, with evolving standards to meet the expectations of baby boomers, you will notice that there is virtually no scale capital focused solely on this business. To the contrary, the end-source capital, including some of the world's largest pools of sovereign-type funds, actually want to be part of the Welltower flywheel. But this is not a discussion of capital. As Charlie said, any fool can write a check. In 2025, we targeted and evaluated several thousand acquisitions using our data science platform, and from those, curated a portfolio of roughly a thousand communities that we engaged and transacted with sellers, mostly off-market. We onboarded this massive haul into the Welltower operating partner network, with the help of the Welltower Business System, as a complex adaptive system with little disruption to customer service. The sheer complexity of scaling an unscalable business is where our value-add lies. Yes, we can point you towards many examples, such as the Integra JV, that prove our capital allocation capabilities to be somewhat satisfactory. But it is not in addition to the operating and technology prowess of our network and that of our operating partners, but because of it. And that moat is expanding, not shrinking, as the network effect of our data and insights on our platform grows exponentially. We welcome our competition to chase us into these challenging terrains. They keep us on the edge and paranoid every day to show up to win. Having said that, we're not a competition-centric organization. We're a customer-centric organization. In rare cases where we engage in a market-based process, our competition for acquisition remains financial organizations who are fixated on cap rates, financing, and spread investing, while our obsession lies with the customer journey and employee experience. Our primary business remains off-market, privately negotiated transactions with owners who are trying to solve a bespoke problem or embarking on a different opportunity. We have no crystal ball to determine which model will ultimately prove to be more successful. While the change of our business model over the past decade ensures that we'll not need to buy another asset to drive strong cash flow growth well into the future, an expanding operational and technology moat is uncovering more and more acquisition opportunities for us. 2026 will be no different. With that, I'll open the call up for questions. Operator: Thank you. If you would like to withdraw your question, simply press star 1. In the interest of time, please limit yourself to one question and rejoin the queue if needed. Thank you. Your first question comes from Vikram Malhotra with Mizuho. Your line is open. Vikram Malhotra: Congrats on the strong quarter. Shankh, I guess I just want to build on what you just said about compounding and duration. I know you said you have a lot of acquisitions, you know, ultimately, that reloads the same-store pool. We've seen this in other sectors. But I'm hoping you can give us a bit more quantitative or framework to think about this compounding aspect. The portfolio is at 90% on same-store. Should we think about, like, a stabilized portfolio in terms of RevPOR margin, then overlaying the Welltower Business System? Maybe anecdotes of some numbers would be helpful. Shankh Mitra: Yep. Vikram, look. I'm not gonna sit here and try to speculate what the future might hold, but I will just say that focus on a couple of things that I've mentioned, which is first is sort of the idea we're not after same-store. Right? If you just think about what our North Star is, what we have said that we're focused on is cash flow earnings and cash flow growth. And that comes from very different places. Right? So just let's just think about it as mix shift is a very important part. We said that we believe that we'll be able to drive double-digit NOI growth for a long period of time. So I'm just it's very hard for me to say your focus is two years from now, five years from now, seven years from now. So instead of that, let's just focus on the fact that a lot of things matter is just obviously as assets leased up and get over 90%, we're seeing significant pricing power higher than assets with, say, less than 80% occupancy. Right? That's just basic supply and demand. But also, I would like you to think about a couple of other things from the standpoint of earnings and cash flow growth. One is a very important factor: mix shift. Just think about it in simple terms. Right? You know, two quarters ago, our SHOP was 59% of our overall portfolio. Right? Obviously, probably four years ago, that was 35%, something like that. Now you think about it. Okay. 60% grows 20%. 80% grows 15%, or 100% grows 12%. You have the same exact impact on cash flow earnings. Just as a point of reference. Right? Then sort of think about okay. What's going on with free cash flow generation? What can you do with that free cash flow, whether it's acquisitions, whether it's return on capital? You know, because the marginal cost of your free cash flow is zero. So all of these as sort of you think about it, you have you can get to and obviously, with an unlevered balance sheet, will someday will use it for growth as well. And you put all of these with the framework of what we think could be a long, you know, sort of journey ahead of us of margin expansion. And, you know, we think the growth algorithm, you don't have to be a genius to figure out that it could be a very and very strong one. How exactly what numbers, what year, it's just hard to speculate right here. Sitting here. But I will say that, you know, the future looks very bright to us whether we're right or wrong. Only the future will say. But you can see that 12 of our colleagues have bet their entire lives for the next decade on this. Because we think the future is very strong. We'll see what the market gives us. Operator: Your next question comes from John Kilachowski with Wells Fargo. Your line is open. John Kilachowski: Hi, good morning, everyone. My question is on the tech quad. You've already made such progress with Welltower Business Systems and with your data science platform. I'm just curious, what challenges are there left in the senior housing space to tackle? You're still hiring significantly. And then maybe an extension of that would be, are you building something that would eventually be monetizable? Shankh Mitra: So let me answer that question. I think I addressed this before. There are two ways I think about our technology platform. One is our data science platform, which is mature, but there's a lot of work to do. And as you can see, what Nikhil mentioned, the economics that we received on a fund business that suggest to you, which is significantly higher, many would claim two times higher than many others have received in the fund management business is a pure function of our capability of that data science platform. Right? You know? So one, you can see sort of the monetization of that platform is actually coming through. Now if your question is, on the operational side, operational technology side, I wouldn't even call us mediocre. I would call us mediocre minus. So, you know, we have a long way to go in that journey, and just because we are better than in a business where we sought out because we thought there's a lot of opportunity and we're doing fine does not make us really great. So we have a long way to go, and you can see that we are continuing to hire terrific leaders across different industries from different expertise, and we continue to double down on that. And I think this is a long, you know, sort of a journey in front of us. Now if your question is, will we monetize these platforms? In terms of other capitals to use, right, and think about sort of LRO of what Arstone and EQR did many years ago, or third-party management in self-storage. Just things of that nature. If that's a question is with that angle, then I would say that that will never happen. Our operating capabilities of our core investment cycle will always remain within the bounds of this company. Now we're bringing our capital and others into this platform. We're open to helping our partners who are on the platform thinking about investment in real estate in many different ways. But we will never see us sell our operating software to someone else so that they can compete with us. We'll never do that. Operator: Your next question comes from Farrell Granath with Bank of America. Your line is open. Farrell Granath: Good morning. Thank you for the question. This is Farrell. Just wanted to touch on the Integra disposition. Given the sale of the SNF portfolio and really the highlight of the source of funds and the value harvesting, does this now frame your SNF portfolio in total as a source of funds for future disposition or future acquisitions? Nikhil Chaudhri: Yeah, Farrell. I think the way to think about our skilled nursing portfolio, as we described it in the past, is a structured credit investment. Right? Structured credit investments by default are relatively short-dated in nature. The definition of that is in the eyes of the beholder, but our skilled nursing strategy is to acquire assets that have an operational turnaround story behind them, bring in really sharp regional operators, and then turn the performance around, harvest value. And our fundamental view is, you know, these high-quality operators, they should be the end owners of skilled nursing businesses, skilled nursing assets. Because there is attractive HUD financing available, and once you've executed the business plan, that is the right stable capitalization of the assets. So, you know, we will continue to acquire, stabilize, exit. And, you know, then what we do with the proceeds and how we redeploy it is purely opportunity dependent. Don't have allocations in our mind of what how big or small each bucket needs to be. We have good opportunities, we'll invest capital. If we don't, we don't. And it'll depend on what is the best use of capital depending on the time period. Operator: Your next question comes from Omotayo Okusanya with Deutsche Bank. Your line is open. Omotayo Okusanya: Yes. Good morning, everyone. And again, congrats on a really incredible outlook. Couple of questions, if I may just ask one or two. The first one, the SHOP portfolio, could you just help us understand at this point how large the non-same-store pool is, some general characteristics of that pool, like, I know, occupancy or wherever that is, and just we're trying to understand a little bit about how that's growing relative to the stabilized portfolio. Tim McHugh: Yeah. I'll start with that. So, you think about our same-store portfolio right now, makes up over half of our total portfolio, and a lot of that is just because of how acquisitive we were last year. So it takes five quarters for something we acquire to come in the same store. I would describe the growth we're seeing in that portfolio as consistent with what we have in our same-store portfolio. The characteristics of that portfolio, it is less occupied. Think about it, of our that's strategic on our side. We continue to buy that we believe there are, there's, you know, significant upside on the balance sheet. And then just given the nature of our acquisitions last year, a lot of it UK-focused in the back half of the year, I'd characterize too that it's heavier, kind of non-same-store is heavier in the UK than relative to the same-store portfolio. Operator: Your next question comes from Ronald Kamdem with Morgan Stanley. Your line is open. Ronald Kamdem: Thanks so much. Hey. Just wanted to double click on some of the occupancy performance both last year and sort of the guidance into going into '26? Just I'd love some updated thoughts in terms of how you guys drive sort of move-ins versus move-outs and how much is the Welltower Business System contributing to the outperformance versus the industry? Thanks. Shankh Mitra: I will take the last part of that, and, John, perhaps you can address what Ron is trying to get on the first part. You know, what sort of our peers or NIC data or others sort of reported, I believe, you know, for NIC '99, the occupancy growth last year was something like 250 or something like that, and we did 400. So that gives you the answer to the first code win or last question. John, what sort of or how do you answer the first one? John Burkart: Yeah. You're asking what's driving the occupancy. I mean, there's a combination of items, and it starts all the way from focusing on the marketing all the way through the speed to lead, how we're answering the calls, etcetera, etcetera. And it's an execution business. And that's what's changing rapidly as we isolate and focus on each component there and optimize at each site, which has enabled us to outperform market share. Operator: Your next question comes from Michael Goldsmith with UBS. Your line is open. Michael Goldsmith: Morning. Thanks a lot for taking my question. You had a robust year of acquisitions in 2025. 2026 is starting off very strong. How long can you continue to acquire unstabilized SHOP in the 75% to 85% occupied range? At what point is there none of that left or that benefits from industry trends? And does that pose a problem now given that you now have a fund vehicle buying more stabilized assets? Thanks. Shankh Mitra: Yeah. I'm not doing a good job of explaining my point, so I'm gonna try to do it again. How long is a pure function of market opportunities? So I can't sit here and tell you how long the acquisitions opportunities will be there. The goal is to create value on a cash flow basis for existing investors and not do transactions. Right? That's sort of the first and foremost point I want you to walk away from. And so, you know, we will see. Our goal is to create value. Right? So if we can create value by buying, we'll do it. If not, we'll not do it. We can create value by selling just like you saw, right, I've said this several times, making money is hard. Making money at scale is much harder. And we continue to do it. So the goal is to create value for existing shareholders on a cash flow basis. I sort of see a Pavlovian response to acquisitions activity or investment amount. I historically sort of that why that made sense because it was fundamentally a triple net model, and the only way companies draw earnings is by buying properties because, you know, effectively, all their earnings were straight-lined and there was no growth. And I understand that for many existing companies in the sector or triple net sectors and others, I just want you to emphasize this and understand that that does not matter to us anymore. That makeshift of this company is at a place and continues at a pace that we'll never have to buy another asset. We'll see what the market gives us. Having said that, after answering your question philosophically, I'll answer it tactically. Tactically, we have never been busier. As you can sort of I think you heard from Nikhil, in the first six weeks of the year, we have done 37 different transactions. That's about a, you know, about a transaction a day. Right? So it feels like the opportunity set is very robust in front of us as long as we can make money. Through, you know, sort of our operational and technological prowess and our ability to allocate capital, we'll do it. If not, we'll do what you just saw we did on the Integra portfolio. Nikhil Chaudhri: Michael, I'll just add one thing really quickly. You know, you started by talking about occupancy. That's not the only lever of driving growth out of assets. Right? It's a complex operating business where spending $70 of a $100 you're collecting on expenses. And so even in highly occupied buildings that we're buying, we're creating significant value through the Welltower Business System. So that's just, you know, one way of looking at it, but there's just so many different ways to create value in the business. Operator: Your next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Your line is open. Austin Wurschmidt: Great. Thanks. Hoping you guys could contextualize the SHOP occupancy growth and RevPOR growth guidance versus last year. I mean, you're at a higher occupancy today, but you're initially assuming higher growth occupancy than you did at the outset of last year. And I know last year had a leap year comparison, but just how should we think of the balance between RevPAR growth and occupancy growth in the setup going into 2026 versus where you were a year ago? Shankh Mitra: Let me try to start and then Tim will jump in. So, obviously, it is our guess. So you have to understand that what we are telling you at this point, and we'll see how the year plays out. From a RevPOR point is the one I'll take up, say, you picked up on one. You have to think about on a leap year adjusted basis. The other thing you have to think about is the massive pool change that happened in the fourth quarter. I think I talked about this six months ago, that 90 plus assets are gonna get into the fourth quarter, which is holiday. Those assets are still in an occupancy journey. And until the occupancy journey gets occupancy is stabilized, we're not gonna get onto a substantial rate journey. Just that change, pool channel, alone was a 30 basis point drag on fourth quarter RevPOR. That obviously is carrying through 2026 guidance numbers. But as I said, you know, Austin, I'll highly encourage you to think about these are for a large company, large portfolio with or same-store RevPOR, expense per unit, NOI. These are all sort of markers towards the ultimate goal. And that ultimate goal is cash flow growth. Right? So forget about how these things all combine into an optics. Just think about how much underlying cash flow growth we are driving that our initial, you know, FFO guidance we started at, what, 16, 17%. Don't know, Tim, you wanna add anything to that? Tim McHugh: Good. Okay. Operator: Your next question comes from Nick Yulico with Scotiabank. Your line is open. Nick Yulico: Thanks. I guess maybe just a sort of related question on the guidance for how to think about like that spread between RevPOR and expense per unit growth. I know you guys have the chart in the presentation. It's been a wide spread. Is it are you guys assuming that spread is actually shrinking a bit this year? Because the reason I'm asking is I think you're saying expense per unit growth is going to be, you know, somewhere below 1.5%. And I think it was below 1% last year. So just trying to understand that dynamic and if there's also sort of an element of conservatism built in there? Thanks. Tim McHugh: Thanks, Nick. I think the right way to think about it is, you know, beginning of the year outlook, as we sat here, you know, last February, we actually had a similar outlook for expense per unit as we have today. Where we ended the year, we drove more occupancy. Expense per unit is a direct beneficiary of occupancy and being able to scale cost. So I think, you know, sitting here today, conservatism isn't a word we kind of use when we think about our guidance. But it is just in our business a disproportionate amount of the year-over-year growth is driven over a six-month period. So consistent with how we've talked about guidance in the past, you know, when we sat here in February, and that those six months kind of kick off in April and May, it's just the appropriate kind of view of probability of what or possibilities of what could happen in the year. And framing it in a way now that, certainly, hope we can outperform. And I'll leave it at that. Operator: Your next question comes from Rich Anderson with Cantor Fitzgerald. Your line is open. Rich Anderson: Thanks. Good morning. Congrats, and congrats to the 12 employees. I hope you don't get sick of one another in the next ten years. So my question is, everything's great. Great growth, all that sort of stuff. I have a question about the main problem with Welltower, if there is one, and that is everyone owns it. And it's, you know, everyone's full on Welltower. You gotta own it and everything else. So I'm curious. Can you talk about the company's outreach to a broader swath of investors, generalists, international? Can you talk about success you've had just sort of getting the word out beyond the confines of the REIT industry to sort of make sure, you know, you're getting your fair share if you're not already, of course, but you, you know, in the future, get your fair share of upside for all the successes that you're having as a company? Thanks. Shankh Mitra: Rich, I don't really know how to answer the question. We manage the business. We work twenty-four seven, all of us together, to create what we think drives shareholder value over a period of time, which is cash flow earnings and cash flow growth. We believe we can do that. We're a tiny company in the context of, you know, US or international capital markets. Then, you know, investors will find us. Right? That's not our job. Our job is to execute. It's a hard business. I don't think I want I don't want you to walk away with this idea that everything is great. Right? You guys see we have a large portfolio. You see on average what's going on in our portfolio, and that does look good. I'm not gonna say it doesn't. Having said that, it's a very hard business. Fighting challenges every day. And our job is to execute with our operating partners from capital allocation to operations to everything in between. And, you know, if we can drive cash flow earnings and cash flow growth, I don't worry about that we don't have enough investors who will not find us. It's a matter of growth. Right? So I will keep this organization focused on growth, delivering actual operational and capital allocation outcomes, and I don't worry about that. Having said that, the company has sort of gotten to a size finally where it is showing up as sort of a, you know, from a size standpoint with a lot of investors who didn't know we exist, despite the fact, you know, we sort of don't get into what a lot of companies do. Get on CNBC, Bloomberg, etcetera. We never do that. However, a lot of investors are sort of seeing that this has become just from a size standpoint, market cap standpoint has become large enough. They're sort of finding what is this company about and reaching out to us, and we have a very good capital market team. Very capable team. Sort of tease them how we think about the business. And there is enough material on us that we have written over the time that it's not a hard business to understand from that perspective. But I will leave it there, and we can have, you know, future conversations about this topic. Operator: Your next question comes from Seth Bergey with Citi. Your line is open. Seth Bergey: I guess just going back to the funds business, you announced debt funds, you've deployed some of the equity funds, kind of and you've talked a little bit about the funds business as a way to kind of monetize some of the Welltower systems and successes you've had with the data science platform. You know, how do you see the trajectory of that funds business? And, you know, should we expect that to be kind of a larger piece of the story over time? Nikhil Chaudhri: Yeah. I think, you know, Seth, as I said in my prepared remarks, you know, it's opportunistic as tactical. Right? We're not asset gatherers. If there are opportunities that are complementary to our balance sheet where we can make money for our capital partners, we will continue to do more. If there aren't, we won't. Right? So there's no mandate beyond that. The simple mandate is to make money. There's interesting opportunities to go do so. That being said, you know, just like the debt fund, there was an opportunity for that that, you know, one of our LPs reached out to us about. And based on their suggestions, we created a strategy that was appealing to several folks. Shankh Mitra: Yeah. I just I don't want to repeat what Nikhil said, but I will. I have a significant problem with a lot of fund management businesses that have become just plain straight asset gatherers, and I never want this company to become that. Right? So we, as we have said, that we could have we have had this fund significantly bigger than where it was. Right? Because we had our demand, you know, meaningfully outpaced what we were trying to do. And from a size standpoint, we want to remain what Nikhil said that, you know, we take our LP investors' capital as seriously as we take our, you know, public market investors' capital. We will take capital only if we think we can make a significant return on it. Otherwise, we won't. We have no desire to become asset allocators and become a big fund management business where, in my personal humble opinion, a lot of these places have become capital-raising places instead of actually making money businesses, which they used to be. We'll never let this company become that. Operator: Your next question comes from Juan Sanabria with BMO Capital Markets. Your line is open. Juan Sanabria: Hi. Good morning. Congrats on the results. Just curious on the capital side. With regards to CapEx for seniors housing, how we should think about that? Both the recurring and other CapEx in SHOP has been fairly significant. And so just curious kind of what you're doing at the asset level to maybe try to future-proof these assets versus your competition. Or what the capital is largely going to given the assets are generally newer that you're acquiring? John Burkart: Yeah. No. That's a great question. When you look at, you know, starting with what we're acquiring, at this point, we're acquiring very good assets, and they're younger assets. And you can actually see that pretty easily when you look at the average age of the assets and the fact that every year, I get a year older, but our portfolio has actually stayed the same. And so that really tells you, you know, the quality of the assets that Nikhil is buying. And then so I do want to highlight that. At the same time, some of these assets are bought where there's been issues in the capital stack, which drives cash flow. And that also drives decisions by the previous owners to hold back a little bit. So even though they're newer, some of them need a certain amount of capital to get them up to the appropriate standards. From what we're doing, we're really reinventing how the world's looked at it. And Russ is heavily involved in this. I'm involved in it, others are involved with it. Looking at it from a life cycle cost, what is the life cycle cost? How do we provide a great customer experience and manage things throughout the entire life cycle? So whether it's flooring, whether it's siding, whether it's how we paint wrought iron, every aspect of the business, we're turning upside down and saying, what would the smart person do if they're gonna own this asset and they wanted to maintain it? That does require, in many cases, upfront cost. Higher upfront cost, but what you're looking to do is to lower the run rate over time. And that's exactly what's happening. I don't want to get too much into the weeds and give out some of our secrets, but it's exactly where we're going after it is looking at each component, what is the lifetime cost. Shankh Mitra: Oh, and I'll add two things as you sort of look at near-term historic and forward CapEx. Two anomalies you have to think about. One is holiday, which we talked about. We bought holiday, obviously, at a very, very low basis. And when we bought it, we said that you'll require investment. We're sort of coming to the tail end of the investment cycle. So that's very important. And remember what we said last call on HC1. That will require that kind of, you know, investments. And we, again, bought it at a very meaningful, I think, like, what, ninety-five, $6,000 per bed. And we would require investment into that probably $20.25, $30,000 something like that. And you just think about the total that will still be these assets for less than $100 or $125,000 per bed, which you know is a very meaningful discount to where assets today trade at or it requires to build. So just sort of think about these two anomalies. Generally speaking, other than that, you know, we're buying two, three-year-old assets which do not require a lot of work. But these two large portfolios, one is, you know, sort of falling off from that spend perspective. One is just taking off. Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Your line is open. Michael Carroll: Yep. Thanks. I wanted to circle back on the spread between RevPOR and expense per unit topic. I mean, how wide has that spread gotten in the recent past? And should we think about that spread continuing to widen out over the next few years, just given that operators gain pricing power when occupancy is above 90% and the natural scale that the space has when occupancy starts to exceed 90%? I mean, how wide could that spread get? Shankh Mitra: If you have a stable portfolio, right, that is growing from, say, 90% to 95% occupancy, and all things being equal, your answer should be yes. Right? So let's just go into sort of the little bit deeper. Let's double click on that conversation and then go a little bit deeper. You should gain pricing power as assets lease up. There's no question about it. And, obviously, your ability to scale your cost, particularly labor, will come into play. Right? But on the other hand, just think about there are other costs outside labor that are obviously problematic for every single owner of real estate, whether you are a single-family housing or you are owners of commercial assets like ours, you know, at line items such as utility cost. Right? So that sort of is a headwind to that taxes. Finally, you would have to think about real estate taxes. Finally, cash flows are recovering, and that has an impact. But generally speaking, as we sort of think about if we think about two main drivers of scaling labor versus your pricing power, you will think that that gap will widen or stay very wide as we move forward. But just remember, Mike, that a lot of things happening on our reported numbers, you have to think about how large this portfolio is, what we are buying, how same changes, and all of that. That's why I said, you just think about it. At the end of the day, what matters is bottom-line growth. Right? And look at the bottom-line growth. In the fourth quarter, we pulled off, you know, FFO per growth in high twenties and cash flow per share growth in high twenties. Right? So that sort of it tells you that all optics aside, the portfolio is firing on all cylinders. Operator: Your next question comes from Michael Ostroyak with Green Street. Your line is open. Michael Ostroyak: Morning. Thanks for the time. Can you just put brackets around the levels of NOI growth expected in 2026 across the U.S. SHOP, UK, Canada, and active adult businesses? Tim McHugh: Yeah. Overall, you say bracket. So the overall portfolio is 15% to 21%. We don't provide guidance on the sub-portfolios. Operator: Your next question comes from James Kammert with Evercore. Your line is open. James Kammert: Hi. Good morning. Thank you. I've read in some trade publications in the senior housing industry that today's independent living and increasingly maybe even the AL customer prefers larger residential units. I'm just curious, does Welltower detect or agree with that assertion? And if so, how do you think your portfolio is positioned to maybe, you know, address the shifting pace of the boomers coming into your portfolio? Thank you. Shankh Mitra: Yeah. So I will I I'm gonna, you know, I think someday you guys are gonna get really bored of me saying the same thing. Again and again and again. You're picking up on something very important here, Jim. Which is I've said this several times that this is a business optimization of location, product, price point, and operating overlay. What we mean by product that treat the two different ways you should think about senior housing as a product which is IL, AL memory care. What services do you offer? And is it a two-bedroom, one-bedroom, or a studio? Right? So there's two ways you can think about product. There is no in my mind that that product optimization along with location price point, and operating overlay, is very, very important. We have said this several times that we have seen because of our say, you know, probably wrongly interpreted view that we focus as the largest owner of the space on price per unit, a lot of developers have built a lot of studios. And, you know, studios is a as a function of a large building, is completely fine. You know, you think about you have a 100 unit buildings. And you have 20 studios. That's okay. I have seen many, many buildings that I consider functionally obsolete that has 60 units of studio. Recently, saw one that has 66 units of studio out of 98. Right? So you're picking up on something absolutely very good. And these are the reasons that, you know, sort of you can see that we remain one of the very few who actually understood the business from the perspective of that optimization and not a perspective of location maximization, which most real estate investors think about. And our results speak for themselves. But you have to think about optimization of all four and not just pick one. In this case, you are picking obviously on larger units versus smaller units and run with it. Operator: Your next question comes from Mike Mueller with JPMorgan. Your line is open. Mike Mueller: Yeah. Hi. For a quick follow-up on the fund vehicles. Is the capital in the debt fund going to be focused on assets that Welltower would ultimately like to own? Or do you just see it as an in-and-out lending vehicle? Nikhil Chaudhri: Yeah. Mike, it's not set up as a loan-to-own strategy. These are, you know, we're lending on existing cash-flowing, you know, covering assets. That being said, our general philosophy is we wouldn't lend on, you know, assets that we don't like as equity owners. But it's not a loan-to-own strategy. Like, you know, Shankh said, we're just talking about studios and, you know, buildings that are functionally obsolete or don't make sense. Those buildings are not a fit for anything we do. Whether it's debt, equity, whatever it is, we're not gonna touch. So we only lend on products we like. But it's a, you know, lending on quality products that's covering cash flow. Shankh Mitra: It's lending on quality products with strong sponsors that are, you know, these are all this is an acquisition credit vehicle. Right? So in-place cash flow and all. It's a simple lending business. That one of our most important LPs came to us and said, should we wanna build a product together? With this idea? And we thought that makes sense. That's what we're doing. It's a very, very simple do I do a lot of creative credit structures, Mike? I do. You know? Nikhil, Patrick, and I have been, you know, sort of on the journey for a long time. You know, Andrew loves it as well. So we do it. Yes. We do. You have seen one of them is HC1. Right? But there are many others. But you will see some, you know, we will sort of retain those for on our balance sheet for all this experimentation on the structures that we do. This is a simple, you know, first mortgage lending on assets that are acquisition cycle with strong sponsors. Operator: This concludes the question and answer session and will conclude today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to Youdao's Fourth Quarter 2025 and Full Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead. Jeffrey Wang: Thank you, operator. Please note the discussion today will contain forward-looking statements related to the future performance of the company, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2025 fourth quarter and full year financial results news release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, our President; Mr. Peng Su, our Senior VP; and Mr. Wayne Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction. Feng Zhou: Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are denominated in renminbi, unless otherwise stated. In the fourth quarter, both net revenues and cash flow showed strong improvement. Net revenues reached RMB 1.6 billion, a 16.8% year-over-year increase. This growth was primarily driven by the Learning Services segment returning to a growth trajectory, combined with the sustained strong performance of our online marketing services. Net cash flow from operating activities for the quarter was RMB 184.2 million, up 16.4% year-over-year. Our operating profit for the fourth quarter was RMB 60.2 million, marking our sixth consecutive quarters of operating profitability, representing an increase of 113% quarter-over-quarter and a decrease of 28.5% year-over-year. For the full year 2025, our key financial performance demonstrated positive momentum across the board. Total net revenues for the year reached RMB 5.9 billion, an increase of 5% year-over-year. Operating profit grew to RMB 221.3 million, up 48.7% year-over-year. Notably, 2025 marked the first year we achieved full year net cash flow -- net cash inflow from operating activities totaling RMB 55.2 million. This compared with a net cash outflow of RMB 67.9 million in 2024. This milestone reflects continued improvements in our competitiveness and operating efficiency and fulfills the financial objectives we set at the beginning of the year. I will now walk through the performance of each business line during the fourth quarter. Starting with Learning Services. Fourth quarter net revenues reached RMB 727.2 million, representing a 17.7% year-over-year increase. This performance reflects a clear return to growth following the successful completion of our strategic restructuring. Within the segment, digital content services contributed RMB 436.1 million, up 12.2% year-over-year. Youdao Lingshi continued to perform well with revenue surging over 40% year-over-year. Retention rates exceeded 75%, representing an improvement of approximately 5 percentage points. These results demonstrate meaningful progress in both scale and user satisfaction. Technological innovation remains central to our product competitiveness. During the quarter, Youdao Lingshi was recognized by CNR as the "2025 Industry Benchmark Education Group." This recognition affirms our leadership position and reflects our continued investment in education technology. Building on the successful launch of our Chinese AI Essay grading feature, we plan to introduce an English AI Essay grading tool in the near future, powered by our proprietary large language model, Confucius and aligned with rigorous examination standards. This tool is designed to help students improve their writing proficiency and quality. Our programming course also delivered strong results. Continuous product upgrades drove a 50% year-over-year increase in gross billings for the fourth quarter, supported by retention rates above 75%. Importantly, student achievements remain a key measure of success. In 2025, hundreds of our students achieved top results in the NOIP and the CSP-J and -S finals, validating the quality and effectiveness of our programming curriculum. Within the Learning Services segment, AI-driven subscription services delivered particularly strong performance. Fourth quarter sales exceeded RMB 100 million, representing an over 80% year-over-year increase. For the full year 2025, total sales approached RMB 400 million, a record high with annual growth exceeding 50%. This growth reflects both the expansion of our product portfolio and sustained demand for high-quality AI-powered apps. We're driving this momentum through 2 primary avenues. First, we are expanding into new market segments through innovative applications. In 2025, we launched Scholar AI, an integrated AI-powered plagiarism detection and writing refinement application. In the fourth quarter, its sales doubled quarter-over-quarter. We have also recently entered into an official partnership with Turnitin, the global leader in academic and research integrity, which we expect to further accelerate adoption. Second, we continue to enhance our core applications. The AI simultaneous interpretation feature within Youdao Dictionary and Youdao Desktop Translation achieved over 100% year-over-year sales growth in the fourth quarter. These innovations were recognized with multiple industry awards, including QubitAI, "Outstanding AI Product" and "China AI Product of the Year." Turning to online marketing services. Fourth quarter net revenues reached RMB 660.9 million, up 37.2% year-over-year. Growth was driven by increased demand from the NetEase Group as well as overseas markets, supported by our continued investments in AI technology. This growth was broad-based across multiple verticals. In gaming, stronger collaboration with NetEase Group and expansion of third-party clients drove a 50% year-over-year increase in advertising revenue. At the same time, we are capitalizing on the AI boom. Rapid advances in large language models have fueled marketing demand for many high-growth AI apps. By positioning ourselves early as a preferred marketing partner in this trend, we achieved significant gains in client acquisition, resulting in revenue growth of over 50% for the quarter. International performance was also strong. Overseas KOL revenues increased by more than 50% year-over-year in the fourth quarter. In 2025, we successfully executed campaigns in over 50 countries. Our global capabilities were recognized by TikTok for Business, which named Youdao Ads as its "2025 Influencer Agency Game Industry Pioneer List", TikTok for Business 2025, further reinforcing our leadership in global digital marketing. Gross margin for the online marketing segment was 27.8% in the fourth quarter, representing a 2 percentage point sequential improvement despite a year-over-year decline. This reflects 2 deliberate strategic choices. First, we prioritized client acquisition with new clients accounting for approximately 30% of our advertisers this quarter. While margins are typically lower during onboarding, these partnerships provide a foundation for long-term value creation. Second, we are beginning to see margin expansion from technological upgrades. The launch of our second-generation AI Ad Placement Optimizer, which integrates automated creative production has begun to improve both advertising efficiency and profitability. In the Smart Devices segment, fourth quarter net revenues were RMB 176.5 million, down 26.6% year-over-year. We continue to focus on improving this segment's overall operational health and made significant progress in 2025. Our flagship Youdao Dictionary Pen remained the top-selling product on JD.com and Tmall during the November 11 shopping festival for the sixth consecutive year. Meanwhile, we continue to enhance the Youdao Tutoring Pen launched earlier in 2025, adding features such as intelligent knowledge cards and upgraded AI-powered video explanations. Since launch, the system has generated over 600,000 videos. User engagement has been encouraging with active users accessing tutoring features more than 10 times per day in the fourth quarter. In summary, 2025 has been a year of comprehensive progress driven by our AI-native strategy. From the strong performance of our advertising business enabled by the AI Ad Placement Optimizer to improve user retention and engagement across our learning services, we have demonstrated that technological innovation translates directly into user value and commercial results. Our expanding portfolio of AI subscription and device products, including Youdao simultaneous interpretation, Scholar AI, Anydub and the AI Tutoring Pen have broadened our reach to new user segments. Financially, we maintained strong discipline, delivered meaningful profitability growth and our first ever full year of net operating cash inflow. This milestone underscores the sustainability and resilience of our business model. Looking ahead, we remain firmly committed to our AI-native strategy with a clear focus on advancing our learning services and advertising businesses. We will continue developing high-performance vertical large language models tailored to user needs while actively capturing emerging opportunities such as AI Agents, which significantly expand the potential for application-layer innovations and data-driven value creation. Through these efforts, we aim to deliver differentiated user experiences while driving long-term sustainable growth. We're not just participating in the AI transformation. We are building the foundation for sustained intelligent growth. With that, I will turn the call over to Su Peng for a more detailed discussion of our financial results. Thank you. Peng Su: Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from the fourth quarter and the full year of 2025. We encourage you to read through our press release issued earlier today for further details. For the fourth quarter, total net revenue were RMB 1.6 billion or USD 223.7 million, representing a 16.8% increase from the same period of 2024. Net revenue from our learning services were RMB 727.2 million or USD 104 million, representing a 17.7% increase from the same period of 2024. This year-over-year increase was primarily driven by the strong sales performance of AI-driven subscription services compared with the same period of 2024. Net revenue from our smart devices were RMB 176.5 million or USD 25.2 million, down 26.6% from the same period of 2024, primarily due to the decline in demand of smart learning devices in the fourth quarter of 2025. Net revenue from our online marketing services were RMB 660.9 million or USD 94.5 million, representing a 37.2% increase from RMB 481.7 million for the same period of 2024. This year-over-year increase was mainly attributable to the increased demand from the NetEase Group and overseas markets, which was driven by our continued investment in AI technology. For the fourth quarter, our total gross profit was RMB 705.4 million or USD 100.9 million, representing a 10.1% increase from the fourth quarter of 2024. Gross margin for learning services was 62.5% for the fourth quarter of 2025 compared with 60% for the same period of 2024. Gross margin for smart devices was 38.1% for the fourth quarter of 2025 compared with 43.9% for the same period of 2024. Gross margin for online marketing services was 27.8% for the fourth quarter of 2025 compared with 34.2% for the same period of 2024. For the fourth quarter, our total operating expense was RMB 645.2 million or USD 92.3 million compared with RMB 556.6 million for the same period of last year. Looking at our expense in more detail. Sales and marketing expense for the fourth quarter of 2025 were RMB 437.1 million compared with RMB 381.8 million in the fourth quarter of 2024. Research and development expense for the fourth quarter of 2024 were RMB 142.6 million compared with RMB 120.7 million in the fourth quarter of 2024. Our operating income margin was 3.8% in the fourth quarter of 2025 compared with 6.3% for the same period of last year. For the fourth quarter of 2025, our net income attributable to ordinary shareholders was RMB 48.2 million or USD 6.9 million compared to RMB 83 million for the same period of last year. Non-GAAP net income attributable to ordinary shareholders for the fourth quarter was RMB 58.7 million or USD 8.4 million compared with RMB 99.8 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter of 2025 were RMB 0.41 or USD 0.06 and RMB 0.4 or USD 0.06, respectively. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter were RMB 0.5 or USD 0.07 and RMB 0.49 or USD 0.07, respectively. Our net cash provided by operating activities were RMB 184.2 million or USD 26.3 million for the fourth quarter. Turning to our full year results. Our total revenue for 2025 increased by 5% to RMB 5.9 billion or USD 845 million. Net revenue from our learning services for 2025, down by 4.2% year-over-year to RMB 2.6 billion or USD 376.2 million. Net revenue from our smart devices for 2025, down by 18.2% year-over-year to RMB 739.6 million or USD 105.8 million. Net revenue from our online marketing services for 2025 were up 28.5% year-over-year to RMB 2.5 billion or USD 363 million. Total gross profit for 2025 were RMB 2.6 billion or USD 374.2 million compared with RMB 2.7 billion in 2024. Total operating expense for the 2025 decreased to RMB 2.4 billion or USD 342.6 million compared with RMB 2.6 billion in 2024. Net income attributable to ordinary shareholders for the 2025 were RMB 107.3 million or USD 15.4 million and basic and diluted net income per ADS attributable to ordinary shareholders for 2025 were RMB 0.91 or USD 0.13 and RMB 0.9 or USD 0.13, respectively. For 2025, net cash provided by operating activity was RMB 55.2 million or USD 7.9 million compared with net cash used in the operating activity of RMB 67.9 million, 2024. Looking at our balance sheet as of December 31, 2025, our contract liability, which mainly consists of the deferred revenue generated from our learning services were RMB 847.7 million or USD 121.2 million compared with RMB 961 million as of December 31, 2024. At the end of the period, our cash, cash equivalents, current and noncurrent restricted cash and short-term investments totaled RMB 743.2 million or USD 106.3 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Brian Gong with Citi. Brian Gong: Congratulations on decent results. So can management share your thoughts on 2026 outlook and across different business lines? Yes. Feng Zhou: Yes, I will take the question. So our overall goal for 2026 is to continue serving our users and customers with more innovative and competitive products while growing the business at a sustainable and healthy manner as always. So a key foundation supporting these objectives is our AI-native strategy while -- which enhances our ability to innovate and compete effectively across our learning services and advertising businesses. So let me provide additional details across our business lines. So first on the online marketing services. In 2025, online marketing revenue grew by 29% to RMB 2.5 billion. So in 2026, we plan to continue to focus on key growth areas by deploying more innovative solutions to capture favorable industry tailwinds. So we are seeing strong momentum in marketing demands across sectors such as AI applications, gaming and also areas like short-form drama content. To capture these opportunities, we will continue to leverage advanced AI capabilities, including our AI Ad Placement Optimizer, which we will release our version 2 shortly and iMagic Box alongside programmatic advertisement and [ KOR ] marketing solutions. So these initiatives, we believe, will help us further improve targeting precision and conversion efficiency for our customers. So our goal remains clear to deliver higher ROI for advertisers while providing a superior content experience for our users. Second, for learning services, we completed the restructuring of our online courses business by the end of 2025, as you already know. And we expect the Learning Services segment to return to around double-digit year-over-year growth in 2026. So encouragingly, the segment already achieved 18% year-over-year growth in the fourth quarter. So that's very good to see. So in terms of more details, Youdao Lingshi remains the centerpiece of our learning ecosystem. So in 2026, we will continue to leverage the stronger and stronger capabilities of our language model, Confucius, to drive product innovation and service enhancements in Youdao, using AI to unlock new opportunities to user acquisition and engagement. So the second pillar of our learning services is AI-driven subscription services, which have been growing very rapidly. So total sales reached approximately RMB 400 million, representing an increase of over 50% year-over-year in 2025. So the launches of new products, Youdao Anydub, Youdao [indiscernible] and Scholar AI [indiscernible]. These new products were well received, so driving a record high revenue in this segment. So looking ahead, we believe 2026 will be a very important year for AI agents, which are more advanced AI systems capable of actually completing complex tasks and delivering more value to users. So we believe this industry trend plays to Youdao's strength as we have a long track record of successfully developing user-centric applications. So we plan to continue introducing new AI applications and agents to expand our services and portfolios this year, enhancing user engagement and strengthening our business models, which we expect will support sustained revenue growth. Thirdly, on smart devices. For this segment, our priority is to continue improving the overall health of the business. This year, we remain focused on 2 core products, the dictionary Pen and the tutoring Pen, deepening our presence in STEM learning scenarios to address user's critical pain points. In summary, we see very meaningful opportunities across both the learning services and advertising segments, and we are well positioned to capture them. Our experienced teams and strong execution capabilities in applying AI technologies, they will enable us to continuously enhance our products and services. We will continue leveraging all our strengths in 2026 to better serve our users and customers while driving sustainable long-term growth. Yes. Operator: Your next question comes from the line of Brenda Xiao with CICC. Brenda Zhao: Congrats on achieving another solid quarter. I just have a quick follow-up on the Youdao Lingshi business because last year, Youdao Lingshi made positive progress. And what's the plan and outlook for 2026? Can the management give us more details? Peng Su: This is Su Peng. I will handle the questions. And yes, heading into the 2026, we are -- first, we are very confident about the future growth of Youdao Lingshi business. because of the outcome of the insurance customers in 2025 and also the upgrade features of Youdao Lingshi's AI functions and which pushed the retention rate to over 75%, just like Dr. Zhou shared with this information with you and in the previous comments. And I think for the 2026, our strategy is in 2 ways, product refinement and efficient customer acquisition. The first, the AI is core building differentiated competitive edge, we believe. We remain to commit our unique AI interactive class service model. We will continue to expand and polish our AI features, ensuring that the technology truly serve the learning outcomes. Leveraging the power of our large language model Confucius, we are making the teaching process more precise and scientific, we believe. And let's start with a little bit more details. The first is the precision diagnose and planning in our services. We will improve the accuracy of diagnosing the knowledge gaps to the generate scientific and personalized learning paths, essentially teaching students according to their attitude. Second, solving the core pain points. We are addressing the critical needs in the college entrance and prepare process with the practical features like the AI-based college admissions advisers and AI Essay grading, comprehensively elevating the users' experience and loyalty. And the next is about the dual approach we are exploring a more efficient path for the customer acquisition. First is definitely we need to highlight the organic traffic owned by Youdao. We will further activate the traffic value within our own ecosystem by deeply integrating with our apps like the Youdao Dictionary and Mr. P AI tutors as well as our smart devices like the Youdao Tutoring Pen. We can improve the acquisition perception while efficiently lowering the cost, leveraging the conversion from our existing broad user base. The new AI-driven channels, we are exploring the franchise customer acquisition channels powered by our AI features using our technology and advantage to pop up a new growth space and inject volatility into our business. In 2026, driven by the tech innovation and guided by our users' value, we expect to push the insurance business to a new height. We believe we will keep growing and keep investment in that business. I hope that answers your question. Operator: Our next question comes from Linda Huang with Macquarie. Linda Huang: So I just want to know that how does the management think about the outlook in 2026? So that's my question. Lei Jin: This is Lei Jin. In 2025, our advertising business achieved several key milestones, including the launch of Youdao iMagic Box and our AI Ad Placement Optimizer, alongside our official partnership with [indiscernible]. Those initiatives drove our online marketing revenues to a record RMB 2.1 billion, a robust 28.5% increase year-over-year. Looking ahead to 2026, we aim to drive high-quality growth by deepening our core resources and pushing our technological boundaries. First, we will double down on our international KOL business. We are capitalizing on wave of the Chinese enterprises going global, positioning ourselves as their strategic accelerator -- this remains our core stronghold. We have built a highly competitive global traffic ecosystem with 2 key pillars. First, our resource mode. We now reach over 30 million influencers and bidders globally with more than 1,000 top-tier influencers under exclusive contracts. This creates a significant barrier to entry. Second, our service track record. We have successfully helped over 1,000 companies go global, covering more than 50 countries. Our coverage is diverse as traditional stronghold like gaming, e-commerce, automotive and consumer electronics. We are also capturing emerging opportunities like short-form drama. In 2026, we will scale this further, using our resource advantage to serve more Chinese companies seeking global growth. Second, we are actively exploring overseas programmatic advertising to drive teched long-term growth. If the QR business is about human connection, programmatic advertising is an efficiency revolution based on technology. We will leverage our proprietary vertical [ AD ] model, combined with our experience and broad client base from domestic programmatic ADS to explore this market abroad. Empowered by our [ RM ], we are committed to achieve more precise traffic distribution and higher ROI. Our goal is to translate those technical capabilities into actual business increments, aiming to build a second growth curve for our overseas advertising business in the medium to long term. In summary, through the dual engines of our international KOL business and programmatic AD exploration, we expect to take our overseas advertising to the next level in 2026. Operator: Your next question comes from Bo Zhan with Huatai Securities. Unknown Analyst: I'm [indiscernible] from Hua. My question is Youdao achieved a full year positive net operating cash flow for the first year in 2025. Is the goal for 2026 to achieve a net inflow for the total cash flow. Yongwei Li: This is Wayne. I will take your question. As you know, the company's total cash flow is composed of 3 pillars: operating, investing and financing activities. Among this, operating cash flow stands as the most critical indicator of business healthy and long-term sustainably. Therefore, I would first like to address our performance and strategic objectives regarding operating cash flow. Enhancing profitability and secure positive operating cash flow were our core target for 2025. As mentioned by Dr. Zhou, we have successfully delivered on both of these goals last year. Looking ahead to 2026, our objective is to achieve faster growth in operating profit and propel our operating cash flow to a more meaningful and substantial level. Our confidence in this trajectory is rooted in 3 key drivers. First, AI-driven empowerment. The widespread integration of AI is profoundly transforming our product form and services models. In 2025, we successfully validated AI's immense potential for enhancing quality and efficiency across our business line. Second, the momentum of our core business units powered by [indiscernible] advertising and AI-driven subscription services are expected to maintain their strong momentum. This is expected to drive acceleration in the year-over-year growth of our total revenue and improvement in operating profit. Third, the continuous upgrade of refined management by optimizing credit management for our B2B operations and other key processes. We have significantly bolstered our financial resilience and risk mitigation capability. Regarding the goal of achieving a positive total cash flow, we maintain a balanced and rational stance. We will not blindly tighten expenditures [ import ]simply to reach a positive figure on paper. Instead, we will seek the optimal equilibrium between strategic investment opportunities and the cost discipline. Should strategic investment targets emerge in the market, we will move decisively to capture them. Furthermore, when cash reserves are sufficient, we will optimize our capital structure by investing in wealth management products or repaying principal on loans from our parent company. While these actions are recorded as investing or financing cash outflow, which may affect the total cash flow figure in the short term. However, they serves to increase interest income or reduce financing interest costs in the long run. Above all, we will prioritize the continuous improvement of our operating cash flow as it is the most valuable cash flow metric. Building upon this, we will also steadily advance the healthy development of our total cash flow to generate long-term value for our shareholders. Operator: Your next question comes from Xiangfei Shen with Nomura. Xiangfei Shen: Can you hear me now? Operator: Yes, we can hear you now. Xiangfei Shen: Dr. Zhou and Su, congratulations on a very solid quarter. I recall Dr. Zhou mentioned in the opening remarks, 2026 is a year of AI agent. So my question is, in what areas of Youdao business will you plan to deploy the AI agent and how significant the potential impact will be? Feng Zhou: Good to speak. So yes, so we think AI agents is an area of particular interest to us. One of the key reason is that -- so compared with the chat products, we [ refer ]the first-generation AI products. So AI agents, they operate longer. They have access to more customer and user data, and they can make deeper and more meaningful decisions regarding how to serve the customer or user better. So basically, they are more intelligent AI product that can create real value. So -- so we look at all our business to see if we have opportunity to apply this technology. So there are several we are already -- we have mentioned and we are working on. So one is the -- regarding our advertising business. So we already have the AI Ad Placement Optimizer product. So basically, there are a lot of opportunities to apply agents in ads because ads is an area where a lot of experience and a lot of data is needed to achieve good results. So before the people operating the ad systems, they contribute a lot of the value in having good results, ad results. Now we can have these agents to try different combinations to try more combinations and actually transfer more knowledge and experience between ad campaigns of the same customer or even across customer and segments to achieve better results. So this is -- this, I believe, is an area where a lot of value can be created because -- simply because the sheer volume and scale of advertising. So that's one area. So the other area, of course, is learning and productivity applications. So one example I can give is the AI simultaneous interpretation app. So it is -- so we think it is an agent application because compared with translation 5 years ago, it's very different. So it combines the voice technology together with large language model-driven translation technology. And it automatically summarizes the conversation and in the future, we will be able to take -- help users take further actions after -- either it's an online meeting or it's an online course that the user is experiencing. So basically, we think there are a lot of possibilities and combining these user scenarios with a subscription-based business model. So users are -- nowadays, the young users are very willing to pay for services on a monthly or quarterly basis over subscription. So we think if you look at the numbers, we already have RMB 400 million -- about RMB 400 million in subscription sales in 2025, we believe we still -- it's at the beginning. Yes, it's still very early. So we have a lot of room to grow this sales -- and one last thing. So today, we launched a new AI agent product, basically a little bit like open claw. So basically, 7 days 24-hour AI agent that runs on your computer and help you achieve tasks. So it's called Youdao Lobster AI. So yes, if you guys are interested I hope that answers your question. Operator: And that concludes the question-and-answer session. I would like to turn the conference over back to management for any additional closing comments. Jeffrey Wang: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to Piacente Financial Communications in China or the U.S. Have a nice day.
Operator: Good morning. My name is Hillary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Am�rica M�vil Fourth Quarter 2025 Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead. Daniela Lecuona: Thank you so much. Good morning, everyone. Thank you for joining us today to discuss our fourth quarter results. We have today on the line Mr. Daniel Hajj, CEO; Mr. Oscar Von Hauske, COO; and Mr. Carlos Garcia Moreno, CFO. Thank you for joining. Daniel Hajj Aboumrad: Thank you, Daniela. Welcome, everybody, to Am�rica M�vil Fourth Quarter 2025 report. Carlos is going to make us a summary of the results. Carlos? Carlos Jose Garcia Moreno Elizondo: Thank you, Daniel. Good morning, everyone. Well, the U.S. government shutdown in effect through the middle of the fourth quarter ended up rising uncertainty about the state of economic activity in the U.S. Not only did it have a direct impact on employment, but on account of the shutdown, several economic indicators generated by government agencies failed to be released at all. On December 10, less than a month after the shutdown ended and with still incomplete economic data, the Fed reduced the policy rate by 25 basis points in the absence of strong inflation pressures and the appearance of a softening economy. The dollar depreciated versus practically all the currencies in our region of operations in the quarter, except for the Brazilian real, the Argentinian peso, but it declined 2.3% versus the Mexican peso, 3.7% versus the Colombian peso and 5.7% versus the Chilean peso, remaining practically flat versus the euro in the quarter. Well, we added 2.5 million wireless subscribers in the quarter, 2.8 million postpaid net gains and 298,000 prepaid losses and ended up December with 331 million wireless subscribers. Our postpaid base was up 8.4% year-on-year. Brazil led the way in terms of postpaid net adds with 644,000 subscribers, followed by Colombia with 276,000, Peru with 148,000 and Mexico with 135,000 postpaid subscribers. Now in the prepaid segment, Mexico contributed 197,000 new subscribers; Argentina, 226,000; and Colombia 224,000, whereas in Brazil and Chile, we had prepaid losses of 381,000 and 315,000 subscribers, respectively. In the fixed line segment, we connected 524,000 broadband accesses, 84,000 in Mexico, 113,000 in Brazil, 57,000 in Argentina and 49,000 in Colombia. PayTV posted a good performance, adding 77,000 units. We disconnected 79,000 voice lines -- land lines. Our access lines exceeded 410 million at the end of December: 331 million were wireless subscribers, 79 million were fixed line RGUs. The growth of our mobile postpaid base and our broadband accesses, which you can see in the chart, our most dynamic business lines have been accelerated over the last quarters with that of postpaid reaching an 8.4% year-on-year increase and broadband access is expanding 5.6%. So these are some of our highest access growth rates in years. Fourth quarter revenue rose 3.4% in Mexican peso terms from a year ago to MXN 245 billion. They were up 6.2% at constant exchange rates with service revenue expanding 5.3%. The difference between the rate of growth in nominal terms versus that at constant exchange rates mainly reflects the 9.6% appreciation relative to the year earlier quarter of the Mexican peso versus the U.S. dollar. The apparent deceleration of service revenue growth, which extends to most revenue categories, stems from the incorporation of our Chilean operation from November 2024. EBITDA was up 4.2% in Mexican peso terms to MXN 95 billion, and it was up 6.9% at constant exchange rates in the year earlier quarter. As was the case over several quarters in 2022, 2024, EBITDA expanded more rapidly than revenue on greater operating leverage. Mobile service revenue growth remained strong at 6.2%, supported by postpaid revenue that was up 7.6%. Prepaid revenue growth maintained the pace in the prior quarter, which was the fastest in at least 5 quarters and with the exceptional developments here in Mexico. As you can see in the next chart, with Mexico accelerating from 2.8% to 3.8% on the back of a strong recovery of private consumption in the country. Fixed line service revenue was up 3.6% year-over-year with fixed broadband revenue increasing 6.4%. The non-Chilean operations were growing faster over the last couple of quarters, which you can see in the dotted green line. Mexico performed well with broadband revenue growth rising from 2% to really 4%. Our operating profit totaled MXN 49 billion. It was up 5.9% in nominal terms and 8.3% at constant exchange rates. While our comprehensive financing costs were roughly half those of the year earlier quarter, this resulted in a net profit of MXN 19 billion in the quarter, which was 4x larger than that of a year before. It was equivalent to MXN 0.32 per share or $0.35 per ADR. Our operating cash flow for the year 2025 came in at MXN 213 billion after deducting from our EBITDA after leases, MXN 16 billion increase in working capital and MXN 82 billion in interest payments and taxes. After CapEx in the amount of MXN 131 billion, we were left with a free cash flow of MXN 82 billion. The latter figure represents a nearly 40% year-on-year increase in our free cash flow. Shareholder distributions reached MXN 45 billion, including MXN 12 billion in share buybacks, even as we reduced our net debt in cash flow terms by MXN 20 billion. At the end of the year, our net debt to EBITDA after leases ratio stood at 1.52x and was on a downward trend. So with this, I will pass the floor back to Daniel Hajj, and we will begin the Q&A session. Thank you. Daniel Hajj Aboumrad: Thank you, Carlos. We can start with the Q&A session. Operator: [Operator Instructions] Your first question comes from Marcelo Santos at JPMorgan. Marcelo Santos: I wanted to inquire about the CapEx outlook for 2026 and coming years. Could you please provide us with an updated view? Daniel Hajj Aboumrad: Marcelo, what we have been doing is that what we think we are not -- still we're not finalizing the CapEx for this year. But our target is to be around 14% to 15% revenues. That is what we have been saying and it's what we're going to do. That's maybe around $6.8 billion to $7 billion. That's what I mean, and that's what we're targeting to do. So we are going to be in those range. We still does not finalize all the countries, but we're looking to have around that number. Marcelo Santos: Okay. As a follow-up, going forward, is it reasonable to assume a similar percentage of revenues for the coming years? I know you have not finalized, but just conceptually, does it make sense? Daniel Hajj Aboumrad: Yes, this is what we think. The next 3 years, let's say, 2, 3 years, yes, we can assume that we can have between 14% to 15%, MXN 7 billion, MXN 6.8 billion, MXN 7.1 billion, depending on spectrum, depending on a lot of things that are coming, but that's more or less what we're thinking. Operator: Your next question comes from Rog�rio Ara�jo. Andre Salles: I have one on, there is a line called pretax nonoperating expenses. It came at MXN 7.9 billion this quarter. This is well above the quarterly average of MXN 700 million in the past couple of years. So could you please remind what anchors exactly in this line? What did impact it this quarter? And also what to expect going forward? Daniel Hajj Aboumrad: In which line you said? Carlos Jose Garcia Moreno Elizondo: In nonoperating expenses... Rogério Araújo: It's within financial results, it's called other pretax nonoperating expenses. Daniel Hajj Aboumrad: The other financial expenses. We don't have it right now, but if you can talk to Daniela, we can give you the detail on what was the difference between the 4.9% to 7.8% this year -- this quarter. Rogério Araújo: Okay. No worries. I will. Can I follow up with another question as there was no answer on this one? Daniel Hajj Aboumrad: Yes, please. Rogério Araújo: Okay. Could you comment on Telefonica's announced sale of its operations in Chile, why Am�rica M�vil and Entel ended up stepping out of the deal and any early expectation of the expected competitive environment in the country with Millicom and French buying these assets? If you could also comment on potential consolidation movements across Latin America as well, if there is anything active, and expectations for consolidation in the near future? Anything you can share would be great. Daniel Hajj Aboumrad: Well, you know that we were going together with Entel to do a bid for Telefonica. We review and we decide not -- in Am�rica M�vil, we decide no go -- finalize and don't go together with Entel. So that's -- I think then I don't know if Entel decides to go alone or not. Then it was one. The other one that I heard that it was interested and then Millicom. Finally, Millicom is the one who win. I think we still have a lot of things to do in our company inside Chile. We are doing okay. We're gaining revenues. We're gaining market share. We are doing all the investments that we need, all the synergies that we need. So we still think that we're going to be a very strong and good competitor in Chile. For us, it doesn't change a lot because we're changing as a competitor landscape, it will be very good to consolidate the market. But at the end of the day, Millicom is a new entrant. So it doesn't change anything having Telefonica and to change to Millicom. Let's see. I hope that in the future, we can consolidate the market in Chile, not only in the wireless, also in the fixed. And let's see, Chile will be important to be consolidated. For us, why we were out, it was going to be a little bit complex because regulation, the split of the company, high leverage of the company, a lot of things that was going to be difficult to decide between ENTEL and us and then the value of Telefonica. So it was not an easy deal, and that's why we decided to quit and to stay where we are. But I think it's that Chile is a difficult market. Of course, it's a difficult market, but we are preparing and we're making all the investments and that we need to do to be competitive there. And as I said, hope that in the future, the market in Chile can consolidate. Operator: Your next question comes from Gustavo Farias from UBS. Gustavo Farias: I'd like to hear some thoughts on capital allocation. So given the strong growth in free cash flow, and we also saw a slowdown in share buybacks lately. So how are you thinking about capital allocation going forward? Daniel Hajj Aboumrad: Well, I think as -- Carlos said 2 things, we do very good growth in the free cash flow. We grow around 40% in the free cash flow. But he also said that we -- the target that we have, and always, we're saying that the target on debt-to-EBITDA will be around 1.3 to 1.5x debt to EBITDA. So we are a little bit above. So well, when you said we are reducing, I don't know if you are saying we are reducing in 2026 or will reduce from 2025. But it's important. We have a target on leverage, and we want to be on our target. So that's one thing. So the excess and the cash flow that we have, we're going to put it on reducing debt. Second, we have some M&A, as we said, we used to have Telefonica in Chile. We are not there, but we still have Desktop in Brazil. And we want to be financially healthy because we are not looking on M&A in other regions or material ones. No, we're not doing and looking on anything on that. But in our region where we operate, I think there's going to be consolidation in the market, and we want to be prepared to consolidate, let's say, small companies or fiber, small fiber companies. So there will be a lot of things. The competitive landscape in Latin America is changing. We're having new competitors. Small ones are getting out. I hope -- new ones coming. So there's going to be a lot of things through the next year or 2 years. And we want to be prepared. We want to be healthy, and we want to be on target, okay? Because as we said, the target is 1.3x to 1.5x. We are a little bit slightly above on that. So what we want is to be on target and use the cash flow for that and also to return for the shareholders and will be on buybacks and dividends. So that's mainly what we are going to do on the free cash flow that we have, nothing else. And as I said, we don't have or we are not looking on going to other countries -- outside of our region to do material things, no, because I read something this morning. So we are not thinking on doing nothing on that, only to be prepared to have opportunities. I think we're going to have some opportunities in the region that we have. That's what we have. So reducing debt and more opportunities. Carlos Jose Garcia Moreno Elizondo: Sorry, just to follow up on what Daniel has said, it's important to note that we, at the end of the quarter, we're still at a little bit marginally higher than the 1.5x net debt-to-EBITDA ratio that we have as our upper limit, even though we paid down debt by MXN 20 billion, okay, a bit more than $1 billion throughout the year. So we did devote some small amount of cash to a reduction of debt to remain within the limits that we have told the market, guided the market for the last 5 years. I mean these are not new limits. Gustavo Farias: Yes. Very clear. Just a quick follow-up, if I may. So considering what you just said and considering that the consolidation in Chile is now out of the table. Is it fair to assume that any, let's say, cash flow that would be directed to M&A in Chile is now redirected towards deleveraging? Daniel Hajj Aboumrad: Towards what? Daniela Lecuona: [indiscernible] Daniel Hajj Aboumrad: Well, as we said -- yes, for -- if we don't have anything else in M&A, of course, we're going to do through leverage. And if we have an opportunity, then we're going to do something there. So that's -- we don't have something. We are looking for a lot of things, small things in Latin America where we are. And if not, then we're going to do leverage and be in the lower range of our target to be prepared for opportunities. That's what we have. Operator: [Operator Instructions] Our next question comes from Cesar Medina at Morgan Stanley. Cesar Medina: How should we think of the impact of FX on your overall results? And I'm asking because the Mexican peso strength is very visible and you're exposed to different currencies and your CapEx and debt also has sort of hard currency exposure. In net, how should we think of the impact on the cash flow? Carlos Jose Garcia Moreno Elizondo: I think, as you say, this is a company that has many operating exchange rates in our revenue. And then we also have very different exchange rates on our debt. So what we were talking about a little while ago in terms of the leverage ratio, that's something that tends to move both because the EBITDA flows move in terms of, say, if you measure them in dollars or pesos, whatever. But also the net debt itself also moves a lot in terms of dollars or peso precisely because we have all of these currencies. So yes, it becomes a bit complex to manage these issues. And that's why we always highlight here in the report how we are doing at constant exchange rates because we need to take out all of the noise that is created by the exchange rates. But yes, I think net-net, I think that we have a clear idea of how we manage the company. I think in terms of financial exposure, we manage our exposure to currencies. So we really have exposure only to 3 currencies for the most part, 3, 4 currencies. And in terms of the operating cash flows, well, that obviously has to do with -- there's nothing we do in that respect. There's nothing that we do in terms of hedging cash flows. That's something that just comes up as cities. And this is why for us, it's always -- going back to what we were saying in the prior question, we need to balance the -- on the one hand, the desire to do distributions, share buybacks and also the need to adjust our leverage ratio by paying down some debt. And again, this is something that we cannot predict exactly from the beginning because it has to do a lot with where the exchange rates are. And you can see them as noise at some point, but also they are a reality. They are there. I mean we are going to be measuring our net debt to EBITDA, which we measure with the rating agencies, that we measure with you every time that we publicly report, well, we need to be consistent with what we are doing. So balancing share buybacks, balancing CapEx, balancing the net leverage that we have. That's... Daniel Hajj Aboumrad: Exactly what Carlos is saying is a balance, a balance between the capital allocation. It will be reducing our leverage, returning to the shareholders via buybacks or dividends and be healthy to be prepared if there's something in our regions that will come as an opportunity. So these 3 things we're going to balance through all this year to be okay. So that's mainly what we're talking on the capital allocation. Operator: Your next question comes from Alejandro Azar from GBM Alejandro Azar Wabi: This is just on the consolidation that we are seeing all over Latin America, Colombia, Chile, Brazil, there's even rumors on fixed players in Mexico being interested in AT&T. So my question is, how do you see the regulatory environment for AMX as it seems that we are moving to a tighter market with 2, 3 players. Do you think we should see in 5 years, 10 years, less regulatory or less asymmetric regulation where AMX currently has one? Daniel Hajj Aboumrad: Well, the only place where we have asymmetric regulation is in Mexico, all the other places, we don't have any, let's say, asymmetric regulation in all the other 20 countries that we operate, we don't have any asymmetric regulation. It's only in Mexico. What -- your question is how I see in 3, 4 years is exactly what we're saying. I see more consolidation in all these markets. And I think it's going to be good for the business to consolidate more or less. I think like not only in mobile, but in fixed, maybe 5 years or 6 years ago, there's a lot of companies putting fiber, giving the in a lot of countries, fiber plus very aggressive promotions. I'm not seeing any more these companies putting fiber. There are still companies that they are doing, more competitors, but no new ones doing that. So they are seeing that the business, it's not as easy as it looks. And so we don't -- we are not seeing new competitors, let's say, in terms of fiber. Then the other ones, maybe they are going to consolidate between them or they are going to consolidate with other ones. So there's going to be a new landscape in Latin America, and I think that's going to be good for us and for all the people who are staying here that's staying in Latin America. In Mexico, what you say rumors about AT&T? Well, they are rumors. The only thing that I can say is that AT&T is a very strong competitor. And if they sell to other ones, there are going to be also strong competitors. So nothing to say. So what we need is to do our job to to have the best 5G network, the best quality, customer care, everything systems, IT, AI and to do everything that we are doing, all the investments that we need to do to compete against or still AT&T here or if they sell to the other one. So we -- that's what -- exactly what I said in Chile. In Chile, we used to have a Telefonica competitor. Today, it's not going to be Telefonica. It's a pity that we cannot consolidate this market because this market will be good to consolidate, but it's going to stay more or less the same with 4 competitors in mobile and the same in fixed. So let's see and see if in the future, we can consolidate that market. So that's what -- yes. Carlos Jose Garcia Moreno Elizondo: Alejandro, as Daniel is saying, I mean, I do believe that you can see that there's very much of a wave of consolidation happening in the world. You look at Europe, there used to be many more players in each one of the countries, there's been a reduction. And this basically has to do with the dynamics of the industry. This industry requires scale to get the returns for the investment. And when you have a very fragmented market, there's no returns and no investment. And typically, players end up probably not in the best of shapes. So I think that this is an issue that is more and more taken into account by regulators and generally governments worldwide. Operator: Your next question comes from Marcelo Santos at JPMorgan. Marcelo Santos: I just wanted to use this opportunity to ask about the Brazilian number portability. You mentioned in your release like that Brazil is seeing sustained customer preference as evidenced by positive number portability trends, which indeed has been very strong and stronger than usual. My question is, is this portability that has been stronger mostly explained by NuCel, which you have the MVNO? Or is it mostly explained by your like Paro operation in Brazil? Just wanted to see what's driving this strong portability, which we also see using the data. Daniel Hajj Aboumrad: I think they are both, okay? There's no doubt that NuCel is helping us in number portability, and we're doing very good with them. But in the other side, we are doing strong, and we have been growing more on revenues than our competitors in Brazil. And I think that's good number portability plus new subscribers, we are doing okay. And the other thing that I'm seeing is that we are getting also very good ARPU subscribers. So we are not only in the prepaid or in the low end, we are getting also good high-end subscribers. So it's been good. That's what I can say. There is no doubt that NuCel is helping us, but it's not only NuCel. There's all the things that we have on the back of that, that is doing -- that we have been doing that. We have been always gaining number portability through the year. And in the fourth quarter, we get a strong because NuCel. So it's been good, and we are a little bit more good, a little bit more better than what we used to be. This is what I can tell you. Alejandro Azar Wabi: So just to clarify, the jump we saw in the fourth quarter, that would be attributed to sales. You were having very good portability across the year. That's Claro, but the change we saw in more recent months, that would be NuCel. Daniel Hajj Aboumrad: Part not all, but part could be -- yes, part could be NuCel, but not all is NuCel. Also it's fourth quarter. Fourth quarter, a lot of people is changing. There's new handsets that people want to change for handsets or they want to do promotions. So there's a lot of things. Operator: Your next question comes from Emilio Fuentes at GBM. Emilio Fuentes De Leon: I'm wondering, given the stellar net adds you have had in broadband in Mexico, the recent quarters, how sustainable do you see this performance going forward, specifically as we reach a higher penetration for this service in the market? Carlos Jose Garcia Moreno Elizondo: Yes. We see a good trend on net adds within the last 4 quarters in fixed broadband in Mexico. We have very good promotions in the market that the customers have received very well. The bundles with streaming increasing the speed. So we see the same trend through the year through this year, right? So we see the bundles are working pretty good with the streaming video platforms and the speeds that we've been delivering to the market are really good. We have 92% of the customers already with fiber. So we believe that we will retain the customers. We believe the trend will be more or less the same. Operator: There are no further questions at this time. I will now turn the call back to Mr. Daniel Hajj for closing remarks. Daniel Hajj Aboumrad: Well, to thank everyone for being in the call. And thank you, Carlos, Daniela, Oscar. Thank you very much. Carlos Jose Garcia Moreno Elizondo: Thank you all. Daniel Hajj Aboumrad: Bye-bye.