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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.
David Thomas: So I'm going to make a start. Good morning, everyone. Thanks for coming along to see us this morning, and welcome to Barratt Redrow's Interim Results Presentation for FY '26. This morning, I'm joined by Mike Roberts, our Chief Operating Officer, who will provide an update on our operational performance; John Messenger, our Investor Relations Director, who will update on our financial performance. And after John, I will then update on the market, current trading, synergies and also set out how well positioned we are for the future. First of all, I would like to take you through some of our key messages. Barratt Redrow's performance over the half was resilient, both operationally and financially. And that is despite what has been a generally subdued market. While the consumer did benefit from 2 interest rate cuts and mortgage availability improved, consumer confidence clearly remained low. Speculation ahead of the November budget caused many to postpone decision-making. But we have maintained our financially robust position and solid balance sheet. Importantly, the successful integration of Redrow is near completion, and our synergy target remains unchanged. And we are now operating from 3 distinct high-quality brands. Building on all of this, our focus centers on business as usual for Barratt Redrow around both optimizing our capital employed and fine-tuning our costs to ensure that we drive operational excellence and efficiencies across the enlarged group. So that we are going to be -- we feel well placed for the full year and well positioned for future growth. If we look in more detail at the operational highlights from the half year, clearly, embedding Redrow into the business was, of course, a highlight. And we have started to see the benefits of this reflected in our performance with good progress on synergies that I'll cover in more detail later. Our land position is strong at 5.6 years, allowing us to be even more selective around land intake. We delivered 7,444 homes, in line with our plans for the year, which was a good achievement given the market environment. I would also like to highlight some of our externally accredited credentials in the period. Our repeated success in the HBF ratings and in the NHBC Pride in the Job awards are testament to the dedication of our teams across the business as well as to the quality of training that we provide and the customer-first culture we maintain across the group. This quality is also reflected in our Trustpilot scores given by our customers, which award all 3 of our brands with the highest rating of excellent. John will cover our financials in more detail, but just to pull out a few highlights. Adjusted PBT before Purchase Price Allocation impacts was lower than last year at GBP 200 million due to higher net interest costs and lower joint venture profits. So return on capital employed, again, pre-PPA adjustments was in line with last year at 9.1%. We were particularly pleased that nearly all of our GBP 100 million target synergies were confirmed at the end of December. And finally, we finished the year with a solid net cash position after organic investment, which supports our growth plans, also our dividend payments of GBP 172 million and the share buyback of GBP 50 million in the half. With that, I will hand over to Mike, who will now go through our operational performance in more detail. Mike Roberts: Thank you, David, and good morning, everyone. I'd like to take a moment just to introduce myself. I've been in the housebuilding industry for 32 years, and I joined Barratt back in 2004. I've worked closely with Steven Boyes as Managing Director of our Northeast division. And in 2017, I was appointed Regional Managing Director for the Northern region. In July last year, I was appointed Chief Operating Officer on Steven's retirement. And today, I'll be taking you through our operational performance for the first half. Starting with the private reservation mix on Slide 7. There are a couple of points to highlight. Firstly, PRS. Given the budget uncertainty, the market became harder in the period and potential discounts increased. But we maintained our discipline and were less active. As a result, PRS reservations were a lower proportion of overall reservation volumes at 4% down from 9% in the equivalent period last year. Secondly, for existing homeowners, we saw a significant increase in the use of Part Exchange at 23% of our private reservations, up from 14% last year. We've introduced our industry-leading Part Exchange skills into the Redrow brand. It offers a stress-free moving option for our customers. And at a time when conveyancing chains were a concern for many potential homebuyers, it has proved a popular incentive. To be clear, it's offered as an alternative and not additional incentive. And it's worth noting that the combination of Part Exchange and second home movers remain fairly consistent year-on-year. Part Exchange has been an integral part of our business for many years and stock levels are carefully managed. At the end of the half, we had just 180 units unsold. Turning to completions on Slide 8. We delivered 7,444 homes, an increase of 4.7% on the aggregated performance last year. Both private and affordable completions were ahead, although this is more about timing. So our guidance for FY '26 is unchanged. Underlying private completions were 1.8% ahead and PRS completions were up over 50% to 423 homes. This increase was largely a function of our order book coming into the year. And as I said earlier, the market has subsequently hardened. Affordable home completions were up 26%, helped by the rebuilding of our order book in the prior year and are now 19.5% of wholly owned completions, which is in line with our expected affordable mix. Joint venture completions were lower than the prior year due to timing, but we are on track to deliver approximately 600 units in the full year. In terms of pricing, the wholly owned average selling price was up 4.9%. More detail is provided in the appendix, but this was driven by a combination of mix, producing a slightly larger average unit size and geographical volume variances given the spread of average selling prices between the regions. There were some notable variations by region with our Central and East regions seeing the strongest average selling price growth. Now turning to sales performance here on Slide 9. The underlying private rate remains solid at 0.55 reservations per week ahead of last year, with customers benefiting from an improvement in mortgage availability and affordability. This good performance came despite the uncertainties which overshadowed much of the period. PRS and other multiunit sales effectively paused in the run-up to the budget. And although we saw a pick up afterwards, this added just 0.02 reservations per week over the period, down on last year. We operated from an average of 405 sales outlets, below last year, but very much in line with our plans. David will cover our view on sales outlet evolution later in the presentation. Turning to the private forward order book. This was 10% lower at the half year stage. This partly reflected a high starting point coming into the year, but also the reduced reservation rate, lower numbers of sales outlets and increased completions in the first half, all of which contributed to the overall lower number. Given the solid start to the calendar year, we are confident that we can deliver full year completions in line with the guidance. I'd like to wrap up with our industry-leading credentials around design, build quality and customer service. It's what underpins our brands and is key to our sales success. We achieved a 5-star rating for customer service in the HBF survey for the 16th consecutive year. And our site managers have secured an industry-leading total of 115 Pride in the Job awards and 45 Seals of Excellence. Reportable items per NHBC inspection have increased slightly following the Redrow acquisition, but with opportunities to share best practice across the divisions, we expect to see this improve. And finally, I'd like to take this opportunity to congratulate Dane Mumford from our East Midlands division, who is runner up in the large builder category at last month's Pride in the Job Supreme Awards, an excellent achievement. On that note, I'll hand over to John for an update on our financial performance. John Messenger: Thanks, Mike, and good morning, everyone. Today, I'll take you through our half year '26 performance, an update on our land bank and also on building safety. Here is an overview of the -- our half year numbers. To be as clear as possible, we have set out here the adjusted pretax profits before PPA adjustments, then the adjusted profit before tax after PPA and finally, the statutory pretax after adjusted items. The first point to note is that both adjusted measures are now stated prior to the impact of imputed interest charges on legacy property provisions. We believe this measure provides you with the best view of the underlying performance of the business, moves us in line with peer reporting and includes the reclassification of GBP 19.6 million of noncash imputed interest in half year '26 and GBP 18.4 million in half year '25, which has been added back in arriving at the reclassified results you see here. We also show the comparables and just to flag the aggregated and reported periods have seen minor restatements for the finalization of the purchase price allocation process, which was completed at the end of last year. I will focus on our performance relative to Barratt and Redrow aggregated for the whole of half year '25. And you will remember, we consolidated Redrow actually from the 22nd of August. So adjusted profit before tax before PPA impacts was down 13.6% in the half year to GBP 200 million, and I'll take you through the key drivers of that in a moment. The good news is that the purchase price allocation impacts largely fall away from next year, which will make all of our lives a lot easier. Slide 13. This slide looks at the margin performance in more detail, and there are several points to highlight. The increase in home completions, coupled with an increase in ASP, generated revenue growth of 10.5% to GBP 2.6 billion. However, the adjusted gross margin was 200 basis points lower at 15%, giving an adjusted profit of GBP 394.8 million. There were 3 drivers behind the margin movement. Firstly, while we benefited from growth in completion volumes, underlying pricing was flat. We then saw 2 headwinds on 2 fronts. Our targeted but increased use of noncash sales incentives, particularly extras and upgrades to convert reservations against the challenging backdrop through 2025 was a negative to gross margin. These incentives added directly to cost of goods sold and had a direct impact on the gross margin. And we also experienced underlying build cost inflation of approximately 1%, including procurement cost synergies. At operating profit through both cost discipline and the benefit of cost synergies, adjusted operating profit before the impact of PPA adjustments was flat at GBP 210.2 million, with the margin down 90 basis points to 8%. I'll cover margin movements in a moment, but just the final parts in the mix here. Adjusted finance charges at GBP 12.4 million compared to finance income last half at GBP 12.2 million. This reflected reduced average cash balances, utilization of our RCF in the period and the imputed interest rate on new land creditors relative to those being settled. And JV income with lower completions in the period has reduced to GBP 2.1 million. As a result, adjusted PBT before PPA impact was GBP 200 million, giving an adjusted earnings per share of 10p. And we have proposed an interim dividend of 5p per share with our 2x dividend cover ratio in place for the full year. In summary, we saw good momentum on home completions and are pleased to see the benefits of Redrow integration coming through. Looking forward, there are clear opportunities to improve our gross margin, which David will cover. Turning now to our land bank on Slide 14. A steadier pace of land acquisition, growth in completions and the reclassification of some Redrow plots into our strategic land bank has seen the duration of our owned and controlled land bank move to 5.6 years in December. Our land bank is in a strong position and very consistent with our plans to optimize our capital employed, as David will set out. A key metric here on the slide, which we are increasingly focused on is the average number of detailed consented plots on each of our sales outlets. This is clearly a function of the size of the outlets and the time frame over which it has been actively selling, but we are looking to ensure our land bank is efficient with sales outlets sized to deliver typically sales over a 3- to 4-year period. And with more than 27,500 strategic land bank plots submitted to local planning authorities across 103 applications, we expect to make further progress on strategic land conversions over the coming years, too. Now looking at our embedded margin in the land bank. Here, you'll see the updated plot distribution of embedded gross margins across our owned land bank plots. There are 3 moving parts to highlight. First, a positive 40 basis point impact, reflecting the plot mix traded out through completions this half at a margin of 14.5% after including the PPA impact. Second, a negative 90 basis point impact from the flow-through of flat pricing, build cost inflation and incremental sales incentives. And thirdly, a 20 basis point improvement from land acquired in the period at a 23% gross margin. As a result, the embedded gross margin ended the half 30 basis points lower at 18.9%. Improving the embedded gross margin is a clear priority. With little movement on pricing, we will do this best by managing cost base inflation, driving development pace and buying land appropriately. To Slide 16. Here, we look at our adjusted operating margin and the bridge. On a pre-PPA basis, including Redrow for the full 26 weeks, this was 8.9% for the combined operations in half year '25, first column shaded here on the left. We saw a benefit of 40 basis points due to the gearing effect of higher volumes. The combination of flat pricing, but underlying build cost inflation of 1% and the targeted use of noncash incentives created a negative inflation impact of 90 basis points. Completed development provisions reflect the local authority delays in adoption of roads and public spaces accounted for a negative 40 basis points. The impact of cost synergies, which I'll set out in a moment, added 90 basis points, and these savings covered off both the underlying inflation in our admin expenses as well as mix and other items. This has resulted in the operating margin before PPA impacts of 8% for the half. And finally, you can see the PPA dropping off to deliver the 7.5% margin on an adjusted basis. Turning to administrative expenses and adjusted items. We reduced our adjusted admin expenses by 5.4% in the half year to GBP 184.8 million when compared to the aggregated business last year at GBP 195.4 million. We also then show the adjusted items here in arriving at our reported admin expenses at GBP 208.7 million. This included adjusted items charges of GBP 23.9 million with GBP 18 million charged on further restructuring and integration and legal costs on legacy property recoveries at GBP 5.8 million. Whilst not shown here, the net impact of adjusted items in the period was GBP 10.5 million, with significant legacy property-related recoveries from third parties of GBP 13.4 million recognized in gross profit. It's positive to see both cash-based adjusted items falling away as well as receipts coming in with respect to building remediation. Here is just a quick bridge in terms of the admin expenses. The movement in admin expenses from the aggregated base of GBP 195.4 million to the GBP 184.8 million is set out on this slide and shaded light green. We saw an increase of GBP 4.3 million related to changes in national insurance contributions and a further GBP 8.1 million from cost base inflation. Cost synergies then delivered a GBP 23.2 million positive impact, which were then coupled with a reduction of GBP 0.2 million in sundry income, which covers JV management fees and ground rents delivered the outturn of GBP 184.8 million. It is positive to see the synergies we identified at acquisition having a meaningful impact on our profit and loss account. Turning to Building Safety, where I'm pleased to report that there is very little to cover. There were no changes required to our provision position and having spent GBP 77.8 million on works across our Building Safety and reinforced concrete frame portfolios in the half and seeing the unwinding of imputed interest of GBP 19.6 million, our total legacy property provisions just sat at just over GBP 1 billion. To cash flow. Slide 20 sets out the cash flow bridge for Barratt Redrow from reported operating profit on the left to the net cash outflow on the right. We have just a couple of cash flow numbers to point out. The biggest driver of cash outflow in the period was the seasonal increase in construction work in progress alongside Part Exchange investment, together equating to just over GBP 313 million. 3/4 of this is construction work in progress, very much following our sales cycle and construction seasonality. Our net investment in land was relatively modest at GBP 68.7 million. And adjusting for the dividend payments of GBP 172 million and GBP 50 million in share buybacks, the net cash outflow was just under GBP 600 million. We would expect an inflow of circa GBP 300 million in the second half and for the year-end cash position to be in line with guidance at between GBP 400 million and GBP 500 million. Fees, we have included on the slide here, a reminder of some of the other relevant guidance points around cash flow. Turning to Slide 21. Here is our usual balance sheet breakout. Liberty really to highlight. Over the 26 weeks, we saw a GBP 21 million net investment in our gross land bank and land creditors reduced by just over GBP 42 million, giving a net land position at GBP 4,358 million, with land creditors funding 15% of our land investment. Land creditors clearly remained below our target range of 20% to 25%, but we are looking to add a larger portion of land purchases on deferred terms to take us towards our target range and also to manage our land bank more efficiently, as I alluded to earlier. The other balance sheet item to mention here, as already discussed by Mike, is our part exchange investment -- sorry, Part Exchange investment, which you can see closed out at GBP 219 million with GBP 74.7 million added in the half year period. Before I wrap up, I thought it would be helpful to remind you of our capital allocation priorities set out here. Our enhanced scale and balance sheet strength clearly put us in a strong financial position. But we are very mindful of the obligations we have, particularly with respect to building safety, how we are managing this appropriately. The Redrow acquisition has multiplied the opportunities we have to drive growth and value from the business. So we will invest in these, but at the same time, we will look to drive efficiencies in the way we manage both our capital employed and our cost base. And finally, we recognize the importance to our shareholders -- our shareholders place on capital returns. We have a clear dividend policy, and this is alongside an active GBP 100 million buyback program with GBP 50 million completed in the first half and a further GBP 50 million underway and set to complete in the second half of the year. So to summarize, our operational performance in the half year has been resilient, and that's despite the macro uncertainties faced. Our balance sheet remains solid, and we are capturing the cost synergies from the Redrow integration with our cost synergies confirmed. Turning to guidance. You will find a detailed slide in the appendices, but I thought it helpful to cover the main points here. As previously set out, we expect full year '26 total completions to be within the range of 17,200 to 17,800 homes. Underlying pricing is expected to be broadly flat, and we expect build cost inflation to be around 2%, including the benefit of procurement synergies. Reflecting the reclassification of imputed interest on the legacy property provisions, we anticipate an adjusted finance charge of approximately GBP 30 million with provision-related adjusted item imputed finance at GBP 32 million for FY '26. And our building safety program remains in line with guidance at approximately GBP 250 million of spend in the year. And we expect to finish the year with between GBP 400 million and GBP 500 million of net cash. Happy to take questions later, but I will now hand back to David. Thank you. David Thomas: Thanks very much, John. I'd like to start this section with an overview of the housing market. So we've talked before about the fundamentals of the market, which underpin our sector, and these continue to be strong. There is a long-standing imbalance between demand and supply. The challenges for our industry are affordability constraints on the demand side and planning constraints on the supply side. Housing and planning reforms are clear priorities for the government, and we welcome the steps that they are taking to improve the planning environment. However, it will take some time for these reforms to feed through at a local level and with many local authorities having elections in May, the planning backdrop in those areas could remain challenging until the second half of the year. Meanwhile, some of the near-term indicators on the demand side are more encouraging. Uncertainty has definitely moderated post budget. Markets are pricing in further interest rate cuts and mortgage availability continues to improve. But consumer confidence remains weak. And despite some slight improvements, affordability remains challenging, particularly for first-time buyers needing to bridge the deposit gap. In this environment, we recognize that self-help measures are very important. As Mike outlined, we continue to develop our Part Exchange offer, particularly for Redrow. And in the half, we also launched our own shared equity offer alongside our popular first-time buyer and key worker schemes. We continue to believe that the key to a sustained recovery in the housing market and volume increases across the sector is government support for prospective homebuyers of the type which has been in place for many decades until 2 years ago. Overall, given the market context, recent trading has been resilient. We have seen encouraging consumer activity since the budget, but consumers are still taking their time. So our net private reservation rate over the 5-week period was down slightly on last year. The FY '26 opening order book and slightly improved affordable housing sector backdrop means that year-to-date completions and forward sales are both ahead of the position last year. But there continues to be a lot of political and economic volatility at the macro level, which is clearly unhelpful for consumer confidence. So given the broader market context, for us to maintain a sharp focus on efficiency and leveraging the benefits of the integration is going to be key for Barratt Redrow. So I'd like to give you an update on our synergy program. If we start with cost synergies, we have confirmed our target of GBP 100 million of annual cost synergies. In FY '25, we delivered GBP 20 million of cost synergies through the P&L, as you can see on the chart. We expect to deliver a further GBP 50 million through the P&L in the current financial year, having already delivered over GBP 30 million in the half year. So we are very definitely on track for that cost synergy delivery. Looking at revenue synergies. Our target is to open 45 incremental sales outlets. To date, we have submitted 31 planning applications, of which 16 have already received approval. We are on track to submit the remaining applications in the second half of the financial year, and we expect the first sites to be ready for sales opening at the start of FY '27. Moving on to outlets. As we've said, the planning reform is positive, but we do have to experience that improvement on the ground. So as we've previously guided, we expect average outlets to be flat in the current year, but we would expect to see a good uptick in FY '27, both through organic growth and with around 15 synergy outlets coming on stream. This should bring average outlets for FY '27 to between 425 and 435. Importantly, given the strength of our land bank, we do not have to make significant future land purchases to drive our outlet opening plan. It is primarily about using the land that we already have. So as you can see, our integration activity is largely complete. Looking forward, our focus is on 2 key areas: optimizing our capital employed and fine-tuning our cost structure. This half, given the strength of our land bank following the combination and our land approvals in FY '24 and FY '25, we have substantially reduced approvals. But alongside some land swaps and land sales, we will continue to make targeted acquisitions, and we anticipate approval of between 10,000 and 12,000 plots in FY '26. Dual and triple branding our sites means we can reach more customers, which should improve our sales volumes and help our asset turn. Turning to costs. Given our scale and reach, we see opportunities to drive efficiencies across our supply chains and to make marginal reductions in our overheads. This discipline is business as usual for us. Pulling this together, we remain very confident that Barratt Redrow is best placed to navigate the market for all points of the cycle. Fundamental to this are our 3 high-quality and differentiated brands, and we have the skills and experience to deploy them effectively. These brands allow us to operate in a variety of locations and local markets with the optimal divisional infrastructure to match. Our customer focus has been established by our numerous third-party credentials over the long term. We are the reliable partner of choice across the private and public sector, allowing us to be flexible and innovative. Our reorganized divisional structure and brand portfolio positions us well for growth over the medium term. And finally, we remain financially strong with a robust balance sheet and a solid net cash position. So to wrap up, we do have 3 high-quality differentiated brands. We have a strong land bank. We have clear visibility over our outlet opening program, and we are a leading platform for growth. Virtually all of the GBP 100 million of synergies are confirmed, and we expect the integration to complete by April this year. Looking forward, our focus will be on continuing to drive our operational efficiency and using the opportunities we have identified to drive growth and value for all of our stakeholders. Thank you. Thank you very much for that. And we're now going to open up for Q&A. John is going to facilitate the Q&A, and he is looking forward to the large number of questions that I know you're going to put his way. John Messenger: If we just -- we'll start in the front row, Chris, and I think you need to pull and press basically. Great. Chris Millington. Christopher Millington: So I just want to ask about the pricing experience so far in calendar year '26 and whether or not you've seen any sort of improvement there, obviously, with incentives. And perhaps you can just put a regional overlay on that. Second one is just around the outlet opening profile. It's a big ramp-up you've got there. Now if I understand what you said correctly, is you're going to be flattish in the second half, but then potentially up at GBP 430 million next year, so roughly about 8% growth. Now if that's linear, it means the opening close is going to have to be 16-ish percent higher. I mean it feels a big number with some of the uncertainties out there, but perhaps you can give me some confidence there. And the final one is just really about the gross margin in the land bank. It looks like you're taking the lower-margin plots at the front end that makes a little bit of sense because of the new land coming in at higher margins. But how long do you think you get to the average land bank margin. Because you're kind of under-indexing what, 400, 500 bps at the moment versus our average. David Thomas: Chris, thanks very much. I mean if I take in terms of pricing and incentives to start with. And then I'll say a few words about outlet opening and then John will follow up in terms of outlet opening. And then John will pick up in terms of gross margin. So I think in terms of pricing and incentives, I mean, the first thing that I would just put in context is that if you went back to August '25, we started to see a lot of news flow about what may or may not be in the budget. And at the beginning of October, we made a very conscious decision that we needed to push harder in terms of incentives, not in terms of gross price, so generally keeping gross price as is, but pushing more in terms of incentives. And I think that's seen a step-up in relation to Part Exchange, a step-up in relation to related incentives. Coming into the new calendar year post the budget, I just think we've seen a higher level of customer interest, and we probably have a bit more confidence in terms of our ability to maybe gear back a little bit on incentives, not in that we're going to move it 1% or something in a short period of time. But there is just more interest out there. And I think all of our divisions feel that, that is a slightly better backdrop with a possible caveat around London, which I would say is pretty much unchanged. And then just before I pass over to John, in terms of the outlet opening program, I think the really key point is that we have the land under control. In terms of our FY '27 position, we're in the high 90s in terms of having a planning position in relation to that. And we would see some uptick in outlets late in this year, which will not impact reservations. And we overall will see quite a substantial uplift in FY '27. But I think the key point is we don't need lots of planning to deliver that. And bear in mind, a big chunk of it is coming from synergy outlets, which are already under our control. John, do you want to... John Messenger: Yes, David had stolen some of my thunder with the synergy points, but there you go. Yes, if you look at where we are broadly at the end of this year to where we'll be at the end of next, a big part of that is effectively 30 synergy outlets in there, which will leave you with a balance of 20 to 25 that need to come through the organic route, Chris. And I guess we are certainly comfortable in terms of that profile coming through. And when we look at the timing of it, there is quite a significant outlet opening program clearly across '27, but there will be certainly a decent boost in the second quarter, which will obviously lead us into the spring selling season for Q3. So part of it is very much kind of profile across the year, but we actually have a pretty useful program planned for the second quarter, which will obviously give us a January start into that new calendar year. The other one was around gross margin. Just to be clear, the embedded gross margin at 18.9% is post PPA. So it's all in. So the Redrow plots are in there, including the PPA component. So we expensed at 14.5%, as you saw in the slides. The embedded is 18.9%. So you've got a kind of 440 basis point differential there. I think when you look at the length of the land bank at 5 years, clearly, the average to get there, we're probably talking about 2.5 to 3 years realistically before you're going to hit that point because obviously, it's partly about the timing of when we purchased and when those new sites that are coming in at a higher gross margin start to really feed through in terms of volumes, not just in reservations, but in the completion mix. So I hope that's helpful. Will Jones at Rothschild Redburn. William Jones: Will Jones at Rothschild & Co Redburn. Maybe just 3, please. Perhaps just touching base on build costs. I think your guidance for the second half implies about 3% perhaps including some synergy benefit as well. So just the moving parts within the latest on build costs. Secondly, perhaps just more of an overview inflection 6 months plus on from the formal integration, just your view of how the Redrow brand and business is performing post acquisition. And then lastly, if we just cover off on building safety. Obviously good to see no movement in the provision, but just your level of confidence as you assess the portfolio and what you may still not know about potentially as we look forward. David Thomas: Yes. Okay. Will, thank you. So Mike will pick up in terms of build costs, and I'll pick up in terms of Redrow and building safety. So I think in terms of Redrow, we said at the time, we are admirers of the Redrow brand. We think it's an absolutely fantastic brand. And getting Redrow really focused on the heritage brand because inevitably to grow the business, Redrow were doing more than just heritage. And we think Redrow really focused on the heritage brand. It's where they want to be and it's where we want them to be, and it is the premium brand in our portfolio. In combining with the business, they have a fantastic land bank. And so I think the opportunity for us to be able to take Barratt through the Redrow sites to work together and maybe Barratt deliver more of the affordable housing, for example, alongside the Barratt housing is a really big opportunity. And then where we have sites where perhaps we were already Barratt and David Wilson, and we might have sold land to a third party, we can bring Redrow on to those sites, and we clearly have a number of those sites. And both in terms of the synergy sites, but I mean, the synergy sites are just the start of the story. I mean, I think all of our land acquisition going forward, where all 3 brands operate in that geography, then we are looking for opportunities for those brands to operate well. So I really feel that in terms of the brand, the consumer proposition and in terms of the build sales teams, it's really done well and really integrated well. So that's all positive. And I know we've touched on the synergies, but I think it's just pleasing to be in a situation that we've effectively banked the GBP 100 million of cost synergies. We're obviously looking for more, but the reality is that our main focus now is on the delivery of those cost synergies and then ensuring that we get the revenue synergies executed, which I think we're well on with. In terms of building safety, John said that we are pleased to really be saying nothing. I think that's a nice position for us to be in. I think it's too bold for anyone to say we're absolutely comfortable with all our provisions and so on. I mean, I think everyone has seen that the evolution of this has been challenging. But we feel that we really have our arms around both building safety in terms of the remediation of buildings and also concrete frame. So both parts of it, I think, are moving well, and we'll just continue to update on a 6 monthly basis. Mike, do you want to pick up build costs? Mike Roberts: Yes. So we've guided inflation at around 2% for the full year. We estimate that, that will be split between labor and materials, 1.5% labor, 0.5% materials. Labor generally, we're seeing 2% to 3% price pressures, really around National Insurance and salary reviews as per would be the norm. What we're not seeing is any inflationary pressure around scarcity of labor or labor availability. So there is no excessive pressure on the inflation for the labor content. The materials, pretty variable. Actually, we've obviously bringing the Redrow business into the Barratt, David Wilson team. We've improved our procurement capabilities. But we've seen bricks and blocks around 3% unengineered timber up at maybe 10%, but lots of materials at flat line or very low digits really. So overall, we're pretty confident that we'll be able to land that at around 2% for the full year. John Messenger: Emily Biddulph, Emily at Barclays. Emily Biddulph: Emily Biddulph from Barclays. I've got 2, please. The first one just on how we should think about the margin bridge, I suppose, for the second half of the year. Conscious you've guided build cost inflation higher, but presumably the way that you account for that, you sort of already reflected that in the first half margin. And then the sort of positive things around the potential for incentives to be a touch lower. Is that sort of the way we should think about it? And then on top of that, can you just remind us the sort of the extent to which you benefit from sort of fixed cost of goods and some leverage over that in the second half of the year and potentially that sort of a little bit of land bank evolution. Can you give us a sense of sort of what the magnitude of that might be? And then secondly, I think David mentioned the sort of evolution of the part exchange offering in Redrow. When we look at that on the balance sheet, is there a number that you sort of -- you're comfortable with it sort of ticking up to be? Or is that the way -- is that what you're sort of trying to tell us that it might actually be a little bit more on the balance sheet towards the end of the year? Or how should we think about it? David Thomas: Emily, thank you very much. I think that first question you sort of asked and answered it at the same time. So you've given John too much of clue. Emily Biddulph: Can you give the whole margin bridge? David Thomas: Yes, yes . Yes. So John will cover the margin bridge. Look in terms of Part Exchange, I mean, I think most of the housebuilders have a Part Exchange offer. It is a fantastic way for us to compete in the marketplace. I mean, bear in mind that the vast majority of customers sell a secondhand home and buy a secondhand home. So where we are able to break into that, we are best to break into it with a part exchange offer. And I think you'll see that part exchange is 2 things for us. One is we have something that we would call movemaker, where we would effectively give a commitment to buy the property, but we would primarily focus on the property being sold before we get to the point of completion on the new build house. And then we would then have a part exchange offer where either that movemaker doesn't work or we agree to take the property from the beginning. The number of properties and the value of properties is not a huge concern to us. I mean the operational and the financial risks are similar. And Mike touched on that. We have about 180 properties that are not reserved, which I think when you look at the size of the group across 30 divisions or 32 divisions is a small number of properties. So the more part exchange we can do in the current market, the better. In terms of Redrow, Redrow did have a movemaker equivalent, and they did have a part exchange offer. But I would say that they were reluctant to use it. And we just see in the market that we need to do more of it. And so the Redrow position in the underlying numbers has grown from what in the FY '25 was around about 2% of their business was using the PX offer to it now being kind of above 10% of their business is using the PX offer. So yes, we're very, very positive about that offer in the market. John Messenger: And then just to pick up on the margin bridge, Emily. So I think there are probably 4 aspects to this to keep in mind in terms of the bridge from last year to this year. First, plot mix-wise, which was mentioned there, if we look at the delta, I guess that implies with 440 basis points from where we reported in the first half to the average in the land bank, that broadly equates to 80 or 90 bps per annum, thinking of that movement. So that's probably, call it, 50 bps in the half year period, if I was looking to try and work a number through there, Emily. Second one is then on build cost inflation. And you're correct in terms of given the accounting approach and margins on site-based approach, a lot of that cost inflation is already built into the margin that we're recognizing. But there clearly, we've got to work hard in the second half to control and limit that impact from build cost inflation. But the positive on the other side of that is clearly from an incentive level where we added circa 1% to our incentives in the first half, that was very much driven by the budget and the need to convert people and to give people a call to action effectively to reserve and move through to completion. Obviously, as we work through the spring and given we've had a pretty encouraging start certainly in the 4 weeks of January post the first week we had, then we'll be working site by site, literally trying to move and make sure that we're optimizing both the balance of volume and value and that around the incentive that's applied. So there will clearly be a push to try and work as we can to get that incentive lower. And then finally, on the volume gearing aspect, when you look at our volumes, we're broadly 40% more volume in the second half than the first. That mathematically obviously will come through in terms of operational gearing, and that should again help on the second half margin. But those are the 4 ingredients in terms of that movement there. Thanks. I think over to the other side, Aynsley and then Clyde. Aynsley Lammin: Aynsley Lammin from Investec. Just 2, please. Just picking up on your comment actually around the sales rates. John, just I think you said the last 4 weeks particularly have been good. Just wondering if you had any more color. Has it been progressively improving. And when -- you've maintained your full year kind of completion guidance, but I think you mentioned that also depends on sales activity. How much risk is there? What do you need to see in the spring selling season to kind of meet that full year completion guidance, I guess? And then second question on the provision, as you say, good to see it kind of stay around the GBP 1 billion level. But could you just remind us how long you expect to work through that and what the kind of annual cash outflow profile looks like during that period? David Thomas: Okay. Aynsley, so I'll just make sort of comment on the sales rate and the sales risk and pick up on the provisions. I'm just going to answer them both. That's it. Yes. Look, in terms of sales rate, I think that we had quite a bit of debate about this, okay. So the reality is we've always said we're not going to split current trading, whether that's positive or negative because it's such a short period. And then we get into saying, well, the first week was this and the third week was that and so on. So we're not going to kind of break with that. But I think what we would say is that our business is positive about what we've seen during the month of January. And December is always a tricky month. But when we come into January, we've just seen good consumer interest, good level of appointments and reasonable levels of reservation. Now bear in mind that we're not comparing really to last year. We're presenting the numbers compared to last year because that's the convention. But we're really talking about what was it like in October compared to what is it like in January, and it is substantially better in January than it was in October. That's the reality, that October, November period. In terms of looking at the risk, I mean, we are sort of really working on the basis that we need to sell at about 0.6, and we feel comfortable in terms of that sale. And we give ranges, you're sort of -- it's a problem if you do and it's a problem if you don't. So I would say that we've got a high level of confidence of hitting the midpoint of the range. And we don't see lots of downside to that and potentially, there's a little bit of upside, but I think we've got to focus on that midpoint of the range. And then -- sorry, provisions. Yes. So the cash run rate on provisions, well, my sense is that there's another 4 years at least in terms of runoff of the provisions. We would expect expenditure will start to accelerate in '27. So there's a huge amount of setup to be done to get the developments through the building safety regulator because all of these developments have to go through the building safety regulator. We see that, that backdrop with the building safety regulator has improved from where it was 12 months ago, there's much more transparency about what is happening, but they have a huge amount to address in terms of the backlog. So getting stuff through the building safety regulator and therefore, substantial expenditure in '27 and '28. But realistically, on a GBP 250 million run rate cash spend this year, I think we're very unlikely to be above that cash spend, and we'll just run it off over the next 3 or 4 years. John Messenger: Clyde. Clyde Lewis: Clyde Lewis at Peel Hunt. Three, if I may as well. Probably following up on Aynsley's question there about sort of recent activity. I mean I'm still a little confused as to where we are because normally, spring is the best selling season for all housebuilders. And obviously, we've had a pretty shocking October, November, December period. So there's a catch-up. And I'm just, again, really trying to get a feel for whether it really does feel better than last spring or spring in '24 or spring in '23 compared to where you would have been in Q4? I understand clearly, it's better than Q4, which it traditionally is. So just pushing a little bit more on that. On land creditors, I suppose, interested to hear how quickly you think you can get into that range of 20% to 25% that you're talking about. And inevitably, there's a trade-off with chasing a higher gross margin on new land sales. So just interested in, I suppose, probing that a little bit more. And the last one was obviously, I can't not ask it, was really the government support. And David, you've mentioned it. Others are increasingly mentioning it in their updates. Do you think the government is starting to move to think about this a little bit more? From what I understand, treasury is the bigger blocker rather than maybe the political side, but I'd be interested on your views there. David Thomas: Yes. Okay. I feel I've sort of had to go at the sales rates and stuff. So I think I'm going to ask maybe Mike to comment on it, looking particularly at where we were October, November compared to where we are now. I think that's really the key thing. But I would say on the sales rates, our forward forecasts are very much thinking, okay, we need to be at this level of 0.6, which we're not far away from. In terms of land creditors, look, I think probably just 2 comments. I mean, one, us increasing the land creditor position is obviously dependent on land intake. And our land intake in the first half is -- our land approvals is obviously very low, the first point. Second point, I think when you look at the next couple of years, it would seem that there is going to be a huge amount of land coming through planning. So John referenced in his presentation that we have more than 100 strategic sites in for planning. So what I would see is that the ability to defer land payments will be greater if there is much more land coming into the marketplace, and we're already focused on the deferral of payments. So I think it's very achievable to get into that higher banding of kind of 20% to 25% in terms of land creditors, but it will depend on land intake. In terms of government support, well, I think really 2 things. I think everyone would agree, I believe that everyone would agree that you have to address the supply side. If you don't address the supply side, then you are just going to create issues by putting in demand side support. So I think that's kind of been well documented. So the government have really got after the supply side. Now I understand it hasn't changed yet. But from what we can see, the supply side changes are far more powerful than the original conservative government, national planning policy framework, et cetera. And therefore, numbers can go much higher. We're back to top down and there's an obligation on the local authorities of some scale. That is not going to improve the position on affordability in the short term. Even if you believe that there'll be a lot more supply in the future, there won't be a lot more supply to change the affordability equation over the next 12, 18 months. So we do think the affordability equation is key if we want higher volume levels. So we are doing the self-help. We've got a shared equity offer. We're doing part exchange. We're providing good incentives to our customers. but government stimulus would be a game changer in terms of the demand side. And the industry, it's not only bad at Redrow, but I think the industry have been kind of uniform in saying that they're quite happy to pay. We launched the scheme with government back in 2012, and we paid for that scheme. So the reality is that we are very happy to pay for the scheme, but we think it would be a game changer, and that would be particularly true in terms of London and the Southeast. John, do you want to -- sorry, Mike, do you want to answer? Mike Roberts: Okay. I feel like I might just be repeating on what David said when he answered the question, but just trying to add a bit more color. We certainly saw after the budget a level of interest and leads and web visits and the like from the market. I guess that's because there was no negative news in the budget around housing. I think that carried on through Christmas, and we have seen an uptick since the October, November performance in the trading since Christmas. I think in the slide, we say that it's very slightly down year-on-year. I think there's a slight anomaly maybe in the first week. But if you look at more recent trading in the last 4 weeks or so, 5 weeks, then that is in line year-on-year and gives us every confidence that we'll hit our full year completions. So really the message is year-on-year, it's the same, and we're confident we'll hit our completions. David Thomas: Allison, I think in the middle there. Allison Sun: Two questions from my side. So one is on following up on the demand stimulus. Because if you said builders are happy to contribute to the scheme, do you think that it will probably increase the chance for the government want to actually launch something given right now, there's a lot of political noise going on right now as well. And the second is on the outlets. If I can follow up a little bit as well because you said for 2027, you're expecting average outlets around 425 to 435, right? So that's probably an incremental of around 20 to 30 year-over-year. But I mean I might remember it completely wrong, but I think previously, you are probably more guiding around 30 incremental outlets opening. So I don't know if there's any color you can give on maybe the planning environment or maybe why it's not hitting the 30 level instead of 20, you said 30. David Thomas: Okay. So John will pick up in terms of the outlets. So yes, I mean, look, I think in terms of government, I mean, I do understand that the government position in terms of funding generally has got challenges. So I think the reality is that the housebuilding industry, I mean, mainly through the HBF, our trade body, have been very clear that if there was a new scheme, then the housebuilders would expect to pay for it. And as I say, we launched the scheme in conjunction with government in 2012, pre-Help to Buy, and we paid for that scheme. So I don't think the idea that the housebuilder is paying for a scheme is unusual. So yes, of course, that will help, but there are clearly other considerations that the government have to take account of. John Messenger: And then on the outlets, your math is correct, Allison. So probably 20 to 30. I think we were more at the 30 end of the scale. I think we still are, but we just have to be pragmatic in terms of -- I think everyone in the room is aware that planning is taking time, and Mike mentioned it earlier to see the actual on-the-ground benefits of that coming through. So we're shooting to deliver 30. But clearly, setting a banded range there of 20 to 30 outlets just looks a prudent position to be holding. But clearly, all of our divisions and all of our teams are working damn hard to try and pull through outlets and get them opened because ultimately, that's going to drive our top line and drive the volume growth as we look forward. Zaim next door, and then I'll come forward to... Zaim Beekawa: The first would just be on the PRS market, the view for the remainder of the year and what's in your expectations. And then secondly, I think you mentioned 31 planning applications submitted and 16 approvals -- 16 received back. Sort of any anecdotes on how easy or quicker has those been since all the government changes would be helpful. David Thomas: Yes, of course. So if I pick up those. So I think in terms of PRS, and again, just in context, that the PRS market was building a lot of momentum pre the budget in 2022. And the reality is that the funding costs for the PRS operators as they did for everyone changed fundamentally. So I think there was less activity in the marketplace, first of all, simply less people looking to buy PRS. I think we're seeing the return of more interest in terms of PRS. We announced in, I think in '21 and it became effective in '22, our cooperation with Lloyds Bank and Lloyds Living. And we have undertaken 3 groups of transactions with Lloyds Living. We've undertaken transactions without other PRS providers as well. So we felt that setting a range of 5% to 10% of our completions being through PRS was the kind of range that we felt comfortable with, which we set out last year. So we are definitely still looking to do PRS, but we're only looking to do it at the right price. It's something that can work very, very well for us in terms of return on capital employed, very well in terms of the efficiency of our build teams, but we've got to make sure that we are pricing it properly. I think in terms of planning in relation to the synergy sites, I don't think there's been any particular issues. I mean, bear in mind that these sites have already got a detailed consent. We would probably have expected to have been able to agree more plot substitutions rather than having to go to a full committee. But I mean that kind of is what it is at a local level. So again, we're very confident we will get the planning and we will get those outlets through as we outlined in FY '27. John Messenger: Alastair down in the front and then back to Rebecca. Alastair Stewart: It's Alastair Stewart from Progressive. Three questions based actually on one slide -- on one chart on Slide 7. In terms of the moving parts in the private reservation buyer type, the biggest change was in part exchange going from 14% to 23%. Obviously, Redrow's greater uptake is a big part of that. But was it all? And within part exchange, do you get a sense of how many people using it in the secondhand going into new? Is it they have to use it because they just get stuck in chains elsewhere. And how much is it a nice to have? Then the next one was first-time buyers going from 31% to 33%. Do you get any sense in there how much is Bank of mom and dad and how much is using your own Part Exchange. And then finally, following on from the previous question, PRS and other going from 9% to 4%. You said you were originally aiming at 5% to 10%. Can you -- is it going to take some time to get to the top of that range? Or are the financial costs for PRS investors just too high at the current moment? David Thomas: Thanks, Alastair. I've never answered 3 questions on 1 slide. I think we're going to have a bit of a joint go at this one. So if I pick up in terms of PRS and first-time buyers and if Mike picks up in terms of the part exchange element of it. So I mean, I think on first-time buyers, look, unquestionably, the bank of family, as [ Ians ] get referred to, is very, very important. Now I can't say this is the percentage because, as you know, we are separate from the independent financial advisers. So we don't really get into the nuts and bolts of that. But I think it's well documented that, that has become more and more important post '22 as interest costs have risen substantially. So it's good to see a little bit of a tick up generally in first-time buyers. But as we touched on in some parts of the country, particularly London and the Southeast, I think first-time buyers are largely priced out of the market, even in some cases with Bank of Family, looking at deposit levels that are well in excess of GBP 100,000 for a lot of purchasers because they don't want to be in there on a 95% loan to value. They want to be in on 85%, et cetera. So that's the first thing. In terms of PRS, we can unquestionably operate in a 5% to 10% range. The deals tend to be quite large. I mean they might not all be delivered in the same year, but I think you would tend to be looking at deals that would be for us historically between 250 and maybe 750 homes. So that might be delivered over 2 financial years, but it can have a significant impact one deal in terms of the percentages. So at the 4% percentage, we're obviously just outside that range. But we are hopeful of closing some PRS deals certainly in calendar '26, which will materially alter those percentages. Mike, do you want to just talk a bit about PX? Mike Roberts: Yes. So we have introduced our PX proposition more heavily into Redrow, and that's seen an increase. So part of that increase is certainly just the extra volume that's coming through Redrow. It's not all of it by any stretch of the imagination. It's a more popular incentive that our customers are utilizing. I think the reason for their utilization is -- I think there's many factors. A lot of it is around just simplicity in that clearly, we sell their houses eventually. So we don't carry PX for the next 12 months that they can't sell. So we can sell their houses, so they could sell their houses. It's just about simplicity. And there's an element of when somebody visits the site and set the heart on a plot, if they're not in a position ready to go, say if the PX, we can take that reservation and reserve the plot that they want. So a lot of it is around consumer choice rather than necessity. Does that answer the question? I think that's helpful. John Messenger: Great. Glynis? Glynis Johnson: John, I'm going to throw some at you actually. So I'm going to -- just a few that hopefully are very short answers. I will reel through them. Given the order book on the affordable, what should we anticipate in terms of the affordable private mix this year and maybe into next year? Second of all, the gross margin on your acquired land, can you confirm what you're actually buying in at? And thirdly, just in terms of the completed development provision, what was it last year? Is it always around that level? If this year was unusual, why? Next, the third-party payments for the build safety provisions. So that's in the gross profit, but you're taking the legal fees for getting them in the adjusted. Is that correct? And then 2 that require perhaps a little bit more color. One, the size of the outlets, is that to do with just the fact you're putting 3 ranges on it? Therefore, it's each size of site is 3 outlets? How should we be expecting that average size of outlets to progress? And then lastly, just in terms of the land approvals, there obviously the guidance has changed quite substantially. Can you give us a bit of color about why that's happened and what that might mean 1, 2 years out? David Thomas: So if we start off, we can't do just one word on each, but we'll try. So order book affordable through the mix. So I think if you look at 10 years for us, you would conclude that somewhere around 20%, 21%, that sort of level is what we would deliver in terms of affordable housing. What we saw last year was really quite an unusually low level of affordable housing, a lot of which was driven from Redrow because Redrow had been very high in the year to June '24. So in terms of the sort of pre-acquisition position, Redrow was very high in that year. So when you look forward, I would think that kind of 20%, 21% is what we should look at. In terms of gross margin on acquired land, we've said that we're acquiring on a gross margin at 23%. We're very comfortable with that in terms of the forward acquisition position. And once all of our cost and procurement synergies are embedded, we should be acquiring on a gross margin at 24%, which is just in line with what we said last year. The CDP, I'm going to pass to John because I'm not sure I understood it, so I'm just going to pass it to John. And then Building Safety, I mean, anything relating to building safety should be in adjusted. So the legal fees in respect of recovery are in adjusted and any recovery of costs would be part of our adjusted provisioning and therefore, is in adjusted. So we're not putting the recovery in gross margin and the costs in adjusted. And everything else is over to you. John Messenger: Right. Yes, yes. So just on that one, gross profit, the ones I quoted here were excluding that GBP 13.4 million gain. So -- and we're obliged to recognize that through income rather than take it as a deduction against our provision as well, just the IFRS rules we operate within. On the completed development accruals of provision, that does tend to move around a little bit. If you look back at the full year, it was a credit. So it helped us at the last full year sort of results. It does kind of ebb and flow depending on sites and the number of outlets coming to kind of closure basically as well, Glynis. So when a site closes out, you obviously then have that period, it's waiting for local authorities to adopt is the big issue there. So it does tend to be down, but it's the incremental, that's the change year-over-year. So you can see that impact there, but happy to talk about afterwards. On the third party -- sorry, I'm just looking at third party for building -- sorry, outlet size, coming on to that one. If you look at the outlet size, we're talking -- if we look at -- we think of developments and then we think of outlets. And clearly, as we look at particularly land deals that involve larger sized developments, that's where the opportunity is for us to bring on 2 or 3 brands to optimize those at that kind of 140, 150 per sales outlet, which then gives you the lifetime of 3 to 4 years. So as we look at land opportunities and how that will be driven by development activity, it's looking at those and thinking, okay, what can we do here that will optimize the brand choices, and that is kind of the differential there. So it's all about trying to optimize the speed at which we're going to be there with the show home with the sales team, building out and completing the sales. On the other one on approvals, really more a function of just the opportunities in the market, but also a deliberate point for ourselves is that, that pipeline that David mentioned on strategic land conversions, we've got a hopper there of about 27,500 plots. Now those have all gone into planning across 103 applications. The time frame over which they may come through on planning is something we want to be prepared for. And therefore, the focus has been on really optimizing the existing land bank because obviously, we were sitting there in excess of 5.5 years when you look back 6 months ago for the last 6 months, it's been about what can we do across the portfolio, either splicing and dicing the current land, but also looking at that strategic and what's going to come through. So this will give us flexibility to infill and to look at the strategic stuff as that comes through and then look at elsewhere in the market. So I think that hopefully covers that one there. And I think that covers a lot. David Thomas: So Glynis, so just on the consented plots number, I mean, you can see that over the last 3 reporting periods, it's recent reporting periods, it's reasonably consistent. But just to illustrate it, when we add in the revenue synergy outlets, what we should do is see an increase in outlets and no increase in plots. And therefore, the revenue synergy outlets will drive that number down. So I do think that when you look at the land bank, that number is very important because I mean that is a kind of measure of the sort of raw efficiency of the land bank, i.e., if you've got one site for 1,000 plots, the answer is 1,000. And if you've got 3 sites on that 1,000 plots, the answer is going to be 330. So I think it's an absolutely key measure in terms of looking at that efficiency ratio. John Messenger: Rebecca, then we'll have a couple more after that, conscious of time. Rebecca Parker: Just a couple from me. The first one, just wondering if you can talk to kind of how that net cash balance moves into the year-end, I think you're sitting about 170 at the half, but expecting 400 to 500, just some of the moving parts there, knowing that there's going to be some more volumes coming through, but then I guess, an increase in WIP as you increase your outlet profile. And then just following on, on the approvals on the land bank question before. So would we expect to see the land bank, I guess, roughly stable here as, I guess, you're doing less approvals, but getting more from your strategic land bank. And then on the outlet opening profile as well, just wondering how many of those 20 to 30, I guess, increase in outlets do you think that you'll be doing dual or triple branded outlets? How many of those outlets? David Thomas: Okay. So if John picks up in terms of the net cash balance and how that will progress towards the year-end. And then I think I'd ask John to pick up on the outlet opening profile. But what I would say in the outlet opening profile is that which I'm sure John will just restate that position, but we are talking average outlets. So therefore, if we were saying our average outlets are going to move from just above 400 to 425 to 435, we've also got to open a lot more outlets during the course of that year. But John can just outline that in terms of figures. I think in terms of the land bank and the approvals, we feel that we have a lot of flexibility. We've set out what I think is quite a strong growth agenda in terms of our outlets profile. So to move from where we are now to a sort of net outlet position of around 500. So broadly, we're moving from 400 to 500 over a period of time. I think with our land bank at 5.6 years and the strategic sites that we have in for planning, we see that we have a lot of flexibility. So we've set a target, which we'll obviously keep under review, but we've set a target of between 10,000 and 12,000 for this year. We'd be happy to be at replacement level. So if in FY '27, we were at replacement level, say. But the reality is we are very happy to shrink the land bank as long as we're delivering the required number of outlets. So I think we see that drive to 500 outlets as being the absolute key thing that we're trying to achieve. John Messenger: And maybe just before going to cash flow, just finishing off on the outlets point, I guess, certainly, when we think about the 30 synergy outlets that are opening, by default, those are generally going -- they're dual because they're an existing site that's adding Redrow to it or Barratt or David Wilson on to a Redrow. I'll get hold of some numbers, so we can always share with them with you, Rebecca. But primarily, it's dualing, but there will -- there are, I think, a handful of triple sites as well. So within that mix of synergy sites, some of them were already David Wilson and Barratt and are having Redrow added to them. So I think there's half a dozen that will be ultimately broadly triple site opportunities once we get through there. But then on cash flow, I guess, 3, I think, big ingredients really in terms of cash flow performance in the second half. First is clearly operating profit in terms of driving the initial -- our profit from operations in the second half should start as a significantly higher number. If we look at our working capital and particularly the construction WIP where we had that GBP 313 million outflow, including Part Ex, broadly 3/4, if not more of that should come back in the second half given the seasonality of our working capital cycle in terms of completions in the second half. The other one in there is then land where we would expect, as David mentioned, we're probably going to actually end up unlocking a bit of value in land in the second half. If you put those together, plus the dividend, obviously, in terms of the interim going out, which is probably GBP 60 million and the buyback of GBP 50 million, those together should get you back to that kind of somewhere between the GBP 400 million and GBP 500 million net cash at the year-end. Conscious, 2 more, Charlie, and then we'll go to the back. And I think that will probably be our time limit. Charlie Campbell: Charlie Campbell at Stifel. Just one really. Just on mortgage availability, not something you've talked about today. There are clearly quite a few changes going on there. So just wondering what the banks are telling you in terms of mortgage availability for calendar '26. Any changes there? And I suppose just to help us think about that a bit more, any changes in the customer mix in January versus, I don't know, say, July for the sake of an argument before people started to worry about property taxes in other direction? David Thomas: Okay, Charlie, if I pick them up. I think the mortgage backdrop is of gradually improving backdrop. I would say from probably 3 particular points. One, from a regulatory point that there has been a free up of the regulatory environment in terms of, as an example, the earnings multiples that is allowed to be lent. So there's no question there's a free up of the regulatory environment, which is a positive, but it's obviously been a relatively slow burn. So that is good. Secondly, I think generally, there are more and more mortgage offers that are at 95%. Now the reality is that, that isn't necessarily fully addressing affordability because the 95% mortgages can be expensive. And therefore, if somebody is comparing that to renting or staying at home, it isn't necessarily giving them what they need. And then I think the third area, which isn't particularly big for us, but it's certainly big in London is that there has obviously been more of a movement to higher loan to values on apartments. And we came from a situation, albeit a long time ago where most banks were lending perhaps 10% different as a maximum LTV. So if they were at 90 in houses, they would be at 80 on apartments. So again, we've seen some freeing up in terms of that environment. I would say overall that there's not any big change in customer mix. I mean we -- to some extent, I know it's both product and customer, but we're giving some indication of customer mix on the slide that we went through in the Q&A. But I think there's 2 customers that can really just sit out the market. So in periods of uncertainty, One is a first-time buyer who I would say generally can sit out. They would normally be living at home or renting and they can sit it out for some period of time. And the other category of customer who can sit it out is the downsizer and the downsizer was a significant part of the Redrow business. So I don't think that those are customers that have gone forever almost by definition, the first-time buyer and the downsizer can come back into the market, but they can certainly sit it out. And Redrow has seen that in terms of maybe where they were on cash sales so circa 40% of their business was cash sales, and they're now around about 30% of the business being cash sales. And that will be primarily first-time buyers sitting out -- sorry, downsizers sitting out. John Messenger: Peter, did you have a question? Peter Ajose-Adeogun: Peter Ajose-Adeogun, Morgan Stanley. It was a similar question really just in terms of the growth going forward, which customer segment do you expect to grow the fastest just because when I look at some of the metrics on first-time buyers, I think 1 in 3 now in terms of purchases in the U.K. will be first-time buyers. There's perhaps a notion that maybe not to disagree with you, but they can't sit it out because maybe they've got family formation or they'll do more to kind of get it done. And so just in terms of where you think the growth will come from if first-time buyers are starting to run too hot in terms of the level of completions they make up in the U.K.? And also maybe if you can give some color on where -- how down it is from the peak for you first-time buyers in your business? David Thomas: Okay. Thanks. I mean, that's quite a big question. So I think if you step back for new build and for Barratt Redrow in particular, I think a really big opportunity for us over the next 3 to 5 years is about the efficiency of our homes and the substantially lower running costs of our homes. And therefore, I think from a Barratt Redrow point of view, I would say that we mainly want to take market share from the secondhand market. So we don't mind if they're first-time buyers, secondtime movers or downsizers, we should be actively seeking share. And we can do that as we talked about through a part exchange offer for existing homeowners, but we can also do that through demonstrating substantially lower running costs. And the running costs are not just about the heating or so on. The running costs are also about you don't have to put in a new bathroom or a new kitchen within the first 2 or 3 years. So in cash terms, there are big, big benefits of newbuild. And so that's the first area that we should look at. And then really in terms of the mix point, I would say that we should expect to see more growth on first-time buyers and more growth on downsizers across the piece. And I do think for downsizers that there is more we could be doing in terms of part exchange offers with downsizers. And that's something that we've been looking at quite actively because we would tend to say that your house can't be worth more than the house you're buying. And therefore, that precludes a lot of downsizers. And I think that's something where we need to challenge ourselves in terms of how attractive we can be to downsizers. But I think you see on downsizers that a lot of what they want is low maintenance, low running costs and not having to think about replacing kitchens and bathrooms and so on. John Messenger: Great. I think consciously, we are 10:00. Any last ones? Otherwise, thank you, everybody. and over to David. David Thomas: Yes. Thank you very much. I appreciate all the questions. Thank you, and we will be back in April with a trading update. Thanks very much.
Operator: Good day, and thank you for standing by. Welcome to the BAWAG Group Full Year 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. There will also be a transcript on the company's website. I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO of the company. Please go ahead. Anas Abuzaakouk: Thank you, operator. Good morning, everyone. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. So we have a lot to cover. Let's jump right into it with a summary of full year 2025 results on Slide 3. For the full year 2025, we delivered a record net profit of EUR 860 million earnings per share of EUR 10.87 and a return on tangible common equity of 27%. The underlying operating performance of our business was very strong with pre-provision profits of EUR 1.42 billion, up 31% versus prior year and a cost-to-income ratio of 36%. Total risk costs were EUR 228 million with an NPL ratio of 80 basis points. The fourth quarter was particularly strong with a net profit of EUR 230 million, a return on tangible common equity of 28% and a strong springboard as we entered 2026. We exceeded all of our 2025 targets and distributed EUR 607 million to shareholders, EUR 432 million in dividends, which was equal to EUR 5.50 per share and EUR 175 million share buyback, translating into a cancellation of 1.6 million shares or 2% of shares outstanding. Since our IPO in October 2017, we have reduced shares outstanding by 23% with 77 million shares outstanding as of year-end 2025. We closed the year with a pro forma CET1 ratio of 14.6% after setting aside EUR 481 million for dividends, equal to EUR 6.25 per share, which we will propose at our Annual Shareholder Meeting in April as well as deducting the EUR 75 million share buyback that we completed earlier this year. The recent buyback was used to fund employee stock and remuneration programs as we are keen to avoid diluting our shareholders. Our liquidity position is robust with cash of EUR 14 billion, equal to 19% of our balance sheet. Organic customer loan growth was strong, up 3% year-over-year when excluding the Barclays acquisition, including the Barclays Consumer Bank Europe acquisition, customer loans were up 12%. Net interest margin for the business was 329 basis points, up 22 basis points from prior year and reflecting the positive impact from the German credit cards and strong growth in consumer and SME. Despite our record performance in 2025 and an EPS CAGR of 14% over the last 3 years, our best years lie ahead. Our strategy has been consistent since 2012, one focused on being patient, disciplined, cutting through the noise and embracing a continuous improvement mindset. Our resilience is proven by our ability to consistently deliver results and improve each year. On the back of strong customer loan growth in 2025 and the integrations delivering ahead of plan, we are updating our targets and introducing a new 3-year rolling outlook. We are now targeting net profit of over EUR 960 million in 2026, over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028, excluding any potential acquisitions. This translates into a net profit CAGR of 12% over the next 3 years from 2025 through 2028. We also continue to build up excess capital with over EUR 1.1 billion projected from 2026 through 2028, leaving us with over EUR 1.5 billion of excess capital, which includes our pro forma excess capital of EUR 468 million to earmark towards M&A, capital distributions or potential new growth opportunities above our stated plans. It's important to note this excess capital is incremental to the capital underpinning our updated 3-year targets and post our 55% dividend payout ratio. Through the cycle, we are targeting an ROTCE over 20% and cost-income ratio under 33% as the franchise continues to reap the benefits of long-term investments and scale as we build out a pan-European and U.S. banking group. When we refer to through the cycle, there will be years we deliver higher returns given the current rate environment and benign credit cycle with our targets representing a more conservative floor. However, our goal is to consistently deliver results and be prudent in how we run the bank, accounting for the cyclical nature of markets and lending. Our CET1 target remains at 12.5%, 227 basis points above our minimum regulatory capital requirements. Going forward, we plan to provide a rolling 3-year outlook with full year earnings allowing for a more dynamic outlook that captures internal as well as external developments more real time. Moving to Slide 4, our capital development. At year-end 2025, our reported CET1 ratio landed at 14.2%. We generated 417 basis points of gross capital from earnings. Closed on the Barclays Consumer Bank Europe acquisition using 180 basis points when compared against year-end RWAs and made or earmarked capital distributions equal to 350 basis points which comprised of earmarked dividends of EUR 481 million as well as EUR 250 million of share buybacks completed across 2 tranches. We also completed 3 SRT transactions, which funded the underlying business growth and provided a net capital relief of approximately 60 basis points. On a pro forma basis, our CET1 ratio was 14.6% equal to EUR 468 million of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025 and is expected to close in the first half of this year. This excess capital starting point provides us with a significant amount of dry powder to capitalize on unique organic and inorganic opportunities should they arise. It is important to note that both the Knab and Barclays Consumer Bank Europe acquisitions were fully self-funded. As our owner operators, we strive to be good stewards of capital, prudent and disciplined in how we allocate capital with a strong aversion to diluting shareholders. However, this is only made possible because of a very strong earnings and capital generation as we are positioned to deliver a through-the-cycle return on tangible common equity of over 20%. Slide 5. Positioning our balance sheet for growth while staying conservative. A key pillar to our strategy is maintaining a conservative balance sheet that is positioned for growth, ensuring we have excess capital and liquidity and always focusing on risk-adjusted returns taking a proactive approach to risk management. As we look ahead to 2026 and beyond, we have positioned our balance sheet in a few ways. We have purposely kept an excess cash position providing us with dry powder from a liquidity standpoint. We have EUR 14 billion of cash equal to 19% of our balance sheet, and our securities portfolio remains underinvested at EUR 3 billion, equal to 5% of our balance sheet, while we target more of a long-term range of 15% to 20% in a more attractive spread environment. We continue to be patient and disciplined and we'll be ready to deploy into customer lending as well as adding to our securities portfolio when the right opportunities present themselves that meet our risk-adjusted returns. As far as customer loans, we are focused on secured and public sector lending with an inherently low risk profile as well as providing us with a source of long-term funding. Over 80% of our customer book is secured or public sector lending that is conservatively underwritten and well collateralized. Housing loans account for over 50% of our customer loans with an average LTV of 55% on the nonguaranteed mortgages. In total, 60% of the mortgage portfolio has NHG government guarantees, insurance or risk transfers. Additionally, we have EUR 13 billion of covered bond funding relative to approximately EUR 40 billion of mortgages, commercial real estate and public sector assets with significant potential for further long-term covered bond funding. Over the years, we have deployed various risk management tools to proactively mitigate credit risk and free up capital to fund growth using CDS direct insurance and significant risk transfers or SRTs, in the form of cash and/or guarantees. We use SRT specifically to free up capital to fund growth and as a loss mitigation tool with an emphasis on unsecured lending. Today, SRTs have become quite prevalent, but our focus over the years was risk mitigation accounting for through-the-cycle losses and ensuring we stay competitive from a risk-adjusted return standpoint. This has become more pronounced across mortgage lending as we transition to the standardized approach in 2024. Today, SRTs cover EUR 9 billion of assets on the balance sheet, of which EUR 6 billion or 2/3 are tied to mortgages on the standardized approach. SRTs on mortgages improve capital efficiency on a low-risk asset class, allowing us to fund growth and better compete with IRB banks and nonbank lenders. SRTs on unsecured and specialty finance assets, which account for EUR 3 billion, primarily consumer loans, credit cards and corporate loans, mitigate risk of unexpected losses and work more as an insurance policy, specifically against volatility of macro sensitive assets. In terms of lending activity, 2025 was another year defined by being patient and disciplined. Although we saw a pickup in lending activity across consumer and SME, the pricing environment is still challenging across mortgages and corporate lending. We have strategically avoided chasing growth as credit markets remain frothy given the number of players driving down margins and foregoing loan protections. We believe credit risk in general is mispriced given geopolitical risks, the fiscal situation of many sovereigns and a flawed short-term focus on aggressively pushing lending volume given the perpetual need to deploy capital as incentives have decoupled from performance. On the flip side, our commercial real estate business continues to perform well, and we are finding pockets of opportunity. This is a result of our conservative underwriting over the years and underlying exposure to residential, industrial and logistics assets. which make up approximately 80% of the portfolio. The U.S. office sector overall remains distressed. However, we are now seeing pockets of opportunity in select idiosyncratic transactions across the capital structure. Moving to Slide 6. Building a pan-European and U.S. banking group. Our success over the years is a result of embracing a continuous improvement mindset, one that allows the company to constantly adapt. This past year was no different. Even though our company is in great shape, we must adapt from a position of strength and not fall victim to complacency. The recent acquisitions have been a catalyst for building the operating framework for a pan-European and U.S. banking group. As we look to the future, we must challenge the status quo we reimagined the company. In the face of shifting demographics, changing customer behavior and transformative technologies, we need to ensure that we stay competitive and relevant for the long term. Over the years, we have transformed from a branch-heavy business with limited digital capabilities to a digital-first bank complemented by a high-quality advisory branch network. We self-funded 14 acquisitions, expanded into 6 new countries and built a strong leadership team with a deep bench in an owner-operator mindset. Today, our business is 90% retail and SME, 90% digital originations and 90% tied to the euro countries of Austria, Germany, the Netherlands and Ireland. With the integrations of our 2 recent acquisitions largely complete, we are positioning ourselves for future growth, both organic and inorganic. We have redesigned the company to reflect both the broader footprint as well as capture new opportunities. We are starting to see the benefits of greater scale and efficiencies, greater digital engagement, a wider geographic footprint and more opportunities to pursue. Most importantly, our transformation over the years has been anchored to our culture. We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenging the status quo. Our senior leadership team embodies stability and dedication with the Management Board and senior leaders collectively owning approximately 5% of the company. This reflects our owner-operator culture and commitment to long-term success of the franchise. This group has an average tenure of 12 years. 25% of our current leadership team joined through prior acquisitions, and we continue to build a deep bench of leaders cultivated through internal development programs, mentoring, strategic recruitment and acquisitions. This is vital as we expand into a pan-European and U.S. banking group, ensuring we have the proper bandwidth and skill set to grow the business and address the many challenges and opportunities ahead. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve. Moving to Slide 7. Technology underpinning our transformation, AI is the next leg. Despite our achievements over the years, we recognize that ongoing technological disruption, specifically the rapid advance of artificial intelligence, demands that we proactively redesign our company. This era of innovation and disruption will fundamentally reshape how we serve our customers, structure our organization and define the very nature of work. As a result, some technologies and processes will quickly become obsolete, requiring us to rethink traditional roles and create entirely new ones. The economic landscape is evolving in ways that are hard to understand or predict. Our goal is to proactively navigate these changes and ensure the long-term success of our franchise. We plan to incorporate AI into our operating framework. We will significantly enhance customer service making this a true competitive advantage as we reduce friction in our processes, enable immediate and effective first touch resolution. While we have already made significant strides in driving operational efficiency, we must remain focused on continuing to eliminate unnecessary bureaucracy, freeing up our people to engage in more impactful and rewarding work that requires more creativity, problem-solving and critical thinking. Our goal is to free up advisers to spend more quality time with customers, enable our operations and call center teams to focus on more complex cases and portfolio management and streamline central functions to play a more strategic role across the group. Central to our AI strategy is building the right technical infrastructure and fostering institutional expertise to remove friction for both customer journeys and internal operations. Our TechOps investments over the years have enabled us to fully migrate to the public cloud, enhance our data architecture and adopt standardized workflow and reporting tools. This technical foundation will be the foundation for building an AI operating framework, one that seamlessly integrates technology, supports robust governance and drives impactful use cases. To support this, we have set up a dedicated team of business process engineers within our TechOps Group combining process know-how with technical skills to lead AI initiatives in close partnership with functional experts. However, we believe that before AI can be properly implemented, there needs to be NI or natural intelligence around the process. This means team members with deep process and institutional knowledge working closely with business process engineers to redesign processes through simplification measures, basic workflow automation and ultimately, AI. We believe AI will ultimately enhance our operational excellence and best-in-class efficiency in the coming years, a true differentiator for BAWAG and our competitive advantage. With that, I'll hand over to Enver. Enver Sirucic: Thank you, Anas. I will continue on Slide 9. In terms of our balance sheet and capital, customer loans were up 2% and customer deposits were up 4% quarter-over-quarter. Organic customer loan growth was 3% year-over-year when excluding the Barclays acquisition, including the Barclays acquisition, customer loans were up 12%. Tangible common equity is up 9% year-over-year after setting aside a EUR 6.25 dividend per share or EUR 481 million in absolute terms, which we will propose at our Annual Shareholder Meeting in April. We maintained a fortress balance sheet with EUR 14.1 billion in cash equal to 19% of our balance sheet and LCR of 204% and overall strong asset quality with a loan NPL ratio of 80 basis points. Moving to Slide 10, a strong last quarter with net profit of EUR 230 million and a return on tangible common equity of 28%. Core revenues were up 3% versus prior quarter with net interest income up 3% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost income ratio stood below 34%. Risk costs were EUR 64 million or 45 basis points in the quarter, including provisions for a single name default. On Slide 11, our core revenues. Strong performance, net interest income was up 3% in the quarter, driven by robust customer loan growth of 2%, with strong momentum in real estate and public sector, solid consumer business and stable mortgage lending. Net interest margin at 332 basis points improved on back of better asset mix, while deposit beta improved by 1 percentage point to 37% in Q4. Net commission income was up 4% with continued strong momentum across business lines, particularly in credit cards and payments. For 2026, we anticipate a continued positive trend with net interest income and core revenues expected to grow by 6%. On Page 12, operating expenses at EUR 194 million, a 3% decrease for the quarter with the cost income ratio at 33.8%, similar to levels before both acquisitions. To date, more than 80% of the acquisitions have been successfully integrated as planned and cost synergies have increased particularly after the branchification of Knab last November. We continue to drive operational initiatives designed to streamline processes and enhance long-term productivity across our business lines. Combined with the completion of integration efforts, these measures are expected to improve our operational efficiency. We expect a reduction in operational expenses by more than 5% in 2026. Regulatory charges are projected to increase by EUR 9 million to EUR 48 million in 2026 due to increased size of our balance sheet. Moving to Page 13. Risk costs were EUR 64 million in the quarter, driven by a provision for a single name default and higher share of retail consumer lending. Asset quality remains solid with an NPL ratio of 80 basis points. We expect continued strong asset quality in 2026 with a risk cost ratio of around 45 basis points mainly reflecting a higher share of consumer lending and otherwise strong credit quality. Slide 14. Our retail SME business delivered a quarterly net profit of EUR 210 million, a very strong return on tangible common equity of 39% and a cost income ratio of 31%. Pre-provision profits were EUR 343 million, up 10% compared to prior quarter with core revenues 4% stronger versus prior quarter, while operating expenses were down 8% in the quarter. The retail risk costs were EUR 58 million, with a risk cost ratio of 60 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. Average customer loans and deposits grew by 1% in the quarter, and we expect continued growth across the retail SME franchise in 2026 driven by solid growth in consumer and SME with mortgage originations slowly starting to pick up. On Slide 15, our corporate real estate and public sector business delivered fourth quarter net profit of EUR 37 million and generating a strong return on tangible common equity of 29% and a cost income ratio of 23%. Pre-provision profits were EUR 58 million, while risk costs were at EUR 6.5 million, mainly tied to provisions for a single name default. Average assets were up 4% in the quarter, with strong momentum in real estate and public sector while corporate lending remained muted. We'll continue with our current approach in 2026 and stay patient, focus on disciplined underwriting, risk-adjusted returns and not blindly chase volume growth. Slide 16, our updated targets. Following strong customer loan growth in 2025 and progress on integrations being ahead of plan, we are revising our targets and the 3-year outlook. We are targeting net profit exceeding EUR 960 million in 2026 over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028 with a 12% CAGR from 2025 to 2028, excluding any acquisitions. Our strategy focuses on improving operating leverage by increasing core revenues and consistently reducing expenses. Top line growth will come from 3% to 4% annual loan growth a higher asset margin due to an improved asset mix and positive effects from deposit hedge roll off. Following integrations, we aim for annual net cost reductions through 2028. These efforts will drive ongoing improvement as we continue investing in advisory, tech infrastructure and data assets. Looking ahead, with continued mix shifts and effective underwriting, we expect risk costs to remain at 45 basis points for the next few years. In addition to our profit targets, we plan to generate over EUR 1.1 billion in incremental excess capital by 2028, following a dividend payout of 55%. The resulting excess capital of more than EUR 1.5 billion by 2028 may be allocated towards organic growth initiatives, further M&A or capital distributions. Our through-the-cycle targets remain unchanged with a return on tangible common equity of above 20%, cost income ratio of below 33% and a CET1 ratio target at 12.5%. And with that, operator, let's open up the call for Q&A. Thank you. Operator: [Operator Instructions] The question comes from the line of Gabe Kemeny from Autonomous Research. Gabor Kemeny: My first question is on the 2027 guidance that you upgraded by around EUR 100 million. I understand this is primarily NII driven. And can you confirm it's mostly the asset mix as you are shifting more towards consumer to remember about the hedges, how the hedge positions have become more -- or expected to become more profitable? And specifically, on consumer, you pointed out that it's growing nicely. Can you speak a bit about the drivers and the growth outlook in this segment? My other question will be on capital. I mean you ended the year at EUR 0.5 billion of excess capital, but not doing a share buyback for now. Yes, I understand you are working on -- you are looking at various capital deployment options. But when do you think you will be able to decide on whether you do a share buyback this year or not? And my final question is a broader one. I understand you can't comment on transactions. But can you share your views on the Irish banking market and the performance of your local business there? Anas Abuzaakouk: Okay. Gabor, let's -- I'll start with the capital allocation question 2 and 3, Ireland and then Enver will take the 2027 guidance, some of the specifics. So all good questions, Gabor. Thanks for submitting. As far as capital allocation, we always say as part of our capital allocation framework, we will assess at year-end given our excess capital position. This is really no different this year. The only difference is we're assessing a number of market opportunities, and we'll be in a better position to communicate what we're going to do with our excess capital and overall capital allocation, hopefully, by the first quarter results. I think we're going to be in a good position. As to your general question of Ireland, we entered Ireland 2 years ago through MoCo and that was on the back of having studied the market and having went into Ireland for a number of years. We bought DEPO, which was a wind-down platform. We think Ireland is one of the most robust banking markets across the European Union. But that's not a development today. That's been our belief over the past few years. So we think it's structurally a really good retail banking market. But that's one of our core 7 markets that we've defined in 1 of the 4 core European markets. So I will pass it over to Enver on the '27 guidance. Enver Sirucic: So Gabor, on your question, I think, related to the NII development. Yes, there are 3 factors that we laid out. The first one is we assume loan growth of 3% to 4%. And if you look back, this is consistent with the performance that we have seen, especially over the last 12 months. The second one is better asset mix. The overall balance sheet structure will not change significantly. When we say we have 80-20, like 80% secured public sector lending, then 20% unsecured, that's going to be the same mix in the future. The only difference, if you look at the front book NIM, the asset mix is healthier in terms of NIM improvement, mainly driven by consumer lending and the credit card business that we acquired, obviously, last year. And the third element is the deposit hedge roll, which is more a technical effect given the duration of our structural hedge that is on the long tail 10 years rolling or 5 years effective. And that effect is coming through now in '26, '27 and '28. I hope that helps. Operator: Your next question comes from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: So yes, could you give a little bit more detail on those NII dynamics? So where do you expect loan growth to -- I mean, you said it was a bit in line with the current trends. But if you could kind of give us a bit more granular expectations of loan growth by country or by key products? And also, can you quantify the benefit from the deposit hedging in each year, so like kind of where is the kind of the front book yields and size of the portfolio, so we can try to model it, please? And final question on M&A, can you remind us like what is your ROI and EPS accretion thresholds for any deals that you might announce? Anas Abuzaakouk: Okay. Thanks, Hugo. All good questions as well. Let me start with the easy one, the last one. When we do M&A, consistent with the 14 acquisitions that we've done over the past decade, we have the defined return threshold requirement. That for us is kind of our franchise through the cycle return on tangible common equity of over 20%. And I think if you look at prior deals, we've obviously had, I think, really strong performance and outperformed a particular threshold. But you should think of that as kind of the floor. And then when we look at just M&A and just inorganic opportunities more generally, we measure that against potential share buyback. And I think if you look at not that we focus on the share price or valuations that we don't make strategic decisions based off of that. But if you look at where the business is trading on a price to earnings basis, and take a 2-year 4 PE multiple, I think share buybacks are still very attractive. It's a good return for our investors given that we, I think, trade at or slightly below the European bank index in terms of PE multiples. Okay. So that was M&A return thresholds. What was the... Enver Sirucic: Loan trends. Anas Abuzaakouk: So loan trends. More broadly, Hugo, I tried to give some color during the presentation and Enver can add more specifics. But if you look at the different asset classes, so within consumer and SME, the credit card business actually has performed better than we had underwritten after making the acquisition. And that I think that trend will continue in the years to come. That's specific to Germany, but also potentially Austria and adjacent countries, but that's really not in the numbers. Specialty finance which is leasing, in particular, both auto and equipment leasing, I think that's been a positive development as well as our factoring business, and that's a mix of NII and NCI. The mortgages, I'd say, has been from a consumer standpoint or retail and SME standpoint has been probably the one challenged area, not so much because the volume is there, but I made a comment around just overall margins. And when you look at kind of risk-adjusted returns, I think there's certain levels that for us, we think, have become irrational as far as pricing. So we're pretty conservative on that front. I think when you think about overall mortgages. Now that obviously varies between different countries. I think it's more challenged in Austria and Germany. We see good opportunities in the Netherlands and Ireland from a mortgage standpoint. Just to answer your question about specific geographies. And then when you look at the nonretail and SME business, I would say don't have much expectations for us, at least in our planning for corporate lending. Obviously, there's pockets of opportunities but the general comment about credit risk being mispriced really is focused on corporate lending and corporate credit risk. And it just feels like there's an irrational exuberance and a real strong focus on volumes because a lot of capital has been -- what's the right way of saying this? There's been a lot of capital that has been raised across different platforms, public and private. And when you raise that much capital, you're incentivized, I think, to deploy that capital and to grow AUM and that was my comment about decoupling of performance in a lending environment. So that's one where I think we'll just continue to be conservative. Public sector, we see good opportunities. More broadly, not just in Austria but across kind of the core markets that we're in. And then commercial real estate, which is really residential in one form or another. Industrial logistics also to a certain extent, but it's been really focused on residential. That has been robust and we see a good pipeline on the back of a strong fourth quarter. So when you put all of that together, Hugo, that I think, gives you a good perspective and why the team, we feel pretty confident. We usually don't give loan volume targets but this is 1 to 2 points above kind of blended GDP growth in the markets that we're in, which translates to about 3% to 4% loan growth. And hopefully, we'll be able to execute and hopefully even over-deliver. Enver Sirucic: I think there was a question on the contribution of the deposit hedge to the overall NOI and the trends. We try to provide the details on that target page, but probably I would phrase it is -- if you think about 2026, we are saying the NII will grow by more than 6%. And if you want to break it down by asset or loan growth on the one side and the liability side on the other side, I would probably say 2/3 is coming from loan growth and asset margin improvement and 1/3 is coming from the deposit side. So if you like, 2 points around about deposits and 4 points plus is on the asset side. And I would assume a very similar trend for the other years. Obviously, there's always some nuance to that. But directionally, this is the formula for the NII growth in '26 and the other years. Operator: The question comes from the line of Jeremy Sigee from BNP Paribas. Jeremy Sigee: You've got about EUR 0.5 billion surplus capital as of now with the pro forma numbers. Just continuing the discussion about capital deployment and investment opportunities, could you talk about your attitude to -- so I mean, you could already afford to do another Knab or Barclays Germany. But could you talk about your attitude to potentially larger transactions if something came up in the EUR 1 billion, EUR 2 billion range. Would that be manageable? How would you see the risk reward? And what would be your attitude to potential share issuance or other financing options for that? Anas Abuzaakouk: Thanks, Jeremy. Good question. I would say, look, if you look at our history of deals that we've done, 14 acquisitions, right, and that's some portfolios as well. It's ranged from as small as EUR 0.5 billion to as large as almost EUR 20 billion we do not discriminate in terms of size. I would say the one thing that we're probably more sensitive to now given just the position of the franchise is a small deal takes as much time as a large deal. So we have no aversion towards going after larger deals, and that varies in size. I think you mentioned EUR 1 billion to EUR 2 billion in terms of acquisition price. I wouldn't even look at it through that lens. I think from our standpoint, when you look at it through [indiscernible] can we actually create value when we think about what makes BAWAG unique in terms of our culture, our focus on operational excellence, managing the balance sheet, focusing on conservative markets. I think 50% of our balance sheet today is in -- our customer loans is in mortgages. We have a -- how much can you lose as opposed to how much can you make the type mindset when we think about risk management. And all of that kind of factors into our overall decision. And I would say an important intangible element is do we have the bandwidth and I kind of alluded to it during the presentation, which was I think we have a deep bench of senior leaders. We'vd worked together for over a decade. And I think we have the bandwidth to be able to take on larger acquisitions. And given that the 2 acquisitions are largely complete, Knab and Barclays Consumer Bank Europe, I think we have the bandwidth to be able to address larger acquisitions going forward. Was there another question we were seeing? I think that was in the M&A. Jeremy Sigee: Just about also financing. We just have financing as well. I mean, that would imply if it was bigger than the surplus capital so you had to issue some shares as part of the transaction, what would be your attitude to that? Anas Abuzaakouk: Jeremy, we're not averse to issuing shares. But if you look again at the 14 deals that we've done, you saw the 2 deals that we did concurrently the more recent ones, we've self-funded everything. We generate over 400 basis points of gross capital through earnings. As you rightly stated, we have about EUR 0.5 billion. We're talking about making almost EUR 1 billion this year. I mean if you kind of put all this stuff together, I think we're in a really fortunate position where we generate a significant amount of capital that to the extent that we can avoid ever diluting shareholders, that's our default position. Yes, we're not [indiscernible] Operator: The next question comes from the line of Borja Ramirez from Citi. Borja Ramirez Segura: A couple of questions on the NII, please. So the NII guidance includes 6% annual growth includes 4% from the asset side and on the deposit side, if I understood. From the asset side, are you assuming any redeployment of your excess cash into bonds in your target? And then on the deposit side, are you assuming deposit beta remains stable? And also, could you please remind me the notional and the yield of the hedge and the duration, please? Enver Sirucic: So Borja, I think it's easy to answer. Yes, the split is plus 4% and plus 2%, as I mentioned previously. We do not assume any redeployment of the excess cash into bond investments. So that's not in our numbers. We'd like to do, yes, we have a lot of excess cash to deploy. But if you look at the current market trends, we do not expect any widening of the credit spreads at the current stage. I think the other question was around the structure of the deposit hedge, I guess. So 40% of our nonmaturity deposits, so which oscillates between EUR 35 billion and EUR 40 billion. So 40% of that directionally, we put on a structured hedge, which is 10 years rolling monthly. So on average duration, you have 5 years on that part. And that's the main driver then for the NII uptick in the outer years. Operator: Your next question comes from the line of Amit Ranjan. Amit Ranjan: The first one is on the slide on AI, Slide 7. How should we think about the investments versus the savings? Are these gross cost savings initiatives, which are then invested in the business? And at one point, midterm, we should think about some net cost savings from this? Anas Abuzaakouk: Amit, good question. The way you should think about the AI is, look, AI is built into kind of our technological transformation. It's just one component of many components. If you're asking specifically around where is the cost out, it's -- everything is within kind of the mixture of under 33%. And I'd mentioned also like the -- through-the-cycle targets, those are more floors and obviously, hopefully, we look to overdeliver. But for us, AI in terms of like reinvestments, we've continuously made technology investments over the years. It's not a one thing comes out and one thing goes up. We look at it at a macro level in terms of are we making the right technology investments? Are we building up our tech ops capabilities? And I think that's more was my comment around we will always be best-in-class when it comes to operational excellence as well as efficiency, and that's a true competitive advantage. So we don't go into this kind of change the bank, run the bank. These are like the monikers that we just don't look at it that way, so. Amit Ranjan: And just one clarification on the NII, are you using the forward curve for '26 and beyond? Enver Sirucic: Sorry, could you say that again? Anas Abuzaakouk: Are using the forward curve? Enver Sirucic: Yes, we always update the numbers based on the most recent forward curve. Operator: There are no further questions in the queue. I will now hand back to Anas Abuzaakouk for closing remarks. Anas Abuzaakouk: Thank you, operator. Thanks, everyone, for joining this morning. Sorry for the slight delay to get started, but we look forward to catching up with you during first quarter results. Take care, everybody. Have a nice day. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the GlobalFoundries Inc.'s Fourth Quarter of Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chow, Investor Relations. Eric Chow: Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries fourth quarter and full year 2025 earnings call. On the call with me today are Tim Breen, CEO; and Neils Anderskouv, President and Chief Operating Officer; and Sam Franklin, CFO. A short while ago, we released GF's fourth quarter and full year 2025 financial results, which are available on our website at investors.gf.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations web page. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may or by the use of the future tense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we will be participating in fireside chats at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco on March 4; and the Cantor Global Technology and Industrial Growth Conference in New York City on March 11. In addition, we are looking forward to hosting a publicly webcast investor webinar at 4:30 p.m. Eastern Time on March 10. At this event, we will provide a business, technical and strategy update on how GF is at the forefront of the silicon photonics and advanced packaging revolution. We will begin today's call with Tim providing a summary update on the current business environment, technologies and end markets, followed by Sam, who will provide details on our fourth quarter and full year results and also provide first quarter 2026 guidance. We will then open the call for questions with Tim, Neils and Sam. We request that you please limit your questions to one with one follow-up. I'll now turn the call over to Tim. Timothy Breen: Thank you, Eric, and welcome, everyone, to our fourth quarter and full year 2025 earnings call. I am pleased to announce that GF delivered strong results in the fourth quarter with revenue, gross margin and EPS at or above the high end of the guidance ranges. For the fifth consecutive quarter, the communications infrastructure and data center end market demonstrated double-digit percentage year-over-year growth, driven by strong momentum in areas such as SATCOM and optical networking. As a result of the team's consistent execution, disciplined cost management and relentless focus on profitability, we grew gross margin by nearly 400 basis points year-over-year in the fourth quarter. These achievements show that with our unique differentiated portfolio aligned to key long-term secular trends, GF is well positioned to seize emerging opportunities and deliver durable profitable growth. We made significant progress towards our strategic objectives in 2025, focusing on the three core pillars of our customer value proposition, namely, technology differentiation, deep customer and ecosystem partnerships and leveraging our uniquely diversified geographical footprint. Let me summarize some of our key business milestones and highlights in the year. In 2025, GF made extraordinary strides strengthening our technology differentiation across multiple vectors. In the exciting growth area of silicon photonics, we acquired AMF and InfiniLink, which together brings valuable state-of-the-art IP and synergetic customer bases. We expect both of these acquisitions to accelerate our technology roadmap, broaden our portfolio of optical networking solutions and drive greater customer value. As evidenced by our recently announced collaboration with Corning for detachable fiber attach, we are building a unique and differentiated ecosystem of partners for silicon photonics. In the burgeoning realm of physical AI, our acquisition of MIPS enables GF to become a diversified and holistic technology solutions provider with an expansive portfolio of offerings and a larger-than-ever serviceable addressable market. Lastly, we accelerated our gallium nitride technology road map with a licensing agreement signed with TSMC. The addition of this proven GaN technology will accelerate the development of our next-generation GaN platform and enable us to deliver even more differentiated power solutions for high-growth areas, such as the data center from our U.S. footprints. The second key strategic pillar where GF made significant strides was to deepen customer partnerships and accelerate design win momentum. In 2025, we secured over 500 design wins, a company record and a leading indicator of future production revenue. These wins were across the broadest set of applications and widest range of customers in our history. With over 95% of these design wins secured on a sole-source basis to GF, it is a testament to the significant value offered by our differentiated technology and global footprint. 2025 saw us broaden our customer base and engage with nearly all of the leading industry players across the major end markets. As highlighted in our physical AI investor webinar in December, this includes active engagements with all 4 U.S. hyperscalers, all 5 top automotive OEMs, all 6 mobile fabless and OEM and 7 of the top 8 industrial IDMs. Of our many significant customer announcements in 2025, I would like to highlight three specific areas. We meaningfully expanded our long-standing partnership with Apple to build and deliver wireless connectivity and power management chips in our U.S.-based fabs. We deepened our collaboration with Cirrus Logic to advance the development and commercialization of next-generation BCD and GaN power technologies in the U.S. And most recently, our collaborations with Navitas and onsemi are set to accelerate the development and scaling of 650-volt and 100-volt GaN technology for AI data centers and other critical power applications. And finally, in 2025, we advanced our third key strategic pillar, leveraging our diversified geographical footprint. In June 2025, we increased our commitment to invest $16 billion in the U.S., with plans to expand manufacturing and advanced packaging capabilities in our New York and Vermont facilities. Furthermore, we announced plans to invest EUR 1.1 billion to expand our Dresden facility, increasing the fabs wafer production capacity to over 1 million wafers per year by the end of 2028 and making it the largest of its kind in Europe. We also made significant progress in making our technologies available on all continents, creating valuable optionality for all of our customers. In summary, we are very pleased with the progress made towards our strategic objectives in 2025, which sets the foundation for us to capture opportunities in 2026 and beyond. For GF, we expect these opportunities to be driven by the three most significant megatrends defining our industry today. The rapid scaling of AI data centers, the proliferation of AI into the physical world and the critical need for resilient diversified global semiconductor supply. The rapid expansion of compute for AI data centers is reshaping demands on infrastructure and creating two critical bottlenecks, networking and power. Addressing these bottlenecks will be paramount for the continued scaling of AI, and these requirements are driving rapid shifts in semiconductor demand. With years of focused R&D and capacity investments as well as close collaboration with leading customers, GF is at the center of this transformation and is well positioned to capitalize on both key opportunities. In data center power, we have already seen encouraging momentum in the fourth quarter, with two first-of-their-kind design wins secured on our GaN and BCD platforms. We expect to start volume production this year, and we believe the data center power opportunity is still in its very early stages. As we continue to leverage our winning technology to develop, ramp and scale in data center power, we look forward to securing additional customer partnerships in this exciting growth area for GF. Meanwhile, optical networking has clearly emerged as a strong acceleration opportunity for our business at GF. We delivered on our objective to roughly double our silicon photonics revenue within our communication infrastructure and data center end market to over $200 million in 2025. Even on this higher base, we expect to nearly double the contribution from silicon photonics again in 2026, driven by strong customer demand for our differentiated technology, a robust ramp in supply capacity and the integration of our recent acquisition of Advanced Micro Foundry. Closed in November last year, the addition of AMF will accelerate our silicon photonics road map, broaden our customer base and drive opportunities for scale and geographic synergies in Singapore. This highly complementary acquisition is expected to deliver consistent accretive growth to our corporate gross margin targets in 2026. As we continue to ramp opportunities for silicon photonics across pluggable applications, and we begin to scale opportunities in the field of co-packaged optics, we now believe that we are on a path to reach a $1 billion run rate revenue level for silicon photonics by the end of 2028, a substantial acceleration from our prior objective. Moving on to the second major megatrend, physical AI. The emerging technical requirements of physical AI mapped directly to GF's core strengths, building highly integrated, low-power, secure and cost-efficient connected ICs. The addition of MIPS last August is enabling an acceleration of our physical AI capabilities combining our world-class manufacturing capabilities and customer relationships with a full suite of risk 5 processor IP, subsystems and software. Along with the recently signed acquisition of Synopsys Processor IP solutions business, and its team of highly skilled engineers, we expect yet another paradigm shift forward. Integrating Synopsys ARC technology portfolio of high-performance, ultra-low power compute and AI cores positions us to deliver processing solutions across a broad spectrum of physical AI applications from software-defined vehicles to medical devices, defense applications, industrial robotics and beyond. The processor IP portfolio is a highly complementary addition to our MIPS Risk 5 IP portfolio. Together, we expect to be at the forefront of supporting our customers in powering next-generation edge processing workloads, multimodal sensors, real-time control and actuation, all enabling distributed intelligence and action within physical AI devices. The Synopsys ARC acquisition is expected to significantly accelerate our physical AI road map, given ARC's proven leadership in AI-focused IP and software, along with the infusion of its world-class engineering talent. By adding the ARC portfolio to MIPS, we expect GF to become a full spectrum risk 5 processor IP provider, serving a global base of over 300 active customers, now equipped with an expanded range of solutions, including [indiscernible] ultra-low power neuroprocessor course, and it's widely used ASIP designer and MetaWare software tool chain as part of our offering. The final megatrend defining our industry is the critical importance of geographically diversified semiconductor supply in a fragmented deglobalizing world. Geopolitical tensions, tariffs and export controls are actively driving firms to reshore or onshore their semiconductor supply. Companies now routinely mandate non-China, non-Taiwan sourcing, while others have publicly announced the U.S. as central to their long-term supply chain strategy. GS is ready to meet these requirements in a way no other company can. GF flexible and scaled footprint spans the U.S., Europe and Asia, making us uniquely suited to satisfy customer requirements and capture meaningful share from this secular shift. Strong customer engagements are turning into meaningful new design wins, tapeouts and preparations for high-volume ramps. Over the course of 2025, new design wins that were specifically driven by a manufacturing footprint were worth well over $3 billion of combined expected lifetime revenue. As more and more customers choose us for our three continent footprint, we expect to build on this momentum in 2026 and beyond. Accelerated revenue growth and profitability tailwinds to GF are only starting to take shape, but we are setting the foundation with customer partnerships today. We expected fully leverage our unique geographic advantage placing us at the forefront of semiconductor onshoring in the years to come. Let me now discuss our recent design wins, customer engagements and business highlights across each of our end markets. In automotive, we made significant progress in 2025 in growing our content in the car beyond our traditional leadership in automotive MCUs. For example, automotive smart sensors and networking revenue more than tripled in 2025 compared to 2024, driven by robust ramps in radar, cameras and other sensors critical for next-generation ADAS. In 2025, we secured over 50% more design wins in automotive compared to the year prior, which builds on years of increasing design win momentum. Automotive design wins typically take several years to fully ramp, yet we have outperformed the automotive semis market every year in our existence as a public company. In smart mobile devices, we continue our focus on the most differentiated applications for high-end handsets. We secured several new design wins in the fourth quarter across camera controllers, RF front end and power management, including a few notable highlights. We secured a design win on our 22 UX platform targeting next-gen imaging in mobile phones and action cameras with an estimated lifetime revenue of over $500 million. With best-in-class analog performance, low noise optimization and compelling cost competitiveness, we expect further UX wins in areas such as IoT, automotive and industrial. We won a camera controller program for premium tier Android with Cambridge Mechatronics on our FinFET platform an opportunity for meaningful share gain in a relatively new area for GF. Thanks to its superior RF noise performance, our newly launched CBIC platform was selected by Broadcom for a low-noise amplifier, the second major customer to adopt this technology. In home and industrial IoT, we deepened our long-term collaboration with a leading MCU supplier with a fourth quarter design win for its next-gen AI-enabled MCUs used in a variety of physical AI applications. We are also seeing notable opportunities for connectivity solutions on our FinFET platform, including SoCs for next-generation WiFi 8 and other IoT applications, such as point-of-sale retail. In aerospace and defense, we secured new design wins across secure connectivity and RF applications that will begin ramping in our Multi New York fab. As physical AI proliferates in the coming years and manifests across many different new applications and form factors, we expect our home and industrial IoT business to be a key beneficiary. In 2026, we expect a stronger second half for this end market compared to the first half, driven by the ramp of new products in areas such as AI-enabled MCUs, WiFi connectivity and power management. In communications, infrastructure and data center, we secured an important co-packaged optics design win for scale-up networks on our CLO silicon photonics platform. These photonic IC design wins at both endpoints at the scale-up network marked an important step in the industry's rollout of CPO. As AI clusters grow, the capabilities of our silicon photonics portfolio position GF at the center of the shift towards high bandwidth, lower latency interconnects that underpins scale-up AI networking. Beyond silicon photonics, our leading portfolio of high-performance SiGe using applications such as TIAs and driver ICs serve critical needs across optical networking. GF is not just participating in these critical optical networking opportunities. Our products and innovation are actively driving informed. In satellite communications, we continue to expand our leadership by winning additional content on the satellite, enabling direct to cellular phone services. GF technology enables ubiquitous global connectivity by eliminating traditional mobile dead zones through satellite to mobile technology. Our most recent design win in the fourth quarter further broadens our content across the full SATCOM ecosystem, from terminals on the ground to satellites in orbit. For all of these reasons, we are enthusiastic about further growth and acceleration in our communications infrastructure and data center end market, where we expect to outperform peers and achieve over 30% year-on-year revenue growth in 2026. In conclusion, GF is at an exciting inflection point. Our acquisitions are expanding GF's capabilities as a holistic technology solutions provider and our differentiated technology and footprint are proving an excellent fit in the confluence of major AI and onshoring megatrends. In addition, I'm encouraged by our record design win momentum, breadth of customer engagements and clear path towards a richer mix of business. I have never been more optimistic about our long-term potential than I am now. I'll now pass the call over to Sam for a deeper dive on fourth quarter and full year 2025 financials. Sam Franklin: Thank you, Tim. For the remainder of the call, including guidance, other than revenue, cash flow and net interest income, I will reference non-IFRS metrics. As Tim noted, our fourth quarter results were at or above the high end of the guidance ranges we provided in our last quarterly update. We delivered fourth quarter revenue of $1.83 billion, up 8% sequentially and flat year-over-year. We shipped approximately 619,300-millimeter equivalent wafers in the quarter, up 3% sequentially and 4% from the prior year period. Wafer revenue from our end markets accounted for approximately 88% of total revenue, non-wafer revenue, which includes revenue from reticles, nonrecurring engineering expedite fees and other items accounted for approximately 12% of total revenue in the fourth quarter. For the full year, we delivered revenue of approximately $6.791 billion, up 1% year-over-year. We shipped approximately 2.3 million 300-millimeter equivalent wafers, a 10% increase from 2024, which equated to utilization levels of approximately 85% for 2025. Let me now provide an update on our revenue by end markets. Smart mobile devices represented approximately 36% of fourth quarter total revenue and 39% of full year revenue. Fourth quarter revenue declined approximately 13% sequentially and 11% from the prior year period. Full year 2025 revenue decreased 12% year-over-year, principally driven by GF initiated onetime pricing adjustments made in 2025 with a small number of mobile customers where GF was dual sourced. We expect to gain greater share of wallet with these customers in 2026, and we also believe that pricing has stabilized in this end market. In 2026, we expect our smart mobile devices business to largely track the overall smartphone market. Moreover, as we continue our multiyear journey to diversify our products and end market portfolios, 2025 was the first full year where more than 60% of GF's total revenue came from markets other than smart mobile devices. While revenue from smart mobile devices remains a key component of our end market mix, we do expect this trend to continue as growth from IoT, automotive, and communications infrastructure and data center benefit from faster growing SAM opportunities, where GF is demonstrating strong design win momentum. Automotive represented approximately 23% of fourth quarter total revenue and 21% of full year 2025 revenue, which is up from just 2% 5 years ago and is a testament to the design wins, content growth and customer partnerships that GF has developed over the last decade. Fourth quarter revenue increased approximately 40% sequentially and 3% year-over-year, partly driven by the timing of customer shipments as indicated on our prior earnings call. Full year Automotive revenue grew approximately 17% year-over-year to a record $1.4 billion. And with continued share gains and content expansion, we expect to sustain this momentum in 2026. Home and Industrial IoT represented approximately 17% of the quarter's total revenue and 18% of full year revenue. Fourth quarter revenue increase in this end market approximately 17% sequentially and decreased 15% year-over-year. Full year home and industrial IoT revenue declined 6% year-over-year, driven by the end of life of certain aerospace and defense products. With new Aerospace and Defense and other IoT applications, forecast to ramp into production in the second half of 2026, we expect a return to full year revenue growth for our IoT end market this year, albeit with a skew towards the second half. Finally, communications infrastructure and data center represented approximately 12% of the quarter's total revenue and 11% of full year revenue, marking a notable return to revenue growth for this end market. Fourth quarter revenue, which includes revenue from silicon photonics, increased approximately 29% sequentially and 32% year-over-year. For the full year 2025, communications infrastructure and data center revenue grew 29% year-over-year, well above our prior expectation for low 20s percentage year-over-year growth, driven by strong momentum in optical networking, silicon photonics and satellite communications. We delivered on both of the key growth objectives we set out earlier in the year. Specifically, we grew satellite communications to over $100 million in revenue, and we approximately doubled our silicon photonics revenue in 2025. As evidenced by our results, we continue to focus our strategy on shifting the mix of our business towards margin accretive, high-value secular growth markets, where our differentiated product portfolio is very well suited to support the required content expansion and evolution. In 2025, revenue from our automotive and communications infrastructure and data center end markets, together comprised a record 1/3 of our total revenue, up from approximately 27% the year prior and signals a consistent step forward towards our ongoing mix shift. As we focus on growing differentiated technology solutions for our customers in areas that are accretive towards our corporate gross margin targets, we expect this mix shift between and within end markets to provide a robust platform to continue growing GF's profitability. In the fourth quarter, we delivered gross profit of $530 million, which translates into approximately 29% gross margin, up 300 basis points sequentially and 360 basis points year-over-year. For the full year, we delivered gross profit of $1.773 billion and gross margin of 26.1%, equating to an 80 basis point increase year-over-year. R&D for the quarter was $115 million, and SG&A was $80 million. Total operating expenses of $195 million were up 9% quarter-over-quarter and represented approximately 11% of total revenue. We delivered operating profit of $335 million for the quarter, as an operating margin of 18.3%, above the high end of our guided range and up 270 basis points from the year prior period. For the full year, GF delivered operating profit of $1.066 billion at a 15.7% operating margin, an increase of 210 basis points year-over-year. Fourth quarter net interest income, net of other expenses, was $16 million, and we incurred tax expense of $41 million in the quarter. We delivered fourth quarter net income of approximately $310 million, an increase of approximately $54 million from the prior year period. As a result, we reported diluted earnings of $0.55 per share for the fourth quarter on a fully diluted share count of approximately 560 million shares. On a full year basis, GF delivered net income of approximately $965 million and diluted earnings per share of $1.72, up 10% year-over-year. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations for the fourth quarter was $374 million. For the full year, cash flow from operations was $1.731 billion. Fourth quarter CapEx, net of proceeds from government grants was $110 million or roughly 6% of revenue. Full year net CapEx for 2025 was approximately $574 million or 8% of revenue. Adjusted free cash flow for the quarter was $264 million, which represented an adjusted free cash flow margin of approximately 14% in the quarter. Adjusted free cash flow for the full year 2025 was $1.2 billion at a free cash flow margin of approximately 17%, building on our objectives set out at the start of the year and demonstrating a new record for GF. This is thanks to the multiyear investments we have made in our diversified capacity footprint as well as our continuous drive to improve our productivity and cost structure. At the end of the fourth quarter, our combined total of cash, cash equivalents and marketable securities stood at approximately $4 billion. Our total debt was $1.2 billion, and we also have a $1 billion revolving credit facility, which remains undrawn. In light of our consistent free cash flow generation and balance sheet metrics, I would like to share an update regarding our capital allocation strategy. Our top priority continues to center on disciplined reinvestment into GF and focusing on high ROI opportunities. As demonstrated by our recent acquisitions and the continued remixing of our business, our strong balance sheet has been a key enabler of our strategy to pursue value-accretive investments. Taking these factors into account, we believe our robust cash position enables us to further enhance shareholder returns through the implementation of a share repurchase authorization. Today, I am pleased to announce that our Board of Directors has authorized a share repurchase of up to $500 million, supported by our solid balance sheet, margin expansion and the implementation of our long-term strategic pillars that Tim outlined, we believe share repurchases represent a compelling and accretive use of capital as well as helping offset the impact of share-based compensation. We intend to begin repurchasing shares this quarter and look forward to keeping you updated as we execute on this important step in our capital allocation road map. Now let me provide you with our outlook for the first quarter of 2026. We expect total GF revenue to be $1.625 billion, plus or minus $25 million. Given our consistent customer momentum and recent IP-related acquisitions, we expect non-wafer revenue to be in the 10% to 12% range of total revenue, up from 8% to 12% in prior years. We expect gross margin to be approximately 27%, plus or minus 100 basis points, which reflects a continuation of year-over-year gross margin expansion. Excluding share-based compensation, we expect total operating expenses to be $225 million plus or minus $10 million. We expect to maintain a similar quarterly operating expense run rate for the first half of 2026. We expect operating margin to be in the range of 13.2%, plus or minus 180 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately $63 million of which roughly $16 million is related to cost of goods sold. We expect net interest and other income for the quarter to be between $2 million and $10 million and income tax expense to be between $17 million and $35 million. Based on the tax environments across the jurisdictions we operate in, we expect an effective tax rate in the high teens percentage range for the full year 2026. Based on a fully diluted share count of approximately 560 million shares, we expect diluted earnings per share for the first quarter to be $0.35, plus or minus $0.05. For the full year 2026, we expect non-IFRS net CapEx to be in the range of 15% to 20% of full year revenue. The projected year-over-year increase in net CapEx in 2026 is primarily driven by strong customer demand in capacity corridors, where we are oversubscribed such as in silicon photonics, FDX, SiGe as well as in establishing new capabilities in areas such as advanced packaging. Not only are these important drivers of revenue growth, they are critical long-term accelerators of GF's gross margin expansion. Given the timing of these investments, we expect net CapEx may vary quarter-to-quarter subject to the timing of expenditure and receipt of government grants. We will continue to thoughtfully manage our capital spending plans to align with the broader demand environment. Although, we expect 2026 to represent a year's strategic investment in our capacity, we remain focused on our disciplined expansion principles and free cash flow generation. For 2026, we expect a free cash flow margin of approximately 10% of full year revenue as we receive customer prepayments and continue to invest in accretive and expanding product corridors. To wrap up, I would like to thank the dedication of our employees around the world for their unwavering commitment to our customers and strategic objectives over the course of the last year, and I look forward to building on this in 2026. Let me now pass the call back to Tim for some closing remarks. Timothy Breen: As you saw in our 6-K filing this morning, today is Niels' last earnings call at GF, and I want to express my sincere gratitude for his service and contributions. Over the past three years, Niels brought clarity, strategic discipline and a deep customer focus that strengthened our operations and helped advance our product and technology road map. I wish him the very best in his next endeavors. Here is Niels for some final remarks. Niels Anderskouv: Thank you, Tim. As I step down from my role as President and COO, I want to express my deep gratitude to the entire GlobalFoundries team. The past three years have been some of the most rewarding of my career. And together, we sharpened our strategic focus, strengthen our business discipline and advance the three foundational strategic pillars that now define GFC [indiscernible] position in the market. I'm incredibly proud of how we aligned our manufacturing, commercial and product organizations to move with greater speed, customer focus and purpose, a shift that is now reflected by the strong technical advancements across our road map, expanding design win momentum and our stronger operating rhythm. What stand out most though is the relentless dedication of our people their commitment, their drive to win and their belief in what GF can achieve have shaped the company's trajectory and laid a powerful foundation for the years ahead. GF is in a stronger position today than at any point in its history, and I have full confidence that Tim and the team will continue to accelerate the company's strategy and deliver exceptional results. It has been an honor to be part of this mission to you. And with that, let's open the call to Q&A. Operator? Operator: And our first question for today comes from the line of Mehdi Hosseini from Sesquhana Financial Group. Mehdi Hosseini: And the first one, I want to focus on silicon photonics, especially in the context of the recent SAP acquisition in Singapore and InfiniLink from November of last year. Can you remind us what the strategy here is and how GlobalFoundries is intended to differentiate? And I have a follow-up. Timothy Breen: Thanks, Mehdi. It's a great question. Obviously, you've seen over the last year a very strong acceleration and a lot of public announcements about the need for silicon photonics as a critical enabler of the scale-up of AI in the data center build-out that we're seeing. That's something we've been working on for more than a decade as GF organically building an incredible organic platform. And obviously, in 2025, we added to that with inorganic plays, including the acquisition of AMF and also of InfiniLink. Look, our goal, and I think where we're making great progress is to be the best in the industry for three key reasons: Number one, having the strongest process technology offering, and that includes an offering for 200 gig per lane technologies today and a road map to 400 gig per lane and beyond, which is what the industry needs to achieve the next level of performance, and we're well on track to deliver that and those acquisitions support in that journey. Also having the strongest enablement, obviously, these are new areas for customers to design, and they need robust PDKs, simulations, modeling and so on to be able to bring their solutions to market. They also need ecosystem partners within that, some of the partnerships we've mentioned, for example, with Corning, brings the table specialized solutions, things like detachable fiber attach, which are critical for the transition to copackage optics, and the last thing that, of course, GF is well known for is that global manufacturing footprint. And so we're scaling silicon photonics in Singapore and the U.S. including on a 300-millimeter platform, which, again, we think gives us a lot of opportunity to grow the business and differentiate going forward. I think you're seeing the proof points reflected in the revenue trajectory, we obviously had a strong 2025 doubling from the prior year, and we think that will continue through the course of 2026 and beyond. And that's given us also confidence to accelerate what we said previously about reaching $1 billion run rate revenue, which we think will reach by end of 2028. So overall, very strong momentum, lots more opportunities ahead. We're very much at the beginning of this transition in the data center. Mehdi Hosseini: Great. And then the second question, actually a different topic, but perhaps part of your longer-term strategy. And one -- I would like for you to remind us, what is your strategy with quantum compute? And I asked that because IonQ recently acquired SkyWater. SkyWater was a smaller analog fab. And I think your strategy on the risk side is somewhat also a strategic with a lower opportunity that Quantum brings. So can you remind us what the strategy is? And any additional color that you can provide us would be great. Timothy Breen: No, thank you. Actually, longer term, very excited about the trajectory for quantum. And I think the reason is you see now significant investment going into building scalable, full-tolerant quantum systems. And that's the key. It's not about proving at the lab scale now. It's about proving that we can actually build functional systems at scale. GF has very specific solutions for different quantum modalities, everything from Photonics, which we've talked about just now and more broadly, including partnerships that we have with companies like CyQuantum. But we actually also have partnerships in areas like spin qubit, ion trap, topological quantum. So a lot of these modalities that are all competing in a way to prove they can be the first ones to scale. GF provides for all of those. Obviously, since that announcement that you referred to, people have recognized even more the importance of high-volume manufacturing. Again, it's not just about proving at the lab scale, but how do you actually industrialize and build larger scale systems. We have good partnerships out there. We expect to announce more in the coming months. And again, just given the depth of our technical bench, it's an area I think will play a critical role going forward. Operator: And our next question for today comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: I want to talk a little bit about the supply side of the equation. You talked about what CapEx was doing. But as we think about areas of tightness, pricing environment and some of your more unique process technologies. How are you viewing the tightness of the differentiation and what that means for kind of sustained CapEx going forward beyond this year? Timothy Breen: So thank you for the question. I think we're seeing, particularly in these areas of differentiated technology, combined with strong end market traction, a big step-up, that's compared to a year ago in corridors, such as silicon photonics. Also, our FDX platform, a lot of use cases there from the car to the IoT and beyond. In areas like silicon germanium, we haven't spoken so much about, but again, getting pulled through in a lot of the optical connectivity in the data center. So the demand drivers are strong. those corridors are running hot. We're able to meet our customers' demands today. But given the ramp profiles of new designs that have been won already and are now taping out, will we see good areas rough to invest there and scale. The good news for us in terms of those investments is they're highly accretive, short time to market within our existing 4-wall footprint. So they come with quick ramp and very good capital efficiency. And maybe one thing to add to that is, obviously, they're also eligible for some of the best government support we've had in, frankly, our history in terms of putting that capacity on given the strategic nature of the footprint. So I think a good opportunity for us to grow, to invest more strongly against that customer demand. Sam Franklin: And Ross, maybe just to put a couple of numbers around that as well and kind of reinforcing Tim's point there around the guiding principles that we have for deploying CapEx. And as Tim said, number one, customer-led demand; number two, in accretive corridors; and number three, in a highly capital-efficient manner. Actually, 2025 as well is a good example of where we've already demonstrated that's starting to come through, not least in the increased investments we've made in Silicon Photonics to support the ramp that we've seen so far. But also some of those government grants that we've seen come through as a result of the strategic importance of our overall footprint. And so you take our gross CapEx in 2025 versus 2024. You're actually up about 15%, but on a net basis, down about 7%. The single biggest driver there is that we are now starting to see the level of increased government support across the U.S., across Germany, across Singapore, start to fall through. So relative to 2024, about $10 million of government grants came through 2025, about $150 million. We expect that to grow again in 2026. So really kind of plays to those thought of those three core principles. Ross Seymore: I guess as my follow-up, just if we take all of these investments on one side and I think, Tim, you described it as kind of a holistic technology solution provider in your transcript. How do we think about the margin structure? What does it mean to the gross margin over time for the company and perhaps even the OpEx intensity. It seems like the business model, whether it be mix shifting or just a solution approach is really a different model than when you last updated us on some of your long-term targets. So I just wanted to see how some of those targets might be changing. Sam Franklin: Sure, Ross. I'll take that one. And I think there's a couple of important points to unpack there, both in terms of some of the margin drivers and as you say, on the OpEx side of the equation as well. The margin, I think, is really starting to come through and what you saw us deliver in the fourth quarter as well. You take a relatively flat revenue profile year-over-year in the fourth quarter, we delivered almost 400 basis points of increased gross margin. Now some of that comes through the continuation of our focus on productivity of disciplined spending, very modest utilization pick up during the year as you heard, we were about 85% for the full year of 2025. Where we're really starting to now see the fruits of the strategic decisions that have been taken come through is around the mix. Clearly, with silicon photonics roughly doubling in 2025. That comes through at a highly accretive gross margin. That contributed to that large step-up that we saw and enjoyed in quantum in data center in 2025. And you overlay that with automotive, which has typically been a strong tailwind for us from a margin perspective, but also a secular growth perspective, you take the combination of those two, and that's about $2.2 billion of revenue in 2025, about 1/3 of our total revenue. That on a stand-alone basis, it's larger than some of the competitors that we see within this space. And so this continued diversification of the portfolio from an end market perspective and a product perspective is going to be a good driver of margin tailwind over the years to come. And then the last piece, which I'll just call out there as we think about it on a long-term basis is really about scale. And Tim talked about it in some of his prepared remarks as well, but we are being super disciplined about how we invest in our capacity. And first and foremost, we're doing it within the four walls that we have available. We have four walls opportunities available in Morten New York, in Burlington, where we are today as well as what we recently announced in Germany as well, which is converting our legacy BTF facility. So as we continue to get our sites to scale and get that scale with an improvement of the mix from a product and an end market perspective, we really expect to see good margin drivers over the years to come. And then maybe briefly, Ross, on your OpEx piece, you asked the question there. Look, I think it's fair to say there's a tactical element to OpEx and a strategic element to the OpEx as well. From a tactical perspective, if you look at 2025 and to some degree, 2024, we were getting the benefit of certain legacy tool sales coming through as a contra to OpEx. We also had good flow-through from the AM ITC during those years as well. We don't expect some of those tool sales to recur in 2026. And so there's a natural float up in some of the OpEx there. From a strategic point of view, look, it's very focused in terms of some of the inorganic plays that you've seen us make over the last few months. And really, if I take R&D as an example, the incremental investment in R&D programs across our existing product portfolio, but also in relation to the likes of MIPS and in future, the Synopsys processor IP business, that's really focusing on new IP cores, including AI cores, processor IP, again, positioning the future growth here. So a natural float up in some of the OpEx on that front as well. Hope that helps. Ross Seymore: Congrats Niels as well. Operator: And our next question comes from the line of Mark Lipacis from Evercore ISI. Mark Lipacis: Tim, if I look at the acquisition of the recent ones on the processor side, MIPS and ARC and then on the connectivity side, it's the Advanced Micro Foundry for SIFO and InfiniLink. So is there a synergy between these, for example, if the customers who are using the processor, are they're also using the connectivity IP? Or are these separate ideas? And then separate from that, is -- are these acquisitions, they -- are they just broadening your portfolio that you can offer? Or is this -- are they meant to also move you up the value chain, so to speak. So are you becoming more than what you've been in the past, I'd like a classic foundry. I don't know if that's the right way to say it, but are you moving up the value chain with these acquisitions? Is that part of the idea? Timothy Breen: Yes. No, Mark, thank you for the question. It's a great one. I mean really quick recap on the photonics-oriented acquisitions because we've already spoken about that a bit. Those are absolutely about bringing new technology to that road map, accelerating capacity, by the way, bringing also new customers. AMF came with different customers that GF hadn't worked, deeply within the past and now we have new opportunities to grow with those customers. By the not just in photonics, many of them are also potential customers for the rest of the portfolio. So that's highly synergetic. And then InfiniLink, great team in Cairo, Egypt, where you've got very good design skills in our platform. That's helping customers onboard more quickly, build more innovative solutions and architectures, including some of the customers that are building more co-packaged optics type solutions, which are more complex have more packaging and so on in them. So that's highly geared towards that data center AI build-out and obviously build on our organic photonic story. The mission synopsis is different. And so I think you can think of that more as laying a foundation for that physical AI transition. We firmly believe that will outstrip the current boom on the data center over the long haul because the number of applications are much, much broader. And what's interesting is the customer reaction we had to those acquisitions first one we announced MIPS and then even more so when we announced Synopsys, I got a lot of answers sheet says very, very positive feedback to customers who said, "Listen, this is great because this allows us to engage earlier together in the road map, and we're thinking about how we solve critical problems in the car, in the IoT, in the defense space and so on." And I think it's, therefore, not just, Sam kind of alluded to accretive revenue, which it is, but it's also synergetic to our manufacturing footprint and allows us to engage much earlier, which means those engagements are much more strategic much longer and more durable as well. So I think the synergies are with our current business, but both of them really play to those megatrends that we're talking about. Mark Lipacis: Very helpful. And then a follow-up, if I may. When you listen to your customers on their earnings calls like most of them are of the view that the supply chain inventory correction has largely played out. And I'm wondering if you could give us a sense like what is the visibility for you guys look into 2026 compared to a year ago? And any color you can provide us on like how your customers are thinking about giving you like longer lead times and longer kind of visibility or higher facility into the year versus a year ago? Is that helpful? Timothy Breen: It's a great question. And I think across all end markets, it is significantly more visibility versus a year ago. I think that's consistent. Obviously, there are some markets where the visibility is extremely high. And you hear that on other earnings calls, again, anything touching the data center. Most of the customers are talking about '27. For them, '26 is already a deal that I think is very consistent based on what you're also hearing from the big spend of data center CapEx and so on. So that's very strong. I think for us on areas like automotive, we're just sustaining momentum and not just in classical areas like microcontrollers where we have a strong business again, good visibility, but areas that are ramping very nicely like smart sensors, things imaging, think radar, some even emerging opportunities in LiDAR. And so you're seeing new growth, but this is also based on design wins that happened in some cases 2, 3, 4 years ago, and that's just the nature of that automotive business. So I think we remain with pretty good confidence and visibility into the automotive side. I think we talked about the IoT. It's a bit more of a story of product transition this year. So we do see growth. We definitely see stronger growth in the back half because we know which products are taping out and are moving into ramps in the back half of the year. But I'll call out key areas, again, like medical, they're starting to pick up, which is very interesting, I think, longer term, very, very good growth driver. Other areas of the IoT, I think, also industrial picking up as well on the same basis. And then look, smart mobile, we said we track the overall market. I think that's the one that people ask the most questions about in general from a market dynamics point of view, if you listen to some of those earnings calls. I'd say our portfolio is geared more to the premium handset and premium handset is typically more resilient to some of the disruptions you've heard about from other calls. So again, overall tracking the market. Obviously, we're watching the space very carefully. Operator: And our next question comes from the line of C.J. Muse from Cancer Fitzgerald. Christopher Muse: I'm just curious if you could spend a little time on the silicon photonics side. You talked about doubling revenues again here in 2016. Curious if there's a change in mix, customer base within that? And then as part of the bigger picture within CID, how are you thinking about kind of the growth trajectory for that overall business, particularly given silicon photonics doubling once again? Timothy Breen: Yes. No, great question, C.J. So overall, what I mentioned with AMF is we brought in new customers to the mix, which is great, and those customers as to say, have more opportunities that we can grow. That's given us a pretty broad portfolio into silicon photonics. As a reminder, the majority of photonics revenue today is in the pluggable space pluggables are doing very, very well globally. If you walk around any AI data center today, you'll find a huge number of pluggable optical transceivers being used. Obviously, that pulls on silicon photonics, but also within our CID end market that pulls on things like high-performance silicon germanium actually a very strong business for us that, again, we're investing in given that the capacity is being very, very well utilized today. So I think that part is there. What you're also seeing and hearing about is the beginning of the co-package optics, transition. I think we've always been consistent that, that was a '27 scale ramp more than a '26 scale ramp, but all the progress we're seeing in terms of design wins, in terms of takeout, planning gives that a good indication that that's on track. And that's just because CPO is the only way to address certain performance workloads, especially on scale up networks. And so look, I think photonics still, like I said, very early in its rollout and those form factor changes will also drive significant increases of content. Sam Franklin: And maybe, C.J.; just to capture 1 other aspect that look in 2025, we grew our I&D business about 30%. So really an inflection from some of the legacy migration that we saw in 2023, 2024. To Tim's point, a big piece of that is silicon photonics and optical networking, but we're also now seeing this continued growth from a communications infrastructure perspective and specifically within satellite communications as well. So you look at the LEO satellite launch projections over the course of the next couple of years, the continued commercialization industrialization of this technology as well. We believe that's a good tailwind as well heading into 2026 and consistent with the commentary that we provided on the call, we expect to have a similar growth rate in '26 as well. Christopher Muse: Very helpful. And then -- and maybe just to get our arms around all of the acquisitions in '25. How should we think about kind of the incremental revenues and the implications to gross margins as well as OpEx. Any kind of framework around that? Sam Franklin: Yes, happy to. And look, there's obviously a period of ramp and integration that comes through with these acquisitions as well. I sort of categorize a little bit the difference between, say, an InfiniLink acquisition, which is really focused on high capability, design team that will support revenue growth in the outer years, particularly within photonics and packaging, versus, say, AMF and MIPS, which are revenue generated from day 1, albeit more with a second half ramp. So the disclosures we provided on both MIPS and AMF in the past, where we expect MIPS to deliver about $60 million to $100 million of revenue in 2026, albeit with a second half skew. And similarly, AMF, call it, at least $75 million in '26. But look, they're not the reasons why we acquired both of those companies, the multiyear opportunity that comes with acquiring those companies is really where the focus is for GF, and we're going to provide more color on that when we get together as part of the circum photonics webinar that Eric outlined. So good opportunities on a multiyear basis, short term, call it roughly $150 million there or thereabouts, we'd expect across the two. As it relates to both of those, they are margin accretive. So think about it as roughly a point of incremental margin in 2026. Timothy Breen: And C.J., maybe just to add on because we've talked about the photonics kind of 2028 run rate goal that we've set and increasing and confidence to deliver given how we pulled it in. We have a similar goal for what we're doing on the custom design and IP side with MIPS and now with Synopsys. Again, we believe that can be more than $1 billion business for us -- incremental $1 billion business for us over time. And so again, these are meaningful opportunities. Obviously, we start from today, but there's a lot of growth behind the plans. Operator: Our next question comes from the line of Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Tim, can you give some color on how to think about wafer volumes in ASP in 2026 given the different moving parts between smart mobile and trend in auto and data center infrastructure? Timothy Breen: Yes, it's a great question. I'll start and then Sam adds some costs. So I think you're kind of alluding to also the pricing environment. You've also heard comments from other players out there. We definitely see a stronger pricing environment in 2026. You see that evidenced not just by some of our peers and other players in the industry looking at price raises, but you're also hearing about customers of ours raising prices as well. So I think people are willing to pay for those growth areas, where they want increased volumes, they're willing to pay, and they're also passing in some cases, those on to their customers. So I think, again, versus a year ago, you're in quite a different price environment. We were very deliberate in our price decisions in '25, specifically in the smart mobile space. But again, we don't see any significant action in '26 on the same basis and overall in a better spot from a pricing point of view. We will grow wafer volumes this year. But I think, as Sam alluded to, the mix is really is really the driver for us in terms of the profitability growth because the delta between the most valuable wafer and the least valuable wafer is very significant, driven by the technology, the application and the market dynamics. And I think that mix driver will probably the stronger reason for growth from a profitability point of view in 2026. Sam Franklin: Yes, that's right, Krish. And just one point from Tim, and we'll focus principally on the guidance for the first quarter, but you can see some of that coming through, right, on a year-over-year basis, call it revenue up about 3%. But then you look at where the midpoint of the gross margin guide is as well. That's up over 3 points. And so it really plays into some of those comments, Tim was making around the mix as well. Sreekrishnan Sankarnarayanan: Got it. And then a quick follow-up. You gave a lot of color on the acquisitions, both the MIPS and Synopsys, ARC, IP, which makes a lot of sense. I'm just wondering, are you like kind of enclosing more into ARM territory? Are going to be competing with ARM in the future, or how to think about it? Timothy Breen: It's a great question. And I think the way we are anchoring all of these acquisitions is in a strong focus on what our customers are asking us for. And so one of my priorities since I've taken the role to spend a huge amount of time on the road meeting customers and understanding the gaps and the challenges they have. And they want optionality. They want choices. And let's take the risk 5 example. Risk 5 is a strategic priority for the majority of semiconductor companies. You've seen that from everything from Mesa to Qualcomm. Obviously, all of the IDMs have been very public in their support for risk V, and there are many, many more. And so what they said is we'd love to have a provider who can invest behind that road map, who can drive a multiyear kind of support structure who can invest in building tools and software so we can simulate our designs and our architectures before we make them in silicon. And so I think the feedback for that reason has been really, really good and so on. So I think a bit less is competition, but more about filling gaps in the portfolio that the customers need today. Operator: And our final question for today comes from the line of Timothy Arcuri from UBS. Timothy Arcuri: Non-wafer revenue, obviously, you're pushing into custom silicon it's gross margin accretive, but how accretive is it? And the 10%, 12% for March quarter as a portion of revenue, is that sort of what we should think about staying in that range for the rest of the year? And then I also had a follow-up too. Sam Franklin: Sure, I'll take that one, Tim. And as you think about what comprises our non-wafer revenue, look, the masks, the reticles IP royalties, nonrecurring engineering, all of those are key leading indicators for us in terms of where we see some of the opportunity as it relates to future production revenue and that has continued to ramp during the course of 2025, and we expect a similar range as we outlined for the call as it relates to at least the FERC quarter. But really, as we look at it over the longer term, clearly, the key addition as it relates to the last few months, is that a mix and what that kind of IP processor, software licensing royalty, revenue framework will provide as well. So it's the right range to think about for now. And clearly, that is a step-up of, call it, roughly 2 points in that range from where we were this time last year. And then from an overall margin perspective, the non-wafer revenue has traditionally and will continue to fall through at a level which is highly accretive to the corporate targets that we've set out. Timothy Arcuri: Okay, Sam. And then the middle of 2025, you thought you could get to 30% exiting the year, you got closed, but you didn't quite get there. So sitting here right now, do you think we can exit this year at 30% or possibly even higher than that? Sam Franklin: Sure, Tim. And we tried to give you a couple of the considerations on the call, and I'll just kind of reinforce some of those principles. And it really ties to some of the growth in margin that we've seen during the course of the last 12 months as well, continued expansion of margin associated with mix, continued improvement associated with productivity and really cost discipline within the business, call that a couple of points on its own. Really, the wildcard at this point is what happens from a utilization point of view as we get into the second half of this year, we see strong oversubscription in certain corridors from a technology point of view that will continue during the course of this year, and you heard that reflected in some of the comments from both eComms infrastructure and data center point of view, but also automotive as well. So I would say they're the kind of core components. Look, the long-term goal for us is still to be driving towards that 40% gross margin target. And I think what you've seen from us over the course of the last last six months, some very deliberate strategic actions to not only keep us on track to that, but ultimately go through it. Timothy Breen: And I'd say, Tim, just to a little bit -- I'm going to give you a yes for 2026 to the question of getting to our 30% target. But as Sam said, our focus is not to get there. Our focus is to get there and keep going to that long-term target that we talked about. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks. Eric Chow: Thanks, Jonathan. Thanks, everyone, for joining today. We're looking forward to seeing you at our next investor webinar on March 10, where we'll discuss how we're at the forefront of silicon photonics and advanced packaging. Thank you. Operator: Thank you, ladies and gentlemen, for your participation. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Martin Marietta's Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants are in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacklyn Rooker, Martin Marietta's Vice President of Investor Relations. Jacklyn, you may begin. Jacklyn Rooker: Good morning. It's my pleasure to welcome you to Martin Marietta's Fourth Quarter and Full Year 2025 Earnings Call. With me today are Ward Nye, Chair, President and Chief Executive Officer, and Michael Petro, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward-looking statements as defined by United States securities laws. These statements relate to future events, operating results, or financial performance and are subject to risks and uncertainties that could cause actual results to differ materially. Martin Marietta undertakes no obligation to publicly update or revise any forward-looking statements except as legally required, whether due to new information, future developments, or otherwise. For additional details, please refer to the legal disclaimers contained in today's earnings release and other public filings which are available on both our own and the Securities and Exchange Commission's websites. Supplemental information is available both during this webcast and in the Investors section of our website. It includes a summary of our financial results and trends, with full year and fourth quarter bridges from continuing operations to consolidated results on slides five and six, respectively. As a reminder, the company's Midlothian cement plant, related cement terminals, and Texas ready-mixed concrete operations are classified as assets held for sale as of December 31, 2025. Their associated financial results are reported as discontinued operations for all periods presented. Our full year 2026 guidance summary on slide seven reflects continuing operations unless otherwise noted. Definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measure are provided in the Appendix to the supplemental information in our SEC filings and on our website. Ward and I will begin today's earnings call with a discussion of our fourth quarter operating performance, 2026 outlook, and supporting market trends. Michael Petro will then review our full year financial results, capital allocation, and 2026 guidance details, after which Ward will provide closing remarks. Please note that all comparisons are to the prior year's corresponding period. A question and answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward. Ward Nye: Thank you, Jacklyn. Good morning, and thank you for attending today's teleconference. 2025 was an outstanding year for Martin Marietta, marked by record financial, operational, and safety performance. Our aggregates business delivered record profitability and meaningful margin expansion, while our highly complementary specialties business achieved record revenues and gross profit, highlighting the strength and breadth of our portfolio. We delivered these results even as the private construction environment remained challenging, with single-family housing and nonresidential square footage starts still well below their most recent post-COVID peaks. These outcomes underscore the durability of our aggregates-led business model, reinforced by intentional portfolio shaping and our team's disciplined execution. In short, this is our strategic operating analysis and review, or SOAR plan, in action. Thoughtful strategy, rigorous execution led by a high-performing team, and a product portfolio engineered to outperform through macroeconomic cycles. With that context, I'll briefly summarize the principal achievements of SOAR 2025. Over the five-year period ended 12/31/2025, we delivered a 208 basis point price-cost spread, exceeding our 200 basis point SOAR 2025 target, and achieved a compound annual growth rate of more than 13% in aggregates gross profit per ton. From a capital allocation standpoint, we announced or executed approximately $16 billion of portfolio-enhancing transactions. We invested $3.2 billion in sustaining and growth CapEx and returned $2.1 billion to shareholders through dividends and share repurchases. Of vital importance to our investors, over the same time period, we delivered total shareholder returns of 126%, approximately 30 percentage points above the S&P 500 Index, over the 12/31/2020 through 12/31/2025 period. We also paid special attention to maintaining our strong balance sheet. More specifically, we concluded the SOAR 2025 period with our leverage ratio within our target range of 2 to 2.5 times and strong free cash flow. Accordingly, we began SOAR 2030 in an enviable position, with the ability to responsibly invest in our business and the flexibility and desire to make timely and prudent acquisitions. Indeed, by thoughtfully redeploying capital from cement and downstream asset divestitures into pure aggregates positions, we expanded our footprint coast to coast, increased the aggregates contribution percentage to consolidated gross profit, and enhanced our margin profile. All nicely positioning Martin Marietta for durable and sustainable growth. Before discussing our 2025 performance and 2026 outlook, I'll highlight some fourth-quarter achievements, beginning with our core aggregates business, which delivered record results across nearly every key metric. Year over year, aggregates revenues increased 8% to $1.2 billion. Gross profit rose 11% to $420 million. Gross profit per ton improved 9% to $8.59, and gross margin expanded 93 basis points to 34%. Our specialties business also delivered record fourth-quarter results, driven by solid organic momentum and contributions from Premier Magnesia. Our full-year results were a testament to the resilience of our portfolio and the opportunities ahead. Aggregates delivered another year of outstanding performance, delivering records across nearly every financial measure, including gross profit per ton of $8.45, representing a year-over-year increase of 12%. Notably, our specialties business also posted exceptional results, reinforcing the value of this highly complementary segment, achieving record full-year revenues and gross profit. I'm especially pleased to share that our strong financial performance was accompanied by record safety performance in our heritage business, as measured by total reportable incidents, reflecting the depth of our world-class safety culture and operational discipline. Looking ahead, our 2026 shipment guidance of 2% growth at the midpoint reflects a balanced macro environment in which we expect sustained infrastructure investment and accelerating momentum in data centers and energy to offset continued softness in private, nonresidential, and residential construction. In line with these assumptions, we're guiding to 2026 consolidated adjusted EBITDA of approximately $2.49 billion, inclusive of contributions from discontinued operations. Upon closing of the previously announced asset exchange with Quickrete, we'll provide updated adjusted EBITDA guidance for 2026. With that outlook, we'll now turn to the end markets shaping these expectations. Infrastructure demand remains solid, driven by the bipartisan Infrastructure Investment and Jobs Act, or IIJA, and robust DOT budgets in Martin Marietta states, underpinning a multiyear pipeline of projects. As of 11/30/2025, the American Road and Transportation Builders Association, or ARTBA, reports that 71% of IIJA highway and bridge funds have been obligated. However, only 48% has been dispersed. The gap between obligations and disbursements reflects significant remaining reimbursements and an extended construction runway beyond this year, with IIJA reimbursements expected to peak in 2026. As enacted, the IIJA is scheduled to expire in September 2026. However, both congressional chambers have already begun shaping the next surface transportation bill. The House Committee on Transportation and Infrastructure's fiscal year 2026 views and estimates affirm bipartisan reauthorization intent ahead of the deadline, while federal leadership's focus on accelerated project delivery and funding stability reinforces the nation's commitment to sustained infrastructure investment. Equally important, state and local governments continue to strengthen their transportation funding frameworks by adopting new revenue measures designed to address long-term infrastructure needs, undertakings that continue to garner broad bipartisan support. A notable example in our company's home state of North Carolina is in Mecklenburg County, where voters this past November approved a 1% local sales tax referendum. That referendum alone is expected to generate approximately $19.4 billion over the coming decades to fund transformative improvements to roadway infrastructure and public transit across the Charlotte Metropolitan Area. Given broad bipartisan support within Congress, as well as the administration favoring our nation's infrastructure, we remain confident in the timely passage of a new long-term surface transportation bill. Heavy nonresidential demand continues to be driven by accelerating growth in data centers and the corresponding need for power generation. Spending on data center construction remains exceptionally healthy and continues trending upward, with Goldman Sachs Research estimating hyperscalers potentially deploying over $500 billion in capital in 2026, significantly increasing power demand and requiring new generation supported by an all-of-the-above strategy. Whether the solution is natural gas, onshore wind, grid-scale storage, or nuclear, nearly all pathways require the essential aggregates we provide, positioning Martin Marietta at the center of this long-term power generation growth opportunity. In addition, we see meaningful acceleration in Gulf liquefied natural gas, or LNG, development driven by strong export fundamentals and advancing project pipelines. As momentum builds in 2026, Martin Marietta's unmatched rail distribution network positions us to supply these large-scale projects with efficiency and reliability. Turning to residential construction, affordability remains the primary near-term constraint. There's no question regarding the need for more housing, as demand continues to outpace supply, particularly in key Martin Marietta states. Freddie Mac estimates the US requires approximately 4 million additional homes just to restore balance, underscoring a multiyear need for increased new single-family construction. Given our purpose-built business footprint in many of the nation's most dynamic and fastest-growing regions, we're well-positioned to capture a disproportionate share of the housing recovery and light nonresidential construction that will follow. Moreover, the president's recent nomination of Kevin Walsh to succeed Jay Powell as chair of the Federal Reserve is likely to be a positive development for lowering interest rates. I'll now turn the call over to Michael Petro to discuss our full-year financial results, capital allocation, and our 2026 guidance. Michael? Michael Petro: Thank you, Ward, and good morning, everyone. Starting first with the full-year 2025 results. The continuing operations Building Materials business posted revenues of $5.7 billion, a 7% increase, and generated gross profit of $1.8 billion, an increase of 13% year over year. Gross margin expanded 173 basis points to 31%, driven by strong aggregates performance that more than offset softness in our downstream businesses. As Ward noted, our core aggregates business delivered record performance in 2025. Revenues increased 11% to $5 billion, driven by 6.9% pricing growth and volume growth of 3.8%. Gross profit increased 16% to $1.7 billion, and gross margin expanded 143 basis points to 34%, as strong pricing and shipment growth more than offset higher freight, depreciation, and general inflationary impacts, resulting in a price-cost spread of 239 basis points. Other building materials revenues decreased 8% to $992 million, and gross profit decreased 18% to $98 million, primarily driven by the Minnesota asphalt business and the impact of the April 2025 California paving divestiture. Our specialties business delivered all-time records for revenues and gross profit of $441 million and $137 million, respectively. These outstanding results reflect strong organic performance driven by pricing growth, increased shipments across all product lines, effective cost management, and five months of contributions from Premier Magnesia following its July 25 closing. Full-year cash flow from operations increased 22% to a record of $1.8 billion, which we appropriately allocated across our longstanding priorities of targeted M&A, organic investments, and returning cash to shareholders. Consistent with that framework, in 2025, we deployed $812 million on business and land acquisitions, reinvested $680 million into our plants and equipment, and returned $647 million to shareholders, representing a total cash yield of approximately 1.7%. As a result, we ended the year with a consolidated net debt to adjusted EBITDA ratio of 2.3 times and total liquidity of $1.2 billion, providing meaningful capacity to execute our M&A-first growth strategy. Turning now to 2026 guidance. For Aggregates, we expect low double-digit gross profit growth at the midpoint, supported by low single-digit shipment growth, mid-single-digit pricing improvement, and cost per ton generally in line with inflation. Importantly, we are comprehensively reviewing our quarry and terminal networks to better align production with prevailing demand that remains approximately 14% below 2022 levels. While we expect these efforts to provide meaningful rationalization opportunities and operational efficiencies, our guidance reflects only the benefits from the pilot regions that were realized in 2025's fourth quarter and that will flow through the balance of 2026. Turning now to other product lines. We expect high teens gross profit growth in specialties, inclusive of acquisition contributions, while gross profit from other building materials is expected to remain relatively flat. Taken together, these assumptions support our midpoint expectations of high single-digit growth in both revenues and adjusted EBITDA from continuing operations. As Ward noted, upon closing the asset exchange with Quickrete, we will provide updated 2026 guidance reflecting the difference between the $250 million of adjusted EBITDA from discontinued operations and the expected adjusted EBITDA contribution from the acquired assets. As we've indicated previously, planned capital spending of $575 million represents a 29% year-over-year reduction. This investment level is aligned with the business' ongoing needs and significantly increases free cash flow available for M&A and share repurchases. With that, I will turn the call back over to Ward. Ward Nye: Thank you, Michael. 2025 capped another remarkable five-year chapter for Martin Marietta, delivering exceptional safety, operational, and financial results while achieving all the SOAR 2025 goals we outlined during our February 2021 Investor Day. We took decisive steps to streamline the portfolio, enhancing strategic focus on our core aggregates platform, strengthened by differentiated specialties business. Building on this success, we launched SOAR 2030, our Capital Markets Day, charting a clear path for continued growth and shareholder value creation. If the operator now provides the required instructions, we'll turn our attention to addressing your questions. Operator: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is 1 if you would like to join the queue. And our first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open. Kathryn Thompson: Good morning, and thank you for taking my question today. For you guys, I had just a broad policy question that's a two-part. The first is obvious on IIJA. It expires in September. And having recently spoken with TxDOT, we understand that they've modeled in multiple different scenarios addressing the new highway bill from funding increases to funding declines. The first part of my question is, can you share your latest intelligence on where Congress is on the new highway bill and what funding levels are most likely? The second part is how critical is federal funding now with states and local municipalities? You have markets like Charlotte County, Mecklenburg County, just passed significant incremental funding over the past several years. Is the highway bill as important as it used to be for state DOTs? And for Martin Marietta? Thanks very much. Ward Nye: Kathryn, good morning. It's nice to hear your voice, and thanks for the question. So I would say several things. One, the highway bill continues to be important. It doesn't have the same overarching importance that it did, let's call it, fifteen or twenty years ago because, as you said, municipalities and states have clearly picked up their game, and I think they intend to continue doing that. That said, recognizing it is important, I would say several things. One, if we're looking at the bill structure today, I would say both the House and the Senate are intent on pursuing a five-year reauthorization of highway public transportation programs. Number two, I think they're both pretty committed to not having some of the broader components that were in the last bill structure. And what I mean by that, Kathryn, is in a $1.2 trillion bill, $350 billion went to highways, bridges, roads, and streets. So I think we can anticipate a larger portion of that is going to highways, bridges, roads, and streets this time. From my understanding, and I've spoken to members of the Senate committee and the House committee, they're targeting spring for a release of the text, and what that means is I think that schedule gives us ample time to complete the action by September 30. So at this point, at least from what I'm hearing, all the discussion is relative to an on-time multiyear reauthorization. You know, I think one thing that's worth noting is even if they didn't get it done exactly on September 30, and we can look at the past practices. And what that makes it clear is that we're either going to get a multiyear highway bill or an interim measure. And even the interim measure would have to continue funding at the record that I think is modestly over $72 billion for right now. So I think that would be hugely attractive. But, again, everything that I'm seeing is it's going to be on time. And at least what I've been told is, and I'm quoting, I won't be disappointed in what I see come out of that. So I'm going to take them at their word on that. Now to your point, though, on what's going on at the local level, I did call out in my comments what had happened, as you noted, in Mecklenburg County, which Charlotte is the county seat. That's North Carolina's largest city. It's the largest city between Washington DC and Atlanta. And, you know, what that meant, Kathryn, is they put $19 billion out there over a couple of decades so they can continue to grow their infrastructure needs in and around Charlotte. Because Charlotte has the high-class problem that Raleigh-Durham has and that Atlanta has and that Dallas-Fort Worth has and Denver has and that Tampa has and that so many Martin Marietta markets do, and that is population inflows are so significant. And states have to pick up their game, which they've done, municipalities have to pick up their game, which they've done. And notably, when those ballot measures are put out there, they pass in the high 80% of the time. So, again, I think that underscores why at the national level, we see this getting done on time because it does have broad bipartisan support. So thank you for the question, Kathryn. I hope that helped. Kathryn Thompson: It does. Thanks very much. I'll hop back in the queue. Operator: And our next question comes from the line of Adam Thalhimer with Thompson Davis Company. Your line is open. Adam Thalhimer: Hey. Hey. Good morning, guys. Ward Nye: Hey, Adam. Adam Thalhimer: Ward, can you provide some clarification on the guidance? What's in and what's out? I'm specifically curious about Minnesota, the acquisition there. And then finally, should we assume a slow start to the year given challenging weather? Ward Nye: Adam, thanks for the question. I'll do my best to clarify things. I hope it's out there, but I know it's a lot to read. So I would say several things. One, if we start with consolidated adjusted EBITDA in the midpoint of really $2.49 billion. That is truly an all-in number relative to, in many respects, how we finished the year last year. So does it have our heritage aggregates and organic aggregates business in it? You bet. Does it have disc ops? In other words, the cement in North Texas and the concrete that goes with it. You bet. So that's how I would capture what's in the consolidated adjusted EBITDA. Now if we go to adjusted EBITDA from continuing operations, this is when it's got a little bit of shimmy to it, and here's what I mean by that. It's got the organic business in that, and really, that's what it has solely and uniquely. So take out cement, take out the ready mix that goes with cement, and, frankly, take out the Minnesota. So I think that comes back and answers your question. Part of what we intend to do when we close Quickrete is come back and reset the table. And the resetting of the table will have the Quickrete assets in it, you will also have the Minnesota business in it, and then we will give you a nice clean picture of what we believe the balance of 2026 will look like. But, again, I hope that answers your question directly, Adam. Adam Thalhimer: Oh, great. And then just maybe on the slow start to the year potential. Ward Nye: Well, you know what? Potentially is a good word because, actually, I'll talk more about Q1 when we report. I'll tell you this, I was not disappointed in what I saw in January. And it would have been easy looking from the outside in and seeing a lot of cold weather and seeing places like Texas having a deep freeze and the Southeast having a deep freeze. Thinking, boy, that's got to be a slow start. Actually, I saw really resilient performance in January, which I was heartened by. And part of what that led me to think, Adam, is I'm reflecting really on last year. And the way that we gave you a guide to last year. As you recall, the words I think I used almost twelve months ago today is think we're giving you a nice measured guide, very thoughtful guide for the year. And you recall how the year played out last year. And I would like to see it play out that way again this year. And so far, I haven't seen anything in the early days that dissuade me of that view. Adam Thalhimer: Thanks, Ward. Ward Nye: Thank you, Adam. Operator: And our next question comes from the line of Trey Grooms with Stephens. Hey. Good morning, Ward and Michael. Trey Grooms: Hey, Trey. Ward Nye: Hey, Trey. Trey Grooms: Just kind of sticking with the guidance here. You know, given what we've seen with contract awards in your markets and maybe what you're seeing from the field and hearing from your contractor customers maybe on, you know, both the public and private side. Could you give us a little more color on how your end market assumptions and the mix there kind of build into your outlook for 1% to 3% volume growth this year? And then within that 1% to 3%, maybe where you see the likely kind of swing factors within the range there? Ward Nye: Will do. Trey, thanks for the question. I think that's a good one. Let me go through the big buckets and give you a snapshot of what I think that's going to look like. So if we start with infrastructure, then if we look at it for last year, it was about 37% of our business. Look, see that up mid-single digits. I think that's going to be a good steady story this year. I think that story can actually be better this year than we're guiding right now. You know, keep in mind, we've said 2026 should see those peak IIJA funds come in. So, again, if that peaks the way that we think, that's gonna be important. But keep in mind, you still got 50% of the funds that have yet to flow. So '26 should be an attractive year. But, frankly, so should '27. So, you know, I think that's really a big piece of it. You know, I think the other piece that we spoke of before, you know, if we're looking at our top 10 states, and I think this is an important thing to keep in mind, you know, we're looking at their overall DOT budgets up about 7% from the prior year. So, again, we're looking broadly across Martin Marietta, you know those top 10 states, tend to matter disproportionately. Again, their budgets look very, very good. I've spoken in one of the earlier questions about what we've seen at the local level relative to referendums. You know, a lot of those got passed last November. Obviously, the one that we spoke of in Mecklenburg County, which basically is Charlotte, is an important one for us because that's a vital market to Martin Marietta. I mean, that kind of takes me through at least the infrastructure piece of it, and I do think there's probably some modest upside there. Nonres, you know, if we back away from it, again, 35% of our business last year, it's interesting to me to look at it because if we're looking at total square footage starts, yeah, they're still 20% below the prior peak. Even with the holy trinity of data centers, energy, and warehousing all moving in the right direction. But the thing that I'm taken by is, you know, what I'm seeing right now in demand for data centers simply remains really strong. I mean, we talked about what's going on with Stargate and Abilene. We talked about Google and their investments in South Carolina. You know, Meta has recently reaffirmed their $65 billion CapEx investments in Louisiana. I mean, these are big numbers. But then what I like are stories like this. I mean, Project Jade, which is a large data center that's really just got underway in Laramie County, Wyoming in December. That's gonna be an enormous project, and we've got the closest proximate quarry of size to that. So I think all that's gonna be impressive for a while. But what we're seeing is what you would have imagined, and I think this may supply more upside as well. And what we're seeing in energy and its needs are pretty significant. So the US power demand is expected to rise 25% by 2030. And, again, these are all compared with 2023 levels. If we're saying from 2023 to 2050, gonna have to go up by 80%. So, again, if you're looking at something that can be a lever in this, that's certainly one of them. As we're thinking about data centers and we're thinking about energy. Texas, which is an important state for us where we're the largest aggregates producer, is clearly a leader in that. But importantly, and, Trey, you'll remember when we were talking about VC Summer. Fifteen and, you know, ten and fifteen years ago as far as the nuclear plant in South Carolina. Now you've got Brookfield Asset Management who's come in there basically in a public-private partnership with Westinghouse. And they're basically looking to build large-scale nuclear reactors to support the growing demand in that state and beyond. The other thing that we're seeing, and, frankly, this is overdue, from my perspective, is we're seeing LNG projects coming back as well. So, you know, you're getting closer to the Gulf, Port Arthur LNG, is starting to move. So, again, do I think there's upside on data centers? Yeah. I do. I think there's upside on energy? I do. But here's the other piece of it that's very different than I would have spoken to you about last year at the same time, and that is what's going on with distribution and warehousing. So, again, we continue to see in a number of our markets Amazon is growing. We've seen good examples of Walmart distribution centers coming in, Ross distribution centers, Delhaize, which is the owner of Food Lion in our part of the world, is building a nice distribution center as well. And we're seeing big pharma making nice moves. Novo Nordisk, J&J, Eli Lilly. So, again, as I'm looking at public, I see nice momentum and potential upside. As I'm looking at heavy nonres, I'm seeing nice momentum and I'm seeing upside. If I'm seeing places that, frankly, will be relatively flat, I mean, that's where residential comes to the top of the pole. Right? Look. You heard me say that I think we're likely to see declining interest rates. I think that's gonna be helpful on res. I think that's gonna be helpful most importantly on single-family res. At the same time, you saw the latest starts. They're really not very heady at all. But the need is acute. And I think one thing to watch is what's gonna happen with adjustable mortgage rates and how popular do those become again even ahead of watching interest rates decline? So do I think there's upside in public? Yeah. Do I think there's upside in data? Yeah. And do I think housing's likely to be relatively flattish with likely upside moving into next year? Yeah. I do. And I think as we think longer term, when you see that last turn really come to rest, I think that really puts some accelerant to pricing as well. So, Trey, I tried to take you through the three big end uses and tried to give you the ups and downs and some of the whys. Trey Grooms: Yep. Well, thank you for all the color, Ward. Super helpful, and I'll pass it on. Best of luck. Ward Nye: Thanks, Trey. Operator: And our next question comes from the line of Anthony Pettinari with Citi. Your line is open. Asher Sonan: Hi. This is Asher Sonan on for Anthony. Thanks for taking my question. Just based on the guide you put out, it looks like the 250 basis points price-cost spread guide is kind of still intact. I just was hoping you could walk us through what you expect for your key cost buckets in 2026, like labor, raw materials, energy, maintenance, or etcetera? But I guess, also, really, what gives you confidence that you can kind of keep down? Is it that you're seeing, you know, lower inflation or maybe there's some other levers you're pulling? Ward Nye: Thanks for the question. I would say several things. One, look, we're seeing inflation running, let's call it 3.5%-ish. I mean, if we think about the things that will be involved in clearly, labor is gonna be a piece of that. We actually feel like supplies and some of those things will continue to move a bit. But at the same time, we don't see a lot of significant tariff activity in our space because so much of what we're buying in our markets tend to be uniquely the United States all by themselves. If we're looking at the quarter itself, I would say several things were moving around in the quarter. One, we just had a degree of higher external freight costs. And what I mean by that is we had increased yard activity, and so if we're just looking at the transfer activity to yard locations themselves, that actually took up costs in ways that in many respects are more optical than real. And the other issue that we had in the quarter all by itself, we did have, as we're going out to California and some parts in the West, and restructuring some of our business, we had some one-time inventory write-offs that will not recur. And so if we're looking at the overall cost environment, I think it's actually in a pretty good place. That said, as Michael commented in his remarks, we want to make sure that we're looking at all of our divisions and all of our through a really clear-eyed fashion to make sure that we're lining up costs with what the market demands are today. So keep in mind, since 2022, you know, volumes have been flattish to certainly not up in any notable way since 2022. He mentioned that we had a pilot project that we had gone through one division late last year. The results of that were really very significant and helpful, and we're looking at that more broadly across the portfolio. So, again, I hope that answered your question. Asher Sonan: Thanks. I'll turn it over. Operator: And our next question comes from the line of Philip Ng with Jefferies. Your line is open. Jesse: Hey, guys. It's Jesse on for Phil. Just on the specialty side, it looks like, obviously, Premier's having a bit of a mix impact. Can you just talk about some of the initiatives you can kind of do to get the profitability back to kind of legacy levels there and kind of a timeline associated with that? Thanks. Ward Nye: Yeah. No. What I would say on Premier or just specialties as a whole, Premier is a margin dilutive acquisition to the specialties organic business. But what you're seeing in the guide for next year, the $160 million of gross profit, that's the organic business that has run so well and so hard over the last three years. Again, we're taking a measured guide there. We're assuming that consolidates a bit. A lot of the contribution and gross profit growth coming into the specialty segment is coming from the seven months of contribution from the Premier acquisition that wasn't in 2025. And just in terms of cadence on specialties, there's really not a whole lot of seasonality in that business. So you can assume each quarter is roughly the same split for that $160 million of gross profit. But I think that margin level that's implied is a consistent margin level now for a full year with the pro forma business, including Premier. Jesse: Great. Thanks. I'll turn it over. Operator: And our next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Angel Castillo: Hi, good morning, and thanks for taking my question. Just wanted to ask, I guess, two-part question. First, could you just comment on the kind of, I guess, quote-to-order conversion rates and how that has been evolving? As you think about the fourth quarter and really in the first couple of months here of the year, whether you're seeing any shifts of projects or according to the conversion to order improving in any material way? And then Ward, you gave very good helpful color across all the kind of key end markets and the, you know, pockets where we might be seeing some potential for improvement. So I was just curious, could you size how much data centers is of your backlog or your orders today? And then also maybe comment on manufacturing in particular. I think that's one area where we've been seeing on your slide it's listed as more of a yellow or I guess orange. And then I think in the U.S. Census data, it's one of the buckets that seems to be actually seeing accelerating declines. I'm just curious what you're seeing on your side. Ward Nye: Angel, thanks for the question. I would say several things. One, obviously part of what we're doing right now is using Precise IQ large in the East. You'll see that rolled out across the company and pretty much in place by half year. We think that's important because part of what we've seen is we've used Precise IQ is it does several things. One, it clearly gives our sales team the ability to respond in a very quick, very agile, but very accurate way to our customers. The other thing that we've seen is our win rate utilizing that has amped up pretty nicely. So I think answering your question directly, is the quoting and the yield looking attractive from where we sit right now? Yes. And do I think it's going to be more attractive as Precise IQ rolls out across the enterprise? So I think you can get a double yes on that. As we go to data centers and look at that tonnage, look. That tonnage is right now, frankly, a few million tons a year. I mean, and we're talking about a business that's gonna be at least if we're going on last year's numbers, let's call it close to 200 million. Obviously, notably larger than that, when we come back with Quickrete. That said, it's growing at a very fast rate. I mean, so it's growing at a multi-double-digit rate right now. And we anticipate that that's likely to persist. Equally, if we go to some of the other nonres areas that I spoke to, we continue to see, at least in our markets, manufacturing moving in the right direction. I mean, that's not gonna be an immediate switch that's gonna go. If we're looking at it overall, I think that's the trend that we're seeing. And, Michael, anything you want to add to any of that? Michael Petro: Yeah. I think just to give you some color on Q4, the categories that we call the threes, they all represent about 3% of our overall shipments, our data centers now, distribution centers and warehouses, which is down from a peak of closer to 7% or 8%, and manufacturing, and power gen. Of those categories, data centers were growing at about a 60% clip. Warehouses themselves coming off the inflection point were growing at about 40%. So that just gives you a sense for those two categories that are 3% of our overall shipments to growth rates. And manufacturing, given some of what we're seeing in pharma, that's taking over for some of the decline in large semiconductor and battery facilities, the rate of decline in Q4 was the lowest rate of decline for the year. So we're hopeful that manufacturing starts to inflect here in 2026 similar to what we saw in warehouses in 2025. Hope that helps, Angel. Angel Castillo: Thank you. Operator: And our next question comes from the line of Tyler Brown with Raymond James. Your line is open. Tyler Brown: Hey. Good morning, guys. Ward Nye: Hey, Tyler. Tyler Brown: Hey, Ward. You know, there's been a lot of chatter out in the market about pricing. You talked a little bit about it, but can you just kind of give your thoughts about the state of pricing as you see it? Are you seeing anything geographically dispersion-wise? Just any bigger picture thoughts about hitting that five and a half percent ASP growth through 2030, which I think is what you laid out at the Analyst Day? Thanks. Ward Nye: Tyler, thanks for the question. And I would say several things. One, no surprises from where I'm sitting. I mean, I think everything that we talked about at the Capital Markets Day is pretty consistent with what we put in our documents today. You know, if I look just at the quarter just ended, I mean, all divisions posted mid-single-digit price increases. It was interesting in Q4 because actually we had a few project delays in and around, for example, Charlotte and Greensboro. And those are actually, from a pricing perspective, pretty attractive markets. So we actually saw volume growth in the East in Q4, modestly below the rest of the company. So that actually gives us an optical headwind if you think about what that means. And if you think about the guide, I mean, look at it in these terms. We're basically talking to five-ish on price. We're talking to two-ish on volume. And that's exactly what Q4 looked like. And Q4 was just a record. So as I think about taking that and really casting that forward, I don't see anything in that that gives me degrees of pause. So, again, I think we've got a nice rhythm and cadence on where we're going. And the other piece that strikes me relative to your question on pricing in particular, Tyler, if we go back to the conversation that I had relative to end users. I said, look. Input's looking good and may look a little better. Nonres is looking good and may look a little better, at least on the heavy side. And we said, housing, you know, not so much, at least this year. Once that housing starts coming through, Tyler, and I think you and I know that it will. And I think when it does, it's gonna particularly shine in Martin Marietta markets simply because of the way we built this business. Again, I think pricing, looking at the way that we talked about it last September and today, relative to 2026, looks very steady. And I think if we see private start to move the way that I think private's going to move, I think that's actually very helpful to pricing even going forward. So, again, I hope that responded to your question, Tyler. Tyler Brown: Yep. That's very helpful. Thanks, guys. Appreciate it. Ward Nye: Take care. Operator: And our next question comes from the line of Garik Shmois with Loop Capital. Your line is open. Garik Shmois: Just wanted to piggyback on the last question, but ask it from a gross profit per ton perspective. I think you're guiding to 8% growth at the midpoint of guidance this year, I think, relative to SOAR 2030. I think that was closer to go double digits. So just wondering if the variance there on the volume side. Is it related to housing coming back? And any thoughts on gross profit per ton and the level of conservatism in the guidance this year? Michael Petro: Yeah. Hey. Happy to take that question. I think you're saying the implied gross profit per ton is around the 9% versus double digits. What I would say is ag gross profit dollars are at the midpoint of 11%. And what Ward said is we were taking a measured approach to the guide. In terms of not only probably volume, but the other place where we're feeling a bit measured is on the cost side. So underlying inflation, as Ward mentioned, is running at about 3.5%. Our implied COGS per tonne guide is 3%. But that's only given about 50 bps of operating leverage to the 2% volume. So we would expect to have more operating leverage than that. And to put it in perspective with some sensitivities, each 1% reduction in COGS per ton inflation holding everything else constant in our guide is about another $35 million to ag gross profit. So if there's upside, it's likely on the COGS side as we continue to take some of the lessons learned from our pilot regions network optimization efforts and roll that out across the company. But that is not contemplated in our guide here in February. Garik Shmois: Okay. Perfect. Thank you very much. Ward Nye: Thank you, Garik. Operator: And our next question comes from the line of Ivan Yi with Wolfe Research. Your line is open. Ivan Yi: Thanks. Good morning, guys. Just wanna go back to the price-cost spread you were talking about. Can you just comment on that trajectory going forward? Your price is expected to be close to plus 5% in 2026. If the price-cost spread didn't narrow this year, when can it reaccelerate? Ward Nye: Thank you for the question. Look, as Michael and I both, I think we've taken a very measured view of what that's going to look like this year. I think what we're seeing, what we talked about was seeing it more than that as we went through the SOAR 2030 period. So we didn't necessarily think we're gonna come out of the gate at that level. We think it's gonna continue to build, and we believe given the cost profile that we have and where I think we'll actually drive that, and what I believe is likely to happen to volumes over the coming years as private construction has a degree of recovery. We don't look at that price-cost spread that we discussed in September and have any concerns about that. We feel very confident in our ability to hit that. And I think if we're doing what we're doing in this year, and it builds into next year in the way that we think, I have a high degree of confidence that it will. I mean, I'm not losing any sleep over what that's going to look like. Ivan Yi: Thank you. Ward Nye: You're welcome. Operator: And our next question comes from the line of Keith Hughes with Truist Securities. Your line is open. Keith Hughes: Thank you. I just want to switch back to the IIJA. You had talked about temporary measures. I'm thinking maybe continuing resolutions. We've seen a lot of those. On these highway bills expiring. If we go down that path and we don't get a new plan, what does the continuing resolution do to your business either positive or negative? Ward Nye: You know what, Keith, that's a good question. I don't think it does anything negative to the business at all, because again, if we ended up with a CR, it's going to continue funding at the record level of $72.1 billion. So it would continue basically at a record level. And, again, as we discussed, as important as the highway bill is, so is the state DOT posture. So if we're looking at a very healthy state DOT posture, so set up 7% on average on our states as we head into the New Year, and in a worst-case scenario, again, that I don't believe we're gonna be confronted with, that we end up with a CR, just end up at the same level that we are. So if you go back to the notion that I said, look. I think there's upside in what we're gonna see in public this year. I think you're gonna see another really strong year in public next year simply because you still got 50% of the funds that need to work their way through. So, again, I'm not looking at September 30 with any form of foreboding. That's gonna be something that's gonna be significant pretty bad at all to our business. I think we'll have a new bill. I think the new bill will have more highways, bridges, roads, and streets. I think it'll be on time. If we don't, I think the beat goes on. Keith Hughes: I hear you. One of the big investors think, the ones that have really studied this to get fearful of is not so much the spending falls off dramatically in '27, but you know, the ARTBA projection shows falling infrastructure spending in '27. If you get a CR, would the market not be flat to up in '27 in that scenario? Ward Nye: I think if you got a CR, it would probably be relatively flat to modestly up again because you'd have the same degree of funding. And you're gonna have state DOTs picking up. Again. So I think the biggest piece of our business, as I said, that was not quite 40% of our business this year would continue to be ballast in the boat. Keith Hughes: Okay. Great. Thanks a lot, Ward. Ward Nye: Thank you, Keith. Operator: And our next question comes from the line of Brian Brophy with Stifel. Your line is open. Brian Brophy: Thanks. Good morning, everybody. Appreciate you taking the question. You referenced the network optimization initiative a few times. I guess, any color on the pilot that you referenced and how that unfolded and any feedback on what this could mean for the cost profile or margin profile for the total business as it's fully rolled out through the enterprise? And how can we need to get about the timing of some of the benefits? Thanks. Ward Nye: Let me talk to you broadly about what it was, and Michael can come back and add some color on what it might mean. I think that's probably a good way to do it. So if we think about what it was, what it means is if we've got a network of quarries that are servicing our customers, but in some instances, because volume is not running at particularly peaky levels today, we can look and idle or not run a site as hard and run another site much harder, getting leverage on the volume that's going through there and taking a look at which ones may be the most efficient in any given market. That's what we're talking about doing. And, of course, when we do that, we do it with the customer top of mind. Because we have to make sure we're in a position to take care of their business needs and make sure we're in a position to do that without creating degrees of supply disruption or additional cost in their world from more transportation. So what we found, and we looked at this in the West, in particular, is where we had degrees of market presence that allowed us to do that. And we could temporarily do something with the site and make sure we're using other sites more productively. It helped in multiple different ways. So with that, I'll ask Michael to speak to what it could potentially mean. And, obviously, we're gonna talk to you more about this as the year goes on. Michael Petro: Yeah. No. I think starting with the pilot is important. So like we said, we saw that flow through in Q4. So measures implemented in Q3 of last year. And that meant COGS per ton declining year over year in that pilot market. So we had the benefit of that. That was overcoming the restructuring charges that are in our adjusted EBITDA. Not the full amount, but some of that was hitting ag gross profit in that pilot region where they still had declining COGS per ton, to put it in perspective, pulling that out. So the opportunity set is rather large. We want to complete our assessment across the entire footprint before we come back and quantify it. And we expect to have that quantification done by midyear, and that's when we will revisit the guide and update our COGS per ton assumption accordingly. But I think it's important to note we're guiding to 3% COGS per ton in the implied guide. If you exclude the external freight, which is just pass-through freight to the customer, so not gross profit impacting, and if you exclude those restructuring charges that hit ag gross profit, our underlying COGS per ton fully loaded with depreciation and otherwise, was growing at a 2.7% rate in Q4. So we're guiding modestly above that. But that'll give you a sense of some of the conservatism that we feel we've included in this early guide. Brian Brophy: Really appreciate it. Thank you. Operator: And our next question comes from the line of Timna Tanners with Wells Fargo. Timna Tanners: Yeah. Hey. Good morning. Thanks for getting us in. Wanted to just ask if you could share anything with us about the timing of the Quickrete transfer closing, and any updated thoughts on the pipeline would be great. Thank you. Ward Nye: So thank you, Timna. Nice to hear your voice. I would say several things. One, we had put out a release at the end of the year saying we anticipated closing in Q1. We still do. The long pole in the tent is real estate. And it was interesting, Timna, because we went through the regulatory piece of it probably quicker than we or anybody else would have anticipated. So right now and, of course, the agreement itself is publicly filed, so you have an opportunity to read that. And what you'll see in the agreement is there are a series of closing conditions and many of them evolve around the real estate. Because if you think about what a big 1031 exchange is, to get the tax-deferred treatment, you know, you're having to line up assets. And, of course, on the Quickrete side and on our side, there are certain sites that would simply be more material than others. So we're going through the process of land use and surveying and getting title insurance. And that simply takes some time. But, again, our anticipation continues to be that we will get that closed here in the first quarter. I think the other part of your question was relative was Timna, was it relative to pricing? Timna Tanners: No. It's about anything updated on your pipeline or how you're seeing the opportunities and acquisitions. Ward Nye: Oh, just on that outlook. Look. The short answer is that's gonna continue to be a nice attractive driver for Martin Marietta. We have been and continue to be engaged in a number of significant conversations. As I think I indicated at our Investor Day or Capital Markets Day, you know, people should expect us to be in the world of doing about a billion dollars worth of transactions a year, and that's never going to be linear, Timna. So look. Is it gonna be a billion one year? Yeah. Could it be four the next? The answer is it could be. Depending opportunistically on what comes along, but the pipeline continues to be very attractive, and it's obviously something that I think we're good at. And we've added a lot of value with, and we'll continue to pursue. Timna Tanners: Thank you. Ward Nye: Thank you. Operator: And our next question comes from the line of Michael Dudas with Vertical. Your line is open. Michael Dudas: Morning, gentlemen. Jacklyn. Ward Nye: Hey, Mike. Michael Dudas: Yeah. Hey, Ward. You give great insight. Outlook for the business and the industry, but is it a macro? Is it regulatory? Is there sentiment concerns? Because there are some people who are thinking macro is not as you know, right as others. What's the thing, what one or things that you are concerned about that would maybe impact how the year flows out? Anything top of mind or anything specific? Ward Nye: Mike, thanks for the question. Look. I'll tell you what, if you could put me on mute, that would help. I'm hearing an echo. Look. I think of the year through several different lenses. When I think of it through end uses, which we've spoken through, and, again, I think we've taken a really measured view on the end users. I look at it through the lens of commercial. And, again, I think commercially where this business is performing, is right in line with what we had indicated at the Capital Markets Day. I look at it through the lens of cost and through the lens of inflation, and as Michael just took you through, when we really go through and look at it from a granular basis how that performed, and look at Q4, and what we think can happen actually with that. As we go through degrees of really looking at where we're operating, why. I don't see anything on the cost side that causes me concern. Regulatorily, I think actually the nation and the industry is in one of the better places that I've seen in my career, so I don't see something there that causes me any concern. Look. I know there's a lot out there that people look at from a macro perspective that they can become cautious about. The thing that I'm taken by is this is a business even in the worst of times, and we're not in the worst of times. I don't anticipate them. We've always been profitable. We've never cut or suspended the dividend. And, you know, we're in a place that we're producing and selling this past year about 200 million tons of stone. And that's about where we were in 2005 and 2006, except we've added, let's call it, 50, 55 million tons of business. So what we have ahead of us from a capacity perspective is impressive, and what we're doing with free cash flow right now is impressive. And I think if we're doing that in a relatively muted volume environment, what that tells me is if we're right on what's coming ahead of us, it can be really impressive. So I'm not seeing a lot right now that's causing me any degree of angst. Operator: And our next question comes from the line of David MacGregor with Longbow Research. Your line is open. David MacGregor: Yeah. Good morning, everyone, and thanks for squeezing me in. Ward, I just wanted to ask you about your value over volume strategy. And just, I guess, the extent to which that may be put to a test this year. There's been a lot of weakness downstream ready-mixed business. It's, you know, it's a pretty difficult business these days. And I'm just wondering about the risk of price pressure from below just due to weak profitability in that segment of your market and consolidation amongst those players. Just how that could potentially manifest into your business. Ward Nye: Yes, thanks for the question, David. Look, the way it's working right now, if you think about it, asphalt and most of those businesses are getting January 1 price increases, degrees of concrete businesses are getting January 1 price increases, and some of them are getting April 1 increases. So if you think about what that means, it's pretty similar to last year. And, of course, the conversations have already been had. People know where we are going into the New Year. We have not baked mid-years into what we've done. If I'm right on what could happen relative to public and degrees of heavy nonres, you know, there may be some opportunities for mid-years. You know, keep in mind too, David, you know, after we've closed, well, after we've closed Quickrete and then give you the forecast on Minnesota, you know, both those businesses tend to have lower ASPs than Martin Marietta. So that's gonna give you an optical headwind when we put those into our forecast going forward. But, again, you know, my view, we go back to the Capital Markets Day, is we're not gonna stay chronically at double digits. We're not going to go back, in my view, to where we were, you know, a decade ago from a percentage perspective. We're gonna land somewhere in the middle. And the swing factor on that is gonna be what happens with volume. So I think what we're guiding to is very consistent with that. And, again, I think there's probably upside risk to it relative to what could happen with mid-years. And what can happen as volume returns to it. So, I hope that answers your question. We're pretty resilient around assuring that we're getting appropriate value for our products. It's hard to buy these businesses. It's hard to permit these businesses. It's hard to put a spec product on the ground. We want to make sure we're getting appropriate value when we do. David MacGregor: Got it. Thanks very much. Ward Nye: Thank you, David. Operator: And our next question comes from the line of Brent Thielman with D.A. Davidson. Your line is open. Brent Thielman: Yep. Thanks. Ward, it seems to me housing could be one of the more dynamic markets for you in the next year or two. So do you sort of think back on the business over time, how should we think about sort of this lag from permits and starts to having some noticeable sort of impact to your business? Ward Nye: You know, I've always looked at that historically as having probably a three or four-month lag. I'm not sure it's gonna be that long this time, Brent. So, again, part of what you're not seeing is what the square footage looks like in those numbers. And, again, as we continue to see big square footage in nonres, rollout at pretty big numbers, I think that's gonna be a big consumer of stone. And, again, I think the public side of this is gonna be healthy, and it's gonna be healthy for a while yet. So I'm not seeing, I wouldn't let those numbers and any purported delays drive my model in either particular direction, Brent. Brent Thielman: Okay. Thank you. Operator: And our final question comes from the line of Judah Aronovitz with UBS. Your line is open. Judah Aronovitz: Hi. Good morning. Thanks for taking my question. Could you just talk about your confidence level in the 5% pricing for '26? You know, is that based on pricing already in place, or is there maybe some more work to do to achieve that, you know, maybe based on bid work? And then if you could comment on if there's any mixed headwind from base or any other, puts and takes? Thank you. Ward Nye: Thanks for the question. That's largely for what's in place. I mean, we've had the conversations with our customers that started last year. I think we've got a pretty good feel for what that is. As I indicated before, this is more of an optical issue than a real issue, but, obviously, if we do M&A, and they come in at a lower average selling price than our heritage selling price, you know, that can cause an optical issue. You know, the other thing that you just never have a sense for, and it's almost a quarter-by-quarter issue, and you saw it in Q4. You know, I indicated that the East Region in Q4 actually because of what had happened, with a couple of project delays in weather, actually saw less tonnage go in Q4 than our other divisions. And that obviously gave us a mix headwind from a geographic mix perspective. It's certainly possible that we could continue having degrees of a mix headwind as well. Because if you're thinking about some of these big data centers, and the fact that they're gonna need oftentimes an enormous amount of base stone as they're going in and building facilities, base is gonna go out typically, let's call it a 30% ASP lower than clean stone. The thing is when you put down base stone, at some point, you're gonna put clean stone on top of it. So it's nothing that's dislocating in any respect. I think it's gonna be incumbent on us to make sure we're talking with you very carefully each quarter about what geographic mix looks like and what product mix looks like. Because if you don't understand those two stories, and they are two different ones, it does not give you an accurate view of how well the business is performing in all instances. So yes, we believe the pricing is there. We think there can always be some mix issues. We think that's more optical than real. Operator: And that concludes our question and answer session. I will now turn the conference back to Mr. Ward Nye for closing remarks. Ward Nye: Abby, thank you for that, and thank you all for attending today's earnings conference call. Over the past five years, deliberate portfolio shaping strengthened our presence in key markets, optimized our product mix, and enhanced our earnings profile. As we transition from the achievements of SOAR 2025 to the disciplined execution of SOAR 2030, which is already underway, we see a well-defined platform for advancing our growth ambitions and delivering enduring shareholder value. Our aggregates-led foundation, complemented by our high-performing specialties business, provides a durable platform uniquely suited to achieve the objectives of our next strategic plan. With this resilient foundation and a culture built on safety and commercial and operational excellence, we enter the next chapter of SOAR with confidence and clarity of purpose focused on compounding returns and delivering superior sustainable results for our shareholders in 2026 and beyond. We look forward to sharing our first quarter 2026 results in the coming months. As always, we're available for any follow-up questions. Thank you for your time, and continued support of Martin Marietta. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Will McDowell: Good morning, and welcome to Tenet Healthcare Corporation's Fourth Quarter 2025 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session for industry analysts. Tenet Healthcare Corporation respectfully asks that analysts limit themselves to one question each. I will now turn the call over to your host, Mr. William McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin. Good morning, everyone, and thank you for joining today's call. I am William McDowell, Vice President of Investor Relations. Saumya Sutaria: Pleased to have you join us for a discussion of Tenet Healthcare Corporation's fourth quarter 2025 results, as well as a discussion of our financial outlook. Tenet Healthcare Corporation's senior management participating in today's call will be Dr. Saumya Sutaria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer. Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet Healthcare Corporation is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10 and other filings with the Securities and Exchange Commission. With that, I will turn the call over to Saumya Sutaria. Thank you, William, and good morning, everyone. We reported 2025 net operating revenues of Sun Park: $21.3 billion and consolidated adjusted EBITDA of $4.57 billion, which represents 14% growth over 2024. Full-year adjusted EBITDA margin of 21.4% improved 200 basis points over 200 basis points from the prior year. Our fourth-quarter results were again above our expectations, driven by strong same-store revenue growth, high acuity, and disciplined cost control. I would note that our full-year adjusted EBITDA ended the year nearly $500 million higher than the midpoint of our initial expectations. USPI continues to deliver attractive results. Volumes were strong, and the mix was good. Adjusted EBITDA grew 12% in 2025 to $2.026 billion. Same facility revenues grew 7.5%, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over the prior year. This performance was once again well above our long-term goal of 3% to 6% organic top-line growth. We had an active year in the M&A and de novo activity lines as well, investing nearly $350 million in 2025 and adding 35 facilities to the portfolio. And the pipeline for both M&A and de novo development remains strong as we look into 2026. We remain the preferred acquirer and developer of assets in this space. Turning to our Hospital segment, Adjusted EBITDA grew 16% to $2.54 billion in 2025. Same-store revenues per adjusted admission were up 5.3% over the prior year as payer mix and acuity remained strong. We have continued to reinvest back in our business to further our capabilities, stepping up our growth capital in 2025. And finally, over the past three years, we have been active repurchasers of our shares, retiring approximately 22% of our outstanding shares for around $2.5 billion since our share repurchase program began in 2022. We expect to continue to deploy capital for share repurchase, particularly at our current valuation multiples. Our portfolio of businesses is now more predictable with consistently strong performance in both the Hospital segment and USPI. Our results represent a continuation of a multiyear track record of strong same-store revenue growth, improved margins, and disciplined execution by our management team. We remain focused on driving further organic growth supplemented by accretive M&A at USPI. Turning to 2026 guidance, we are projecting full-year 2026 adjusted EBITDA of $4.485 billion to $4.785 billion, driven by ongoing strength in demand and acuity, physician recruitment, and service line expansion, as well as additional sites of care joining the portfolio. We are also tackling expense management more structurally in anticipation of the next few years. We anticipate full-year adjusted EBITDA for USPI of $2.13 billion to $2.23 billion. The continued shift of services towards lower-cost sites of care will be furthered by the beginning of the phase-out of the inpatient-only list in 2026. We see this as a gradual tailwind for USPI that will play out over several years. In this first year, we see opportunities in areas such as high-acuity spine and urology procedures. We have detailed tactical plans to capitalize on the opportunity and are actively operationalizing our capabilities to serve patients in 2026. USPI continues to be a high-growth, capital-efficient business that delivers high returns on capital expenditures. Turning to our Hospital segment, we are expecting adjusted EBITDA in the range of $2.355 billion to $2.555 billion in 2026. Our plans reflect the headwind associated with the expiration of the enhanced premium tax credits on the exchange marketplace. We continue to closely monitor enrollment levels as well as the potential ramp-off ramps for individuals to obtain coverage through lower metal tier commercial plans or other options. We are assuming a 20% reduction in overall enrollment as we have more significant exposure in states such as Arizona, Michigan, and California. We recognize the uncertainty regarding effectuation rates as individuals make determinations if they can afford their premiums and the resultant expected increase in uninsured rates and have conservatively taken these matters into our initial guidance. Additionally, we are implementing cost savings plans to help mitigate this pressure and will continue to engage with our patients to ensure that they have good access to care. We are confident in our ability to achieve the strong core earnings growth we forecast for 2026. The significant margin improvements that we have made over the past few years provide us a strong foundation on which to grow our transformed portfolio of businesses. We carry momentum into this new year and have many opportunities to expand our services and deliver value for patients, physician partners, and in turn, our shareholders. And with that, Sun Park will provide us a more detailed review of our financial results. Sun Park? Thank you, Saumya Sutaria, and good morning, everyone. Sun Park: We are very pleased with our performance in 2025, which again demonstrated robust same-store revenue growth in both the hospitals and USPI segments and adjusted EBITDA that exceeded our expectations each quarter, driven by continued high patient acuity, favorable payer mix, and effective expense management. In the fourth quarter, we generated total net operating revenues of $5.5 billion and consolidated adjusted EBITDA of $1.183 billion, a 13% increase over last year. Our adjusted EBITDA margin in the quarter was 21.4%, a continuation of our improved margin performance over multiple quarters. For the full year 2025, net operating revenues were $21.3 billion, and consolidated adjusted EBITDA was $4.566 billion, a 14% increase over 2024. Adjusted EBITDA margins in 2025 were 21.4%, up 210 basis points from the prior year. I would now like to highlight some key items for both of our segments, beginning with USPI. In the fourth quarter, USPI's adjusted EBITDA grew 9% over last year, with adjusted EBITDA margins at 40.5%. USPI delivered a 7.2% increase in same-facility system-wide revenues, with net revenue per case up 5.5% and same-facility case volumes up 1.6%. Turning to our Hospital segment, fourth-quarter adjusted EBITDA was $603 million, a 16% increase over 2024. Same-hospital inpatient adjusted admissions were flat, and revenue per adjusted admissions grew 7.5% year over year. Our consolidated salary, wages, and benefits were 40.2% of net revenues in the quarter, a 110 basis point improvement from the prior year. And our contract labor expense was 2.1% of consolidated SW&D expenses. Next, we will discuss our cash flow, balance sheet, and capital structure. We generated $367 million of free cash flow in the fourth quarter and $2.53 billion of free cash flow for the full year 2025. As of December 31, 2025, we had $2.88 billion of cash on hand, with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027. And finally, during the fourth quarter, we repurchased 943,000 shares of our stock for $198 million. We repurchased 8.8 million shares for $1.386 billion in 2025. Our leverage ratio as of December 31 was 2.25 times EBITDA or 2.85 times EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to a deleveraged balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value. Let me now turn to our outlook for 2026. Our 2026 outlook assumes continued growth in same-store volumes and effective pricing, as well as strong operational efficiencies and disciplined cost controls. Additionally, we anticipate further contributions from M&A and de novo center openings at USPI. In addition, we are also assuming same-hospital admission growth of 1% to 2%, adjusted admissions growth of 1% to 2%, and same-facility USPI revenue growth of 3% to 6% for 2026. Importantly, our outlook does not assume any contributions from potential increases in supplemental Medicaid programs that have not yet been approved. Also, we believe that the expiration of the enhanced exchange tax credits will result in lower volume growth and a less favorable payer mix. We estimate that this represents a $250 million impact on our 2026 adjusted EBITDA, primarily in the hospital segment. Clearly, there are a wide range of potential outcomes here, and we will continue to monitor enrollment levels and effectuation rates. We will also leverage Conifer's capabilities to assist our patients with their insurance coverage. Based on all those items, we expect consolidated net operating revenues for 2026 in the range of $21.5 billion to $22.3 billion and consolidated adjusted EBITDA for 2026 in the range of $4.485 billion to $4.785 billion. There are two normalizing items that I would like to call out when comparing 2026 adjusted EBITDA to the prior year. First, we reported $148 million of prior-year supplemental Medicaid payments in 2025. Second, in 2026, we will recognize a one-time $40 million favorable revenue adjustment as a result of the completed Conifer transaction. After normalizing for these items and excluding the headwind from the expiration of the enhanced premium tax credits, our 2026 adjusted EBITDA is expected to grow 10% at the midpoint of our range. Finally, we would expect first-quarter 2026 consolidated adjusted EBITDA to be 24% of our full-year consolidated adjusted EBITDA at the midpoint. We anticipate that USPI's EBITDA in the first quarter will be 22% of our full-year 2026 USPI EBITDA at the midpoint. Turning to our cash flows, for 2026, we expect adjusted cash flow from operations in the range of $3.2 billion to $3.6 billion, capital expenditures in the range of $700 million to $800 million, resulting in adjusted free cash flows in the range of $2.5 billion to $2.8 billion, and adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes about $150 million in tax payments for the Conifer transaction. Excluding these tax payments, this will represent $1.865 billion of adjusted free cash flow less NCI at the midpoint of our 2026 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance at Conifer, while continuing to invest in high-priority areas of our businesses. Turning to our capital deployment priorities, we are well-positioned to create value for shareholders through the effective deployment of free cash flow. And our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. And as Saumya Sutaria noted, we see a strong pipeline to support our $250 million annual target for USPI M&A in 2026. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we will continue to have a balanced approach to share repurchases depending on market conditions and other investment opportunities. And finally, we will continue to evaluate opportunities to retire and/or refinance debt. In conclusion, we had another outstanding year in 2025, with strong revenue growth, disciplined operations, and very attractive free cash flow generation. We are confident in our ability to deliver on our outlook for 2026 and continue to drive value for patients, physician partners, and shareholders. And with that, we are ready to begin the Q&A. Operator: At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. Before pressing the star keys, our first question comes from Ben Hendrix with RBC Capital. Please proceed with your question. Ben, are you there? We will go to the next one. Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question. Stephen Baxter: Hi, thank you. I was hoping that perhaps you could expand a little bit on the same-store hospital volume performance in the quarter and any moving parts there? It looked like it was a little bit weaker than the trend. And then just as you are thinking about hospital volumes in 2026, it looks like at the midpoint, you might be looking for that to potentially improve a little bit versus the 2025 performance. So just like to help us think about the moving pieces there with the exchanges in the core performance? Thanks. Sun Park: Yeah. I mean, obviously, acuity was good, which is what we are really focused on in the fourth quarter. Flu, I mean, I would just say from our standpoint, the respiratory season was probably a little weaker than otherwise might have expected, and that is probably the basic explanation. In 2026, understanding all the moving pieces, as I indicated in my comments, we had invested significantly in growth capital during the year, and we expect to see returns from some of those investments into 2026 and thus the improvement that you pick up on. Operator: Our next question comes from Whit Mayo with Leerink Partners. Please proceed with your question. Whit Mayo: Hey, guys. When you say, Saumya Sutaria, that you are tackling expense management more structurally, what do you mean by that? And can you elaborate on what is incremental about the cost efficiencies that you expect to see this year? Saumya Sutaria: Yes. Structurally, Whit really refers to the notion that we are looking, as opposed to what I would describe as more traditional annual expense management, we are looking, as we have talked about over the past year, more thoroughly at the deployment of technology basically that allows us more expense reduction opportunities, and that includes the application of those technologies in our global business center. That is a little bit of a different pathway than before, more sustainable, more I would describe as modernization of the business, given some of the new tools and technologies available to us. It is not just AI, which, you know, is I think become kind of the central buzzword for this. But there is a lot more that can be done in automation. And then the other thing is just as we look at our clinical throughput, the application of those technologies ramping up in our clinical throughput, we believe, is another area to take things to the next level. So whether that is areas like length of stay management or throughput in some of the more high-value portions of the hospitals, real estate, etcetera, ORs, ERs, etcetera. Those kinds of things become more structural in nature. That is what I meant by that. Whit Mayo: Okay. Thanks. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Your line is live. Ben Hendrix: Great. Thank you very much, and apologies for getting cut off earlier. I just wanted to get a little more color on the hospital admission growth guide, the 1% to 2%. Just wanted to talk a little bit about the slowdown from last year, the degree to which if we can parse out that slowdown between exchange expiry, between kind of investments toward higher acuity and higher margin capabilities in the hospital setting, and then also just a general slowdown of admissions we have been seeing across the acute sector to begin with. So just any commentary you can offer there. Thank you. Sun Park: Yes. Hey, Ben, it is Sun. Saumya Sutaria already commented on kind of the Q4 mission, including the flu respiratory season being sort of not material for us. And then as we get into 2026, a lot of it has to do with this CapEx and technology investment that we have made in 2025, creating some volume momentum coming into 2026. On your question about the exchange, as we said in our comments, there is a pretty wide range of potential outcomes here. As Saumya Sutaria mentioned, we are assuming about a 20% decrease in enrollment. But we would have to then there are lots of areas where, what happens to those volumes. Right? Do those people find, do those patients find alternate coverage? And other plans, alternative plans? You know, certainly a big majority of them could become uninsured. But, you know, that volume will still show up at our hospitals, obviously, and in USPI. Just the question then becomes, can we optimize our cost and efficiency? So our range anticipates some impact of lost volumes, but, you know, I think our EBITDA range and as we discussed, our lost EBITDA ranges quantifying the exchange a little bit more. Operator: Our next question comes from Matthew Gillmor with KeyBanc Capital Markets. Your line is now live. Matthew Gillmor: Hey, thanks for the question. Maybe following up on the cost efficiencies. Are you able to quantify what you are able to pull through this year? Was also curious about the timing building throughout the year such that you will get a year-over-year benefit in future periods. Or do they take place earlier in the year so they are all captured in '26? Sun Park: Yeah. No, we are not providing specific guidance between that. I mean, you think about our guidance from a core growth of EBITDA standpoint, I would just expect that embedded in there is both the value of the initiatives that we have invested in through capital and growth strategies for this year and expense management strategies that would be, you know, more, I guess, I said more structural over and above what we might have done in a typical year. And as I indicated, you know, the thought process behind those is not just about 2026, it is about being prepared for the years ahead. Operator: Fair enough. Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Your line is now live. Kevin Fischbeck: Yes, thanks. Now I guess I just want to follow up on that point. I guess we think about that type of growth, I mean, is this the type of growth that you think is sustainable in out years as we think about offsets? Because 10 is a pretty big number to be thinking about. And so I just want to understand, is this new focus on expense management replicable? Are you it kind of is what we are doing in year one and that is it? Or is this is what we are doing in year one and we should be thinking about similar types of opportunity in the out years because it is a little hard to bridge what would normally be viewed as, you know, a hospital business that might grow 3% to 5%. Now you are saying it is 10%. Like, is that sustainable? Saumya Sutaria: Well, Kevin, I mean, I think two things. One is we have built up a track record of acuity growth and net revenue per case growth ahead of, ahead of, you know, generally what the market does. Our margin expansion over the past, not just two years as I indicated, but even beyond that in the hospital segment itself, has been significant above and beyond the asset sales that we did, which obviously helped some of that margin improvement. We said all along that we kept the markets where we felt like we had the best opportunities for growth and leadership. And as we look ahead, the environment that may be coming, you know, in '28, '29, etcetera, with OBBB and other things, now is the time to take on the challenge of really being well prepared for that. And so, you know, look, we understand what the core growth guidance is. We think it is very attractive guidance. We think there is a lot of work that is going to be required to get there and creativity. But on the other hand, that is exactly the work we should be doing given the platform that we have built. And so that is what we are going after. Operator: Our next question is from Josh Raskin with Nephron Research. Your line is now live. Josh Raskin: Thanks. I want to stay on the same topic. And Saumya Sutaria, I appreciate what you just said. I sort of looked at it. Margins were up 680 basis points into 2019, and the hospital segment is up 660 basis points. So it is not really mix. Seems as though we have heard a lot about process improvement and optimization at Tenet Healthcare Corporation for a couple of years, and now we are hearing about this new focus on expense management. I would just be curious to get your view on just the broader technology agenda, specifically including AI, and, you know, overall business including revenue cycle management. And just, you know, do you think there are additional step function improvements in margins? I guess that is the main question. Do you think we are going to see continued margin improvement like we have seen in the past? Saumya Sutaria: Yes. I mean, I do not obviously, we are giving guidance in a year where there happens to be a headwind that we have done our best to quantify with respect to the exchange premium tax credits. You know, stated a different way, if those headwinds were not there, we have been saying all along that we continue to believe there is margin expansion opportunity in the hospital segment. The urgency with respect to much of what we are talking about doing is enhanced because of the, you know, what has happened on the exchange marketplace or what has not happened on the exchange marketplace, you know, as the case may be. The other thing I am mindful of is that, you know, there are what happens with respect to many of these reimbursement items might change over the next couple of years. Right? So we are not really planning out to that level of specificity for '27, '28, etcetera, there are elections that happen between now and then. That could alter, modify, or just transform policy from where it is today. But I think this gets back to the first part of your question, which is as we look around the environment, we have done a lot in this organization to improve reliability, accountability, the types of efficiencies we have taken, as we have scaled the company down in the hospital segment, reliably moving our overhead structure in line with that, all the things you would expect from an organization that is attempting to be best in class in what it does. And now, with the advent of many of these technologies in AI and automation, the ability to actually begin to deploy those and see if we can drive the next level of improvement, we are better set up for that now because we have more standard processes. We have more standard workflows. We have labor standards and supply standards that have been uniformly disseminated across the company. You know, it is much harder to do those things when every market is doing something very different versus having established those standards. And we have done that, and we have consistently demonstrated that establishing those standards have improved our business. So now it is about taking that to the next level. And that is really what we are talking about. Operator: Our next question comes from Justin Lake with Wolfe Research. Your line is now live. Justin Lake: Thanks. Good morning. Wanted to follow up on some of the guidance stuff. Appreciate all the details. You mentioned obviously the DPP, gave us the one-time benefit last year that comes out. I am just curious if you could specify, is DPP other than that flat year over year or any change within that core guidance? Maybe you could also give us the run rate of DPP. And then I thought your estimate of the impact of the subsidy expirations was towards the higher end of my expectations at least. And I am curious how you treated your at least your thoughts on the shift potential shift of some of these enrollees back to employer commercial? What you have assumed there versus, let us say, I think, UHS or one of your peers is assuming none, one of your peers is assuming 15% to 20%? Thanks. Sun Park: Hey, Justin. It is Sun. Thanks for your questions. On your question about the Medicaid supplemental payments, yes, as you pointed out, so a couple of numbers here. We finished 2025 with $1.34 billion in total supplemental payments. And obviously, we pointed out about $148 million of is out of period payments. So let us call it 1.2 effective run rate for 2025. In 2026, our guidance assumes effectively a pretty consistent number with our 2025 normalized baseline. So hopefully that helps. And then on your question about exchange, yeah, I mean, like we said, we assume about 20% overall of enrollment. I would say on your question about our assumptions for people finding alternative plans, including commercial, we are about 10% to 15% as an internal assumption. Now all of that, again, depends on what we see in Q1. And what run rates we see, but that is our assumption embedded in our guidance. Operator: Our next question comes from Pito Chickering with Deutsche Bank. Your line is now live. Pito Chickering: Hey, good morning, guys. Thanks for taking my question. Can I ask about sort of the first-quarter guidance? Normally, you guys get more than 24% of EBITDA in the first quarter? I think in the script, you said that 21% of the company ACs, which is normal. So the means of the changes actually the hospital segment. So is this something fundamental like the flu or lower circle demand, or is this just the $40 million of prior period PPP from last year or something else? And then just a quick clarification, can you quantify the DPP that you received in the '25 fixed? Sun Park: Hey, Pito. It is Sun. Just to be clear, our USPS Q1 guidance is 22% of our full-year guidance in Q1 for USPI. And then for our hospital, you are right. You know, I think the $40 million one-time benefit in Q1 kind of skews the total rates. Other than that, we see pretty, you know, standard annual Q1 percentages as a percent of the full year. And then for your question on DPP Q4, we had $315 million. Pito Chickering: Great. Thanks so much. Sun Park: Thank you. Operator: Our next question is from Andrew Mok with Barclays Bank. Your line is now live. Thomas Walsh: Hi, this is Thomas Walsh on for Andrew. With Conifer's services to CommonSpirit concluding at the end of this year, could you frame the current plan to redeploy existing resources to growth opportunities? And otherwise reduce expenses? To right-size the cost structure? Saumya Sutaria: Well, I mean, we have a full year of service that we have to execute with respect to Conifer and our client this year. So we are not expecting to take cost reductions this year from that perspective. If anything, we may both increase revenue and cost if we end up doing more from a transition service standpoint, and that may come with a margin. You know, after that, we have talked about the fact that we have other growth opportunities that are already locked in starting in and around 2027 that will allow us to redeploy talent in that direction. So we can see that, you know, we will be rebasing a bit the business at Conifer and preparing it for future growth. I mean, I do not know. I would kind of just go back to the core of what actually happened here in what we did. I mean, if I were to be very simple about this, we had an expiring contract for which the cash flow that we would have taken in between 2026 and 2032 was basically breakeven at best because at the end of that period, we would have significant obligations to the client in terms of payments that would need to be made and, you know, equity that we would have to buy back. I mean, one thing that may not have been so clear, we have not made cash distributions from that joint venture in the last decade. And that resulted in a pretty significant buildup of redeemable non-controlling interest other liabilities. So what we did was we retired $885 million of those obligations on the balance sheet and got back 23.8% of the equity that was in the joint venture for $540 million. And then if you look at the remaining six years of the transaction, of the contract that got dealt with in the transaction, we received $1.9 billion in accelerated cash flow over three years that would have come over six years in the contract. And the present value of those two things was roughly double what we would have got by running off the contract. So, I mean, we have gone back for what it is worth and done the math. If you just look at this on an NPV basis after tax, the incremental value from actually running out the contract that we have created again, post-tax present value was north of a billion dollars. We calculate $1.1 billion. I mean, this was absolutely the right path to go down in addition to getting complete control of the strategic future of Conifer. How we deal with that in 2027 and beyond, including growth opportunities, investments that we can now control in reducing the cost to collect and positioning Conifer to be more competitive, is the work of 2026 that we have in this asset. But maybe that kind of bottom-line calculation, you know, now that we have had a chance to look at what the earnings will look like in the out years, based on what we know today, is helpful in framing what we did in this transaction. Again, after-tax NPV of about $1 billion to $1.1 billion is what we calculate. We are pleased with the outcome. Operator: Our next question is from Scott Fidel with Goldman Sachs. Your line is now live. Scott Fidel: Thanks. Good morning. I was hoping maybe you could elaborate a bit on for the ASC business, how you are thinking about it and planning for investments. They could be either around the new facilities or in terms of organic or de novo expansion. From a case mix and procedure perspective, just, you know, interested in where you see, you know, underlying demand the strongest, where you see, you know, the best opportunities, you know, to continue to drive the trend that you have had of, you know, favorable case mix and profitable, you know, sort of acuity and procedure growth in some of these specialty areas of the ASC business. Saumya Sutaria: Yes. No, thanks for the question. I guess I would make three comments. One is that I alluded earlier to the inpatient-only list and additional opportunities there. I think that will be a slow tailwind going forward as there are more things that qualify in that area. I think USPI is well known to be kind of at the leading edge of the innovation in higher acuity procedures in that area. We continue to build on our urology platform, looking forward to doing more spine work there. A lot of the robotics capabilities that we have brought into the ASCs continue to allow us to find new avenues of expansion. And obviously, the large ongoing opportunity that we continue to see double-digit growth in our joint programs across the network, all those areas are, I think, attractive, you know, looking forward. We had a big M&A year, and a lot of the value that USPI brings after they acquire the assets and get into those settings is the planning for service line diversification and whatnot. So, you know, we have a big cohort this year that usually takes about a year to start to work on new physician entry and restructuring of the operating schedules, you know, where possible, to bring some of that higher acuity in. Sometimes, as we have talked about in the past, it removes lower acuity procedures in the context of doing that. When you get new centers, usually, it takes a year or so to kind of get that done. So we have a lot of work to do in that regard. And then the last point I would make is that, you know, Q4, as we expected about a year ago, we said that we saw a ramp going forward. Q4 had a nice pickup in GI case recovery as well. And that was an important driver of that performance. So I think it is the same this year. We expect the year to build over the year stronger and stronger. The first quarter last year was an incredibly strong quarter for us because of a lot of the synergies that dropped on the covenant transaction, you know, the CPP transaction in 2025. But as we kind of overcome that, this first quarter, expect to see growing momentum in the business looking ahead. Operator: Our next question is from Ryan Langston with TD Cowen. Your line is now live. Ryan Langston: Great, thanks. Can you tell us where exchange volumes and revenues tracked in the fourth quarter? And I know you do not assume any pickup from the supplemental programs that are not approved. But do you have any insight into where we are at in the approval process for the pending programs, like Florida, Arizona, California? Thanks. Sun Park: Hey, Ryan. On Q4 for exchanges, we were about almost 7%, I am sorry, 7.5% of total admissions for HICCs, and then a little over 6.5%, somewhere in there, of our total revenues, consolidated revenues, was from exchange. On your question about Medicaid supplemental payments, yeah, we are obviously tracking all the sort of the pending submissions and approvals in some of the states that you mentioned. We do not, I do not know that we have any specific updates to provide at this time. We will obviously continue to monitor. Saumya Sutaria: Yeah. I mean, I think it is just worth reemphasizing, you know, we have not put anything in our guidance about programs that have not yet received approval for '26. Ryan Langston: Alright. Appreciate it. Thank you. Sun Park: Anything incremental, sorry. I should be clear. Anything incremental in our guidance? Operator: Our next question comes from A.J. Rice with UBS. Your line is now live. A.J. Rice: Hi, everybody. Maybe just some comments on what you are seeing with care contracting. Obviously, that sector continues to be under pressure with some of the government programs, etcetera. And I wondered, is there any change in discussion, in terms of the pace of new contract or contract renegotiations or terms? Or just general update in rates? Sun Park: Yes. Hey, A.J. It is Sun. No. No real change in our commentary. Look, I think we have very positive and successful conversations with payers in general based on Tenet Healthcare Corporation's overall service lines and what we bring to the table, including USPI as part of the overall package as well. Our commentary on rates is pretty consistent. We see 3% to 5% range from payers. And, overall, from a contracting standpoint, we are virtually contracting 2026. I would say, you know, high nineties. And then even for '27, we are about 80% contracted. I think we are in a very, very good spot. Thanks for your question. A.J. Rice: Okay. Operator: Our next question is from Sarah James with Cantor Fitzgerald. Your line is now live. Sarah James: Thank you. Can you elaborate a little bit more about what you saw in payer mix in 4Q for USPI? And then unpack what you are assuming for hospital and USPI as far as the scale of change in '26 between 1Q 2026 and 4Q 2026? Thanks. Saumya Sutaria: I will take the second half of it. I do not think we are anticipating any different if you are asking the question about are we anticipating any sort of a different mix quarter to quarter than we saw in the amount of EBITDA that we generate in the hospital segment or USPI proportionally, I do not think we are saying that at all. I mean, you know, this is always the case where you have, you could have movement of a percentage point or something like that. Up or down depending on we deal with winter weather, we deal with hurricanes, we deal with, but, you know, we rebook those things and attempt to deal with them. Sometimes that is intra-quarter, sometimes it is out of quarter. So I would personally focus on the overall guide, and our message in terms of the percentages for Q1 are not meant to imply that we are changing our proportions for Q2, Q3, and Q4. Sarah James: Yeah. I got it. I guess I was thinking more in terms of as effective effectuation takes place, if you would expect the payer mix to change at the end of the year and to what degree compared to your assumptions and what Saumya Sutaria: Yeah. I would say that, I mean, there is a reason why the guidance range is wider than it normally is. I mean, we do not know, right. I mean, we are tracking it. We have a unique vantage point with Conifer because we do enrollment work as well. So we get a bit of a view into what that enrollment work is yielding in terms of where are people going, what reaction are they having to their premiums as they get exposure to them? So I think we will have some leading-edge insights there. But let us be honest, it is not perfect at this stage. It is very early in the year, and, you know, I think the guidance is appropriately broad in the hospital segment because we really do not know exactly how that is going to translate. We have been transparent with our assumptions with you all, so that you can see where that is going to run relative to what actually happens. Sun Park: And, Sarah, this is Sun. On your question about payer mix on USPI, I would say it has been very consistent. As Saumya Sutaria mentioned, we have some GI that came back, so that will tweak the overall mix a little bit from a payer standpoint. But nothing substantive. So we are very pleased with the payer mix. You know, in Q4, we reported, you know, at USPI, net revenue per case growth of 5.5%, total EBITDA margins above 40%. So I think all those metrics show very strong revenue acuity. Sarah James: Thank you. Operator: Our next question is from Benjamin Rossi with JPMorgan. Your line is now live. Benjamin Rossi: Hey, good morning. Thanks for taking my question. Just as a follow-up for the ambulatory side. For the $30 million EBITDA headwind across ambulatory from the EAPTC is expiring, much of your payer mix for the ambulatory segment came from the ACA exchanges? 2024 and 2025? Then did you see any pull forward across that cohort here during the fourth quarter given your typical seasonal dynamics for ambulatory? Thanks. Saumya Sutaria: Yes. Ben, we disclose that information in terms of the segment, but we have been pretty clear all along that HICS exposure at USPI is significantly less than the hospital segment. And no, we did not see any significant pull forward. We looked for it. Remember, we talked about this a quarter ago. As well. We looked for it, but we did not see any significant pull forward. Benjamin Rossi: Great. Thanks. Saumya Sutaria: Thanks. Operator: Our next question comes from John Ransom with Raymond James. Your line is now live. John, are you there? Are you muted, John? John Ransom: Sorry. Can you hear me now? Saumya Sutaria: We can. John Ransom: Oh, sorry. You know, there is a big narrative over the past few months that providers are getting on top of payers, quote, unquote, with coding advances assisted by AI, particularly claims resubmissions or easier. Is that exaggerated? Are we what inning are we in it? And just given that you are positioned on Encada firm being a provider, what is your position on that debate? Saumya Sutaria: Yeah. I mean, John, I can only comment for Tenet Healthcare Corporation and, I guess, to some extent for how we operate at Conifer. Our coding has always been appropriate and compliant. We audit carefully. We have not changed our coding practices over the last few years, either for ourselves or necessarily for our clients. We aim for very high degrees of accuracy. And we have not made changes in those areas. We have obviously been successful in increasing our acuity, which has supported our net revenue per case in terms of our pathway there. And finally, just to unpack a little bit the question earlier related to this, with Sun's comments about our managed care contracting environment, you know, we also do not have extremely heavy HOPD, you know, HOPD market drive from what we are doing. So we do a lot on the basis of freestanding outpatient in what we do. And that ends up being a value to the plans. We have not found ourselves in conflict over coding practices. We find ourselves, you know, in conflict over the nature of the amount of time and energy we put into disputes, denials, underpayments, and things of that nature, that, you know, have a process back and forth that you have got to work through. But increasingly, we have been setting up systems with the health plans to have adjudication mechanisms to work with them on in order to resolve these things in a less resource-intensive way. Some payers have been better than others about doing that with us. But that is the path we are moving down. John Ransom: Thank you. Saumya Sutaria: Welcome. Operator: Our final question is from Craig Hettenbach with Morgan Stanley. Your line is now live. Craig Hettenbach: Yes, thank you. And appreciate all the details given the fluid backdrop in terms of puts and takes on this year. So I am just keying off of your comment of taking an active approach to buybacks, especially at the current valuation multiple. Given the significantly stronger balance sheet, free cash flow generation, and common spirit kind of proceeds, how are you and the Board just thinking about kind of the right cadence here of buybacks? Saumya Sutaria: Well, yes, I mean, I purposely indicated, I purposely noted and indicated that, I mean, all these things link together, right? I mean, it is not just that we have significant cash on the balance sheet. We just described maybe in more detail today, the kind of value we just generated from the Conifer transaction, effectively, a portion of that transaction was, you know, like debt retirement. Right? I mean, it was an obligation on the balance sheet that was real coming up in the next few years. And so then the other proceeds from that go back into investing in the business, investing in USPI, and it gives us the opportunity for more share buybacks. And, you know, I would link this to our guidance for 2026 in terms of, I know we have talked a little bit about, you know, our growth rates and core growth rates. I mean, we attempt to operate and behave like a company that trades at a higher multiple. We will deploy our balance sheet like an organization that recognizes that the multiple has a valuation that is attractive to buy back shares. And I think we have done that over the last year. I mean, that is our mindset. Right? We expect to perform at that level. We also expect to deploy our balance sheet in a way that demonstrates we have confidence in our ability to operate. That might be the easiest way to describe how we think about the two. They are interlinked for us. Craig Hettenbach: Thank you. Operator: We have reached the end of the question and answer session, and this concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Slate Grocery REIT Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Shivi Agarwal. Please go ahead. Shivi Agarwal: Thank you, operator, and good morning, everyone. Welcome to the Q4 2025 Conference Call for Slate Grocery REIT. I'm joined this morning by Blair Welch, Chief Executive Officer; Joe Pleckaitis, Chief Financial Officer; Connor O'Brien, Managing Director; Allen Gordon, Senior Vice President; and Braden Lyons, Vice President. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements, and therefore, we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in management's discussion and analysis. You can visit Slate Grocery REIT's website to access all of the REIT's financial disclosure, including our Q4 2025 investor update, which is available now. I will now hand over the call to Blair Welch for opening remarks. Blair Welch: Thank you, Shivi, and hello, everyone. We are pleased to report strong fourth quarter and year-end results for Slate Grocery REIT. The REIT completed over 1.7 million square feet of total leasing throughout the year at attractive rental spreads that continue to drive strong performance. Renewal spreads were completed at 14.9% above expiring rents and new deals were completed at 34.9% above comparable average in-place rent. Adjusting for completed redevelopments, same-property net operating income increased by $3.3 million or 2% on a trailing 12-month basis. Portfolio occupancy remained stable at 94.4%. And our portfolio's average in-place rent of $12.86 per square foot remains well below the market average of $24.34, providing significant runway for continued rent increases. The REIT has a weighted average interest rate of 5%, with over 87% of its debt having a fixed interest rate. This provides a stable outlook for the REIT's near-term financing costs. Subsequent to quarter end, the REIT refinanced an 8-property portfolio for $90 million to consolidate existing property level mortgage loans. We continue to see strong demand for high-quality grocery-anchored real estate among the lender community. And the REIT's weighted average capitalization rate remains well above the REIT's weighted average interest rate for outstanding debt, allowing the REIT to maintain positive leverage. During the fourth quarter, the REIT completed two strategic transactions to strengthen tenant mix and further delever the portfolio. In December, the REIT acquired the remaining minority interest in a 10 asset joint venture portfolio for $5.7 million, bringing its ownership to 100%. This provides the REIT with an enhanced refinancing flexibility and the ability to capture further mark-to-market opportunities. In the same month, the REIT strategically disposed of a non-grocery-anchored property in Flower Mound, Texas, using proceeds to further delever the portfolio. We continue to have strong conviction in the outlook for grocery-anchored real estate. Recent investments by leading grocery operators in store-based fulfillment reinforce the critical importance of the physical grocery store. At the same time, fundamentals remain favorable with elevated construction costs and tight lending conditions continuing to constrain new retail development and overall availability. We believe these fundamentals, combined with the resilience of consumer spending on food and essential goods, underscore the long-term stability of our portfolio of grocery-anchored real estate. On behalf of the Slate Grocery REIT team and the Board, I'd like to thank the investor community for their continued confidence and support. I will now hand it over for questions. Operator: [Operator Instructions] Your first question is from Sairam Srinivas from ATB Capital Markets. Sairam Srinivas: Just looking at the cadence of option-based renewals this year, how do you see them impact your 2026 leasing? And what I'm trying to get to is essentially the proportion of GLA that's coming up for renewals and how much of that is essentially option-based leasing? Blair Welch: Yes. I think that we've had 11 straight quarters of very strong leasing spreads on new leases and renewals. And every quarter is different. It depends on how much square foot, how many square feet each quarter renews and what's their in-place rent. So it changes every quarter. But I would -- I think the long-term 11 quarters in a row speaks to what we can continue to see in 2026 and going forward. And we're excited about the rents that are coming due and the space that we have, and we can talk more, but we are not afraid of getting space back, meaning we are focused on essential goods, but we've had some good stories as it relates to getting space back from retail tenants that might go through restructuring. It's very competitive and we want to -- we see that as an opportunity to increase rents. And less than 10% of the gross leasable area expiring in 2026. Sairam Srinivas: Yes. And I was looking at it, like the number -- the GLA by overall is actually pretty low. So again, I think this was 2025, I guess, was the biggest year of leasing for you guys. Probably just looking at same-property NOI, I know like the lease numbers, as you said, have been really strong over the last 13 quarters now. But now looking ahead, how does that -- when do you think it will start showing up in your NOI numbers? Blair Welch: Well, I think we've been seeing it, and I think we will continue to see single-digit NOI growth and whether that's 2% to 4% to 5% over the coming years. And I think we've been performing that way. We're confident in leasing spreads. It's a tight market. Our management team is strong. Our leasing team is strong. We're seeing demand across the space. So I think it will just continue to be a very defensive, stable business for us. Sairam Srinivas: That makes sense. And lastly, there, what's your outlook on leverage? I know like there's -- obviously, you guys have made some progress on paying some of the debt down. But where do you see that number kind of stabilizing this year? Blair Welch: Yes. I can let Joe speak in here, but it shot up from reporting, but we kind of waited to refi and delever post quarter end because we had to consolidate the JV acquisition that we did. Our target is to continually delever, and I think we're on that target. But when quarter end happened, we had acquired some JV interest, consolidated them and post quarter end, we have subsequently and we'll continue to delever the business. Joe, I don't know if you want to add anything. Joseph Pleckaitis: No, that's exactly right, Sai. It's more of a point in time right now and a timing issue. Again, we refinanced that STAR portfolio post quarter end. We used the sale proceeds from that asset to delever and use some net proceeds from that refinancing to repay the revolver. So again, more of a point in time. So it crept up the last couple of quarters, but I see that normalizing moving forward. Operator: Your next question is from Golden Nguyen-Halfyard from TD Securities. Golden Nguyen-Halfyard: Nice to see an uptick in leasing activity this quarter. I recall you had some larger vacancy in the portfolio from earlier in the first half of 2025. Just wondering if you had any updates on these properties. Blair Welch: On the vacancies, I think the team did a really good job continuing to engage with the tenant relationships we have across the portfolio, and there's certain headwinds coming online. I think we see a lot of those leases coming on throughout 2026. One of the redevelopments, particularly we've been working through at Culver Ridge, the third and final tenant as part of that redevelopment will be coming on later this year and will start contributing to the NOI of the portfolio in kind of the second half of this year. Golden Nguyen-Halfyard: Great. And just one more from my end. Just turning to the transaction market. Maybe if you could talk about what you're seeing in the market today and how that outlook has changed from a few months ago? And do you think maybe that could signal acquisitions this year for you guys? Blair Welch: Yes. I think when it comes to capital allocation, we continuously speak to our Board on how we deploy capital. I would say, as it relates to the broader market, the availability of debt financing is strong for this asset class and in the United States. I think over the last several years, one of the kind of breaks on transaction volume has been the bid-ask spread. Financing costs, if you think they're 4% to 4.5% 10-year and you have 170 to 190 basis points, your borrowing costs are 6%, 6% plus. So cap rates need to be wider than that and people weren't willing to sell for that. I think people have come to the realization where the market is, and I think you will see more transactions because I think people are comfortable with that now. But it's taken some time for those kind of fundamental agreements to kind of take place. Slate Grocery is in a really good place because where our IFRS cap rate is to financing has positive leverage, and we're seeing the market kind of in that space, which is different than some of our Canadian peers, I would say. But we're confident that there will be more acquisition activity that will be interesting for us to look at in 2026. Operator: Your next question is from Bradley Sturges from Raymond James. Bradley Sturges: Just on the consolidation of the JV interest there, I just wonder if you could give a little bit of color on what was driving that the mechanics of it for the acquisition to occur in the quarter. Blair Welch: Joe, why don't you tackle that one for us? Joseph Pleckaitis: Thanks, Brad. So yes, with that purchase, we now acquire 100% ownership of that portfolio. And from an accounting standpoint, it becomes fully consolidated on our financials. So we really took that investment from a joint venture on our balance sheet to full consolidation of all the assets. And I think with that acquisition, what it allowed us to do as well is to, again, simplify the structure from a financing standpoint as well. So once we purchased that remaining interest, what we were able to do is consolidate 3 separate mortgages into portfolio refinancing, which we closed post quarter end. And again, we got very favorable pricing, competitive pricing and really what we're seeing in the market today. So that loan is an asset portfolio, $90 million of principal at SOFR plus 180 and again, that really just shows you the competitiveness of the lending environment right now for grocery-anchored real estate. Bradley Sturges: Was that a negotiated deal with the minority interest? Or was it like a trigger of a right or an option type thing? Blair Welch: It was negotiated, Brad. We have a very strong relationship with that partner. I think they're great at what they do. I think they had some needs outside of this portfolio they wanted to deal with and had needed a use of proceeds. I think we negotiated a very good acquisition price like grocery REIT and our unitholders. So I think it worked for both. There was no -- there wasn't a trigger event. Bradley Sturges: Got you. Okay. That makes sense. And then in terms of remaining minority interest, there's a few assets still that are equity accounted. Like is that something you would pursue consolidating further? Or how should we think about that? Blair Welch: Yes. I mean I think that we have absolutely no issues with any of our JV partners. Those were acquired through the acquisition of the Annaly portfolio. That being said, I mean, just like on the Pinetree JV that we were talking about, the world changes and different partners have different needs at different times. If that comes up and it makes sense for the REIT, we will look at it. But there's no trigger event or need at this time. Everything is moving well. But we will look to be opportunistic because we really like the assets that we own. And if the situation comes up, we'll do it. But there's no -- we're fine how it is now, too. Bradley Sturges: Yes. Okay. Last question, just on the asset sale. Can you comment on cap rate? Blair Welch: There's a lot of interest from the buyer community for a non-grocery-anchored asset in the Dallas MSA and cap rate came to about a mid-7% cap for that asset. Operator: [Operator Instructions] And your next question is from Tal Woolley from CIBC Capital Markets. Tal Woolley: I just wanted to start off, just wondering, you mentioned earlier, maybe you expect to see acquisition activity pick up over the course of 2026. I'm just wondering if there are any particular markets, property types that you're particularly interested in? And then I guess maybe longer term, given that you just said you like your own assets as well, instead of acquiring new stuff, should the focus for the REIT really be trying to bring in the noncontrolling interest, the joint venture interest first? Blair Welch: So to your first question, I mean, since the inception of Slate Grocery, we've had a thesis, and I think it's proved well that given our performance over the last 1, 3 and 5 years has been really strong. We focus on the best 1 or 2 grocer in a market at buying a low in-place rent. And that has been our thesis. We will continue that thesis. It's expensive to build this stuff. The market is tight. And it's really about understanding our tenants. That's why we want to be with the best tenants in the regional market. And our team has built those relationships over the last 15 years that are very strong, and we would love to add scale in the markets we're in. And as we look to new markets, it's can we buy more than one over time. So I mean, it hasn't changed. We've always been that way. It's really focused on low in-place rents with a good grocer, and that's our strategy. In the U.S., there's 40,000 grocery stores. So there's a lot of product to look at. And then as it relates to our own assets, Slate was able to bring in our North American Essential Fund a couple of years ago. I think that's the JV interest you're talking about. We talk to our Board all the time about how to maximize value. And we thought that was a great deal and it is a great deal. We looked at should we buy assets, should we redevelop our own assets. That's a continuous thing. And I think the team has proven that we are creative to do that. And we'll work with our Board to do what's right in the best interest of all the unitholders of which Slate Asset Management is the largest. So I think we're creative. We'll continue to look at the market. We love this business. Slate Asset Management has over 600 grocery stores globally now, and we want to continue to grow, and we think the U.S. is a great market to do that. Tal Woolley: Okay. And just on the $90 million refinance, do you have the rate you achieved on that? Joseph Pleckaitis: Tal, so it's a floating rate SOFR plus 180. And we also entered into a 12-month pay fixed swap at close, which would bring the all-in rate for that loan to 5.3%. Tal Woolley: Okay. And is that 5.3%, is that a pretty fair representation of where you guys could borrow with fresh debt right now? Joseph Pleckaitis: Yes. Again, I think it depends on, one, the creditworthiness of the anchor location. I think there's a couple of factors there. But I think over the last few deals we've done, I think you're in that, call it, 170 to 185 range over SOFR right now or over the 10-year treasury, whatever term you're using. So I think that's pretty indicative of what pricing is today. Operator: [Operator Instructions] There are no further questions at this time. I will now hand the call back over to Shivi Agarwal for the closing remarks. Shivi Agarwal: Thank you, everyone, for joining the Q4 2025 conference call for Slate Grocery REIT. Have a great day. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Fourth Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] Vicente Ferreira: Hello, everyone. I'm Vicente Ferreira, Investor Relations Officer of TIM Brazil. Welcome to our earnings conference for the fourth quarter of 2025. Today, joining me to discuss the highlights of our results, I have the CEO, Alberto Griselli and the CFO, Andrea Viegas. As usual, we close our call with a live Q&A session. So let's get started. Alberto, great to have you here. What can you tell us about the main highlights of the 2025 results? Alberto Griselli: Thank you, Vicente. Hello, everybody. It's a pleasure to share results that represent more than another solid quarter. They depict a consistent execution of our strategy and full delivery of our promises confirming the track record of TIM Brazil in meeting its target. From a financial standpoint, service revenue grew above inflation with a year-on-year expansion of 5.2%, check. EBITDA margin expansion, reaching 51% as EBITDA increased 7.5%, check, as well. CapEx was essentially flat versus 2024, check. Operating cash flow grew at double digit, closing the year expanding at 16%, check. And with the dividend anticipation, we closed the shareholder remuneration at BRL 4 billion in cash, plus BRL 750 million in share buyback, check. In all, guidance was delivered with a combination of strong cash generation and disciplined capital allocation. Vicente Ferreira: Really impressive financial performance of Alberto. But beyond the numbers, what can you tell us in terms of operational results and other achievements that the company made during 2025? Alberto Griselli: Sure, Vicente. You're right. We had many deliveries that go beyond financials. In 2025, we continue to reinforce our strategic position. TIM remains the leader in 5G in Brazil with coverage of more than 1,000 cities, 52% more cities than our second player. And we, once again, the most awarded operator in Opensignal latest report, winning in key categories such as consistent quality and reliability. In B2B, we surpassed BRL 1 billion in total contracted value across all verticals and for the third consecutive year, TIM was featured on the CDP A list, confirming our leadership in climate and ESG practices. On top of that, we continue to capture productivity gains, applying digitalization, artificial intelligence and strict discipline in capital allocation. Vicente Ferreira: Great list of achievements. But Alberto, what can you tell us in terms of the contribution of each area of the company and the support that those different areas were able to deliver for our results as a whole. Alberto Griselli: Okay, Vicente. When we look inside the business line, 2025 tells a coherent story. In mobile, we strengthened the pillars that have been driving our performance in recent years. Net service revenues grew at a solid pace, supported mainly by mobile services, which increased 5.4% in the year. Postpaid was again the central engine. Postpaid revenues grew 9.5% in the fourth quarter, and our base expanded by 8.4% with another year of positive net additions. ARPU in postpaid, excluding machine-to-machine, reached almost BRL 55, growing 3.1% year-on-year, which reflects our ability to combine volume and value strengthening value capture across our customers, migrating them to higher value offers while keeping churn under control. At the same time, the prepaid segment began to show more encouraging signs. The revenue decline has accelerated for the third consecutive quarter, indicating that our actions to stabilize this space through more targeted offer, better segmentation and improved customer experience are starting to gain traction. The combination of robust postpaid expansion and more stable dynamic in prepaid, supports a healthier, more balanced growth profile of our mobile business. None of these achievements would have been possible without the strength of our network. Throughout 2025, we further consolidated what has become a structural advantage for TIM, our leadership in coverage and technical quality. We maintain the broadest 4G and 5G footprint in Brazil and delivered tangible benefits for our customers. TIM's excellence was recognized in the latest Opensignal report, where we took home 6 national awards demonstrated that our investments are not just expanding coverage, but actively enhancing customer experience. One of the year's more significant milestones was the completion of our network modernization project in Sao Paulo, which has transformed the experience in the country's largest market by modernizing every site in the state, we expanded 5G and 4G coverage, increase capacity and improve overall quality performance. We are now extending this modernization to other cities with a plan that includes around 6,500 sites to be swapped in major capitals until 2027, establishing new standards of holiday and experience of our customers across Brazil. In fixed services, 2025 was a turning point for our broadband operations team, Ultrafibra. After a period of adjustment and portfolio optimization, broadband revenues returned to growth in the fourth quarter, supported by an improvement in net additions and nearly complete migration from FTTC to fiber. By the end of the year, we reached 850,000 customers and FTTH ARPU of roughly BRL 95. TIM Ultrafibra revenues grew 6.2% year-on-year in the fourth quarter. This shows that our strategy of focusing on quality, rationality and operating efficiency is working. And we are building a more sustainable broadband business for the future. Another significant milestone in 2025 is our progress in B2B our solution have achieved meaningful impact across key industries. In Agribusiness, TIM coverage surpassed 26 million hectares enabling precision agriculture, automation and greater productivity across vast rural areas. In logistics, we expanded to more than 10,000 kilometers of highways connecting major corridors and enabling monitoring, safety and operational intelligence. In Utilities, we sold nearly 470,000 smart lighting points, helping cities modernize infrastructure at scale with efficiency and control. And in mining, our advanced connectivity spanning 4G, 5G and IoT support safer and more automated operators. These verticals combined allow us to surpass our important milestones of BRL 1 billion in total contracted revenues since the beginning of this journey, confirming B2B as a structural growth engine for TIM, not a future possibility. It is already real, scaled and part of our core. Vicente, in sum, we saw relevant contribution and strong support from every single line at TIM Brazil. Vicente Ferreira: Thank you, Alberto. We'll come back to you for your final remarks later on. Now our CFO, Andrea will walk us through the details of our financial performance. Andrea, thank you for joining us. Andrea Palma Marques: Thank you, Vicente. Hello, everyone. We closed the year with another strong set of financial results reflecting the disciplined execution of our strategy in 2025. This quarter reinforced a story that has been present all year long, cost optimization, expanding profitability and a clear focus on sustainable value creation. Over the last 12 months, our efficiency program has continued to reshape our cost structure. Operation costs again grew well below inflation with OpEx rising just 1.8% year-on-year in 2025. This reflects the structural initiatives underway across the company, showing that this approach is not a temporary effort for a core part of how we operate. This strongest execution contributes to another year of high level improvement in productivity with EBITDA increasing by 7.5% and our margin achieved 51%, making an important milestone. We also advanced a lease-related efficiency initiatives already contribution to a strong result in 2025. EBITDA after lease grew 8.3% year-on-year, supported by continued optimization of our industrial cost structure and margin sustainability. This operation year-on-year. In total, we delivered what we committed, BRL 4 billion in dividends and IoC plus BRL 750 million in buybacks reaching 139% payout ratio. This demonstrated not only our strong financial performance, but also delivered another quarter of double-digit expansion in operation cash flow, grew 15.7% year-on-year in 2025 and lifting the margin to 22.7%. Throughout the entire year, we maintained a solid cash conversion, supported by margin expansion and well management CapEx. Finally, our balance sheet remains a source of stability and resilience. Our leverage remains highly comfortable giving us the flexibility to continue investing with discipline while sustaining attractive shareholder returns. These results give us confidence as we enter 2026. We've seen well positioned to continue creating value for all stakeholders. Back to you, Alberto. Alberto Griselli: Thank you, Andrea. So as we step back and look at 2025, the conclusion is clear. It was a year of execution, consistency and evolution. We delivered exactly what we promised and build the foundation for advancing our strategy in 2026. Our direction is that we will drive value creation through mobile, B2B and broadband, supported by 3 key enablers that run across the entire company. Artificial intelligence, efficiency and ESG. In mobile, our focus remains on strengthening profitability through a customer-first approach, continuously improving the experience and reinforcing the values of our offerings. In B2B, we are ready to capture a new wave of opportunities with a wider and more scalable portfolio that integrates connectivity, infrastructure and digital services. The acquisition of V8 was an important step to enhance our capabilities. And in broadband, we entered 2026 with a more efficient operation, a more reliable service and portfolio aligned with sustainable expansion. Supporting all this, artificial intelligence becomes a transformational layer in our operating model helping us automate, simplify and accelerate decisions across every area. Our efficiency agenda remains a hallmark of execution ensuring discipline in capital allocation and allow us to explore new growth avenues while protecting margins. And ESG continues to be a structural component of who we are shaping our culture and guiding long-term value creation. Confirming this long-term deal in 2025 after many years, we finally reached an important milestone for our shareholders and the financial community. Our return on capital is higher than the consensus cost of capital. Now let's move to the live Q&A session, Vicente. Vicente Ferreira: Thank you, Alberto. See you a bit, guys. Operator: Before proceeding to the Q&A session, I will pass the floor to Alberto Griselli. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Introductory note, -- good morning, everybody. Today, we took an important step in our broadband strategy by acquiring full control of I-Systems. This will allow us to improve the efficiency of our broadband operation to deliver a better end-to-end customer experience and position ourselves for future movements. Now we can actually proceed to the live Q&A session. Operator: [Operator Instructions] Our first question comes from Bernardo Guttmann from XP. Bernardo Guttmann: Congrats on the solid results. again. Actually, I have 2 questions here. The first one on margins and efficiency. You delivered strong margin expansion this quarter with EBITDA growing much faster than revenues. How much of this efficiency is structural and how much was more temporary or specific to this quarter. And if I may, the second one on I-Systems. With the consolidation of the company, how should we read this strategic move? Does this suggest a stronger long-term commitment to the asset and a lower probability of a potential sale of the fiber business. And looking ahead, what would be natural next step? Does it make sense to revisit M&A opportunities, maybe looking at regional fiber players? Or is the focus now fully on organic growth? Alberto Griselli: Bernardo, let me go with the second one, and then I will pass to Andrea for the margin expansion. So the -- when you look at our broadband operation, I think that this quarter has been marked by a positive news on the industrial performance because after the fine-tuning, we managed to get to a revenue growth. So we are back on track on something that has been underperforming in the previous quarters for last year. So in the last quarter, we managed to return to a growth pattern and consolidate and optimize our model. At the same time, we need to recognize that the neutral model that we wanted to implement face a number of challenges. And so the benefits of scale that were supposed to happen as a matter of fact, that didn't happen. So the acquisition of control of a system provides us a number of benefits. The first one is that we get control of the end-to-end operation of our customers that support one key indicator that is churn management and customer level of service. The second one is that we will be able to increase our efficiency of operations. So this measure is going to be accretive on the margin expansion and a bit dilutive on CapEx, but overall, it's going to be to be neutral on free cash flow generation. And the third and most strategic one is that we position ourselves for our next step. So the question is what is our next step is and we addressed this in previous calls, whereby we said that we are looking at a number of different options. And as a matter of fact, the sale of our -- the sale of our broadband operation has never been actually on the table, right? So we say that we have extreme opportunities. We are assessing them but all of these opportunities have the intention to increase the value generation of our business. Sale was not there as an option since you mentioned, we just want to clarify this. Andrea Palma Marques: Bernardo. Refer to the margin efficiency. This is the consequence of the cost optimization that we are working for the past years. This year, we mentioned several times. We have an efficiency program that's in place and the result is the structure, the major parts. This quarter, we have some effects that first one is the visitor, the interconnection cost for visitors. This is effect in this quarter. If you look in the first quarter, we have increase in the visitor interconnection. And in this quarter, we have a decrease. Remembering that the cost of interconnection refers to the full year. So we have this balance between quarters. Another effect in this quarter was in the reduction of our taxation in the overtime pay. But again, these 2 effects affect this quarter, specifically the fourth quarter, but the results is the efficiency that we have in the structural way and as a consequence, we are delivering what our commitment to expand the margin. Operator: Our next question comes from Gustavo Farias from UBS. Gustavo Farias: First of all, congrats on the results. So my first question regarding margins. We saw a decrease in the network and interconnection expense, which was really a highlight to us. If you could comment on the main drivers behind that. You mentioned in the release a cost optimization of digital content providers? And how to think about this line going forward? My second question is on mobile competition. We've been seeing some less positive figures on mobile portability in Q4 based on data from the regulator compared to past periods for TIM. How do you see this competition, especially given this mobile portability numbers we have been seeing lately? And if this -- you think this comes from any new cell impacts? Alberto Griselli: Okay, Gustavo. So let me take, again, the second, and then I will pass the word to Andrea for the first one. So when it comes to the dynamics of portability, the -- when you look at our report, you see that our churn level is almost stable over the quarters. And therefore, the increase of portability means as a matter of fact, that the share of portability within our churn is increasing. And this depends on a number of things. One of them being the commercial practices of our competitors. But our churn level is fairly stable during the quarters of last year. When we are looking for order, you will see that in the first quarter, we are executing our price adjustments, and this tends to pressure a bit the churn level as normal. So we are executing it as a matter of -- we started with messaging and informing our customers in December. And as a consequence, churn is going to be a bit higher in the first quarter, resulting in softer net additions. When you go to the new cell impact in market dynamics. I would say that if you look from a general perspective, I believe that the market is pretty rational and keep on being rational. And that our ability to attract customers remain as it was as a matter of fact. Unfortunately, Anatel stopped sharing the number of new cell subscribers. And therefore, we cannot rely on an independent source to measure the growth of the numbers. So what we see, it's our internal view and our internal view is based on a number of KPIs that we use and the impact is not material at this stage. Andrea Palma Marques: Gustavo. Related to the network and interconnection. We have some items that are increasing and others that are decreasing. Once that is decreasing is the visitors that I just mentioned. What is increasing -- for example, the content provides that is related to the offers that we launched last year where we put a stream for our customers. So we have an increase in this item and we also have an increase in the network related to the expansion of the 5G. Operator: Our next question comes from Marcelo Santos from JPMorgan. Marcelo Santos: I just wanted to zoom in a bit more on the personnel expense, the tax the overtime hours. Was there any retroactive recognition of this gain? I just wanted to understand better this understanding, like, is this something that's going to change going forward? And did the fourth quarter include changes that were, let's say, retroactive to previous periods. Just to understand the sustainability of these gains over time or how enough is they are. I think that's the first question we have. The second question is there was an improvement in broadband ARPU. Does this sign away more rational market in your view? Or is it more like TIM-specific effect? Alberto Griselli: So I'll start, Marcelo with the second one. The ARPU dynamics. I think this is as a matter of fact, in our numbers a bit more our doing in terms of ARPU expansion. So we optimize throughout 2025, a number of things in order to serve better our customers and increase the efficiency of our operations. As we discussed in previous quarters, one of the things that we did was to evolve our commercial distribution in a way that is today more pull and less push. And the results of this is beneficial in a number of ways because at the end of the day, but at the end of the day, the quality of the customer that we are getting in is better. So it is one driver. Then there is a second benefit that the pull channels tend to be less expensive than the push channels. So this is one driver. The other driver is more related to the, what we call below the marketing activities, whereby we manage our customer base and move it as mobile from one plant to another plan or when they call to renegotiate. So it's a number of commercial activities related to customer management and we have been tweaking things in the right direction. And this result, it's a positive effect on the ARPU. So it's more how we're doing than the overall market dynamics that remains competitive. Andrea Palma Marques: Marcelo, the impact of the overtime pay is affect the past and the future. But in the fourth quarter, the impact is higher because concentrate the past -- of the past few years. So in the future, we will continue with this impact, but will be a small amount considered the fourth quarter. But bear in mind, these gains are not that sizable in our overall OpEx. Operator: [Operator Instructions] Our next question comes from Rog�rio Ara�jo from Bank of America. Rogério Araújo: I have a couple here. First, on tower leases, if you could mention how the negotiations are evolving with lessors? And are you renegotiating terms ahead of maturities or mailing upon renewals? Also, incentives stepped up in the 4Q. What has driven that? And how should we think about incentive trajectory in the upcoming quarters? And last on tower leases, what is our latest view on lease expenses as a percentage of revenue over the next 2, 3 years? And can ongoing renegotiations offset incremental 5G and tower needs? This is the first one. And the second on Brazil's tax reform. Do you have any early estimates to share with us about the impact of the effective sales tax from 2027 onwards. And also, if an increase is expected, how much of that do you believe is passed through to consumers versus absorbed by the company? Andrea Palma Marques: Rog�rio, let's talk about -- first about the tower lease. The tower lease is at the end, reflects is what the results reflect what we are doing in the past years. We are working very hard in several efficiency levels in the lease. We -- this year was a challenge because we have the impact in the increased towers and also impact inflation and saying that we delivered an expansion of margin in EBITDA after lease. So moving -- this continues -- this efficiency continues. We have a lot of agreements doing with the TowerCo. We announced one of them a few weeks ago. What we expect about the ratio between the lease and revenues is main things with a slight decreasing considering that we are continuously expanding our network related to 5G. Moving to the tax. Alberto Griselli: Andrea, just a few complement, Rog�rio, on the tower. So when you look at our lease costs, there are a number of things inside. So you have -- the big chunk is clearly is the network cost. But there are other elements. Complementing Andrea, we finalized the negotiation with American Tower in the last year. When we look forward, and so challenges and objectives for this year. We have another ongoing negotiation that is in our -- on the table that is quite important. And there is -- this is part of our plan. And there is -- as you know, the network sharing discussion that are proceeding where I see that there is opportunity in the future to do more. So this initiative is a part of the overall portfolio besides the buy initiatives that we put together. So when you look at our guidance and what we shared with the market is that besides the network deployment that is a pressure on our cost besides the inflation, there is a pressure on our cost, we're going to manage to keep these leases growing a maximum with inflation and so slower than revenues. So when it comes to the share of this cost versus revenues, this is the answer, looking forward. That's what we have been sharing and implementing over the last years, and we plan to do this in 2026 as well. For the tax, I will hand it back to Andrea again. Andrea Palma Marques: Regarding the tax reform, what we can say now is 2026 has no impact and 2027, that's the year that we already put in our guidance is neutral on free cash flow. Rogério Araújo: Okay. And can you share maybe after all the transition period by 2033, if there is any early estimates on the impact? Andrea Palma Marques: Rog�rio, we didn't announce yet our guidance. So we are talking only about the numbers -- the years that we already announced and that's '25 to '27. Operator: Our next question comes from Daniel Federle from Bradesco BBI. Daniel Federle: Congrats for the strong results. The first one is just if you could provide more color on the price increases in the first Q. If it's front book, back book and the magnitude, if possible. The second question regarding CapEx. CapEx end up a little bit closer to the top of the range. So any update in terms of CapEx demands, requirement pressure from FX, I think it's helpful. Alberto Griselli: Okay. Daniel, let me go to the price increase first, and then we'll hand it over to Andrea for the CapEx one. So when you look at the more for more strategy, just recapping generally what we do, we upgrade our back book prices and front book prices. The back book prices for postpaid is happening as we speak. So it's the -- it's the one that I mentioned in the previous answer. So it's underway as it was last year, so we're executing it. And the magnitude is fairly similar to the one that we had last year. The -- of course, it's not 100% of the customer base we discussed we -- it happens in a couple of phases throughout the year. But the mechanics in the first is fairly similar to the amount that we executed last year. We are also discussing the -- internally, the front book prices adjustment in control, we executed this June last year. So we are planning to follow a similar pattern this year. And we are pretty confident that we can do something on postpaid as well this year. For the CapEx, Andrea. Andrea Palma Marques: Daniel, we are on track in CapEx. We maintain the CapEx that we announced in the guidance. The point here is when we see an opportunity to anticipate CapEx, we have -- if we generate some efficiency and we have an opportunity to anticipate CapEx, we are going to. But again, 2025 was exactly what we expect in the investments. I don't know if I answer your question. And we also -- we are always controlling CapEx. We focus on the free cash flow. I don't know if I answer your... Operator: [Operator Instructions] Since there are no further questions, I will now turn the floor back to Mr. Alberto Griselli for any final remarks. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Thank you all for joining today's video call. I would like to share a big thank to the effort to our entire team for the great results that we achieved together 2025... Operator: This does conclude the fourth quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website at tim.com.br/ir. You can disconnect from now on. Thank you once again and have a wonderful day.
Operator: Good morning or good afternoon all, and welcome to the PZ Cussons Half Year Results Call. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to CEO, Jonathan Myers, to begin. So Jonathan, please go ahead when you're ready. Jonathan Myers: Thanks, Adam, and good morning, everyone, and thank you for dialing in to our first half results presentation of PZ Cussons financial year 2026. I'll start off with an overview of our performance and provide color on some of the drivers behind it and how we are moving to be a more focused and more resilient business. I'll then hand over to Sarah to take us through a review of the financials before we finish with some time for your questions. As many of you will be aware and hopefully are joining, we are hosting a capital markets event this afternoon in London, which is intended to address many of the questions that may be on your mind about the future of PZ Cussons. So this morning, we'd like to focus on questions relating to today's results and this financial year, leaving the topics of strategy and future plans to this afternoon. So let's get going with the results we announced this morning then. Overall, we delivered a strong financial performance in the first half of the year with broad-based growth and a healthy balance of price/mix and volume. I'll come on to more on this in just a moment. In December, we announced the conclusion of the strategic review of our Africa operation following our announcements earlier in the year regarding the renewed strategy for St.Tropez as part of our portfolio for the future. I'll provide an update on St.Tropez in the coming minutes. But the consequent sale of our share in the PZ Wilmar joint venture to Wilmar, along with the ongoing disposal of other noncore assets in Africa and Asia, has resulted in a significantly strengthened balance sheet and in PZ becoming a more focused and more resilient business. While all of this was in play, we have also worked hard to reduce our cost base and expect to deliver GBP 5 million to GBP 10 million of savings in FY '26, in line with previous guidance. Combined with the overall business performance to date and our outlook for the remainder of FY '26, we are increasing our operating profit guidance for the full year. Let me say a little bit more now about our overall business performance. We have delivered broad-based growth across our 3 reporting regions, each of our 4 lead markets of the U.K., Australia, Indonesia and Nigeria, and each of our top 10 brands in those markets. Obviously, we're pleased with this momentum, but we know we still have much more to do, especially translating our increasingly exciting multiyear growth plans into sustained in-market performance year in, year out. Coming back to our first half performance though, it's worth calling out that our revenue growth of 9.5% is balanced between price and volume, including in Nigeria where volume has returned to growth after several rounds of pricing that has initially knocked volume into decline. You'll hear a lot more about our African business later today. So let me give you a couple of examples outside Africa of what has been driving the momentum elsewhere. In the U.K., Sanctuary Spa grew double digits through the half, driven by a record Christmas gifting period, during which revenue was up more than 30%. We've been learning and optimizing our plans each year. This year, we shipped 98% of our Christmas packs before December and have more than doubled Christmas gifting as a revenue building block in our annual plan versus just 2 years ago. For example, it was one of the leading gifting brands in the Golden Gifting Quarter in Sainsbury's this year, beating Lynx, Nivea and Dove, and nearly doubling sales versus last year. We've gone beyond with just Sanctuary Spa this year and successfully expanded gifting to Original Source, Imperial Leather and Cussons Creations as well, playing at more price points, pushing higher and lower, and driving more displays in store. As you can imagine, we're already well on with finalizing plans with retailers for Christmas 2026. And all I'll say is look out for the GBP 100 Sanctuary Spa gift pack. Moving to Australia now, whether it's the new and improved auto dish format for Morning Fresh or a new flavor for Rafferty's Garden, innovation has played an important part in driving revenue growth on our top 3 brands, with each brand growing market share over the last 12 months. And the good news is we're growing share in categories that are also finally back in value growth in the latest quarter after a prolonged period of the Aussie shopper feeling the pinch. Beyond our top 3 brands, we have also used pack format and variant innovation on Original Source to launch a 1-liter pump pack onto shelves. In Australia, the U.K.'s market-leading 250 ml size that is common in our bathrooms is regarded as a travel size or something thrown into the gym bag. Instead, the market is in larger packs often with pumps. So rather than shipping sizes shoppers don't always want halfway around the world from our U.K. factory, we're now manufacturing a consumer-preferred pack size in a format with a pump from our Indonesian factory alongside Morning Fresh for the Australian market. Add all of this progress together, the ANZ business delivered its third consecutive quarter of revenue growth. Let me come back to action to strengthen our balance sheet and focus our business. We've made good progress over the past 5 years in reshaping the portfolio with the exit from noncore businesses along with the sale of surplus nonoperating assets. Most notably in this reporting period, we announced the sale of our 50% stake in PZ Wilmar, our noncore Nigerian joint venture. To date, we've received GBP 48.5 million of cash proceeds with a small additional amount from ancillary land assets expected shortly. This has delivered a material improvement in our credit metrics. Sarah will talk you through. In June, we confirmed our decision to retain St.Tropez and set a new strategic direction for the business. You didn't see St.Tropez amongst the top 10 brands on the chart just now. And that's because the seasonality of the sunless tanning category dragged the absolute revenue down and St.Tropez falls just outside our top 10 when looking at our first half in isolation. It didn't grow overall revenue in the half, very much highlighting the work in progress to turn the brand around. But we did grow plus 12% in the U.S. as the transition to The Emerson Group went smoothly, and we started to see some renewed traction with our retail partners. We clearly have more to do elsewhere where revenue is down over 30%. This was in part due to high levels of inventory coming into the year. We're already reducing that inventory as we move through this year, and then the need was to win back retail support for the brand. Still too early to call the season yet, but we're seeing strong support plans agreed for the new innovation this summer and the special packs and activation plans to support the 30th anniversary of the brand. For example, the latest shelf reset of merchandising material in boots has seen a return to retail sales growth since the change was made just a few weeks ago. Suffice to say, there will be much more to come on St.Tropez as we move through the season. And with that, I'll hand over to Sarah to take us through the financials. Sarah Pollard: Thanks, Jonathan, and good morning, everyone. I'm going to take you through the PZ financial performance for the first half of FY '26, starting with a summary of the key group metrics, then moving on to the detail in each geographic region before covering cash flow and net debt and finally, our guidance for the full year. Unless otherwise stated, the numbers I will refer to are on an adjusted basis. So turning first to the headlines. Group revenue increased to GBP 269 million, up from GBP 249 million in the prior year period. On a like-for-like basis, revenue grew 9.5%, reflecting broad-based growth across each of our 3 reporting segments, each of our 4 lead markets and each of our top 10 brands. Adjusted operating profit increased to GBP 36 million, up from GBP 27 million last year, a 240 basis point improvement in margin. There is no profit contribution from the disposed PZ Wilmar edible oils joint venture in this half numbers. So if we also exclude it from the comparative period, operating profit increased from GBP 22 million to GBP 36 million. Of this GBP 14 million improvement, around GBP 6 million is the result of FX revaluation gains on U.S. dollar-denominated balance sheet liabilities in Nigeria, resulting from the appreciation of the naira in this first half as compared to the currency's sharp decline in the first 6 months of FY '25. On a statutory basis, operating profit was GBP 40 million as well as gains recognized on surplus nonoperating asset sales and a book loss in half one on the Wilmar proceeds received in that period. This figure also includes FX gains on the group's historical equity-like capital loans to its Nigerian subsidiaries, previously accounted for in the balance sheet. Consistent with the change in accounting treatment for FY '25, during the strategic review of our African businesses when the naira was depreciating in value, they are now shown on the face of the income statement, but to date adjusted out by virtue of them being deemed to be short term in nature. Adjusted profit before tax increased to GBP 30 million, up from GBP 20 million last year due to a reduction in the interest charge as well as the improvement in operating profit. Adjusted earnings per share was 4.37p compared to [Audio Gap] percent lower than the growth in profit before tax due to a higher group tax charge and minority interest leakage in Nigeria. The higher tax is due to 2 factors and is now more representative of the rates going forward. Firstly, the geographic mix of profits with more coming from Nigeria where the tax rate has normalized now that we have moved past the statutory losses experienced since the 2023 currency devaluation when only a nominal amount of tax was payable. It's also explained by the disposal of PZ Wilmar, which has always been equity accounted, meaning we reported our 50% share of the joint venture's post-tax profit into operating profit rather than the associated tax charge being recorded separately in the group's tax line. A dividend per share of 1.5p is unchanged from last year. Free cash flow was GBP 23 million, which when combined with cash proceeds from disposals during the period, resulted in a significant reduction in net debt down to GBP 84 million. The group revenue bridge shows an adverse foreign exchange impact of GBP 4 million relating to the depreciation of the Australian dollar and the Indonesian rupiah. The Nigerian naira appreciated in the period. As usual, these FX movements and the corresponding impact on revenue are shown in the appendix to this presentation. We delivered like-for-like revenue growth in each of the 3 reporting segments, which I will come on to in a moment. On a continuing operations basis, excluding PZ Wilmar from the base period, adjusted operating profit margin increased 430 basis points. Gross margin declined due to geographic mix as Nigeria with a structurally lower margin grew revenue faster than other parts of the group. The majority of the overall operating margin improvement was from a reduction in overhead. This was a combination of the FX revaluation gains on balance sheet liabilities in Africa plus group-wide cost savings. And in addition, marketing investment was, as we had planned, lower as a percentage of revenue, but this will reverse in the second half of the year. So turning now to the regions. Revenue in Europe and Americas increased to GBP 102.5 million with like-for-like growth of 1.7%. We saw growth across most of our brands, including 30% growth in Sanctuary Spa from a successful Christmas gifting range. This was despite challenging trading generally as the U.K. market remains highly competitive, something showing no immediate signs of impact. St.Tropez revenue declined 11% overall. And excluding this brand, overall growth in the region would have been 3%. Adjusted operating profit increased by GBP 2 million, reflecting the integration of the Childs Farm business as well as marketing investments weighted to half 2. In APAC, revenue was GBP 88 million, a growth of 5.2% on a like-for-like basis, but flat in reported currency with the Australian dollar and Indonesian rupiah depreciating against sterling. As Jonathan mentioned, we're encouraged by the Australian share gains in categories which are back in growth and with the 9% like-for-like revenue growth in Indonesia. Adjusted operating profit, however, declined GBP 1 million, including some legacy VAT charges in our smaller Asian businesses. African revenues increased to GBP 79 million. Like-for-like growth was 28% from both the annualization of pricing taken in FY '25 and the return to volume growth. We saw growth of 30% in reported currency as the naira has moved from a period of stability to now appreciating in value. This afternoon, Awie will take you through the team's plans to grow the business over and above the passing on of inflation, which in Nigeria continues to moderate to now around 15%. Removing the PZ Wilmar JV contribution from the FY '25 base, operating profit grew by GBP 7.6 million. Of this, as I mentioned, GBP 6 million was due to FX revaluation gains on balance sheet liabilities denominated in U.S. dollars as a result of the naira strength versus its depreciation in the prior year period. And whilst the first half margin of 14% does also include the carryover benefits of prior year pricing whereas half 2 will not, assuming the naira rates remains unchanged from current levels and assuming no change in underlying business performance, low to mid-teen margins should be sustainable going forward. Our current treatment of these FX revaluation impact is consistent with prior periods when the naira was depreciating. You'll recall we took a significant exceptional charge in FY '24 due to Forex losses related to legacy liabilities built up over many, many years prior to the devaluation when it was not possible for U.K. corporates to legitimately access the U.S. dollars required to settle such liabilities and repatriate the cash. The headline gains I'm describing today relate to liabilities incurred as part of recent trading, exactly as we got the FX losses from in-year operational liabilities in the prior FY '24 and FY '25 financial years where we executed multiple rounds of price increases to protect local profitability. Finally, turning to what we call the central reporting segment, essentially an internal cost center. The first half of FY '26 has seen a GBP 4.6 million reduction in the adjusted loss we report here, partly due to favorable intercompany FX movements from the naira and partly due to people cost savings and process efficiencies, reducing the external audit fees. We plan to review our presentation of these central costs in future reporting periods to better isolate the true corporate overhead from costs directly attributable to other parts of the business. The higher statutory loss represents the disposal of the PZ Wilmar JV, reflecting the receipt of only some of the total cash proceeds in the first half of the year. Turning now to the balance sheet. Leverage has reduced further from both free cash flow generation and disposal proceeds. Free cash flow was GBP 23 million after the seasonal working capital cash outflow from our half 1 reporting date falling immediately before peak trading periods in both Nigeria and the U.K. Christmas gifting. Both the high inventory and debtor positions typically unwind during our third quarter. CapEx was low at GBP 1 million due to the phasing of a number of projects, but we anticipate full year investments to be more in line with normal levels. The half 1 cash flow includes GBP 3.6 million of cash adjusting items, primarily relating to costs associated with the concluded strategic review. Beyond these drivers was a GBP 2.6 million cash add-back representing share-based executive compensation schemes and noncash pension charges. We received a total of GBP 27.6 million of cash proceeds from asset sales in the period. This comprised GBP 15.8 million gross proceeds from the sale of surplus nonoperating assets in Africa and Asia, and GBP 11.8 million from the initial completion steps of the PZ Wilmar disposal. This resulted in reported net debt down GBP 84 million with net leverage of 1.1x. As one of our new guardrails to better protect the business from future adverse currency impacts, the capital allocation policy we are announcing today now defines our leverage metric as net debt, excluding any cash balances held in Nigeria. And on this more conservative basis, would have been 1.4x at the end of the first half. The timing of the receipt of the Wilmar cash proceeds has been split across a number of individual components with consideration received for our equity holding, the repayment of loans and also some additional assets in the transaction perimeter. Since the end of November 2025, we have since received a further GBP 37 million from Wilmar, giving a pro forma half 1 net debt position of GBP 48 million and leverage below 1x. As we noted in this morning's release, trading to the end of January has continued in line with our expectations. And this slide provides updated guidance on some key items, including an overall increase in full year operating profit up to a range of between GBP 53 million and GBP 57 million compared to GBP 50 million to GBP 55 million previously. This guidance does imply a year-on-year decline in profit in half 2, a phasing profile that we signaled in our AGM trading update in November, largely attributable to the timing of marketing investments with a significant step-up in spend in the second half. We've also provided firm full year guidance on leverage given the progress to date, and we expect to end the year at the lower end of our new capital allocation policy range. Today will be the last time I present the PZ Cussons results. And so I would like to thank colleagues for their unwavering support, our advisers for their wise counsel and during some challenging times, and to wish external stakeholders all the very best for the future. I'm pleased and proud to be leaving the business in better financial shape and with a more encouraging outlook. And with that, I'll hand back to Jonathan. Jonathan Myers: Thanks, Sarah. So we can turn the microphone over to you now. And as I mentioned at the beginning, ideally, let's keep the questions focused to this set of results, and we'll happily answer questions on the broader strategy and future plans at our event this afternoon. So Adam, I think it's over to you. Operator: [Operator Instructions] And our first question comes from Matthew Webb from Investec. Matthew Webb: I've got a few questions. Maybe I'll do them one by one. The first is on Indonesia where I see there's been both some social unrest and economic instability. And I think Moody's has downgraded the outlook for the country recently. I just wondered whether you're seeing any impact of that on trading and also whether that's changing how you think about how you run that business, how you invest in that country? That's my first question. Sarah Pollard: Matthew, it's a good question. Maybe if I talk to some of the financial aspects, and then I'll hand over to Jonathan on some of the commercial trading points. So Matthew, you're referring, of course, to the Moody's downgrade in terms of the nation's overall outlook. Indonesia, of course, is an emerging market, markets which bring some inherent volatility. I think what I would do though in terms of financial perspective is to maybe talk a little bit about Indonesia and our business there, which is, first and foremost, to say, for us, it's a structurally advantaged business. We are in the baby toiletries business where there are still 4 million to 5 million newborn babies born every year. It's a high-margin business for us, and Jonathan will elaborate on some of the characteristics of our business there. But the reason I say that is it's highly cash generative for us. We don't have local borrowings. Whilst the currency is coming under some pressure, the ForEx markets work relatively rational so we can both better hedge against any local exposures, but also repatriate cash in an efficient way. So I think as distinct from some of the challenges we've had in Nigeria, we would describe it as a lower risk profile for PZ Cussons. We are ever vigilant to make sure we can generate the hard currency returns that our shareholders demand. Jonathan, do you want to talk a little bit more about that one. Jonathan Myers: Let me take that a couple of things. So the first is just in terms of social unrest, Matthew, we have not seen disruption as a result of that. We have seen a little bit of disruption in Indonesia in the recent months, but actually much more of it related to flooding, particularly in the north of the country where some of our distributors, some of our retail partners, in fact, 1 or 2 of our employees were impacted. But we haven't seen anything impacting our business as a result of social unrest. Now if I come a little bit to where you were poking in the latter part of the question about how do we think about our risk appetite in the business, well actually, one of the first things that we are working on is how do we reduce our reliance on one brand. We're very exposed to Cussons Baby. We're very pleased with the progress of Cussons Baby. But we're working hard in the background on which will be the #2 or #3 brand, and in the coming months, we will update you on that. But actually, the risk mitigation and appetite assessment goes a bit beyond that because as we'll talk this afternoon, we have a significant manufacturing facility in Tangerang, which is the suburb of Jakarta, not only manufactures all our products for Indonesia and Southeast Asia, but it also produces all of our Morning Fresh for Australia. So in a sense, the good news that we'll talk about this afternoon is that we refer to a blended supply chain where we intentionally invest for scale in our own facilities, but we also have a good network of third-party manufacturers who give us not only agility, but in this case, also give us alternatives for business continuity such that if we were to encounter challenges, we would have alternative routes. And really, I know you hear a bit more about this afternoon about how we're thinking about our risk appetite in Nigeria and how we're putting in place together with the team in Lagos some guardrails to help us manage and mitigate that risk. We're going to be adopting that kind of framework to our business in Indonesia as well, which is we regard as a very positive and healthy way to address and manage our risk appetite as it translates into future projects and future investments. So it's on our radar screens. We are not overly concerned, but we are far from complacent. So happily, we'll talk more maybe late this afternoon about that as well. Matthew Webb: Excellent. Thank you. And my second question is sort of slightly technical one. The GBP 6 million FX benefit in Nigeria, am I right in thinking that that's sort of a swing rather than a GBP 6 million benefit all in this year as it were? And if so, whether it's possible to sort of break out to what extent that's a credit this year versus a debit last year, if I've understood that correctly. Sarah Pollard: Matthew, let me try on obviously one of my favorite topics. So is the GBP 6 million, if you like, what does it relate to? And what can we expect going forward? So it's real to the extent any income statement is a change between 2 balance sheet dates, and the accounting is entirely consistent with that, which we followed previously. It does, as you say, reflect a base year impact in terms of the steep naira depreciation of the first half of last year versus the relative stability of this half year. So that GBP 6 million year-on-year swing is a GBP 2 million credit this year versus a GBP 4 million debit last year. I think what I would have you think about is 2 things. One is it's a proxy for the overall economic environment, i.e., the naira stabilizing signifies an environment in which our brands can generate meaningful and sustainable value for us. But what you probably shouldn't do is expect another GBP 2 million or GBP 6 million necessarily in the second half of the year because, of course, those liabilities on the balance sheet are something that we have already and are looking to continue to extinguish because it's volatility either on the up or the down, but it's not helping. So we are going through a very determined program to recapitalize our local Nigerian subsidiaries and extinguish those liabilities. Matthew, if that helps. Operator: Our next question comes from Damian McNeela from Deutsche Bank. Damian McNeela: Just on the guidance, sort of following up from Matthew's question. What is -- or what is included in terms of FX gains, if any, in the second half to get to your increased guidance, is the first question. Sarah Pollard: Good question. Let me try and characterize the guidance more broadly and then laser in on the specific question. So we sit here with a little over 3 months of the financial year left to go. So I would say we have a good line of sight into the year-end. But of course, still some things left to navigate, most notably some volatility in the naira, but also, as Jonathan talked to in terms of St.Tropez, we have our first big U.S. season since deciding to keep the brand, which, of course, has a range of outcomes. We're expecting positive outcomes, but there is a range of outcomes on what is a relatively very profitable brand for us. The overall guidance includes FX as we see it today, is how I'd answer the question in the broadest terms, that it doesn't include another GBP 2 million credit relating to those first half balance sheet liabilities, mainly because I can't be certain the rates will hold, but actually because we are going through the process of extinguishing those balance sheet liabilities, which have in the past been a hurt, have in the first half been a help, neither of which is particularly helpful. So we are going with our local Nigerian Board colleagues through a series of steps to extinguish those liabilities, be they write-offs, be they debt to equity, be they rights issues, various capitalization steps to effectively reduce the sensitivity in our P&L to movement in the naira, which if you remember maybe 18 months ago was something like every 100 moves between the naira and the U.S. dollar was giving us something like GBP 8 million of P&L sensitivity. That number today is closer to only GBP 4 million. So in any 1-year period, probably about GBP 2 million of a translation impact and GBP 2 million from that balance sheet effect. The latter, we are trying to extinguish for us all. So it doesn't assume another GBP 2 million help in the second half of the year. Damian McNeela: Okay. That's pretty clear, I think. And just carrying on with the Africa theme, I don't know whether you will touch on it later this afternoon, but is there an updated position on how you view the minorities of PZ's Nigeria? Jonathan Myers: We'll talk a lot about Africa this afternoon, Damian. We are not spending a lot of time on the -- if you like, the ownership structure of our operations in Nigeria. We're talking a little bit more about the resilience and underlying performance of the business. We have what we have, which is a listed entity of which we are very clearly the majority shareholder. We have an awful lot of retail minority shareholders, and at the moment, we are making that work for us. Sarah Pollard: And Damian, you might be referring to 2, 2.5 years ago where we contemplated buying out our minorities and delisting. We may contemplate something similar again and consider it as we would any allocation of surplus capital to any acquisition of an earnings stream. We consider, as we do, that Nigeria brings with it a bright future. We may choose to put some capital down to acquire 100% of those future earnings because as you rightly, I think, are pointing out, our operating profit down to earnings per share experiences some leakage as a result. Damian McNeela: Yes. Yes. Okay. That's very clear. And then if I may, one last one. U.K. performance in core washing and bathing looks to be pretty solid. Can you give an update or sort of some background color on the competitive environment and what your market share gains have been across the period, please? Jonathan Myers: Yes. So let me do that, Damian. I think the word you use there is the perfect articulation. We have a solid performance. We're really pleased with the financial delivery of our U.K. business, at least as we have benefited from some real structural P&L improvements as we -- you remember, we combined it with our previous beauty business. We have integrated it with our European setup. And we have also integrated into it more fully our Childs Farm business, which for the first 2 or 3 years of our ownership, we kind of kept at arm's length. So we now have a very strong financial structure, which will give us the ability to invest sufficient marketing money to ensure that we are nourishing and nurturing our brand for the future, which is a good thing because we're going to need it, right, because the market is not getting any less competitive. In general, without overdoing the hackneyed phrase, we continue to see the bifurcation of the U.K. shopper. We have an awful lot of people hunting for value and looking for cheap lookalikes or private label or going down to the discounters. Equally, we have people who are willing to splurge on small luxuries. You only have to look at some of our Christmas gift sets from the price points that were considered just on our business but alone more broadly. And you continue to see that very, you like, dynamic but value-focused shopper environment. Within washing and bathing, we see 2 things. We continue to see scale players, most notably Unilever, really fighting to try and make their brands justify the price they're asking. So they do have a higher value share than us and they charge a higher price per mill. So that's something we need to make sure if we want to, our brands can do. And I'm sure you would have seen the Unilever-Dove sponsorship of Bridgerton recently as an example of we can never rest on our laurels the big multinationals. But actually, as recently as our Board meeting just yesterday, we were reviewing exactly the competitive nature of the U.K. modern bathing market. And the real change in the last 12 to 24 months has been the growth and acceleration of the explosion of Gen Z or Gen Alpha start-up brands, which are getting on to the shelf maybe 3, 6, 12 months disrupting and either surviving or dying quickly or being replaced. So it is really competitive. We have grown share in some subcategories of washing and bathing. We have not yet really nailed shower, which is why this afternoon you will hear a little bit more about what we're doing on the shower category, in particular to try and make sure that both Imperial Leather and Original Source are firing on all cylinders. So we are not complacent. Operator: The next question comes from Sahill Shan from Singer Capital Markets. Sahill Shan: Good set of numbers, good share price reaction. Three questions from me. Can I just start with the dividend? So optically improved balance sheet, EBIT guidance raised. Just help me understand the rationale for holding the dividend flat. And does that sort of reflect some prudence ahead of investment in H2? Or does it signal a more cautious stance on cash generation? Sarah Pollard: Sahill, let me take that question. Thank you for your interest in PZ Cussons. So you may also have seen this morning, we put out a short RNS ahead of our Capital Markets Day this afternoon where we set out a new capital allocation policy, essentially inking in what we consider to be a prudent leverage range. We're then going on to say use of surplus capital will first and foremost be focused on a progressive ordinary dividend policy, then with any bolt-on M&A opportunities and more one-off returns to shareholders being considered alongside each other. So in the first half of this year, we have reported 12% increase in earnings -- as we look ahead to the full year, a little bit as I touched on in terms of the structural dynamics of our Nigerian growth that acts as a slight tether to our overall earnings per share outlook for the full year. And therefore, we felt it was prudent to not increase the dividend on the first half of the year. But through the cycle, you will hear us talking about this afternoon a very clear and confident commitment to a progressive dividend policy by which we define it as an absolute increase over time. So I think more to come, Sahill, is how I would answer your question. Sahill Shan: Good answer. Clear. Second question, Africa earnings. So I think I heard this correctly, but strip out the GBP 6 million FX, how should I be thinking about the underlying run rate margin in Nigeria? Are we looking at around mid-teens sustainable on a normalized basis, absent currency headwinds going forward over the short to medium term? Sarah Pollard: Sahill, another good question. Let me see if I can give another good answer. So I think you should be thinking about the 14% as being coming together of a number of positive factors, some beyond our control, many, many within our control. So we are very, very proud of having over the last 5 years, moved that business from a position of local currency loss to local currency profitability. So we are benefiting from the carryover of pricing that was necessary and successful through the significant inflation that we saw during the devaluation whilst also continuing to invest behind their brands so they remain relevant to consumers and therefore, a very pleasing return to volume growth in the first half of this year. So I think the 14.7% is a little on the upside of what I would suggest is a sustainable range going forward. Low to mid-teens through the cycle is probably a better proxy. Sahill Shan: Got it. Clear. Final one for me. So a central piece. So in the U.S., you saw, I think I read 12% growth under The Emerson partnership. Rest of the world remains weak. Looking forward then, what does success look like over the next 12, 18 months? Is it revenue stabilization, margin improvement or both? Jonathan Myers: Great question. So you're absolutely right. So as part of the U.S. transition where we changed our operating model, partly the simplification of our business, which was part of what we set out at a very macro level of the company to do, so we closed up our own shop and we moved to a really credible go-to-market operator called The Emerson Group. And thanks to a lot of hard internal work, we managed a smooth transition from setup A to setup B. But more importantly, Emerson has fantastic access to retailers in the U.S. from ULTA and Sephora towards the top end of beauty right through to Target, Walmart, CVS and Walgreens. So we have not only seen a -- we haven't dropped the ball in the transition, we have also begun to see good traction as we have reengaged with some of the retailers that I mentioned just now. So in effect, the double-digit declines that we saw in the previous year in the U.S., we have now reverted to double-digit gains. The issues more broadly in the short term, and I'll come to your question on what does the success look like. The short-term issues elsewhere has been more a question of burning through some quite high inventories, most notably actually with Amazon in the U.K. where we saw at their behest some very strong demand as we ended last year. And the good news is our revenue performance is worse than their EPOS or retail sales performance, which is a clear indication that we are burning through the inventory. In fact, we're seeing quarterly sequential improvements in our numbers outside the U.S. So when it comes to what is successful, the first thing is we want to see progress in the coming season. It's a really seasonal business, right? After 7 months of our financial year, we would normally only expect to have shipped 1/3 of our St.Tropez revenue. So it's a little bit like an ice cream company waiting for the good weather, right? So we are very confident that we've got good plans for this year. We have new product innovation. We have special packs to celebrate 30th anniversary of St.Tropez. And we're also seeing some good traction, as I mentioned, with some of the retailers where we are re-engaging with more positive intent, most notably goods in the U.K. where we've seen a return to their retail sales or EPOS growth. So we will have an indication of this year of have we seen good revenue and are we tracking through the year on a quarterly basis back to the revenue growth. More broadly though, we want to see next season, which will be the season when a lot of the work on this year's innovation behind the scenes will then hit the ground that we've been working very collaboratively with retailers so that we then see really what is the first full year of both Emerson in action, our innovation in action and our activation in action. And we will constantly be looking forward to absolutely revenue growth and over time, also profitability improvement as we step up our investments to ensure we get a good return on the marketing required in a brand at that time. So we have some very clear internal milestones that as a Board we are holding ourselves to, and we are working very hard to deliver them. Operator: Our final question today is a follow-up from Matthew Webb at Investec. Matthew Webb: I've just got 2 more, please. First, just going back to Nigeria. Obviously, price/mix was a big driver in the first half, although obviously volume is strong as well. But you've cautioned that price/mix is going to be less of a factor in the second half, but inflation is still quite high in Nigeria. I just wondered, first, whether there is still some annualization of previous price increases that will help you in H2? And also probably more importantly, what your -- what sort of price increases you're going to be taking going forward? Presumably, you will still be taking some price. That's my first question. And then the second is just on the guidance you've given on marketing being H2 weighted. Can I just be clear on that? Is that in more H2 weighted than normal? And if you could put any rough numbers on that, that would be helpful, just in terms of how we think about that very strong H1 performance and the full year guidance on operating profit. Jonathan Myers: Yes. So let me pick that, Matthew. I'm so interested you came back for more. I thought we were off the hook, but there's no relaxing here yet, right. Let me now demonstrate we're absolutely ready for it, right? So in terms of Nigeria, so just a little bit on last year. So we took a lot of pricing. We've talked before about 20-plus rounds of pricing through the year where we saw some volume impact in the initial phases for sure we're getting elasticity when you take that much pricing. But over time, the consumer gets used to it, they're seeing a lot of inflationary pricing in the stores, right? And therefore, we have now seen in the last 2 quarters, our volume come back. As we annualize that degree of pricing, obviously, the rollover begins to work through and wear out. Our very clear intent is always to be driving revenue in line with or slightly ahead of inflation. Now how much will depend on how much we want to push pricing versus volume. But if our ambition is to drive and our intent is to drive real growth, we need to be able to demonstrate that using all levers of revenue growth management that we are nudging up not only our pricing such that we're getting in line with or ahead of inflation, but ideally also mitigating any gross margin challenges. The one thing that is important for us to stay really close to is as more benign exchange rates, particularly when it comes to sort of raw commodities, affect the ability of our competition to drop prices, what do we do. So we are working very hard on where is it right for us to spend more on marketing money in Nigeria to justify the hard won price increases that we have landed. And we're very judiciously, we're seeing our improving volume trends then coming under pressure because obviously brands are underpricing us, what would we do smartly to make sure that we're not ceding ground in terms of volume and household penetration. But we are clear that even though the pricing machine momentum will run out a little bit in terms of cycling through that historic base, our goal is to make sure that we're pricing one way or another in line with or slightly ahead of inflation. In terms of your marketing question, right? So we are very -- we've been very explicit that we will be H2 weighted, not just today, but previously. And a lot of that has to do with exactly how we expected our brand plans to fall and some of our innovations to fall. I will give you an example. Last year, we invested some St.Tropez money off season in the pursuit of trying to improve momentum. We didn't see a good return on it. So we didn't repeat it and we have intentionally back weighted our St.Tropez money, a little bit like the ice cream analogy, to make sure we're investing in the run-up to enduring the season. So that's one big driver of the H1, H2. But actually, we have also been looking at how do we step up our investment so that we are investing at competitive levels where we can be confident either of a really good rate of return because it's activity that we've invested behind before or actually where are we putting some seed money out there so that we can test and learn. And if we see something work, we can then reinvest more aggressively. Or if we see something fail, not having spent too much money on it, we can then move on to the next thing that we want to invest behind. So actually, in our second half, you'll be seeing not only more investments in our base business and here in the U.K., you'll be seeing in Imperial Leather, you'll be seeing Original Source, you'll be St.Tropez, but we are also stepping up. So for example, for the first time in many years, we'll be investing above the lines in New Zealand, not just in Australia where we've had a change of distributor, and we have seen real traction with retailers where we're building new distribution points. So we want to invest behind our brands in New Zealand. But equally, we'll be doing some of that tests and learn that I mentioned. So look out, for example, the St.Tropez on TikTok Shop in the U.K., trying to re-apply some of the phenomenal success we've seen with online marketplaces such as TikTok Shop in Indonesia, which I would say in the first half, they were -- revenues with TikTok Shop were up 60%. So what can we do in the U.K. with that? So actually, what you're going to see in the second half is our highest level of M&C in the last 4 or 5 years because we are absolutely trying to walk the talk on we're building brands and we're ready to invest behind them. Matthew Webb: Look forward to seeing you all this afternoon. Jonathan Myers: Great. Well, you stole my [indiscernible] actually, Matthew. I'm looking forward to seeing everyone who is coming this afternoon. So thanks to all of you for dialing in this morning. Listen, we are obviously feeling upbeat about the performance we have reported, but we're not getting carried away. Our feet are firmly on the ground. We can never give up and there's always more to do. And there are -- a little bit as we discussed with Damian, there are always new competitors coming to take our share. So there is a very healthy degree of paranoia in the business. But we are confident in our ability to drive performance and to deliver over the long term. So for those of you joining us this afternoon, we look forward to seeing you. We will be setting out a renewed strategy. We'll be updating you on our innovations and brand building, and we'll be giving you a very deep dive into our African business. So I look forward to seeing you all there. Thank you very much. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: Hello, and welcome to our third quarter fiscal 2026 earnings conference call. Today's call is being recorded.[Operator Instructions] I'd now like to turn the call over to Tomas Grigera, VP, Corporate Treasurer. Tomas Grigera: Thank you, operator. Joining me today are Pieter Sikkel, our President and CEO; and Dustin Styons, our CFO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express belief, expectation or intention as well as those that are not historical facts. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from the forward-looking statements. These risks and uncertainties are described in detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA, free cash flow adjusted for changes in working capital and adjusted free cash flow metrics, which are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. Reconciliations of and other disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which is available on our website at www.pyxus.com. Any replay, rebroadcast, transcript or other reproduction of this conference call other than the replay as provided by Pyxus International has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Pieter. J. Sikkel: Good morning, everyone, and thank you again for joining our call. We're pleased to report strong third quarter results with adjusted EBITDA equal to last year's record third quarter, underscoring our consistent execution and positioning the business to close fiscal 2026 as one of our strongest years on record. Since the beginning of the fiscal year, we've shared the expectation of larger crops in key markets, the change from undersupply conditions experienced in recent years. As anticipated, procurement increased this year compared to prior year, while our customer shipping indications have remained consistent with expectations. Larger crops in both South America and Africa drove a temporary increase in working capital through the third quarter. Shipments from South America are weighted towards the back half of the year and higher crop volumes from the region drove improved results in the quarter. Africa primarily ships to customers in the fourth quarter. Larger crops in the region required incremental working capital deployment in quarter 3, positioning the business for materially higher revenue and profitability in quarter 4. We continue to successfully capture scale-related opportunities and efficiencies in a large crop environment through expanded third-party processing with improved fixed cost absorption. As a result, third-party processing contributed approximately $7 million of third quarter margins and $28.8 million year-to-date, highlighting the strength and value of our processing expertise and flexible global platform. We continue to progress with strategic initiatives such as the centralization and automation of our processing and receiving capabilities in South America to drive longer-term efficiencies and operational innovation while reducing the cost structure of the business. This year's third quarter results reflect a more normalized geographical and product mix and was largely driven by a higher proportion of by-product sales and stronger third-party processing activity. With fourth quarter shipments now underway, our year-to-date performance on margins firmly positions us to deliver strong full year results. During the quarter, we were proud to release our fiscal year 2025 sustainability report, highlighting the achievement of our 2030 operational waste reduction targets ahead of schedule and our continued reduction of greenhouse gas emissions. In total, our global operations recycled 30,000 metric tons of waste last year and decreased Scope 1 and 2 emissions by approximately 7,800 metric tons, which equates to the same amount of emissions generated by 1,815 gasoline-powered cars over the course of 1 year. The report underscores sustainability as a strategic lever that enhances our long-term competitiveness, mitigates business risk and strengthens our ability to attract and retain talent across our diverse global footprint. With the report's release, we also announced a refreshed sustainability strategy that sharpens our focus on areas where we can drive the biggest impact while further integrating sustainability into our value creation framework. With that, I'll turn the call over to Dustin for the financials. Dustin Styons: Thank you, Pieter. Our third quarter results demonstrate solid earnings quality and reflect the cadence of larger crops we've been discussing. The additional volumes purchased earlier in the year are on schedule to ship in the fourth quarter, which will convert inventory into cash and materially reduce seasonal debt. This is expected to lower leverage as we close the fiscal year. Net sales for the quarter were $655.8 million, a decrease of approximately $123 million from the prior year, driven primarily by lower average sales prices and shipment timing. Gross margin per kilo was $0.80, which is slightly below last year due to changes in product and customer mix. Gross margin percentage improved modestly to 15.2%, supported by larger crops in South America and increased third-party processing. Year-to-date sales totaled $1.7 billion, down about $245 million versus last year. As expected, the impact of larger crops in South America and Africa have not yet fully offset the decline in carryover volumes experienced in quarter 1 and shipment timing. Gross margin per kilo remained strong at $0.81 compared to $0.85 last year, driven by product mix as the current quarter reflects a higher portion of byproduct volumes. Gross margin percentage improved to 14.6% from 13.9%, driven by increased third-party processing. SG&A expense was $38.3 million for the quarter, an $8.2 million improvement year-over-year, largely attributable to lower incentive compensation accruals. Year-to-date SG&A reflects a similar trend at $118.8 million. Operating income was $51.3 million for the quarter and $119 million year-to-date. Net interest expense for the quarter was $36.6 million, up $3.7 million, primarily resulting from the elevated seasonal funding required to support higher 2025 crop purchases. Our improved borrowing costs positioned us to keep year-to-date interest expense relatively flat despite increased average seasonal line borrowings. Equity pickup from unconsolidated affiliates increased $8.1 million to $12.4 million in the quarter. This was driven primarily by strong performance from China Brasil Tabacos, our joint venture with China Tobacco International, which benefited from the larger South American crops. Adjusted EBITDA was $80 million for the quarter, essentially consistent with the prior year, supported by lower SG&A and the increased equity pickup. Year-to-date adjusted EBITDA of $164.2 million is also broadly in line with last year, excluding the impact of prior year carryover sales. These results, together with our steady gross margin performance, underscore the strength of our fundamentals as we enter the fourth quarter. Quarter-to-date and year-to-date cash flows reflect the impact of concentrated first half leaf purchases with the majority of the larger African crops set to ship before the end of the fiscal year. A similar impact was reflected in our operating cycle, which increased to 184 days, but is expected to improve with fourth quarter shipments. At the end of the third quarter, the latest 12 months adjusted free cash flow represented a use of cash of $186 million. This included $181 million use from the changes in working capital. The year-over-year inventory increase of $207 million was the principal change in working capital and was funded by increased seasonal borrowings. Uncommitted inventory remains low at 3.6% of processed inventory in quarter 3. As we move into the fourth quarter, our peak shipping period, we continue to expect significant working capital release that supports the paydown of seasonal lines and the improvement of leverage and interest coverage. Liquidity remains strong with no borrowings on our $150 million ABL and $130 million of cash to fund increased fourth quarter shipments and seasonal line maturities. Leverage of 6 turns and interest coverage of 1.4 turns are consistent with this year's working capital cadence and should improve at year-end. We are well positioned to support fourth quarter shipping and remain on track to deliver one of our strongest years on record. We reaffirm our full year fiscal 2026 guidance with expected results in the range of $2.4 billion to $2.6 billion in net sales and $215 million to $235 million of adjusted EBITDA. I'll now hand the call back to Pieter. J. Sikkel: Thank you, Dustin. Our third quarter performance underscores disciplined execution, strong customer engagement and the advantages of our global footprint in a year defined by larger crops. We have clear visibility of fourth quarter shipping and remain focused on efficiently converting inventory, strengthening cash generation and positioning ourselves to close fiscal 2026 as one of our strongest years on record. With that, operator, please open the line for questions. Operator: [Operator Instructions] We will take our first question from Oren Shaked with BTIG. Oren Shaked: So I wanted to focus in on the inventory. Obviously, you guys talked quite a bit about that in the prepared remarks. The 23-day increase in the operating cycle, if I'm understanding this correctly, should largely correct in fiscal Q4 as you convert that inventory to cash. And so first of all, just if you could please confirm that we're thinking about it correctly. And then secondarily, how should we then think about your inventory needs in fiscal year '27, given that we are now firmly in an oversupply condition, both in terms of the cadence of the inventory needs and then also maybe on just the sheer quantum of that inventory that you will need going forward? Dustin Styons: I'll address the first question, and I'll allow Pieter to address your second question on 2027 -- fiscal year '27 purchases. You're thinking about the operating cycle correctly. As we've mentioned, the cadence of this year's shipment plans as well as the working capital requirements and inventory requirements in order to meet the customer requirements has shifted the cadence, and that's driving that inventory increase moving into quarter 3 and aligned with what we said in quarter 4, that inventory should sell through or will sell through in quarter 4, and we'll see a reduction in that operating cycle. So I think you're thinking about that the correct way. J. Sikkel: And talking about fiscal '27, I think you're really digging into a supply and demand question here. So when we look forward, we think about supply and demand and our demand for '27. From a demand perspective, I think we're looking at very similar levels from our customers' requirements for fiscal '27 as '26 as global consumption continues on a very -- slight downward trend. At the same time, obviously, we're focused on market share, profitability and the volume requirements we need against the indications that we have. We're gathering those right now, and we're looking in a positive position for '27. So for us, really, as we start to acquire that, the markets have opened in South America as anticipated, it's relatively slow. Crops are good, but the crop volumes are similar to last year in flue-cured tobaccos. And we anticipate as the year goes on, acquisition prices of inventory will be lower than last year with the high crop sizes that we anticipate continuing, particularly in flue-cured tobacco for next year. But that's all part of the cycle that we have. But in general, relatively stable demand, softer pricing on acquisition of tobaccos. And obviously, with our strengths in terms of conversion and trying to focus on reducing conversion costs, we look to focus on profitability for the business. Oren Shaked: So Pieter, should we be thinking maybe with that comment on the acquisition prices going lower over the course of the year, will you be trying then to purchase tobacco later in the period in fiscal '27, all things being equal versus the cadence of purchasing in fiscal '26? J. Sikkel: Look, the timing in each individual market will vary. We're certainly not expecting a rush to purchase this year with the way the markets are at this point in time. So it may be a little bit slower than last year. So far in South America, it is a little bit slower than it was last year, and we'll see how that continues as the year goes on. Oren Shaked: Okay. And then maybe can you give us a framework, Pieter, for -- given that oversupply is a new framework, a new dynamic for many of us who are covering the story. How should we think about the duration of oversupply? How long has it normally lasted in the past until things started to shift back to undersupply? And then maybe since we're just on this topic of supply versus demand in general, where is customer duration now versus where it has been over the last few years? J. Sikkel: Yes. Look, these oversupply, undersupply cycles, we've experienced them many times in the past. It's something we're very used to working through. Frankly, and I think I've said this before, we prefer a slight oversupply market. It's when we can acquire the product at the correct price from the farmer base, maximize our efficiencies in our facilities and continue to work on reducing conversion costs and improving margins. And our demand and our inventory position is relative to what we purchase compared to the whole market around the globe. If pricing is correct in the coming year, I would anticipate by the end of the year, we'll be projecting considerably reduced crop sizes in the following year, and that will start to potentially eat away any oversupply that's sitting in the market. If we look at the individual crops from our perspective, yes, I think flue-cured tobacco, we're looking at slightly lower crop sizes in totality for this year compared to last year. Burley actually, we're already seeing a considerable reduction coming in this year. So that, from our perspective, is probably a little bit more of a balanced situation already. Oriental tobacco, we have some increases, but we've got strong demand for Oriental. So we believe we're in a good position. And dark tobaccos, we're not really involved in that market to any significant degree. So we don't really focus on those. Oren Shaked: Super helpful. Last one for me. Dustin, SG&A looks to me like it's going to end the year actually maybe even down year-over-year in dollars. That's the first time we've seen that, I think, in a few years. How do we think about SG&A in fiscal '27 and beyond? Are you now at a stable level? Should we be thinking about it increasing going forward? Dustin Styons: I think generally, we see SG&A being stabilized. As we mentioned, some of the reductions this year is primarily due to certain accruals during the quarter, especially on the back of last year. So I think where we are is stable. Obviously, a lot of that is subject to various FX dynamics across the world. But as far as incremental or structural shifts, I think we're right where we need to be. Operator: [Operator Instructions] We will take our next question from Patrick Fitzgerald with Baird. Patrick John Fitzgerald: First of all, what was other expense in the quarter? It was elevated. Dustin Styons: Yes. Other expense is related to a long-standing -- I think we highlighted this in the release, a long-standing customs resolution that we decided to settle within the quarter so that we could advance other strategic initiatives in that specific market. There are also some variability and changes related to FX and some other items, but the main item is what I described. Patrick John Fitzgerald: Okay. And then if I'm looking at your fourth quarter results from prior years, the $61 million implied for the fourth quarter this year by your midpoint in guidance is really an outlier. Could you talk about what the shipping expectations are versus prior years to kind of hit that mark? What are some of the key things that need to happen to hit that guidance range? J. Sikkel: Patrick, you're right. If you look at year-to-date and our guidance, we're obviously projecting a considerably larger in any metric quarter, quarter 4 than we had last year. And this is very much related to the cadence that Dustin talked about earlier with the larger African crops, in particular, representing a larger portion of our sales this year. And you can see that reflected in the $200 million of additional inventory we've got in quarter 3. Obviously, we are anticipating shipping significantly higher volumes and value in quarter 4. So far, that has been for the first 5, 6 weeks that we've been through, that's been running according to plan. But obviously, there's still a significant amount to go, a large portion in March and a large portion of that comes from the African region, which is a little bit less reliable in terms of being able to load and ship at the port, can sometimes be impacted by weather and so on. But so far, it's running very well. We have good visibility to it. And we are very confident where we are in the guidance. Dustin Styons: Patrick, I'd also like to highlight related to that, if you look at the inventory increase and the cadence shift that we've mentioned and specifically our uncommitted levels remaining very low, gives us a lot of confidence going into quarter 4. Patrick John Fitzgerald: All right. Great to hear. I wanted to ask about the unprocessed inventory level versus where it was last year. It's like up $40 million year-over-year. Is that by design? And do you expect that to remain elevated or maybe last year was lower than you typically ran at. Any thoughts on that? Dustin Styons: Yes. On the unprocessed inventory, that's related to what we would also call grain inventory, again, very anchored to what we've been mentioning with the larger crops, particularly in Africa, that processing season is in quarter 3, along with other markets, but predominantly Africa. And with the smaller crops last year, we had -- we did not have as much that would carry over processing into quarter 4, whereas this year, we have had that. So that's very much expected along with the crop sizes and the cadence that we see this year. Patrick John Fitzgerald: Okay. Great. And then any thoughts on how much you expect to have on the seasonal credit line at the end of the year. You had $395 million at the end of last year. That was pretty low. Do you expect to come close to that mark or? Dustin Styons: We do expect, I mean, obviously, with quarter 4 being a significantly higher quarter this year on the sales front. And as those sales go through, yes, the inventory is converting to cash and reducing the seasonal line. So for quarter 4, we are expecting quarter 4 to be the highest sales quarter, the highest cash generation quarter, and therefore, that would translate to the lowest inventory as well as the lowest seasonal line balances. Operator: We will take our next question from Chapin Mechem with Northeast Investors. Chapin Mechem: Congrats, I guess, on what's looking to be another great year. I'm just wondering if you can comment at all on anything relating to the refinancing. Dustin Styons: Yes, we've -- our focus has been executing this expected record year on the back of multiple years of significant improvement. And as we close this year out, we believe that we're in a very strong position. And as we turn our focus to any capital market activity, we are feeling really good about what we need to get done. Chapin Mechem: Okay. So have you started the process or -- I mean any comments on timing? Or is that... Dustin Styons: No comments on timing at this point, but it is very much top of mind. And again, the focus has been on delivering this record year on the back of multiple years of improvement, consistent improvement, and we do believe we're well positioned, so. Operator: This concludes the Q&A portion of today's call. I will now hand the call back to Mr. Grigera for closing remarks. Tomas Grigera: 1 Thank you, operator, and thank you to everyone on the line for your interest in Pyxus. We appreciate your time and engagement today, and we look forward to keeping you updated as we execute on our commitments through the remainder of the year. And this concludes our call.
Operator: Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Fourth Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] Vicente Ferreira: Hello, everyone. I'm Vicente Ferreira, Investor Relations Officer of TIM Brazil. Welcome to our earnings conference for the fourth quarter of 2025. Today, joining me to discuss the highlights of our results, I have the CEO, Alberto Griselli and the CFO, Andrea Viegas. As usual, we close our call with a live Q&A session. So let's get started. Alberto, great to have you here. What can you tell us about the main highlights of the 2025 results? Alberto Griselli: Thank you, Vicente. Hello, everybody. It's a pleasure to share results that represent more than another solid quarter. They depict a consistent execution of our strategy and full delivery of our promises confirming the track record of TIM Brazil in meeting its target. From a financial standpoint, service revenue grew above inflation with a year-on-year expansion of 5.2%, check. EBITDA margin expansion, reaching 51% as EBITDA increased 7.5%, check, as well. CapEx was essentially flat versus 2024, check. Operating cash flow grew at double digit, closing the year expanding at 16%, check. And with the dividend anticipation, we closed the shareholder remuneration at BRL 4 billion in cash, plus BRL 750 million in share buyback, check. In all, guidance was delivered with a combination of strong cash generation and disciplined capital allocation. Vicente Ferreira: Really impressive financial performance of Alberto. But beyond the numbers, what can you tell us in terms of operational results and other achievements that the company made during 2025? Alberto Griselli: Sure, Vicente. You're right. We had many deliveries that go beyond financials. In 2025, we continue to reinforce our strategic position. TIM remains the leader in 5G in Brazil with coverage of more than 1,000 cities, 52% more cities than our second player. And we, once again, the most awarded operator in Opensignal latest report, winning in key categories such as consistent quality and reliability. In B2B, we surpassed BRL 1 billion in total contracted value across all verticals and for the third consecutive year, TIM was featured on the CDP A list, confirming our leadership in climate and ESG practices. On top of that, we continue to capture productivity gains, applying digitalization, artificial intelligence and strict discipline in capital allocation. Vicente Ferreira: Great list of achievements. But Alberto, what can you tell us in terms of the contribution of each area of the company and the support that those different areas were able to deliver for our results as a whole. Alberto Griselli: Okay, Vicente. When we look inside the business line, 2025 tells a coherent story. In mobile, we strengthened the pillars that have been driving our performance in recent years. Net service revenues grew at a solid pace, supported mainly by mobile services, which increased 5.4% in the year. Postpaid was again the central engine. Postpaid revenues grew 9.5% in the fourth quarter, and our base expanded by 8.4% with another year of positive net additions. ARPU in postpaid, excluding machine-to-machine, reached almost BRL 55, growing 3.1% year-on-year, which reflects our ability to combine volume and value strengthening value capture across our customers, migrating them to higher value offers while keeping churn under control. At the same time, the prepaid segment began to show more encouraging signs. The revenue decline has accelerated for the third consecutive quarter, indicating that our actions to stabilize this space through more targeted offer, better segmentation and improved customer experience are starting to gain traction. The combination of robust postpaid expansion and more stable dynamic in prepaid, supports a healthier, more balanced growth profile of our mobile business. None of these achievements would have been possible without the strength of our network. Throughout 2025, we further consolidated what has become a structural advantage for TIM, our leadership in coverage and technical quality. We maintain the broadest 4G and 5G footprint in Brazil and delivered tangible benefits for our customers. TIM's excellence was recognized in the latest Opensignal report, where we took home 6 national awards demonstrated that our investments are not just expanding coverage, but actively enhancing customer experience. One of the year's more significant milestones was the completion of our network modernization project in Sao Paulo, which has transformed the experience in the country's largest market by modernizing every site in the state, we expanded 5G and 4G coverage, increase capacity and improve overall quality performance. We are now extending this modernization to other cities with a plan that includes around 6,500 sites to be swapped in major capitals until 2027, establishing new standards of holiday and experience of our customers across Brazil. In fixed services, 2025 was a turning point for our broadband operations team, Ultrafibra. After a period of adjustment and portfolio optimization, broadband revenues returned to growth in the fourth quarter, supported by an improvement in net additions and nearly complete migration from FTTC to fiber. By the end of the year, we reached 850,000 customers and FTTH ARPU of roughly BRL 95. TIM Ultrafibra revenues grew 6.2% year-on-year in the fourth quarter. This shows that our strategy of focusing on quality, rationality and operating efficiency is working. And we are building a more sustainable broadband business for the future. Another significant milestone in 2025 is our progress in B2B our solution have achieved meaningful impact across key industries. In Agribusiness, TIM coverage surpassed 26 million hectares enabling precision agriculture, automation and greater productivity across vast rural areas. In logistics, we expanded to more than 10,000 kilometers of highways connecting major corridors and enabling monitoring, safety and operational intelligence. In Utilities, we sold nearly 470,000 smart lighting points, helping cities modernize infrastructure at scale with efficiency and control. And in mining, our advanced connectivity spanning 4G, 5G and IoT support safer and more automated operators. These verticals combined allow us to surpass our important milestones of BRL 1 billion in total contracted revenues since the beginning of this journey, confirming B2B as a structural growth engine for TIM, not a future possibility. It is already real, scaled and part of our core. Vicente, in sum, we saw relevant contribution and strong support from every single line at TIM Brazil. Vicente Ferreira: Thank you, Alberto. We'll come back to you for your final remarks later on. Now our CFO, Andrea will walk us through the details of our financial performance. Andrea, thank you for joining us. Andrea Palma Marques: Thank you, Vicente. Hello, everyone. We closed the year with another strong set of financial results reflecting the disciplined execution of our strategy in 2025. This quarter reinforced a story that has been present all year long, cost optimization, expanding profitability and a clear focus on sustainable value creation. Over the last 12 months, our efficiency program has continued to reshape our cost structure. Operation costs again grew well below inflation with OpEx rising just 1.8% year-on-year in 2025. This reflects the structural initiatives underway across the company, showing that this approach is not a temporary effort for a core part of how we operate. This strongest execution contributes to another year of high level improvement in productivity with EBITDA increasing by 7.5% and our margin achieved 51%, making an important milestone. We also advanced a lease-related efficiency initiatives already contribution to a strong result in 2025. EBITDA after lease grew 8.3% year-on-year, supported by continued optimization of our industrial cost structure and margin sustainability. This operation year-on-year. In total, we delivered what we committed, BRL 4 billion in dividends and IoC plus BRL 750 million in buybacks reaching 139% payout ratio. This demonstrated not only our strong financial performance, but also delivered another quarter of double-digit expansion in operation cash flow, grew 15.7% year-on-year in 2025 and lifting the margin to 22.7%. Throughout the entire year, we maintained a solid cash conversion, supported by margin expansion and well management CapEx. Finally, our balance sheet remains a source of stability and resilience. Our leverage remains highly comfortable giving us the flexibility to continue investing with discipline while sustaining attractive shareholder returns. These results give us confidence as we enter 2026. We've seen well positioned to continue creating value for all stakeholders. Back to you, Alberto. Alberto Griselli: Thank you, Andrea. So as we step back and look at 2025, the conclusion is clear. It was a year of execution, consistency and evolution. We delivered exactly what we promised and build the foundation for advancing our strategy in 2026. Our direction is that we will drive value creation through mobile, B2B and broadband, supported by 3 key enablers that run across the entire company. Artificial intelligence, efficiency and ESG. In mobile, our focus remains on strengthening profitability through a customer-first approach, continuously improving the experience and reinforcing the values of our offerings. In B2B, we are ready to capture a new wave of opportunities with a wider and more scalable portfolio that integrates connectivity, infrastructure and digital services. The acquisition of V8 was an important step to enhance our capabilities. And in broadband, we entered 2026 with a more efficient operation, a more reliable service and portfolio aligned with sustainable expansion. Supporting all this, artificial intelligence becomes a transformational layer in our operating model helping us automate, simplify and accelerate decisions across every area. Our efficiency agenda remains a hallmark of execution ensuring discipline in capital allocation and allow us to explore new growth avenues while protecting margins. And ESG continues to be a structural component of who we are shaping our culture and guiding long-term value creation. Confirming this long-term deal in 2025 after many years, we finally reached an important milestone for our shareholders and the financial community. Our return on capital is higher than the consensus cost of capital. Now let's move to the live Q&A session, Vicente. Vicente Ferreira: Thank you, Alberto. See you a bit, guys. Operator: Before proceeding to the Q&A session, I will pass the floor to Alberto Griselli. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Introductory note, -- good morning, everybody. Today, we took an important step in our broadband strategy by acquiring full control of I-Systems. This will allow us to improve the efficiency of our broadband operation to deliver a better end-to-end customer experience and position ourselves for future movements. Now we can actually proceed to the live Q&A session. Operator: [Operator Instructions] Our first question comes from Bernardo Guttmann from XP. Bernardo Guttmann: Congrats on the solid results. again. Actually, I have 2 questions here. The first one on margins and efficiency. You delivered strong margin expansion this quarter with EBITDA growing much faster than revenues. How much of this efficiency is structural and how much was more temporary or specific to this quarter. And if I may, the second one on I-Systems. With the consolidation of the company, how should we read this strategic move? Does this suggest a stronger long-term commitment to the asset and a lower probability of a potential sale of the fiber business. And looking ahead, what would be natural next step? Does it make sense to revisit M&A opportunities, maybe looking at regional fiber players? Or is the focus now fully on organic growth? Alberto Griselli: Bernardo, let me go with the second one, and then I will pass to Andrea for the margin expansion. So the -- when you look at our broadband operation, I think that this quarter has been marked by a positive news on the industrial performance because after the fine-tuning, we managed to get to a revenue growth. So we are back on track on something that has been underperforming in the previous quarters for last year. So in the last quarter, we managed to return to a growth pattern and consolidate and optimize our model. At the same time, we need to recognize that the neutral model that we wanted to implement face a number of challenges. And so the benefits of scale that were supposed to happen as a matter of fact, that didn't happen. So the acquisition of control of a system provides us a number of benefits. The first one is that we get control of the end-to-end operation of our customers that support one key indicator that is churn management and customer level of service. The second one is that we will be able to increase our efficiency of operations. So this measure is going to be accretive on the margin expansion and a bit dilutive on CapEx, but overall, it's going to be to be neutral on free cash flow generation. And the third and most strategic one is that we position ourselves for our next step. So the question is what is our next step is and we addressed this in previous calls, whereby we said that we are looking at a number of different options. And as a matter of fact, the sale of our -- the sale of our broadband operation has never been actually on the table, right? So we say that we have extreme opportunities. We are assessing them but all of these opportunities have the intention to increase the value generation of our business. Sale was not there as an option since you mentioned, we just want to clarify this. Andrea Palma Marques: Bernardo. Refer to the margin efficiency. This is the consequence of the cost optimization that we are working for the past years. This year, we mentioned several times. We have an efficiency program that's in place and the result is the structure, the major parts. This quarter, we have some effects that first one is the visitor, the interconnection cost for visitors. This is effect in this quarter. If you look in the first quarter, we have increase in the visitor interconnection. And in this quarter, we have a decrease. Remembering that the cost of interconnection refers to the full year. So we have this balance between quarters. Another effect in this quarter was in the reduction of our taxation in the overtime pay. But again, these 2 effects affect this quarter, specifically the fourth quarter, but the results is the efficiency that we have in the structural way and as a consequence, we are delivering what our commitment to expand the margin. Operator: Our next question comes from Gustavo Farias from UBS. Gustavo Farias: First of all, congrats on the results. So my first question regarding margins. We saw a decrease in the network and interconnection expense, which was really a highlight to us. If you could comment on the main drivers behind that. You mentioned in the release a cost optimization of digital content providers? And how to think about this line going forward? My second question is on mobile competition. We've been seeing some less positive figures on mobile portability in Q4 based on data from the regulator compared to past periods for TIM. How do you see this competition, especially given this mobile portability numbers we have been seeing lately? And if this -- you think this comes from any new cell impacts? Alberto Griselli: Okay, Gustavo. So let me take, again, the second, and then I will pass the word to Andrea for the first one. So when it comes to the dynamics of portability, the -- when you look at our report, you see that our churn level is almost stable over the quarters. And therefore, the increase of portability means as a matter of fact, that the share of portability within our churn is increasing. And this depends on a number of things. One of them being the commercial practices of our competitors. But our churn level is fairly stable during the quarters of last year. When we are looking for order, you will see that in the first quarter, we are executing our price adjustments, and this tends to pressure a bit the churn level as normal. So we are executing it as a matter of -- we started with messaging and informing our customers in December. And as a consequence, churn is going to be a bit higher in the first quarter, resulting in softer net additions. When you go to the new cell impact in market dynamics. I would say that if you look from a general perspective, I believe that the market is pretty rational and keep on being rational. And that our ability to attract customers remain as it was as a matter of fact. Unfortunately, Anatel stopped sharing the number of new cell subscribers. And therefore, we cannot rely on an independent source to measure the growth of the numbers. So what we see, it's our internal view and our internal view is based on a number of KPIs that we use and the impact is not material at this stage. Andrea Palma Marques: Gustavo. Related to the network and interconnection. We have some items that are increasing and others that are decreasing. Once that is decreasing is the visitors that I just mentioned. What is increasing -- for example, the content provides that is related to the offers that we launched last year where we put a stream for our customers. So we have an increase in this item and we also have an increase in the network related to the expansion of the 5G. Operator: Our next question comes from Marcelo Santos from JPMorgan. Marcelo Santos: I just wanted to zoom in a bit more on the personnel expense, the tax the overtime hours. Was there any retroactive recognition of this gain? I just wanted to understand better this understanding, like, is this something that's going to change going forward? And did the fourth quarter include changes that were, let's say, retroactive to previous periods. Just to understand the sustainability of these gains over time or how enough is they are. I think that's the first question we have. The second question is there was an improvement in broadband ARPU. Does this sign away more rational market in your view? Or is it more like TIM-specific effect? Alberto Griselli: So I'll start, Marcelo with the second one. The ARPU dynamics. I think this is as a matter of fact, in our numbers a bit more our doing in terms of ARPU expansion. So we optimize throughout 2025, a number of things in order to serve better our customers and increase the efficiency of our operations. As we discussed in previous quarters, one of the things that we did was to evolve our commercial distribution in a way that is today more pull and less push. And the results of this is beneficial in a number of ways because at the end of the day, but at the end of the day, the quality of the customer that we are getting in is better. So it is one driver. Then there is a second benefit that the pull channels tend to be less expensive than the push channels. So this is one driver. The other driver is more related to the, what we call below the marketing activities, whereby we manage our customer base and move it as mobile from one plant to another plan or when they call to renegotiate. So it's a number of commercial activities related to customer management and we have been tweaking things in the right direction. And this result, it's a positive effect on the ARPU. So it's more how we're doing than the overall market dynamics that remains competitive. Andrea Palma Marques: Marcelo, the impact of the overtime pay is affect the past and the future. But in the fourth quarter, the impact is higher because concentrate the past -- of the past few years. So in the future, we will continue with this impact, but will be a small amount considered the fourth quarter. But bear in mind, these gains are not that sizable in our overall OpEx. Operator: [Operator Instructions] Our next question comes from Rog�rio Ara�jo from Bank of America. Rogério Araújo: I have a couple here. First, on tower leases, if you could mention how the negotiations are evolving with lessors? And are you renegotiating terms ahead of maturities or mailing upon renewals? Also, incentives stepped up in the 4Q. What has driven that? And how should we think about incentive trajectory in the upcoming quarters? And last on tower leases, what is our latest view on lease expenses as a percentage of revenue over the next 2, 3 years? And can ongoing renegotiations offset incremental 5G and tower needs? This is the first one. And the second on Brazil's tax reform. Do you have any early estimates to share with us about the impact of the effective sales tax from 2027 onwards. And also, if an increase is expected, how much of that do you believe is passed through to consumers versus absorbed by the company? Andrea Palma Marques: Rog�rio, let's talk about -- first about the tower lease. The tower lease is at the end, reflects is what the results reflect what we are doing in the past years. We are working very hard in several efficiency levels in the lease. We -- this year was a challenge because we have the impact in the increased towers and also impact inflation and saying that we delivered an expansion of margin in EBITDA after lease. So moving -- this continues -- this efficiency continues. We have a lot of agreements doing with the TowerCo. We announced one of them a few weeks ago. What we expect about the ratio between the lease and revenues is main things with a slight decreasing considering that we are continuously expanding our network related to 5G. Moving to the tax. Alberto Griselli: Andrea, just a few complement, Rog�rio, on the tower. So when you look at our lease costs, there are a number of things inside. So you have -- the big chunk is clearly is the network cost. But there are other elements. Complementing Andrea, we finalized the negotiation with American Tower in the last year. When we look forward, and so challenges and objectives for this year. We have another ongoing negotiation that is in our -- on the table that is quite important. And there is -- this is part of our plan. And there is -- as you know, the network sharing discussion that are proceeding where I see that there is opportunity in the future to do more. So this initiative is a part of the overall portfolio besides the buy initiatives that we put together. So when you look at our guidance and what we shared with the market is that besides the network deployment that is a pressure on our cost besides the inflation, there is a pressure on our cost, we're going to manage to keep these leases growing a maximum with inflation and so slower than revenues. So when it comes to the share of this cost versus revenues, this is the answer, looking forward. That's what we have been sharing and implementing over the last years, and we plan to do this in 2026 as well. For the tax, I will hand it back to Andrea again. Andrea Palma Marques: Regarding the tax reform, what we can say now is 2026 has no impact and 2027, that's the year that we already put in our guidance is neutral on free cash flow. Rogério Araújo: Okay. And can you share maybe after all the transition period by 2033, if there is any early estimates on the impact? Andrea Palma Marques: Rog�rio, we didn't announce yet our guidance. So we are talking only about the numbers -- the years that we already announced and that's '25 to '27. Operator: Our next question comes from Daniel Federle from Bradesco BBI. Daniel Federle: Congrats for the strong results. The first one is just if you could provide more color on the price increases in the first Q. If it's front book, back book and the magnitude, if possible. The second question regarding CapEx. CapEx end up a little bit closer to the top of the range. So any update in terms of CapEx demands, requirement pressure from FX, I think it's helpful. Alberto Griselli: Okay. Daniel, let me go to the price increase first, and then we'll hand it over to Andrea for the CapEx one. So when you look at the more for more strategy, just recapping generally what we do, we upgrade our back book prices and front book prices. The back book prices for postpaid is happening as we speak. So it's the -- it's the one that I mentioned in the previous answer. So it's underway as it was last year, so we're executing it. And the magnitude is fairly similar to the one that we had last year. The -- of course, it's not 100% of the customer base we discussed we -- it happens in a couple of phases throughout the year. But the mechanics in the first is fairly similar to the amount that we executed last year. We are also discussing the -- internally, the front book prices adjustment in control, we executed this June last year. So we are planning to follow a similar pattern this year. And we are pretty confident that we can do something on postpaid as well this year. For the CapEx, Andrea. Andrea Palma Marques: Daniel, we are on track in CapEx. We maintain the CapEx that we announced in the guidance. The point here is when we see an opportunity to anticipate CapEx, we have -- if we generate some efficiency and we have an opportunity to anticipate CapEx, we are going to. But again, 2025 was exactly what we expect in the investments. I don't know if I answer your question. And we also -- we are always controlling CapEx. We focus on the free cash flow. I don't know if I answer your... Operator: [Operator Instructions] Since there are no further questions, I will now turn the floor back to Mr. Alberto Griselli for any final remarks. Please, Mr. Alberto, the floor is yours. Alberto Griselli: Thank you all for joining today's video call. I would like to share a big thank to the effort to our entire team for the great results that we achieved together 2025... Operator: This does conclude the fourth quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website at tim.com.br/ir. You can disconnect from now on. Thank you once again and have a wonderful day.
Operator: Good morning. Today is Wednesday, February 11, 2026. Welcome to the Toromont Industries Limited 2025 Fourth Quarter and Full Year Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. Doolittle. John Doolittle: Thank you very much, [ Ludy. ] Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the fourth quarter and full year of 2025. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3. Over to you, Mike. Michael Stanley McMillan: Great. Thanks very much, John. Good morning, everyone, and thanks for joining us this morning. Our team delivered solid results in the fourth quarter, closing out the year on a positive note despite persistent macroeconomic and trade uncertainty. We remain focused on long-term performance, continue to invest in our people and capabilities to support our customers and drive sustainable growth over the long-term cycle. Earnings improved over the course of the year, although full year earnings showed a modest decline due to factors such as investment in growth-related initiatives, lower net interest income and short-term noncash costs from the AVL acquisition, which John will expand upon shortly. The Equipment Group executed well with solid activity in rentals, product support and new equipment deliveries. However, activity levels still reflect the economic environment, which continues to impact end customer demand. As expected, mining deliveries were lower due to the segment's inherent variability. However, we saw good order intake in Q4. Revenue increased with the inclusion of the acquired business, along with higher rental, product support revenue and higher total equipment sales. Rental revenue rose supported by a larger fleet and product support revenue also increased due to higher parts and service volumes. Operating income was 3% higher in the fourth quarter as the higher revenue and gross profit margins were partly offset by the higher expense levels. CIMCO posted higher revenue and earnings, driven by good demand and disciplined execution in both Canada and the U.S. Growth in package revenue was supported by a stronger order backlog, while product support activity continued to improve, aided by our growing technician workforce. Operating income increased largely reflecting the higher revenue and solid execution, which more than offset higher expenses to support activity and growth. We continue to work closely with our new partners at AVL, focusing on this promising market. Production at AVL has been expanding since the date of acquisition and continues to build their healthy order backlog and new order demand. Hiring and development of production capacity continues. As noted in Q2, we acquired a facility in Charlotte, North Carolina to expand production capacity and better serve the Eastern U.S. market. This facility commenced the first phase of production during the third quarter of 2025 and will ramp up throughout 2026. Revenue for the fourth quarter and full year of 2025 were $97.7 million and $254.7 million, respectively. As part of the accounting for the acquisition, the company recognized intangible assets related to order backlog and customer relationships, both of which are amortized over time. Certain other noncash expenses are recorded as a result of the acquisition accounting related to the commitment for purchase of the remaining shares of AVL. Noncash expenses recognized for these items amounted to $33.4 million and $90.4 million, respectively, on a pretax basis for the fourth quarter and full year. Net income for AVL after consideration of amortization of intangibles recognized at acquisition was approximately negative $0.01 per share and a contribution of $0.01 per share for the fourth quarter and full year of 2025, respectively. Investment in noncash -- let's turn to Slide 4, and we'll highlight some of our key financial metrics. Investment in noncash working capital decreased 11% year-over-year, a net effect of lower inventory levels, higher accounts receivable balances and lower accounts payable balances due to equipment delivery timing. Accounts receivable increased primarily reflecting higher trailing revenues and receivables from AVL, offset by good collection activity. DSO decreased by 1 day to 39 days. Our team continues to manage receivables aging and customer credit metrics effectively. Inventory levels declined primarily due to executed deliveries against order backlog, inventory management initiatives, slightly offset by CIMCO's higher work-in-process inventory levels, which reflects the timing of project construction and product support schedules. We ended the year with ample liquidity, including $1.3 billion in cash and an additional $453 million available under our existing credit facilities. Our net debt to total capitalization ratio was negative 19%. Overall, our balance sheet is well positioned to support operations and navigate evolving economic and business conditions. We will continue to apply our operational and financial discipline as we support customer needs and evaluate future investment opportunities. We purchased and canceled 337,500 common shares for $40.1 million in the year under our NCIB program. Our purchases are intended to practice good capital hygiene and to mitigate option exercise dilution. Toromont targets a return on equity of 18% over the business cycle. ROE was below this at 16.9%, reflecting slightly lower earnings and higher shareholders' equity. Return on capital employed was 23.4%, also lower year-over-year, reflecting our increased capital investment. It is worth noting that noncash charges related to the AVL's backlog amortization, which will be effectively completed during the first half of 2026 impact these important metrics. Finally, as announced yesterday, the Board of Directors approved the increase of the quarterly dividend by $0.04 per share or 7.7% to $0.56 per share or $2.24 per share annual. Toromont has paid dividends every year since 1968, and this is the 37th consecutive year of dividend increases. We continue to be proud of this track record and our disciplined approach to capital allocation. The next dividend will be payable on April 2, 2026, to shareholders of record at the close of business March 6, 2026. John, I'll turn it back over to you for more detailed commentary on the results. John Doolittle: Okay. Thank you, Mike. Let's turn to Slide 5 for a few additional comments. On a consolidated basis, higher revenue was generated with both the Equipment Group and CIMCO. Equipment Group revenue increased with new equipment deliveries and execution against order backlog and project schedules coupled with the revenue of the newly acquired business AVL. Rental revenue improved during the latter half of the year, although utilization levels remained lower than prior year. Product support revenue increased in both parts and service on improving customer activity and focused execution. CIMCO revenue increased on continuing strong demand for its product and services. Gross profit margins improved compared to the prior year on improved efficiency and better sales mix. Operating income was up 2% compared to last year, reflecting the higher revenue, improved gross profit margins, partially offset by the higher expense levels. Excluding the property disposition pretax capital gain of $13.7 million in Q3, operating income was relatively flat compared to prior year. Expense levels reflect continued support for key operational focus areas. Net interest income was significantly lower for the year, reflecting both higher interest expense as a result of higher borrowings as well as lower interest income earned due to lower interest rates. Bookings for the fourth quarter increased 47% compared to the fourth quarter of 2024 with higher bookings in the Equipment Group, including a significant contribution from the acquired business and strong mining activity, offset by lower bookings at CIMCO. Backlog is strong at $1.5 billion, up 46% year-over-year with an increase in the Equipment Group of 68%, while CIMCO was comparable to 2024. On a consolidated basis, revenue increased 9% in the fourth quarter with an increase in the Equipment Group of 9% due to revenue from the acquired business along with higher product support revenue and an increase of 10% at CIMCO on higher package and product support revenue in both Canada and the U.S. For the year, revenue increased 4% with the Equipment Group up 3% and CIMCO up 14% compared to 2024. Excluding the property disposition gain in the acquired business, SG&A expenses increased 10% in the quarter and 5% in the year. Higher expenses reflect the continued investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods due to the higher share price. Compensation costs were largely unchanged from the prior year as regular salary increases and higher staffing levels were largely offset by lower profit sharing accruals. Sales-related expenses increased year-over-year, reflecting continued investment in resources. All other expenses such as travel, training, occupancy and information technology costs have increased slightly on continued investment for future growth and inflationary effects. For the year, expenses increased to 12.3% of revenue compared to 11.8% last year. Operating income increased 3% in the quarter, reflecting the higher revenue, partially offset by the higher expense levels given higher activity. On a year-to-date basis, operating income increased 2% as higher revenue and improved gross profit margins were partially offset by the higher expenses. As a percentage of revenue, operating income was 13.1% on a year-to-date basis compared to 13.3% last year. Net interest income increased $1 million in the quarter due to higher interest earned on the higher excess cash balance. For the year, net interest expense increased $17 million, reflecting interest expense on higher borrowings with the new senior debentures issued in March 2025. In connection with the acquisition of AVL in early 2025, the company made a commitment to purchase the remaining 40% of the shares at various dates through 2031. Revaluation of this purchase commitment liability resulted in a $7.9 million expense for the year, and you will see that as a separate line item on our P&L. Net earnings increased 1% or $0.9 million in the quarter compared to last year and decreased 2% or $9.9 million for the year. Basic earnings per share was $1.93 in the quarter and $6.11 for the year. Turning to the Equipment Group on Slide 6. Revenue increased 9% in the quarter and 3% for the year as higher construction and power systems markets, including the acquired business, along with higher rental and product support revenue were largely offset by lower mining revenue against a strong comparable. Equipment sales, including both new and used equipment were up in both quarter and full year by 9% and 1%, respectively. New equipment sales increased 10% in the quarter and 1% for the year with decreases in mining against a strong comparable, partially offset by higher power systems markets, which include revenue of the acquired business. Used equipment sales increased 4% in the quarter, mainly on improved dispositions in the construction market and decreased 4% year-to-date in most markets, the decrease prominently led by a lower construction market, slightly offset by improved mining market activity. Looking at the market segments for the quarter. Total equipment revenue decreased 39% in mining, while Power Systems increased 131%, Construction increased 1% and material handling increased 12%. Rental revenue was up 5% in the quarter and was up 9% year-to-date. While market conditions remain somewhat challenging, revenue increased compared to the prior year, reflecting a larger fleet and improved activity levels in certain areas. Revenue improved in most areas for the quarter as follows: Heavy equipment rentals were up 15%, light equipment up 5%, material handling up 7%, partially offset by a decrease in power rentals down 11%. The RPO fleet was $92.5 million versus $97.9 million a year ago, and rental revenue was up 5% for the quarter and 40% for the year compared to the similar periods last year. Product support revenue increased 9% in the quarter and 4% year-to-date, with an increase in both parts and service. Activity was higher across most markets and regions, reflecting end-user demand and activity levels. Gross profit margins increased 10 basis points in the quarter compared to the fourth quarter of 2024 and increased 30 basis points on a full year basis. Equipment margins were up 50 basis points in the quarter, up 50 basis points for the year, reflecting market dynamics and the nature of equipment sold. Rental margins were down 10 basis points in the quarter, down 20 basis points for the year on higher recent fleet acquisitions and higher maintenance and repair costs. Product support margins decreased 30 basis points in the quarter and 10 for the year. Sales mix was favorable, up 10 basis points in the year, reflecting a higher proportion of product support revenue to total revenue. Excluding the gain on property disposition and the acquired business in 2025, selling and administrative expenses increased $11.3 million or 9% in the quarter and $21.5 million or 4% for the year. Higher expenses reflected continuing investment in key strategic areas. Higher DSU mark-to-market adjustments increased expenses in both periods. Compensation costs were higher in both periods, reflecting staffing levels and regular salary increases, more than offset by lower profit sharing accruals on the lower income. Other expenses such as training, travel and occupancy costs have increased in light of sales levels, planned investment and inflation. As a percentage of revenue, selling and administrative expenses increased to 12.1% versus 11.5% last year. Operating income increased 3% for the quarter and was relatively unchanged for the year. Excluding the property disposition gain, operating income decreased 2% for the year, reflecting the higher revenue and improved gross profit margins more than offset by the higher expenses. Acquired business continues to increase production, however, did not contribute meaningfully to operating income given expenses arising from purchase price accounting, including items such as amortization of intangibles and the setup of a new U.S. facility. Bookings increased 71% in the quarter, led by strong order intake in Power Systems and the mining sector. For the quarter, construction markets were up 9%, reflecting more normalized customer demand. Power Systems, which includes the acquired business saw strong order activity, up 195% on good demand for our products. Mining markets are lumpy or cyclical due to the nature of the business and improved up 324% on good orders in the quarter. Material handling orders were down 14% versus a strong comparable last year. Backlog sits at $1.2 billion, remains at healthy levels. Backlog includes approximately $428 million at AVL. And excluding this backlog -- excluding this, the backlog was up 7% compared to the same time last year, reflecting good new order intake throughout the year. Approximately 90% of the backlog is expected to be delivered over the next 12 months. But of course, this is subject to timing differences depending upon vendor supply, customer activity and delivery schedules. When you consider the impact of AVL on our results, please keep in mind that the bulk of the purchase price amortization is related to acquired backlog. A substantial portion of this backlog was shipped in 2025 with a small remainder expected to be delivered in the first quarter of 2026. And you refer to Note 11 in the financial statements for a breakout of this. As well, it is important to recognize that we own 60% of the business and any dividends paid to minority shareholders will be treated as expenses when paid. We expect dividends to begin in 2026 with amounts reflective of both trailing earnings, excluding the impact of amortization and the cash flow needs of a rapidly expanding business. Turning now to CIMCO on Slide 7. Revenue was up 10% in the quarter and 14% for the year. Package revenue increased 4% in the quarter and 18% year-to-date, led by strong recreational market activity, reflecting good execution on equipment delivery and progress on customer schedules, slightly offset by a decrease in the industrial market. Recreational activity increased 51% in the year with higher revenue in both Canada and the U.S. in both periods. Industrial market revenue decreased 3% in the year with lower activity in Canada against a strong comparable and higher activity in the U.S. in both periods. Product support revenue increased 17% in the quarter and 9% on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was down 11% in the quarter and down 1% year-to-date with a stronger start to the year. Activity levels continue to improve on good customer demand and the increased technician base. Gross margins were unchanged in the quarter and increased 10 basis points in the year versus similar periods last year. Package margins reflect good execution in the nature of the projects in process for both periods, driving a 20 basis point increase for the quarter and 50 basis point increase for the year. Product support margins decreased 50 basis points in the quarter and 20 basis points for the year. Improving execution and efficiency continues to be a focus. A favorable sales mix with a higher proportion of product support revenue to total increased margin 30 basis points in the quarter and an unfavorable sales mix of 20 basis points reduced gross profit for the year. Selling and administrative expenses increased $2 million or 12% in the quarter and $7 million or 10% for the year. Compensation costs increased, reflecting staffing levels, annual salary increases and higher profit sharing accruals on the higher earnings. Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses improved to 14.3% in 2025 versus 14.8% in 2024. Operating income was up $2 million or 9% for the quarter and $11 million or 20% for the year, largely reflecting the higher revenue and improved gross margins, partially offset by higher expense levels supporting growth. Operating income as a percentage of revenue increased 60 basis points to 12.2% on a year-to-date basis compared to the similar period last year. Bookings decreased 45% or $56 million in the quarter and were 11% lower against a strong comparator. For the year, industrial orders were down 9% and recreational orders down 14%. Generally, activity is continuing with good strategic capital investment levels. However, the current economic uncertainty has delayed some customer buying decisions. Backlog of $343 million was relatively unchanged versus last year as higher backlog in the industrial markets up 2% were offset by lower recreational markets down 2%. Approximately 75% of this backlog is expected to be realized over the next 12 months. However, again, this is subject to construction schedules. And with that, we can move to Slide 8. turn again to Mike to highlight some key takeaways as we look forward to the year ahead. Michael Stanley McMillan: Great. Thanks again, John. As we look forward to the first quarter of 2026, our focus remains firmly on executing our strategic priorities, namely maintaining safe and efficient operations, delivering exceptional customer service and applying disciplined financial and operational rigor to support long-term growth. With that in mind, we continue to monitor several external factors that may influence the business environment. Trade negotiations between U.S. and Canada remain fluid. We have implemented a proactive mitigation plan and continue to refine such plans as the situation evolves in order to manage potential impacts. Foreign exchange volatility, particularly fluctuations in the Canadian dollar is being actively managed primarily through our hedging program. While this helps to protect our bottom line, broader economic effects may still be present. Macroeconomic conditions, including inflation and interest rates are being closely tracked. Our backlog of $1.5 billion in the equipment supply chain is well positioned to support our customer requirements as well. The AVL acquisition continues to track to our production plan. Though near-term earnings contributions remain modest due to noncash purchase accounting adjustments and the dividends, as John noted earlier. We continue to invest in our technician workforce, a key enabler of our aftermarket growth strategy. This critical initiative strengthens our aftermarket services capability and enhances the value we deliver to our customers through our product and service offerings. From both an operational and financial standpoint, we have a focused operating model, talented leadership team, disciplined culture and ample liquidity, which helps equip us to navigate near-term uncertainty while pursuing strategic growth opportunities. Our long-term commitment to shareholder value remains anchored in cost discipline, strategic investment and operational excellence. We thank our team for their continued dedication and our stakeholders for their trust and support. That concludes our prepared remarks. We'd now be pleased to take your questions. Ludy, back over to you, please, to set up the first call. Operator: [Operator Instructions] With that, our first question comes from the line of Devin Dodge with BMO Capital Markets. Devin Dodge: I wanted to start with a question on -- I guess it's on the AVL business. But look, we've seen CAD is increasingly seeing opportunities for really large data centers. That's both for prime and backup power. I mean they saw multiple orders for gensets for sites more than a gigawatt of power. Just are these opportunities for AVL? Or are these gensets likely to be deployed in larger enclosure buildings versus the typical AVL offering? Michael Stanley McMillan: Yes. Thanks, Devin, for the question. Let me just start with that, and John can provide some color as well. I would say, at this stage, our focus is really on the standby power and ramping up production to support the data centers in motion today. Not to say that we aren't looking at the gas. Like I think from your perspective, what you're talking about is the shortage in energy in the segment, right? And so as we've heard, certainly, there's a shortage of energy to support data centers, and they're looking at different opportunities to bridge until they get into the grid and also just operating as a prime power solution while they continue to build out and address the demand in the data center side of things. And so I would say, broadly speaking, we certainly can provide enclosures. Some of these power plants, certainly, the gas solutions are larger, a little heavier, but many of them do require a similar type enclosure and so forth. And so at this stage, I would just say it's a bit early in that regard. That's something that we'll probably evaluate as we get further down the path of executing our plan and ramping up production in Charlotte. Devin Dodge: Okay. Makes sense. And then maybe just sticking with AVL. I was just wondering if you could provide an update on the ramp-up at the Charlotte facility and how quickly that could get to full production. And just wondering if there's any plans to expand the AVL network beyond Charlotte, either at existing facilities or just expanding the overall network? John Doolittle: Yes. Just on Charlotte, Devin, I think Mike called that out in his remarks. We're making good progress in Charlotte. The building is basically kitted out. We're hiring folks. There is some limited production going on right now, and we would expect that to continue to grow throughout 2026. And I commented last quarter, I think, on margins following that growth in production. Mike, did you want to talk about. Michael Stanley McMillan: Yes. Just let me -- your second part of your question there, Devin, on further expansion. I mean I think the first thing we want to do is ramp up production, both Hamilton and here. Hamilton is at a pretty good state at the moment. I think there is also some opportunity when you think about operating efficiently in, say, the Charlotte facility, shift scheduling, adding a little bit more assembly and manufacturing space, that type of thing. So we'll evaluate that first before we would go further with another opportunity in another location. Operator: And the next question comes from the line of Maxim Sytchev with National Bank Financial. Maxim Sytchev: If we switch gears, if we can, to the kind of the core Equipment group, can you maybe talk about the inflection in the backlog year-on-year? And what's driving that specifically in terms of end markets, et cetera? Michael Stanley McMillan: Yes. Just so I'm clear, Max, just you're focused on more traditional equipment group as far as the backlog? Maxim Sytchev: Yes. Yes, please. Michael Stanley McMillan: Yes. I think as we've talked about probably over the course of the last year or so, availability of equipment has improved quite significantly in the industry and bundle that with a little bit softer demand and activity levels in Canada with some of the other factors at play. I would just say that what we are seeing, again, strong levels of bookings, strong -- our backlog continues to be at a relatively high level, even if you back out the power and energy side of things relative to -- we always look back at, say, 2019 and where we would normally be with strong availability. And so I'd say it's an interesting dynamic. I'd say we're still trying to help our customers with solutions, whether it's new equipment, which has strong availability, but also as we look at inflationary effects over the last several years, the right solutions for them in terms of used rebuilds, rentals and so forth. And so you tend to see that. But right now, I would say, given the demand strength, customers do have the opportunity to make their purchase decisions in line with what they're seeing in the project pipeline and some of the infrastructure we anticipate will materialize over time. So it's a little more patient than it has been, say, for the last little while. Maxim Sytchev: Okay. No, that's fair enough. And then in terms of the margins on AVL, I know that John sort of alluded to this in the previous question, but how much of a drag was Charlotte ramp-up in the margin performance for AVL in Q4 from your perspective? John Doolittle: It wasn't a significant drag in the fourth quarter, Max. And all I was saying is we -- the expectation as we build out production is that, of course, costs kind of upfront before you get revenues. And so we would expect margins to build as revenue grows in Charlotte over the course of the year. But it wasn't much of a drag on the Q4 performance. Operator: And your next question comes from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: I wanted to key off a comment in regards to the bookings in the Equipment Group in the fourth quarter. You mentioned that construction orders were up 9%, reflecting more normalized customer demand. Can you sort of elaborate on that comment? Is that confidence driven, project driven? Any detail you can give there would be helpful. Michael Stanley McMillan: Yes. I think, Cherilyn, it's a number of factors when you break it down. I think it's, like I mentioned earlier, availability and so forth. I think also, it's not unusual for us to see in Q4, depending on how customers -- their financial positions are and what they see for year-end buys and they can time it. This year, we certainly have better availability, so they can -- you'll see the booking activity was pretty strong in Q4, for example, right? And our execution on new sales was strong in the same period. And so there's certainly an element of that. I'd say I'd be careful on confidence in the market at the moment. I mean we are seeing a little bit of activity. But we're -- I think it's -- we're still waiting to see improved activity levels in infrastructure, sewer water, all the things that tend to drive a lot of the initial construction activity. And I think it really relates to the economic uncertainty in the marketplace and the work environment, right? So... Cherilyn Radbourne: Okay. That's helpful. And in terms of the narrative around the potential for nation building infrastructure projects, how are you tracking that internally? And what are your thoughts at this point as to when that could start to positively impact the business? Michael Stanley McMillan: Yes, it's a great question. I think a couple of things there that we certainly are keeping an eye on. Like I would say the tailwinds or the backdrop and you hear about it almost on a daily basis on the news is resource development. We often hear about Northern Ontario development opportunities. I think, of course, commodity pricing and everything is in a good position, including even iron ore and things like that at the moment. And so I'd say that definitely provides us with cautiously optimistic long-term outlook. I would say, in terms of timing, that's the big question. Like we're watching carefully to see where mine developments are, but also infrastructure when you think of roadworks. And there's certainly like in our core markets like Ontario, you often hear about some of the road building and other things that are planned. I would say yet to be seen, though, in terms of material movement and some initial stage stuff is happening. But it'd be difficult to predict where we're going to be in '26. I think as we look longer term, '27 forward, I would say we'd be cautiously optimistic that we're going to start to see some good development in both of those areas. John, anything you want to? John Doolittle: It's good Mike. Operator: And your next question comes from the line of Sabahat Khan with RBC Capital Markets. Arthur Nagorny: This is Arthur on for Sabahat. I want to start with the Equipment Group bookings. I know you called out mining orders as being reflective of normal lumpiness. But can you just give us a little more color on where the orders are coming from? And would you expect an increase in order activity over the coming quarters given where commodity prices are? And as a follow-up, can you also dig into the Power Systems growth between both AVL and the rest of the Equipment Group business? Michael Stanley McMillan: Thanks Arthur. Maybe just to start out. On the bookings in the mining side, I think, as John mentioned, it is -- and I think I commented, it is lumpy here. It is a little bit more cyclical. And so we tend to see, as you know, lower frequency of orders, but usually larger in nature, unless it's replacements or supplementary ancillary equipment. So we are seeing -- I think given the commodity backdrop, we are seeing some good interest in mine development, and that would be in the gold sector, of course, but also in areas of nickel and other base metals and things like that. And so our goal, again, is to -- it's a very competitive space. There are some very capable players in the equipment space. Our goal is to compete and win and earn our way into those projects. I mean we certainly are prepared to invest in terms of infrastructure, technician workforce and support throughout the cycle for our customers. And so that's one of the areas we try to add value, if you will. And so it's very difficult to predict the order flow, but I think we do see a reasonable pipeline of opportunities over the next several years, and these are long-duration projects, right? So just to give you a bit of color, I mean, it's hard to pin that stuff down, but I think the Canadian marketplace commodity backdrop provides good investment, which generally results in mine development and opportunity for our team to execute. Yes. You mentioned -- sorry, Arthur, you mentioned also the Power Systems side and that sort of thing. I think certainly, you get some good color out of the AVL disclosure that John and I provide in the order backlog and so forth to give you a sense of where that's headed. Maybe John can talk a little bit about the timing on that backlog and so forth. But I'd say it's been driven by some of the Eastern U.S. market activity out of the AVL side. The Power and Energy Group here in Canada is doing a nice job in the number of projects. But I'd say the data center forecast in Canada is certainly lagging the U.S. activity. Like I think there is certainly some interest starting to develop. But I would say it's still early days here in the Canadian marketplace for that particular activity. John Doolittle: Yes. I'd just say on AVL, the backlog is about -- just over $425 million. And as I said, we would expect that to roll out over the course of 2025. And that accounts for the largest chunk of the growth in the Power System order bookings. Arthur Nagorny: Got it. Maybe just a follow-up on that AVL backlog. So it sounds like duration is kind of normal course. But the growth in the backlog, is that largely reflective of the ramp-up in the Charlotte facility? Or is a lot of that also coming from the Hamilton facility as well? John Doolittle: It's a combination of both. It's a combination of both, just strong orders on both. And we decide based on capacity, where we're going to fulfill those orders. So they kind of come in centrally and then we decide where to place them. Arthur Nagorny: Got it. And at this point in time, is that, I guess, backlog and kind of the revenue that you're seeing, is that largely reflective of kind of volume across the business? Or is there some element of pricing in there as well that we should be keeping in mind? John Doolittle: That's largely reflective of volume at this point. Arthur Nagorny: And then last one for me on the revaluation of the commitment liability. Can you just remind us which KPIs this might be based on? And is there anything to keep in mind as it relates to potential future revaluations? John Doolittle: Yes. I mean as we talked about when we acquired AVL, we acquired 60% of the business and then the other 40% we're going to acquire over time through 2031. And that is -- that 40% is structured so that to the extent the business does better than we anticipated in the business case, then there'll be a higher multiple on a payout. And so the business is doing very well. So we took a look at the liability at the end of the year and revalue it upwards from $42 million to $50 million. And that's why that $7 million expense was booked in 2025, and you'll see that as a separate line item in the P&L. And we'll evaluate that on a regular basis as we move forward, track how the business is doing and estimate that liability, and you'll see that recognized, and we'll talk about it on the calls. Operator: And your next question comes from the line of Krista Friesen with CIBC. Krista Friesen: I was just wondering if you could speak to kind of where you're at in the mining cycle right now as we think about product support coming in relative to the orders delivered over the last couple of years and also acknowledging that I believe you called out decent bookings in the quarter for your mining business, too. Michael Stanley McMillan: Yes. I would say we're sort of midway, like you mentioned, some of the larger fleets we've talked about over the last several quarters. And it does take 2 to 3 years to really get the equipment and the hours and utilization up to a point where we do more than just preventative maintenance and routine things. And so I'd say we're about, let's say, on average, halfway through that type of cycle before we start to see component replacement opportunities and so forth. The activity levels in the mining sector are pretty strong and the hours continue to build, but it does take some time. I think -- and again, as we mentioned earlier, when you look at the order book and how we're seeing things develop over time, we continue to be cautiously optimistic, but we're very mindful of the fact that every deal is unique, and we have to earn our way into those opportunities. I think the one area I would I would notice, as we look at the sector over the long cycle, one of the areas we're also looking at is similar to one of our customers today is running autonomous solutions. And I think when it comes to technology and the evaluation of those offers, I think that's also another factor that may play into opportunities down the road. But again, these are -- these types of projects take time and the customer needs to get comfortable with the technology adoption and the benefits. Krista Friesen: That's great color. And maybe just on the AVL acquisition, obviously, been quite successful and a lot of growth there. Are there other sort of adjacent areas like this that you're looking at in terms of M&A kind of in the near to medium term here? Michael Stanley McMillan: I would say at this stage, Krista, we -- one of the reasons we really like the AVL acquisition, as we often talk about when it comes to M&A is complementary scope, if you will, that really fits well with, like, say, the engine business, the Power and Energy business. And so from that perspective, I would say we're very mindful of the space, the level of investment required, the capital going into the market, but also the supply chain. So when we look at that, I would say anything that we'd look at today would be around traditional parts of our business that would be complementary and broaden the service and product offer to our customer. I think from an AVL perspective, again, it's helping to support the execution and delivery of the units that we need to provide and the supply chain. There's -- within these units, we have a number of components like plenums, exhaust SERs for scrubbing emissions and paneling and switchgear and so forth, which a lot of that we can do ourselves today through our Power and Energy group. And so that's where our focus would be, would be just to make sure that whatever we're looking at is a complementary part of the business that we have a much better understanding. Operator: And your next question comes from the line of Steve Hansen with Raymond James. Steven Hansen: John, I think you referenced the new dividend structure for AVL that's going to be coming up here. How do we think about modeling that? I understand your ownership stake, but I think you referenced it would be based on trailing earnings. Is there a catch-up to be had in the front quarters as we think about the trailing '25? Or how should we think about that sort of cadence of expense? John Doolittle: Yes. So Steve, the way I laid it out was that there will be dividends paid in 2026. I would expect it to be a dividend paid in the first quarter. And the way you should think about that is there are a couple of components. One is 2025 earnings before amortization as one input. Then the other input is, of course, we operate businesses on a call it stand-alone basis. And so AVL is in growth mode. And there are certain cash requirements that accompany that growth mode. And so we've got to take into account historical earnings plus cash needs going forward, and those things will factor into any dividend that we pay on AVL in the first quarter and as we move forward. Steven Hansen: Okay. But it will be a quarterly regular rated dividend, I understand. John Doolittle: TBD, we're looking at 2025 results right now and focusing on that, and then we'll be evaluating it as we move through 2026. Steven Hansen: Okay. Helpful. Just switching over to the core Equipment Group. I know, Mike, you referenced good availability out there in the market, but the margins do look to be continuing to soften here on, again, the ex-AVL business. Is that a pattern that we can expect to start stabilizing here as we look at sort of that core underlying? Or how do you think about the margin profile going forward? Michael Stanley McMillan: Yes. I think, Steve, I think a couple of things to think about. We always talk about the factors affecting our margin. I think availability has been pretty strong over the last several quarters. And certainly, that plays in. But I think an important part for us is how you think about mix. And so when you think of, say, John's comments, we talked a little bit about decent new equipment deliveries. However, we didn't see a lot of mining deliveries. And again, usually mining is higher value, tighter margin just given the nature of the product. And so even within the New Equipment segment, I would say, think about the mix and what we're talking about there, used was not bad in the quarter. Like if you look at our used revenues was up 4% versus last year, I think, roughly. And so that can give us a little bit to consider there and rental was improved, up 5%. And so those things, when you think of the overall balance and then the margins within those segments, that's really the right way to think about how we go forward. Availability, I think, is strong. And so you would expect the market to be competitive in terms of pricing and value. And so we don't -- I think the wildcard there would be continued tension between the trade dynamics here that we're talking about and if there are more tariffs that come into play, and that can affect commodities like steel and aluminum pricing and things like that. And that's one thing that we're very cognizant of and monitoring carefully. Steven Hansen: Okay. Great. And just the last one for me. I know it's a bit nichey, but just is there anything to think about with the weather pattern we're expecting here, higher rental demand on snow removal? Is there anything that really plays from this sort of atypical weather event we're seeing through first quarter here? Michael Stanley McMillan: Yes, it's a good question. So we have just come through a bit of a blast here in January. I would generally step back and say, look, we live in Canada, and we deal with the weather conditions, and we've had warm winters and cooler winters. And definitely, we see more snow removal activity, maybe a little bit more on the heating and things like that. But there's also a point where depending on temperature, we're not -- our customers are not using heaters, for example, the soaking ground when it's very cold, but they are using it in the intermediate sort of temperatures. And so all that to say, there's a subtle effect there, but I wouldn't say it's overly material. But certainly, you see the activity out there in the snow banks around our market anyway out here in Eastern Canada, which has been positive for us. Operator: And your next question comes from the line of Yuri Lynk with Canaccord Genuity. Yuri Lynk: A question for John. I just want to make sure I'm modeling the noncash AVL expenses going forward, I'm referring to the $33 million in the quarter. You mentioned that the amortization portion of that to the backlog is pretty much will be exhausted in Q1. But just so I'm clear, that doesn't mean that, that $33 million goes to zero, right? There's another component in there related to the commitment to buy the remaining shares of AVL that's going to continue? And if so, can you help us kind of quantify what that might be? John Doolittle: Yes. A couple of things to think about there. So if you go to Page 33 of the financials, you'll see the way the intangibles were broken out for the AVL acquisition, and most of it was allocated to customer order backlog. So we bought backlog in January of 2025. And most of that has been sold has rolled through revenue. So you look at it, there was $76 million that was acquired, $75 million of that was amortized through the year. So there's a small piece that's left to be amortized in Q1. Customer relationships is the other piece of intangibles, and that amortizes over 5 years. So the first year was taken in 2025, and the rest of it will be amortized over the next 4 years. And then your last part of the question is related to the 40% that we don't own. and we have an obligation to buy those shares over the course of the next number of years. And so we set up a liability when we bought that 40% based on everything we knew at the time. And we've got to have a look at that on a regular basis to say, are we tracking to that business plan? Is AVL doing better than we thought? And because it's based on an earnings multiple, it could go up and it could go down. So we have to revalue it. In this case, it went up a little bit, and that's why we booked the expense. So we'll track that, like I said, going forward. If you see any changes in that valuation number, we'll explain it. Michael Stanley McMillan: Yes. And just on that purchase piece, too, Yuri, I think one of the things we mentioned in prior calls is we're looking to buy out that 40%. We actually have a schedule, like John says, the last 10% so it's in 10% blocks year-over-year and the last piece is expected to be purchased out in early 2031. John Doolittle: Does that help, Yuri? Yuri Lynk: Yes, that's helpful. Operator: Thank you. And I'm showing no further questions at this time. I would like to turn it back to Mr. John Doolittle for closing remarks. John Doolittle: Okay, Ludy. Thanks a lot for hosting us today. Thank you, everyone, for joining for your questions. That concludes our call. Please be safe. Have a great day, everybody. Thank you. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning or good afternoon all, and welcome to the PZ Cussons Half Year Results Call. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand the floor to CEO, Jonathan Myers, to begin. So Jonathan, please go ahead when you're ready. Jonathan Myers: Thanks, Adam, and good morning, everyone, and thank you for dialing in to our first half results presentation of PZ Cussons financial year 2026. I'll start off with an overview of our performance and provide color on some of the drivers behind it and how we are moving to be a more focused and more resilient business. I'll then hand over to Sarah to take us through a review of the financials before we finish with some time for your questions. As many of you will be aware and hopefully are joining, we are hosting a capital markets event this afternoon in London, which is intended to address many of the questions that may be on your mind about the future of PZ Cussons. So this morning, we'd like to focus on questions relating to today's results and this financial year, leaving the topics of strategy and future plans to this afternoon. So let's get going with the results we announced this morning then. Overall, we delivered a strong financial performance in the first half of the year with broad-based growth and a healthy balance of price/mix and volume. I'll come on to more on this in just a moment. In December, we announced the conclusion of the strategic review of our Africa operation following our announcements earlier in the year regarding the renewed strategy for St.Tropez as part of our portfolio for the future. I'll provide an update on St.Tropez in the coming minutes. But the consequent sale of our share in the PZ Wilmar joint venture to Wilmar, along with the ongoing disposal of other noncore assets in Africa and Asia, has resulted in a significantly strengthened balance sheet and in PZ becoming a more focused and more resilient business. While all of this was in play, we have also worked hard to reduce our cost base and expect to deliver GBP 5 million to GBP 10 million of savings in FY '26, in line with previous guidance. Combined with the overall business performance to date and our outlook for the remainder of FY '26, we are increasing our operating profit guidance for the full year. Let me say a little bit more now about our overall business performance. We have delivered broad-based growth across our 3 reporting regions, each of our 4 lead markets of the U.K., Australia, Indonesia and Nigeria, and each of our top 10 brands in those markets. Obviously, we're pleased with this momentum, but we know we still have much more to do, especially translating our increasingly exciting multiyear growth plans into sustained in-market performance year in, year out. Coming back to our first half performance though, it's worth calling out that our revenue growth of 9.5% is balanced between price and volume, including in Nigeria where volume has returned to growth after several rounds of pricing that has initially knocked volume into decline. You'll hear a lot more about our African business later today. So let me give you a couple of examples outside Africa of what has been driving the momentum elsewhere. In the U.K., Sanctuary Spa grew double digits through the half, driven by a record Christmas gifting period, during which revenue was up more than 30%. We've been learning and optimizing our plans each year. This year, we shipped 98% of our Christmas packs before December and have more than doubled Christmas gifting as a revenue building block in our annual plan versus just 2 years ago. For example, it was one of the leading gifting brands in the Golden Gifting Quarter in Sainsbury's this year, beating Lynx, Nivea and Dove, and nearly doubling sales versus last year. We've gone beyond with just Sanctuary Spa this year and successfully expanded gifting to Original Source, Imperial Leather and Cussons Creations as well, playing at more price points, pushing higher and lower, and driving more displays in store. As you can imagine, we're already well on with finalizing plans with retailers for Christmas 2026. And all I'll say is look out for the GBP 100 Sanctuary Spa gift pack. Moving to Australia now, whether it's the new and improved auto dish format for Morning Fresh or a new flavor for Rafferty's Garden, innovation has played an important part in driving revenue growth on our top 3 brands, with each brand growing market share over the last 12 months. And the good news is we're growing share in categories that are also finally back in value growth in the latest quarter after a prolonged period of the Aussie shopper feeling the pinch. Beyond our top 3 brands, we have also used pack format and variant innovation on Original Source to launch a 1-liter pump pack onto shelves. In Australia, the U.K.'s market-leading 250 ml size that is common in our bathrooms is regarded as a travel size or something thrown into the gym bag. Instead, the market is in larger packs often with pumps. So rather than shipping sizes shoppers don't always want halfway around the world from our U.K. factory, we're now manufacturing a consumer-preferred pack size in a format with a pump from our Indonesian factory alongside Morning Fresh for the Australian market. Add all of this progress together, the ANZ business delivered its third consecutive quarter of revenue growth. Let me come back to action to strengthen our balance sheet and focus our business. We've made good progress over the past 5 years in reshaping the portfolio with the exit from noncore businesses along with the sale of surplus nonoperating assets. Most notably in this reporting period, we announced the sale of our 50% stake in PZ Wilmar, our noncore Nigerian joint venture. To date, we've received GBP 48.5 million of cash proceeds with a small additional amount from ancillary land assets expected shortly. This has delivered a material improvement in our credit metrics. Sarah will talk you through. In June, we confirmed our decision to retain St.Tropez and set a new strategic direction for the business. You didn't see St.Tropez amongst the top 10 brands on the chart just now. And that's because the seasonality of the sunless tanning category dragged the absolute revenue down and St.Tropez falls just outside our top 10 when looking at our first half in isolation. It didn't grow overall revenue in the half, very much highlighting the work in progress to turn the brand around. But we did grow plus 12% in the U.S. as the transition to The Emerson Group went smoothly, and we started to see some renewed traction with our retail partners. We clearly have more to do elsewhere where revenue is down over 30%. This was in part due to high levels of inventory coming into the year. We're already reducing that inventory as we move through this year, and then the need was to win back retail support for the brand. Still too early to call the season yet, but we're seeing strong support plans agreed for the new innovation this summer and the special packs and activation plans to support the 30th anniversary of the brand. For example, the latest shelf reset of merchandising material in boots has seen a return to retail sales growth since the change was made just a few weeks ago. Suffice to say, there will be much more to come on St.Tropez as we move through the season. And with that, I'll hand over to Sarah to take us through the financials. Sarah Pollard: Thanks, Jonathan, and good morning, everyone. I'm going to take you through the PZ financial performance for the first half of FY '26, starting with a summary of the key group metrics, then moving on to the detail in each geographic region before covering cash flow and net debt and finally, our guidance for the full year. Unless otherwise stated, the numbers I will refer to are on an adjusted basis. So turning first to the headlines. Group revenue increased to GBP 269 million, up from GBP 249 million in the prior year period. On a like-for-like basis, revenue grew 9.5%, reflecting broad-based growth across each of our 3 reporting segments, each of our 4 lead markets and each of our top 10 brands. Adjusted operating profit increased to GBP 36 million, up from GBP 27 million last year, a 240 basis point improvement in margin. There is no profit contribution from the disposed PZ Wilmar edible oils joint venture in this half numbers. So if we also exclude it from the comparative period, operating profit increased from GBP 22 million to GBP 36 million. Of this GBP 14 million improvement, around GBP 6 million is the result of FX revaluation gains on U.S. dollar-denominated balance sheet liabilities in Nigeria, resulting from the appreciation of the naira in this first half as compared to the currency's sharp decline in the first 6 months of FY '25. On a statutory basis, operating profit was GBP 40 million as well as gains recognized on surplus nonoperating asset sales and a book loss in half one on the Wilmar proceeds received in that period. This figure also includes FX gains on the group's historical equity-like capital loans to its Nigerian subsidiaries, previously accounted for in the balance sheet. Consistent with the change in accounting treatment for FY '25, during the strategic review of our African businesses when the naira was depreciating in value, they are now shown on the face of the income statement, but to date adjusted out by virtue of them being deemed to be short term in nature. Adjusted profit before tax increased to GBP 30 million, up from GBP 20 million last year due to a reduction in the interest charge as well as the improvement in operating profit. Adjusted earnings per share was 4.37p compared to [Audio Gap] percent lower than the growth in profit before tax due to a higher group tax charge and minority interest leakage in Nigeria. The higher tax is due to 2 factors and is now more representative of the rates going forward. Firstly, the geographic mix of profits with more coming from Nigeria where the tax rate has normalized now that we have moved past the statutory losses experienced since the 2023 currency devaluation when only a nominal amount of tax was payable. It's also explained by the disposal of PZ Wilmar, which has always been equity accounted, meaning we reported our 50% share of the joint venture's post-tax profit into operating profit rather than the associated tax charge being recorded separately in the group's tax line. A dividend per share of 1.5p is unchanged from last year. Free cash flow was GBP 23 million, which when combined with cash proceeds from disposals during the period, resulted in a significant reduction in net debt down to GBP 84 million. The group revenue bridge shows an adverse foreign exchange impact of GBP 4 million relating to the depreciation of the Australian dollar and the Indonesian rupiah. The Nigerian naira appreciated in the period. As usual, these FX movements and the corresponding impact on revenue are shown in the appendix to this presentation. We delivered like-for-like revenue growth in each of the 3 reporting segments, which I will come on to in a moment. On a continuing operations basis, excluding PZ Wilmar from the base period, adjusted operating profit margin increased 430 basis points. Gross margin declined due to geographic mix as Nigeria with a structurally lower margin grew revenue faster than other parts of the group. The majority of the overall operating margin improvement was from a reduction in overhead. This was a combination of the FX revaluation gains on balance sheet liabilities in Africa plus group-wide cost savings. And in addition, marketing investment was, as we had planned, lower as a percentage of revenue, but this will reverse in the second half of the year. So turning now to the regions. Revenue in Europe and Americas increased to GBP 102.5 million with like-for-like growth of 1.7%. We saw growth across most of our brands, including 30% growth in Sanctuary Spa from a successful Christmas gifting range. This was despite challenging trading generally as the U.K. market remains highly competitive, something showing no immediate signs of impact. St.Tropez revenue declined 11% overall. And excluding this brand, overall growth in the region would have been 3%. Adjusted operating profit increased by GBP 2 million, reflecting the integration of the Childs Farm business as well as marketing investments weighted to half 2. In APAC, revenue was GBP 88 million, a growth of 5.2% on a like-for-like basis, but flat in reported currency with the Australian dollar and Indonesian rupiah depreciating against sterling. As Jonathan mentioned, we're encouraged by the Australian share gains in categories which are back in growth and with the 9% like-for-like revenue growth in Indonesia. Adjusted operating profit, however, declined GBP 1 million, including some legacy VAT charges in our smaller Asian businesses. African revenues increased to GBP 79 million. Like-for-like growth was 28% from both the annualization of pricing taken in FY '25 and the return to volume growth. We saw growth of 30% in reported currency as the naira has moved from a period of stability to now appreciating in value. This afternoon, Awie will take you through the team's plans to grow the business over and above the passing on of inflation, which in Nigeria continues to moderate to now around 15%. Removing the PZ Wilmar JV contribution from the FY '25 base, operating profit grew by GBP 7.6 million. Of this, as I mentioned, GBP 6 million was due to FX revaluation gains on balance sheet liabilities denominated in U.S. dollars as a result of the naira strength versus its depreciation in the prior year period. And whilst the first half margin of 14% does also include the carryover benefits of prior year pricing whereas half 2 will not, assuming the naira rates remains unchanged from current levels and assuming no change in underlying business performance, low to mid-teen margins should be sustainable going forward. Our current treatment of these FX revaluation impact is consistent with prior periods when the naira was depreciating. You'll recall we took a significant exceptional charge in FY '24 due to Forex losses related to legacy liabilities built up over many, many years prior to the devaluation when it was not possible for U.K. corporates to legitimately access the U.S. dollars required to settle such liabilities and repatriate the cash. The headline gains I'm describing today relate to liabilities incurred as part of recent trading, exactly as we got the FX losses from in-year operational liabilities in the prior FY '24 and FY '25 financial years where we executed multiple rounds of price increases to protect local profitability. Finally, turning to what we call the central reporting segment, essentially an internal cost center. The first half of FY '26 has seen a GBP 4.6 million reduction in the adjusted loss we report here, partly due to favorable intercompany FX movements from the naira and partly due to people cost savings and process efficiencies, reducing the external audit fees. We plan to review our presentation of these central costs in future reporting periods to better isolate the true corporate overhead from costs directly attributable to other parts of the business. The higher statutory loss represents the disposal of the PZ Wilmar JV, reflecting the receipt of only some of the total cash proceeds in the first half of the year. Turning now to the balance sheet. Leverage has reduced further from both free cash flow generation and disposal proceeds. Free cash flow was GBP 23 million after the seasonal working capital cash outflow from our half 1 reporting date falling immediately before peak trading periods in both Nigeria and the U.K. Christmas gifting. Both the high inventory and debtor positions typically unwind during our third quarter. CapEx was low at GBP 1 million due to the phasing of a number of projects, but we anticipate full year investments to be more in line with normal levels. The half 1 cash flow includes GBP 3.6 million of cash adjusting items, primarily relating to costs associated with the concluded strategic review. Beyond these drivers was a GBP 2.6 million cash add-back representing share-based executive compensation schemes and noncash pension charges. We received a total of GBP 27.6 million of cash proceeds from asset sales in the period. This comprised GBP 15.8 million gross proceeds from the sale of surplus nonoperating assets in Africa and Asia, and GBP 11.8 million from the initial completion steps of the PZ Wilmar disposal. This resulted in reported net debt down GBP 84 million with net leverage of 1.1x. As one of our new guardrails to better protect the business from future adverse currency impacts, the capital allocation policy we are announcing today now defines our leverage metric as net debt, excluding any cash balances held in Nigeria. And on this more conservative basis, would have been 1.4x at the end of the first half. The timing of the receipt of the Wilmar cash proceeds has been split across a number of individual components with consideration received for our equity holding, the repayment of loans and also some additional assets in the transaction perimeter. Since the end of November 2025, we have since received a further GBP 37 million from Wilmar, giving a pro forma half 1 net debt position of GBP 48 million and leverage below 1x. As we noted in this morning's release, trading to the end of January has continued in line with our expectations. And this slide provides updated guidance on some key items, including an overall increase in full year operating profit up to a range of between GBP 53 million and GBP 57 million compared to GBP 50 million to GBP 55 million previously. This guidance does imply a year-on-year decline in profit in half 2, a phasing profile that we signaled in our AGM trading update in November, largely attributable to the timing of marketing investments with a significant step-up in spend in the second half. We've also provided firm full year guidance on leverage given the progress to date, and we expect to end the year at the lower end of our new capital allocation policy range. Today will be the last time I present the PZ Cussons results. And so I would like to thank colleagues for their unwavering support, our advisers for their wise counsel and during some challenging times, and to wish external stakeholders all the very best for the future. I'm pleased and proud to be leaving the business in better financial shape and with a more encouraging outlook. And with that, I'll hand back to Jonathan. Jonathan Myers: Thanks, Sarah. So we can turn the microphone over to you now. And as I mentioned at the beginning, ideally, let's keep the questions focused to this set of results, and we'll happily answer questions on the broader strategy and future plans at our event this afternoon. So Adam, I think it's over to you. Operator: [Operator Instructions] And our first question comes from Matthew Webb from Investec. Matthew Webb: I've got a few questions. Maybe I'll do them one by one. The first is on Indonesia where I see there's been both some social unrest and economic instability. And I think Moody's has downgraded the outlook for the country recently. I just wondered whether you're seeing any impact of that on trading and also whether that's changing how you think about how you run that business, how you invest in that country? That's my first question. Sarah Pollard: Matthew, it's a good question. Maybe if I talk to some of the financial aspects, and then I'll hand over to Jonathan on some of the commercial trading points. So Matthew, you're referring, of course, to the Moody's downgrade in terms of the nation's overall outlook. Indonesia, of course, is an emerging market, markets which bring some inherent volatility. I think what I would do though in terms of financial perspective is to maybe talk a little bit about Indonesia and our business there, which is, first and foremost, to say, for us, it's a structurally advantaged business. We are in the baby toiletries business where there are still 4 million to 5 million newborn babies born every year. It's a high-margin business for us, and Jonathan will elaborate on some of the characteristics of our business there. But the reason I say that is it's highly cash generative for us. We don't have local borrowings. Whilst the currency is coming under some pressure, the ForEx markets work relatively rational so we can both better hedge against any local exposures, but also repatriate cash in an efficient way. So I think as distinct from some of the challenges we've had in Nigeria, we would describe it as a lower risk profile for PZ Cussons. We are ever vigilant to make sure we can generate the hard currency returns that our shareholders demand. Jonathan, do you want to talk a little bit more about that one. Jonathan Myers: Let me take that a couple of things. So the first is just in terms of social unrest, Matthew, we have not seen disruption as a result of that. We have seen a little bit of disruption in Indonesia in the recent months, but actually much more of it related to flooding, particularly in the north of the country where some of our distributors, some of our retail partners, in fact, 1 or 2 of our employees were impacted. But we haven't seen anything impacting our business as a result of social unrest. Now if I come a little bit to where you were poking in the latter part of the question about how do we think about our risk appetite in the business, well actually, one of the first things that we are working on is how do we reduce our reliance on one brand. We're very exposed to Cussons Baby. We're very pleased with the progress of Cussons Baby. But we're working hard in the background on which will be the #2 or #3 brand, and in the coming months, we will update you on that. But actually, the risk mitigation and appetite assessment goes a bit beyond that because as we'll talk this afternoon, we have a significant manufacturing facility in Tangerang, which is the suburb of Jakarta, not only manufactures all our products for Indonesia and Southeast Asia, but it also produces all of our Morning Fresh for Australia. So in a sense, the good news that we'll talk about this afternoon is that we refer to a blended supply chain where we intentionally invest for scale in our own facilities, but we also have a good network of third-party manufacturers who give us not only agility, but in this case, also give us alternatives for business continuity such that if we were to encounter challenges, we would have alternative routes. And really, I know you hear a bit more about this afternoon about how we're thinking about our risk appetite in Nigeria and how we're putting in place together with the team in Lagos some guardrails to help us manage and mitigate that risk. We're going to be adopting that kind of framework to our business in Indonesia as well, which is we regard as a very positive and healthy way to address and manage our risk appetite as it translates into future projects and future investments. So it's on our radar screens. We are not overly concerned, but we are far from complacent. So happily, we'll talk more maybe late this afternoon about that as well. Matthew Webb: Excellent. Thank you. And my second question is sort of slightly technical one. The GBP 6 million FX benefit in Nigeria, am I right in thinking that that's sort of a swing rather than a GBP 6 million benefit all in this year as it were? And if so, whether it's possible to sort of break out to what extent that's a credit this year versus a debit last year, if I've understood that correctly. Sarah Pollard: Matthew, let me try on obviously one of my favorite topics. So is the GBP 6 million, if you like, what does it relate to? And what can we expect going forward? So it's real to the extent any income statement is a change between 2 balance sheet dates, and the accounting is entirely consistent with that, which we followed previously. It does, as you say, reflect a base year impact in terms of the steep naira depreciation of the first half of last year versus the relative stability of this half year. So that GBP 6 million year-on-year swing is a GBP 2 million credit this year versus a GBP 4 million debit last year. I think what I would have you think about is 2 things. One is it's a proxy for the overall economic environment, i.e., the naira stabilizing signifies an environment in which our brands can generate meaningful and sustainable value for us. But what you probably shouldn't do is expect another GBP 2 million or GBP 6 million necessarily in the second half of the year because, of course, those liabilities on the balance sheet are something that we have already and are looking to continue to extinguish because it's volatility either on the up or the down, but it's not helping. So we are going through a very determined program to recapitalize our local Nigerian subsidiaries and extinguish those liabilities. Matthew, if that helps. Operator: Our next question comes from Damian McNeela from Deutsche Bank. Damian McNeela: Just on the guidance, sort of following up from Matthew's question. What is -- or what is included in terms of FX gains, if any, in the second half to get to your increased guidance, is the first question. Sarah Pollard: Good question. Let me try and characterize the guidance more broadly and then laser in on the specific question. So we sit here with a little over 3 months of the financial year left to go. So I would say we have a good line of sight into the year-end. But of course, still some things left to navigate, most notably some volatility in the naira, but also, as Jonathan talked to in terms of St.Tropez, we have our first big U.S. season since deciding to keep the brand, which, of course, has a range of outcomes. We're expecting positive outcomes, but there is a range of outcomes on what is a relatively very profitable brand for us. The overall guidance includes FX as we see it today, is how I'd answer the question in the broadest terms, that it doesn't include another GBP 2 million credit relating to those first half balance sheet liabilities, mainly because I can't be certain the rates will hold, but actually because we are going through the process of extinguishing those balance sheet liabilities, which have in the past been a hurt, have in the first half been a help, neither of which is particularly helpful. So we are going with our local Nigerian Board colleagues through a series of steps to extinguish those liabilities, be they write-offs, be they debt to equity, be they rights issues, various capitalization steps to effectively reduce the sensitivity in our P&L to movement in the naira, which if you remember maybe 18 months ago was something like every 100 moves between the naira and the U.S. dollar was giving us something like GBP 8 million of P&L sensitivity. That number today is closer to only GBP 4 million. So in any 1-year period, probably about GBP 2 million of a translation impact and GBP 2 million from that balance sheet effect. The latter, we are trying to extinguish for us all. So it doesn't assume another GBP 2 million help in the second half of the year. Damian McNeela: Okay. That's pretty clear, I think. And just carrying on with the Africa theme, I don't know whether you will touch on it later this afternoon, but is there an updated position on how you view the minorities of PZ's Nigeria? Jonathan Myers: We'll talk a lot about Africa this afternoon, Damian. We are not spending a lot of time on the -- if you like, the ownership structure of our operations in Nigeria. We're talking a little bit more about the resilience and underlying performance of the business. We have what we have, which is a listed entity of which we are very clearly the majority shareholder. We have an awful lot of retail minority shareholders, and at the moment, we are making that work for us. Sarah Pollard: And Damian, you might be referring to 2, 2.5 years ago where we contemplated buying out our minorities and delisting. We may contemplate something similar again and consider it as we would any allocation of surplus capital to any acquisition of an earnings stream. We consider, as we do, that Nigeria brings with it a bright future. We may choose to put some capital down to acquire 100% of those future earnings because as you rightly, I think, are pointing out, our operating profit down to earnings per share experiences some leakage as a result. Damian McNeela: Yes. Yes. Okay. That's very clear. And then if I may, one last one. U.K. performance in core washing and bathing looks to be pretty solid. Can you give an update or sort of some background color on the competitive environment and what your market share gains have been across the period, please? Jonathan Myers: Yes. So let me do that, Damian. I think the word you use there is the perfect articulation. We have a solid performance. We're really pleased with the financial delivery of our U.K. business, at least as we have benefited from some real structural P&L improvements as we -- you remember, we combined it with our previous beauty business. We have integrated it with our European setup. And we have also integrated into it more fully our Childs Farm business, which for the first 2 or 3 years of our ownership, we kind of kept at arm's length. So we now have a very strong financial structure, which will give us the ability to invest sufficient marketing money to ensure that we are nourishing and nurturing our brand for the future, which is a good thing because we're going to need it, right, because the market is not getting any less competitive. In general, without overdoing the hackneyed phrase, we continue to see the bifurcation of the U.K. shopper. We have an awful lot of people hunting for value and looking for cheap lookalikes or private label or going down to the discounters. Equally, we have people who are willing to splurge on small luxuries. You only have to look at some of our Christmas gift sets from the price points that were considered just on our business but alone more broadly. And you continue to see that very, you like, dynamic but value-focused shopper environment. Within washing and bathing, we see 2 things. We continue to see scale players, most notably Unilever, really fighting to try and make their brands justify the price they're asking. So they do have a higher value share than us and they charge a higher price per mill. So that's something we need to make sure if we want to, our brands can do. And I'm sure you would have seen the Unilever-Dove sponsorship of Bridgerton recently as an example of we can never rest on our laurels the big multinationals. But actually, as recently as our Board meeting just yesterday, we were reviewing exactly the competitive nature of the U.K. modern bathing market. And the real change in the last 12 to 24 months has been the growth and acceleration of the explosion of Gen Z or Gen Alpha start-up brands, which are getting on to the shelf maybe 3, 6, 12 months disrupting and either surviving or dying quickly or being replaced. So it is really competitive. We have grown share in some subcategories of washing and bathing. We have not yet really nailed shower, which is why this afternoon you will hear a little bit more about what we're doing on the shower category, in particular to try and make sure that both Imperial Leather and Original Source are firing on all cylinders. So we are not complacent. Operator: The next question comes from Sahill Shan from Singer Capital Markets. Sahill Shan: Good set of numbers, good share price reaction. Three questions from me. Can I just start with the dividend? So optically improved balance sheet, EBIT guidance raised. Just help me understand the rationale for holding the dividend flat. And does that sort of reflect some prudence ahead of investment in H2? Or does it signal a more cautious stance on cash generation? Sarah Pollard: Sahill, let me take that question. Thank you for your interest in PZ Cussons. So you may also have seen this morning, we put out a short RNS ahead of our Capital Markets Day this afternoon where we set out a new capital allocation policy, essentially inking in what we consider to be a prudent leverage range. We're then going on to say use of surplus capital will first and foremost be focused on a progressive ordinary dividend policy, then with any bolt-on M&A opportunities and more one-off returns to shareholders being considered alongside each other. So in the first half of this year, we have reported 12% increase in earnings -- as we look ahead to the full year, a little bit as I touched on in terms of the structural dynamics of our Nigerian growth that acts as a slight tether to our overall earnings per share outlook for the full year. And therefore, we felt it was prudent to not increase the dividend on the first half of the year. But through the cycle, you will hear us talking about this afternoon a very clear and confident commitment to a progressive dividend policy by which we define it as an absolute increase over time. So I think more to come, Sahill, is how I would answer your question. Sahill Shan: Good answer. Clear. Second question, Africa earnings. So I think I heard this correctly, but strip out the GBP 6 million FX, how should I be thinking about the underlying run rate margin in Nigeria? Are we looking at around mid-teens sustainable on a normalized basis, absent currency headwinds going forward over the short to medium term? Sarah Pollard: Sahill, another good question. Let me see if I can give another good answer. So I think you should be thinking about the 14% as being coming together of a number of positive factors, some beyond our control, many, many within our control. So we are very, very proud of having over the last 5 years, moved that business from a position of local currency loss to local currency profitability. So we are benefiting from the carryover of pricing that was necessary and successful through the significant inflation that we saw during the devaluation whilst also continuing to invest behind their brands so they remain relevant to consumers and therefore, a very pleasing return to volume growth in the first half of this year. So I think the 14.7% is a little on the upside of what I would suggest is a sustainable range going forward. Low to mid-teens through the cycle is probably a better proxy. Sahill Shan: Got it. Clear. Final one for me. So a central piece. So in the U.S., you saw, I think I read 12% growth under The Emerson partnership. Rest of the world remains weak. Looking forward then, what does success look like over the next 12, 18 months? Is it revenue stabilization, margin improvement or both? Jonathan Myers: Great question. So you're absolutely right. So as part of the U.S. transition where we changed our operating model, partly the simplification of our business, which was part of what we set out at a very macro level of the company to do, so we closed up our own shop and we moved to a really credible go-to-market operator called The Emerson Group. And thanks to a lot of hard internal work, we managed a smooth transition from setup A to setup B. But more importantly, Emerson has fantastic access to retailers in the U.S. from ULTA and Sephora towards the top end of beauty right through to Target, Walmart, CVS and Walgreens. So we have not only seen a -- we haven't dropped the ball in the transition, we have also begun to see good traction as we have reengaged with some of the retailers that I mentioned just now. So in effect, the double-digit declines that we saw in the previous year in the U.S., we have now reverted to double-digit gains. The issues more broadly in the short term, and I'll come to your question on what does the success look like. The short-term issues elsewhere has been more a question of burning through some quite high inventories, most notably actually with Amazon in the U.K. where we saw at their behest some very strong demand as we ended last year. And the good news is our revenue performance is worse than their EPOS or retail sales performance, which is a clear indication that we are burning through the inventory. In fact, we're seeing quarterly sequential improvements in our numbers outside the U.S. So when it comes to what is successful, the first thing is we want to see progress in the coming season. It's a really seasonal business, right? After 7 months of our financial year, we would normally only expect to have shipped 1/3 of our St.Tropez revenue. So it's a little bit like an ice cream company waiting for the good weather, right? So we are very confident that we've got good plans for this year. We have new product innovation. We have special packs to celebrate 30th anniversary of St.Tropez. And we're also seeing some good traction, as I mentioned, with some of the retailers where we are re-engaging with more positive intent, most notably goods in the U.K. where we've seen a return to their retail sales or EPOS growth. So we will have an indication of this year of have we seen good revenue and are we tracking through the year on a quarterly basis back to the revenue growth. More broadly though, we want to see next season, which will be the season when a lot of the work on this year's innovation behind the scenes will then hit the ground that we've been working very collaboratively with retailers so that we then see really what is the first full year of both Emerson in action, our innovation in action and our activation in action. And we will constantly be looking forward to absolutely revenue growth and over time, also profitability improvement as we step up our investments to ensure we get a good return on the marketing required in a brand at that time. So we have some very clear internal milestones that as a Board we are holding ourselves to, and we are working very hard to deliver them. Operator: Our final question today is a follow-up from Matthew Webb at Investec. Matthew Webb: I've just got 2 more, please. First, just going back to Nigeria. Obviously, price/mix was a big driver in the first half, although obviously volume is strong as well. But you've cautioned that price/mix is going to be less of a factor in the second half, but inflation is still quite high in Nigeria. I just wondered, first, whether there is still some annualization of previous price increases that will help you in H2? And also probably more importantly, what your -- what sort of price increases you're going to be taking going forward? Presumably, you will still be taking some price. That's my first question. And then the second is just on the guidance you've given on marketing being H2 weighted. Can I just be clear on that? Is that in more H2 weighted than normal? And if you could put any rough numbers on that, that would be helpful, just in terms of how we think about that very strong H1 performance and the full year guidance on operating profit. Jonathan Myers: Yes. So let me pick that, Matthew. I'm so interested you came back for more. I thought we were off the hook, but there's no relaxing here yet, right. Let me now demonstrate we're absolutely ready for it, right? So in terms of Nigeria, so just a little bit on last year. So we took a lot of pricing. We've talked before about 20-plus rounds of pricing through the year where we saw some volume impact in the initial phases for sure we're getting elasticity when you take that much pricing. But over time, the consumer gets used to it, they're seeing a lot of inflationary pricing in the stores, right? And therefore, we have now seen in the last 2 quarters, our volume come back. As we annualize that degree of pricing, obviously, the rollover begins to work through and wear out. Our very clear intent is always to be driving revenue in line with or slightly ahead of inflation. Now how much will depend on how much we want to push pricing versus volume. But if our ambition is to drive and our intent is to drive real growth, we need to be able to demonstrate that using all levers of revenue growth management that we are nudging up not only our pricing such that we're getting in line with or ahead of inflation, but ideally also mitigating any gross margin challenges. The one thing that is important for us to stay really close to is as more benign exchange rates, particularly when it comes to sort of raw commodities, affect the ability of our competition to drop prices, what do we do. So we are working very hard on where is it right for us to spend more on marketing money in Nigeria to justify the hard won price increases that we have landed. And we're very judiciously, we're seeing our improving volume trends then coming under pressure because obviously brands are underpricing us, what would we do smartly to make sure that we're not ceding ground in terms of volume and household penetration. But we are clear that even though the pricing machine momentum will run out a little bit in terms of cycling through that historic base, our goal is to make sure that we're pricing one way or another in line with or slightly ahead of inflation. In terms of your marketing question, right? So we are very -- we've been very explicit that we will be H2 weighted, not just today, but previously. And a lot of that has to do with exactly how we expected our brand plans to fall and some of our innovations to fall. I will give you an example. Last year, we invested some St.Tropez money off season in the pursuit of trying to improve momentum. We didn't see a good return on it. So we didn't repeat it and we have intentionally back weighted our St.Tropez money, a little bit like the ice cream analogy, to make sure we're investing in the run-up to enduring the season. So that's one big driver of the H1, H2. But actually, we have also been looking at how do we step up our investment so that we are investing at competitive levels where we can be confident either of a really good rate of return because it's activity that we've invested behind before or actually where are we putting some seed money out there so that we can test and learn. And if we see something work, we can then reinvest more aggressively. Or if we see something fail, not having spent too much money on it, we can then move on to the next thing that we want to invest behind. So actually, in our second half, you'll be seeing not only more investments in our base business and here in the U.K., you'll be seeing in Imperial Leather, you'll be seeing Original Source, you'll be St.Tropez, but we are also stepping up. So for example, for the first time in many years, we'll be investing above the lines in New Zealand, not just in Australia where we've had a change of distributor, and we have seen real traction with retailers where we're building new distribution points. So we want to invest behind our brands in New Zealand. But equally, we'll be doing some of that tests and learn that I mentioned. So look out, for example, the St.Tropez on TikTok Shop in the U.K., trying to re-apply some of the phenomenal success we've seen with online marketplaces such as TikTok Shop in Indonesia, which I would say in the first half, they were -- revenues with TikTok Shop were up 60%. So what can we do in the U.K. with that? So actually, what you're going to see in the second half is our highest level of M&C in the last 4 or 5 years because we are absolutely trying to walk the talk on we're building brands and we're ready to invest behind them. Matthew Webb: Look forward to seeing you all this afternoon. Jonathan Myers: Great. Well, you stole my [indiscernible] actually, Matthew. I'm looking forward to seeing everyone who is coming this afternoon. So thanks to all of you for dialing in this morning. Listen, we are obviously feeling upbeat about the performance we have reported, but we're not getting carried away. Our feet are firmly on the ground. We can never give up and there's always more to do. And there are -- a little bit as we discussed with Damian, there are always new competitors coming to take our share. So there is a very healthy degree of paranoia in the business. But we are confident in our ability to drive performance and to deliver over the long term. So for those of you joining us this afternoon, we look forward to seeing you. We will be setting out a renewed strategy. We'll be updating you on our innovations and brand building, and we'll be giving you a very deep dive into our African business. So I look forward to seeing you all there. Thank you very much. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: Welcome to the Liberty Broadband Corporation's 2025 Year End Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference will be recorded February 11. I would now like to turn the call over to Hooper Stevens, Senior Vice President of Investor Relations. Please go ahead. Hooper Stevens: Good morning. Thank you for joining us. This call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-Ks filed by Liberty Broadband Corporation with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Broadband Corporation expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Broadband Corporation's expectations with regard thereto or any change in events, conditions, or circumstances on which such statements are based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Broadband Corporation, including adjusted OIBDA, adjusted OIBDA margin, and free cash flow. Information regarding the required definitions along with the comparable GAAP metrics and reconciliations, including Schedule 1 and Schedule 2 for Liberty Broadband Corporation, can be found in the earnings press release issued today, which is available on Liberty Broadband Corporation's IR website. Speaking on today's call will be Ron Duncan, the CEO of Liberty Broadband Corporation, and Brian Wendling, Liberty Broadband Corporation's Chief Accounting and Principal Financial Officer. Also during the Q&A, we will take questions related to Liberty Broadband Corporation should they arise. Additional members of Liberty Broadband Corporation management will be available to assist Ron and Brian with questions. With that, I'll hand the call over to Ron Duncan. Ron Duncan: Thank you, Hooper, and good morning. Liberty Broadband Corporation had an exceptional year. We reported solid fourth-quarter results with achieved record revenue of over $1 billion and record adjusted EBITDA of more than $400 million, a significant milestone for the company. We continue to execute on our mission to deliver best-in-class connectivity across Alaska. Our consumer wireless base is expanding. We are realizing the benefits of last year's strong sales cycle in our business segment. We continue to sharpen our strategic focus as Alaska's only converged broadband and wireless provider following the exit of our video business last year. During the fourth quarter, we announced, executed, and completed our rights offering. The rights offering was fully subscribed, resulting in approximately $300 million in net proceeds. We are pleased with the outcome, which allows us ample flexibility to continuously canvas the market and fine-tune our strategy at the parent company level. We plan to use the proceeds for general corporate purposes as well as for potential strategic acquisitions, investments, or partnerships. Turning to the business, I'm proud of how nimble and effective our Liberty Broadband Corporation team is in ensuring the continuity of our network. First, in December, we experienced two fiber breaks, one in Dutch Harbor, which was repaired in early January in under two weeks, and the other in Dearing. We expect to incur repair costs this year in the low single-digit million range, with service expected to be restored at Dearing in the summer months after the ice goes out. Second, as we mentioned last quarter, Typhoon Helong hit Southwest Alaska in early October of last year. We fully restored service to the two villages that were hit in under four months. Beyond the small revenue overhang in January, we do not expect any ongoing impact on our business. We commend the entire Liberty Broadband Corporation team for their outstanding service to the communities that we serve. Turning now to our operating highlights. We grew consumer wireless subscribers 2% year over year and ended the year with 199,000 consumer wireless lines. We had a total of 207,500 wireless lines at year-end, including 8,500 business lines. We added 3,500 consumer wireless lines during the year, including 6,700 postpaid lines, largely as a result of our unlimited test drive promotion. We continue to see slow erosion in our prepaid and government-subsidized lifeline segments, partially offsetting the growth in our postpaid lines. On the data side, we saw a 3% decline year over year, exiting the year with 151,200 data subscribers. We lost 4,500 data subscribers during the year and 1,200 data subscribers during the fourth quarter. The decline of data subscribers over the past year is due to wireless substitution and limited competition from Starlink and others, exacerbated by a fiber break on a third-party network in which Liberty Broadband Corporation uses capacity. As of the third quarter, service has been restored, although we note that winning back customers in the service-impacted areas has been slow. We are proud of the operational and financial progress we made in 2025. We reported over $400 million of adjusted OIBDA, an exceptional milestone for Liberty Broadband Corporation. But looking ahead to this year, we expect the business to be stable. As we look forward to 2026, our operating priorities are first, to invest in our network infrastructure, deliver high-quality service to our customers. Second, to complete our build-out commitments under the Alaska plan. Third, to drive value and the benefits of convergence for our customers, and fourth, to continue bridging the digital divide through our rural expansion. Starting with our network infrastructure. We're offering 2.5 gigabit broadband connectivity everywhere that has fiber middle mile, which means we can offer it to an overwhelming majority of our customers. We're making progress improving the broadband network in Anchorage. We're in the process of upgrading the core, reducing node sizes, and upgrading to a 1.8 gigahertz plant. Our initial deployment is yielding positive results. We plan to significantly scale deployment of our HFC network this year. All the work that we are doing is DOCSIS 4.0 or 4.0 capable, enabling speeds that are multiple times what we have today. We will be rolling this out to markets outside of Anchorage this year, allowing us to get to five gigabits and ultimately beyond. We believe these changes will not only lead to higher speeds but also a network with better reliability and fewer maintenance requirements. The strength of this offering positions us well against competitors today and into the future. Next, on driving convergence and maximizing value and quality for our customers. We concluded our unlimited test drive promotion at year-end, which drove meaningful postpaid consumer wireless growth in 2025 to a peak of 165,400 lines. The first cohorts of our promotional subscribers are now rolling off, and while it's still early, we are seeing exceptionally strong retention rates. In January, we launched a twelve-month free promotion that we expect will further support postpaid wireless growth this year. As of year-end, approximately 40% of our broadband customers have one or more wireless lines, and approximately 62% of our postpaid wireless lines are sold as part of a bundle, up from 57% at the end of 2024. Our focus remains on delivering quality and value for all of our customers. Lastly, on bridging the digital divide in Alaska, through expansion and completing our build commitments on the Alaska plan. Just a few weeks ago, we announced that we had completed the build-out of the iHUC one net network, which brings fiber infrastructure to the Yukon Quest equipped Delta, ensuring residents there enjoy 2.5 gigabit service. We also remain on track to complete our build-out requirements for the Alaska plan this year and increase wireless speeds in the communities we serve. The new Alaska Connect fund will extend the Alaska plan to 2034. Our focus remains on providing 5G wireless service to all covered Alaskans over the coming years. Turning briefly to Bead, the State of Alaska has announced that Liberty Broadband Corporation has been provisionally awarded approximately $120 million in Bead fund. The award remains subject to approval by the NTIA. There remains substantial uncertainty about the timing of the final awards as the state is still in active negotiations with the NTIA regarding the ultimate distribution of Alaska to be funded. Any funding that Liberty Broadband Corporation ultimately receives will offset our capital costs as we expand in unserved locations. Regulatory and macro environment. From a macro perspective, Alaska's economy could be poised for some long-overdue economic growth. In mid-October, the Trump administration announced plans to open the Arctic National Wildlife Range to drilling, a development that could accelerate oil and gas activity across the state. Combined with the potential development of the gas line, these initiatives could drive substantial economic expansion in Alaska, lifting the Alaska economy and creating new opportunities with the potential of increased demand for our services. In summary, we are encouraged by an exceptional year of financial and operational performance. The peak of CapEx in 2026 and projected step down over the coming years back to our historical range of 15% to 20% of revenue should be highly supportive of substantial cash generation as we look ahead. We believe the strength of our network and our robust operating results will continue to create value for our customers, partners, and shareholders. With that, I'll turn it to Brian to discuss the financials in more detail. Brian Wendling: Thank you, Ron, and good morning, everyone. At year-end, Liberty Broadband Corporation had consolidated cash, cash equivalents, and restricted cash of $429 million, which is inclusive of our approximately $300 million offering, which was completed at the end of 2025. And we had a total principal amount of debt of approximately $1 billion. At year-end, Liberty Broadband Corporation's net leverage, as defined in its credit agreement, was 2.3 times, and Liberty Broadband Corporation's consolidated net leverage was 1.6 times, which incorporates cash at the parent level, including the proceeds from the rights offering, as well as Liberty Broadband Corporation's non-voting preferred stock. Additionally, Liberty Broadband Corporation's credit facility has $377 million of undrawn capacity net of letters of credit. Just an admin matter during the fourth quarter, we refined the definition of our subscriber metrics. The definitions of consumer cable and wireless subscribers now exclude prepaid customers who are no longer paying for the service and postpaid and cable modem customers who have been inactive for over sixty days. All prior periods have been reflected for this refined definition, and this aligns with how Liberty Broadband Corporation manages and evaluates the business. Turning to Liberty Broadband Corporation's operating results for the full year and the fourth quarter. For the year, Liberty Broadband Corporation generated total revenue of $1 billion, representing a 3% increase for the full year. Revenue increased primarily due to growth at Liberty Broadband Corporation business. Adjusted OIBDA of $403 million was a record high and increased 12% for the full year. The increase was driven by both higher revenue and lower operating expenses, which includes lower programming video programming expenses, and reduced distribution costs related to temporary cost savings from a fiber break on a third-party network. The fiber break was fully restored during 2025. In the fourth quarter, Liberty Broadband Corporation generated total revenue of $262 million. This is flat with the prior year quarter. And adjusted OIBDA increased 7% to $90 million, primarily due to lower selling, general, and administrative expenses related to personnel and compensation expenses. Consumer revenue declined 2% for the full year in the fourth quarter, with the majority of the decline driven by the shutdown of the video business as well as data subscriber losses slightly offset by growth in wireless. As a reminder, Liberty Broadband Corporation exited the video business during the third quarter of the year. Consumer wireless revenue increased both for the full year and the fourth quarter, driven by an increase in federal wireless subsidies. Consumer gross margin increased to 70.7% for the full year and increased to 69.7% for the fourth quarter, driven by a decline in consumer direct costs resulting from decreases in video programming costs. For the year, direct costs also benefited from temporary cost savings from the fiber break on the third-party network that was previously discussed. Business revenue grew 7% for the year and 1% during the fourth quarter. For the year, the increase was driven by the strong upgrade cycle, which started in 2024. For both the full year and fourth quarter, revenue growth was partially offset by lower wireless roaming revenue. Business gross margin increased to 80.1% for the year and increased to 78.3% for the fourth quarter, primarily driven by revenue growth. For the year, business gross margin benefited from lower direct costs due to temporary cost savings from the aforementioned third-party fiber break. Capital expenditures net of grant proceeds totaled $224 million for the year. As Ron said, we expect 2026 CapEx of approximately $290 million, which includes $20 million carried over from 2025 due to normal course timing shifts. As was mentioned, we expect '26 to represent our peak year of CapEx spend, driven by completing the build-out requirements of the Alaska plan, and the timing shifts for 2025. Our historical CapEx has been 15% to 20% of revenue, and we expect our long-term CapEx following the completion of the Alaska plan build-out to trend back to these levels. Liberty Broadband Corporation generated $146 million in free cash flow for the full year, up over 70% from 2024, driven by our record financial growth. And 2025 free cash flow also benefited from positive working capital swings. The CapEx increase in 2026, when coupled with ordinary course working capital swings, will drive proportionately lower free cash flow on a year-over-year basis. And with that, I'll turn the call back over to Ron. Ron Duncan: Thank you, Brian. We appreciate everyone's interest in Liberty Broadband Corporation, and we look forward to continuing to update you on our progress. With that, we'll open the call up for Q&A. Operator: Thank you. We'll now be conducting a question and answer session. Thank you. And the first question comes from the line of David Joyce with Seaport Research. Please proceed with your questions. David Joyce: Thank you. A couple of questions, please. First, I was wondering how we should think about margins this year since you'll be comping against the operational savings while the undersea fiber was offline in the first part of last year and then you don't have the TV programming expenses? And then secondly, what sort of cadence of CapEx spending should we expect this year? And if you could kind of drill down on where, you know, where you would be spending which products? Thanks. Ron Duncan: Okay. Pete, do you want to tackle the margin question? Pete, you're out there? No, Pete. Okay. Well, I will do my best on the margins. The margins should be was Pete there? Pete just joined. No, Tyler. Go ahead. I'm happy to take the margin question, and you can add some color if you want. I think on the margin, we obviously can't guide, David. On where we think we'll ultimately end up for 2026. Jake, as you heard Ron say in his remarks, we expect a stable year for 2026. There are certainly some things on the cost side that are benefits, meaning no video expense at all during 2026. We also had revenue that was offsetting that in the early part of the year. And then there was the benefit from the fiber break. But overall, we expect a pretty stable year for next year. And I have Ron's comment yes, I'll take the CapEx. I would just comment on margins as well that the video business was kind of a net zero for us anyway by the time we got out. They were substantial revenues, but also very substantial programming costs. The reasons we exited was we could see ourselves heading into a negative free cash flow situation to stay in the video business. So it was a net positive going forward and probably not tremendous change in the base of the business as you look at it. On the CapEx cadence, typically, we peak in the second and third quarters. When the construction season is in full swing up here, and I expect that pattern to continue this year. The largest single element of this year's CapEx is in wireless, particularly rural wireless, as we sprint to the finish of our first phase commitments under the Alaska plan. We'll also be expanding substantial CapEx to expand the urban wired network as we move to our 5G and full DOCSIS 4.0 implementation. David Joyce: Great. Thank you. Thank you. Brian Wendling: David, if you don't have any other questions, that will conclude today's call. Appreciate everybody's participation. And we look forward to speaking to you offline in next quarter as well. Thank you. Ron Duncan: Thank you all very much. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
Operator: This will be recorded February 11, I would now like to turn the call over to Hooper Stevens, Senior Vice President of Investor Relations. Please go ahead. Good morning. Thank you for joining us. This call includes certain forward-looking statements within the meaning of the Private Ronald A. Duncan: Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-Ks filed by GCI Liberty, Inc. and Liberty Broadband with the SEC. These forward-looking statements speak only as of the date of this call and GCI Liberty, Inc. and Liberty Broadband expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in GCI Liberty, Inc. or Liberty Broadband's expectations with regard thereto or any change in events, conditions, or circumstances on which such statements are based. On today's call, we will discuss certain non-GAAP financial measures for GCI Liberty, Inc., including adjusted OIBDA, adjusted OIBDA margin, and free cash flow information regarding the required definitions along with the comparable GAAP metrics and reconciliations, including Schedule one and Schedule two for GCI Liberty, Inc., be found in the earnings press release issued today, which is available on GCI Liberty, Inc.'s IR website. Speaking on today's call will be Ronald A. Duncan, the CEO of Liberty, and Brian J. Wendling, GCI Liberty, Inc.'s Chief Accounting and Principal Financial Officer. Also during the Q&A, we will take questions related to Liberty Broadband should they arise. Additional members of GCI Liberty, Inc. and Liberty Broadband management will be available to assist Ronald A. Duncan and Brian J. Wendling with questions. With that, I'll hand the call over to Ronald A. Duncan. Thank you, Hooper, and good morning. GCI Liberty, Inc. had an exceptional year. We reported solid fourth quarter results with achieved record revenue of over $1 billion and record adjusted EBITDA of more than $400 million, a significant milestone for the company. We continue to execute on our mission to deliver best-in-class connectivity across Alaska. Our consumer wireless base is expanding, Brian J. Wendling: We are realizing the benefits of last year's strong sales cycle in our business segment. We continue to sharpen our strategic focus as Alaska's only converged broadband and wireless provider following the exit of our video business last year. During the fourth quarter, we announced, executed, and completed our rights offering. Ronald A. Duncan: The rights offering was fully subscribed Brian J. Wendling: resulting in approximately $300 million in net proceeds. We are pleased with the outcome, which allows us ample flexibility to continuously canvas the market and fine-tune our strategy at the parent company level. We plan to use the proceeds for general corporate purposes as well as for potential strategic acquisitions, investments, or partnerships. Ronald A. Duncan: Turning to the business, Brian J. Wendling: I'm proud of how nimble and effective our GCI Liberty, Inc. team is in ensuring the continuity of our network. First, in December, we experienced two fiber breaks, one in Dutch Harbor, was repaired in early January in under two weeks, and the other in Deereng. We expect to incur repair costs this year in the low single-digit million range with service expected to be restored at Deereng in the summer months after the ice goes out. Second, as we mentioned last quarter, Typhoon Helong hit Southwest Alaska in early October of last year. We fully restored service to the two villages that were hit in under four months. Beyond the small revenue overhang in January, we do not expect any ongoing impact to our business. We commend the entire GCI Liberty, Inc. team for their outstanding service to the communities that we serve. Turning now to our operating highlights. We grew consumer wireless subscribers 2% year over year and ended the year with 199,000 consumer wireless lines. We had a total of 207,500 wireless lines at year-end including 8,500 business lines. We added 3,500 consumer wireless lines during the year, including 6,700 postpaid lines largely as a result of our unlimited test drive promotion. We continue to see slow erosion in our prepaid and government-subsidized lifeline segments partially offsetting the growth in our postpaid lines. On the data side, we saw a 3% decline year over year exiting the year with 151,200 data subscribers. We lost 4,500 data subscribers during the year and 1,200 data subscribers during the fourth quarter. The decline of data subscribers over the past year is due to wireless substitution and limited competition from Starlink and others, exacerbated by a fiber break on a third-party network in which GCI Liberty, Inc. uses capacity. As of the third quarter, service has been restored although we note that winning back customers in the service-impacted areas has been slow. We are proud of the operational and financial progress we made in 2025. Ronald A. Duncan: We Brian J. Wendling: reported over $400 million of adjusted OIBDA, an exceptional milestone for GCI Liberty, Inc. But looking ahead to this year, we expect the business to be stable. As we look forward to 2026, our operating priorities are Ronald A. Duncan: first, Brian J. Wendling: to invest in our network infrastructure to deliver high-quality service to our customers. Second, to complete our build-out commitments under the Alaska plan. Third, to drive value and the benefits of convergence for our customers and fourth, to continue bridging the digital divide through our rural expansion. Starting with our network infrastructure. We're offering 2.5 gigabit broadband connectivity everywhere that has fiber middle mile which means we can offer it to an overwhelming majority of our customers. We're making progress improving the broadband network in Anchorage. We're in the process of upgrading the core, reducing node sizes, and upgrading to a 1.8 gigahertz plant. Our initial deployment is yielding positive results. We plan to significantly scale deployment of our HFC network this year. All the work that we are doing is DOCSIS 4.0 or 4.0 capable enabling speeds that are multiple times what we have today. We will be rolling this out to markets outside of Anchorage this year allowing us to get to five gigabits and ultimately beyond. We believe these changes will not only lead to higher speeds, but also a network with better reliability and fewer maintenance requirements. The strength of this offering positions us well against competitors today and into the future. Next, on driving convergence and maximizing value and quality for our customers. We concluded our unlimited test drive promotion at year-end which drove meaningful postpaid consumer wireless growth in 2025 to a peak of 165,400 lines. The first cohorts of our promotional subscribers are now rolling off, and while it's still early, we are seeing exceptionally strong retention rates. In January, we launched a twelve-month free promotion that we expect will further support postpaid wireless growth this year. As of year-end, approximately 40% of our broadband customers have one or more wireless lines, and approximately 62% of our postpaid wireless lines are sold as part of a bundle up from 57% at the end of 2024. Our focus remains on delivering quality and value for all of our customers. Lastly, on bridging the digital divide in Alaska, through expansion and completing our build of commitments on the Alaska plan. Just a few weeks ago, we announced that we had completed the build-out of the iHUC one network which brings fiber infrastructure to the Yukon Quest equipped Delta ensuring residents there enjoy two and a half gigabit service. We also remain on track to complete our build-out requirements for the Alaska plan this year. Increase wireless speeds in the communities we serve. The new Alaska Connect fund will extend the Alaska plan to 2034. Our focus remains on providing 5G wireless service to all covered Alaskans over the coming years. Turning briefly to Bead, the state of Alaska has announced that GCI Liberty, Inc. has been provisionally awarded approximately $120 million in Bead fund. The award remains subject to approval by the NTIA. There remains substantial uncertainty about the timing of the final awards as the state is still in active negotiations with the NTIA regarding the ultimate distribution of Alaska to be funded. Any funding that GCI Liberty, Inc. ultimately receives will offset our capital costs as we expand in unserved locations. Regulatory and macro environment. From a macro perspective, Alaska's economy could be poised for some long overdue economic growth. In mid-October, the Trump administration announced plans to open the Arctic National Wildlife Range to drilling, a development that could accelerate oil and gas activity across the state. Combined with the potential development of the gas line, these initiatives could drive substantial economic expansion in Alaska lifting the Alaska economy and creating new opportunities with the potential of increased demand for our services. In summary, we are encouraged by an exceptional year of financial and operational performance. The peak of CapEx in 2026 and projected step down over the coming years back to our historical range of 15% to 20% of revenue should be highly supportive of substantial cash generation as we look ahead. We believe the strength of our network and our robust operating results will continue to create value for our customers Ronald A. Duncan: partners and shareholders. Brian J. Wendling: With that, I'll turn it to Brian to discuss the financials in more detail. Ronald A. Duncan: Thank you, Ron, and good morning, everyone. At year-end, GCI Liberty, Inc. had consolidated cash, cash equivalents, and restricted cash of $429 million which is inclusive of our approximately $300 million rights offering, which was completed at the end of 2025. And we had a total principal amount of debt of approximately $1 billion. At year-end, GCI Liberty, Inc.'s net leverage as defined in its credit agreement was 2.3 times, GCI Liberty, Inc.'s consolidated net leverage was 1.6 times, which incorporates cash at the parent level. Including the proceeds from the rights offering. As well as GCI Liberty, Inc.'s non-voting preferred stock. Additionally, GCI Liberty, Inc.'s credit facility has $377 million of undrawn capacity net of letters of credit. Just an admin matter during the fourth quarter, we refined the definition of our subscriber metrics. The definitions of consumer cable and wireless subscribers now exclude prepaid customers who are no longer paying. For the service and postpaid and cable modem customers who have been inactive for over sixty days. All prior periods have been reflected for this refined definition and this aligns with how GCI Liberty, Inc. manages and evaluates the business. Turning to the GCI Liberty, Inc.'s operating results for the full year and the fourth quarter. For the year, GCI Liberty, Inc. generated total revenue of $1 billion representing a 3% increase for the full year. Revenue increased primarily due to growth at GCI Liberty, Inc. business Adjusted OIBDA of $403 million was a record high and increased 12% for the full year. The increase was driven by both higher revenue and lower operating expenses, which this includes lower programming video programming expenses, and reduced distribution costs related to temporary cost savings from a fiber break. On a third-party network. The fiber break was fully restored during 2025. In the fourth quarter, GCI Liberty, Inc. generated total revenue of $262 million. This is flat with the prior year quarter. And adjusted OIBDA increased 7% to $90 million primarily due to lower selling, general and administrative expenses related to personnel and compensation. Expenses. Consumer revenue declined 2% for the full year in the fourth quarter with the majority of the decline driven by the shutdown of the video business as well as data subscriber losses slightly offset by growth in wireless. As a reminder, GCI Liberty, Inc. exited the video business during the third quarter of the year Consumer wireless revenue increased both for the full year and the fourth quarter driven by an increase in federal wireless subsidies. Consumer gross margin increased to 70.7% for the full year and increased to 69.7% for the fourth quarter. Driven by a decline in consumer direct costs resulting from decreases in video programming costs. For the year, direct costs also benefited from temporary cost savings from the fiber break. Brian J. Wendling: On the third-party network that was previously discussed. Ronald A. Duncan: Business revenue grew 7% for the year and 1% during the fourth quarter. The year, the increase was driven by the strong upgrade cycle, which started in 2024. For both the full year and fourth quarter, revenue growth was partially offset by lower wireless roaming revenue. Business gross margin increased to 80.1% for the year and increased to 78.3% for the fourth quarter. Primarily driven by revenue growth. For the year, business gross margin benefited from lower direct costs due to temporary cost savings. Brian J. Wendling: From the aforementioned third-party fiber break. Ronald A. Duncan: Capital expenditures net of grant proceeds totaled $224 million for the year. As Ron said, we expect 2026 CapEx of approximately $290 million which includes $20 million carried over from 2025 due to normal course timing shifts. As was mentioned, we expect '26 to represent our peak year of CapEx spend driven by completing the build-out requirements of the Alaska plan, and the timing shifts for 2025. Our historical CapEx has been 15% to 20% of revenue and we expect our long-term CapEx following the completion of the Alaska plan build-out. Trend back to these levels. Generated $146 million in free cash flow for the full year. Up over 70% from 2024. Driven by our record financial Brian J. Wendling: growth. Ronald A. Duncan: And 2025 free cash flow also benefited from positive working capital swings. The CapEx increase in 2026 when coupled with ordinary core course working capital swings will drive proportionately lower free cash flow Brian J. Wendling: on a year-over-year basis. Ronald A. Duncan: And with that, I'll turn the call back over to Ron. Brian J. Wendling: Thank you, Brian. We appreciate Ronald A. Duncan: everyone's interest in GCI Liberty, Inc., and we look forward to continuing to update you on our progress. With that, we'll open the call up for Q&A. Thank you. Operator: Now be conducting a question and answer session. Thank you. And the first question comes from the line of David Joyce with Seaport Research. Please proceed with your questions. David Joyce: Thank you. A couple of questions, please. First, I was wondering how we should think about margins this year Ronald A. Duncan: since you'll be comping against the operational savings while the undersea fiber was offline in the first part of last year and then you don't have the TV programming expenses? And then secondly, what sort of cadence of CapEx spending should we expect this year? And if you could kind of drill down on where you would be spending which products? Thanks. Operator: Okay. Pete, do you want to tackle the margin question? Ronald A. Duncan: Pete, you're out there? No, Pete. Okay. Well, I will do my best on the margins. The margins should be is Pete there? Pete just joined. Brian J. Wendling: No, Tyler. Ronald A. Duncan: Go ahead. I'm happy to take the margin question, and you can add the color if you want. Brian J. Wendling: I think on the margin, we obviously can't guide, David. Ronald A. Duncan: On where we think we'll ultimately end up for 2026. Jake, as you heard Ron say in his remarks, we expect a stable year for 2026. There are certainly some things on the cost side that are benefits meaning no video expense at all during 2026. We also had revenue that was offsetting that in the early part of the year. And then there was the benefit from the fiber break. But overall, expect a pretty stable year for work. For next year. And I have Ron's comment Operator: on Brian J. Wendling: Yes, I'll take the CapEx. I would just comment on margins as well. That the video business was kind of a net zero for us anyway by the time we got out. They were substantial revenues, but also very substantial programming costs. The reasons we exited was we could see ourselves heading into a negative free cash flow situation to stay in the video business. So it was a net positive going forward and probably not tremendous change in the base of the business as you look at it. On the CapEx cadence, typically, we peak in the second and third quarters. When the construction season is in full swing up here and I expect that pattern to continue this year. The largest single element of this year's CapEx is in wireless particularly rural wireless as we sprint to the finish of our first phase commitments under the Alaska plan we'll also be expanding substantial CapEx to expand the urban wired network as we move to our 5G and full DOCSIS 4.0 implementation. David Joyce: Great. Thank you. Thank you. Brian J. Wendling: David, if you don't have any other questions, that will conclude today's call. Appreciate everybody's participation. And we look forward to speaking to you offline in next quarter as well. Thank you. Ronald A. Duncan: Thank you all very much. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
Operator: Good morning, everyone, and thank you for joining today's Highwoods Properties, Inc. Q4 2025 earnings call. My name is Reagan, and I'll be your moderator for today's call. I would now like to pass the conference over to Brendan Maiorana, Executive Vice President and Chief Financial Officer. Please proceed. Brendan Maiorana: Thank you, operator. And good morning, everyone. Joining me on the call this morning are Theodore J. Klinck, our Chief Executive Officer, and Brian M. Leary, our Chief Operating Officer. For your convenience, today's prepared remarks have been posted on the web. If you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non-GAAP measures, such as FFO, NOI, and EBITDAre. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Forward-looking statements made during today's call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I'll turn the call over to Ted. Theodore J. Klinck: Thanks, Brendan, and good morning, everyone. Before I talk about our fourth quarter and outlook for 2026, I'd like to begin by highlighting some of the reasons why we're upbeat about the next few years for Highwoods Properties, Inc. First, the fundamental backdrop across our core Sunbelt BBDs is as strong as it's been in many years. There's limited to no new supply across our markets, and dwindling blocks of available high-quality space. New users continue to migrate to the Sunbelt. And even with mixed signals about the health of the overall economy, many existing companies in our footprint continue to grow their businesses. This dynamic has created rental rate growth not just in face rates, but growth in net effective rents, including rent spikes in our best BBDs. Given limited development starts forecasted for the foreseeable future, well-capitalized landlords with high-quality office in BBD locations in the Sunbelt are positioned to drive meaningful growth in rents. Second, the convergence of occupancy gains, rental rate growth, and stabilization of our development pipeline should enable Highwoods to deliver outsized NOI and earnings growth in the next few years. We expect to drive occupancy higher by roughly 200 basis points from 2025 to 2026. Plus, our development properties are projected to deliver year-over-year growth in each of the next three years. For the last few quarters, we've been emphasizing approximately $50 million to $60 million of NOI growth potential across eight buildings: four existing operating properties and four developments. We will realize some of this growth in 2026, but most will benefit our NOI trajectory in 2027 and beyond. Third and finally, we are positioned to invest at attractive risk-adjusted returns. Future investments are also likely to drive additional growth. We've invested approximately $800 million or nearly $600 million at our share over the past twelve months. These acquisitions, which were in the strongest BBDs of Charlotte, Raleigh, and Dallas, have a weighted average vintage of four years, an initial lease rate of 93.5%, waltz of nine years, rents approximately 15% below market, and projected stabilized cash yields of roughly 8%. The combination of strong fundamentals for high-quality BBD office and limited buyer pools creates an excellent opportunity for us to deploy capital at attractive risk-adjusted returns. These items combined with our proven track record and strong balance sheet give us confidence that we're well-positioned to grow for the foreseeable future. Our initial 2026 FFO outlook is 5.7% higher at the midpoint than our initial 2025 outlook. Now turning to our fourth quarter. We had solid financial performance with FFO of $0.90 per share, including $0.06 of land sale gains, resulting in full-year 2025 FFO of $3.48 per share. Excluding land sale gains, full-year FFO was $0.7 per share or 2% higher than the midpoint of our original outlook provided at the beginning of 2025. We leased 526,000 square feet of second-gen space during the fourth quarter, including 221,000 square feet of new leases. In addition, we signed 95,000 square feet of first-gen leases in our development pipeline. Signings on second-gen space were a bit lower in the fourth quarter compared to earlier in the year. We believe that was largely just timing, as already in 2026, signings have accelerated and the long-term trend continues to be positive. Leasing economics continue to be healthy in the fourth quarter. Cash rent spreads were positive, with GAAP rent spreads in the mid-teens. As we've long stated, we're most focused on net effective rents, which were strong again in the fourth quarter and helped make full-year 2025 our high watermark. For the year, net effective rents were 20% higher than in 2024 and 19% higher in 2022, our prior peak year. This performance underscores the improving fundamentals we're seeing across our markets and BBDs. Our $474 million development pipeline is now 78% pre-leased, up from 72% last quarter and 56% one year ago. Glenlake 3, our 218,000 square foot office, and amenity retail development in Raleigh, is 84% leased, with strong prospects to bring the property to the mid-nineties. At Granite Park 6, our 422,000 square foot building in the legacy BBD of Dallas, we signed 44,000 square feet since our last earnings call and are now nearly 80% leased. We signed 51,000 square feet at 23 Springs, our 642,000 square foot mixed-use development in Uptown Dallas, bringing the property to nearly 75% leased, up from 67% last quarter. At 23 Springs, current rents are 40% above our pro forma underwriting. Lastly, Midtown East in Tampa, our 143,000 square foot development, is 76% leased, and we have strong prospects for the remaining office space. Given the strong demand we've experienced with our current developments and demand from sizable users across many of our markets, we're starting to have conversations with prospective build-to-suit and anchor customers for new projects. We've included the potential for up to $200 million of development announcements in our 2026 outlook. We've been active on the investment front, especially late in 2025 and early in 2026. We acquired $472 million in 2025, including our $223 million acquisition of 600 at Legacy Union in the fourth quarter. 600 is a 411,000 square foot class double-A office tower in Uptown Charlotte. This property was completed in 2025 and is currently 89% leased, up from 84% when we acquired the building in November. We have strong prospects to bring the building into the mid-nineties. Because the property is just delivered and is currently only mid-forties percent occupied, NOI will be temporarily lower in 2026. We expect to reach stabilized yields of around 8% on both a cash and GAAP basis, with projected stabilization occurring on a GAAP basis in 2027 and cash in 2028. In January, we acquired two buildings in the BBDs of Raleigh and Dallas, for a total expected investment of $318 million, of which our share was $108 million plus $13 million of preferred equity. First, we acquired the Terraces in Dallas for $109 million in a JV with our longtime local partner Granite Properties, in which we have an 80% interest. The Terraces is a 173,000 square foot best-in-class property that was built in 2017 and is located in Preston Center, a new BBD for Highwoods. We believe Preston Center is the most supply-constrained BBD in Dallas, where rents have grown substantially over the past few years, giving us more than 30% mark-to-market upside on in-place leases. After signing a lease following our acquisition, we are now 100% leased at the Terraces. Second, we acquired Block 83 in Raleigh, a 492,000 square foot mixed-use asset that includes two ten-story best-in-class office buildings, with 27,000 square feet of ground floor amenity retail located in CBD Raleigh. We initially own a 10% interest in the joint venture that was formed to acquire Block 83. The North Carolina Investment Authority, a new investment partner for Highwoods, owns the remaining 90%. We have the option to increase our ownership in Block 83 to 50%. On a combined basis, we expect the initial GAAP yield on Block 83 and Terraces to be in the low to mid-8% range during 2026, while our initial cash yield will be around 7%, which is temporarily low due to free rent at Terraces that will burn off during 2026 and result in stabilized cash yields in the mid to upper sevens on a combined basis, prior to achieving rent roll-ups at the Terraces. We expect to fund our recent acquisition activity on a leverage-neutral basis, primarily through the sale of non-core assets or properties where value has been maximized. We sold $66 million of non-core buildings and land across various markets in the fourth quarter and an additional $42 million of non-core properties in Richmond subsequent to year-end. Our 2026 FFO outlook assumes we close $190 million to $210 million of additional dispositions by midyear. Upon stabilization of 600, we expect this leverage-neutral rotation of capital to be modestly accretive to our unaffected FFO run rate, while improving our long-term growth rate, strengthening our cash flows, and increasing our portfolio quality. To wrap up, we're excited about the outlook for Highwoods. First, given strong fundamentals across our markets, pricing power is shifting towards well-capitalized landlords who own high-quality buildings. Second, organic growth potential embedded in the Highwoods portfolio will be realized primarily through occupancy gains in our operating portfolio and stabilization of our development pipeline. Third, given our proven track record, we expect to continue to deploy capital at attractive risk-adjusted returns that enhance our long-term growth outlook, increase our portfolio quality, and strengthen our cash flows. These factors combined with our strong balance sheet and strong platform provide the foundation for sizable momentum over the next few years. I'm also confident in our outlook because of our engaged, hardworking, and talented teammates, who have long driven our consistent success. I thank the entire Highwoods team for their commitment and tireless dedication. Brian? Brian M. Leary: Thank you, Ted. Our Sunbelt markets delivered a strong finish to 2025, validating our BBD strategy and setting us up for another year of occupancy and rent growth in 2026. These cities are net winners with regard to inbound talent, corporate relocations, and job growth. All are in the top 15 of the Urban Land Institute and PwC's top markets to watch and widely finished the year posting positive net absorption. With office development pipelines at record lows, a best-in-class commute-worthy portfolio, and a strong balance sheet, we're the beneficiaries of a market in full flight to quality mode, which is driving healthy lease economics across our BBD portfolio. The year's body of work included 3.2 million square feet signed with strong GAAP rent spreads of 16.4%, all-time high net effective rents, significant leasing across the development pipeline, and the meaningful backfill of long-communicated vacancies. In the fourth quarter, we signed 88 deals with cash rent spreads of a positive 1.2% and weighted average lease terms of almost six years. Expansions outpaced contractions two and a half to one for the quarter, over three to one for the year, and we ended 2025 over 89% leased. With competitive supply decreasing, construction pipelines at record lows, and with our customers' conviction on having their best and brightest in the office resolute, 2025's positive leasing environment is continuing into the new year. Across our Sunbelt BBDs, market fundamentals continue to outperform the nation. New supply is almost nonexistent, and inbound corporate relocations and growth marches on. Starting in Charlotte, the Queen City has not only kept its post-pandemic momentum, it found another gear according to the Bureau of Labor Statistics, finishing 2025 having generated more nominal jobs than any other metro area except New York City, which is seven times the size of Charlotte. The city's economic development office reinforced this highlight, naming 2025 the best year for business recruitment in a decade, with 15 announcements totaling 4,000 jobs and with no sign of a slowdown in 2026. This included major corporate relocations or new regional hubs for the likes of global logistics giants Maersk, Daimler Truck, Pac Life, SoFi, American Express, our new customer joining the recently acquired 600 at Legacy Union, and Scout Motors' 1,200 job global headquarters in the uptown adjacent neighborhood of Plaza Midwood. CBRE noted leasing activity in 2025 echoed the region's job productivity, reaching its highest level in more than six years. Roughly 5.2 million square feet of deals were signed, with 75% of the volume related to leases that were either new or expansions. Trophy and top-tier class A space in uptown, South Park, and South End are effectively full. Development under construction is largely preleased, and there is virtually no new speculative product in the pipeline. Against this backdrop, our 2.4 million square foot Charlotte portfolio, already in the mid-nineties leased, is positioned to capture further rate growth as leases roll. This is evident in our portfolio by the pace and healthy economics of any reletting, as well as the activity Ted mentioned at 600 since our acquisition. Heading west to Yall Street, Dallas is the number one market to watch according to ULI and PwC for the second straight year. In Big D, CBRE noted 2025 net absorption near its post-pandemic high. Class A office posted its fifth consecutive quarter of positive absorption, and with the recent acquisition of the Terraces in Preston Center, we now own 1.8 million square feet with our partners at Granite across Uptown, Legacy, and Preston Center, the three BBDs we initially targeted for investment when we entered Dallas four years ago and where the market strength is largely concentrated. To the Volunteer State, where Cushman highlighted that Nashville's 2025 net absorption was twelfth nationally overall, with 900,000 square feet for the year, and asking rents reaching all-time highs. Alvis and Young noted that after absorbing a wave of new construction, the pipeline has dropped to historical lows. Trophy office availability declined at a nationally leading rate, and up to 2 million square feet or 13% of downtown office stock is being converted to announced hotel and residential uses. Our portfolio concentrated in downtown Franklin and Brentwood is benefiting from this environment with steady leasing velocity and prospects that should allow us to both fill remaining vacancy and mark rents to market. To that end, Symphony Place in Downtown, Park Place West in Franklin, and our Westwood South building in Brentwood all have strong pipelines of prospects to bring these buildings to stabilized levels. Stepping back, 2025 confirmed that our Sunbelt and BBD-focused portfolio is aligned with where tenants want to be. We are overweighted in the submarkets with the greatest absorption, tightest supply, and rising class A rents. This combination gives us line of sight to further occupancy gains and mark-to-market economics in 2026. This underscores our confidence in our ability to unlock the durable growth that is embedded within the Highwoods platform. Brendan? Brendan Maiorana: Thanks, Brian. In the fourth quarter, we reported net income of $28.7 million or $0.26 per share. Our FFO was at $100.8 million or $0.90 per share, which includes $0.06 per share of land sale gains. During the quarter, we issued $350 million of unsecured bonds and acquired 600 at Legacy Union, which, as Ted described, is a just-completed trophy office building with low initial NOI as several signed leases have not yet commenced. The impact of the bond issuance and the acquisition of 600 reduced FFO by 1¢ per share. Excluding these two items and the land sale gains, our fourth-quarter results were in line with the midpoint of our upwardly revised 2025 outlook provided in October. Since our last earnings call, we've invested over $330 million to acquire best-in-class office and amenity retail properties across the strongest BBDs in Charlotte, Dallas, and Raleigh. We plan to fund these acquisitions on a leverage-neutral basis, primarily through the sale of non-core assets or other properties where value has been maximized. We closed $66 million of dispositions in the fourth quarter and another $42 million so far this year. Our early fourth-quarter 2025 ATM issuances provided about $20 million of leverage-neutral purchasing capacity, leaving us roughly $200 million of additional dispositions required to complete our asset rotation on a leverage-neutral basis. We plan to complete these additional dispositions by midyear. Before I review the impact of the recent investment activities on our 2026 outlook, I want to first highlight our asset recycling over the past twelve months. We've invested $580 million to acquire high-quality office buildings in the strongest BBD locations in the Sunbelt and sold $270 million of non-core properties. Upon stabilization of 600 and after we sell another $200 million of assets, this leverage-neutral rotation will be modestly accretive to our near-term FFO, strengthen our cash flow, increase our long-term growth rate, and improve our market mix and portfolio quality. This rotation has resulted in a reduction to our portfolio age by over two years to a weighted average vintage of 2007. That's not easy on a roughly 27 million square foot portfolio. Now to our 2026 outlook. We're introducing an initial FFO range of $3.40 to $3.68 per share, which equates to $3.54 at the midpoint. Since our last call in late October, we've completed a number of investment and financing transactions that will temporarily impact 2026, but not impact 2027 and thereafter. First, the acquisition of 600 at Legacy Union will have a dilutive impact on 2026 by approximately 7¢ per share given the building is 89% leased, but currently only 44% occupied as several large leases won't commence until late in the year. GAAP NOI at 600 is projected to be approximately $10 million in 2026, and more than $18 million in 2027 upon stabilization. Second, we opportunistically accelerated a bond issuance into late 2025 that we had originally planned for late 2026 or early 2027. We made this decision given the strong backdrop in the bond market and to provide us temporary liquidity to fund the acquisitions of 600, the Terraces, and Block 83 prior to completing the leverage-neutral rotation of capital I described earlier. This will leave us with excess cash on the balance sheet and no borrowings on our credit facility for much of 2026 but eliminates the need for a bond issuance later this year and will enable us to repay our $300 million March 2027 bond maturity with cash on hand and borrowings on the credit facility. This short-term excess liquidity is expected to reduce 2026 FFO by $0.03 per share but should not have any impact on our previously unaffected run rate for FFO for 2027 and beyond. Third, because we have another $200 million of dispositions to go to complete our leverage-neutral rotation of capital, our leverage is temporarily elevated, which increases our projected 2026 FFO by 1¢ per share. Said differently, if we had completed the planned additional $200 million of dispositions in January instead of the first half of the year, our FFO outlook would be $0.01 lower. Adding all these items together results in 9¢ per share of temporarily lower FFO in 2026 at the midpoint of our outlook but doesn't have any impact on our 2027 FFO or subsequent years. Finally, we've included up to 16¢ per share of land sale gains or 8¢ at the midpoint of the range. The potential land sale gains all relate to parcels that are under contract and scheduled to close later in 2026. Taken together, these items, none of which were known when we reported third-quarter 2025 results in October, have reduced the midpoint of our otherwise unaffected 2026 FFO outlook by $0.01 per share. Just a couple of other items to note. First, we provided our projected year-end occupancy outlook rather than average occupancy primarily due to the outsized impact of 600 at Legacy Union. At the midpoint, our year-end occupancy projection of 87.5% appears consistent with what we discussed on our last call, but it's actually a little stronger as our planned asset recycling activities are projected to reduce our year-end 2026 occupancy by 25 basis points compared to our portfolio at the end of the third quarter of 2025. Second, same property cash NOI is expected to be roughly flat in 2026, but GAAP NOI is estimated to be 150 basis points higher than cash NOI. As you know, when GAAP same property NOI is higher than the corresponding cash metric, it's typically a strong indicator for future same property cash NOI growth. Finally, we expect our debt to EBITDA ratio to start the year but steadily decline after Q1 as planned disposition proceeds are used to reduce debt and EBITDA steadily grows as we migrate throughout the year. Lastly, as you may have noticed, we made some routine SEC filings yesterday and this morning. Under SEC rules, S-3 shelf registration statements sunset every three years. It has been three years since our last shelf filing. As a result, last evening, we filed a new S-3 with the SEC. This was a joint shelf filing by the REIT and the operating partnership that registers an indeterminate number of debt securities, preferred stock, and common stock for future capital markets transactions. With this new shelf in place, we also need to refresh our long-standing ATM program, which we filed via form 424B this morning. As you know, keeping an ATM program in place is one of the many arrows we like to keep in our capital-raising quiver. To be clear, the FFO per share outlook that we provided in last night's release assumes no ATM issuances during 2026. Operator, we are now ready for questions. Theodore J. Klinck: Thank you. Operator: We'll now begin our Q&A session. So if you would like to ask a question, you may do so by pressing star 1. Once again, to ask a question, please press star 1. We'll briefly pause here as questions are registered. Our first question comes from the line of Seth Eugene Bergey of Citi. Your line is open. Seth Eugene Bergey: Hey, thanks for taking my question. I guess just to start off with, kind of on the capital recycling, you talked a little bit in the opening comments around kind of, you know, enhancing your long-term growth rate. You know, just kind of in the context of the 2026 guidance, like, when do you kind of expect to realize that elevated growth rate? Is that kind of like a 2027 story? Or something further beyond that? Brendan Maiorana: Hey, Seth. It's Brendan. Maybe I'll try to answer that. So I think there's a couple of different things going on with the recycling activity. Obviously, the impact on 2026 numbers is one-time in nature that we tried to lay out. So that's that kind of 1¢ 9¢ one-time impact that's there. That goes away in 2027. So I think if you thought about stabilized growth and you reverted back to what your estimates were in October for 2027, nothing that we've done since October should have any impact on your 2027 outlook. The asset recycling is neutral to modestly accretive to FFO in 2027. And the outlook on occupancy for year-end '26 is right in line with what we mentioned in October. If anything, it's probably up 25 basis points kind of on a same-store basis, so that feels a little bit better. So I guess if you looked at the '26 numbers and backed out the land sale gains, you'd get a lower growth in '26 but then a very significant amount of growth in 2027. But I think the way that we think about it from a long-term perspective is if the internal growth of the portfolio is just a 3% NOI over time, we continue to kind of grind that number higher by recycling into higher growth assets and recycling out of lower growth assets. Seth Eugene Bergey: Thanks. That's helpful. And then, you know, just going back to kind of the development pipeline, you know, and hitting kind of that 78% pre-leased number, how is kind of demand for the balance of that leasing on the development pipeline? Theodore J. Klinck: Hey, Seth. It's Ted. Look. I think demand we're still seeing really good demand. Think if you think about the progress we made throughout 'twenty five, you know, a year ago, we were 56% leased, and then last quarter, '72. So we've just continued to grind higher throughout 2025, and the demand remains good. As I mentioned, I think, on our prepared remarks, two of our developments, Glenlake 3 here in Raleigh, and Midtown East in Tampa, we have what we classify as strong prospects for the remaining space effectively. For Midtown East, it's all the remaining office space. And for Glenlake 3, it gets us to mid-nineties, I think, percent. And then you go over to Dallas, the 23 Springs we're currently around 75%. We've got prospects to move higher there as well. And then on Granite Park 6, it's a little quieter. We've got a couple of smaller prospects. I think it's just gonna be a long slog, and there aren't any big users out there to get us from we're just shy of 80 today. So I think we're just gonna hit some singles, and we'll continue to march that higher as well over time. But feel overall really, really good about our prospects. Seth Eugene Bergey: Thanks. Operator: Thank you. Our next question comes from the line of Blaine Heck of Wells Fargo. Your line is open. Blaine Heck: Great, thanks. I guess just digging in a little bit more to your tenant conversations. There's a narrative out there that, you know, the Sunbelt is more prone to AI displacement. I was hoping you could comment on whether you've seen any impact to your investor or tenant base, I should say, from AI-related layoffs. And do you see any of your markets as having elevated exposure to potential displacement of jobs driven by AI kind of efficiency? Theodore J. Klinck: Hey, Blaine. It's Ted. I'll start, and if Brendan or Brian want to jump in. Look. We really haven't. I mean, obviously, what we try and tell you on the call is what we're seeing with boots on the ground. And, you know, we all see the narrative on AI, whether it be soft companies a week or so ago, financials the other day. It's just not what we're seeing from our customers and on the demand. I mean, we continue to see in-migration coming to our markets. Companies are taking more space, not less space. Our own operating portfolio, expansions continue to outpace contractions. So look. You know, who knows what the ultimate outcome's gonna be? I do think back-office jobs are probably more susceptible to AI versus client-facing jobs, and that's most of our portfolio is client-facing jobs. So it's yet to be seen, but, look, we're not hearing any of that out of our client base yet. Brian M. Leary: Hey, Blaine. Brian here. Just to clip on, and Ted's mentioned this in the past. Our bread and butter are smaller customers in general. So that has a sort of insulator effect on the AI, at least right now. I think folks are seeing it as a productivity tool as opposed to a job elimination tool at the moment. But we know we're not ignorant to the impacts it will have on the overall job market. Blaine Heck: Okay. That's great to hear. Brendan, sorry for the broken record question, but we're getting a lot of questions on cash flow. We've touched on the elevated CapEx before with all the leasing you're doing, but it does look like straight-line will also be much higher this year. So I guess again, can you give us an update on how long you see these elevated impacting cash flow? And related to that, you know, just touch on the payout ratio and your comfort of riding through some period of depressed cash flow as it pertains to the dividend. Brendan Maiorana: Yeah, Blaine. Thanks. So what I would say, I guess, if we look at 2025 levels, and I think we were, you know, call it, on overall cash flow, we might have been $13 or $14 million kind of shy of coverage on the dividend. But that included $145 million of spend on leasing capital in 2025. And a normal year for us is about $100 million. And we committed $115 million during 2025. So anytime there's more spend than what is committed, that's typically a pretty good indicator that your spend on future periods is gonna go down. So I think it's likely that 2026 spend is probably gonna be a little bit lower than '25. I don't know if we'll be $30 million lower, but we think it's going to be lower. And then when you think about the amount of straight-line rent that's kind of in those numbers, that is future cash flow that's gonna come online. And so we feel very good about kind of the long-term outlook of cash flow going forward from a combination of increased cash NOI that will come online over the next several quarters and a return to normalized leasing CapEx over time. That's gonna create a significant amount of increased cash flow, and we're comparing that to, you know, last year's numbers where we were a little bit shy. But I think if you kind of normalize for all those things, that gets you back into that context of where we were a few years ago, which keep in mind from 2021 through 2024, I think we've retained a cumulative $150 million of cash flow above the dividend. So I think we feel very good about our ability to kind of get back there. Blaine Heck: Very helpful. Thank you. Operator: Thank you. Our next question is from the line of Nicholas Patrick Thillman of Baird. Your line is open. Nicholas Patrick Thillman: Hey. Good. Maybe touching on the $200 million of non-core sales and the $0 to $17 million of land sale gains embedded in the guidance here. I guess, overall, as we're reviewing that non-core sales, what percentage of that, if you could put a number around, is related to land sales versus core asset sales? And the type of property, maybe touching on the type of buildings you're also looking to dispose of within that pool. Theodore J. Klinck: Hey, Nick. It's Ted. Yeah. Of that 200 or so, none of that land is not any part of that. The land sales we have will probably be later in the year, we would anticipate. So, look, as you know, we're regular sellers of non-core assets every year. And I think this year is gonna be really no different if either as non-core assets or assets where we've maximized, think we've maximized the value. So it's, you know, it's gonna be a variety of markets as well. I think last year, we sold assets in Richmond, Atlanta, Raleigh, Tampa, Orlando. We sold land in Orlando. So just gonna be a mix of older assets or assets where we maximize the value as well. So it's gonna look a lot like, you know, prior years probably. Nicholas Patrick Thillman: That's helpful. And then, Brendan, maybe just a little bit on the occupancy bridge throughout the year. I know you removed the average occupancy within the press release, but in the K, you did mention it's gonna be average occupancy of 85 to 87% throughout the year. I know there's a little bit of a drag related to some developments coming online. But maybe just touch on how you expect that occupancy to progress throughout the year. Brendan Maiorana: Yeah, Nick. Good question. Yeah. It is so we ended the year at 85.3. That obviously included kind of a 70 basis point drag associated with the acquisition of 600. And then as you correctly point out, we've got developments, Glenlake 3 and Granite Park 6 that'll move into the operating pool in the first quarter. Those are low in terms of occupancy, will not be low in occupancy by end of year because the lease rate on those is relatively high. But that's gonna depress kind of first-quarter numbers a little bit. And also keep in mind, we just sold roughly a little over 500,000 square feet of very highly occupied assets that are gonna come out of that number. And then what we're planning on selling for the remaining roughly $200 million also is fairly occupied. So that's gonna kind of bring the number down a little bit early in the year and then steadily improve kind of as we migrate second quarter, third quarter, fourth quarter. Nicholas Patrick Thillman: Helpful. Thank you. Operator: Thank you. Our next question is from the line of Dylan Brzezinski of Green Street. Your line is open. Dylan Brzezinski: Hi, guys. Thanks for taking the question. You guys talked a lot about sort of how you're expecting to sort of complete the current capital recycling program within the first half of this year. I think in your guys' press release, you guys mentioned also potentially up to another $150 million of dispositions. Just sort of curious, you know, as you guys look at the portfolio today, I mean, do you guys get the sense that you're sort of nearing the final innings of paring down some of the what you guys might call quote, unquote, non-core assets? And as you sort of think about uses of that capital, you also mentioned $250 million of potential acquisitions. Just sort of curious how you guys are looking at things now that the stock has sold off quite a bit now. Are share repurchases a potential use of that capital? Thanks. Theodore J. Klinck: Hey, Dylan. It's Ted. I'll start. Look. I think as you know, you know us pretty well. I think if you've looked at our strategy throughout the years, we're consistent capital recyclers, always selling the bottom assets and recycling into newer higher growth assets. So I think that's something we're gonna continue, and there are still obviously, we still have Pittsburgh, that we do want to get out of and some other older assets on top of that. So there's still some work to do, but we've been, again, as we've said, we've been incredibly successful to do this capital rotation time and time again on a leverage-neutral and FFO neutral to slightly accretive basis. So and we feel comfortable with our ability to do that as well. And as that dilutions. So, anyway, we feel comfortable about our long-term capital rotation plan. In terms of the buybacks, look. I think, you know, we talk about it with our board quarterly. It's obviously a capital allocation decision as you alluded to. We're always looking to, you know, what's the best use of our capital. We look at all of our alternatives, whether it's buybacks, acquisitions, development, I think is becoming more interesting these days, highwetizing, which we constantly get very attractive yields on our highwetizing projects. Think you're familiar with. So, again, we look at what we're gonna do over the long term. I'd never say never, but, right now, I wouldn't say we're gonna deviate from our standard operating procedure. Dylan Brzezinski: That's helpful. And then maybe just one last one. You mentioned potential development opportunities. I guess, what sort of yield requirement would you guys need in today's investment environment to start any sort of either build-to-suit or spec development project? Theodore J. Klinck: Yeah. Look. I think you've seen what we're buying. One of the nice things about Highwoods is we're both a developer and an acquirer, so we can sort of toggle back and forth throughout the cycle. And, just given the dearth of new development, we're starting to feel more incoming calls in both developments and whether it be a build-to-suit or substantially preleased development start. So there's gotta be a premium, right, over on acquisitions to new development. But we don't really discuss our development yields primarily from a competitive standpoint. I mean, there's a lot of things that go into a development yield, whether it be the market, a submarket, what we think the exit cap rate is, the term, the credit of the lease, what annual bumps are. So just a lot of factors that come into it. So we really don't get into those yields. But suffice it to say, the premium over what acquisition cap rates are today. Dylan Brzezinski: Great, Ted. Appreciate the color. Thanks. Operator: Thank you. Our next question comes from the line of Ronald Kamdem of Morgan Stanley. Your line is open. Ronald Kamdem: Yeah. Oh, great. Just two quick ones. Just going back to sort of the guidance, if you sort of back out the land sale gain and so forth, just trying to think is the you think about 25 versus 26, was there anything else sort of going into the number other than the dilution from the sales and the financing? Just wondering if there was anything else sort of fundamental driving that number. Thanks. Brendan Maiorana: Yeah, Ron. It's Brendan. The only other thing that, you know, that we've talked about is there's probably, on a year-over-year basis, kind of call it, 5¢ of headwind on that other income line item that's there, which I think we talked about maybe on one of the last calls that if 25 was sort of elevated, 26 is not, you know, it's not a zero, but it's probably more in line with a normalized year compared to kind of an elevated outlook. So I think if you adjust for the one-time items associated with the acquisition and the financing in 2026, and you know, and you normalize kind of that other income line item, you get to, you know, a pretty healthy kind of growth rate at the core, which I think gives us confidence as we think about kind of the company going forward where we've got good growth levers that are in there. So I think that's probably a fair way to think about kind of at the core how much we're growing and how we think about that over an extended period of time. Ronald Kamdem: Great. And then my second question was just on the leasing. You just remind us what sort of the new leasing bogey should be thinking about to grow occupancy? It looked like it maybe was a little bit lighter during the quarter. Then picked up post-quarter. Is that right? Just any color there would be helpful. Brendan Maiorana: Quarter meters. Is low. As you mentioned, it certainly picked up here in the early part of the year. Just to kind of lay out context in terms of where we need to get to to be at that 87.5 number by end of year. We've got about 2.1 million square feet of remaining expirations in 2026. So there's probably we expect about 1.3 of that is likely to kind of move out. We currently have 1.2 million square feet of leases that are signed that are not yet in occupancy that will be in occupancy during 2026. So that leaves kind of compared to where we are at the 2025, we're down about 100,000 square feet, maybe a little bit less than that. So what we need to do from a new leasing standpoint is do about 750,000 square feet of new, seven to 750,000 square feet of new. And, generally, we probably need to get those signed to have them in occupancy by kind of middle of the third quarter. So that's about 300,000 square feet of new per quarter. And that creates about 250 basis points of net absorption. Our occupancy guide is 220. So we're gonna lose about 25 basis points or so from the asset recycling that we talked about, just selling some of the things that we did early in this year and then what we expect to do. So, hopefully, that all makes sense, but we feel like all of that is very attainable, relative to kind of what the business plan is. Ronald Kamdem: Thank you. Operator: Our next question comes from the line of Vikram Malhotra of Mizuho. Your line is open. Vikram Malhotra: Good morning. Thanks for taking the question. I guess, Brendan, I just wanted to go back to be clear on your comments around sort of the unaffected rate, I mean, the FFO run rate not being affected as we go into 2027. Just thinking about the positive benefits from the land sales, that's one-time versus the dilution or the run rate occupancy from the acquisition trending up? Do you mind just sort of going over that math again just so we understand as we go from 4Q 2026 into 1Q 2027, kind of that step up that you're alluding to, versus maybe what we have modeled for 2027 FFO? Brendan Maiorana: Yeah, Vikram. So I guess what the NOI that we have for I'll break it down into kind of the three items. The NOI that we have at 600 we disclosed when we acquired the building. Our expectation for GAAP NOI in 2026 is $10 million. That number, we think, will be greater than $18 million in 2027, and there's really not a lot of leases that we need to do at this point to achieve that NOI projection for 2027. NOI there will be low throughout the majority of 2025. But it will build a little bit as we progress throughout the year. So it's not gonna be 2.5 million a quarter. It's gonna start a little bit lower than that. But the largest lease that is not currently in occupancy is American Express, which Brian mentioned. That comes in occupancy on 12/01/2026. So we really don't get a lot of benefit from that. So most of that $8 million annual increase will kind of show up early in 2027 relative to 2026. So you're gonna get most of that kind of in '27. And then we're gonna be fairly inefficient from a capital standpoint based on our projections as the disposition proceeds come in the door, and we'll have cash on hand for much of 2026, at least based on our current expectations. We will use that cash and then likely borrowing on the credit facility to repay the March 2027 bond. So whereas that probably in your outlook for 2027, three to four months ago, you probably had some refi headwind in that number. Now in all likelihood, that's not gonna be much of a headwind because kind of between cash and borrowing rate on the line, that's roughly in line with kind of where the interest rate is on that. So those items kind of give you sort of built-in growth in '27. And then we're obviously moving occupancy up throughout the year. The development properties are gonna build in terms of the NOI contribution that they have throughout the year. So the combination of kind of all of those things drives a lot of build as we migrate throughout 2026 and then into 2027. Vikram Malhotra: That's helpful. And just on that occupancy build, do you mind just walking through any large expirations or new known move-outs either this year or next year that could, you know, potentially cause that occupancy to take a step back just relative to the last few years when you've had bigger move-outs? I'm just trying to get a sense of what the next two years look like. Thanks. Theodore J. Klinck: Hey, Vikram. It's Ted. The nice thing is our forward, I'd say, three-year outlook on expirations doesn't look anything like what it did in the last three years. So we feel really good about where we are. I mean, we don't have any expiration or known move-out greater than 100,000 square feet. Any expiration greater than 100,000 square feet until mid-2027, there's only one that's greater than 100,000. That one we have is the only one we have throughout all of '27. And we think there's a decent chance of renewing that one. So again, we feel really good with we have a few known move-outs that are in that fifty to sixty thousand feet, but we've already backfilled half to two-thirds, even all of it on some of those. So I think it's, we feel really good about where we stand today about our forward expirations. Vikram Malhotra: Thank you. Operator: Our next question comes from the line of Peter Dylan Abramowitz of Deutsche Bank. Your line is open. Peter Dylan Abramowitz: Yes. Thank you for taking the question. Just wondering if you could talk about the expected pricing on asset sales, not only what you closed so far in the fourth quarter and subsequent to year-end, but also the $200 million or so that you're gonna close over the next six months. Just from a modeling perspective, kind of what's the NOI impact or cap rate on that? Theodore J. Klinck: Maybe I'll start, then Brendan can jump in with any details. But look, as you alluded to, we've sold $270 million in 2025 in the first month or so this year. And the blended cap rate there was sub-8%. It was a mix of assets. You know, we sold really, we sold eight assets to users last year, so we feel good about getting user pricing. We sold one to a triple net lease buyer. Sold one to a 1031 guy. So it's been a variety of assets and a variety of buyers. So, sub-8% cap rate on that $270 million, and I think it's gonna be similar or maybe a little bit better than that on the remaining couple hundred million. Peter Dylan Abramowitz: Right. Thanks, Ted. And then maybe one for Brian. Just wondering if you could kind of go around the horn to some of the major markets and talk about concessions to bring tenants into occupancy there. Are they generally stable or still increasing or even declining? Just any color you can provide there would be helpful. Brian M. Leary: Sure, Peter. Thanks for the question. I would say in general, they are stabilized. What we are seeing is that customers want the best space, and that costs, you know, it costs more than it did before. So they're willing to kind of commit to term to do that. So that's sort of how Brendan mentioned the amount of CapEx that's associated with leasing over the last year. So I think we're seeing that, and we're happy to trade that. Just going through the market, I'll tell you, Charlotte, Dallas, Nashville, and Tampa, very competitive. Any space we might have available in Charlotte, we're getting looks well in advance of folks sort of jockeying for it. You heard in my prepared remarks the amount of job growth in Charlotte. There's really no space left for prime and top-tier class A in Uptown, South End, or South Park. So that does help moderate that kind of pressure on concessions. Dallas, we're very fortunate in Dallas, obviously, being Uptown. Have the top of the market building that's delivered and available now at 23 Springs. Preston Center with our new addition at the Terraces is full 100%, as Ted mentioned. Recently signed, and that's the lowest vacant BBD in the entire market. We will continue to lean in on the Granite Park 6 lease-up there. We underwrote it from a development standpoint to do that. So maybe that BBD legacy has gotten bigger kind of spaces and typical bigger users. And we've been very, very happy with the development delivery of Midtown East in Tampa. We're looking at triple net rents now into the fifties. So now I'll tell you, it's competitive out there. We are still committed to occupancy. But we are able to move rate and obviously moderate concessions across the board and reduce them where we're most competitive. Peter Dylan Abramowitz: Alright. Thanks for the time. Appreciate it. Operator: Thank you. There are currently no questions waiting at this time. So as another reminder, it is star 1 to ask your question. There seem to be no questions waiting at this time. So I'll pass it back over to management for any closing or further remarks. Theodore J. Klinck: Well, thank you, everybody, for joining the call today. We appreciate your time and your questions. If you have any follow-up questions, please feel free to reach out to us. Have a great day. Operator: Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.
Operator: Hello thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2025 NiSource earnings conference call. All lines have been placed on mute to prevent any background noise. Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Durgesh Chopra, Vice President of Investor Relations. Durgesh, please go ahead. Durgesh Chopra: Thank you, Tiffany. Good morning, and welcome to NiSource's fourth quarter 2025 investor call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Technology, Customer, and Chief Commercial Officer, Michael Luhrs; and Executive Vice President and Group President of NiSource Utilities, Melody Birmingham. Today, we will review NiSource's financial performance for the fourth quarter and share updates on operations, strategy, and growth drivers. Then we will open the call for your questions. Slides for today's call are available in the Investor Relations section of our website. Some statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the risk factors and NDA sections of our periodic SEC filings. Additionally, some statements made on this call relate to non-GAAP financial measures. Please refer to the supplemental slides segment information and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. With that, I will turn the call over to Lloyd. Lloyd Yates: Thank you, Durgesh. And good morning, everyone. We appreciate you joining us today. I will begin on slide three. At NiSource, we exist to deliver safe, reliable, and competitive energy that drives value to our customers. Creating that value depends on disciplined capital deployment, operational excellence, and constructive regulatory frameworks that enable timely recovery of investment. These core principles generate competitive returns, strengthen our balance sheet, and form the foundation of our business strategy. Before we cover our standard business updates, I would like to highlight the successful year for NiSource. In 2025, we effectively executed an agreement with Amazon and, as detailed in our special contract filing with the IURC, we are anticipating $1 billion to flow back to NIPSCO customers, equating to an estimated $7 to $9 per customer per month upon Amazon's full ramp. Our base business continues to deliver for our shareholders, achieving a full-year adjusted EPS of $1.90 per share and FFO to debt of 16.1%, both results surpassing our guidance range. Today, NiSource's value proposition is driven by our regulated utility operations across six highly constructed jurisdictions, providing diversification in both asset type and regulatory environment. As we continue to invest in modernizing our electric and gas infrastructure, remain focused on supporting economic growth, advancing innovative solutions like our Genco model, and maintaining a strong commitment to customer affordability and stakeholder value. On slide four, we highlight our key priorities. Delivering value for our customers has always been and continues to be one of our highest priorities. We have proactively deployed proven regulatory and rate design tools to mitigate bill impacts and protect customers from external cost pressures. In Pennsylvania, customers benefit from the weather normalization mechanism, which prevents bill spikes during colder months, and from a higher fixed charge that helps stabilize the impact of changing usage. These protections were negotiated during our last rate case and have already prevented heightened bill increases since implementation in January. Similarly, in Ohio, our fixed variable rate design smooths the bill impact associated with necessary investments to maintain system safety and reliability and can cut total bill increases in half relative to higher volumetric rate design structures. Our landmark agreement with Amazon further demonstrates our commitment to affordability. This agreement will return approximately $1 billion in value to our Indiana customers, translating into meaningful bill reductions over a fifteen-year period. Customers also benefit from NiSource's scale and disciplined planning. During the recent severe winter storm, we leveraged low-cost gas from our storage assets, which serve roughly 75% of our total load at below-market prices, which help limit customer bill impact. In addition, our flat O&M objective across the platform constrains cost growth and reduces the pass-through of investment-related expenses to customer bills. Together, these proactive measures enable us to invest approximately $28 billion over the next five years to modernize and maintain our infrastructure, continuing to prioritize safety and reliability and targeting average annual bill increases of less than 5%. We have advanced our gas system support by securing a final order in Pennsylvania and adding supportive legislation in Ohio, which will improve rate-making and reduce regulatory lag. In Indiana, our contract with Amazon is pending before the IURC, with a decision expected in the first half of this year. Today, we reported fourth quarter adjusted EPS of $0.51, bringing our year-to-date total to $1.90, and we are reaffirming 2026 consolidated adjusted EPS guidance of $2.02 to $2.07. Despite these strong financial commitments, we believe significant upside remains across the outlook of our plan from developing projects supporting data center growth, oil shoring of manufacturing, and robust economic development across our territories. Now let's turn to slide five. At NiSource, safety is our top priority and the foundation of operational excellence. In 2025, we maintained ISO 55001 and API 1173 certification, underscoring our commitment to a strong safety management system. Our investments in system resilience and emergency preparedness proved invaluable this winter. During one of the most significant storms in the last decade, while many communities across the country experienced widespread outages, our customers remained safe and warm with limited service disruption across our footprint. Over the past year, we accelerated critical safety initiatives, including installing over 545,000 smart meters and surveying more than 41,000 miles of pipelines with advanced mobile leak detection technology, both exceeding targets and enhancing system reliability. Operational performance was further strengthened by leveraging AI analytics and our work management intelligence system, which improve productivity and is being expanded into supply chain and reliability functions. Project Apollo continues to drive cost savings and process improvements, enhancing service quality, and we remain focused on customer affordability, targeting annual bill increases below 5% across our territories over the plan horizon. Regarding our regulatory agenda on slide six, we secured important outcomes in the fourth quarter, including approval of our Pennsylvania rate case in December and continued progress across our tracker platforms. We expect to benefit from improved regulatory support in Ohio following recently enacted utility legislation. Together, these developments reduce regulatory lag, align cost recovery with investment timing, and reinforce our constructive jurisdictional framework. In Indiana, we continue active engagement with the IURC as we advance filings tied to generation transition, fuel recovery, and our economic development initiatives. In 2025, the Indiana economic development team managed one of the strongest pipelines in recent years, supporting over 140 active projects across the service territory. In Virginia, which remains a data center capital of the world, our team has filled more than 40 data center inquiries in 2025. We are currently engaged in approximately two dozen active data center projects, advancing gas infrastructure opportunities to support customer needs. As we look forward to our regulatory agenda in 2026, we currently do not have any pending rate cases, but as typical for our business, some level of regulatory activity will likely occur. We are committed to working collaboratively with stakeholders to make investments that maintain safe, reliable service for our communities. We also continue to engage actively with policymakers at both the federal and state level. In December, NIPSCO received a federal order directing continued operation of our Shaker coal plant beyond its planned retirement. We will comply with this and any future orders we might receive. Our capital strategy remains adaptable to meet regulatory requirements and to maintain financial stability. We filed a proposed new schedule for cost recovery with FERC in line with the DOE-mandated coal plant extension. Our commitment to providing safe and dependable energy remains steadfast. We are monitoring developments related to EPA reliability regulations, MISO accreditation changes, and state-level customer initiatives. Our diversified footprint and integrated electric and gas operations position us well to adapt to evolving policy. We have a well-defined plan for executing our data center initiative, marked by key milestones as noted on slide seven. Right now, we are advancing the Amazon project, and we are on track. On February 2, our zoning application for five parcels was approved by the Jasper County commissioners, a key step for our data center strategy. This approval reflects our commitment to transparency, stakeholder collaboration, as well as Indiana's support for economic growth. Our next major milestone includes IURC approval of the special contract and commencing civil site work. We will update you as we reach and progress towards key milestones over the next several quarters. We are focused on disciplined construction execution, leveraging our proven track record of delivering large-scale generation projects on time and on budget. And with that, I will turn the call over to Shawn. Shawn Anderson: Thank you, Lloyd, and good morning, everyone. I will begin on slides eight and nine with our financial results for the fourth quarter and full year. 2025 continued NiSource's track record of disciplined capital allocation and cost management to deliver on our financial commitments. The outperformance across 2025 was driven by strong financial management of capital, better-than-expected financing costs, outperformance from retail sales, and sound cost management and constructive regulatory execution across all of our states. For 2025, we reported adjusted earnings of $0.51 per share compared to $0.49 for the same period last year. For the full year 2025, adjusted earnings were $1.90 per share compared to $1.70 in 2024. Results reflect regulatory execution in Indiana, Pennsylvania, and Ohio, partially offset by increased operating and interest expenses. Significant weather effects also impacted the fourth quarter, contributing about 70 basis points in FFO to debt for the full year. The impact was mainly due to the timing of weather events and a portion is expected to be passed back to customers in 2026 through regulatory mechanisms. Our capital plan on slide 10 includes $21 billion of base utility investment over the next five years focused on grid modernization, gas infrastructure replacement, safety, and reliability. The Amazon project at Genco represents $6 to $7 billion of capital investment through 2032, with the majority falling within the five-year planning window. The contract is designed to align cash inflows with customer ramp rate and incorporates protections that support both credit quality and financial flexibility. In addition to these guided CapEx plans, we maintain approximately $2 billion of upside capital investments which support our base business utility operations. Key investments include electric generation investment to comply with MISO's reliability standard and planning projects related to system hardening. Beyond the base and upside plans, our teams continue to advance the incremental investment opportunities shared on slide 11, including MISO's long-range transmission planning process and the development of tranche two projects, PHMSA compliance, and advanced metering infrastructure. We are evaluating these opportunities and will incorporate these projects into our base capital expenditure plan once we have completed the scope and estimation work necessary to launch those projects. Our data center pipeline is shown on slide 12 and remains robust, reflecting our ability to actively develop and serve a growing roster of new customers. We continue to engage in strategic negotiations for one to three gigawatts of new capacity, underscoring the strength and scale of demand in our markets. In addition to these advanced negotiations, we have identified up to three gigawatts of further developing opportunities, positioning NiSource as a key energy partner for data center expansion and broader economic development objectives across our service territories. On slide 13, you will notice that since 2021, we have nearly doubled the generation capacity of the NIPSCO system and built a robust pipeline of projects to meet rising customer demand and support the energy transition. These additions enhance grid reliability and diversification while demonstrating NiSource's proven ability to execute large-scale construction projects. They also position us to serve an expanding customer base, support data center growth, and deliver on our long-term objectives. Slide 14 captures a summary of our financial commitments. We are reaffirming NiSource's consolidated adjusted EPS guidance range for 2026 of $2.02 to $2.07 per share, which represents approximately 8% year-over-year growth compared to 2025. This is fueled by the base business guidance of $2.01 to $2.05, which is expected to grow 6% to 8% off of the $1.90 adjusted EPS achieved in 2025. In addition, in 2026, we expect Genco to contribute 1 to 2¢ as it begins to ramp up its earnings contribution to NiSource. This drives a compound annual growth rate of 8% to 9% through 2033, supported by a 9% to 11% consolidated rate base CAGR through 2033. We are committed to keeping O&M costs flat over the planned horizon to support sustainable operations and reduce future risks. In 2025, we proactively funded incremental initiatives focused on cybersecurity improvements, expanded leak repair activity, and better leak detection, initiatives that lower system risk and protect our infrastructure. Our plan assumes modest customer growth of less than 1% across all customer classes and conservative financing assumptions through 2030. Our regulatory execution in 2025 has increased visibility into 2026 results, with the regulated revenue increases necessary to achieve our guidance range either already reflected in rates or pending approval. Our forecasts incorporate continued use of long-established capital trackers in nearly all our jurisdictions and are based on what we believe are realistic regulatory outcomes. And I am pleased to announce another successful year of dividend growth for our shareholders. In January, the board approved a 7.1% increase in the dividend for 2026 compared to 2025, reflecting our commitment to aligning dividend growth with earnings growth and maintaining our target payout ratio of 55% to 65% as outlined in our strategic plan. The strength of our balance sheet is highlighted on slide 15. We remain committed to maintaining FFO to debt between 14% and 16% throughout the planned horizon. In 2025, we achieved 16.1%, an increase of 150 basis points, exceeding our targeted guidance range. This was aided by strong internally generated cash flows from capital execution, increased equity issuances via the at-the-market program, junior subordinated note issuances, and higher-than-typical cash flow receipts from the above-normal weather we experienced in 2025. This positions us well as we look to execute on our financial plan through 2033. We expect to fund our capital needs through a combination of operating cash flow, long-term debt, and $300 million to $500 million per year of maintenance ATM equity at the parent. At the Genco level, we retain the flexibility to leverage minority equity and project-level debt to minimize financing friction and maximize long-term shareholder value. Turning to slide 16. Genco remains poised to deliver incremental value beginning in 2026 with guidance of 1 to 2¢ per share. We are confident in our strategic direction and look forward to sharing additional updates as we progress through the year as we monitor the IURC's decision on the special contract filing. The year also extended outperformance as shown on slide 17, by consistently following our business plan and rigorous capital allocation principles, we have shown ongoing growth and solid financial outcomes which compound over time. NiSource has met or exceeded the upper end of its guidance range each of the last five years. Each time this target is achieved, we adjust our future adjusted EPS guidance upwards to reflect these accomplishments. This approach has set us apart by creating real value for our shareholders. The effect of our outperformance in annual rebasing compounds, amplifying our achievements, and sets the stage for even greater financial momentum in the years ahead. For example, 2026's implied midpoint is now 8.8% higher than originally forecasted in 2022. That exceeds the upper range of one full fiscal year of earnings power since our strategic business review in 2022. Our track record of exceeding expectations has set a new benchmark for NiSource's performance, delivering 8.5% adjusted EPS since 2021 compared to the industry median growth of 6.4%. This growth in earnings power for NiSource, coupled with a greater than 7% increase in dividend to our shareholders for 2026, will enable us to achieve double-digit annual total shareholder return which endures and grows over the business plan horizon. 2025's 9% year-over-year adjusted EPS growth rate continues a trend of over 8% growth already achieved annually in our business since 2022. And we expect this to continue as we look further out to our long-term guidance. Rate. We can test the consults of data through 20? This consideration of structure and grow further reflect the need. Extend our long profile. Averted discipline, a major new growth opportunity on agreement, Our team is active discipline. 2026 in our strategy. Financial commitment, our ability to sustainable value customers and share. Opposition NICE is to offer that is diverse regulated utility with the ask to invest in oil and gas and per and the long transition story, both fully integrated element of a story. Opportunities, economic development, non-shoring center development, Please differentiate opposition. To many alternative day. That operator, open the line for questions. At this, I would like to ask a press PIN number one on phone keypad. To withdraw in simply the one again. We will calm it to comply roster. Your first comes from the line Campanella Lave Hey. Good morning. Thanks. Good morning. The strategic negotiator for GenscoA and talk about what investors should be looking for to know you are making kind of further progress? As it relates to that figure? Shawn Anderson: And, you know, maybe just kind of confirm you stand in the supply chain, if you do think you can kind of deliver another gas solution this year. Or if it would be more you know, renewable than batteries? Just any forward-looking thoughts there. Thanks. Lloyd Yates: Oh, thanks. So I will start, and I will ask Michael Luhrs to weigh in here. Now if you think about the JENCO order that we received last September, you know, NiSource is in a position to offer what we said is a unique solution to potential large low low customers. When you combine the order with our excess transmission capacity and our supportive policy in Indiana, feel like we are in a really strong position to grow our data center load business. We have also created, well, I will say, an organ but we have created an organization under Michael Luhrs. It is led by Dan Douglas. You probably do not know, but sole purpose of that organization now is to execute on this opportunity. So with that being said, I mean, Mike, those guys wake up every day to on the data center opportunity. So I do not think future transactions will take as long as Amazon. You know, when we did the Amazon deal, we had a bunch of people working part-time to accomplish that. So I think what we are having now is better focus and better processes which should lead to faster execution. Now I will turn it over to Michael to talk about the discussions with the counterparties and then the queue and backlog. Michael Luhrs: Sure. Thank you, Lloyd. The discussion with the counterparties are progressing well. We have multiple counterparties that are in that pipeline that we continue to develop. We feel very positive relative to those negotiations. And I do believe that the Genco solution that we have designed and put forward has been advantageous to those discussions. Relative to the supply chain and the pipeline, as we have discussed before and as we continue to do, we are facilitating that pipeline through investment in long lead time equipment, turbine reservations, breakers, transformers, etcetera. To help make sure that we can meet counterparty demand in a very timely way. Speed to market is one of our core tenants, and we are investing in that speed to market. Shawn Anderson: Okay. Thanks. And, appreciate that. Maybe just the commentary, in the prepared around no pending rate cases outstanding. Can you just give us an idea of how you are thinking through your Pennsylvania strategy and what the considerations there? Lloyd Yates: Are? So right now, not planning a rate case in Pennsylvania. I know there has been a lot of commentary about Pennsylvania. We just had a rate case. We finished a rate case last December. In that rate case, we increased revenue $55 million by 10% ROE. We had great conversation with the commissioners. What one was to continue to con invest and replace plastic pipe first first generation plastic pipe in Pennsylvania and continue along with that investment. That is same time, it would do not come in for rate cases so frequently. So we are in the midst of trying to solve that conundrum with some some kind of regulatory solution that we are working through right now, but we do not have anything new to tell you about that. Okay. Thank you. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead. Julien Dumoulin-Smith: Good morning, team. This is Park on for Julian. And Good morning. Appreciate the color. Yeah. Thank you. On the supply chain. And maybe just a quick follow-up on timing. Should we think about announcement of the next Genco deal as contingent on receiving the first IURC approval for the special contract filing? Or, you know, could the second project be announced ahead of that milestone? Lloyd Yates: So as we as we mentioned earlier, let me say we are executing on our strategy. We have a specific team working on that strategy. We have more focus and better processes. We do not have a date. I think that we are dealing with a port I know that we are dealing with a portfolio of customers, These are complicated transactions. They take a lot time. And with that portfolio of customers, we do not have specific time to lay out to you right now. When we know something, you know, we will communicate it appropriately. Michael, you want to add anything to that? Michael Luhrs: Only thing I would add to that is is the another opportunity is not dependent upon the IURC approval of the first opportunity with Amazon. That is not a a condition precedence in what we are doing with additional development of the pipeline. Julien Dumoulin-Smith: Okay. Appreciate the color, and thank you. And maybe if I can quickly, pivot to regulatory front and appreciate the color on Pennsylvania rate case filing. Maybe just how should we think about the timing, you know, for the Nipsco gas rate case filing this year? Are you on track, or do you plan to file for that rate case this year? Just based on case historical cadence? Lloyd Yates: No. They You can do that. Operator: Yep. At this time, we have not made the determination to file, you know, for a rate case. We are taking everything into consideration but at this time, no. Lloyd Yates: Okay. Thank you. Operator: Your next question comes from the line of Bill Apicelli with UBS Securities. Please go ahead. Bill Apicelli: Hi. Good morning. Just following up on the same theme here. I As far as those, conversations, are going, you know, can you speak to maybe the the scale of the opportunities? I mean, obviously, the the initial announcement was quite large. I mean, should the expectation be you know, smaller contract sizes moving forward, or any thoughts there of how you guys are are framing out the the size and scale of the incremental opportunity? Lloyd Yates: So we have not disclosed the size and scale. What we have said is we are in strategic negotiations with one to three gigawatts and that entails a portfolio of customers and could be multiple sizes and shapes. Michael, anything to add to Michael Luhrs: The the only thing I would add to it is if you remember our criteria around making sure for stakeholders that we are maintaining the balance sheet, the speed to market, providing a benefit to customers, we really look at those criteria for the determination of what deals we pull through. If customers meet those opportunities, those deals, then we can serve them and execute on those, then, you know, we we will continue to do that. So it is more about the capabilities and the contract agreements than it is about the specific size of the counterparts. Bill Apicelli: Okay. And has the the the pace of those conversations picked up at all just in the last few months as we have seen some you know, slowdowns in other regions? I am just curious on that front. I would say the pace of the conversations, discussions, has picked up Our organization's speed has picked up. We have a lot confidence in our ability to execute on the strategy. Okay. Great. And then just one other topic here. Can you maybe explain a little bit around the significance of of senate bill one three and what that could mean for large load customer opportunities in Ohio. And or I guess, any of those contemplated within the base capital the $2 billion of upside base CapEx? Shawn Anderson: Yeah. Thanks, Bill. Appreciate the question. We have not inquired incorporated any upside from economic development or the procurement of large load customers into the Columbia Gas Ohio forecast yet. We are currently working on optimization based on the outcome that we received in December and the new law signed, to help us optimize both the regulatory strategy as well as minimizing regulatory lag potential, get get tighter and more certain capital recovery timelines, and then certainly how we can action alongside Michael's team, the upside that come from economic development and data center opportunities in Ohio. But none of that is in reflected in the the COH plan at this point. Bill Apicelli: Okay. That is something you could fold in later this year? Shawn Anderson: Yep. Absolutely. Throughout the year, even at that point, we we would not need to wait till a typical full plan refresh for us to provide guidance, whether it is, on individual projects or the upside CapEx, as we have shown in the past, we will flow those potential upsides. Into our plan all along the way. Lloyd Yates: Alright. Great. Thank you very much. Operator: Your next question comes from the line of Elias Jossen with JPMorgan. Please go ahead. Elias Jossen: Hey, everyone. Just wanted to start on some of the recent developments across Indiana as it pertains to the base business. Can you remind us where we are on House Bill 10 o two and, you know, frame potential impact of that legislation. Maybe just speak more broadly to some of the IUR appointment changes and their know, overall view of of your business and you know, the affordability backdrop. Thanks. Lloyd Yates: So let me start with we are supportive of how Bill 10 o two. It Today, it is in, I think, senate appropriations in this in the state of Indiana. The session ends March 15, so I am not sure whether it it will get out of it in it will get out of appropriations in time. For the approval process. But over overall, think it will be good for us. I mean, the bill has kind of four big components, multiyear rate plans, and perform some performance-based components. It has a mandatory budget billing with an opt-out. Then it has a a low-income plan, funding funding for a low-income plan, which we already have, in the state of Indiana. So we think the bill is ultimately good We support the bill. We I I I think we have had good input into the bill. And we we like where it is. I think with respect to the commissioners, the three new IURC appointments, I think they will be balanced We we are very familiar with all three of the new commissioners. And, again, I think Indiana will continue to be a very constructive regulatory jurisdiction. Elias Jossen: Awesome. And then jeez. But can you remind us if the high end of the Genco range reflects the full upper bound of Amazon's ramp? Or is that a more conservative scenario? Just trying to understand sort of the the total possibility there on the Genco contributions. Shawn Anderson: Yeah. So this is Shawn. There is a range of scenarios which have the potential to impact the positioning of where we are at with the within the range. The most notable are related to financing costs and construction timelines, faster than anticipated leads to lower financing costs, thus positioning us like like higher in the range. Slower construction timelines could lead to more financing costs, and thus a lower position within the guided range. In addition, you know, we have got some opportunity to optimize that financing cost overall. We are evaluating those scenarios, and we could see some outperformance of where we are within our point estimate, which would ultimately strengthen the earnings contribution to NiSource. So we have a range of scenarios reflected in the guidance that we provided for all years. Certainly, incremental customers or changes to the current timelines could represent upsides and strengthen where we are at. But those are further out as we look at the 2033 guidance range. Elias Jossen: Got it. Appreciate the color. Operator: Your next question comes from the line of Travis Miller with Morningstar. Please go ahead. Travis Miller: Good morning, everyone. Thank you. Lloyd Yates: Good morning. Quick one on Schafer. I will save you from all the data center. Questions here. So two unrelated ones. Schaeffer, economics run time, plans to retire, what is beside what you said in the opening comments? What is a more detailed plan for Schafer do you think right now? Lloyd Yates: So as you know, we received a two zero two order on Schaefer. I think it was December 23. We were on retire that plant December 31. We filed with FERC and going down a path for cost recovery. Right now, in terms of our capital plan, we have enough flexibility in our capital plan where it is running Schafer as as an alternative is not going to have a big impact on our capital plan. I think run time will be determined by myself. In terms of demand and availability, but it will we are putting ourselves in a position to be able to operate Schafer, operate it reliably and effectively. I think longer term, there are some environmental constraints that will prevent it from operating at a really long term, but those are subject to change with some of the EPA regulations that are being changed right now. So you know, would you know, we expect to receive maybe another order every ninety days until the federal government changes the way that you know, that process works. You know, we are going to operate safer and comply with all the orders that we receive. Travis Miller: Okay. Makes sense. And then higher level question. What are you seeing across your jurisdictions in terms of electric and gas coordination? So either timing or supply coordination. Now it is an issue that has been coming up here recently. What is the status do you think in in your jurisdiction as you got these had more gas generation and have have that gas supply side. Lloyd Yates: I will talk about this. Not as an NiSource, but as the former chair of the AGA. We have been intimately involved. We are Movica, who is our senior vice president of operations has led the GEAR task force, which is really the point on the spear from the AGA perspective and with on the electric side of the business of figuring out how to more effectively coordinate gas and a ledger across the entire United States. So I would say this is a US thing from it is The United States thing, not just our region issue. It is an important issue. I think it is getting better. I think the process processes are being developed. To be much more effective and have much tighter coordination than we have in the past, which I think will really be important for reliability and resilience. Travis Miller: Okay. Great. That is all I had. Thanks so much. Operator: Your next question comes from the line of Paul Fremont with Ladenburg. Please go ahead. Paul Fremont: Thank you very much. Congratulations on a on a great year. I guess my question has to do with what should we expect with respect to reporting for the Genco? Right now, you have got Columbia operations, NIPSCO, corporate and other. Should we be looking, you know, for a fourth segment for the Genco or or how how do you plan on on on showing that in terms of the financials? Shawn? Shawn Anderson: Yeah. Hey. Good morning, Paul. We we do anticipate as Genco becomes more material to NiSource's operations to break Coat as its own segment. Obviously, we have not done that yet for 2025 reporting, but as we step into 2026's results, we would anticipate growing to to provide incremental disclosure around that. Paul Fremont: So, I mean, should we begin to see something, like, in the first quarter? It will be will it be more towards the end of the year? Or or several years out when the EPS contribution goes higher? Shawn Anderson: I would expect it in 2026. Fiscal results. So I would start to build that out in your models. We have not disclosed the exact timing of when we will do that. We are underway to to make sure we can get that disclosure, out there. Paul Fremont: Okay. And then last sort of question will be when you do it out, will it be a full income statement or or just partial? Shawn Anderson: We will be sure to get that information out to you, Paul. We have not exactly, disclosed those plans yet, but we will we will get that updated for you and and help you if you need any side side conversations on what to start to build out. Paul Fremont: Great. Operator: Thank you very much. That concludes our question and answer session. I will now turn the call back over to Chief Executive Officer, Lloyd Yates, for closing remarks. Lloyd Yates: First of all, thank you for your questions and your interest in NiSource. I do want to take this opportunity because I know they are listening, to thank all of the NiSource employees and contractors for winter storm Fern. You know, our performance was exceptional. We had very few customers interrupted. Our customer states safe and warm. And we recognize the hard work that went into that. So thank you to the team. Have a great day. Tiffany: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to Generac Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Kris Rosemann. You may begin. Kris Rosemann: Good morning, and welcome to our fourth quarter and full year 2025 earnings call. I'd like to thank everyone for joining us this morning. With me today is Aaron Jagdfeld, President and Chief Executive Officer; and York Ragen, Chief Financial Officer. We will begin our call today by commenting on forward-looking statements. Certain statements made during this presentation as well as other information provided from time to time by Generac or its employees may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see our earnings release or our SEC filings for a list of words or expressions that identify such statements and the associated risk factors. In addition, we will make reference to certain non-GAAP measures during today's call. Additional information regarding these measures, including reconciliation to comparable U.S. GAAP measures, is available in our earnings release and SEC filings. I will now turn the call over to Aaron. Aaron P. Jagdfeld: Thanks, Chris. Good morning, everyone, and thank you for joining us today. Our fourth quarter results reflect a 10% increase in global C&I product sales year-over-year, led by higher revenue from products sold to data center customers. However, this was more than offset by continued soft power outage environment, that impacted home standby and portable generator shipments during the quarter. As a result, fourth quarter overall net sales decreased 12% versus the prior year to $1.1 billion. Fourth quarter adjusted EBITDA margins of 17% were in line, however, with our expectations despite the weaker outage environment and unfavorable mix shift. We made significant progress with our efforts in the data center market as momentum accelerated during the fourth quarter and into early 2026. We further developed partnerships in the quarter with multiple hyperscalers, including progressing to the pilot phases of our relationships with 2 specific customers as we prepare for potential significant volumes in 2027 and 2028. These developments provide incremental visibility and support for our continued investments in ramping our manufacturing capacity for large megawatt generators as we position ourselves to be a key supplier for this rapidly growing end market. Additionally, we are making progress with other data center co-locators and developers as our existing backlog has increased to approximately $400 million as a result of additional orders from these customers. We expect our order intake will accelerate over the next several quarters as we continue to progress through the qualification and contract stages with various data center customers, providing a path to doubling our C&I product sales in the years ahead. To ensure that we can serve this accelerating growth in demand, we have made significant investments that further improve our positioning as an important supplier to the data center market, including the purchase of an additional manufacturing facility in Wisconsin in December, as well as ongoing investments in our existing C&I facilities globally. As a result of these investments, we expect that our domestic manufacturing capacity for large megawatt generators will surpass $1 billion by the fourth quarter of this year. and we will continue to evaluate additional capacity across our entire global C&I production footprint. 2025 was an important year of innovation for Generac as we introduced a number of significant new products across our portfolio. In addition to launching our new large megawatt generators, our next-generation home standby generators began shipping in the second half of the year, including the market's first 28-kilowatt air-cooled unit and other important feature upgrades. We also introduced our updated energy storage system, PWEcell 2 as well as our first Generac-branded microinverter PowerMicro that allows us to better serve the residential solar market. We also continue to develop our enhanced home energy management capabilities through our ecobee Smart Thermostat platform, helping to strengthen our home energy ecosystem through deep integrations with all of our residential products. These solutions are specifically designed to help our end customers solve the energy challenges presented by the mega trends of lower power quality and higher power prices. In addition to the well-established impact on power quality from severe and volatile weather, significant load growth is expected to further drive grid instability and raise power prices well into the future as power demand accelerates as a result of massive CapEx investments being made for the build-out of data centers. According to the North American Electric Reliability Corporation's 2025 long-term reliability assessment, nearly half of the U.S. population lives in a region that is at a high risk of seeing its power supplies fall short of established reliability criteria in the next 5 years. NERC contributes this expected instability to the combination of escalating demand growth with the peak demand growth rate nearly doubling as compared to the prior year's projection, increase in intermittent generation sources, which carry lower reliability factors and the uncertain pace of grid infrastructure development. Most regions within NERC's high-risk category are expected to see -- also see a substantial increase in data center investment in the coming years. Significant load growth is contributing to power demand shortfalls with third-party estimates suggesting that supply and transmission capacity investment growth rates would need to increase sixfold as compared to the rates seen over the last 5 years to match the anticipated higher demand. The investments required are likely to further increase the prices for electricity, adding to the affordability challenges that U.S. residential electricity customers already are experiencing as average power prices have increased nearly 40% over the last 5 years. And expectations for power prices are to double again in the next decade, and these continued increases underpin the need for energy technology solutions as home and business owners look for ways to reduce their increasingly higher energy costs. At the same time, the continuing trends around lower power quality highlight the long runway of growth that we anticipate will exist for our core backup power products and solutions, given that the home standby category is only 6.75% penetrated at the end of 2025. With each incremental 1% of penetration, representing an approximately $4.5 billion market opportunity. As a result of our continued innovation and investments in product development, we believe Generac is uniquely positioned to help our customers solve the energy challenges they are facing with increasing power outages and rising energy costs. At the same time, we believe we are well positioned to capitalize on the massive growth opportunity presented by the supply shortage of mission-critical backup power generators for the data center market. Now discussing our fourth quarter results in more detail. Global C&I product sales grew 10% year-over-year in the quarter, primarily due to revenue from products sold to data center customers, including continued shipments internationally and our initial large megawatt generator sales in the domestic market as well as an increase in global shipments for our controls products and solutions. Project quoting activity and orders in our domestic industrial distributor channel continued to grow during the quarter as end market activity remained robust. However, as expected, shipments to this channel declined in the quarter from a strong prior year comparison resulting from the reduction of lead times in the prior year fourth quarter. Throughout 2025, as we further increased production rates across our existing facilities and with our new plant in [indiscernible], Wisconsin coming online in the second quarter of 2025, we continue to bring down lead times for products sold to this channel down to more historically normal levels. Shipments to our national telecom customers improved dramatically for the full year 2025, increasing approximately 27%. And However, shipments declined modestly in the current quarter from the prior year as increased production rates also allowed us to bring lead times for these products down to more historically normal levels. We expect sales growth to this important end market to continue in 2026 as our customers further invest in hardening their networks. The growing dependence on wireless communication and increasing global tower and network hub count continues to provide a solid backdrop for future growth in sales of C&I products to our telecom customers. Shipments to our national and independent rental customers grew in the fourth quarter compared to the prior year, which we view as the start of a cyclical recovery in this market. As a result, we anticipate further organic growth throughout 2026 and believe that we are well positioned for long-term success given the secular need for global infrastructure-related investments that require the use of our broad portfolio of mobile products and solutions. In addition, on January 5, we further strengthened our position in the market for mobile products with the acquisition of [indiscernible], a market-leading mobile power equipment manufacturer located in Nebraska. In addition to broadening our customer base and increasing our exposure to the growing market for these products, this acquisition provides additional capacity and flexibility within our domestic manufacturing footprint as we continue to invest in doubling our C&I product sales in the years ahead. International core total sales, which excludes the benefit from foreign currency, increased 5% during the fourth quarter, primarily due to revenue from products sold to data center customers and higher global shipments of our controls products and solutions. Favorable sales mix and improved price cost realization resulted in significant adjusted EBITDA margin expansion to 16.1% total sales, an all-time record level for our International segment adjusted EBITDA margin. As previously discussed, we have made important investments that further strengthen our position as a key global supplier of backup power for the data center market. And our current backlog for these products has now grown to $400 million. giving us improved visibility for the current year as the majority of this backlog is expected to ship in 2026. We expect 2026 will be an inflection point for Generac in this end market as we anticipate the addition of significant volumes to our backlog over the next several quarters from a number of hyperscaler and co-locator customers. We believe that our strong reputation as an engineering-driven organization, with a unique focus on backup power, a customer-centric market customer-centric approach and global production capabilities will allow us to become an important supplier to the data center market. Additionally, these large megawatt solutions will help expand our reach into our traditional end markets as they have significantly expanded our served addressable market to include applications that have higher backup power requirements. Now I want to switch gears and discuss our residential product category in more detail. Fourth quarter home standby shipments decreased 25% compared to a strong prior year period, which benefited from multiple major landed hurricanes. Home consultations also declined year-over-year as power outages in the second half of 2025 marked the lowest level of total outage hours in a decade. Activations or installations during the quarter also decreased from the elevated prior year period. While key market indicators such as home consultations, activations and [indiscernible] remained resilient despite the continued softness in outage activity, channel partner sentiment was negatively impacted by the weak second half activity and the transition to our next-generation home standby platform, which resulted in lower-than-expected shipments during the quarter. However, we believe the home standby category is well positioned for healthy growth in 2026 and as outages return to more normal levels and as the market fully transitions to our next-generation product line. Our residential dealer network grew modestly during the fourth quarter and now includes over 9,400 dealers, an increase of nearly 300 dealers from the prior year. Our aligned contractor program, which leverages our strong positioning with wholesale distributors to provide tighter relationships with contractors that purchase our products through this channel has continued to grow as well providing important additional capacity and territorial coverage for sales, installation and service of home standby generators. In January, although not a major event for the industry, the impact of Winter Storm Fern resulted in elevated and extended power outage activity across a number of regions in the U.S. As a result, we saw increased demand for portable generators and we experienced year-over-year growth in home consultations across every region, excluding the West. Importantly, the storm afforded us our first opportunity to assess our new lead distribution system in an elevated demand environment and generated promising returns promising results as a wider base of dealers were able to more quickly connect with a greater number of potential customers than in previous periods of increased category awareness. As a reminder, this new approach allows for a broader base of dealers and align contractors with higher close rates to select the sales leads from a pool of home consultations they believe they have the capacity to address. The remaining leads are then distributed to other dealers to ensure customers are contacted more quickly after requesting a home consultation. We believe data-driven process enhancements such as this will continue to support improvements in dealer close rates and customer acquisition costs over time. Given the improved home consultation performance in January, and assumed return to more normal outage levels for the second half of the year, together with higher price realization for the category year-over-year, we expect full year 2026 home standby generator sales to increase at a mid-teens rate over 2025. Helping to offset the softness in the fourth quarter for our home standby and portable generator products, we saw strong sales of our energy storage products year-over-year alongside continued robust shipments of our ecobee products and solutions in the quarter. Net sales for ecobee grew at a mid-teens rate and hit a new all-time record for the full year with significant gross margin expansion driving continued improvement in profitability as we finished 2025 with positive EBITDA contribution from ecobee's products and solutions. We expect profitability of these solutions to further improve in the future alongside continued strong sales growth. Ecobee's connected home count grew to approximately 5 million residences in the quarter, with increased energy services and subscription sales supporting a growing high-margin recurring revenue stream. Ecobee solutions remains central to our developing residential energy ecosystem with our PWRcell 2, PowerMicro and next-generation home standby products all deeply integrated into the ecobee platform, thereby creating a differentiated feature set and user experience focused on resiliency and the improved efficiency of power use in the home. Additionally, our teams continue to execute extremely well alongside our partners in Puerto Rico to drive shipments of energy storage systems over the last several quarters as part of the Department of Energy program that supported this strong performance throughout 2025. As the DOE program winds down in early 2026, we expect shipments of energy storage systems to decrease for the year while strong growth in ecobee and the initial sales ramp of PowerMicro are expected to contribute to overall residential product sales growth for the full year. As we've previously discussed, we remain focused on continuing to improve profitability for our Residential Energy Technology Products and Solutions as we continue to recalibrate the level of investment in this part of our business, given the expected challenging near-term market conditions, resulting from reduced federal incentives for the residential solar and energy storage market. In closing this morning, as we look to the full year 2026. We believe that a return to more normalized power outage levels and higher price realization will present strong growth opportunities for our residential products, particularly in the back half of the year. Additionally, we are growing ever more confident in the progress we've made in the data center market. and we expect 2026 to be an important inflection point on our path to doubling our C&I product sales in the coming years as we work to capitalize on the generational growth opportunity presented by the massive data center CapEx investment cycle. I'll now turn the call over to York to provide further details on the fourth quarter as well as full year 2025 results and our outlook for 2026. York? York Ragen: Thanks, Aaron. Looking at fourth quarter 2025 results in more detail. Net sales during the quarter decreased 12% to $1.1 billion as compared to $1.2 billion in the prior year fourth quarter. The net effect of acquisitions in foreign currency had an approximate 1% favorable impact on revenue growth during the quarter. Briefly looking at consolidated net sales for the fourth quarter by product class. Residential product sales decreased 23% to $572 million as compared to $743 million in the prior year. As previously discussed, continued weakness in power outage activity resulted in lower shipments of home standby and portable generators as compared to a much stronger outage environment in the prior year period. Residential energy technology sales increased year-over-year, driven by shipments of energy storage systems to Puerto Rico as we completed the Department of Energy resiliency program during the quarter. Commercial and industrial product sales for the fourth quarter increased 10% and to $400 million as compared to $363 million in the prior year. The combination of contributions from acquisitions and the impact of foreign currency had a 3% favorable impact on sales growth during the quarter. The core sales growth was primarily due to revenue from products sold to data center customers, both domestically and internationally. Net sales for the other products and services category decreased approximately 6% to $120 million as compared to $128 million in the fourth quarter of 2024. The core sales decline of 7% was primarily driven by a decline in aftermarket service parts related to the residential products due to a strong prior year comparison that included multiple major power outages, partially offset by continued growth in ecobee Services. Gross profit margin was 36.3% compared to 0.406 in the prior year fourth quarter. This decrease was primarily due to unfavorable sales mix, together with a $15.6 million net inventory provision recorded in the current year quarter related to the settlement of a contract dispute with a supplier for a discontinued product. as disclosed in the accompanying reconciliation schedules to the earnings release. In addition, higher input costs and lower manufacturing absorption were mostly offset by increased price realization. Operating expenses increased to $405 million or up 34% compared to the fourth quarter of 2024. The increase was primarily driven by a $104.5 million provision recorded in the current year quarter for the settlement of a portable generator product liability matter as disclosed in the accompanying reconciliation schedules to the earnings release. Additionally, lower incentive compensation was offset by higher marketing spend to drive incremental awareness for our products. Adjusted EBITDA, before deducting for noncontrolling interest, as defined in our earnings release, was $185 million or 17% of net sales in the fourth quarter as compared to $265 million or 21.5% of net sales in the prior year. For the full year 2025, adjusted EBITDA before deducting for noncontrolling interest was $716 million or 17% of net sales as compared to $789 million or 18.4% in the prior year. I will now briefly discuss financial results for our 2 reporting segments. Domestic segment total sales, including intersegment sales, decreased 17% to $889 million in the quarter as compared to $1.07 billion in the prior year, which included a slight favorable impact from acquisitions. Adjusted EBITDA for the segment was $151 million or 17% of total sales. as compared to $243 million in the prior year or 22.7%. For the full year 2025, domestic segment total sales decreased 4% over the prior year to $3.49 billion, which included a slight favorable impact from acquisitions. Adjusted EBITDA margins for the segment for the full year 2025 were 17.1% compared to 19.1% in the prior year. International segment total sales, including intersegment sales, increased 12% to $209 million in the quarter as compared to $187 million in the prior year quarter. including an approximate 6% sales growth contribution from foreign currency. Adjusted EBITDA for the segment before deducting for noncontrolling interest was $33.7 million or 16.1% of total sales as compared to $22.5 million or 12% in the prior year. For the full year 2025, International segment total sales increased 7% over the prior year to $777 million, including an approximate 1% sales growth contribution from foreign currency. Adjusted EBITDA margins for the segment for the full year 2025 and before deducting for noncontrolling interests were 15.1% of total sales during 2025 as compared to 13.2% in the prior year. Now switching back to our financial performance for the fourth quarter of 2025 on a consolidated basis. As disclosed in our earnings release, the GAAP net loss for the company in the quarter was $24 million as compared to net income of $117 million for the fourth quarter of 2024. As previously discussed, the current year quarter includes the impact of the aforementioned product liability and supplier contract settlements, which drove our net loss for the quarter. GAAP income taxes during the current year fourth quarter were a benefit of $3.7 million or an effective tax rate of 13.4% as compared to an expense of $27.3 million or an effective tax rate of 18.9% for the prior year. The lower effective tax rate was driven primarily by the impact of certain favorable discrete tax items and their impact on a lower pretax income in the current year. The net loss per share for the company on a GAAP basis was $0.42 in the fourth quarter of 2025 compared to net income per share of $2.15 in the prior year. Adjusted net income for the company, as defined in our earnings release was $95 million in the current year quarter or $1.61 per share. This compares to adjusted net income of $168 million in the prior year or $2.80 per share. Cash flow from operations was $189 million in the current year quarter as compared to $339 million in the prior year fourth quarter. And free cash flow, as defined in our earnings release, was $130 million as compared to $286 million in the same quarter last year. The change in free cash flow was primarily driven by a significant reduction in net working capital in the prior year, which did not repeat and lower operating income in the current year, partially offset by lower cash payments for taxes. Total debt outstanding at the end of the quarter was $1.33 billion resulting in a gross debt leverage ratio at the end of the fourth quarter of 1.9x on an as-reported basis, which is within our target gross debt leverage range of 1 to 2x adjusted EBITDA. For the full year, Cash flow from operations was $438 million as compared to $741 million in the prior year. Free cash flow, again, as defined in our earnings release, was $268 million, as compared to $605 million in full year 2024. Capital expenditures during the full year totaled $170 million or 4% of net sales as we invested in additional production capacity and other capabilities to support future C&I growth. In addition, we opportunistically repurchased approximately 1.11 million shares of our common stock during the full year for $148 million at an average price of $133 per share. Additionally, on February 9, Generac's Board of Directors approved a new share repurchase authorization that allows for the repurchase of up to $500 million of the company's shares over the next 24 months, replacing the remaining balance of the previous program. We will continue to operate within our disciplined and balanced capital allocation framework as we evaluate future shareholder value-enhancing opportunities. With that, I will now provide further comments on our new outlook for 2026. As disclosed in our press release this morning, we are initiating 2026 net sales guidance that projects strong year-over-year growth for the full year period. We expect consolidated net sales for the full year to increase at a mid-teens rate as compared to the prior year, which includes a favorable impact of approximately 1% from the net combination of foreign currency and completed acquisitions and divestitures. Consistent with our historical approach, our guidance assumes a level of power outage activity in line with the longer-term baseline average for the remainder of the year and does not assume the benefit of a major power outage event during the year. Breaking this down by product class, we expect overall residential net sales to increase in the plus 10% range as compared to 2025, primarily driven by growth in shipments of home standby and portable generators, given the assumption of a return to a baseline average power outage environment in 2026 as compared to an easier comp in the second half of 2025. In addition, we expect higher price realization for home standby generators, the launch of PowerMicro and continued growth at ecobee to contribute to the strong residential product sales growth. The residential growth will be partially offset by lower energy storage sales due to the end of the Department of Energy Program in Puerto Rico. As Aaron discussed, we expect robust C&I product sales growth in the plus 30% range during 2026, primarily driven by products sold to data center customers. In addition, the acquisition of Allmand is expected to contribute approximately 1/4 of this year-over-year growth, with the remainder coming from modest organic growth in our traditional C&I products and channels. Additionally, in January, we completed the divestiture of certain noncore assets that will impact sales for our other products and services category, resulting in an approximate 10% year-over-year decline for this product class in 2026. From a seasonality perspective, we expect 2026 consolidated net sales to be approximately in line with normal seasonality, resulting in overall net sales in the first half, being approximately 46% weighted and sales in the second half being approximately 54% weighted. Specifically for the first quarter, we expect overall net sales to increase in the plus 11% to 13% range compared to the prior year primarily driven by strong growth in portable generator shipments related to winter storm fern and significantly higher revenue from products sold to data center customers. Looking at our gross margin expectations for the full year 2026. We expect the full year realization of price increases to be fully offset by higher input costs and unfavorable mix, resulting in approximately flat gross margins compared to the prior year in the 38% to 39% range. From a seasonality perspective, we expect first quarter gross margins to mark the low point for the year, with a slight sequential decline from the fourth quarter of 2025 in the 36% range. In line with normal seasonality, gross margins are expected to improve sequentially into the second half of the year given the increasing mix of higher margin home standby product sales, resulting in second half gross margins in the 39% range. Looking at our adjusted EBITDA margin expectations for full year '26. Adjusted EBITDA margins before deducting for noncontrolling interests are expected to be approximately 18% to 19% for the full year 2026 compared to 17% in 2025. At the midpoint of the sales growth and margin ranges, this would result in an approximate 25% increase in EBITDA dollars in 2026 and compared to 2025. We also expect adjusted EBITDA margins to follow normal seasonality and improved significantly as we move throughout the year. Specifically, regarding the first quarter, adjusted EBITDA margins are expected to land in the 15% range and then improved sequentially throughout the year, reaching approximately 20% for the second half of the year. This sequential improvement is expected to be driven by the previously discussed gross margin mix improvements, together with significant operating expense leverage on the seasonally higher sales volumes. As is our normal practice, we're also providing additional guidance details to assist with modeling adjusted earnings per share and free cash flow for the full year 2026. Importantly, to arrive at appropriate estimates for adjusted net income and adjusted earnings per share, add back items should be reflected net of tax using our expected effective tax rate. For 2026, our GAAP effective tax rate is expected to be between 24% to 25% as compared to the 18.9% full year GAAP tax rate for 2025. We expect interest expense to be approximately $65 million to $69 million for full year '26, assuming no additional term loan principal prepayments during the year. This is a decline from '25 levels of $71 million due to the full year impact of lower sulfur interest rates. Our capital expenditures are projected to be approximately 3.5% of our forecasted net sales for the year as we continue to invest in incremental capacity and execute other projects to support future growth expectations, particularly for C&I products. Depreciation expense is forecast to be approximately $104 million to $108 million in '26, given our assumed CapEx guidance. We have intangible amortization expense in '26 is expected to be approximately $18 million, $112 million during the year. Stock compensation expense is expected to be between $54 million to $58 million for the year. Operating and free cash flow generation is expected to be weighted towards the second half of the year in '26, resulting in projected free cash flow generation of approximately $350 million for the full year 2026. Our full year weighted average diluted share count is expected to increase modestly and be between 59.5 million to 60 million shares as compared to 59.3 million shares in 2025. Finally, this 2026 outlook does not reflect potential additional acquisitions, divestitures or share repurchases that could drive incremental shareholder value during the year. This concludes our prepared remarks. At this time, we'd like to open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Tommy Moll with Stephens. Thomas Moll: Aaron, I wanted to ask about your progress with the hyperscalers. Just to level set, I think what I hear you saying is no orders in backlog yet, but the advance to the pilot phase is new versus last quarter. So maybe if you could just confirm if that's correct. And just give us a little more insight about what you're expecting in the go forward. You talked about orders to come? Just walk us through what the phases of that might look like. Aaron P. Jagdfeld: Yes. Thanks, Tommy. So yes, that's largely correct. The backlog, there's a couple of units in there for the pilot program, but that's it. So the $400 million. And remember, the $400 million is after we began shipping product in Q4 and here also started Q1. So good order flow again over the last 90 days to get the backlog to 400, and that's without any material hyperscale business at this point. So that's the answer to that question. And the second part of the question in terms of the progression there. The pilot programs are in flight. We are in deep negotiations with the -- with 2 hyperscale customers in particular, and that's what the pilot programs are related to. And we would anticipate with successful completion of those pilot programs here in the call it, the end of the first quarter, beginning of the second quarter, we would be in a position then with each of those customers to sign a longer-term supply agreement, a master supply agreement. And then that's when we would start to see purchase order flow, and that would then feed into the backlog. They've been holding off on that, although I will say all of our conversations with those 2 hyperscalers have been about how much can we supply for 2027 and 2028, what's our capacity. And then also, do we have potential to supply product in 2026. And so that is not in our guide at all, obviously. So that could be upside. Again, as I said on the call, with the purchase of the new facility here in Sussex, Wisconsin. We'll have that facility online in the second half of the year, and we could respond to potential or potential for additional orders from those hyperscale customers in '26 should we be able to work through the successful completion of the contract negotiations in the pilot phases. But we feel very good about where we're at. They need additional supply desperately. And we believe we're going to be in a really good position certainly for '27 and '28, but also potentially here for 2026. The addition of that facility and some of the tweaks we've made, just to our domestic capacity, we believe we're now over $1 billion here domestically for capacity. So -- and we're looking at ways we could go higher because the volumes we're talking about in '27 and '28 could take us easily above those numbers. Operator: Our next question comes from the line of George Gianarikas with Canaccord. George Gianarikas: So as it relates to the data center opportunity, can you just maybe talk a little bit about the competitive environment, how that may be changing or if it's the same and whether or not this enormous opportunity is inviting any new entrants into it? Aaron P. Jagdfeld: Yes. Thanks, George. So as it relates specifically to diesel generators, large megawatt diesel generator backup, the market is has not changed in terms of participants at this point other than our entry into it. I think that the reason for that largely is the limitation around the number of diesel engine manufacturers in those high horsepower diesel engine ranges. That's a pretty static number because of the investment required, not only in R&D, but also just the the production investment needed to -- for tooling and the manufacturer of those types of products. So we think we have a great partner there that has invested very heavily in capacity. So we don't believe we're going to see capacity limitations in the near term or in building out the rest of our supply chain, obviously, it's not just engine. There are alternators, there are cooling packages, there are structural elements of the generator in terms of the steel base frames and the diesel tanks themselves. And then obviously, the packaging structures that go around these machines that typically is handled by third-party companies. We are evaluating and deepening our relationships in the supply chain. It's not just the investments we're making in our own production environment, right? We can go out and buy a plant and we can buy the equipment and hire the people, [indiscernible] the plant, but we need to make sure the supply chain is ready for those higher volumes. Fortunately, this is something we do really well, right, we're taking a page out of our residential side of our business where we've been very agile over the years and reacting to surges in demand and the ability to get our supply chain at the levels that we need them at to be successful and to handle increased demand. So we're kind of built that way. So I guess, just -- it's part of our DNA, and I think it's going to serve us quite well in this new market. Operator: Our next question comes from the line of Mike Halloran with Baird. Michael Halloran: Maybe just a thought about how you're thinking about directionally the TAM or the growth profile over the -- for the data center markets over the next 3, 5 years, whatever kind of time horizon you're talking to. Just to put it in context of the growth from an industry perspective? And then secondarily, the types of share that you envision is realistic within the context of that overall market opportunity. Aaron P. Jagdfeld: Yes. Thanks, Mike. It's a great question. And obviously, the numbers around the size of the price, right, in terms of how how much market -- what is the TAM for just specifically the day center element there in this market for diesel, a large megawatt diesel backup generators, it keeps changing because a lot of that is tight, obviously, as you would imagine, to the amount of construction. But we think that, that's something -- that market could be as much as $15 billion a year alone. For us, I think when we look at what's reasonable for us for share position, we look at our share here in North America, depending on the segments of the markets you look at, we're a 10% to 15% share player in the C&I market. So we think that is that a reasonable target for us? We believe so. Maybe on the low end of that, it's 10%. I mean, again, we believe that the opportunity here is great enough that we can take what effectively was a $1.5 billion business last year in C&I, and we can double that in the next 3 to 5 years. So that would be the addition of another $1.5 billion. So just a 10% share. So now if the market is bigger, maybe that number grows. If the number is smaller because of the potential cycle, cyclical nature of like all markets, there are cycles, we're going to be measured about that. I will say this, in addition to just -- obviously, the discussion this morning is heavily focused and waited on data centers. But we basically are starting from 0 with our traditional market, which already existed that traditional market, obviously not a $15 billion a year market in that range, but it's half the dollars in our traditional market. So it's another, call it, $3 billion to $4 billion. And so just getting a portion of that, we believe, is going to be supportive of the growth that we're seeing. And for the record, the $400 million backlog that we keep talking about, we don't have any of our traditional large megawatt products in that backlog at this point. So that's a recent product launch. We launched with the data center-focused sets first, and we started quoting now in the traditional market. So that's an opportunity for us on a go-forward basis that will, I think, be able to talk more about as we go throughout 2026 here. Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe shifting gears to residential. I wanted to just better understand what you think the hole is for the Puerto Rico wrap and then how you're thinking about power micro demand and feedback. And then within the home standby, I think you said mid-teens growth, how much of that is price mix and volumes. And then just an update on kind of the cost structure in energy technology '26 versus '25 bringing that loss down towards your target? Aaron P. Jagdfeld: Yes. Thanks, Jeff. All great questions, and I appreciate, by the way, the question on residential. Good to talk about that. That market, obviously, the second half of last year was just incredibly softer outages. So when we think about the opportunities for residential next year, and we're calling out a mid-teens growth rate overall. But when you kind of pick apart the pieces, which I think is what the gist of your question is, Jeff, the DOE headwind, that program ended here early '26. About $100 million of energy storage, that's a hole that we've got to make up. Now we do have our next-generation power cell products in market. And then as we noted on the call in our prepared remarks, PowerMicro, which is an exciting -- the microinverter market is an established market for residential solar. And even though the incentives and support at the federal level for residential solar and maybe even storage, you can make the argument is going is gone for intents and purposes at least at the homeowner level can it still exists for third-party operators, DPOs. But we do think that, that market, while it will compress in the short term, a year or 2, all the forecasts are that as energy costs continue to rise, the need for these types of products is there's going to be a demand for them at the residential level for sure and certainly at the light commercial level, which we'll focus on eventually long term as well. So there's a hole there. That's going to be offset by PowerMicro, not fully. It will also be offset by ecobee growth, not fully. So when you look at just those products, storage, microinverters and our ecobee products, that's going to be down but then obviously, good growth on our core residential products with home standby and port generators. In terms of like where that's coming from next year, we see about half of the growth in the home standby category coming from price. So it's the realization of price, not only from the new product line, which has a higher ASP, a bit higher ASP, but also full year realization for some of the tariff price increases that we put in last year. That's about half the growth. And then the other half would be unit volume that would accelerate based on a return to a more normal. The assumption that we return to more normal outage in [indiscernible] more in the second half of the year, of course. So that's kind of how if you unpack it, but still kind of exciting that even in spite of kind of having a challenging second half of the year last year, the category -- the metrics in the category actually hung in there. I mean we were surprised to see home consultations, activations, dealer counts, you still got our dealer counts, all the things that we watch very closely and then you look at winter storm firm, we kind of got off the year on the right foot finally with the category. So we were able to see some nice volume on portable generators. It's going to give us -- it's going to put us in a much better position starting out the year then had we continued the power outage kind of drought that we've been in here in the second half of the year. So we feel pretty good about where we're kind of where we're leaning here as we start the year for the residential products. Operator: Our next question comes from the line of Brian Drab with William Blair. Brian Drab: I'm just wondering if you can update us on what kind of margin are you expecting from the data center products? And I know you're not going to give maybe specifics to like relative to home standby. And then also, how does that progress over time? Obviously, you're at a moment where you're ramping capacity dramatically and the costs associated with that. Are there -- and just the inefficiencies that often come with new product launch where margin is going to be this year and longer term? York Ragen: Yes, Brian, this is York. Yes. Good question. The way we're seeing it play out in terms of these projects is -- and to your point, as we ramp up capacity, there will be some start-up costs. We're seeing around mid-teens EBITDA margins or contribution margins for these projects in 2026. And then as we ramp up and get more scale, we're seeing more high teens margins in the 27%, 28% range in the data center space. So basically in line with pretty close to corporate average EBITDA margins which is [indiscernible] Aaron P. Jagdfeld: Yes. And I would say the upside there potential, Brian, would be as we look to bring in-house more elements, more vertical integration in the entire package, there's an opportunity there for us should we find the right way to do that either through M&A or organic investment to do more of the content. Obviously, we're not going to do diesel engines, but we have the opportunity to add to the content, which then would have the potential to improve the the margin profile even further. So yes. Operator: Our next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: Just I was wondering about the home standby generator business. Just as you sort of observed the trends in that business over the last couple of years, how do you think about just the penetration rates you're seeing and kind of just sort of the growth rate you would expect over kind of a multiyear period in kind of a sort of smooth outage normalized outage activity market? Aaron P. Jagdfeld: Yes, Stephen, great question. I think the challenge in answering the question, of course, we haven't really had much of a "normal" outage environment. We talked about that on the averages, of course, and that helps smooth things out. And I guess to answer your question, today, we're only 6.75% penetrated. And every 1% of penetration is a $4.5 billion market opportunity. Our share is is outsized in that market because we created it, we own it, we drive it. There isn't a single other player in the home standby category that puts the kind of muscle we put behind. And we do that because it's only 6.75% penetrated, and we think that there's huge upside there. I mean when you look at where could penetration go, which maybe is your question, in terms of terminal penetration rate, for the category. I mean we have states and mind you, some of these states are our fastest-growing states where we're in the 20% range, right? We're 23%, 24% in states like West Virginia and may not huge states, right? But you look at other states like Michigan. Michigan for us is a 17% pen rate. So can we get the 17% pen across the U.S. I mean, there's -- California is low. So there's opportunities there. Texas, which is a massive market, is only really right at the median now. Florida is really kind of right at the median. So I think the opportunity here, if you look historically, the growth rate in the category over the last 25 years has been roughly 15%. It's been pretty consistent over that period. And I would say, we're saying residential products in total are going to grow in the mid-teens. Home standby is a component of that obviously a driver, a major driver of that. So 10% of that. So in terms of where we think we can go with this category, we just think there's a lot of runway here. I mean, you look at just all the data around outages and the trends over the last 20 to 30 years are all up and to the right. And as Americans, we deal with outages more than any other kind of developed nation in the world. It's amazing, really. The state of our grid and the reality of it is, and it's complex. There's a lot of reasons for it. And we've always said Mother Nature has always been kind of driving 70% of those outages. We are seeing a change we're seeing a change in basic kind of math around supply and demand and shortfalls in supply. You may have heard in my comments, the National Electric Reliability Corporation calling out that half of all Americans are at risk for significant outages over the next 5 years because of energy shortfalls, not because of mother nature. So you look at that and you look at the structural things that are driving that right? We've brought a lot of supply on the grid that's renewable. So in terms of how you plan for that in terms of capacity planning factors, they're much lower than thermal assets like coal or gas plants or nuclear, right? You can't plan them as high. So that's a problem when it comes to -- you've got periods of peak demand. Very hot days, very cold days are going to present significant challenges to grid operators and keeping the lights on. You're going to see more rolling brownouts, more rolling blackouts as a result. This is fact. Without a question, we are going to see this. It's been called out over and over again by a ton of prognosticators and others who follow these markets much more closely than we do. And so we think the opportunity for home standby backup power. And then, of course, in our C&I business, our core business, backup power, the requirements there are going to be significant in the years ahead. Operator: Our next question comes from the line of [indiscernible] with Bank of America. Unknown Analyst: Just to clarify here, when you say you've progressed to the pilot phase with hyperscalers. What's the pilot mean in practice? Is that based on performance validation? And then the second question I had here, we're talking about potential significant volumes in '27 and '28, right? Is that based on customer provided demand forecasts that are tied to specific cycles or more to a general capacity reservation for future expansion, right? I'm just -- I'm trying to confirm here what we can anticipate in just in the C&I profile. I think last quarter, you maybe spoke about C&I doubling in the next few years. And -- was that kind of based on just 1 hyperscaler award here because now we're talking about 2. So trying to get more clarity around this in general. Aaron P. Jagdfeld: Those are great questions. I mean, first, on the pilot programs, they're different. Based on the different hyperscalers, they both have different requirements, but effectively, there are test scripts but then we run the products through in some of those in our laboratories. Some of those are as parts of actual real sites so in the wild, so to speak. So those are underway today. And some of those are observed directly here again, and some of those are are in the wild. So we are progressing well there, and we don't see any problems with meeting those requirements. We know these products quite well. As far as your question about the capacity that we've been talking about in the future here, '27, '28 with these hyperscalers, it's a mix of both. We actually -- in one instance, we have hyperscale,a potential hyperscale customer that is telling a specific site build-outs for their sites. And we wanted to overlay our manufacturing capacity kind of globally to see where that could fit in. And so in that instance, with that conversation, it's a lot more pointed around the specifics of what is needed by site and what we could potentially provide because obviously, logistics costs are a big part of the overall bill here, not only in cost but also in time. So trying to match the builds, the build-outs of these data center of the construction activity with our manufacturing production capacity by region is one work stream. With another hyperscaler, it's all about, hey, how many slots can reserve for us. And we're talking about a lot of product. It's -- in fact, it's almost -- it's just difficult for me to get my head around in terms of the size of what we're talking about here in the potential. And in fact, the $1 billion of capacity that I've said we've kind of put ourselves in a position to be in by the end of the year here domestically would not be enough to handle the potential capacity that would be required if we are able to successfully land purchase orders for these hyperscale customers? Because remember, we also have co-locators. We're a preferred supplier to 2 co-locators already. in our backlog and that continues to grow. So just the requirements here are enormous. To answer the last part of your question about our completion of doubling the C&I business over the next 3 to 5 years, if we had to be very honest, that was really a landing on hyperscaler is if we landed one hyperscaler, that would get us to a point of doubling. Is there an opportunity to go higher than that? Of course, -- that would be somewhat obviously gated by our ability to expand capacity and then, of course, supply chain as well. So those are things that we've got to work on yet, so we're not ready to commit higher than that. But I do believe if we can get -- if we can have success with our own capacity and if we can continue to work with our supply chain partners, there is a possibility that we could go higher than that in the future. Operator: Our next question comes from the line of Christopher Glynn with Oppenheimer. Christopher Glynn: A couple on residential. Just curious about how you're thinking about ASP in the short term related to burn. And I didn't hear any comments on that. And then he could be us new grid resiliency service where you had a nice contribution to the grid operating capacity. How do we think about the revenue and monetization implications for that? Aaron P. Jagdfeld: Yes. Thanks, Chris. Good questions. In grid services, it's -- we obviously have invested in that. It's a small piece, though, but it is interesting. We want to keep a toe in that because it's recurring revenue, but also the possibility of the grid to be very frank, grid services programs have been slow to develop slower than we thought, right? Like we acquired Ambala a number of years ago. We've got -- obviously, ecobee with that business came the grid services opportunities there. And that's really where most of the revenue is coming from today is on the ecobee side. Utilities have been just slow to adopt grid resiliency programs. I do think as the grid becomes more constrained and as pressure builds on utilities and grid operators, they will have to turn to nonconventional solutions like virtual power plants and other grid services types of programs. So we definitely want to stay close to it. That's something that we're it's just small, right? But it's recurring and it's a nice piece of growth there, and we're going to continue to stay in bulk. Your question on home standby Fern gave us a nice bump on portables also gave us a nice bump in IHCs, our in-home consultations, and we saw those basically double from where we were expecting them to be for the month. So and up considerably from the prior year, obviously, as you would expect in a period of time that's generally kind of off season, if you will. So what are the prospects for that? I mentioned our new lead distribution system, which we have seen nice results from already. We've seen a nice improvement in close rates coming out of those systems when we do get surges in demand. So we'll let these IHCs mature, and we'll provide a more fulsome update on that but they were high. They were -- there's no dying it [indiscernible]. Yes. And we put something into the guide for it, but do we make enough. We want to see what the close rate looks like. Now we want to see how the rest of the season develops here. We want to see what kind of as we get a better read on the consumer maybe overall, big ticket purchases tied to residential investment, where is that going? So I think we're maybe taking a bit of a more conservative tone there, but we're off to a good start for the year. So that's helpful. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: So the decision to expand to $1 billion per year of diesel genset capacity, you did this before getting signed contracts from hyperscalers. But it makes sense given the amount of demand you're seeing and the industry capacity constraints. But I guess my question is when we look beyond that, beyond that $1 billion I guess 2 questions. One, is it possible at this point to increase capacity above $1 billion in -- and then two, how do you think about expanding for that next tranche with -- in the context of peers that are also expanding capacity for that '27, '28 time frame for that next leg of expansion, would you kind of wait for contracts to be in hand before expanding? Or would you still do it again if you saw enough demand signals? Aaron P. Jagdfeld: You're spot on. I mean, we felt good enough about where we were headed here with our discussions with the customers that I've mentioned here that we took -- we're running on a better risk there by going out and buying an existing facility. We bought an existing facility, so we could get it up and running quickly, right? I mean to build something greenfield takes more time frankly, [indiscernible] capital. This, I think, was a much more efficient way to to accelerate our capacity adds. And again, that $1 billion that I mentioned is just the domestic capacity. So we actually have greater than that globally. So we had mentioned $500 million, I think, on a previous call, and that was really our global capacity. So we maybe have a couple of hundred million of additional capacity outside the U.S., and we're looking at ways to expand that as well, by the way. So where does that put us? I think we'll give a more fulsome update. We do have an Investor Day coming up on March 25. So we'll be able to provide, I think, a lot more context there around where we're going from a capacity standpoint for sure. But your question, if we saw opportunities, let's say we wanted to go to $2 billion, right? Like we saw handwriting the wall. I guess it would depend on how strong those signals, those buy signals are. Obviously, we took -- we undertook this first step without having orders in hand. I would tell you it will be I would take greater comfort in trying to double it again if we had hard orders in hand. So it's not that we wouldn't do it. for the right circumstances or if we saw and had the right kind of conversations at the right levels of these customers as well. But we did take that. We took that initial kind of flyer here. and because we feel very good about it. I think that's going to pay off well. That will position us very well, we think, in the context of the other part of your question about the rest of the market and where we are competitively. We think that our lead times are going to remain shorter than the rest of the market, at least for the near term and probably all of 2027, our competitors today are out kind of 2 years on deliveries. And of course, they are investing in capacity adds as well. But the constraints largely for our competitors are in the engines and the engine supply. Our engine partner, we believe, can allow us to continue to keep shorter lead times because of their overall investment in their capacity, which gives us access to to what is the arguably the most critical component in the gen set in terms of long lead time. Operator: Our next question comes from the line of Joseph Osha with Guggenheim Partners. Joseph Osha: Just 2 quick ones. First, we've talked a lot about hyperscalers. I'm wondering if you could help us perhaps size the colo opportunity, Aaron, you mentioned it briefly because there's a lot there. And then the second question, we were [indiscernible]. We've talked a lot about diesel today, but we also heard a lot about some of the smaller sparked natural gas machines being used as a time to power solution in some cases. And so I'm wondering if you could comment on whether you're seeing any of that demand. Aaron P. Jagdfeld: Yes. Thanks, Joe. Great question. No, I think from from a diesel perspective, that the -- that market continues to grow. Obviously, the co-locator portion of that today is our focus because we haven't gotten to final contract signings with the hyperscalers. And at $400 million of backlog, could you argue that is that 30% of the market. Is that 1/3 of the market? Possibly [indiscernible] Yes, there's a lot -- I'll tell you this, it's a longer tail on -- in terms of just the number of customers to talk to there and the number of parties involved, we have been making very good progress though there. I mean that is where we've gotten our first point of traction. And we've been working with those customers to establish ourselves, I think I mentioned just a second ago with another question was we actually are listed as the preferred supplier with 2 co-locators. So where they do sites around the world, we are one of the primary suppliers that they look to for backup power. So those are great opportunities for us and will help us kind of balance out, if you will, reliance on any one customer, but there's no denying that the hyperscalers are. They just have they have -- they carry a lot of cloud, obviously, in terms of the capital they're deploying for data center construction. So they're going to have an outsized impact. Your question [indiscernible] product is a good one. We are seeing certain spark-ignited engines being used in applications kind of behind the meter to power data centers who -- where grid interconnect is not available and where the lead times to wait for maybe a traditional gas turbine or a different solution is just not not possible, right? You want to bring the center -- data center online, so you're seeing [indiscernible] engines, reciprocating gas engines being used. What typically -- what you'll see with those reciprocating gas engines, though, is there they are operating -- not to get too technical here, but they're operated in what's known as a lean combustion cycle mode, which allows them to operate more efficiently to produce power on a continuous basis. The engines themselves are robust off. You could use them in backup -- but the problem you into with lean burn gas engines as configured as lean burn is their response times to outages are poor. Generally, you've got to get those machines. It takes time for them to spool up and get to full power. And we're talking about minutes, which is an incredible amount of downtime data center, if you were to lose power, then we'd have to [indiscernible] -- you'd have to infill that with a lot of batteries, either UPSs, [indiscernible] supplies or raw batteries to be able to cover that gap. So they're not great pure backup assets. In fact, what we're seeing is where you do see [indiscernible] engines and lean burn being used in a prime power configuration, you're still seeing diesel backup generators on the sites because the theory that we've been hearing anyway from customers is that they'll just -- once the site gets connected to the grid, they'll -- they need the backup generators and cat there's a failure with the lean burn machines as they're providing primary power. But then once grid is connected, those gas machines can be picked up and moved to a new site, right? They can be moved to another site that's forward in advance of interconnect and redeployed there. So we believe there's going to still be a market and an opportunity that, that doesn't shrink the TAM at all for backup diesel generators, that you need both effectively is kind of what my point is. Operator: Our next question comes from the line of Vikram Bagri with Citi. Unknown Analyst: It's Ted on for Vik. I wanted to talk about energy technology. Are you able to share whether revenues where they shook out relative to the $300 million to $400 million range that you previously talked about? And then for this year, is it fair to assume that those revenues would be below the end of that range, if you include the Puerto Rico impact? And then just lastly, could you just confirm whether the focus is still on achieving breakeven EBITDA margins within that business in 2027? Aaron P. Jagdfeld: Thanks. Appreciate the question. So last year, 2025, those products ended at the high end of the range, closer to 400, they were about 375. And going forward, they're going to pull back a little bit because of the loss of the DOE program, but actually, they're going to be kind of in between that 300 to 400 range again. PowerMicro launching and ecobee continues to just rip for us. It's a great company, to be honest, great products, great support, and they are becoming much more deeply integrated into this ecosystem we've been building. So in terms of like when you look at the products individually, we are still very fixated on getting to breakeven profitability by 2027 on the products -- in the product set collectively. But what the problem we're going to run into here as we go forward as we build out this ecosystem is that more and more of the operating expense, if you will, the layer that is at ecobee and is that some of the other businesses there that make that group up, they're getting pulled into this -- the build-out of this energy ecosystem. The focus on building out the ecobee thermostat, smart thermostat, turning that into more of an energy hub and deploying and bringing and unifying basically the customer experience on to the single app that [indiscernible] so do you say that that's related to energy technology? Or do you say that that's related to residential. So we'll -- as I said, we've got an Investor Day coming up in late March, and we'll provide some, I think, more detailed color about how we're thinking about talking to this going forward because it is going to get a little bit messy as we integrate more deeply all of these products for this ecosystem concept. But that said, if you were to just peel those products out on their own, we are still highly focused on those getting to breakeven profitability in '27. We're going to make very good progress on that here in 2026. That's our plan. Operator: Next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Going back to the residential part again here. Aaron, perhaps any thoughts you have in terms of the battery storage market, understanding there's been a lot of products coming out of the past year and potentially the cannibalization of the HSV business, how do you kind of guarantee that does not happen going forward? Aaron P. Jagdfeld: Yes. Thanks, Keith. It's a great question, right? I mean it's one of the reasons why we're investing so heavily in battery technology because obviously, battery performance has continued to improve, costs are coming down. The reality is though, we're still a long way off from where a battery could stand in for long-duration outage coverage -- I mean, you can go out, you can buy 5 PWRcell 2s, if you want. But in terms of just the cost per kilowatt hour of coverage, it's really expensive, right? So it's just not equitable today. I think we're batteries in the residential market short duration outage protection, of course, but really as part of an overall strategy for a homeowner who wants to self-generate, right, either on the rooftop with solar or geothermal, some other production method and then having the ability to store some of that power so that they can arbitrage the value of that power back to the grid operator at a time when it makes most sense, either consume it, self-consume, right, when grid rates are high, or to sell it back to the grid at a time when they don't need it and maybe the rates are more appropriate and they can get a return on that. All indications -- again, the market for solar plus storage is going to contract here in the short term. There's no question about it. There was definitely some pull forward into 2025 as a result of the end of the tax incentive for homeowners directly. But as we look forward, all projections are that is energy costs keep going up, energy costs are up on average across the U.S. in the last 5 years, they're up even more dramatically in certain parts of the country like California and they're projected to double. The utility bill for most homeowners today is second only to the rent or your mortgage and it's going to go up. It's going to double again. So homeowners and honestly, like if you're a homeowner, you're frustrated with your power cost rising and you feel like your only way to combat that is to go around the house and turn off turn off lights and turn down the thermostat or turn it up depending on what time of the year it is. If that's the only way you can manage that, I mean that's not a great situation to be in. Homeowners and businesses are going to be looking for ways to cut their power costs. They're going to be looking for ways to save. We think this is the next big leg of residential long term for us. There's always going to be a market for resiliency, and we think that home standby is going to lead that market for a long time just on a raw cost basis, right, in terms of the value proposition of that product line. But over time, as batteries become more -- better from performance and costs continue to come down and utility rates continue to rise, the ability to self-generate and have some amount of storage, again, to play that arbitrage, to get the payback on the system and then have some resiliency. But again, the ecosystem concept where maybe even at a generator to that system. We have customers who are doing that today. bottom was battery. Instead of buying 5 power walls. They buy one power wall or PWRcell 2 and they had a generator. That's a much more cost-effective way to get basically bottomless coverage. And we think that's a great kind of hybridization of backup power in the space. So we see the market being a huge opportunity for us Long term, we're very convicted about obviously, and that's why we've been investing the way we're investing, and we're going to be a significant player in the space as the market grows out. Operator: Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Kris Rosemann for closing remarks. Kris Rosemann: We want to thank everyone for joining us this morning. We look forward to providing a longer-term strategic update at our upcoming Investor Day on March 25 and discussing our first quarter earnings results in late April. Thank you again, and goodbye. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the BAWAG Group Full Year 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. There will also be a transcript on the company's website. I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO of the company. Please go ahead. Anas Abuzaakouk: Thank you, operator. Good morning, everyone. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. So we have a lot to cover. Let's jump right into it with a summary of full year 2025 results on Slide 3. For the full year 2025, we delivered a record net profit of EUR 860 million earnings per share of EUR 10.87 and a return on tangible common equity of 27%. The underlying operating performance of our business was very strong with pre-provision profits of EUR 1.42 billion, up 31% versus prior year and a cost-to-income ratio of 36%. Total risk costs were EUR 228 million with an NPL ratio of 80 basis points. The fourth quarter was particularly strong with a net profit of EUR 230 million, a return on tangible common equity of 28% and a strong springboard as we entered 2026. We exceeded all of our 2025 targets and distributed EUR 607 million to shareholders, EUR 432 million in dividends, which was equal to EUR 5.50 per share and EUR 175 million share buyback, translating into a cancellation of 1.6 million shares or 2% of shares outstanding. Since our IPO in October 2017, we have reduced shares outstanding by 23% with 77 million shares outstanding as of year-end 2025. We closed the year with a pro forma CET1 ratio of 14.6% after setting aside EUR 481 million for dividends, equal to EUR 6.25 per share, which we will propose at our Annual Shareholder Meeting in April as well as deducting the EUR 75 million share buyback that we completed earlier this year. The recent buyback was used to fund employee stock and remuneration programs as we are keen to avoid diluting our shareholders. Our liquidity position is robust with cash of EUR 14 billion, equal to 19% of our balance sheet. Organic customer loan growth was strong, up 3% year-over-year when excluding the Barclays acquisition, including the Barclays Consumer Bank Europe acquisition, customer loans were up 12%. Net interest margin for the business was 329 basis points, up 22 basis points from prior year and reflecting the positive impact from the German credit cards and strong growth in consumer and SME. Despite our record performance in 2025 and an EPS CAGR of 14% over the last 3 years, our best years lie ahead. Our strategy has been consistent since 2012, one focused on being patient, disciplined, cutting through the noise and embracing a continuous improvement mindset. Our resilience is proven by our ability to consistently deliver results and improve each year. On the back of strong customer loan growth in 2025 and the integrations delivering ahead of plan, we are updating our targets and introducing a new 3-year rolling outlook. We are now targeting net profit of over EUR 960 million in 2026, over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028, excluding any potential acquisitions. This translates into a net profit CAGR of 12% over the next 3 years from 2025 through 2028. We also continue to build up excess capital with over EUR 1.1 billion projected from 2026 through 2028, leaving us with over EUR 1.5 billion of excess capital, which includes our pro forma excess capital of EUR 468 million to earmark towards M&A, capital distributions or potential new growth opportunities above our stated plans. It's important to note this excess capital is incremental to the capital underpinning our updated 3-year targets and post our 55% dividend payout ratio. Through the cycle, we are targeting an ROTCE over 20% and cost-income ratio under 33% as the franchise continues to reap the benefits of long-term investments and scale as we build out a pan-European and U.S. banking group. When we refer to through the cycle, there will be years we deliver higher returns given the current rate environment and benign credit cycle with our targets representing a more conservative floor. However, our goal is to consistently deliver results and be prudent in how we run the bank, accounting for the cyclical nature of markets and lending. Our CET1 target remains at 12.5%, 227 basis points above our minimum regulatory capital requirements. Going forward, we plan to provide a rolling 3-year outlook with full year earnings allowing for a more dynamic outlook that captures internal as well as external developments more real time. Moving to Slide 4, our capital development. At year-end 2025, our reported CET1 ratio landed at 14.2%. We generated 417 basis points of gross capital from earnings. Closed on the Barclays Consumer Bank Europe acquisition using 180 basis points when compared against year-end RWAs and made or earmarked capital distributions equal to 350 basis points which comprised of earmarked dividends of EUR 481 million as well as EUR 250 million of share buybacks completed across 2 tranches. We also completed 3 SRT transactions, which funded the underlying business growth and provided a net capital relief of approximately 60 basis points. On a pro forma basis, our CET1 ratio was 14.6% equal to EUR 468 million of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025 and is expected to close in the first half of this year. This excess capital starting point provides us with a significant amount of dry powder to capitalize on unique organic and inorganic opportunities should they arise. It is important to note that both the Knab and Barclays Consumer Bank Europe acquisitions were fully self-funded. As our owner operators, we strive to be good stewards of capital, prudent and disciplined in how we allocate capital with a strong aversion to diluting shareholders. However, this is only made possible because of a very strong earnings and capital generation as we are positioned to deliver a through-the-cycle return on tangible common equity of over 20%. Slide 5. Positioning our balance sheet for growth while staying conservative. A key pillar to our strategy is maintaining a conservative balance sheet that is positioned for growth, ensuring we have excess capital and liquidity and always focusing on risk-adjusted returns taking a proactive approach to risk management. As we look ahead to 2026 and beyond, we have positioned our balance sheet in a few ways. We have purposely kept an excess cash position providing us with dry powder from a liquidity standpoint. We have EUR 14 billion of cash equal to 19% of our balance sheet, and our securities portfolio remains underinvested at EUR 3 billion, equal to 5% of our balance sheet, while we target more of a long-term range of 15% to 20% in a more attractive spread environment. We continue to be patient and disciplined and we'll be ready to deploy into customer lending as well as adding to our securities portfolio when the right opportunities present themselves that meet our risk-adjusted returns. As far as customer loans, we are focused on secured and public sector lending with an inherently low risk profile as well as providing us with a source of long-term funding. Over 80% of our customer book is secured or public sector lending that is conservatively underwritten and well collateralized. Housing loans account for over 50% of our customer loans with an average LTV of 55% on the nonguaranteed mortgages. In total, 60% of the mortgage portfolio has NHG government guarantees, insurance or risk transfers. Additionally, we have EUR 13 billion of covered bond funding relative to approximately EUR 40 billion of mortgages, commercial real estate and public sector assets with significant potential for further long-term covered bond funding. Over the years, we have deployed various risk management tools to proactively mitigate credit risk and free up capital to fund growth using CDS direct insurance and significant risk transfers or SRTs, in the form of cash and/or guarantees. We use SRT specifically to free up capital to fund growth and as a loss mitigation tool with an emphasis on unsecured lending. Today, SRTs have become quite prevalent, but our focus over the years was risk mitigation accounting for through-the-cycle losses and ensuring we stay competitive from a risk-adjusted return standpoint. This has become more pronounced across mortgage lending as we transition to the standardized approach in 2024. Today, SRTs cover EUR 9 billion of assets on the balance sheet, of which EUR 6 billion or 2/3 are tied to mortgages on the standardized approach. SRTs on mortgages improve capital efficiency on a low-risk asset class, allowing us to fund growth and better compete with IRB banks and nonbank lenders. SRTs on unsecured and specialty finance assets, which account for EUR 3 billion, primarily consumer loans, credit cards and corporate loans, mitigate risk of unexpected losses and work more as an insurance policy, specifically against volatility of macro sensitive assets. In terms of lending activity, 2025 was another year defined by being patient and disciplined. Although we saw a pickup in lending activity across consumer and SME, the pricing environment is still challenging across mortgages and corporate lending. We have strategically avoided chasing growth as credit markets remain frothy given the number of players driving down margins and foregoing loan protections. We believe credit risk in general is mispriced given geopolitical risks, the fiscal situation of many sovereigns and a flawed short-term focus on aggressively pushing lending volume given the perpetual need to deploy capital as incentives have decoupled from performance. On the flip side, our commercial real estate business continues to perform well, and we are finding pockets of opportunity. This is a result of our conservative underwriting over the years and underlying exposure to residential, industrial and logistics assets. which make up approximately 80% of the portfolio. The U.S. office sector overall remains distressed. However, we are now seeing pockets of opportunity in select idiosyncratic transactions across the capital structure. Moving to Slide 6. Building a pan-European and U.S. banking group. Our success over the years is a result of embracing a continuous improvement mindset, one that allows the company to constantly adapt. This past year was no different. Even though our company is in great shape, we must adapt from a position of strength and not fall victim to complacency. The recent acquisitions have been a catalyst for building the operating framework for a pan-European and U.S. banking group. As we look to the future, we must challenge the status quo we reimagined the company. In the face of shifting demographics, changing customer behavior and transformative technologies, we need to ensure that we stay competitive and relevant for the long term. Over the years, we have transformed from a branch-heavy business with limited digital capabilities to a digital-first bank complemented by a high-quality advisory branch network. We self-funded 14 acquisitions, expanded into 6 new countries and built a strong leadership team with a deep bench in an owner-operator mindset. Today, our business is 90% retail and SME, 90% digital originations and 90% tied to the euro countries of Austria, Germany, the Netherlands and Ireland. With the integrations of our 2 recent acquisitions largely complete, we are positioning ourselves for future growth, both organic and inorganic. We have redesigned the company to reflect both the broader footprint as well as capture new opportunities. We are starting to see the benefits of greater scale and efficiencies, greater digital engagement, a wider geographic footprint and more opportunities to pursue. Most importantly, our transformation over the years has been anchored to our culture. We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenging the status quo. Our senior leadership team embodies stability and dedication with the Management Board and senior leaders collectively owning approximately 5% of the company. This reflects our owner-operator culture and commitment to long-term success of the franchise. This group has an average tenure of 12 years. 25% of our current leadership team joined through prior acquisitions, and we continue to build a deep bench of leaders cultivated through internal development programs, mentoring, strategic recruitment and acquisitions. This is vital as we expand into a pan-European and U.S. banking group, ensuring we have the proper bandwidth and skill set to grow the business and address the many challenges and opportunities ahead. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve. Moving to Slide 7. Technology underpinning our transformation, AI is the next leg. Despite our achievements over the years, we recognize that ongoing technological disruption, specifically the rapid advance of artificial intelligence, demands that we proactively redesign our company. This era of innovation and disruption will fundamentally reshape how we serve our customers, structure our organization and define the very nature of work. As a result, some technologies and processes will quickly become obsolete, requiring us to rethink traditional roles and create entirely new ones. The economic landscape is evolving in ways that are hard to understand or predict. Our goal is to proactively navigate these changes and ensure the long-term success of our franchise. We plan to incorporate AI into our operating framework. We will significantly enhance customer service making this a true competitive advantage as we reduce friction in our processes, enable immediate and effective first touch resolution. While we have already made significant strides in driving operational efficiency, we must remain focused on continuing to eliminate unnecessary bureaucracy, freeing up our people to engage in more impactful and rewarding work that requires more creativity, problem-solving and critical thinking. Our goal is to free up advisers to spend more quality time with customers, enable our operations and call center teams to focus on more complex cases and portfolio management and streamline central functions to play a more strategic role across the group. Central to our AI strategy is building the right technical infrastructure and fostering institutional expertise to remove friction for both customer journeys and internal operations. Our TechOps investments over the years have enabled us to fully migrate to the public cloud, enhance our data architecture and adopt standardized workflow and reporting tools. This technical foundation will be the foundation for building an AI operating framework, one that seamlessly integrates technology, supports robust governance and drives impactful use cases. To support this, we have set up a dedicated team of business process engineers within our TechOps Group combining process know-how with technical skills to lead AI initiatives in close partnership with functional experts. However, we believe that before AI can be properly implemented, there needs to be NI or natural intelligence around the process. This means team members with deep process and institutional knowledge working closely with business process engineers to redesign processes through simplification measures, basic workflow automation and ultimately, AI. We believe AI will ultimately enhance our operational excellence and best-in-class efficiency in the coming years, a true differentiator for BAWAG and our competitive advantage. With that, I'll hand over to Enver. Enver Sirucic: Thank you, Anas. I will continue on Slide 9. In terms of our balance sheet and capital, customer loans were up 2% and customer deposits were up 4% quarter-over-quarter. Organic customer loan growth was 3% year-over-year when excluding the Barclays acquisition, including the Barclays acquisition, customer loans were up 12%. Tangible common equity is up 9% year-over-year after setting aside a EUR 6.25 dividend per share or EUR 481 million in absolute terms, which we will propose at our Annual Shareholder Meeting in April. We maintained a fortress balance sheet with EUR 14.1 billion in cash equal to 19% of our balance sheet and LCR of 204% and overall strong asset quality with a loan NPL ratio of 80 basis points. Moving to Slide 10, a strong last quarter with net profit of EUR 230 million and a return on tangible common equity of 28%. Core revenues were up 3% versus prior quarter with net interest income up 3% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost income ratio stood below 34%. Risk costs were EUR 64 million or 45 basis points in the quarter, including provisions for a single name default. On Slide 11, our core revenues. Strong performance, net interest income was up 3% in the quarter, driven by robust customer loan growth of 2%, with strong momentum in real estate and public sector, solid consumer business and stable mortgage lending. Net interest margin at 332 basis points improved on back of better asset mix, while deposit beta improved by 1 percentage point to 37% in Q4. Net commission income was up 4% with continued strong momentum across business lines, particularly in credit cards and payments. For 2026, we anticipate a continued positive trend with net interest income and core revenues expected to grow by 6%. On Page 12, operating expenses at EUR 194 million, a 3% decrease for the quarter with the cost income ratio at 33.8%, similar to levels before both acquisitions. To date, more than 80% of the acquisitions have been successfully integrated as planned and cost synergies have increased particularly after the branchification of Knab last November. We continue to drive operational initiatives designed to streamline processes and enhance long-term productivity across our business lines. Combined with the completion of integration efforts, these measures are expected to improve our operational efficiency. We expect a reduction in operational expenses by more than 5% in 2026. Regulatory charges are projected to increase by EUR 9 million to EUR 48 million in 2026 due to increased size of our balance sheet. Moving to Page 13. Risk costs were EUR 64 million in the quarter, driven by a provision for a single name default and higher share of retail consumer lending. Asset quality remains solid with an NPL ratio of 80 basis points. We expect continued strong asset quality in 2026 with a risk cost ratio of around 45 basis points mainly reflecting a higher share of consumer lending and otherwise strong credit quality. Slide 14. Our retail SME business delivered a quarterly net profit of EUR 210 million, a very strong return on tangible common equity of 39% and a cost income ratio of 31%. Pre-provision profits were EUR 343 million, up 10% compared to prior quarter with core revenues 4% stronger versus prior quarter, while operating expenses were down 8% in the quarter. The retail risk costs were EUR 58 million, with a risk cost ratio of 60 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. Average customer loans and deposits grew by 1% in the quarter, and we expect continued growth across the retail SME franchise in 2026 driven by solid growth in consumer and SME with mortgage originations slowly starting to pick up. On Slide 15, our corporate real estate and public sector business delivered fourth quarter net profit of EUR 37 million and generating a strong return on tangible common equity of 29% and a cost income ratio of 23%. Pre-provision profits were EUR 58 million, while risk costs were at EUR 6.5 million, mainly tied to provisions for a single name default. Average assets were up 4% in the quarter, with strong momentum in real estate and public sector while corporate lending remained muted. We'll continue with our current approach in 2026 and stay patient, focus on disciplined underwriting, risk-adjusted returns and not blindly chase volume growth. Slide 16, our updated targets. Following strong customer loan growth in 2025 and progress on integrations being ahead of plan, we are revising our targets and the 3-year outlook. We are targeting net profit exceeding EUR 960 million in 2026 over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028 with a 12% CAGR from 2025 to 2028, excluding any acquisitions. Our strategy focuses on improving operating leverage by increasing core revenues and consistently reducing expenses. Top line growth will come from 3% to 4% annual loan growth a higher asset margin due to an improved asset mix and positive effects from deposit hedge roll off. Following integrations, we aim for annual net cost reductions through 2028. These efforts will drive ongoing improvement as we continue investing in advisory, tech infrastructure and data assets. Looking ahead, with continued mix shifts and effective underwriting, we expect risk costs to remain at 45 basis points for the next few years. In addition to our profit targets, we plan to generate over EUR 1.1 billion in incremental excess capital by 2028, following a dividend payout of 55%. The resulting excess capital of more than EUR 1.5 billion by 2028 may be allocated towards organic growth initiatives, further M&A or capital distributions. Our through-the-cycle targets remain unchanged with a return on tangible common equity of above 20%, cost income ratio of below 33% and a CET1 ratio target at 12.5%. And with that, operator, let's open up the call for Q&A. Thank you. Operator: [Operator Instructions] The question comes from the line of Gabe Kemeny from Autonomous Research. Gabor Kemeny: My first question is on the 2027 guidance that you upgraded by around EUR 100 million. I understand this is primarily NII driven. And can you confirm it's mostly the asset mix as you are shifting more towards consumer to remember about the hedges, how the hedge positions have become more -- or expected to become more profitable? And specifically, on consumer, you pointed out that it's growing nicely. Can you speak a bit about the drivers and the growth outlook in this segment? My other question will be on capital. I mean you ended the year at EUR 0.5 billion of excess capital, but not doing a share buyback for now. Yes, I understand you are working on -- you are looking at various capital deployment options. But when do you think you will be able to decide on whether you do a share buyback this year or not? And my final question is a broader one. I understand you can't comment on transactions. But can you share your views on the Irish banking market and the performance of your local business there? Anas Abuzaakouk: Okay. Gabor, let's -- I'll start with the capital allocation question 2 and 3, Ireland and then Enver will take the 2027 guidance, some of the specifics. So all good questions, Gabor. Thanks for submitting. As far as capital allocation, we always say as part of our capital allocation framework, we will assess at year-end given our excess capital position. This is really no different this year. The only difference is we're assessing a number of market opportunities, and we'll be in a better position to communicate what we're going to do with our excess capital and overall capital allocation, hopefully, by the first quarter results. I think we're going to be in a good position. As to your general question of Ireland, we entered Ireland 2 years ago through MoCo and that was on the back of having studied the market and having went into Ireland for a number of years. We bought DEPO, which was a wind-down platform. We think Ireland is one of the most robust banking markets across the European Union. But that's not a development today. That's been our belief over the past few years. So we think it's structurally a really good retail banking market. But that's one of our core 7 markets that we've defined in 1 of the 4 core European markets. So I will pass it over to Enver on the '27 guidance. Enver Sirucic: So Gabor, on your question, I think, related to the NII development. Yes, there are 3 factors that we laid out. The first one is we assume loan growth of 3% to 4%. And if you look back, this is consistent with the performance that we have seen, especially over the last 12 months. The second one is better asset mix. The overall balance sheet structure will not change significantly. When we say we have 80-20, like 80% secured public sector lending, then 20% unsecured, that's going to be the same mix in the future. The only difference, if you look at the front book NIM, the asset mix is healthier in terms of NIM improvement, mainly driven by consumer lending and the credit card business that we acquired, obviously, last year. And the third element is the deposit hedge roll, which is more a technical effect given the duration of our structural hedge that is on the long tail 10 years rolling or 5 years effective. And that effect is coming through now in '26, '27 and '28. I hope that helps. Operator: Your next question comes from the line of Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: So yes, could you give a little bit more detail on those NII dynamics? So where do you expect loan growth to -- I mean, you said it was a bit in line with the current trends. But if you could kind of give us a bit more granular expectations of loan growth by country or by key products? And also, can you quantify the benefit from the deposit hedging in each year, so like kind of where is the kind of the front book yields and size of the portfolio, so we can try to model it, please? And final question on M&A, can you remind us like what is your ROI and EPS accretion thresholds for any deals that you might announce? Anas Abuzaakouk: Okay. Thanks, Hugo. All good questions as well. Let me start with the easy one, the last one. When we do M&A, consistent with the 14 acquisitions that we've done over the past decade, we have the defined return threshold requirement. That for us is kind of our franchise through the cycle return on tangible common equity of over 20%. And I think if you look at prior deals, we've obviously had, I think, really strong performance and outperformed a particular threshold. But you should think of that as kind of the floor. And then when we look at just M&A and just inorganic opportunities more generally, we measure that against potential share buyback. And I think if you look at not that we focus on the share price or valuations that we don't make strategic decisions based off of that. But if you look at where the business is trading on a price to earnings basis, and take a 2-year 4 PE multiple, I think share buybacks are still very attractive. It's a good return for our investors given that we, I think, trade at or slightly below the European bank index in terms of PE multiples. Okay. So that was M&A return thresholds. What was the... Enver Sirucic: Loan trends. Anas Abuzaakouk: So loan trends. More broadly, Hugo, I tried to give some color during the presentation and Enver can add more specifics. But if you look at the different asset classes, so within consumer and SME, the credit card business actually has performed better than we had underwritten after making the acquisition. And that I think that trend will continue in the years to come. That's specific to Germany, but also potentially Austria and adjacent countries, but that's really not in the numbers. Specialty finance which is leasing, in particular, both auto and equipment leasing, I think that's been a positive development as well as our factoring business, and that's a mix of NII and NCI. The mortgages, I'd say, has been from a consumer standpoint or retail and SME standpoint has been probably the one challenged area, not so much because the volume is there, but I made a comment around just overall margins. And when you look at kind of risk-adjusted returns, I think there's certain levels that for us, we think, have become irrational as far as pricing. So we're pretty conservative on that front. I think when you think about overall mortgages. Now that obviously varies between different countries. I think it's more challenged in Austria and Germany. We see good opportunities in the Netherlands and Ireland from a mortgage standpoint. Just to answer your question about specific geographies. And then when you look at the nonretail and SME business, I would say don't have much expectations for us, at least in our planning for corporate lending. Obviously, there's pockets of opportunities but the general comment about credit risk being mispriced really is focused on corporate lending and corporate credit risk. And it just feels like there's an irrational exuberance and a real strong focus on volumes because a lot of capital has been -- what's the right way of saying this? There's been a lot of capital that has been raised across different platforms, public and private. And when you raise that much capital, you're incentivized, I think, to deploy that capital and to grow AUM and that was my comment about decoupling of performance in a lending environment. So that's one where I think we'll just continue to be conservative. Public sector, we see good opportunities. More broadly, not just in Austria but across kind of the core markets that we're in. And then commercial real estate, which is really residential in one form or another. Industrial logistics also to a certain extent, but it's been really focused on residential. That has been robust and we see a good pipeline on the back of a strong fourth quarter. So when you put all of that together, Hugo, that I think, gives you a good perspective and why the team, we feel pretty confident. We usually don't give loan volume targets but this is 1 to 2 points above kind of blended GDP growth in the markets that we're in, which translates to about 3% to 4% loan growth. And hopefully, we'll be able to execute and hopefully even over-deliver. Enver Sirucic: I think there was a question on the contribution of the deposit hedge to the overall NOI and the trends. We try to provide the details on that target page, but probably I would phrase it is -- if you think about 2026, we are saying the NII will grow by more than 6%. And if you want to break it down by asset or loan growth on the one side and the liability side on the other side, I would probably say 2/3 is coming from loan growth and asset margin improvement and 1/3 is coming from the deposit side. So if you like, 2 points around about deposits and 4 points plus is on the asset side. And I would assume a very similar trend for the other years. Obviously, there's always some nuance to that. But directionally, this is the formula for the NII growth in '26 and the other years. Operator: The question comes from the line of Jeremy Sigee from BNP Paribas. Jeremy Sigee: You've got about EUR 0.5 billion surplus capital as of now with the pro forma numbers. Just continuing the discussion about capital deployment and investment opportunities, could you talk about your attitude to -- so I mean, you could already afford to do another Knab or Barclays Germany. But could you talk about your attitude to potentially larger transactions if something came up in the EUR 1 billion, EUR 2 billion range. Would that be manageable? How would you see the risk reward? And what would be your attitude to potential share issuance or other financing options for that? Anas Abuzaakouk: Thanks, Jeremy. Good question. I would say, look, if you look at our history of deals that we've done, 14 acquisitions, right, and that's some portfolios as well. It's ranged from as small as EUR 0.5 billion to as large as almost EUR 20 billion we do not discriminate in terms of size. I would say the one thing that we're probably more sensitive to now given just the position of the franchise is a small deal takes as much time as a large deal. So we have no aversion towards going after larger deals, and that varies in size. I think you mentioned EUR 1 billion to EUR 2 billion in terms of acquisition price. I wouldn't even look at it through that lens. I think from our standpoint, when you look at it through [indiscernible] can we actually create value when we think about what makes BAWAG unique in terms of our culture, our focus on operational excellence, managing the balance sheet, focusing on conservative markets. I think 50% of our balance sheet today is in -- our customer loans is in mortgages. We have a -- how much can you lose as opposed to how much can you make the type mindset when we think about risk management. And all of that kind of factors into our overall decision. And I would say an important intangible element is do we have the bandwidth and I kind of alluded to it during the presentation, which was I think we have a deep bench of senior leaders. We'vd worked together for over a decade. And I think we have the bandwidth to be able to take on larger acquisitions. And given that the 2 acquisitions are largely complete, Knab and Barclays Consumer Bank Europe, I think we have the bandwidth to be able to address larger acquisitions going forward. Was there another question we were seeing? I think that was in the M&A. Jeremy Sigee: Just about also financing. We just have financing as well. I mean, that would imply if it was bigger than the surplus capital so you had to issue some shares as part of the transaction, what would be your attitude to that? Anas Abuzaakouk: Jeremy, we're not averse to issuing shares. But if you look again at the 14 deals that we've done, you saw the 2 deals that we did concurrently the more recent ones, we've self-funded everything. We generate over 400 basis points of gross capital through earnings. As you rightly stated, we have about EUR 0.5 billion. We're talking about making almost EUR 1 billion this year. I mean if you kind of put all this stuff together, I think we're in a really fortunate position where we generate a significant amount of capital that to the extent that we can avoid ever diluting shareholders, that's our default position. Yes, we're not [indiscernible] Operator: The next question comes from the line of Borja Ramirez from Citi. Borja Ramirez Segura: A couple of questions on the NII, please. So the NII guidance includes 6% annual growth includes 4% from the asset side and on the deposit side, if I understood. From the asset side, are you assuming any redeployment of your excess cash into bonds in your target? And then on the deposit side, are you assuming deposit beta remains stable? And also, could you please remind me the notional and the yield of the hedge and the duration, please? Enver Sirucic: So Borja, I think it's easy to answer. Yes, the split is plus 4% and plus 2%, as I mentioned previously. We do not assume any redeployment of the excess cash into bond investments. So that's not in our numbers. We'd like to do, yes, we have a lot of excess cash to deploy. But if you look at the current market trends, we do not expect any widening of the credit spreads at the current stage. I think the other question was around the structure of the deposit hedge, I guess. So 40% of our nonmaturity deposits, so which oscillates between EUR 35 billion and EUR 40 billion. So 40% of that directionally, we put on a structured hedge, which is 10 years rolling monthly. So on average duration, you have 5 years on that part. And that's the main driver then for the NII uptick in the outer years. Operator: Your next question comes from the line of Amit Ranjan. Amit Ranjan: The first one is on the slide on AI, Slide 7. How should we think about the investments versus the savings? Are these gross cost savings initiatives, which are then invested in the business? And at one point, midterm, we should think about some net cost savings from this? Anas Abuzaakouk: Amit, good question. The way you should think about the AI is, look, AI is built into kind of our technological transformation. It's just one component of many components. If you're asking specifically around where is the cost out, it's -- everything is within kind of the mixture of under 33%. And I'd mentioned also like the -- through-the-cycle targets, those are more floors and obviously, hopefully, we look to overdeliver. But for us, AI in terms of like reinvestments, we've continuously made technology investments over the years. It's not a one thing comes out and one thing goes up. We look at it at a macro level in terms of are we making the right technology investments? Are we building up our tech ops capabilities? And I think that's more was my comment around we will always be best-in-class when it comes to operational excellence as well as efficiency, and that's a true competitive advantage. So we don't go into this kind of change the bank, run the bank. These are like the monikers that we just don't look at it that way, so. Amit Ranjan: And just one clarification on the NII, are you using the forward curve for '26 and beyond? Enver Sirucic: Sorry, could you say that again? Anas Abuzaakouk: Are using the forward curve? Enver Sirucic: Yes, we always update the numbers based on the most recent forward curve. Operator: There are no further questions in the queue. I will now hand back to Anas Abuzaakouk for closing remarks. Anas Abuzaakouk: Thank you, operator. Thanks, everyone, for joining this morning. Sorry for the slight delay to get started, but we look forward to catching up with you during first quarter results. Take care, everybody. Have a nice day. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
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.