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Operator: Good day, and welcome to the Nabors Industries Ltd. Fourth Quarter 2025 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead. Good morning, everyone. William Conroy: Thank you for joining Nabors Industries Ltd.’s Fourth Quarter 2025 Earnings Conference Call. Today, we will follow our customary format with Anthony Petrello, our Chairman, President, and Chief Executive Officer, and Miguel Rodriguez, our Chief Financial Officer, providing their perspectives on the quarter's results along with insights into our markets and how we expect Nabors Industries Ltd. to perform in these markets. In support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today in addition to Anthony, Miguel, and me, are other members of the senior management team. Since much of our commentary today will include our forward expectations, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors Industries Ltd. from time to time in our filings with the Securities and Exchange Commission. As a result of these factors, our actual results may vary materially from those indicated or implied by such forward-looking statements. Also, during the call, we may discuss certain non-GAAP financial measures such as net debt, adjusted operating income, adjusted EBITDA, and adjusted free cash flow. All references to EBITDA made by either Anthony or Miguel during their presentations, whether qualified by the word adjusted or otherwise, mean adjusted EBITDA as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow as that non-GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measure. With that, I will turn the call over to Anthony to begin. Good morning, thank you for joining us today as we review our fourth quarter results. We will also highlight a number of accomplishments we achieved throughout the year. I will begin this morning with those. During 2025 and through the beginning of this year, completed a sequence of significant transactions beginning with the purchase of Parker Wellbore for Nabors shares and assumption of debt, followed by the sale and Quail Tools, and finishing with debt redemptions and a significant debt refinancing. Compared to the end of 2024, we reduced net debt by $554 million. This improvement significantly de-risks our capital structure. At the same time, we will reduce annualized cash interest expense by approximately $45 million. We also have a portfolio of businesses remaining from Parker that we project will contribute at least $70 million in adjusted EBITDA this year. Now let me turn to our financial results for the quarter. Adjusted EBITDA totaled $222 million. This performance was better than the expectations we set on our previous earnings conference call. These results were primarily due to first, stronger overall performance in our 48 average rig count and daily margin and increased EBITDA from our legacy Drilling Solutions segment excluding Quail in the third quarter, NDS' casing running and managed pressure drilling business led this improvement. Sequentially, our total EBITDA excluding the contribution from Quail in the third quarter, once again improved. This result reinforces several of our strategic priorities namely our focus on performance excellence in the Lower 48 rig market, expanding in the international drilling market, where we generate attractive returns, we also benefit from the stability of multiyear contracts, and developing and deploying innovative technology which advances the capabilities and efficiencies of the drilling process. Our commitment to these priorities led to our recent accomplishments we are confident they will lead us to future success as well. Next, I will address the broader market environment and Nabors position in those markets. Let me start with the commodities. Oil prices were in downward trend in the 2025. This lasted through the U.S. announcement to import Venezuela crude in early January. Subsequently, there was a production interruption in Kazakhstan that helped trigger an increase. These were followed by uncertainty around tariffs related to Greenland and protests in Iran. We are evaluating the lasting effect of these items including the potential reaction by our client base. These events occurred against a backdrop of global oil supply exceeding demand. The EIA's figures showed a surplus each month of 2025. Looking ahead, we see several issues that could impact oil prices including continuing uncertainty around future tariff actions, oil production increases, both inside and outside OPEC, the recent interruption at Tengiz in Kazakhstan, reported inventory builds in certain markets, higher demand concentrated in Asia, and ongoing conflicts involving Ukraine and Iran. Our global drilling markets each have their own drivers, with our current geographic reach we are well positioned to benefit from improvements in those countries. Next, I will comment on Venezuela. We have operated in Venezuela since the forties. At our peak, we had 18 rigs working there for multiple customers. More recently, we worked into 2020 when our client wound down operations. That was due in part to problems with payments and OFAC regulations. Today, we have five idle rigs and a small number of key local personnel in country. With suitable commercial terms and security arrangements we are prepared to return to work there. We are already in discussions with multiple operators. Across the Middle East and North Africa, several markets have aspirations to increase their production capacity. Our business portfolio aligns with these expansion plans. Turning to the U.S. market, operators in the Lower 48 appear focused on maintaining production. At the same time, they are positioned to react quickly should oil prices no longer support their investment return metrics. Our approach in this market is to exercise cost discipline while we deploy advanced technologies. Our innovations augment operator investment returns, with enhanced production and efficiencies. The outlook for natural gas remains positive over the next several years. In the U.S., LNG exports and domestic consumption should ramp up. Elsewhere, in the Middle East and Latin America, continued expansion of natural gas supports drilling activity. In the Lower 48, the gas-directed industry rig count increased by more than 20% in 2025. Nabors' gas rig count increased by 50%. Currently, gas-directed activity comprises approximately 20% of our overall rig count in the Lower 48. We stand ready to respond to any increased demand across gas producing basins. Next, I will add a few perspectives on our current business. In the Lower 48, our momentum accelerated during the fourth quarter. We had four rigs in December, and finished at the high watermark for the quarter, 62 rigs. Operator: Since then, we have added more rigs. William Conroy: Our rig count recently stood at 66. Operator: The additions are mainly for public operators, William Conroy: They are spread across producing areas with four in the Permian, three in the Eagle Ford, and two in the Haynesville. This diversity is encouraging, it suggests favorable operator economics across basins. Next, I will spend a moment on SANAD, our joint venture in Saudi Arabia. The new-build fleet there continues to expand. SANAD deployed the fourteenth new-build during the fourth quarter. Five more rigs are planned to commence work during 2026, bringing the total to 19. The twentieth should start up in early 2027. During the fourth quarter, SANAD received notices for two of its three suspended rigs to resume operations. The first is scheduled to start up late this quarter. The second, late in the second quarter. The rigs will work under their existing contracts. Their contract terms extended by the suspension period. SANAD recently elected not to renew three of its owned rigs. These were contributed by our partner to the JV during its formation. These smaller rigs in effect operated as workover rigs. They generated very little EBITDA and free cash flow. The JV is evaluating alternatives to return them to work. In the meantime, SANAD can utilize the experienced crew from these rigs on its planned deployments during the quarter. This should help mitigate the effects of a tight labor market in the Kingdom. Across other markets in the Eastern Hemisphere, we are seeing potential activity growth. Currently, we are tracking nearly 20 opportunities for additional rigs in countries where we currently operate. This total sends an encouraging signal on the state of the Eastern Hemisphere market. In Latin America, activity outlook in Mexico has improved. We currently have three offshore platform rigs working. The improvement in our clients' payment posture as Miguel will discuss, we see the potential for a more stable operating cadence there. We expect to restart a fourth platform rig there early this year. Turning to Argentina. We expect to start one rig this quarter. We have a second rig scheduled to start work there in the third quarter. That deployment would bring our rig count in Argentina to 14. That is up one from our last earnings call. Our leading position in this market enables us to opportunistically capture additional work. Next, I will comment on the U.S. market. Thus far, we have not seen oil prices at the level that concerned us a quarter ago. The Baker Hughes weekly Lower 48 land rig count decreased by three rigs from September through December. This trend continues the apparent stability we saw in the third quarter. We again surveyed the expected drilling activity of the largest Lower 48 operators. This group accounted for approximately 42% of this market's working rig count at the end of the quarter. Taken together, these operators expect the rig count to remain largely stable through 2026. Looking more closely, two companies indicate declines, the rest are essentially unchanged with a few indicating small increases. Now I will make some comments on the key drivers of our results. I will start with our International Drilling segment. This business has been relatively stable compared to the high volatility in the U.S. in recent years, and looking to the future, international markets are a source of growth. We see prospects across the Middle East, Asia Pacific, and in Latin America. We will focus on opportunities that benefit from our advanced technology, offer long-term visibility with multiyear contracts, and generate attractive returns. In Saudi Arabia, beyond the pending additions I mentioned earlier, SANAD continues to advance discussions with its client for the fifth tranche of new-build rigs. We expect these to conclude in the coming months. This tranche will bring the total number of new-builds to 25. Now I will discuss our performance in the U.S. In the fourth quarter, our daily gross margin in the Lower 48 exceeded our guidance. This resulted from our disciplined approach to pricing and our ability to reduce operating costs. With our performance in the fourth quarter, and guidance for the first quarter, we believe our daily margin is stabilizing. Before moving on, I will offer an update on our high-end rigs including the PACE-X Ultra. The first unit has been working for Coterra in South Texas since mid-September. We had high expectations for this rig. It has delivered. We are now working toward an agreement to deploy a second PACE-X Ultra. This powerful rig is an upgrade to our existing PACE-X rigs. Operator: The PACE-X Ultra William Conroy: combines a 10,000 PSI mud system, high-end racking and mast capacity, and an upgraded high-torque HPU top drive. As an upgrade, the PACE-X Ultra is cost-effective for both us and for our clients. As this rig continues to prove its value, we are confident that interest in it will grow further. We are working with another operator to upgrade an existing PACE-X rig with higher setback capacity. This upgraded unit has been tagged to drill the operator's four-mile lateral wells, its longest, in the Permian Basin. We are also in discussions to simply upgrade a PACE-X rig for South Texas. We are encouraged by these developments. Having multiple operators select our high-end drilling technology demonstrates the versatility and capability we can deliver to the market. At the same time, we generate attractive returns on these investments. Next, let me discuss our technology and innovation. An integral element of our PACE-X Ultra rig is the full automation package supplied by Nabors Drilling Solutions. We also integrate our managed pressure drilling package and we provide casing running services. Looking more broadly, our penetration of NDS services on Nabors' own rigs in the Lower 48 was stable. We averaged seven services per rig. Our strategy for NDS to target third-party rigs continued to pay off. In this segment, NDS outperformed the market. In the fourth quarter, on third-party rigs in the Lower 48, NDS revenue excluding Quail, increased sequentially by 10%. That increase came into market where the third-party average rig count increased by just 1%. NDS remains a key element in our strategy. Its services generate value for clients, and with the low capital intensity, for Nabors as well. I will finish my update this morning with some comments on our capital structure. We said many times our highest priority remains the reduction of our debt. We made considerable progress over the last year. Our net debt is down by more than $550 million. It stands at the lowest level since 2005. This improvement is also contributing to our free cash flow as our interest expense declines. Going forward, with our expectation to generate free cash flow outside SANAD, we are committed to further debt reduction. I will conclude my remarks with the following. Our outlook for 2026 envisions EBITDA performance that matches last year's. We forecast increases in several of our operations. Those should offset the disposition of Quail. This prospect demonstrates the strong earnings power we have across our company. I will now turn the call over to Miguel to discuss our financial results in detail. Thank you, Tony, and good morning, everyone. I will begin by reaffirming our unwavering commitment to continue to strengthen our balance sheet and enhancing our capital structure. Delevering remains our highest financial priority. And we will endure to take decisive actions Miguel Rodriguez: to keep reducing gross debt. At the same time, our organization is well positioned to operate at peak performance and deliver durable growth and long-term value. Our financial targets are designed to be appropriately rigorous to drive the business forward. Today, I will start with an overview of our full year performance and a detailed discussion of our fourth quarter results. Next, I will outline our guidance for the quarter and full year 2026. Then I will provide a brief update on the integration of Parker Wellbore. I will conclude with remarks on capital allocation, adjusted free cash flow, and the recent actions we have taken to materially strengthen our capital structure. Full year 2025 revenue was $3.2 billion reflecting growth of 8.7% year over year, driven primarily by the acquisition of Parker and a strong international expansion. Full year adjusted EBITDA was $913 million, $31 million higher than the prior year. This performance was driven by the same underlying factors. Now turning to the fourth quarter results. Fourth quarter consolidated revenue was $798 million, a decrease of $21 million or 2.6% sequentially. The divestiture of Quail Tools resulted in a reduction of $34 million compared to the third quarter. This impact was partly offset by continued growth in our International Drilling segment. Without the contribution of Quail in the third quarter, consolidated revenue grew $14 million or 1.7% sequentially. EBITDA was $222 million representing an EBITDA margin of 27.8%, down 110 basis points sequentially. These results exceeded the expectations we laid out in October. In absolute dollars, EBITDA decreased $15 million or 6.2% versus the third quarter, driven primarily by the divestiture of Quail. In the third quarter, Quail contributed EBITDA of $20 million. Excluding this impact, our EBITDA grew by 2.6% led by our International Drilling Operations, NDS, and Rig Technologies segments. These gains were partially offset by a decline of just 1% in our U.S. Drilling segment. EBITDA from Alaska and offshore combined exceeded the guidance for our last earnings call, as these operations experienced fewer maintenance days than anticipated. Lower 48 EBITDA improved sequentially and was approximately 6% above our guidance. Now I will provide you with details for each of the segment results. International Drilling revenue was $424 million, growth of $17 million or 4.1% sequentially. EBITDA for the segment was $131 million, increasing $4 million or 2.9% quarter over quarter, yielding an EBITDA margin of 31%, down 35 basis points. International Drilling EBITDA increased sequentially though it came in modestly below the guidance provided on our last earnings call. Our average daily rig margin of $17,130 decreased sequentially by $301 and was below the lower bound of our guidance. The daily margin shortfall was mainly driven by a combination of activity disruptions in Colombia during most of the quarter impacting our logistics and drilling plans, more maintenance days than anticipated in Saudi Arabia based on updates to our customers' drilling schedule, and some inefficiencies from rig start-ups during the quarter. These were partially offset by stronger activity than planned in Mexico. During the fourth quarter, International Drilling average rig count increased by four rigs to 93.3, exceeding our expectations by 2.3 rigs. In addition to the full quarter contribution from rigs that commenced in the third quarter, the strong growth in average rig count mainly reflects the deployment of our new-build in Saudi Arabia, two rigs deployed in Argentina, and the rigs that we expected to be suspended in Mexico due to activity and budget allocation uncertainty continued to operate through the quarter. We exited the quarter with 94 rigs operating. Moving on to U.S. Drilling. Fourth quarter revenue was $241 million reflecting a 3.7% sequential decline. EBITDA totaled $93 million, a decrease of 1% sequentially, resulting in an EBITDA margin of 30.7%, an improvement of 105 basis points. These results exceeded the guidance for our last earnings call due to a stronger-than-expected performance in our Lower 48 business with Alaska and offshore also modestly above our outlook. Looking specifically at the Lower 48, revenue of $180 million decreased by $4 million or 2.2% sequentially, on a modest increase in average rig count of 0.6 to 59.8 rigs. Despite ongoing commodity price volatility and broader market challenges, this is higher than the upper band of the guidance range we provided during the last earnings call. We exited the fourth quarter with 62 rigs operating. Our rig count ramped higher toward the latter part of the quarter as we capitalized on opportunities to add rigs in the Eagle Ford Shale and the Permian. We are very pleased with the progress in a rather complex market at present. Average daily revenue declined by $1,079 to $32,938. The majority of the variance was driven by lower reimbursables that have minimal impact on margins. Approximately $250 of the decrease was attributable to the base day rate, which remained largely consistent with prior quarters. In our most recently signed contracts, expected daily revenue remains in the low $30,000 range, unchanged from prior quarters. Average daily margin of $13,303 increased by $152 or 1.2%, reflecting a relatively stable base daily revenue and the benefits of cost absorption and optimization initiatives including reduction in repairs and maintenance expense. Turning to Alaska and U.S. offshore. On a combined basis, our Alaska and offshore drilling operations generated revenue of $59 million in the fourth quarter, a 7.9% decrease sequentially. EBITDA was $26 million, down $2 million. EBITDA margin was 43.9%, essentially in line with Q3 and moderately above our guidance. We are experiencing changes in the scope and mix of work in these markets. In the medium to long term, however, we expect operations in Alaska to remain strong. Our Drilling Solutions segment generated revenue of $108 million in the fourth quarter and EBITDA of $41 million, resulting in EBITDA margin of 38.3%. In the third quarter, Quail revenue and EBITDA were $34 million and $20 million respectively. Normalized for the sale of Quail, NDS revenue increased slightly and EBITDA grew by 2.3% versus the third quarter. NDS EBITDA margin excluding Quail was 37.5% in the third quarter, representing a sequential improvement of 83 basis points in the fourth quarter driven by international growth across services, including casing running, managed pressure drilling, and performance software. Now on to Rig Technologies. Revenue was $38 million in the fourth quarter, a sequential increase of 6%, and EBITDA was $5 million, up $1 million from the prior quarter. The improvement is predominantly related to year-end equipment sales. Next, let me outline our expectations for the first quarter and full year. Starting with the quarter on U.S. Drilling. Given our strong position in a number of Lower 48 basins and current market conditions, we expect a sequential increase in average rig count to a range of 64 to 65 rigs. This includes our anticipation of some level of rig churn during the quarter. For the first half of the year, we expect activity in our Lower 48 drilling business to remain relatively steady. Daily adjusted gross margin for the first quarter is expected to average approximately $13,200 with base daily revenue remaining largely stable. Rig additions during the quarter will incur some higher start-up related costs. For Alaska and U.S. Offshore drilling combined, we expect EBITDA in the range of $16 million to $17 million for the quarter. This outlook reflects a step down in daily margins driven primarily by a change in the scope of work of our marquee offshore platform rig, as well as reduced activity levels in Alaska. International Drilling average rig count is expected to be in the range of 91 to 92 rigs. This reflects the commencement of the 15th new-build rig in Saudi Arabia, the redeployment of one of the suspended rigs in the latter part of the quarter also in Saudi Arabia, the redeployment of one rig in Argentina, and the full quarter contribution from rig start-ups that began in the fourth quarter. These additions are partially offset by a decline of three very low margin workover rigs in Saudi Arabia. As Tony mentioned, SANAD elected not to renew those contracts for economic reasons. The drop of these rigs will have no material impact on our full-year international and cash flow progression. We expect average daily gross margin to be essentially in line with the fourth quarter in the range of $17,500 to $17,600. While this reflects the benefit of our robust rig additions, we also expect some seasonal slowdown in the Middle East, and the conclusion of certain short-term high-margin activities during the quarter. Drilling Solutions EBITDA is expected to be approximately $39 million reflecting a marginal decline in both the U.S. and international markets. Finally, Rig Technologies EBITDA should be approximately $2 million. For the full year, we expect our EBITDA to grow by 6% to 8% normalized for Quail, with continued growth of our International and Nabors Drilling Solutions businesses. We will aim to maintain the same EBITDA level as reported in 2025. Starting with U.S. Drilling, we expect Lower 48 to average 61 to 64 rigs reflecting a cautious view for the second half of the year. Average daily gross margin is expected to range between $13,200 and $13,400. Alaska and offshore combined EBITDA of $55 million to $60 million. For International Drilling, we expect average rig count of 96 to 98 rigs, with a December exit at or above 101 rigs. This growth includes commencements in Saudi with five in-kingdom new-builds during the year, and two suspended rigs returning to work in the first half of the year. In addition, we expect to redeploy two rigs in Argentina. Average daily gross margin is targeted at $18,500 or 5% up as we continue to deploy rigs at better pricing levels. I do want to note our full year guidance does not factor for any reactivation of our five available rigs in Venezuela. Nabors Drilling Solutions EBITDA is expected to grow by 6% to 7% normalized for Quail to reach $160 million to $170 million, largely led by strong growth in international markets. Finally, Rig Technologies EBITDA is expected to range between $22 million and $25 million. Now I will provide an update on our integration of Parker, which is progressing in line with our expectations. As previously discussed, following the sale of Quail, Nabors retained the remaining Parker operations. I am pleased to report that we achieved our 2025 EBITDA target for these businesses of approximately $55 million post acquisition and including synergies. During the fourth quarter, we realized synergies at an annualized run rate of $63 million. This is slightly above our already ambitious target of $60 million and demonstrates our agility and, lastly, our focus on execution. We remain on track to generate at least $70 million of EBITDA in 2026 from the retained Parker businesses, supported by the full run-rate impact of synergies and the continued robust performance of these operations. We are very pleased with the progress of the Parker integration and the pace of the synergy realization. The combined organization is well positioned to continue delivering both operational and financial benefits in the quarters ahead. Next, I will discuss our capital allocation, adjusted free cash flow, and liquidity. In the fourth quarter, total capital expenditures were $158 million, lower than the guidance provided on our prior earnings call. This amount includes $78 million related to the in-kingdom new-build program, also below our guidance. Total CapEx in the third quarter was $188 million. Capital expenditures in 2025 totaled $695 million, including $274 million for the SANAD new-builds. Looking ahead, we will maintain our disciplined approach to capital investments. For the first quarter, we anticipate capital expenditures between $170 million and $180 million, including approximately $85 million supporting the new-build rigs. For the full year 2026, we are targeting capital expenditures in the range of $737 million to $760 million, including $360 million to $380 million for SANAD new-builds. The increase of roughly $100 million in the in-kingdom new-build spend primarily reflects the number of construction milestones that shifted from 2025 into 2026. This increase should be partially offset by lower expected reactivation in our international operations as we completed several redeployments in 2025 in a number of markets and do not expect to repeat the same quantum of associated spending. We also expect to reduce capital spending in NDS following the sale of Quail. Supported by customer demand, we will continue to invest in key automation projects as well as selectively high-grading our rigs in the Lower 48. Turning to free cash flow. During the fourth quarter, we generated adjusted free cash flow of $132 million. This exceptional performance drove our full year adjusted free cash flow to approximately $117 million, significantly exceeding our revised post-Parker guidance of approximately $80 million. The outperformance in the quarter was driven by a combination of factors including stronger EBITDA, lower-than-expected capital expenditures, higher-than-anticipated collections in Mexico, helping drive a sequential working capital improvement of approximately $40 million. A sizable percentage of our 2024 Mexico receivables were settled by Pemex in the fourth quarter, in addition to timely payment of a meaningful portion of our 2025 services. A major step forward in Mexico. In addition, our quarter benefited from one-time claim settlements. For the full year 2025, SANAD consumed approximately $55 million in adjusted free cash flow. Excluding SANAD, the rest of our business units generated approximately $175 million, a remarkable delivery for the year. For the first quarter, we expect to consume $80 million to $90 million of consolidated adjusted free cash flow, with SANAD alone consuming approximately $50 million to $60 million. In addition, our first quarter is normally loaded with heavier cash interest payments, annual bonuses, and property taxes. For the full year 2026, we expect SANAD’s adjusted free cash flow to consume between $100 million to $120 million, with the rest of our businesses generating in the range of $80 million to $90 million. With these funds and some cash in hand, we plan to further reduce Nabors’ gross debt by at least $100 million during the year. Now I would like to make a few comments regarding our progress on our capital structure during the fourth quarter and our subsequent actions that reduce gross debt. I will also highlight the broader progress achieved over the course of the year. In early October, we received $250 million from Superior representing an early payment of the seller financing note completing the consideration for the sale of Quail. In early November, we issued $700 million of 7.58% senior priority guaranteed notes due November 2032. Proceeds from these issuances were used to retire the remaining $546 million of outstanding senior priority guaranteed notes maturing in May 2027. Subsequent to quarter end, we redeemed the remaining $379 million of senior guaranteed notes maturing in 2028, effectively extending our maturity runway to June 2029 with a very manageable $250 million maturity. As a result of these actions, two of the credit rating agencies upgraded ratings on elements of Nabors’ debt structure. Stepping back and looking at the year more broadly, we made substantial progress through several major transformational transactions, as previously mentioned by Tony, that meaningfully enhance our capital structure. As a result, we improved our credit ratings, extended our maturity profile into 2029, with a weighted average maturity increasing to 5.3 years from 3.7 years as of the third quarter, reduced net debt by more than $554 million, and improved our net leverage ratio to approximately 1.7 times, the lowest since 2008. These are significant accomplishments, and I want to thank everyone involved at Nabors for their efforts and execution. With that, I will turn the call back over to Tony. Anthony Petrello: Thank you, Miguel. I will finish this morning with a few points. First, the transformation of our capital structure shifts significant value to our equity investors, Miguel Rodriguez: We have also lowered our annual interest payments Anthony Petrello: This will boost our free cash flow. Second, in the Lower 48, our efforts to deploy industry-leading capabilities are paying off. Our highest spec rig solutions are gaining traction, demonstrated by the recent increase in our own rig count. Third, in our International Drilling business, we have seen a significant turn for the better in Mexico. Events in Venezuela could lead to increased oil activity there. Funding SANAD’s new-build program results in the consumption of cash at the JV until crossover. Notwithstanding the near-term free cash flow outlook, this investment opportunity remains one of the industry’s most attractive avenues for growth. Each annual tranche of new-builds at five per year should generate incremental annualized EBITDA of more than $60 million. At current valuations of drillers in the Middle East, that translates into more than $500 million of value creation each year. In short, our international franchise offers multiple growth prospects. We aim to capture our share of these in ways that generate significant value. Miguel Rodriguez: That concludes my remarks. Anthony Petrello: Thank you for your time this morning. We will now take your questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. First question today comes from Derek Podhaizer with Piper Sandler. Please go ahead. Derek Podhaizer: Hey. Good morning. Just wanted to start with your Lower 48 outlook. You have talked about the rig count increasing to that 64 to 65 range. That is from 60 just in the quarter. This bucks the trend a little bit from some of the other drillers that we have heard so over the last couple of weeks. Tony, like, in your opening comments, it is more public E&P driven. But maybe could you just expand on the 66 rigs. William Conroy: And looking at last quarter, the rig count was stable, but there was a lot of churn. You had basins going up and down. You had a mix between gas and oil. In the shifting. And that has resulted in Nabors shifts as well. So if you look at our right now, we are now 80% public and our gas rig count is 20%, which is up double from where we were before. The other thing that is interesting is looking at the type of drilling that is going on, which is the longer laterals. Derek Podhaizer: The trend is clearly William Conroy: in that direction. I will give you some statistics here. You look at West Texas, Keith Mackey: the change in West Texas of laterals of three or four mile laterals, they accounted for that bucket was 19% of our wells in 2025 versus 12% in 2024. The growth in laterals generally for us in terms of pushing more than three mile laterals was 25% in 2025. That is up from 15% to 16% in 2024. If you look at the number of four mile laterals, which is a really small tiny bit, that number actually quadrupled our percentage. Now why is that important? That is important because Nabors I think, has a fleet of PACE-X rigs that are well suited to drilling these kind of wells. And you saw from the Ultra, we have actually improved on our base case on that as well. So all that, I think, has positioned us really well in the market. And we remain pretty bullish on long-term picture for gas, and we think that oil has been played out as well. So that in summary and on top of that, obviously, we have basically just maintained discipline and tried to focus on performance day to day. And that accounts for some of the changes of some recent wins. But as you said from our outlook, we remain cautious about the market. And I am pleasantly surprised by the commodity price as I mentioned. We think though, we are in a great position right now going forward. Miguel Rodriguez: Got it. That is helpful. If I may add as well, if you look at the remainder of the year, we are looking at a H2 with a lot of caution given what is going on in the market. But, I mean, we are very confident about our customers and our team to keep the momentum. And as a reminder, the outlook that we have provided for the full year really translates in a number in a couple of rigs going up versus 2025. And the range that we provided is quite short relative to our peers, if you will. Right. Okay. Understood. Derek Podhaizer: That was helpful. I will turn it back, and I will jump back in line. Thank you. William Conroy: Thanks. Operator: The next question comes from Keith Mackey with RBC. Please go ahead. Keith Mackey: Hi. Good morning. Can you just comment, can you comment a little bit more on what you are seeing on the ground in Saudi Arabia? I know the SANAD new-build program looks like it is moving along quite well. But, certainly, in the Kingdom, there is going to be a number of rigs to be activated throughout the year. And Tony, as you mentioned, the labor market over there is fairly tight. So can you just comment on your confidence around timelines that both the reactivation rigs and the new-build rigs will essentially go to work on schedule? And how do you generally manage that, and what are you seeing on the ground in the industry? Keith Mackey: Sure. Well, let us put the whole thing in some context. Right now, the rig count in the Kingdom, I think land is about 168, offshore 60. I think there is about 35 LSTK rigs working, which about around 260 plus rigs in the Kingdom. At the market peak, 80 land rigs were idled. And 23 came into the market. So that is a net down of 57. And I think we have heard that there is 40 rigs out of 83 that were suspended that received notices to return to drilling. Two of the three are obviously SANAD, and we are highly confident those two rigs are going on the schedule I just outlined, which is the second and third quarter. There is no question about that. From our point of view. But for everybody else that leaves dozens of rigs that still have to go back to work, and I think the labor market is heating up over there. I think given our position in the Kingdom, our vertical integration, we have no problem with those rigs, and we have no problem with the five new-builds at all. So I think we are highly confident of our rig count going forward there. I think the large-scale resumption of Aramco putting back all these rigs to work, Miguel Rodriguez: which Keith Mackey: about nearly half, I think, they have got are in the process of going back. It is an incredibly positive signal to the market, I think, that is the macro thing I get out of this thing. It shows Aramco is usually ahead of the market in terms of where it sees things are going. And this, I think, means that in 2027, people are looking at 2027 being a good year. That and are able to try to position itself to do that. That is my own read on it. So I do not know if that is enough color for you. Just one comment, Keith. Miguel Rodriguez: On the suspended rigs, we are expecting them to come back one in March, and one in June. One in the latter part of Q1, and the second one in the latter part of Q2. Derek Podhaizer: Got it. That is very helpful. Thank you for the color. I will turn it back. William Conroy: Thanks. Derek Podhaizer: Next question comes from Scott Gruber with Citigroup. Operator: Please go ahead. Keith Mackey: Yes, good morning. I wanted to ask a question on Mexico. Good to hear that the platform rig will be going back to work, but we have seen some headlines suggesting a potential pretty healthy step up in upstream spending in Mexico this year. William Conroy: Are you having any negotiations, you know, to put additional rigs to work in Mexico beyond the fourth platform rig? Right now the fourth platform rig is there, and there has always been other discussions about supporting other rigs there. We actually have some other services that we are supporting other rigs, including Pemex’s own rigs there. In addition. Miguel Rodriguez: But Keith Mackey: I think right now, we are really focused on making these three really profitable, and the fourth one moving forward. But yes, I think the market is a little more positive. And, obviously, the payment mechanism turning around is a big deal. So that too. Got it. And then I think there was, you know, William Conroy: $50 million to $60 million of CapEx that may have slid Derek Podhaizer: from 2025 to 2026 within this in-kingdom new-build program. Is that William Conroy: for a five rig annual accurate? And how should we think about the kind of run rate Derek Podhaizer: program in terms of William Conroy: CapEx? Is that still about $300 million, is it a bit higher now? Miguel Rodriguez: Yeah. I mean, so, Scott, really, the plan for the year originally was to be around $360 million. We are at the $274 million mark in 2025, which means as you rightly mentioned, we are probably around the $85 million that is moving from one year to another from what was planned originally. I think that the right way to think about the upcoming years is probably 2026 around the $360 to $380 we guided. With 2027 going down from these levels because we will be catching up in 2026. Maybe 2027 around the $320 to $330 million. That is probably the right way to think about it, which, you know, factors correctly the five rigs built. Keith Mackey: Yeah. The only thing I would add, Scott, is I saw your write-up yesterday or last night, and I think when you analyze the situation, you cannot look at the consolidated free cash flow number. I think that is a misnomer. You have to look at the SANAD and its needs, and its needs are satisfied by SANAD. Nabors, away from SANAD, as Miguel referred to, will have $80 million to $90 million of free cash flow. That cash flow is available for net debt reduction. So this notion that there is a concern about ability to meet net debt reduction is not fully the whole picture. The other point I would make is if you look at our portfolio as a whole, I mean, if you look at International as a whole, when you count the Saudi rigs of five plus the two back to work to seven, and then there is another three rigs, the Mexico rig and two Argentina, that is 10 rigs. Okay? If you look at 2024, Nabors added nine net rigs. This year, we are hitting 10. There is nobody in the industry that has that kind of visibility. That and all those are locked in. And beyond that, there is these five rig programs additionally. And so when you look at the value of Nabors’ portfolio, I think your comments about valuation and how you look at it are just not really on point because no one has that kind of built-in growth and that kind of strong client base, our number one oil company partner in the world. The largest market in the world. And I do not think that analysis takes any of that into account. In the analysis of particularly of the free cash flow. So I just thought I would share that with you. William Conroy: No. I appreciate the comments. I just think from a high level, people have been waiting for that consolidated free cash inflection point, and it does seem to be approaching. I mean, Keith Mackey: I think, you know, with the momentum. To be honest, Miguel Rodriguez: we remain on pace with what we have been communicating when we expect SANAD to cross over. Keith Mackey: Yeah. And as you can see from Miguel Rodriguez: what we originally guided for 2025, was a consumption of $150 million. We ended the year because of the CapEx moving from one year to another at $55 million, but the guidance of 2026 in terms of cash flow consumption is much lower than what was guided for 2025, which tells you that the EBITDA progression and growth in SANAD continues to build. And then once you stabilize the CapEx milestones, as I mentioned for 2027, you will be very close to the turning point in terms of crossing over. Keith Mackey: Yeah. Yeah. The other thing is you look at what others have done in the Kingdom in terms of investing there, their EBITDA payout going into these deals has been around seven. And their free cash flow payouts are more closer to ten. Keith Mackey: Years. And so our investments are orders of magnitude better than any of those terms of any of those deals that have been made elsewhere in the Kingdom. For sure. So, again, I think that is why I strongly believe that the value that you need to put on this is much higher than what has been recognized so far. Appreciate it. We look forward to the inflection. Thanks, guys. Thank you. Yep. You too. Operator: The next question comes from John Daniel with Daniel Energy Partners. Please go ahead. John Daniel: Hopefully, you can hear me okay. Guys, thanks for including me. Hey. First one. The second half caution, which is probably prudent, is that based off of known rig releases? Or just an expectation of stuff that might come from E&P M&A, etcetera? And efficiencies. Keith Mackey: It is more you just cut the constant, all the external noise, the EIA, even as of last week, you are talking about oversupply. And the market's reaction. Even though I do not think the market is logical. When we think Iran's going to have a blow up or Ukraine gets resolved, then all of a sudden, the whole market goes the other way. I do not think that is so founded because I think the oil markets on the physical side turning is more like turning a derrick barge than it is a speedboat. But the reactions are that way, and obviously, those kind of swings we are still subject to. So it is really that than, yeah, anything really cracking here. As I said, we have been pleasantly surprised, and you can see from our progress so far, we are doing pretty well. But, you know, we are cautious, and we have everybody really focused on the cost structure here. To plan for if the downside does occur. That is the way we are thinking about it. Miguel Rodriguez: Our team, John, is very strongly positioned to keep the momentum, and we are very confident about the team in the Lower 48 and our customers. But, you know, we will be very happy to provide a subsequent update if we see really the market changing from our conservative guidance for the second half. Right? Fair enough. My second question and final one is William Conroy: can you guys elaborate a little bit on the new CAN rig wrenches and what that could mean for Nabors and just a little bit more color on the cycle time improvement? Keith Mackey: Sure. So basically, what this wrench is, it is a three-bite wrench as opposed to the standard two-bite wrench. And it is loaded with feedback and automation. So as you know, we have our RZR rig out there, and this will be another component in that where eventually, we are going to be capable of being fully autonomous mode. It, in its initial dressing on the first couple wells the past month or so, has a stellar record of one-bite grabs because of all this automation and sensors. So and for the larger pipe that people are using, the more complicated wells, this wrench is well suited to that as well. So we are highly, highly positive about it. We have actually had drilling contractors come and look at the wrench. The initial reaction is really high. Our first priority is get some of these out on Nabors rigs, and then we are hoping that at CANrig, we will actually have a lot of third-party demand for this wrench as well. So we are really happy with Derek Podhaizer: it. Yep. Operator: Okay. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Conroy for any closing remarks. William Conroy: Thanks very much, everyone, for participating. If you have any questions, please do not hesitate to follow up with the IR team. With that, Chloe, we will wrap up here. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Gates Industrial Corporation plc Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. I would now like to turn the conference over to Richard Kwas, VP of Investor Relations and Strategy. Richard, please go ahead. Richard Kwas: Greetings, and thank you for joining us on our fourth quarter and full year 2025 earnings call. I will briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by L. Brooks Mallard, our CFO. Before the market opened today, we published our fourth quarter and full year 2025 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our Q3 quarterly report on Form 10-Q that was filed in October 2025. We disclaim any obligation to update these forward-looking statements. We will be attending several conferences over the coming weeks and look forward to meeting with many of you. Before we start, please note that all comparisons are against the prior year period unless stated otherwise. Also, moving forward, please note we will be making changes to our geographic disclosures in our future presentations. We will consolidate China and East Asia, and India into an Asia Pacific disclosure, and we will consolidate North America and South America into an Americas disclosure. This approach aligns with how we manage our in-region-for-region strategy. I will now turn the call over to Ivo. Thank you. Ivo Jurek: Thank you, Rich. Good morning, everyone, and thank you for joining us. Let us begin on Slide 3 of the presentation. Let me begin with a brief recap of the year. Gates delivered solid results in 2025. We posted nearly 1% core growth and outperformed our end markets, many of which remain in contraction. Our secular growth drivers are accelerating with personal mobility business exceeding 25% core growth in 2025, and our data center business growing 4x compared to 2024. In addition, the Gates team delivered record adjusted earnings metrics in 2025 during an uneven macro environment, producing both record adjusted EBITDA dollars and record adjusted EPS. Furthermore, we have made incremental improvements to our balance sheet, bringing our net leverage ratio down to 1.85x at year-end 2025. We returned capital to shareholders via share repurchases and were aggressive during the fourth quarter, repurchasing over $100 million of our shares at an attractive valuation. We believe our business is well positioned to accelerate core growth with our various strategic top-line initiatives as well as to expand margins. In essence, we are exiting the down cycle with a structurally improved business while delivering near-record adjusted EBITDA margin performance. We entered 2026 with cautious optimism about an industrial demand recovery. Book-to-bill exiting 2025 was nicely above 1x, and order trends in January sustained a positive threshold. We are seeing improving industrial OEM demand activity and are positioned to support an uptick in demand. Enterprise resource planning system transition has kicked off successfully, and we are operating our business in Europe a bit ahead of our expectations. Other footprint optimization initiatives are also on track. Brooks will provide more color on these items and our 2026 guidance later in the presentation. On Slide 4, we show our record performance against key financial metrics for 2025. Adjusted EBITDA dollars grew to an all-time record, and we generated near-record adjusted EBITDA margins. Our adjusted EPS grew 9% to a record $1.52, which was the top end of our guidance. It was, we believe, a troughing demand landscape accompanied by uncertain trade policy. Our net leverage ratio decreased by almost 0.4 turns, and we finished below 2x net leverage for the first time. We are proud of these accomplishments and believe the company is well positioned moving forward to capitalize on a potential industrial recovery. Please turn to Slide 5 to review our full year EPS performance. Our adjusted EPS grew $0.13, or 9% year over year, to $1.52. The bulk of the year-over-year growth in adjusted EPS came from operating performance, which contributed $0.10 year over year. We were pleased with the operating performance contribution, particularly considering the relatively soft demand backdrop in several of our end markets. On Slide 6, I will review our fourth quarter results. Sales were $856 million, which represented core growth of nearly 1%. Total revenues grew slightly above 3% and benefited from favorable foreign currency translation. At the end market level, while mixed, we realized growth in our industrial markets led by the off-highway markets and personal mobility. A decrease in automotive OEM was a partial offset. At the channel level, OEM sales expanded approximately 4% while aftermarket sales declined about 1%. Aftermarket did not increase as much as expected as many of our distributors carefully managed their inventory into calendar year-end. In addition, we faced a difficult comparison from the prior year period. We were pleased with the growth in OEM sales which represented a nice step up from third quarter levels. Our adjusted EBITDA approximated $188 million in the fourth quarter and our adjusted EBITDA margin measured 21.9%, up approximately 10 basis points compared to the prior year period. We managed SG&A spending well, which offset unfavorable mix and lower production output. Our adjusted earnings per share was $0.38, an increase of approximately 7% year over year. Higher operating income contributed to the year-over-year growth partially offset by other items. On Slide 7, we will cover our segment highlights. In Power Transmission segment, we generated revenues of $537 million in the quarter and flat core growth versus prior year period. Our personal mobility business grew 28% year over year, and our off-highway business expanded low single digits. At the channel level, our automotive OEM business decreased, but our industrial OEM sales grew solid double digits year over year. In the Fluid Power segment, our sales were $320 million and approximated 1% core growth. Our off-highway markets grew low double digits, partially offset by declines in on-highway, diversified industrial, and energy. At the channel level, industrial aftermarket sales declined mid-single digits, partially offset by a mid-single digits increase in industrial OEM sales. Our automotive aftermarket increased high single digits compared to the prior year period. I will now pass the call over to Brooks for further comments on our results. Thank you, Ivo. L. Brooks Mallard: I will begin on Slide 8 and discuss our core sales performance by region. In North America, core sales decreased about 2.5% in Q4 compared to the prior year period. At the channel level, aftermarket sales decreased low single digits and OEM sales were about flat. The aftermarket decrease was influenced by distributor inventory management that Ivo referenced earlier in his remarks, as well as a tough automotive aftermarket comparison as we started loading new product for the North American distribution partner we secured in 2024 during the fourth quarter of last year. We saw a nice increase in OEM industrial sales which were up approximately 4% offset by lower automotive OEM sales. At the end market level, core sales in diversified industrial, commercial on-highway, and automotive fell versus the year-ago period, while off-highway and personal mobility increased. In EMEA, core sales grew 5.8% in Q4 compared to the prior year period. Industrial markets are beginning to recover with construction, agriculture, and personal mobility all producing double-digit growth. Commercial on-highway and diversified industrial also posted solid growth while automotive OEM was a headwind. At the channel level, OEM sales increased double digits while aftermarket sales expanded low single digits. China core sales grew about 3.5% year over year. Industrial markets were mixed, but we experienced strong growth in commercial on-highway, personal mobility, and construction. Automotive OEM declined. East Asia and India realized a slight decrease in core sales versus last year. Declines in diversified industrial and automotive more than offset growth in agriculture and commercial on-highway. In South America, our core sales in Q4 grew slightly compared to the prior year period, fueled by commercial on-highway and agriculture partially offset by automotive OEM, energy, and construction. Slide 9 shows the components of our year-over-year improvement in adjusted earnings per share. Operating performance contributed $0.03 of benefit and foreign exchange related to favorable currency translation represented $0.01 of improvement. Other items combined to be approximately a $0.02 offset. Slide 10 provides an overview of our free cash flow and balance sheet position. Our free cash flow conversion was 238% of adjusted net income for the fourth quarter, which brought our full year 2025 free cash flow conversion to 92%. Of note, our 2025 free cash flow conversion included over $30 million of cash restructuring related to footprint optimization initiatives and other restructuring, which is above average spending for our business. Our net leverage ratio declined to 1.85x at the end of the year, which was over a 0.3 turns improvement relative to year-end 2024. We finished 2025 with a record low net leverage ratio and over $800 million cash on the balance sheet. In December, S&P upgraded our credit rating to BB from BB- with a stable outlook. Further, we believe the strength of our business is return on invested capital, which ended the year at 23.4%. We continue to make investments in capital projects and enterprise initiatives that we believe will deliver enhanced efficiencies and improve profitability over the medium to long term. Turning to Slide 11, we outline our initial 2026 guidance. We believe the majority of our end markets should grow in 2026, and Ivo will address this in more detail in a few minutes. As such, we estimate our core sales to grow in a range of 1% to 4% versus the prior year period. We forecast our adjusted EBITDA to be in the range of $775 million to $835 million. At the midpoint, we estimate our adjusted EBITDA margin rate to be up slightly year over year. Please recall, we are incurring costs related to our ERP transition in Europe as well as our footprint optimization initiatives that we anticipate will dampen our adjusted EBITDA margin performance during the first half of the year. Collectively, we estimate the cost will represent about a 100 basis points drag year over year on our adjusted EBITDA margin during 2026, all else equal. We anticipate these costs to run off by the middle of the year and expect benefits from our footprint optimization initiatives to contribute approximately $10 million of adjusted EBITDA in the second half of the year. We have initiated an adjusted earnings per share range of $1.52 per share to $1.68 per share, which represents 5% growth at the midpoint. Our adjusted earnings per share guidance assumes no incremental share repurchases. At the end of the year, we had approximately $194 million outstanding under our current share repurchase authorization. We have budgeted $120 million of capital expenditures for 2026. We project 90% plus free cash flow conversion assuming above average spending on CapEx and cash restructuring. For the first quarter, we are guiding to a range of $845 million to $875 million in revenue, which factors a core sales decline of 2% to 2.5% year over year at the midpoint. Our core sales guidance incorporates a 500 basis points core growth headwind related to this quarter having two fewer business days relative to the prior year period as well as estimated inefficiencies related to our ERP transition. We anticipate recovery of most of the sales impacted during the balance of the year. For the first quarter, we estimate an adjusted EBITDA margin decrease of 140 basis points at the midpoint, again negatively impacted by the aforementioned headwinds of working days and the ERP transition. On Slide 12, we outline the key drivers of our anticipated year-over-year adjusted earnings per share growth for 2026. Moving from left to right, we estimate contribution from operating performance will contribute about $0.03 per share. Importantly, this estimate is net of anticipated costs associated with our ERP implementation in Europe and footprint optimization activities. The weaker US dollar is anticipated to yield favorable translation benefit of approximately $0.04 per share. Tax, interest, share count, and other items net to $0.01 of adjusted earnings per share contribution. I will now turn the call back to Ivo. Richard Kwas: Thank you, Brooks. Ivo Jurek: On Slide 13, we show our assumptions for end markets for 2026. Relative to 2025, we believe most of our end markets will be flat to up in 2026. Specifically, we estimate end markets that represent almost 80% of our sales should grow this year, including improved demand dynamics for our industrial off-highway and diversified industrial end markets. We believe these end markets have troughed and anticipate some recovery in 2026. Furthermore, we expect stable demand for automotive OEM and industrial on-highway in 2026. We continue to expect auto aftermarket and personal mobility market demand to remain constructive in 2026. In general, we believe our business will have some market tailwinds this year. As a reminder, this would be the first time in about three years that our business would be experiencing end market support. With that, let me provide some closing thoughts on Slide 14. First, 2025 was a record year for our company. We generated record annual adjusted EBITDA dollars and adjusted earnings per share and reduced our net leverage ratio to under 2x. We delivered these results in what we believe was a troughing demand environment to some of our key end markets. Second, with more demand stability, we are optimistic about 2026 top-line potential. While our book-to-bill was solidly above 1x exiting 2025 and we are realizing improved order rates to start the year, we remain pragmatic this early in the year. That said, while we are incrementally optimistic about our near-term growth prospects, we do not anticipate a short recovery in 2026. Third, we are highly focused on our key strategic revenue initiatives to generate market outgrowth. We continue to invest resources in personal mobility and data center, markets in which we expect to increase our market share through the end of the decade. We anticipate both verticals to grow at significantly higher rates than our fleet average. While we are intent on driving attractive core growth, our balance sheet is well positioned to support potential inorganic growth opportunities that may become available. Before taking your questions, I want to thank all of our global Gates associates for their effort and commitment supporting our customers’ needs and helping make 2025 a successful year for Gates. With that, I will now turn the call back over to the operator for Q&A. Thank you. Operator: We will now open for questions. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Good morning, everyone. Good morning, Ivo. Can we delve into your commentary a little more regarding that book-to-bill over one in Q4, and January orders confirming that trend? As you know, we have kind of seen green shoots before, and they have not fully developed. So maybe you can give us a little more color on what is driving your order acceleration. Would you call it more broad-based? And have you seen your aftermarket distributors stop destocking, which you said was happening in Q4, yet? Ivo Jurek: Yes. Andy, thank you. Look, we have actually seen probably the most positive order trend exiting 2025 in maybe two or three years. And in general, when I look, I have a reasonably good tenure here. As I look through my past two cycles, I think that we have seen here, you have to see recovery in industrial OE segment that in general leads the other end markets or the other applications where we participate. And so this was the first time that we have seen in a while that we have seen a reasonably nice recovery, or very strong recovery, in order trends in the industrial OE. So that was a very positive sign for us. I would say that both the end markets in the off-highway are stabilizing and we are clearly seeing a nice outperformance over those markets. In Q4, we did see kind of a choppiness, particularly in the industrial distribution. I think that folks were exiting the year trying to manage their inventories. Nothing that I would say was disconcerting to me, but I would anticipate a little better recovery as we progress through Q1 to Q2 in the industrial aftermarkets in particular. In January, we have seen continuation of that trend of what we have seen exiting 2025. So as I said in the prepared remarks, we are cautiously optimistic. To your point, Andy, I would like to see PMI a few months north of 50. As you said, we have seen that head fake both years in 2024 and in 2025. So, hopefully, we will be seeing that validation of that PMI activity and we can confirm ultimately over the next couple of months that that is occurring. And I think that would bode really well, particularly for the latter parts of the year as we progress through the year. So cautiously optimistic, would say that based on what we have seen so far, it should indicate, should bode well, for 2026. Andy Kaplowitz: Ivo, that is helpful. And I just want to go back to Q4 for a minute. Your adjusted EBITDA margin was down a little bit sequentially on flattish sales. I know you mentioned mix, maybe with this aftermarket destock. Was there anything else that sort of hit you there? Difficult price/cost, any sort of dynamics there? Because I think you mentioned mix too for Q4. L. Brooks Mallard: Yes. I would say the other thing is we managed our output as we exited the year. We were really focused on making sure that we had our working capital positions in a good position as we exited the year. So we trimmed our production output. That resulted in better than forecasted cash flow as we ended up over 90%, at least a little bit over 92%, and our best leverage metrics ever. And also, we bought back $105 million worth of stock in Q4. So it was really around managing our internal output and setting ourselves up to make sure that we had a good strong start to 2026. Andy Kaplowitz: Yes, Brooks. That is what I thought. Thank you. L. Brooks Mallard: Yes. Richard Kwas: Thanks, Andy. Operator: Your next question comes from the line of Julian C.H. Mitchell with Barclays. Please go ahead. Julian C.H. Mitchell: Hi. Good morning. Maybe just wanted to try and understand the phasing of the year a little bit more clearly. So first quarter, I think, is something like 20% of the EBITDA for the year, and you have obviously got a lot of the ERP and footprint headwinds loaded into that. Trying to understand how you are thinking about the second quarter. Could we expect organic growth in that quarter? Is that what is embedded? And maybe I missed it, but any sense of the first half of the year, how much of EBITDA that should be? I think often, it is about 50%, but realize this year has some first half dynamics going on. L. Brooks Mallard: Yes, Julian. So if you think about it in halves, we have about a 100 bps net headwind in the first half of the year relative to the ERP implementation and the footprint optimization. So you kind of think about it in pieces. We kind of have the 150 bps midpoint in Q1. So that would lead you to believe, kind of 50 bps midpoint in Q2. I would say that once we get through Q1, given that our midpoint is 250 bps of core growth, you should expect organic core growth each quarter as we move through the year. And as we looked at our seasonalization, it is pretty balanced. It is pretty balanced for the year. So I would expect we are going to be less. I mean, if you take that 100 bps and apply it, absent that, you are going to have two less shipping days in the first half versus the second half. And so that is going to affect it a little bit. But after the 100 bps of headwind, pretty normalized split between the front and the back. Julian C.H. Mitchell: Got it. So the first half is maybe like a high-40s share of the year's EBITDA or something. L. Brooks Mallard: Yes. Julian C.H. Mitchell: And then just a follow-up, Ivo, you mentioned data center exposure a couple of times. Understandably, I think sales you said were up 4x last year. So maybe just flesh out what is the dollar revenue base in your data center exposure, what are the products you are doing the best in, and do you have any sense of backlog there or growth expectations in revenue for the year ahead in data center, please? Ivo Jurek: Yes. Look, we anticipate that the business in 2026, again, is going to grow multiples of 2025. That being said, we see obviously a very nice adoption of the liquid cooling, and we anticipate that that is going to be there for an extended period of time. Our products, again to remind everybody, are hoses, couplings, fittings, and water pumps. I think that we see a nice penetration across all three of these product lines that we offer. And we have kind of flushed that $100 to $200 million target there for 2028. And I think that as I have indicated last year, we should see nice progression through 2026 into 2027 to ultimately reach that target by 2028. So everything that I see today, Julian, gives me reasonably good level of confidence that we are getting fair share. I think that I have indicated that if I just think about orders as an example in Q4, sequentially, orders grew 350%. And year on year, our orders grew nearly 700%. So we are seeing the pipeline being built up nicely. We are seeing good conversion. And yes, it was from a reasonably small base last year, or the year prior to that as well, but that is ramping up nicely. And it is not going to be two or three points of revenue as a percent of our total revenue pie. That is going to take a couple of more years, maybe into 2028. But we feel pretty good about where we sit and we see a nice ramp up. But look, we also have a very terrific presence in all of our businesses. And so I think that that is just going to be a nice contribution to above-market growth rate. Richard Kwas: Great. Thank you. Operator: Your next question comes from the line of Tomohiko Sano with JPMorgan Chase. Please go ahead. Tomohiko Sano: Good morning, everyone. Thank you for taking my questions. I would like to ask about personal mobility. It was up 28% in Q4, and how sustainable is this into 2026? And could you give us more color of key demand, product, and supply drivers as well as the cost of parties from the customer perspective? Thank you. Ivo Jurek: Yes. Thank you for your question, Tomo. That business has been performing in an outstanding fashion for us in 2025. What we have indicated is that we anticipate that that business is going to continue to grow high twenties, kind of a 30% compound annually through 2028. And we certainly have an incredibly high degree of confidence that we will continue to do that. We see a continuation of very strong trends. Our pipeline has been very robust, and we have been converting that pipeline as we demonstrate through our invoiced revenue and now it is becoming a meaningful part of our revenue contribution. So we have a high degree of confidence that that business will continue to grow. And as you are driving adoption of electrified mobility, two-wheel mobility, that is extremely well suited for changing that technology from chain to belt. So we feel that that is a great business for a very, very long time, a very long horizon of future visibility. Tomohiko Sano: Thank you. And follow-up on net leverage and pipeline and strategies, please. So if you could talk about the net leverage perspective in 2026 and any opportunities for inorganic growth, which is a mandate for being in the piece, sort of bolt-on acquisitions, or are you thinking about more platform types of acquisitions, please? Ivo Jurek: Yes. Look, I would remind everybody that on this metric, we are quite nicely ahead of what we have committed to shareholders in terms of deleveraging. I also say that the business, the cash generation profile and the profitability of this business is so terrific that we, in a natural way, delever about half a turn a year. So that can give you some perspective of what the range of leverage could be as we exit 2026. That being said, coming back to M&A, look, we do not anticipate that we would be doing any type of transformational M&A. We do have a significantly increased appetite to execute logical and non-transformational M&A. That may be businesses that could be nice bolt-ons, and there are things out there that we are looking at today, and it could be businesses that could be of more scale. While non-transformational, they could be nicely additive to our portfolio. So we are looking at full spectrum. We will be very pragmatic. We also believe that our stock is quite inexpensive. So we will be very carefully measuring the returns where we can generate the best value creation for our shareholders. And we will be very committed to deploy our capital in a way that rewards our shareholders. Andy Kaplowitz: Thank you, Ivo. Operator: Your next question comes from the line of Deane Michael Dray with RBC Capital Markets. Please go ahead. Deane Michael Dray: Thank you. Good morning, everyone. Can we just circle back on the footprint optimization? I know you have given us your assumptions, but could you remind us on either the number of facilities or what percent of your manufacturing square footage these actions represent. L. Brooks Mallard: Yes. Well, from facilities perspective, including manufacturing and distribution, it is kind of in the single-digits number. I mean, we are still working through that. And from a manufacturing footprint perspective, I do not have that right in front of me, so I have to go back and check on that. I will tell you, we feel better as we look at the different cost actions we are taking relative to the footprint optimization and the restructuring and getting our cost aligned. We feel better about where we are in terms of the cost out. And if anything, remember we said we were going to have $10 million year-over-year savings in the back half of 2026 and then another $10 million in 2027. Probably feel better about the upside related to that as we look at the cost actions we are taking and how things are unfolding. So I would say when you look at our target, probably upside and sooner rather than later in terms of achieving that target. And we will be in a better position kind of midway through 2026, I think, to talk about that in more detail in terms of where we are and what we are doing as opposed to where we are right now, because there is still a lot of things that we have to announce and things we have to talk to different people about. But net-net, we feel good about where we are right now in terms of the whole savings that we communicated to you all. Deane Michael Dray: Alright. That is helpful. I appreciate that. And then as a follow-up, Brooks, can you talk about what the upgraded S&P does for you? Is there an interest save that we might see? And then related to it, just a really good quarter on free cash flow conversion. But this is seasonally your strongest free cash flow quarter. Is there any opportunity to level out the free cash flow? I know the seasonal aspects, but can you just remind us because, you know, instead of having the hockey stick in 4Q. L. Brooks Mallard: Yes. So on the S&P, look, I think on the one hand, you always hope that there is some upside when you get upgraded. On the other hand, when you look at the way our debt trades and you look at how people pile into our debt when we either issue new term loans or we reprice or anything like that, I wonder if we do not trade through a lot of that, and we end up getting really good interest rates and really good participation. So I do not know that we would get, I do not know what the actual impact of that would be, but we would expect, if anything, there would be some upside to what was already really good trading in terms of our debt. On the second part of your question, part of the issue is because we are seasonal in terms of usually our sales in the first half. A lot of the working capital comes through in the second half. And that is why you see that hockey stick on the working capital. We get more sales in the first half and more collections and things like that in the second half. We are always trying to get more normalized in terms of our working capital, but I am not sure how much upside there is to that, to be honest with you. Ivo Jurek: Deane, let me maybe check a couple of more points in here. Right? So vis-à-vis SAP implementation, you know, SLP. Yes. In terms of rating. Never mind. Thank you. Richard Kwas: Thanks, Deane. Operator: Your next question comes from the line of Jeffrey David Hammond with KeyBanc. Please go ahead. Jeffrey David Hammond: Hey, good morning, guys. Just on this ERP noise, I think third quarter you said $30 to $35 million. One, is that unchanged? And then is that inclusive of the revenue disruption, or is that additive? And how much revenue disruption do you think you have in the first half all in? L. Brooks Mallard: Yes. Well, I think most of the revenue disruption is going to be in Q1, and then we kind of get it back as we go through the balance of the year. The $30 to $35 million is really kind of the all-in cost net of, without the revenue in there. Right? That is just a cost headwind. And that is like the 100 bps of that that is flowing through adjusted EBITDA. And so then if you think of 100 bps in the first half, that also includes footprint optimization. So it is not all ERP. In the first half, that would be kind of approximately $20 million. And then there is about $10 or $15 million that is restructuring and add-back that is in the first half as well. So that is where that $30 to $35 million number comes back. About $20 million of it flowing through the adjusted EBITDA number in terms of higher SG&A inefficiencies, stuff that you cannot necessarily add back, and then the $10 to $15 million that you could add back. I would say also, since we are talking about that, our launch has gone better than planned, I would say. We are pretty conservative and pragmatic in terms of how we look at things, but our plants are making what they need to make. We are working out the parameters in terms of the front to back, and we are getting the right signals sent to the plants to produce stuff for the distribution centers. I would say right now, what we are really working on is tweaking some of the external stuff when you think about advanced shipping notices to customers and different things like that. We are just tweaking that a little bit to get them aligned with the standard SAP functionality. And so we are really pleased with the launch. Started up. We are making stuff. We are shipping stuff. And we feel really good about where we are with the SAP implementation right now. Jeffrey David Hammond: Okay. Great. I think auto aftermarket has been a pretty good trend for you guys. Just what are you seeing underlying there? Where do channel inventories stand? And then when do you expect that we lap this kind of new customer comp dynamic? Thanks. Ivo Jurek: Yes. So the markets are quite stable. We have seen reasonably good about that. The cars are getting older. People are driving. The underlying economy is reasonably okay. So we feel very constructive about that market being what it traditionally is outside of us acquiring large customer like we did last year. So I think more green shoots than not. In terms of lapping, we should be through that tough comp by Q1. Basically, from Q2 onwards, it should be more normalized. But let me remind you, we did see growth in aftermarket in Q4, as well. Despite the fact that we had a reasonably tough comp. Okay. Thank you. Richard Kwas: Thanks, Jeff. Operator: Your next question comes from the line of Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Great. Good morning, guys. Thanks for taking the question. Just a couple of quick follow-ups on short term and longer term. Any words of wisdom as we think about segment margins, both as we go through the transformation and the ERP? And then beyond that, is there any we should think about first quarter and full year from the segment perspective? L. Brooks Mallard: Yes. I do not know that, I mean, some of the footprint optimization stuff is a little bit more weighted toward Fluid Power. I would say some of the cost alignment stuff with some of the other restructuring we are doing, maybe a little bit more PT. So I do not know that there is a material difference in terms of how the margins are going to shake out. I would say it is going to be pretty broad-based. And ERP is a little bit more PT. And so there will probably be a little bit more headwind on PT in the first half, and then it will come back in the second half. In terms of how the ERP project will play out, maybe a little bit more of the headwinds on PT, but then it will equal out the second half. Stephen Volkmann: Okay. Great. And then maybe longer term, you guys have been on a successful long-term journey here in order to get margins where you want them. It feels like we are almost to the finish line, and maybe second half of 2026 is the finish line. I do not know. Correct me if you think I am wrong, but I guess I am curious what is next after that. Do you become more acquisitive? Do you focus more on growth? Is it kind of a compounder story from there? How do you vision the company once you get where you want to be on margin? Ivo Jurek: Yes. Thank you for the question. It is very fair. Look, let me start with the journey a little bit. If I look back and let us just presume that we have troughed and we are exiting the down cycle here. I certainly believe that that is the case. Again, I am not going to forecast when it is going to completely rebound, but let us just presume that we have troughed and we exited the down cycle. We are exiting the down cycle with over 300 basis points of improved profitability versus the prior down cycle. So we have materially improved the quality of the company. We also believe that we have projects in play that will give us an ability to continue to drive profitability to the midterm target, and frankly, when I look at what we have been able to achieve in a very negative end market backdrop, we are nicely ahead of what we have committed to the shareholders despite the fact that the end markets have been very negative for the last three years. So that gives me high degree of confidence that we have a nice way to go beyond what we have committed in terms of profitability with the improvements that we continue to do structurally to this business. Now put it aside, we have nicely improved our balance sheet. We are generating a ton of free cash flow. That gives us a ton of optionality. I think that when you listen to some of the things that Brooks said about how well we have executed on the ERP implementation, I think that when we have a decent plan in place, we execute well. And we manage to execute well despite many different impediments that are unplanned that we have to absorb. So I think that we now have an optionality to go in and start adding nice pieces to our portfolio that we have within Gates and track synergies with potential M&A transactions that would give us the opportunity to get to our company fleet averages. So in a nutshell, Steve, I think that it is a little bit all of the above. I think that we can continue to drive profitability forward. On a structural basis, I believe that the incremental capacity that our balance sheet offers us now, and we were very patient to get to this point in time, gives us the opportunity to add different assets and improve those assets and start compounding earnings on a forward-going basis. Great. I appreciate it. Stephen Volkmann: Thanks, Steve. Operator: Your next question comes from the line of Michael Patrick Halloran with Baird. Please go ahead. Michael Patrick Halloran: Hey. Good morning, everyone. I just a quick follow-up to the first half of that last question there. So how do you think about what your incremental margins look like once you get through the ERP consolidation and you hit a more normal run rate for growth. L. Brooks Mallard: Well, I am struggling to figure out what normal is. After we get to the ERP implementation, we ought to be, as we are working through the footprint optimization and restructuring stuff, at an enhanced level of drop-through, 45% plus over about a twelve-month period. Okay? Now through the cycle, what we have said is we think that the drop-through should be more like 35%. And the reason being is you are definitely going to mix toward more OEM-type business through the cycle as you go to the upside, or as you go to the core growth increase. And that is why it is a little bit less than you might otherwise think. You might think more like 40. But you are definitely going to mix to the OEM side, which is going to be a little bit lower from a gross margin perspective. It has some better cash flow characteristics, but from a margin perspective, that is where it probably is. And then as you move through the cycle, that can flex a little bit up and down. But I would say 2026 through 2027, you are going to be 45% plus. And then after that, more normalized basis, 35% on the low end, maybe moving up to 40% depending on what the mix is. That is great. Super helpful. And then just a question on how you are thinking about the year here. If you adjust for the first quarter, the 500 basis points between those two items, are you assuming relatively normal seasonality if you adjust for those factors? And it does not sound like you are embedding some sort of improvement of scale in the revenue build to the year. So maybe just talk about what those assumptions look like. Ivo Jurek: Yes. That is the right way to think about it. You know, Mike, we have quantified the headwinds associated with fewer shipping days in Q1 and some of the efficiency losses due to the ERP implementation. Again, we feel better about the ERP implementation, but you still need to improve efficiency and get everybody comfortable operating in the new structure. Once that normalizes from Q3 through Q4, it is more normalized. You will gain back one calendar day in Q4 versus the loss of two days in Q1. So more or less normal calendar. L. Brooks Mallard: Great. Appreciate it. Thank you. Michael Patrick Halloran: Thanks, Mike. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Jerry, I want to ask, just given the demand environment, if we do see sales move towards above the high end of your guided range, would you counsel us to think about operating leverage in that scenario? L. Brooks Mallard: I think that Ivo and I just highlighted that, Jerry, about 45% plus incremental leverage in the back half on the incremental revenue. And that is really the footprint optimization and restructuring flowing through, on top of the 35% normal leverage. But if we were to see things move more towards the high end, it is going to be very OEM-based. It is going to be a pickup in the industrial OEM side of things where you start to see those things start to rebound. And like I said, a little bit lower margin profile there, but still pretty nice. Jerry Revich: Got it. That is constructive. And then in terms of where lead times stand today, you mentioned the year-over-year orders. How far out are we at a lead time standpoint? How does that compare versus other periods of time where demand was equally tight? Can you just give us a perspective? And can you just talk about for the industrial replacement side, feels like we are seeing a really strong desire to restock across end markets there. Is that part of the driver of the order acceleration that you stepped through? Any additional color there would be helpful. Ivo Jurek: Yes. Look, I think that I have indicated that the significant inversion in order uptake that we have seen was predominantly on the OE side, presently on the industrial OE side. We are seeing that our lead times are still normal. We have not seen any creep up at this point in time. We are obviously in a very good position vis-à-vis our capacity. We have been improving the business over the last three years, spending capital to ensure that we can capitalize on the up cycle when it comes. I would say that we need to see the industrial distributors want to restock. I would also say that in general they are quite late to the party. And my anticipation would be we should start seeing that more maybe in Q2 of this year, if history serves as a guide. So we are well positioned. Again, we have trimmed our working capital exiting Q4. We have positioned ourselves for a maximum benefit as the recovery takes hold. Yes. Thank you. Michael Patrick Halloran: Thanks, Jerry. Operator: Your next question comes from the line of Nigel Edward Coe with Wolfe Research. Please go ahead. Nigel Edward Coe: Thanks. Good morning, guys. We have got a lot of ground here. So here you go. Yes. So just maybe piggybacking off that previous question. You have laid out your end market assumptions, Ivo. And I am just wondering, when we look at the industrial off-highway, on-highway, are you seeing any difference between OE and aftermarket in your plan? Ivo Jurek: So right now, we are seeing a nice inversion in the OE side. Again, I would anticipate, Nigel, that we will start seeing improvements in the industrial aftermarket into second quarter of this year. But it gives me a great deal of confidence, I would say, that when you see that inversion, that is a very good sign. When you combine that with at least the very early indications on the PMI, while not certainly ready to call it yet because we did have a couple of head fakes the last couple of years, this feels better than in 2024 and 2025. And so we start getting a couple more data points on the PMIs, and I am saying things should work up pretty nicely for everybody in the industrial complex, Gates included. Yes. Nigel Edward Coe: So I am just curious if you are baking in any sort of mix headwinds for the year. It does not sound like it is, but that would be helpful. And then on the pricing, I am sorry if I missed this in your prepared remarks, but what are you baking in for price contribution for the year? And then expanding out to the raw material basket. Unlike a lot of the companies we cover, you are not facing a whole lot of steel and base metal inflation. In fact, some of your raw materials should be a little bit deflationary or flat. So I am just curious how you view the price/cost equation for the year? L. Brooks Mallard: Yes. So we have got some carryover tariff pricing that is still in. The pricing is going to be relatively low, kind of 100 to 150 bps for the year. One thing that we look at, you look at tariffs, you look at utilities, you look at material, but also you have heard me talk about labor inflation as well. And especially around the world where you see kind of outsized labor inflation. So we take all those into account. But right now, things are fairly stable. And so we feel like we have got things covered from a pricing perspective. But it is a relatively normalized, maybe a little bit less than normal, given the state of things right now. Ivo Jurek: Nigel, maybe I will just pin something in here too. We have done quite a bit of work on raw material improvements over the last couple of years that has nicely supported our structural improvement in the business. That is not going to stop. So we are going to continue to drive that and continue to position ourselves into a position of strength and better profitability as we move into 2026 and 2027. Operator: Your next question comes from the line of David Michael Raso with ISI. Please go ahead. David Michael Raso: Yes. I was just curious. Currency in the guide. I am just trying to figure out what the overall margin guide is with the EBITDA number. Are you including about 2% of currency so we are looking at 4.5% total sales growth. Richard Kwas: A little less than that, David. It is like a point and a half or thereabouts. L. Brooks Mallard: Yes. I mean, just the first half. Yes. It is very weighted in the first half. And in the second half, it kind of normalizes out. So let me find my currency stuff here. Yes. So if you think about it from a translation perspective, it is a little bit, kind of 125 bps for the year, but weighted much more in the first half. David Michael Raso: Okay. And 125 bps in terms of growth. L. Brooks Mallard: Okay. David Michael Raso: That is full year. Okay. Following up on that comment on pricing, 100 to 150 bps. I mean, it is implying volume up only 1%. And again, I appreciate early year being conservative on extrapolating trends. But if personal mobility is up 30%, that is 1% growth for the entire company. So I am just trying to understand, is it just hey, we are just being cautious in the beginning, or is there some other area of decline? Obviously, I am basing a little bit on Slide 13. You only have one market that is down, right? Energy and resources. And I am just trying to understand the level of conservatism in the top line. Ivo Jurek: Yes. David, I think that you have framed it correctly. I will restate what I said earlier. We have seen a couple of fakes in 2024 and 2025. While I do feel, we as a management team feel better when you look backwards into how things progress when you do have a recovery. The signs are very positive. But we are very pragmatic in our outlook for the start of the year. Again, we have only seen one PMI print that has given us, I think all of us, a nice degree of boosting confidence that things are going to improve. We are seeing that follow-through through our industrial orders. Some of these markets are reasonably well behaved. Personal mobility is doing really well. You stated it correctly. So we are more constructive on these end markets, but there are some markets that are question marks. What will happen with auto OE? I think that is probably going to be somewhat of a headwind overall when you take a look at the consumer, the pricing, the timing of recovery. While we are again more positive on those end markets, it will not happen on January 15. It will not happen on February 2. Some of these markets are going to be progressing to a rolling recovery. And so while we are positive, we are being pragmatic. I would much rather let you know in the next earnings call or the one thereafter that we are seeing terrific improvement and great follow-through. And I think everybody is going to be much happier about that. L. Brooks Mallard: And I will remind, we have one less shipping day in 2026 than we did in 2025. David Michael Raso: Alright. I appreciate that. Alright. Thank you. L. Brooks Mallard: Thanks, David. Operator: That concludes our question and answer session. I will turn it back over to Richard Kwas for closing comments. Richard Kwas: Thanks, everyone. Thanks, everyone, for your interest in Gates. If you have follow-up questions, feel free to touch base with me. Have a great day and rest of the week. Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Q4 2025 Rayonier Inc. Earnings Conference Call. [Operator Instructions] I will now hand the call over to Collin Mings, Vice President of Capital Markets and Strategic Planning. Please go ahead. Collin Mings: Thank you, and good morning. Welcome to Rayonier's investor teleconference covering fourth quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Earnings release and Forms 10-K and 10-Q filed with the SEC with some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on Page 2 of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Mark McHugh, our President and CEO. Mark? Mark McHugh: Thanks, Collin. Good morning, everyone. Before turning to our fourth quarter results, I'd like to provide an update on our transformative merger of equals with PotlatchDeltic, which successfully closed ahead of schedule on January 30. Achieving this milestone required an incredible amount of work and collaboration. Since announcing the proposed merger in October, teams across both organizations have worked tirelessly to complete the transaction and begin the process of integrating our operations. I want to personally thank everyone involved for their dedication and commitment throughout this process. The combination of Rayonier and PotlatchDeltic has created a premier land resources company with a high-quality, well-diversified timberland portfolio, spanning over 4 million acres, a dynamic real estate platform and a well-positioned wood products manufacturing business. As our integration efforts continue, we remain confident that this transaction will deliver significant strategic and financial benefits beyond what either company could have achieved independently. While we have initially retained the Rayonier name, we plan to announce a new name and ticker symbol for the company later in the first quarter. Our leadership team is working diligently to execute key integration initiatives, including optimizing our organizational structure and implementing best practices from both companies. Despite challenging market conditions to start 2026, we are energized by the opportunities ahead of us, and I continue to be encouraged by the strong cultural alignment across the combined organization. As we continue to work through the integration process, we remain focused on creating long-term value for our shareholders through synergies, operational efficiencies and a relentless focus on disciplined capital allocation. Moving to our fourth quarter financial results. I'll start with some high-level comments before turning it over to April Tice, Senior Vice President and Chief Accounting Officer, to review our consolidated and segment level financial results. Following April's review of the fourth quarter, Wayne Wasechek, our newly appointed Executive Vice President and Chief Financial Officer, will discuss our 2026 outlook for the combined company. We are pleased to finish 2025 with better-than-expected fourth quarter financial results, which allowed us to deliver full year adjusted EBITDA of $248 million, representing an 8% increase over 2024 and exceeding the high end of our prior guidance range. This outperformance was primarily driven by the record contribution from our Real Estate segment which delivered full year adjusted EBITDA of $127 million amid continued strength in our rural HBU markets and further growth in our real estate development business. Full year pro forma net income was $89 million or $0.57 per share. In the fourth quarter, we generated adjusted EBITDA of $62 million and pro forma net income of $32 million or $0.20 per share. Adjusted EBITDA exceeded the high end of our previous guidance range, but was down compared to the prior year period as real estate closing activity in 2024 was heavily concentrated in the fourth quarter. In our Southern Timber segment, we generated fourth quarter adjusted EBITDA of $32 million, which was down 8% from the prior year period as the decline in weighted average net stumpage realizations and lower revenue from land-based solutions, was partially offset by higher harvest volumes. The increase in harvest volumes versus the prior year quarter reflects drier weather conditions as well as the normalization of green log demand as salvage activity in the Atlantic region subsided. Turning to the Pacific Northwest Timber segment. Fourth quarter adjusted EBITDA of $5 million was roughly $2 million below the prior year quarter, primarily due to a 26% decline in harvest volumes resulting from the Washington dispositions that we completed at the end of 2024. In our Real Estate segment, we generated adjusted EBITDA of $33 million in the fourth quarter, down $31 million from an exceptionally active fourth quarter of the prior year. With that, let me turn it over to April for more details on our fourth quarter financial results. April Tice: Thanks, Mark. As we highlighted last quarter, please note that all periods presented have been retrospectively adjusted to recast the historical results of the former Trading segment into the Southern Timber and Pacific Northwest Timber segments, as we eliminated the trading segment following the sale of our New Zealand business last year. Moving to the financial highlights on Page 5 of the supplement. For the fourth quarter, sales totaled $117 million, while operating income was $27 million, and net income attributable to Rayonier was $26 million or $0.16 per share. On a pro forma basis, net income was $32 million or $0.20 per share. Pro forma items in the quarter included $6 million of costs related to the merger with PotlatchDeltic. Our adjusted EBITDA was $62 million in the fourth quarter, down from $95 million in the prior year period. Moving to our capital resources and liquidity at the bottom of Page 5. Our cash available for distribution, or CAD, was $199 million in 2025 versus $141 million in the prior year. The significant increase was driven by a combination of higher adjusted EBITDA, lower cash interest expense, higher interest income and lower capital expenditures. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 8 of the financial supplement. During the fourth quarter, prior to the announcement of our merger with PotlatchDeltic, we repurchased approximately 110,000 shares at an average price of $26.31 per share or $2.9 million in total. Following the announcement of the merger in mid-October, our ability to repurchase shares was generally restricted through the close of the transaction. As of year-end 2025, we had roughly $230 million remaining on our current share repurchase authorization. During the fourth quarter, we also paid a $1.40 per share special dividend and a combination of cash and shares as a result of the taxable gains arising from the sale of our New Zealand joint venture interest earlier in the year. By issuing shares to satisfy a portion of our retaxable income distribution requirements, we retain significant flexibility around future capital allocation priorities. We finished the fourth quarter with $843 million of cash and roughly $1.1 billion of debt. Our net debt to enterprise value based on our closing stock price at the end of the quarter was 6%, and our net debt was less than 1x of our 2025 adjusted EBITDA. Now moving on to our segment results. Let's start on Page 9 with our Southern Timber segment. Adjusted EBITDA in the fourth quarter of $32 million was 8% below the prior year quarter as lower net stumpage realizations more than offset higher harvest volumes. Total harvest volumes increased 10% versus the prior year quarter due to drier weather conditions and increased demand for green logs as salvage operations subsided. Average sawlog net stumpage pricing was $25 per ton, a 2% increase compared to the prior year quarter, which was negatively impacted by salvage operations. Pulpwood net stumpage pricing of roughly $12 per ton was 27% lower than the prior year quarter, driven by weaker demand following recent mill closures in the Atlantic region, an unfavorable shift in geographic mix and dry weather conditions across much of the U.S. South. Overall, weighted average net stumpage realizations decreased 9% as lower pulpwood pricing was partially offset by a higher proportion of sawtimber volume. In great markets, sawmills contended with tepid demand throughout the fourth quarter. As we move through early 2026, we are optimistic that some local markets will see improvement in demand and pricing as sawmills ramp up production in response to improved lumber pricing. In pulpwood markets, conditions were challenging throughout Q4. Dry weather across the U.S. South allowed for the harvesting of typically inaccessible sites, which contributed to elevated supply in our Atlantic markets, while salvage operations from the 2024 hurricanes have now fully concluded, recent mill closures resulted in weaker overall demand. This combination of increased supply and weaker demand resulted in significant pricing pressures, especially in our Atlantic markets. On a positive note, we are starting to see improved operating rates at some pulp and packaging mills as production levels are being recalibrated following recent mill closures. However, we expect that dry weather conditions and upcoming maintenance shutdowns will continue to create near-term headwinds to pulpwood pricing. Looking further ahead, we remain confident that the supply side will tighten meaningfully over the coming years. As we've noted previously, the Georgia Forestry Association estimates that approximately 26 million tons of pine and 30 million tons of hardwood were impacted by Hurricane Helene in 2024. This should translate to a significant reduction in regional supply, which we expect will support improved market conditions over time. Moving to our Pacific Northwest Timber segment on Page 10. Fourth quarter adjusted EBITDA of $5 million was 24% below the prior year quarter due to lower harvest volumes and log prices. Total harvest volumes decreased 26% in the fourth quarter as compared to the prior year period, reflecting the impact of the Washington dispositions we completed in late 2024. At $87 per ton, average delivered domestic sawlog pricing in the fourth quarter decreased 3% from the prior year period due to softness in mill demand given market conditions. Meanwhile, at $38 per ton, pulpwood pricing was up 26% versus the prior year quarter due to the reduced availability of sawmill residuals. After a relatively lackluster fourth quarter, lumber pricing has been on an encouraging trajectory in recent weeks in response to constraints on Canadian supply. Moving forward, we expect some producers in the region to ramp up production in response to higher lumber prices, which should translate to positive log price momentum as well. All things considered, we are optimistic that log markets in the Pacific Northwest will tighten as we move through 2026 with improving demand from sawmills, the lifting of China's log export band and Canadian mill curtailments all contributing to increased market tension. Further, we remain confident in the region's positioning for the structural changes ahead as lumber produced in the Pacific Northwest competes more directly with Canadian production, making mills in the region well positioned to capture market share as import duties and mill shutdowns constrain the supply entering from Canada. Now moving on to our Real Estate segment. As detailed on Page 11, real estate adjusted EBITDA totaled $127 million in 2025, which was well above our original guidance range of $86 million to $96 million and represents a record contribution from the segment. The strong results in our Real Estate segment were fueled by successful closing of a large conservation sale during the third quarter as well as continued strong demand for our rural and development properties throughout the year. In the fourth quarter, Real Estate revenue totaled $42 million on roughly 3,800 acres sold at an average price of $9,700 per acre. Sales decreased significantly from the prior year quarter, which included $495 million in large dispositions. Excluding the large dispositions, pro forma sales in the prior year quarter were $72 million. On a pro forma basis, revenue decreased $30 million due to fewer acres sold, partially offset by a higher average price per acre. Real Estate segment adjusted EBITDA in the fourth quarter was $33 million. Drilling down, sales in our improved development category totaled $15 million with our Wildlight development project contributing $9 million and our Heartwood development project contributing $6 million. Sales in Wildlight consisted of a residential pod totaling 112 acres, an average price of $80,000 per acre, generating roughly $9 million in base land sales revenue with additional upside from builder participation and other fees over time. The next phase of Wildlight known as the Garden District is now well underway with homebuilders planning to complete construction of models and begin sales this summer. In Heartwood, sales consisted of 2 residential pods totaling 143 acres at $33,000 per acre, along with a 7.1 acre commercial parcel at $140,000 per acre. Overall, activity at both Wildlight and Heartwood remains on a favorable trajectory. The investments we've made over the past several years in entitlements, infrastructure and market development are translating into sustained interest from top homebuilders and prominent commercial end users. Unimproved development sales of $2.1 million consisted of 3 transactions averaging $28,000 per acre. In the rural category, fourth quarter sales totaled $20 million, consisting of approximately 3,500 acres at an average price of roughly $5,800 per acre. We continue to see healthy demand for HBU properties across our land base. Overall market sentiment remains positive, and we're seeing consistent demand for properties at significant premiums to timberland value. I'll now turn it over to Wayne to discuss our 2026 outlook. Wayne Wasechek: Thanks, April. Turning to our outlook for 2026. Given the merger closed less than 2 weeks ago, we are initially providing limited segment guidance for the combined company for 2026 as our team continues to advance through the integration process. This guidance reflects the anticipated pro rata contribution from PotlatchDeltic's operations starting on January 31, 2026. With respect to our individual segments, starting with our Southern Timber segment, we expect to achieve full year harvest volumes of 12.1 million to 12.6 million tons, reflecting the increase in our sustainable yield as a result of the merger with PotlatchDeltic. We further expect that regional pine stumpage realizations will trend modestly higher from fourth quarter levels during the year as supply-demand conditions normalize. However, we expect that full year 2026 average pine stumpage realizations for the combined company's Southern Timber segment will be lower than the stand-alone realizations for Rayonier in the prior year based on pro forma geographic mix of the combined company. In our Northwest Timber segment, we expect to achieve full year harvest volumes of 2 million to 2.3 million tons, likewise, reflecting the increase in our sustainable yield due to the merger. We further expect that full year 2026 average log pricing for the combined company's Northwest Timber segment will be higher than the stand-alone pricing for Rayonier in the prior year based on improving demand conditions, a higher mix of sawtimber and the pro forma geographic mix of the combined company. However, we anticipate that the combined company's pricing in the Northwest will also have increased sensitivity to lumber pricing compared to legacy Rayonier as a significant portion of our sawlog sales in Idaho are indexed to lumber prices. In our Wood Products segment, we've been encouraged by the positive momentum in lumber prices to start the year. For the 11 months of contribution from this segment in 2026 following the merger, we expect lumber shipments to total approximately 1.1 billion board feet. Based on quarter-to-date price realizations and current lumber pricing, we would expect the Wood Products segment to have a slightly positive contribution to overall adjusted EBITDA in the first quarter. In our Real Estate segment, we are seeing continued momentum to start 2026, supported by a strong pipeline of rural land sales and improved development transactions. Based on our current transaction pipeline, and sales closed to date, we expect an adjusted EBITDA contribution in the first quarter of $30 million to $35 million. For the full year, we expect an adjusted EBITDA contribution from our Real Estate segment of $180 million to $200 million. We expect to provide additional updates on guidance as well as our progress on synergy targets as the year progresses. Turning to our balance sheet. We remain well positioned following the closing of the merger with a conservative leverage profile and significant capital allocation flexibility. As April noted earlier, we were generally restricted from repurchasing shares during the pendency of the merger. However, we continue to believe that our stock price is trading at significant discount to net asset value. In addition, the dividend yield is over 4.5% at the current stock price. As such, we believe that share buybacks represent a compelling use of capital and one of the most attractive ways to create value for our shareholders in the near term. I'll now turn the call back to Mark for closing comments. Mark McHugh: Thanks, Wayne. As we wrap up our prepared remarks, I'd like to commend our team for their extraordinary focus and dedication during this transitional period for the company. Throughout 2025, our team navigated difficult market conditions while identifying and executing on opportunities to enhance long-term value. In particular, we had an exceptional year in our Real Estate business, which allowed us to deliver full year adjusted EBITDA ahead of our original guidance. Following our merger with PotlatchDeltic, we now have an enhanced platform to unlock HBU value in our Real Estate business, and we're excited about the opportunities we see ahead for the combined portfolio. While timber and lumber market conditions were certainly challenging throughout 2025, I'm proud of how both companies stayed focused on near-term execution. With the merger now complete, we believe that our shareholders will benefit from a more diversified timberland portfolio, along with an integrated Wood Products manufacturing business that is well positioned to benefit from positive long-term fundamentals. To this end, we've been encouraged by the recent improvement in lumber prices, and we expect further upside as end market demand continues to improve, especially given the supply constraints in Canada. On the land-based solutions front, our combined team continues to advance solar, carbon capture and storage and carbon offset project opportunities with high-quality counterparties. We remain very optimistic about the long-term value creation potential from this business as substantial capital continues to flow into AI and data center infrastructure, thereby driving increased demand for clean energy solutions. As I discussed at the beginning of the call, merger integration activities continue to advance, and our leaders are already starting to implement best practices as we cross-pollinate our teams. I'm excited to see how these efforts progress as we look to grow our future revenue opportunities and improve our operational efficiency. On the cost side, we continue to estimate run rate synergies of $40 million by the end of year 2, which will be driven primarily by corporate and operational cost optimization. While many of these decisions are extremely difficult, especially when they involve personnel reductions, we believe they are necessary to maintain an efficient overhead structure and to maximize the long-term value creation potential of this merger. In sum, while timber and lumber markets continue to face some headwinds, our recent results underscore the resilience of our portfolio and our business model. As we move forward as a combined company, I'm confident that our well-diversified portfolio, our exceptionally talented team, our strong balance sheet and our disciplined approach to capital allocation leave us well positioned to navigate the current market environment with a view towards building long-term value per share. Lastly, I want to take a moment to recognize the significant contributions of our outgoing Executive Vice President and Chief Resource Officer, Doug Long, who's retiring from Rayonier after 30 years of dedicated service. Doug has been an exemplary leader of our Timber business as well as a valuable contributor on our earnings calls for the last 12 years. On behalf of the Board and the entire company, I want to thank Doug for his invaluable contributions and wish him well in his future endeavors. That concludes our prepared remarks, and I'll now turn the call back to the operator for questions. Operator: [Operator Instructions] Your first question comes from Mark Weintraub of Seaport Research Partners. Mark Weintraub: Great. Can you hear me? Mark McHugh: Yes, Mark, can you hear us? Mark Weintraub: Yes, I can. Congratulations, obviously, all the hard work, et cetera. So first, just on real estate, 2025 was a very strong year actually for both companies, and you're looking for another strong year in 2026, perhaps not quite as much as on 2025 on a pro forma basis. Just curious if you could give a little bit more color on puts and takes and what you see as drivers on the rural side, the development side improved. Anything you can provide to help us kind of assess changes and potential trajectories? Mark McHugh: Yes. Sure, Mark, I'll take that. As we've discussed in the past, real estate sales are invariably going to be lumpy quarter-to-quarter, year-to-year, results tend to be pretty significantly impacted by a handful of larger transactions, and we had a number of those in 2025. That said, it's been a number of years now here where we've had a pretty good run on HBU, and we've been able to continue to monetize properties within the portfolio at very strong premiums to underlying timberland value. I'd say we used to think of that rural HBU premium as being around 50%, give or take, relative to timberland value on average. But look, underlying land values have just continued to appreciate. And over the last few years, I'd say our rural HBU premiums have been more like 100-plus percent. So this is a part of our business that we actually think is a bit underappreciated. Every time we sell an acre of land, at that kind of premium to underlying timberland value, we believe we're generating NAV accretion, especially when you look at that public-private arbitrage, that continues to exist in the stock price. You've often heard us say that, that HBU business is really all about premium. And so that's what we're really focused on in terms of measuring our success in the business. And notably, it's really been premium more so than volume that's been driving our outperformance in real estate over the last several years. We really haven't had much in the way of elevated volume. It's really been stronger pricing, particularly in our rural business as well as the folding in the development business in a more meaningful way in the last few years. So look, we're going to continue to try to take advantage of those types of opportunities within the portfolio, and that may ultimately translate to a higher long-term trend line in terms of the contribution of that real estate business relative to what we've seen historically. Mark Weintraub: Great. And certainly, it has been very visible this much higher accretion. I'm just curious -- so do you think that sort of -- it's the overall market as opposed to the mix that you've chosen to be selling in the last little bit? Mark McHugh: I'd say it's more of the overall market, but certainly a big factor within that is just where we own lands. Again, Texas and Florida, in particular, have been very strong HBU markets for us and stand-alone Rayonier historically owned a lot of acreage in that region. But across the board, we're seeing strong HBU premiums, very strong land values. Certainly, despite the challenging timber market conditions, that we're seeing land values have held up very well and have just continued to appreciate. So again, we're going to continue to take advantage of those types of opportunities. Mark Weintraub: Super. And then just one second one, if I could. You talked about -- you gave us kind of where your net debt was Rayonier end of the year, and you talked about the attractiveness of continued share repurchase. I think you said you had $230 million left on the authorization. So just -- I guess when we think about gating factors for how much share repurchase, you're inclined. Obviously, one is going to be where the stock price is in the relative discount to your view of value. But what can you share with us perhaps about your capital structure? And any other factors that would sort of be an important determinant of how much share repurchase under different circumstances you might be willing to think about in the year ahead? Mark McHugh: Yes. No, it's a great question. As we discussed in the prepared remarks, closed the merger less than 2 weeks ago. So still some moving pieces there as it relates to balance sheet, transaction and integration expenses. I'd say the initial wave of kind of big-ticket deal expenses are largely out the door in terms of advisory fees, the dividend, special dividend to Rayonier shareholders, the cash consideration, the legacy Potlatch shareholders as a result of that as well as some other transaction costs. So those have all been paid, but recognize there's still some costs like organizational restructuring that will phase in over time. As we sit now kind of immediately post close, we expect pro forma net debt to be in the range of 1 -- probably $1.3 billion to $1.4 billion. So that would put us comfortably inside of our 3x net debt to mid-cycle EBITDA leverage target that we've laid out in the past and laid out in connection with the merger announcement. So again, while timber and lumber markets remain challenging, we think the balance sheet is in really good shape, and we still have a lot of financial flexibility around capital allocation. And again, just in terms of what that appetite might be going forward, we certainly think we have some balance sheet capacity currently. Certainly, as we see synergies phase in, that should improve leverage as well. And so we think we have the opportunity to be opportunistic on that front here moving forward. Mark Weintraub: I don't know if you're willing to hazard, but -- so is there kind of a type of mid-cycle number we should be thinking about in terms of EBITDA? Mark McHugh: Yes. Again, with the merger just closed a couple of weeks ago, we're not in a position to put that out there quite yet. But look, if you look at the different components of the portfolio, the timber business has obviously been much more stable historically than the Wood Products manufacturing business. And the Real Estate business, again, as we've talked about, it tends to be lumpy. And so historically, the peers with lumber manufacturing assets haven't generally put out kind of annual guidance around that business just given the variability and unpredictability of lumber prices. But I would continue to expect that our timber business would be relatively stable. And so we can certainly kind of talk through some historical benchmarks and kind of how we think that might look on a go-forward basis. But 2 weeks removed from the merger closing, I don't think we're quite ready to put out a view of mid-cycle EBITDA. Mark Weintraub: Understood and look forward to those conversations. Operator: [Operator Instructions] Your next question comes from Buck Horne of Raymond James. Buck Horne: Congrats again on completing the merger ahead of schedule. A lot of hard work went into that. So a great job. I wanted to touch on the initial harvest guidance for the combined companies. Just thinking through the numbers a little bit, just based on Potlatch's old projections and kind of where you guys are shaking out. Just kind of wondering kind of what went into those assumptions? It looked like it's a little lighter than we would have put together combined. But I'm wondering if that's just baking in a little extra conservatism or if this is just kind of the new sustainable run rate going forward? Mark McHugh: Yes. I guess, first and foremost, recognizing that -- recognize that we're only getting a partial year granted 11 out of 12 months, but a partial year contribution from the PotlatchDeltic timberland portfolio. And so it won't necessarily be a full pro forma run rate that's reflected in that forward guide. But I think if you look at kind of what Rayonier has disclosed the sustainable yield has been in the different regions, recognizing that we've had some portfolio moves as well during the course of the last year or so. We think it's kind of generally in line with how we've guided in the past. Buck Horne: Okay. I appreciate that. And then I just want to talk a little bit about the pulpwood markets and the pricing that you're seeing there and just the kind of the continued deterioration of demand, at least in the U.S. South, for containerboard and other mill products. Just -- is there any signs that we're reaching a bottom in terms of that demand? Or is there still more pressure to absorb in terms of just working through the excess log volume that's out there? How do you kind of way the puts and takes in pulpwood and kind of what can stabilize that market? Mark McHugh: Yes. Certainly, these past several quarters have been pretty challenging in the Southern Timber segment. We've had this perfect storm of weaker demand driven by mill closures, coupled with elevated volume first due to the hurricane salvage last year and then kind of drier weather conditions as the year progressed. But as we discussed in the prepared remarks, we think that salvage volume is largely behind us at this point. And longer term, we think the amount of standing inventory that was destroyed by the hurricane is ultimately going to translate to a tightening of supply in those market areas that were impacted. So overall, we're still optimistic that market fundamentals should support growth in housing starts and timber demand over the long term. We still have a significantly underbuilt an aging housing stock, and that's got to be addressed at some point. And we also expect that even if overall construction demand remains flat, we're going to see U.S. mills gain market share, which bodes well for timber demand and pricing. Again, as we've talked about in the past, timber supply demand dynamics are highly localized. So we think that's another reason that the merger with PotlatchDeltic makes a lot of sense from a shareholder perspective as we're going to benefit from a more diversified portfolio that's less reliant on one particular market area. But as it relates to pulpwood, in particular, I'd say most of that downward pressure has been in those Atlantic markets. Again, we just had a lot of elevated supply in the last year with the hurricanes and the dry weather. We'd obviously like to see higher pricing, but we believe that some of these pressures, again, are going to be transitory in nature. It's also worth noting that even with those recent price declines that we've seen, these Atlantic markets are still among the strongest in the U.S. South and just in terms of that relative public pricing. So we still think that these markets are desirable from a long-term perspective. Recall that during COVID, we saw those markets really shoot up significantly from a pricing standpoint when we saw elevated demand. So again, I still think that those markets are highly attractive. And we think as those pressures subside, particularly on the supply side, we should see some improvement in pricing there. But like you said, it's certainly been a challenging dynamic in the last 12, 18 months. Operator: Your final question comes from Ketan Mamtora of BMO Capital Markets. Ketan Mamtora: My congratulations as well. I have to start with -- you talked about sort of share repurchases. I'm curious also on the M&A side. Are you seeing kind of opportunities at this point, whether it is on the timberland side or on downstream wood products, given how depressed lumber prices have been for the last couple of years? Or do you think that at this point, share purchases present kind of the best opportunity for you guys? Mark McHugh: Yes, certainly, just to comment maybe broadly on the timberland M&A market, I'd say that it remains quite competitive, especially for higher-quality assets. We're continuing to see very strong values being paid for assets in both the U.S. South and the Northwest. There's still a lot of private capital that's looking to invest in Timberland by our estimate. I think there was about $10 billion of dry powder or capital available for timberland acquisitions. And I'd say a significant portion of that is really targeting carbon or climate-focused investments. And so again, that timberland M&A market we expect is going to remain active. As it relates to our appetite, for acquisitions on the timberland side, given our overall cost of capital right now and again, a very competitive timberland market, it's tough, candidly, for us to make the math pencil on those transactions. That said, we're going to continue to evaluate acquisition opportunities as they become available, especially in regions where we already have an established presence. We've had some success historically in finding opportunities around bolt-on deals that we think add value to the portfolio. So we'll continue to look for those types of opportunities. But again, overall, we think the best place for us to buy timberland assets right now is in the public market by buying back our own stock. Of course, as we fold in the Wood Products manufacturing business into the portfolio, we'll also look at opportunities on that front in terms of investing in debottlenecking capacity expansion projects and the like. But again, we're going to look at those with the same lens as we look at any other capital allocation alternative. It's really going to be with a view towards building long-term value per share and comparing that to the other alternatives that we have available. And so again, we see that as another tool in the capital allocation tool kit, but we haven't -- we're not going to be prescriptive about how we go about that going forward. Ketan Mamtora: No, that's fair and that's quite helpful context. And then, Mark, and I know you don't want to sort of -- this is not like a quarterly update. But curious, any update you have around any of the other opportunities around carbon or anything else that you'd like to highlight, how that opportunity is evolving? And how should we think about sort of ramp up as you move through '26 and into '27? Mark McHugh: Yes. I mean, broadly, in our land-based solutions business, I'd say we continue to be very focused on growth opportunities in that business. We're allocating resources to building out those platforms and really trying to approach these opportunities with a long-term mindset. With the recent closing of the merger, we're also really excited about what we see as an enhanced platform to tackle those opportunities as a combined company. Both Rayonier and PotlatchDeltic, we both already made some pretty significant strides in the solar arena and reach gaining exposure to some new markets and revenue streams through the merger on the land-based solutions front. Rayonier had more exposure to carbon capture and storage. PotlatchDeltic has had the lithium and the brine opportunity. So again, we're retaining exposure to some new opportunities there. And on the carbon market, again, I think that's an area where we continue to see a lot of opportunity long term. And we think that this larger platform and the larger portfolio really positions us well to be a supplier of choice into that carbon offset market. So again, overall, I still see a lot of upside in that LBS business. With all that said, there have obviously been a lot of moving pieces on the public policy front, and I think the market is still digesting the current regulatory environment and kind of a long-term impact on project underwriting of the One Big Beautiful Bill Act, et cetera. So definitely seeing the timetables on both solar and CCS projects getting pushed out due to various factors. But again, still very optimistic about the long-term trajectory of that business. And I think we're going to see some progress on that front in 2026. Ketan Mamtora: Got it. That's very helpful. Good luck as you integrate as a combined company. Operator: Your next question comes from Anthony Pettinari of Citi. Anthony Pettinari: Mark, Wayne, April, congratulations on the combination. I just had a quick -- I just had a quick follow-up on Buck's question on pulpwood pricing and understand there's a few things going on there, and you listed some reasons why that market might tighten. It seems like for a long time, pulpwood prices were maybe averaging, I don't know, $15, $16, $17 a ton. You obviously went higher during the pandemic. From your comments, Mark, I mean, is the expectation that you could get back to kind of more of a normalized range in the next couple of quarters or more in like 2027? Or I know you're not giving kind of precise guidance around this, but I'm just trying to understand whether this is more of like really a transitory thing or whether you have to see maybe some things that would play out maybe more into next year? Mark McHugh: Yes. I think it's tough to say. I certainly wouldn't anticipate kind of a near-term bounce back to the type of pulpwood pricing levels that we saw 2 or 3 years ago. As it relates to the different factors that are impacting pulpwood pricing, I would say some of them are transitory and some of them are more sustained in nature. We think some of the weather impacts, in particular, the pickup in salvage volume, more recently, the dry weather, which just led to accessibility of a lot of sites that were in more normal weather conditions are not accessible. So that translated to a pickup in volume. And that again came on the heels of that hurricane salvage volume. And so the supply side effects we certainly think are transitory in nature. And if anything, again, just given the magnitude of the devastation from Hurricane Helene, we think the longer-term impact in those markets is that we're going to see a fair amount of inventory come out of the system, which should be a long-term positive for pulpwood supply demand dynamics and pricing in that region. But look, some of the mill shuts on the other side, I'd say, are more perpetual in nature. So kind of hard to say where that ultimately settles out, but it certainly feels as though we've kind of bottomed here recently, and we do expect some positive momentum through the year, but certainly not a bounce back to the levels that we saw a couple of years ago. Anthony Pettinari: Got it. Got it. That's very helpful. And then just maybe last one. You were asked about sort of relative attractiveness of Timberland investments versus Wood Products. And obviously, whatever has the highest return wins, and that makes a lot of sense. But I'm just wondering if there's anything you can add in terms of maybe philosophically how you think like a Wood Products business could fit within the Timberland's portfolio. I mean is it something where your investors are saying, we kind of want maybe a little bit more cyclical exposure or maybe you're more positive or less positive on U.S. lumber long term? Or other than just return maximization, which is obviously the most important thing, is there any sort of way that you think about Wood Products within the broader Timberland's portfolio? Mark McHugh: Yes, it's a great question. As we said in our prepared remarks, I'd say we're very encouraged by some of the recent pricing gains that we've seen in the lumber market, and we're optimistic that we're going to continue to see some momentum there, particularly given the supply constraints on Canadian lumber. PotlatchDeltic team, I say, did a great job of investing in their facilities over time to really keep them well positioned on the cost curve. We think that that bodes well for the future opportunities in that business. And look, we ultimately think our shareholders are going to benefit from having that integrated model over time. And so on the capital allocation front, given some of the headwinds that we're seeing in Wood Products and Timber business currently, again, not anticipating any large-scale near-term investments there, but we certainly see those facilities as being part of the combined company over the long term. And we'll certainly continue to evaluate incremental investment opportunities in the mills over time. But like I said, we're going to evaluate those opportunities through the same lens. It's where can we get the highest return, how do those alternatives compare to other capital allocation alternatives that we have available. And like I said, the bar is pretty high right now for any external growth or any kind of capital investment projects kind of relative to the opportunity that we see in buybacks. Operator: Your next question comes from Mark Weintraub of Seaport Research Partners. Mark Weintraub: Some real quick follow-ups, if I could. Just one, I assume the indexes in Idaho are unchanged related to the transaction? Wayne Wasechek: Mark, yes, this is Wayne. You're correct. No change in the indexing in Idaho. We're still -- that volume in Idaho for sawtimber is still approximately 75% is indexed. Mark Weintraub: Okay. Super. And then second, is it fair to say that in Wood Products, it's really just sawmills and lumber that you would look to grow in or given need to find homes for pulpwood, would you consider some other products as well? Is that possibly within your bandwidth? Mark McHugh: Yes, again, Mark, 2 weeks removed from the merger closing. I don't want to get kind of too far out there in terms of speculating on investments outside of our core business areas. But again, like I said earlier, we see that platform is just another kind of tool in the toolkit, and we'll evaluate those opportunities as they become available. Mark Weintraub: And then just -- since I got you, just kind of synergies, I think you said $40 million run rate by the end of year 2. Have you provided kind of a number for how much you expect to run -- to show up this year? And then lastly, -- and obviously, we had some pretty harsh wintery type storms down in the South. Did that impact your business at all? Wayne Wasechek: Yes, Mark, this is Wayne. I'll take those. As it relates to synergies, yes, we laid out the $40 million target. We expect to achieve on a run rate basis, half of that in the first year. So $20 million on a run rate basis here in year 1. Moving forward, we'll give updated updates on where we're at with those synergies and how we're achieving those. But as you would expect, the initial ones on consolidation of executive teams and Boards, we're already hitting those synergies. So things are moving forward as planned. As it relates to your second question, yes, the storm is certainly fairly severe for the South, but all in all, not a significant impact to production or the results for the year. We laid out in guidance 1.1 million board feet of shipments and that's on an 11th month basis. So really no significant impact to the business. Operator: There are no further questions at this time. I will now turn the call over to Collin Mings for closing remarks. Collin Mings: This is Collin Mings. I'd like to thank everybody for joining us. Please contact us with any follow-up questions. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to Palomar Holdings, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference line will be opened for questions with instructions to follow. As a reminder, this conference call is being recorded. I would now like to turn the call over to Chris Uchida, Chief Financial Officer. Please go ahead, sir. Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. Chris Uchida: With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christensen, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11:59 p.m. Eastern Time on 02/19/2026. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release. At this point, I will turn the call over to Mac. Thank you, Chris, and good morning, everyone. I am excited to review our strong fourth quarter and full year results. In 2025, we delivered record levels of gross written premium Mac Armstrong: and adjusted net income as well as strong broad-based profitable growth. For the full year, Palomar grew gross written premium 32%, increased adjusted net income by 62%, and achieved an adjusted return on equity of 26%. We also meaningfully exceeded our initial full year adjusted net income guidance of $180,000,000 to $192,000,000, finishing the year at $216,000,000. We beat earnings every quarter of the year, resulting in four upward revisions to our outlook as performance continued to strengthen and exceed expectations. At the start of 2025, we outlined four strategic imperatives: integrate and operate; build new market leaders deliberately; remember what we like and do not like; and generate consistent earnings. I am proud to report that we executed across all four efforts in all four quarters. We scaled our newer verticals in casualty and crop while maintaining underwriting discipline. Discipline. We purposefully built a balanced book of both admitted and E&S, residential and commercial, property and casualty products, to ensure consistent results in any market cycle. We added outstanding talent across all our departments, including underwriting, investment, claims, data, and actuarial, growing our team to over 500 exceptional professionals. Finally, we successfully integrated two specialty franchises, First Indemnity of America and Advanced Ag Protection, and in January, announced the closing of our third acquisition, Gray Casualty and Surety, Operator: now Palomar Casualty and Surety. Mac Armstrong: The myriad achievements of 2025 enabled us to reach our Palomar 2x target of doubling adjusted net income for both the 2022 and 2023 cohorts. A significant and impressive milestone that underscores the strength of our execution. We exit 2025 with a national footprint, with offices and team members located across the country. We are attracting the best talent in the industry. Our people and 2025's accomplishments give us strong confidence in our ability to sustain Palomar 2x. Turning to the fourth quarter specifically, our strong performance marked a fitting close to an exceptional 2025. The quarter was highlighted by record adjusted net income and robust top and bottom line growth, with gross written premium increasing 32% and adjusted net income growing 48% across our differentiated and diversified portfolio. As I said, our specialty product suite is designed to perform consistently through market cycles and generate attractive returns, a strength demonstrated by an adjusted combined ratio of 73% and a 27% adjusted return on equity. Collectively, these results highlight the growth, durability, balance, and quality of our franchise. Turning to our business segments. Our earthquake franchise declined 2% year over year, levels slightly lower than our previously stated expectation for low single-digit growth in the fourth quarter. Our year-over-year results were muted by a one-time headwind from a large unearned premium in 2024. Adjusting for this one-time benefit in 2024, we would have delivered growth in the quarter. As we have discussed, our earthquake book consists of residential and commercial policies written on an admitted and E&S basis. This balance allows us to successfully optimize our earthquake risk-adjusted returns and navigate any market condition. In the fourth quarter, the commercial earthquake book continued to face pressure with rates off 15%. Competition remained elevated, and we believe this environment could persist through much of 2026. We remain disciplined in our underwriting, but also note that the commercial book is still generating attractive returns. Conversely, our residential earthquake book, which ended the year at 58% of the total earthquake premium, continued to perform in line with expectations. During the quarter, we saw year-over-year growth in new business written and a premium retention rate of a healthy 97% for our admitted flagship Operator: product. Mac Armstrong: As we have said before, the 10% inflation guard on our residential earthquake policies affords our book compelling operating leverage into a softening property catastrophe reinsurance market. In addition, we are encouraged by our pipeline of high-quality residential earthquake partnerships that could bolster growth in 2026 and in 2027. The softening reinsurance market combined with growth of the residential earthquake book should allow us to absorb the primary rate pressure in the commercial market. Overall, we expect our earthquake book to deliver modest premium growth and margin expansion in 2026, even with commercial pressure persisting. Our inland marine and other property group grew 30% year over year in the fourth quarter, driven by strong performance from our admitted and E&S builders risk book and Hawaiian hurricane products as well as record production in our flood book stemming from the early success of our Neptune Flood partnership. Like our earthquake business, the mix of residential and admitted offerings provided balance to the group, allowing us to offset pressure in certain E&S commercial lines. For instance, we have pending rate increases of more than 10% for our Hawaii hurricane truck cargo book in California, whereas our large E&S builders risk accounts are seeing rate decreases in the low single digits. Like commercial earthquake, the underwriting performance and profitability in commercial property was very strong in the quarter. All risk, excess national property, and E&S builders risk each had a loss ratio below 25%. The strong underwriting results in commercial property are driving further investment in talent and geographic expansion. During the quarter, we added professionals in Texas and the Northeast to support profitable growth of the commercial side of the group. Additionally, we recruited Matt Themes to launch and lead our new construction engineering practice. Matt is a long-tenured expert in this dynamic space, which we believe represents a significant market opportunity. With our strong track record in builders risk, the growth in our balance sheet, our A rating from AM Best, and expanded reinsurance capacity, we believe now is the right time to enter this market and supplement our property franchise with a book of large, complex infrastructure projects such as bridges, Operator: roads, Mac Armstrong: and data centers. Consistent with our disciplined approach to new lines, we will begin with modest net line sizes supported by robust reinsurance. Our casualty business delivered 120% year-over-year gross written premium growth in the fourth quarter. The casualty book ended 2025 at 20% of the total gross written premium for the company. Fourth quarter results were driven by strong momentum in E&S casualty, primary and excess contractors general liability, and environmental liability. The E&S general liability segment of the casualty book, both excess and primary, continues to see a healthy rate environment. In Q4, rates on excess policies increased on average in the low teens, while primary rates were up mid to high single digits. Our professional lines remain in a stable pricing environment, with certain areas showing selective improvement, such as miscellaneous professional liability, private company D&O, and real estate agents E&O. We are also encouraged by the early traction in health care liability, which is probably the most dislocated market we currently underwrite, with technical rates increasing approaching 35%. In the fourth quarter, we added to our already strong team of casualty underwriters, which should open new geographies and distribution sources, and ultimately drive growth. We remain conservative in managing our casualty exposure and reserves. Our disciplined focus on low and short attachment points combined with the use of both facultative and quota share reinsurance should limit volatility in the casualty book and allow the portfolio to season in a controlled manner. Through the fourth quarter, the average net line size across casualty remained below $1,000,000, with E&S casualty, our largest line of casualty business, averaging $700,000. Our reserving approach in casualty remains conservative and unchanged. It is grounded in continuous evaluation of loss development, attachment structures, and portfolio mix. As previously discussed, approximately 80% of our reserves are held as IBNR, well above industry norms. This conservatism underpins balance sheet strength and reinforces confidence in the stability and predictability of future results. Our crop franchise generated $248,000,000 of written premium in 2025, exceeding our original $200,000,000 expectation and our most recent revised guidance of $230,000,000. Our performance was driven by strong execution and the successful recruitment of top-tier talent as we expanded into attractive states and products. The broader footprint also drove higher-than-expected fourth quarter production, with $40,000,000 of premium written. Importantly, this incremental business is diversifying from spring season MPCI, providing a nice complement to the portfolio. From an underwriting standpoint, 2025 was a good year for our crop book, as we generated a loss ratio under 80% and still hold a conservative reserve base as we sit here today. Given the experience of our team, the short-tailed nature of the risk, and the growth of our balance sheet, effective 01/01/2026 we increased our retention to 50% net of the SRA. We will support and protect our retention with stop-loss reinsurance consistent with last year. On a prospective basis, we expect crop premium to grow more than 30% in 2026 and remain on track to achieve our intermediate-term target of $500,000,000 in premium and our long-term target of $1,000,000,000 in premium. As previously discussed, fronting is no longer a focus of the business. We still continue to support our existing relationships, but we are not devoting capital towards an earnest pursuit of new fronting partnerships. We simply believe we can achieve better risk-adjusted returns in all other products. As a result, we are reconstituting our product groups, and fronting will no longer be a standalone category. Our existing and any future fronting partnerships will be categorized in alignment with the underlying class of business starting in 2026. For instance, our cyber fronted program will be in the casualty product group, and our Texas homeowners fronted program will be in the inland marine and other property product group. Following the closing of the Gray Surety acquisition, surety and credit will become the fifth product category we report on going forward. As a frame of reference, pro forma for the acquisition of Gray Surety and Credit would have constituted 6.5% of Palomar's total premium in 2025. Gray Surety significantly strengthens our surety franchise, adding management expertise, systems, scale, and geographic reach, complementing our existing operations and accelerating their path toward building a market leader in an attractive sector. We believe surety and credit will serve as a stable long-term growth driver for Palomar while providing meaningful diversification to our book and earnings base. Turning to reinsurance. The fourth quarter was both eventful and productive, and completed two new placements. We renewed four quota share treaties on 01/01, all at improved economics. Key highlights of the quota share activity included a commercial earthquake quota share that renewed approximately 15% down on a risk-adjusted basis and our primary and excess casualty quota share that saw a nice improvement in the expiring ceding commission. As it pertains to excess of loss reinsurance, we placed the Assurant XOL and renewed two earthquake excess of loss treaties. The earthquake placements renewed more than 15% lower on a risk-adjusted basis. Looking ahead to the 06/01 renewal, market conditions remain favorable for reinsurance buyers, and we are confident in further pricing improvement across our property cat program. Our diversified portfolio delivered strong top- and bottom-line results in the quarter and the full year. While I am very proud of our results and the execution over the past year, I am even more excited about the many opportunities that lie ahead. The success of 2025, the momentum in the business, and our team's collective enthusiasm for the year ahead are reflected in our 2026 earnings guidance: adjusted net income of $260,000,000 to $275,000,000 Chris Uchida: dollars Mac Armstrong: The guidance midpoint implies approximately 24% adjusted net income growth and an adjusted return on equity greater than 20%. The midpoint of our guidance assumes a $10,000,000 catastrophe load and a decrease of 10% on our excess of loss property catastrophe reinsurance renewal on June 1. To help us deliver on these opportunities, we are implementing four strategic imperatives for 2026. One, leverage our scale to enhance profitable growth. Two, curate a one-of-one distinct portfolio. Jon Christensen: Three, Mac Armstrong: deepen our position in existing markets and unlock new opportunities. And four, integrate, optimize, and execute. To support these imperatives, we are strategically deploying AI across our organization. Current initiatives underway are focused on enhancing our underwriting workflow, portfolio optimization, process automation, and operational efficiency. These efforts involve the use of both third-party tools and internally developed agentic solutions that should allow us to increase productivity and scale our organization. If we execute our plan and these imperatives, we will achieve our Palomar 2x in 2026 and beyond. With that, I will turn the call over to Chris to discuss our financial results and guidance assumptions in more detail. Chris Uchida: Thank you, Mac. Please note that during my portion, when referring to any per share figure, I am referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents, such as outstanding stock options, during profitable periods and exclude them in periods when we incur a net loss. For the fourth quarter of 2025, our adjusted net income was $61,100,000, or $2.24 per share, compared to adjusted net income of $41,300,000, or $1.52 per share, for the same quarter of 2024, representing adjusted net income growth of 48%. Our fourth quarter adjusted underwriting income was $62,300,000, an increase of 52% as compared to $41,000,000 for the same quarter last year. Our adjusted combined ratio was 73.4% for the fourth quarter compared to 71.7% last year. For the fourth quarter of 2025, our annualized adjusted return on equity was approximately 26.9% compared to 23.1% for the same period last year. Our fourth quarter results continue to validate our ability to sustain profitable growth while maintaining returns well above our Palomar 2x target of 20%. Gross written premiums for the fourth quarter were $492,600,000, an increase of 32% to the prior year's fourth quarter. Net earned premiums for the fourth quarter were $233,500,000, an increase of 61% compared to the prior year's fourth quarter. For the fourth quarter of 2025, as expected, our ratio of net earned premiums as a percentage of gross earned premiums increased to 48.2% compared to 39% in 2024, and compared sequentially to 43.4% in the third quarter of 2025. Losses and loss adjustment expenses for the fourth quarter were $70,900,000, comprised of $72,900,000 of attritional losses, including $700,000 of favorable development, and $2,100,000 of favorable catastrophe loss development largely from Hurricane Milton. Favorable development was primarily from our short-tail property lines of business. The loss ratio for the quarter was 30.4% compared to 25.7% in the prior year quarter. Losses for the quarter were driven primarily by higher attritional losses associated with growth in our casualty and crop business, partially offset by favorable development. We continue to hold conservative positions on our reserves. Favorable development is a result of our conservative approach to reserving upfront, allowing us to release reserves later. This quarter is a good example of this, as we had conservatively reserved for Hurricane Milton as well as a few other smaller events where we are seeing modest reserve release. Our acquisition expense as a percentage of gross earned premiums for the fourth quarter was 13% compared to 10.9% in last year's fourth quarter, and compared sequentially to 10.8% in the third quarter of 2025, a little higher than expected driven by mix of business for the quarter resulting in higher commission and lower ceding commission. The ratio of other underwriting expenses, including adjustments, to gross earned premiums for the fourth quarter was 8.1% compared to 7.2% last year and 7.9% in the third quarter of 2025. As demonstrated by our continued investment in talent, technology, and systems, we remain committed to scaling the organization profitably. We continue to expect long-term scale in this ratio, although we may see periods of sequential flatness or increases due to investments scaling the organization within our Palomar 2x framework. Our net investment income for the fourth quarter was $16,000,000, an increase of 41.3% compared to the prior year's fourth quarter. The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the quarter due to cash generated from operations. Our yield in the fourth quarter was 4.8% compared to 4.5% in the fourth quarter last year. The average yield on investments made in the fourth quarter was above 5%. At the end of the quarter, our net written premium to equity ratio was slightly above 1:1. Our stockholders' equity has reached $942,700,000, a testament to our consistent profitable growth. Looking at our full year 2025 results, our strong top-line performance continued to translate to the bottom line. Our gross written premium increased 32% to $2,000,000,000, while our net earned premiums increased 57% to $802,600,000. Our adjusted combined ratio for the full year was 72.7% compared to 73.7% in 2024, resulting in adjusted underwriting income of $208,900,000, growth of 63%, reflecting strong underwriting performance and continued operating leverage. Our net investment income for the full year was $56,000,000, an increase of 56% compared to 2024. All of this coming together, our full year 2025 adjusted net income grew 62% to $216,100,000, our adjusted diluted earnings per share grew 54% to $7.86, resulting in an adjusted return on equity of 25.9% compared to 22.2% in 2024. It is also worth noting that our final 2025 results are $30,000,000, or 16%, ahead of the midpoint of our initial guidance provided this time last year of $186,000,000, equivalent to an additional $1.10 per share for our shareholders. Our Palomar 2x philosophy continues to show in our results. Our 2025 adjusted net income more than doubled, technically 2.3 times, from 2023 in two years off of our goal of three to five years, with an ROE well above our target of 20%. Palomar 2x is a nice segue to our 2026 guidance. We are initiating our 2026 adjusted net income guidance with a range of $260,000,000 to $275,000,000, including $8,000,000 to $12,000,000 of catastrophe losses and incorporating the recently closed acquisition of Gray Surety. The midpoint of the range implies 24% adjusted net income growth and doubling our 2024 adjusted net income in just two years. From a modeling perspective, we expect many of the trends we have been sharing to continue in 2026. Our 2025 full-year net earned premium ratio was 44.9%. We expect that ratio to increase into the upper forties for 2026. On a gross earned premium basis, our full-year 2025 acquisition expense ratio was 12.1%, and our adjusted other underwriting expense ratio was 8%. We expect improvements in both ratios for 2026. Our full-year 2025 loss ratio was 28.5%, favorable to our original expectations. With that as a reference, we expect our loss ratio, including catastrophes, to be in the mid to upper thirties for 2026. Our full-year 2025 adjusted combined ratio was 72.7%. We expect our adjusted combined ratio for 2026 to be in the mid-70s. These expectations reflect our expected growth, business mix, and use of capital as we build our specialty insurance platform. We continue to expect quarterly seasonality in our operating results driven primarily by crop. We believe our 2025 results provide a strong framework to model the business seasonality going forward. I would like to spend a moment on our Gray Surety acquisition to provide some context on our surety business for 2026. We closed the Gray Surety acquisition on 01/31/2026 at an estimated purchase price of $311,000,000 financed with a $300,000,000 term loan and cash on hand. The current interest rate on the term loan is SOFR plus 1.75%, with the ability to improve the spread depending on our total debt to capitalization ratio. Given the interest expense from the term loan and the timing of the deal, we expect the addition of Gray Surety to be modestly accretive in 2026 before scaling in 2027. Pro forma for Gray, the unaudited written premium for our surety would have been approximately $110,000,000 in 2025. As Mac mentioned, given our investment in the surety space and the reduced emphasis on fronting, we will be changing our written premium categories in 2026. For 2026, our written premium categories are earthquake; inland marine and other property; casualty; crop; and surety and credit. Fronting will be redistributed into these five product categories. Plan on providing a revised breakdown of our 2025 written premium in these categories in our next investor deck. With that, I would like to ask the operator to open the line for any questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. It may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Pablo Singzon with JPMorgan. Please proceed with your question. Chris Uchida: Hi. Good afternoon. First question, just on the higher retention on crop Operator: will you be able to size how much that will contribute to earnings next Pablo Singzon: year versus what you earned in 2025? Chris Uchida: Yes. No, I think crop is a great example of the diversification of our business and use of capital as we start retaining more. We have talked about before that crop is a lower-margin business than some others, but also very stable, providing a very consistent earnings base. Generally speaking, it is going to have a combined ratio in the low nineties, so say 92%. So for every, call it, $100,000,000 and 10 points that we keep, that is adding another $8,000,000, let us say, of pretax income to the bottom line. Pablo Singzon: Got it. Thanks, Chris. And then second question, the 10% reduction in reinsurance costs you are assuming, is that on a risk-adjusted basis, or is that absolute dollars you are talking about? Mac Armstrong: That is on a risk-adjusted basis, Pablo. Yes. So that is just assuming that if you have like-for-like exposure, it would be down 10%. So when we think about the forecast, we are assuming growth in quake this year. We said there is modest growth for earthquake and there also would be some exposure expansion, which would lead to us buying more limit. Jon Christensen: Got it. Pablo Singzon: Okay. Thank you. Jon Christensen: Thank you. Operator: Our next question comes from the line of David Motemaden with Evercore ISI. Please proceed with your question. Jon Christensen: Hey. Thanks. Mac Armstrong: David, in your prepared remarks, you had talked a bit about a few new hires that you have made here in the fourth quarter as well. You guys made a few more even before that. David Motemaden: I am specifically interested on the underwriting side and the underwriting teams that you are adding. Is there any rule of thumb to think about Mac Armstrong: how much growth you guys are expecting David Motemaden: those teams to contribute in 2026, 2027 if we think about just gross premium written? Mac Armstrong: Yes, David, thanks for the question. It is a good one. Let me start by saying you are absolutely right. We have added some really strong talent to our organization over the course of 2025. And as we sit here in 2026, we continue to recruit and add really strong underwriters. It is across both the casualty and the property franchise. When we gave our guidance, there is certainly an assumption around contributions from those various new hires. But it really depends on the market that they are going into. A strong addition to our builders risk franchise in Boston opens up several million dollars or a few more million dollars of potential production there, versus someone like Matt Themes who joins us on the construction engineering side, where it is a much larger TAM and much larger exposures. But I think, overarchingly, the most important point to mention is for all of the new hires, we are not expecting them to burn their way into a market or overextend themselves. We want to walk before we run, and that is something that we have done from when we started the business. And what that means is when they go into a market, whether as a property underwriter or a casualty underwriter, they are going to have a comprehensive and robust reinsurance solution supporting them. And then they are also going to have modest gross and net line sizes that they are deploying while we build traction. There is a lot of infrastructure that needs to be built out, so we do not want to open up the proverbial floodgate to not be able to service and underwrite the business effectively. So it is also very moderate in terms of distribution. I will just close with, as an aside, for instance, we did write an interesting construction engineering risk, one of Matt's first. The gross line was $76,000,000. Our net was $4,000,000 on it. That is because of the strong reinsurance relationships we have. We were able to use an existing facility, and then we were also able to buy facultative reinsurance. I think the fact that you have that type of strong reinsurance support, both facultative and treaty, is a reflection of the quality of the underwriters and their experience. Jon Christensen: Got it. Great. David Motemaden: Thanks. That is encouraging. For Mac Armstrong: I guess, just another one on the earthquake growth. David Motemaden: Is there any way you can just help us think through? It sounds like Mac Armstrong: commercial was down just in terms of gross premiums written. David Motemaden: Residential was growing. Could you just break that out, how much the residential book grew in the fourth quarter and how you are thinking about that within the modest growth that you outlined in 2026? Mac Armstrong: Yes, David. So what I would offer you is, as I mentioned, residential quake is approaching about 60% of the book. It has strong policy retention, and it is writing good new business. So I think residential quake is what we hope would be high single digits to double digits growth, and then the commercial is going to be obviously continuing to see some pressure, especially in more large commercial business, where rates were down 15%. I would say from a rate deceleration standpoint, the rate decreases, we expect them to hover at this level for certainly the next several quarters. So I think that is what I would offer you: residential quake is going to grow and should offset the deceleration in the commercial. Most importantly, we should see margin expansion. The fact is that property cat pricing should allow us to really scale the residential quake and then absorb the softening on the primary rates in the commercial side. Got it. Yes. And it sounds like the XOL pricing at down 10 is actually not as good as you guys were able to get on some of the stuff that you renewed here recently. But maybe just one more if I could, for Chris. So heard you on the loss ratio being in the David Motemaden: mid to upper thirties. I am sort of looking at that versus the 31% accident year loss ratio excluding cats Mac Armstrong: in 2025. So it feels like that is David Motemaden: getting a little bit worse than, I think, the old rule of thumb, which was Mac Armstrong: two to four points deterioration a year. So I am wondering if you could just unpack David Motemaden: that a little bit. You know, is it mix? Is it higher picks? Mac Armstrong: You know, it would be helpful if you could just unpack that a little bit. Chris Uchida: Yes. I think the simplest answer is going to be that there is no change in our picks. I think we have said this a lot of times that we are going to continue to reserve conservatively upfront, react to bad news quickly, and do good news slowly and deliberately. That has proven true throughout this year where we were able to have some favorable development. If you go back to this time last year, we were expecting a low-thirties loss ratio for this year. I think this year was probably a little bit better than we expected. Crop contributed to that. Crop was a little bit favorable to where we expected. So maybe our loss ratio was a little bit better. But overall, when I think about that two to four points, I feel like this is right in line with that expectation. Let us say we were, call it, 31, 32. We are at four points. We are at 36. Right? The other thing you have to think about is that we are expecting some still really strong growth from crop. The other assumption we are changing there is we are going to be taking 50% of that book versus 30% this year. So that, while adding profit to the bottom line, does move the ratios a little bit. We have talked about it a lot, and I just talked about it a little bit, that crop does operate at a higher combined and a higher loss ratio. Mac said it was better than 80%. Even an 80% loss ratio, that is higher than 31 or 32. So if you are Mac Armstrong: taking Chris Uchida: call it 20 points more of that, if you are at 30 and taking 20% more or, you know, about 66% more of the losses plus higher growth, it is going to influence the loss ratio. But overall, when you think about it, and the reason we are not saying that our combined ratio is going to jump at the same rate, is we do expect to see some scale or leverage in the operating expenses. So when we talk about right now our low-seventies combined ratio for the year and kind of getting into the mid-seventies for 2026, I think that is taking all those factors into account. Yes, the loss ratio is going to go up as expected and as we have talked about. You are going to see some savings potentially on the expense side, but overall, we are going to be mid-seventies combined ratio with a growing diverse book of business delivering consistent profitability to the marketplace. That is something we have talked about for the last two or three years, continuing to do, and that is what we plan on doing. Overall, we feel like we are in a good spot. Loss ratio is doing exactly what we expected. And overall, the book is performing very well. Mac Armstrong: And, David, if I could just come back to the one point you made on the reinsurance, yes, 10% is the assumption. It is a little bit lower risk-adjusted decrease than what we saw in the first quarter. But that is for the midpoint of the guidance. So there is certainly an opportunity to outperform that 10% down, but I think that is the right level for us to assume at 06/01. Thanks, guys. Thank you. Operator: Thank you. Our next question comes from the line of Matt Carletti with Citizens. Please proceed with your question. Pablo Singzon: Hey. Thanks. Good morning. Mac, I appreciate your comments on the casualty book. It was really helpful. Can you maybe just kind of zoom out, and as we look at the book today, maybe year-end 2025, broad strokes, how much of the book is in excess and primary GL? How much is professional lines exposures? Whatever the big buckets are that you think of, could you help us with that? And then secondarily, how much of that is directly written by Palomar, and is any of it done through some sort of program or delegated authority arrangement? Mac Armstrong: Yes, Matt. Thanks for the question, and excited to talk about the casualty franchise because it really is performing well and has been a nice success story. The predominance of the book is going to be what we call E&S casualty, which would be GL, kind of niche segment GL. Then there is some professional lines, but, again, the majority of it is going to be excess and primary general liability. We are not writing wheeled business for the majority of cases. We do have a small amount of wheeled business that is in our contractors primary contractors GL, but on the whole, it is going to be niche categories of GL and then professional liability that is going to be more E&O or health care liability, which is a new example. That is the one that we got into earlier this year. I think it is important to just talk about, overarchingly, on the casualty side, we remain very disciplined, whether that is in our reserving, with 80% of the total reserve as IBNR. We have several lines of business on the liability where 100% of the reserve is IBNR. Our casualty reserve is only 16.4% of our surplus. Our limits are very conservative. Our average net limit is $1,000,000. Our largest net line would be $2,300,000, and our largest line of business, as I pointed out, which is our E&S casualty, is $700,000 on a net basis. I think the other fact that is worth highlighting here is just the underwriting approach, and it is going to be really focusing on writing, if it is excess, buffer layers. We are avoiding social inflation. So if we get a pop, it is not a circumstance where it is a surprise and there is a nuclear verdict and we were attaching 20 excess of 100 and we get hit. We are going to be attaching excess of one, or we write in the primary one. So it confines the volatility in that book. I should have started with this. The talent we have is exceptional. These are professionals that have been in this business for decades in the case of David Sapia, Frank Castro, and Jason Porter, our casualty leaders. I think it is also important to point out that we do have program business. Right now, although it is a little more than half, our programs, those leaders are involved in the underwriting of those programs, setting underwriting rules, helping the claims administration and adjudication. So it is really the philosophy that we had in property where we work with the program administrator in builders risk or earthquake, and we also write it internally. It affords the sharing of ideas. It affords the ability to access market segments that you could not potentially do on a direct basis. So we think it is a very good model. The last thing I would say about the casualty business, if you look at how we use reinsurance, we view that as a terrific validation of the underwriting. We buy both treaty and FAC. Jon Christensen: And so FAC reinsurance underwriters are looking at an individual risk Mac Armstrong: and pricing them with us. Treaty underwriters are looking at the portfolio. As I mentioned, we had several quota shares renew at 01/01. Two of them were for programs. Two of them were for internal casualty. All of them had improved economics. So, again, I think our casualty execution has been exceptional, and I think our approach is well established and thoughtful. Jon Christensen: Thank you. That is super helpful. I appreciate all the color. Operator: Thank you. Our next question comes from the line of Andrew Andersen with Jefferies. Please proceed with your question. Mac Armstrong: Hey. Good afternoon. Just on the reinsurance update. The quake that you mentioned that was renewed, was that commercial quake? And did you purchase any incremental limit this year? Hey, Andrew. Yes. Good questions. So the quota share that renewed was for commercial earthquake. We did have a commercial earthquake quota share renew, and then we bought incremental limit that is for all of the quake book. But it was a very modest amount. Most of the incremental limit will be procured at 06/01. Then we had one existing layer that renewed at 01/01. Again, those were all down in the 15% range. Chris Uchida: Gotcha. And maybe bigger picture here, as Mac Armstrong: the cycle in some of the lines softens, Chris Uchida: it does not seem like there is any constraint on capital here. But how would you kind of rank capital deployment opportunities across organic, increased retention, share repurchases, and opportunistic Mac Armstrong: tuck-in deals, which you have some history of doing. Yes. I think, overarchingly, opportunistic is the right term. Today, share buybacks look pretty compelling, as we scratch our heads inside our conference room. But nonetheless, we still want to grow organically, and we think we have multiple ways to grow the book organically, and we also think we have the capital base to do so. Certainly as the balance sheet has grown, it does afford us the opportunity to increase our retentions, like we are doing in crop. It is certainly something we can look at on cat retentions, probably more specifically for earthquake cat retentions as that approaches at 06/01. For our property business, our inland marine and other property business has performed really well. So I think our desire is to potentially put out larger lines in selected classes, both admitted and E&S builders risk and excess national property. I think it is a combination. Ultimately, opportunistic M&A, we are proud that we bought three great businesses over the last fifteen months. But that really will be more opportunistic. I think you should be thinking about organic growth, leveraging the scale of the organization, the balance sheet, Operator: potentially Mac Armstrong: take more of our own cooking, and then also think about opportunistic capital management through selective buybacks and repurchases. Thank you. Jon Christensen: Thank you. Operator: Our next question comes from the line of Mark Hughes with Truist. Please proceed with your question. Mac Armstrong: Yes. Thank you. On the commercial quake, you said you expect competitive pressure to continue through 2026. Mark Douglas Hughes: How does it look sequentially? The down 15, is it continuing to decline sequentially, or has it stabilized at a low level, and then you just have some tough comps? Mac Armstrong: Yes, Mark. That is a good question. I think we started to see commercial quake pricing really soften in the second quarter of 2025. We think we are still a couple quarters to go there, and then hopefully the comps lead to a deceleration. I think the other thing too is one dynamic where you have the all-risk players potentially retaining more of the quake, they will start to, as they get through a twelve- to fifteen-month period of that, start to get to a point where they are managing capacity and overall limits and aggregates. So I think that will help stabilize some. But our view, when we talk about this year of having modest growth in earthquake, is that pressure will persist in 2026, certainly in a more pronounced fashion for commercial quake. And then on the crop, your retention moving up to 50%. If things go as planned, does that continue to move up, or is Meyer Shields: 50 tied again? Mac Armstrong: Well, I think it is a good lever to have to be able to pull. If you talk to Benson Latham, who has been in the crop business for a very long time, he would tell you the way to make money in crop is to retain more of it. You will make more money over the long term doing that. That is something that we do see as, again, a potential lever. The one thing that we want to be mindful of is just capital allocation. While crop is not an overly capital-intensive line, the growth we are having is pretty strong. As I said, we are targeting over 30% growth. So the combination of growth and an increase in retention could start to put a little more pressure on how much capital we have allocated. That is something that we will watch. But that is really once we get beyond that half-billion-dollar threshold, Mark. In the interim, we can continue to increase our retention and grow the book, and then we will take stock at what is the right risk transfer structure from there. Jon Christensen: Thank you. Thank you. Operator: A reminder, if anyone has any questions, you may press 1 on your telephone keypad to join the queue. Our next question comes from the line of Paul Newsome with Piper Sandler. Please proceed with your question. Paul Newsome: Thank you. Operator: Thanks for the call. Jon Christensen: I was hoping you could maybe expand upon Paul Newsome: a question I am getting from investors, which is Peter B. Knudsen: sort of inevitably, as the business mix moves away from earthquake, as well as takes increasing retentions, do you inevitably end up with returns on equity that are less, given that you essentially have less Chris Uchida: reinsurance leverage? Peter B. Knudsen: Or is the model such that you have more balance in that regard? I am not really even talking about 2026. I mean, just as you think out longer term, is that what we should be thinking about in terms of how the business delivers returns? Mac Armstrong: Yes. Hey, Paul. I will offer my views. I will start with saying we continue to believe that Palomar 2x is achievable for the intermediate future. Based on the guidance we are giving, we will double our adjusted net income from 2024 in two years while maintaining ROE that is above 20%. We think that is sustainable, maybe not doubling it every two years, but certainly maintaining ROE that is over 20%. That is with the changing complexion of the book. You have to remember, we still have earthquake as our largest or top two largest line. We are now adding surety, which has very attractive margins as well. That is a sub-80 combined ratio book. This is not a circumstance where we are all of a sudden going to become a 12% ROE business and a 95% combined. Until we say otherwise, we are going to be generating an ROE that is in excess of 20%, and we are going to be growing our bottom line at a very attractive rate. I think the guidance that we gave this year is illustrative of that, and I think the investments that we are making in the business afford us the ability to sustain those parameters. Chris Uchida: A couple things I would add to that just for clarification. Remember, as we diversify and as the portfolio grows, we are able to leverage our capital base a little more efficiently versus earthquake, which is very capital intensive. As we get to diversify the base and use our capital a little more efficiently, that helps the ROE. The thing we do not talk about a lot, but when you talk about thinking out years, is also our investment leverage. We have a very low investment leverage. As our retention increases and our portfolio diversifies, investment leverage will also come into play. We will be able to use that as part of our earnings growth as well. Mac Armstrong: Yes. Just to echo what Chris is saying, if you just look at, I think that is important to point out too, the sustainability with these margins. Our net reserves as a percentage of surplus is under 30%, and our investment leverage is 1.43%. Compare those to industry averages, you should feel like there is a fair bit of operating leverage in the model. Jon Christensen: That is great. Peter B. Knudsen: Second question, just on the fronting business. Is the thought that, without additional fronting operations, essentially, the C served stability out of that unit, prospectively? Because I think we are at the point, I think, where we have lapped the one fronting arrangement that went away. Is that kind of the baseline thinking there? Mac Armstrong: Yes, Paul, I think our thinking is just fronting is not a strategic focus for us. The premium has declined, as you pointed out. As a result, it is really just not a meaningful reflection of Jon Christensen: the Mac Armstrong: operating results of the business and the organizational focus. I think the other thing that is just worth pointing out is the fronting market has evolved to where it is really not a risk-free, fee-generative business. Almost all fronting deals that we see are participatory fronts, and so if they are going to require us to take 20% of risk, it is not a circumstance where we are comfortable. We would rather support a handful of friendly relationships that we have and focus our capital and resources on programs, but also, most importantly, internal efforts. So, yes, I think it is just the evolution of the fronting market combined with our strategic focus that has led us to this decision to collapse it into the appropriate product categories. Jon Christensen: Makes sense to me. As you know, I Peter B. Knudsen: I agree with you. Yes. Yes. Mac Armstrong: I think you have told me once you are picking up nickels in front of a steamroller. So Paul Newsome: Was a lost on it. Jon Christensen: Thank you. Operator: Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question. Meyer Shields: Great. Thanks so much. Mac, one quick question on the guidance, and I apologize if I missed this. What are the cat excess of loss attachment points that are embedded in the 2026 guide? Mac Armstrong: Yes. Hey, Meyer. Good question, and we did not offer it, but we will. It assumes the retentions remain at the same levels as expiring. So a wind retention in around $5,000,000, and earthquake just several million dollars above that. Jon Christensen: Yes. Okay. Alright. That is a good place to start from. With regards to the engineering, Meyer Shields: does that require new distribution relationships, both in general and with regard to data centers? Jon Christensen: Well, it Mac Armstrong: can leverage existing distribution relationships, but it does bring new ones to bear, and that is why we hired Matt. Matt actually was at Willis Towers Watson before he joined us and has a longstanding history of writing with the traditional alphabet houses here. But then there will also be a lot of wholesale-produced business, which is kind of our bread and butter for commercial property. So it is a combination of the two. Jon Christensen: Hey, Meyer. This is Jon. One of the things to think about with regard to distribution with what Matt brings on in the engineered space is, up until he came on board in the fourth quarter, we were covering all corners of that builders risk market, from small single-family homes all the way through commercial property, with the exception of engineered risk. So now, as we think about the way that we face our distribution, we really come with a full solution across that inland marine department to be able to service all major components of builders risk in the U.S. market. Meyer Shields: Okay. Thanks, Jon. That is very helpful. And then one last question. I just wanted to get a sense of current and maybe planned retentions on the casualty quota share. Mac Armstrong: So the casualty quota shares, we renewed that and kept our retentions flat year over year. That is at 01/01, so it is kind of locked in for the next twelve months. We can write up to a $10,000,000 limit within that treaty. The average net, though, is going to be, typically our average gross limit is going to be three, and the average net will be less than $1,000,000. Meyer Shields: Okay. Understood. Thanks so much. Peter B. Knudsen: Thanks, Meyer. Operator: Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back over to Mac Armstrong for closing remarks. Mac Armstrong: Thank you, operator, and thank you, everyone. I appreciate your time and support of Palomar. As I close the earnings call, I want to thank our incredible team here at Palomar. Your execution and work in 2025 was Pablo Singzon: was Mac Armstrong: exemplary. As evidenced by the strong guidance for 2026, we feel great about our prospects, and we look forward to sharing our success with our investors in 2026 and beyond. Have a great day. We will speak to you soon. Jon Christensen: Thank you. And this concludes today's Operator: conference, and you may disconnect your line at this time. Jon Christensen: Thank you for your participation.
Operator: All right. Good morning, everyone. Welcome to Ardmore Shipping Corporation’s 2026 Investor Day, which will also cover the company's results for the fourth quarter and full year 2025. I am Brian Degnan with IGB Group. Just a few administrative points before we get underway today. The event is being recorded and broadly distributed via live webcast, which, along with today's slides, is accessible at ardmoreshipping.com. An audio replay of the event will be available on the website from later today. The standard earnings press release was issued premarket this morning and is also available on the website. Turning to slide two. Later in the event, following the prepared remarks, there will be a Q&A session, at which point we will take questions from the people with us in the room today. For those joining remotely, please feel free to submit any questions that you might have at any time to ardmore@igbir.com. That is ardmore@indiagulfbravoindiaromeo.com. Throughout the event and for the benefit of those joining remotely, we ask that all of you be sure to use the microphones as you are asking your questions. Turning to slide three. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter and full year 2025 earnings release. Slide four, please. Moving to slide four, I would like to introduce you to the members of the Ardmore leadership team we will have the pleasure of hearing from today. We have Curtis McWilliams, Ardmore’s Chair of the Board, Gernot Ruppelt, Chief Executive Officer, Bart Kelleher, President, and James Fok, Independent Non-Executive Director. We also have a number of other members of the extended Ardmore management team sitting amongst you in the crowd today, so hopefully, you will take the opportunity after our formal agenda to spend some time with them as well. And with that, I would ask Curtis McWilliams, Chair of the Board, to please join us on stage to provide today's opening remarks. Thank you, Brian. And good afternoon. On behalf of the Ardmore board as well as its senior management team, Curtis McWilliams: Let me once again welcome you to Ardmore’s annual investor day lunch. Last year in my opening remarks, you may recall I spoke about change. Changes in the geopolitical situations around the globe, changes in the administration here in the United States, and even closer to home, changes in our own senior management team with the retirement of Anthony Gurnee and the elevation of Gernot as CEO and Bart as President of Ardmore. While change is candidly a constant in all our lives, Ardmore’s board and senior management team remains focused on a few key strategic principles which have not and will not change. As you will hear this afternoon, Ardmore is focused squarely on the future. We remain committed to performance and progress, to transactions which leverage our scalable platform, to innovation, to our well-articulated capital allocation policy, and to thoughtful and transparent governance. With respect to the import of governance, as Nelson Mandela once noted, the time is always right to do right. In addition to Gernot and Bart speaking this afternoon, I am pleased that my fellow director, James Fok, is joining us and will be providing his thoughts on macro global trade trends. With the rise of China in the Pacific Rim and its impact on the shipping sector, James’ unique perspective has been incredibly helpful to our board. I am sure you will find his comments both compelling and thoughtful. Again, I want to thank you for your continued support of Ardmore. As a board and management team, we remain fully committed to being faithful stewards of your investment. And with that, now let me welcome up Gernot and Bart who will commence their review. Brian Degnan: Thank you, Curtis, and welcome. Gernot Ruppelt: We are delighted you could join us today for an update on another great year for Ardmore. For those of you who are new in the audience, slide five gives you a snapshot of our company. Ardmore is listed on the New York Stock Exchange, and strong governance remains fundamental to who we are. It shapes the way we make decisions, our business principles, and our values. We own and operate a fleet of product and chemical tankers and, through a fully integrated global platform, we actively trade a wide range of liquid cargoes from mainstream refined oil products to complex specialized chemicals, edible oils, and biofuels. Our performance-driven culture and our commitment to constantly innovate enable us to maximize earnings across markets and cycles. Moving to slide six. Here is the outline of today’s presentation. At the start, I will briefly guide you through our earnings highlights. Then Bart and I will move on to the Investor Day section, starting with external market fundamentals followed by a business update and a deeper dive into some of the key performance drivers. Thereafter, James will share his perspectives on major themes in our macro environment, the broader geopolitical landscape, and implications for Ardmore. Then we will open up the meeting for questions. Turning first to slide seven for earnings highlights. We are pleased to report another successful year for Ardmore. Underlying market conditions have continued to be very favorable. On top of strong ton-mile demand, we see considerable disruption and a very robust earnings environment. Our TCE performance reflects this continued strength as you can see in the chart on the right. Quarter-on-quarter growth throughout 2025 and into 2026. Rates are currently edging towards levels 3x our breakeven. Our MR tankers earned $25,300 per day for the fourth quarter and $29,100 per day so far in the first quarter with 50% booked. Our chemical tankers earned $19,900 per day for the fourth quarter and $20,800 per day for the first quarter with 30% booked so far. Regardless of the market we are in, we remain committed to tight cost management, and we have achieved a cash breakeven of $11,700 per day, or excluding CapEx, $10,800 per day. This enables us to be both opportunistic and resilient, positioning Ardmore to perform strongly throughout market cycles. Moving to slide eight. Adjusted earnings were $38,800,000, or $0.95 per share, for the full year and $11,600,000, or $0.28 per share, for the fourth quarter. We continue to execute on our long-standing capital allocation policy. We have declared another quarterly cash dividend of $0.09 per share, consistent with our policy of paying out one-third of adjusted earnings. We just completed a major drydocking cycle, which also included significant performance upgrades to our fleet, and last year we bought three modern fuel-efficient MR tankers at an opportune time. These have appreciated in value by 15% since. In addition to the company’s strong footing in the spot market at 82%, we enhanced earnings quality with selective high-quality fixed-rate time charters. Just recently, we fixed a 2020-built MR on a one-year time charter at a rate of $26,000 per day. Moving to slide nine, where we highlight our continued focus on financial strength. As previously announced, after refinancing our bank debt at favorable terms, we fully redeemed our remaining $30,000,000 of preferred shares, further reducing our cash breakeven. And as we will cover in more detail, Ardmore remains focused on optimizing performance, closely managing cost, and preserving a strong balance sheet. Turning to slide 10 for financial highlights. Ardmore’s strong operating leverage positions us to take immediate advantage of market shifts. As an approximate rule of thumb, for every $10,000 per day in additional TCE, our annual earnings would increase by close to $2 per share. This quarter, we are reporting EBITDAR of $27,000,000 for the quarter and $95,000,000 for the year. And we continue to frame this as an important comparable valuation metric against our IFRS reporting peers. A full reconciliation is presented in the appendix alongside our first quarter guidance numbers. This concludes the earnings portion of the presentation. I will now turn the call over to Bart for the market outlook. Bart Kelleher: Thanks, Gernot. Gernot Ruppelt: Starting with slide 12, where we discuss the long-term demand fundamentals. Curtis McWilliams: Dislocation of oil refineries remains an enduring trend. Operator: Refining and petrochemical production capacity Bart Kelleher: Has been shifting east, and at the same time, tightening regional supply in the West is pushing buyers to source from more distant export hubs, extending voyage lengths, driving ton-miles, and lifting fleet utilizations. In addition, the latest long-term forecasts point to an increased focus on energy security and slower energy transition, reinforcing expectations for sustained oil demand. Moving to slide 13. Looking at the chart on the top right, favorable margins and rising oil consumption are driving heavy refinery throughput. At the same time, ever-evolving geopolitical disruption continues to reshape trade routes and extend voyage distances. A good example of this is shown on the chart in the bottom left. Not only is there a ban by the EU on Russian diesel, but refined products derived from Russian crude oil have also now been banned. Refined product flows that once originated from Turkey are now being replaced by cargoes from the US, representing a more than threefold increase in relative voyage length. In addition, more recent events in Venezuela have already begun redirecting existing Venezuelan crude oil toward the US Gulf, boosting refinery throughput. This will further support product exports from the region. These are just a few of the layers of the continually evolving tanker demand landscape. Moving to slide 14, where we examine how increased sanctions enforcement is tightening supply and benefiting the compliant fleet. The chart on the left shows that over 16% of the global tanker fleet is currently subjected to sanctions. A step-up in enforcement is making it increasingly difficult for these vessels to trade. And as shown in the chart on the right, this is further encouraging additional vessels to join the dark fleet. So, taken together, about 30% of the global fleet and growing is operating outside mainstream trades, tightening available supply and boosting utilization for compliant tanker fleets such as ours. This trend is poised to accelerate with the potential for India to replace Russian oil with non-sanctioned alternatives, further benefiting the compliant tanker fleet at large. We will further examine this in a few slides. But it is important to note that these tend to be older vessels that would have a very difficult time returning to the mainstream fleet. For one, this is simply due to their history of trading in the shadows, but more practically, and as reported across industry sources, the maintenance standard is alarming. Moving to slide 15. Here is a trend we have highlighted in the past: LR2s exiting the clean product trades and moving into the crude market. There are a few key dynamics at play here. Aframaxes are the crude tanker equivalents of LR2s. The order book for these Aframaxes is marginal. Therefore, the LR2 order book is effectively replacing the crude Aframax deficit. At the same time, geopolitical dynamics are driving trading activity in crude markets overall, which has an additional positive impact on the Aframax segment. The trend of the LR2 fleet migrating to crude continues to play out, as depicted in the chart on the left, with an additional 10% trading in crude this year. This shift has been driven by evolving geopolitical events leading to higher volumes of crude on the water. One of the many examples is the recent disruption in Venezuela. Restoring Venezuelan crude exports to the US quadrupled Aframax needs for this trade. Turning to slide 16. Here, we revisit the aging MR fleet. The chart on the left provides a clear visual of how the MR fleet has evolved over time. Focusing on the green quadrant, today’s fleet is the oldest this century, and with an average age of almost fifteen years. Now moving to the chart on the right, the portion of the MR fleet approaching the scrapping window dwarfs the current order book by a magnitude of four. It is important to note even if these vessels are not initially scrapped, their utilization level notably declines as they turn 20. So while the market is experiencing an increase in deliveries this year, there is a significant buffer of older, less efficient vessels. These potential scrapping candidates represent an inherent mechanism for market Curtis McWilliams: Buoyancy. Bart Kelleher: Turning to slide 17. Expanding on the point just made, the tanker industry is subjected to rigid safety Gernot Ruppelt: Environmental, Bart Kelleher: And regulatory scrutiny, as well as high compliance standards by international law and oil major customers. Naturally, older tankers are increasingly marginalized by top-tier charterers. Enhanced diligence standards discourage employment of higher risk and/or noncompliant tonnage. These charts depict how this aging fleet is less utilized. The chart on the right highlights how utilization declines below 50%, thus benefiting younger vessels, including Ardmore’s fleet. With that, I would like to hand it back to Gernot to turn to the business update. Gernot Ruppelt: Thanks, Bart. Let us start with an overview of our strategy on slide 19. Ardmore’s strategy is clear and well defined. We are a global owner and operator of product and chemical tankers, with a strong focus on capturing opportunities where refined oil products and more complex chemical cargoes overlap. Ardmore Shipping Corporation is a fully integrated and aligned company, which includes our highly regarded trading platform. Our shoreside team works around the clock from three strategic locations in close coordination with our seafaring colleagues onboard a modern, fuel-efficient fleet to safely execute the business of Ardmore’s top-tier customers. We have a long-standing capital allocation policy which is well matched to our strategy, our through-the-cycle approach, and ultimately to creating long-term value. Our focus on performance drives ongoing innovation across Operator: Organization. Gernot Ruppelt: From efficiency-enhancing upgrades to our ships and machinery, to AI-driven voyage optimization tools, and everyday business processes. Always purposeful and application-oriented in order to deliver tangible commercial and operational results. And importantly, we maintain best-in-class corporate governance standards that are fundamental to everything we do and who we are as a business. Turning to slide 20. Asset flexibility is a core strategic advantage for Ardmore. Our fleet of MR product and chemical tankers is designed to operate across a wide range of complex cargoes and regional markets, giving us the ability to adapt quickly as trading conditions evolve. Instead of a singular focus on refined products or chemicals, Ardmore deliberately covers the full spectrum. This enables us to compete effectively and interchangeably in both segments and capture value across market cycles. We have specific examples for this later. Slide 21 reintroduces a concept which is core to our belief: integrating performance and progress. The success of this philosophy is reflected here. Performance, both absolute and relative, is crucial to us, and we track our performance through a range of objective measures. Our entire team is incentivized on the basis of these measures. Shown here as a key factor, our TCE result of about $25,000 per day. Next box. Our disciplined focus on cost, combined with low leverage, has resulted in a historically low cash breakeven of $11,700 per day, or excluding CapEx, $10,800 per day. With this performance focus, we have been able to return a significant level of capital to our shareholders equivalent to 26% of our market cap since 2022. Moving to the bottom of the page, the progress section. Industry-leading governance ensures discipline, transparency, alignment throughout the organization and long-term focus on shareholder value. Our innovation mindset is at the center of everything we do. Every cargo, every voyage, every decision offers opportunity to optimize outcomes and maximize value. More of that later. None of this would be possible without creating the right culture to drive both progress and, with that, performance. Our people are at the core of this effort, especially our seafarers. We have worked hard to create a rewarding and respectful work environment which includes direct and personal engagement with our onboard leadership and broader participation in industry bodies such as Intertanko and the Mission to Seafarers. All this is part of what we consider our responsibility as a leadership team, and indeed what Ardmore has always stood for. These are some of the tenets of our operating philosophy, and now bringing it back to performance, they are at the foundation of our strong operating results. Now one quick question, does operating efficiency matter when it is the market making the headlines? We absolutely believe yes. Performance focus will continue to deliver value in perpetuity across all market conditions. On slide 22, we summarize our capital allocation policy and how we have dynamically addressed our priorities. 2025 was an active year, which we will cover in this section. At a high level, we expanded our fleet, we invested in various efficiency upgrades, we managed responsible leverage levels, all while continuing to distribute capital to our shareholders throughout. Let us take a closer look. On slide 23, you can see the continued payment of dividend streams. And as I stated upfront, we are paying our thirteenth quarterly cash dividend since reinitiation in Q4 2022. Moving to slide 24. We completed an intensive drydocking program during 2025 which impacted nearly half of our fleet. On the flip side, this means we have very limited dockings for 2026 and 2027—about 10% of the fleet across two years. We naturally expect revenue days to increase accordingly, and with that, earnings power. In line with that, we forecast significant reduction in fleet CapEx for 2026—approximately $5,000,000 compared with $30,000,000 in 2025. The last bullet here is something we almost take for granted, but it is worth highlighting. We had near perfect on-hire availability for the year as a result of the quality of our assets and the continued close coordination of our teams at sea and onshore. To my earlier point, also here, progress meets business performance. On slide 25, we are providing a visual of a key element of the upgrade package we executed this past year. In line with the mandatory drydocking schedule of our chemical tankers, we upgraded the cargo tank coatings on all of them, thereby increasing cargo versatility and expanding revenue opportunities. We are already realizing early returns exceeding our expectations, with some recent voyages delivering TCE premiums of up to $6,000 per day, in addition to some guaranteed operational benefits and fuel savings. Slide 26. Here, you can see these new advanced cargo tank coatings in action. The green lines on this map reflect the voyages carrying cargo—or you could say making money—and the black lines show when the ship was empty, so essentially just burning fuel. When you look at this, you wonder, where are the black lines? The vessel did remain laden for nearly a full year. Expressed in dollars, the resulting TCE is $22,700 per day. This was in line with MR earnings at that time, but achieved by a smaller chemical tanker. That is a prime example of why we believe that in the right hands, chemical tankers with advanced coatings represent economically superior assets. Turning to slide 27, where we quickly spotlight the timely expansion of our fleet. As you can see here, our acquisitions last year were well timed. The blue line represents Clarksons’ published five-year MR price index. You can see the compelling relative value of all transactions in green, both at the time of transacting and also in hindsight. We achieved this by leveraging a period of considerable uncertainty in the marketplace and by leveraging our strong track record as a reliable counterparty, closely in sync with market swings. In a nutshell, clear execution guided by a disciplined long-term approach to building value in a cyclical industry. Turning to slide 28. Ardmore continues to trade predominantly in the spot market, with 82% market exposure. At the same time, we managed to layer in some high-quality time charters at attractive rates to fortify our earnings portfolio. You can see this here. It goes without saying that these are all with top-rated counterparties. Moving to slide 29, where we highlight low cash breakeven levels and favorable leverage. In 2025, we refinanced our existing debt facilities at attractive terms into a $350,000,000 fully revolving credit facility. We also fully redeemed the remaining $30,000,000 of our preferred shares. Our leverage levels reflect our strategy to create value through the cycle, providing resilience and capacity to pursue opportunities in a patient and disciplined manner. And with that, back over to Bart. Bart Kelleher: Turning to slide 31, where we take a look at our global trading operation. This is a key snapshot of our vast commercial universe, covered efficiently from three key locations: Houston, Ireland, and Singapore. As you can see here, we are servicing a wide, high-quality customer base across the world. Turning to slide 32. As we have emphasized, having flexible assets and a highly skilled organization are key competitive advantages for Ardmore. Our team and fleet can handle a wide range of cargoes, from mainstream refined products to significantly more complex chemical cargoes, in various layers in between. This is not for everyone in the industry. It requires a strong culture matched with deep technical and commercial expertise, both ashore and onboard. We believe that this is an important differentiator for Ardmore and our performance. Turning to slide 33, where we set the backdrop of evolving regional trade routes, in this case in the Atlantic market, before we get to some more specific Ardmore vessel trading examples. The maps illustrate three distinct phases of how traditional point-to-point routes between the US and Europe have evolved into far more complex multidirectional trade flows. Shifts in refining activity, cargo sourcing, and regional imbalances, plus constantly fluctuating arbitrage, have created new patterns across West Africa and South America, extending voyage combinations across the Atlantic Basin. Ardmore’s fully integrated platform and fleet of highly versatile tankers enables us to navigate and capitalize on these emerging trade routes, driving TCE performance. Turning to slide 34. Bringing it to life for the Ardmore fleet, a great example of how we capture new trading opportunities, maximizing revenue days and enhancing earnings performance. In this case, the vessel achieved a TCE of over $32,000 a day for a period of 136 days. These trade routes are constantly in flux, which requires a very nimble and connected footing in the market. On to slide 35. Switching oceans to the Pacific. This example highlights how refinery closures are driving significantly longer-haul voyages. The recent shuttering of two refineries in California has enhanced product arbitrage from large scale refineries in the East, resulting in long-haul transpacific voyages. Here, this vessel had been seamlessly trading in the Asian markets, and then later in the US Gulf, connected by a very lucrative 60-day voyage from India carrying gasoline into the US West Coast, earning $32,000 per day over 117 days. While we cannot highlight every voyage, this should give you a feel for how our global trading platform, versatile fleet, and company culture create value. Turning now to slide 36. How can we make things more efficient—better, faster, safer—every time we do them? Innovation sits at the core of Ardmore’s culture, shaping everything we do, both onboard and ashore. We will share a few examples to bring this commitment to life. Turning to slide 37. Ownership across the Ardmore fleet from the top of the bridge to the bottom of the engine room, and extending to our shoreside teams, we continue to deploy cutting-edge technologies that reduce fuel consumption and boost operational performance. We have been casting a wide net reviewing hundreds of solutions, and we ultimately select and implement the most promising, many of which have already delivered outsized returns, including some exceeding 100%. Let us have a look at some specific examples. On slide 38, we take a deeper dive into our innovative approach to hull performance. Fuel is our largest expense, typically accounting for around two-thirds of voyage cost. And while you come out of the dry dock with a clean hull, if you do not take proactive measures, fuel consumption can increase significantly. Over a five-year docking cycle, earnings erosion can be substantial. By deploying advanced hull coatings, onboard sensors, and timely proactive in-water hull cleanings, we maintain peak vessel performance. As shown in the chart on the top right, these practices place Ardmore in the best-in-class quartile versus a global fleet which experiences significant hull and earnings degradation across docking cycles. But we are not resting here. We are continuing to push the efficiency frontier. Ardmore is presently trialing autonomous hull-cleaning robots that offer promising returns in the 60% to 70% range. Using a hull-cleaning robot is literally brushing your teeth. You start with a clean hull coming out of the dry dock, and then your resident robot continuously and smartly cleans the ship’s hull—just like your daily routine of brushing your teeth. Turning now to slide 39, which highlights Ardmore’s approach to utilizing the latest AI-driven technology to optimize voyages. Over the past several years, our focus has been on adopting best-in-class technology. Using an ecosystem of integrated solutions, this approach enables us to scale quickly, stay flexible, and capture efficiency gains as soon as they become available. Every voyage contains multiple decision points: speed, routing, weather, commercial market conditions, and fuel pricing. Having real-time data and the ability to react to changing conditions ensures we are capturing all we can and not leaving anything on the table when it comes to fuel consumption. This system continues to yield significant savings with returns exceeding 100%. And turning to slide 40. While we regularly speak about our efforts utilizing AI onboard our vessels, we take an identical approach shoreside. As AI and agentic AI continue to evolve, there are abundant off-the-shelf tools available, and we selectively trial and integrate the most promising into our platform to augment our organizational capabilities. So to wrap up this section, bringing it back to our core operating philosophy and our approach to innovation, we are executing this pragmatic approach organizationally, positioning us at the forefront of what is possible, and thereby driving returns in all markets. With that, I hand it back to Gernot. Gernot Ruppelt: Let us move to slide 41. Here, we highlight our commitment to best-in-class corporate governance. Ardmore received, once again, the honor of being the top-ranked tanker company in the latest edition of Webber’s Corporate Governance Scorecard. Guided by our highly experienced Board of Directors, all well-regarded leaders in their respective fields, we recognize that robust corporate governance is central to achieving long-term success. Important to note also that Ardmore Shipping Corporation and all its business activities are fully aligned and integrated under the public company umbrella. Turning to slide 42. This matrix gives you a quick snapshot of the depth and breadth that our board brings to our company across a wide range of essential fields. The Ardmore board operates to the latest quality governance practices that are constantly reviewed and refreshed. Our diverse and international board has a robust and healthy debate culture including on matters of strategy, opportunity, and risk. Corporate responsibility is seen as a hands-on opportunity for positive impact on our business and its people, ultimately enhancing value creation. And there is ongoing board interaction with our teams during company and ship visits. For us, this is not a mere compliance exercise. It is rooted in our belief that a strong and high-performing board is key to value creation in the long run. Turning to slide 44. So, speaking of the board, we thought it would be a great idea to give you firsthand experience. No pressure, James. I am extremely pleased to ask one of our board members, James Fok, to join us on stage and to share some insights on broader macro themes. James does not come from a maritime background, which is refreshing. He brings with him over twenty-five years of experience as a financial and strategic adviser. James has deep expertise in Asian and cross-border capital markets transactions. His global perspective and pulse on international markets make him exceptionally well positioned to speak to the broader trends shaping today’s world. Please join me in welcoming James. Thanks, James, for that very kind introduction, and good afternoon to all of you James Fok: Who joined us here at Penn Club today and online. If we can turn to page 45, please. I have served on the board of Ardmore for a little bit over three years now, and it has been a pleasure to be involved with the company with such a culture of performance and one of strong strategic execution. But sometimes sound strategy and execution are not enough. The reality is that the company will be affected by circumstances beyond our control that will affect our operating environment and our financial performance. To the extent that we are able, the Ardmore board, in partnership with management, try to keep an eye on macro themes that are likely to affect our risk and opportunity going forward. And today, I am going to talk about three of these themes, namely the geopolitical environment, technology shifts, and global liquidity. We can turn to page 46, please. Geopolitical risks ranked first and second this year on the World Economic Forum’s risk perception survey. The resurgence of geopolitics has created a significantly more complex operating environment for both investors and corporate managements. Most often do not have relevant experience or frames of reference to deal with these issues. The supply chain shocks highlighted by COVID-19, the Ukraine war, and the trade war have led to a fundamental reevaluation of supply chain security. The mantra of just-in-time has been replaced by just-in-case. Informally, capital-light business models are having to confront the issue of dealing with strategic redundancy and higher levels of inventory. As industries and processes are repatriated or friend-shored in the name of national security, we are also seeing a deemphasis of ESG goals. And as Western countries reindustrialize, this is going to impact financial returns for Wall Street. What is more, as governments look to drive investment into strategic or favored sectors, we are also quite likely to see a diminution in capital mobility going forward. We can turn forward to page 47. Notwithstanding the trade war narrative over the last few years, we have seen a continued trend up in the total size or total value of global trade, though trade patterns are changing. And this is highlighted significantly by the change in China’s trade counterparties over the past two decades, which is shown on the right-hand side of the slide here. Over that period, the total value of China’s trade has increased by more than four times to $6,400,000,000,000 last year. Over that time, trade with the United States has continued to grow, Gernot Ruppelt: But James Fok: The US’s share of that trade has fallen from 15% to 9%. Meanwhile, what we have seen is that China’s trade with ASEAN countries has increased from 10% to 17% of its total, and the trade with the global south has increased from around 30% to around 40%. As Bart mentioned earlier, we have seen a significant shift in refining locations across the petroleum products industry. Gernot Ruppelt: As we James Fok: Look forward to these national security concerns that are being highlighted, we expect to see a continued shift in the locations of processing for key commodities. Notwithstanding, we believe that Operator: Players James Fok: Like Ardmore that are nimble and global will be able to manage and prosper in this more complex environment. Turning forward to page 48, and technology. The major theme of the past several years has, of course, been artificial intelligence. We believe that artificial intelligence is a transformative technology and that it will drive significant product improvements across a wide range of industries. That being said, what we are also observing is that there is a significant divergence in the investment approaches to AI, which is perhaps most easily encapsulated in the consumer model that has raised a huge amount of capital here in the United States. The industrial model has been more aggressively pursued in countries like China. In a report published last Gernot Ruppelt: Year, James Fok: Bain calculated that using a $20 per month subscription model for ChatGPT, in order to justify the total amount of investment that is going into AI, you would need to have 8,330,000,000 active subscribers. That is versus a total present global population of just 8,160,000,000 people. The fact is that the risks of capital misallocation and capital loss are very real, notwithstanding the fact that we still believe AI will bring substantial benefits in many areas. In Ardmore’s approach to innovation, while the board has been very encouraging of continued investment in innovation, we are also very careful to ensure that each CapEx initiative is scrutinized carefully to ensure that the expected IRR justifies the investment that is being put into it. Can we turn to page 49 please? As Bart touched on, a lot of the focus of Ardmore’s investment is into driving greater fuel economy, and this is something that I believe the board will continue to support. That being said, as the technology landscape evolves and we see that centers of innovation are evolving from those established ones to new ones, we also need to be conscious that we need to cast a very wide eye in ensuring that we are capturing the best and most relevant technologies for us. And in this, I think that with regards to our technology kind of focus is that if you take my business, for example, in market infrastructure, if you go back twenty years ago, the dominant technology providers in the industry were primarily US and European players. What we saw over time was that there was an emergence of various Indian technology providers which were able to produce similar quality at significantly lower cost. More recently, what we have observed in our industry is that the Chinese vendors are now producing not just lower cost technologies, but they are also producing superior technologies. The takeaway for us here at Ardmore is simply that in order to remain globally competitive, we need to look at technologies and keep abreast of technology developments on a global basis. Turn to page 50, please. In recent years, we have operated in a very benign Curtis McWilliams: Environment. James Fok: Since the COVID-19 pandemic in 2020, we have seen significant increases in the level of government indebtedness across virtually every major economy. The Congressional Budget Office projects that in order to finance ongoing deficits and to refinance maturing debt, the US federal government between now and 2030 is going to have to issue between $22,000,000,000,000 and $27,000,000,000,000 of bonds. On top of that, if you look at Western reindustrialization, if you look at the AI-related CapEx spending, if you look at the infrastructure spending that is going to be required to replace obsolete infrastructure, you are going to see significant demands for capital. Allianz has estimated that the energy transition alone over the next ten years is going to require between $26,000,000,000,000 and $30,000,000,000,000 of CapEx. What does all of this mean? What it means is that the financing environment is likely to get significantly tougher. At Ardmore, the board and management are laser focused on ensuring that we maintain Operator: Adequate liquidity James Fok: And also that we ensure that we have access to diverse sources of funding. And to give you a little flavor of some of the things that we have been looking at, if you turn to the next slide, page 51. I am just going to touch very briefly on the offshore Renminbi bond markets and developments there. This is a market that I have personally been very closely involved with in recent years. Over the past several years, as Renminbi interest rates have fallen below US dollar interest rates, you have seen an explosion in new issuance in the offshore Renminbi bond market. You are also seeing many more international investors flocking to that market. Last year, Chinese regulators made a rule to allow more onshore Chinese investors to invest in that offshore market. And with that, what we have seen is an increase in the term maturity in that bond market, and we are also seeing significant opportunities for international issuers to capture funding cost advantages that arise from time to time even after the cost of swapping back into US dollars. Typically, it is in a range between about 20 and 60 basis points. While this is obviously very early days still, this is something that we are going to continue to keep an eye on, and we are also going to keep an eye on developments in liquidity sources happening elsewhere. To summarize and conclude, the geopolitical environment is no doubt creating a more complex operating environment for us. That said, if you look back historically, market fragmentation has tended to Curtis McWilliams: Drive James Fok: Higher arbitrage spreads, which, for players that are able to be nimble and operate across a number of different markets, opportunities can be very, very significant. So from Ardmore’s perspective, if we continue to invest in our efficiency and we continue to maintain strong liquidity and strong access to finance, we believe that the company will be very, very well positioned notwithstanding the greater complexity in the operating environment. Gernot Ruppelt: Thank you, James, for sharing your insights. Really appreciate it. And just to note, everybody in the audience, James will be with us also during the Q&A section and is welcoming any of your questions, of course. But just allow me to kind of take these comments now and mirror them back from the Ardmore lens. What key implications are for our business. At a high level, the forces that James described here resonate strongly with what we see play out day to day in our markets and what we also described, of course, in the earlier part of the presentation during the market section. Geopolitics continue to reshape trade flows and create ongoing disruption, reinforcing the importance of flexibility in our commercial approach as well as the strategic importance of tanker assets in general. Second, innovation must remain central to everything we do. We leverage the company’s vast network of technology providers across the globe, which we continuously seek to expand, to keep pushing the productivity frontier. And maintaining financial flexibility is essential. It ensures that we can navigate uncertainty, act opportunistically, and continue delivering long-term value for our shareholders. On to the last slide before Q&A—slide 54 for those online. We have covered a lot of ground today. So allow me to leave you with the following key points. Market conditions are very positive. Ardmore has been able to capture this strength in a formidable way. Our strong financial footing and agile organization enable us to respond effectively to change and take advantage of opportunities as they arise. Discipline and governance are foundational to Ardmore and continue to guide our decisions. Where to from here, some of you might ask? Very simple. We will continue to be responsive to market shifts and opportunities, we will continue to drive operating performance, and we will continue to make responsible capital decisions, all guided by our long-term strategy. Thank you. We will now open for questions. Operator: Okay. If I could just remind everybody for the Q&A session here, a couple of things. There are people on the webcast, so please do wait for the microphone before you pose your questions. And similarly, for those on the webcast, keep those questions coming in to ardmore@igbir.com, and I will be your avatar in the room here. With that, hands in the room. Gernot Ruppelt: Omar, of course. Okay. Okay. Thank you. Curtis McWilliams: You hear me? Yep. Bart Kelleher: Omar Nokta from Clarkson Securities. Thanks for the presentation. Omar Nokta: Very good detail. Maybe just on your last point, Gernot, you were talking about the way forward or, you know, where do you go from here? You know, you mentioned early in the presentation those three MRs you acquired last year. They are up 15% in value, so obviously good buy. How are you thinking about future capital allocation considering we have seen these values now start to take off? Where do you put capital? Do you put capital to work, or do you stay on the sidelines? Gernot Ruppelt: Yes. I think we always like to look at capital allocation in a non-binary way where we continue to do all of the above, all of the dimensions we described, maybe not always within the same quarter. For us, it is always important that we look at capital allocation kind of across the game really. Values have picked up a lot. We do observe that right now, we could sell our 2013, 2014-built units at a price which is identical to what we bought 2017 ships for less than a year ago. So you basically get, for the same price, four plus years, when you factor in that actually a year has progressed. At the same time, these ships are also very, very fuel efficient, taking advantage of an incredible earnings environment, have been under our care for a long time, and can easily be with us for ten years or longer. Quite happy with the fleet as it is. I think we have demonstrated that we can deliver outstanding performance with those assets. But at the same time, we believe that markets, much as, of course, they are very exciting and these numbers speak for themselves, they tend to not always move in a straight line. And I think if you think back to a conversation that would have played out maybe exactly a year ago, you could have asked the question, how do you grow the fleet given current prices? And I think it just takes sometimes a bit of patience. And we continue to look for pockets of value across the full spectrum of sources of tonnage. And you, of course, have to weigh specification, fuel efficiency, age, delivery position, all that. There has been a lot of newbuilding activity. We have not been active in the newbuilding market in a very long time. And, of course, those are quite forward deliveries. So I think for us, we tend to be a bit—I do not want to say market agnostic—thereby making sure that we take capital decisions that will benefit us really no matter what happens in the market that continues to be very active and also very dynamic. Omar Nokta: Thank you. Can I just follow up to that? You mentioned the new buildings, which you Omar Nokta: Do not think I have really participated in. You know, it is funny we have come somewhat full circle where MRs are now probably the lowest—MRs and Handys are the lowest—in terms of percentage growth coming, which is different from, say, two or three years ago, which gave a lot of investors apprehension. Now it is the lowest part of the order book. In general, how are you feeling about the newbuilding market for MRs? Is that something of interest? You mentioned there is a bit of a lag until you get delivery, but how are we thinking about newbuildings from here? Gernot Ruppelt: So we have not been in the newbuilding market since 2013. We took delivery of our last newbuilding in 2015, and we always found there to be incredible value in a very lively and very liquid secondhand market. Of course, we continue to monitor how those different asset classes and different ages compare on value, kind of really look pretty closely along that curve where we see the most compelling value. So it is a fairly general answer towards “it really depends.” But again, we are very closely connected to whatever goes on in any market. As we see an opportunity, we have demonstrated that we react very quickly and discreetly and can make things happen at a moment’s Omar Nokta: Notice. Gernot Ruppelt: I have two questions for James. In your comment about AI and returns, Speaker 7: Did you mean return on investment or return of investment? Gernot Ruppelt: You could share the microphone. Speaker 7: I am serious. Does it mean getting your money back or making a profit? 8,300,000,000 people. James Fok: I mean, candidly, I mean, you know, from everything that I have seen, there is going to be a significant risk to a lot of investors getting back their money at all. That being said, I think that, you know, if you look at the overall system in aggregate, the benefits will be substantial. But the fact is the economic benefits and what happens in markets quite often do diverge. Gernot Ruppelt: Can I just add also one point? Of course, different companies have different AI strategies, and that is for every company to determine. We made a decision very early on in the game whether you, you know, you could be an investor in AI, you could be a developer of AI, you can be really good at adopting AI. And we are always 100% in the latter bucket because there we can, you know, we have guaranteed returns. And very often also on a subscription model, with very little CapEx investment. I mean, fuel efficiency, sometimes you need to do some upgrades to machinery that involves some CapEx. But our AI strategy is almost purely on a subscription basis. So if the technology that we thought would deliver great returns is not working out, we just pull the plug on it. So in that sense for us, it is definitely the question is not so much around return of capital, but really just “is it meeting our very kind of ambitious return expectations when we deploy cash flows?” Speaker 7: As a user, you are in a different position from the creator. Gernot Ruppelt: Absolutely. Yes. And my second question, James, is Speaker 7: In your table about China, you know, the debt and all that stuff, did that include local and provincial debt or just national debt? James Fok: The figures on that— that is like the national debt. I mean, the reality is that, and it is not just China. I mean, a lot of countries have actually hidden sources of debt. Curtis McWilliams: Yeah. Operator: Let us go here. Yeah. And if everybody could just identify yourselves, if you would not mind. Omar Nokta: Sure. Jim Sorenza from DNB Carnegie. Curtis McWilliams: A question for James and a question for Bart. So Speaker 8: The competition for capital as this year goes on— so just focus on the US and leave the rest of the world out for a moment. Our Treasury is probably going to issue in excess of $7,000,000,000,000 worth of Treasuries this year. We have about $3,000,000,000,000 of corporate debt maturing this year. The big four spenders, mega spenders, as I call them, are going to have a CapEx budget of $650,000,000,000 this year. So just do the math on the amount of debt that needs to be raised. How does it make me think about your capital structure as this year unfolds? Bart Kelleher: Thanks, Jim. Good question. I think in general, and I would say not just this year, but for us, it is always having a capital structure so you can be opportunistic when you see the opportunity for value and, as Gernot described on a capital allocation standpoint, and maintaining a really wide network of diverse sources of capital. You know, we did take advantage of, through the years, the shift with the shipping banks, you know, stepping back up and then providing revolving capacity, and that was our avenue to shift from some more highly leveraged leasing structures in Asia. But that being said, just maintaining that network across that sphere and, obviously, across the different bond markets as well, I think is one that then, when you see opportunity and you can place together, you know, potential investment with different slices of optimal capital structure, it makes sense to do so. But then, in between, when you can simplify, you know, that also has its merit. So we think back to last quarter and redeeming the preferred. And so preferred was a great piece of capital when we needed more on our balance sheet in 2021. Then when we did refinance and had lower interest rates on the revolver, you know, we knocked off about $100 a day or so on our cash breakeven by redeeming preferred. James Fok: The only thing I will add to that is this is a world in which fortune favors the disciplined. And, I mean, that is one of the things that Ardmore has been very careful to do through the cycle. Operator: Alright. I will log in a couple from the webcast here. There are a few, but they are on a theme, so I will just sort of lump them here. How do you keep finding new vessel efficiency investments? Do you continue to expect to see those? And then how do you decide between that and buying a ship? Bart Kelleher: I will give a start to that one. I think, you know, yes, we have deployed a number of efficiency investments, but when you think about what has been achieved in other industrial sectors, and then a lot of the modernization of that technology— so, you know, if we look to see what shoreside industrial manufacturing, power generation— I think there still is tremendous runway on the shipping front. And we are really only now seeing that combination of Curtis McWilliams: Hardware and software working together Bart Kelleher: And for us, we were one of the first to actually install Starlink across our whole fleet. Having that bandwidth to then be able to have the data exchange to come shoreside, run analysis, and then give, you know, different orders back is one that the frontier will continue to push. That does not preclude us from doing anything else. I mean, these tend to be fairly discrete, quick payback investments or pay-as-you-go service models. And so, certainly, I think you can do all of the above, but from the innovation standpoint, certainly, you know, core to our culture, and you will see us continue to make strides. Omar Nokta: Good. Okay. Operator: So a couple that you would have anticipated and have come in in different ways, but I will leave it to you this way. What are we supposed to think about Venezuela? And similarly, Iran, right now? Gernot Ruppelt: That is a very big question. I think typically, we try to maybe stay clear of really trying to give political or geopolitical opinions or direction. There seem to be a lot of political analysts that would be much better placed to provide answers here. But what it certainly has done, it has created yet additional layers of volatility, shifts in commodity pricing, with that commodity arbitrage, with that, of course, volatility in freight rates. Whenever trade routes are withdrawn or withdrawn— or you take certain supply or demand areas out of the picture and they need to be replaced by others— obviously, that benefits tankers directly. Crude sources or crude destinations for Venezuela, of course, have already been restructured. That had an impact on the respective crude freight markets. Freight markets are already volatile as they are in the Middle East. And I think it just Omar Nokta: Adds Gernot Ruppelt: Another layer to already several layers of demand in this market. Omar Nokta: Okay. Operator: I am tempted—this next one I have just gotten in— I am tempted to actually ask the people in the audience here. I do not know that that is terribly feasible. So I will put it to you. What is the market missing? What do you feel is underappreciated about what it is that you are presenting and talking about here, such that, you know, maybe it is not fully understood? Gernot Ruppelt: Again, it comes back to those layers of demand. It is a bit like you are peeling back the layers of an onion and you just cannot get done. I mean, we have, of course, a lot of sort of now fairly aged themes, whether it is displacement of Russian barrels, whether it is Red Sea transits, whether it is big East-West dislocation, also just the evolution of the refining landscape that Bart, I think, presented pretty well where we went from an almost two-way trade in the North Atlantic, which would have been ten, twenty years ago, to those early triangulation trades to now really lively, far-fledged triangulation and combination trade. A lot of stuff is happening in Brazil at the moment with regard to crude inflows, crude outflows, ethanol inflows, ethanol outflows, and the same also on refined products. That I think is probably not really in the scope of public debate quite as much. And it continues. But I think, overall, important just to note that we are guiding about $29,000 a day at 50% booked and just at the Super Bowl, of course. My wife and kids are big Seahawks fans, and so there has been a lot of celebration in the Ruppelt House. So I am dying to make a Super Bowl reference. We are at halftime, and sometimes at halftime, you do not really know how the rest of the game is going to go and it could really go still two ways. But I think we are really heading into the second half of the first quarter with just so many different layers of demand and complexity that it is hard to see huge negative surprises. Bart Kelleher: Maybe I will just layer in as the lifetime Buffalo Bills fan, which is a little tough. But, we were chatting earlier, and Holly Cummings, our Global Head of Chartering, is here as well. And just how tight the market is where, you know, you can have a conversation at the start of the week and maybe the US Gulf is somewhere in the mid-twenties. And then all of a sudden through the week, 30, 40s, 50s, and, you know, they are not satisfied unless they are actually fixing even further north of that. And when you see that in different pockets of the world geography, it just gives you that sense that you definitely have this inherent tightness and if you are there to capture that volatility, it can be very powerful. Omar Nokta: Very good. Operator: Yep. Go over here. Yeah. Richard Shuster, Boston Partners. Speaker 9: What do you think happens when the Russia and Ukraine war ends, if ever? Or what do you think the implications are? How will Europe respond to Russia flows of product? And, obviously, it has been a huge benefit to this company over the last couple of years. Do you think that the market changes materially thereafter? Gernot Ruppelt: I can take a first stab and, Bart, let me know what you want to add. I think clearly the market will change. And as long as the market changes, that is a positive. Hard to really say what the new end state would be given that, you know, the embargo is really an EU embargo, European embargo, but there are also, of course, a lot of individual governments within Europe with different views and different voices. And there is just a lot of stuff in motion politically right now across the world. I would doubt that we are necessarily going straight back to how it used to be. At the same time, of course, the economics of the cheapest barrel will always prevail. But you should not underestimate that also a lot of new trade routes have been established. New trading relationships have been forged. Maybe triggered by this, once people are doing business with each other, they tend to keep doing that. So I would say definitely a change. If we were to just go back to revert back to the status quo, that would be ton-mile negative. But I think just reverting back to how things used to be is highly unlikely considering a lot of those new trade participants in the Atlantic, from West African exports, Brazilian movements, a lot of East-West flows, on top of the California refining system. So I would say change, yes, but not necessarily change for the worse. Operator: Right. From the webcast then, time charters—and Holly got a shout out so we can keep it on theme here. Charter market—there is more of that in the deck than usual. How does that fit in? How does that—what does that say about your expectations? Sort of talk us through time charters and how they fit in. Gernot Ruppelt: Yeah. Really a portfolio approach. I mean, in terms of revenue days for the year ahead, it is still 82% market exposure. So we are still a predominant spot player and for good reason. So I would not want this to be misinterpreted as a full sort of risk-off move. But we always like to look at what we do in the company across the whole portfolio. Buying ships, locking in some high-quality time charters out— there is nothing wrong with having a few top oil majors at really solid rates with a two-handed over multiyear period. And, of course, that could also give us the ability, if we are locking in visibility on earnings on yet a part of the portfolio, we can also then take a bit more risk on the other end of it. As we have demonstrated really not too long ago, we just last year had an interesting— and she is still on time charter— where we extended a ship for a year. I cannot quite recall the rate. It was something around 18, and then flipped it out at— it was a 21% or 22%— really with no risk whatsoever on full back-to-back terms, locking in a couple of million. So something we keep doing and looking at our earnings portfolio as indeed that: a portfolio. Yes. So shout out to Holly Cummings, our Global Chartering Director from our Houston office, who is sitting at the table over there. So well done to the team. Omar Nokta: Okay. Operator: One more chance for the group with us here. Alright. Gernot, over to you. Speaker 7: Closing remarks, we will call it a day. Gernot Ruppelt: Just a thank you. Thank you again for your support. Thank you for following the Ardmore story, many of you over a very long period of time. It has been a new venue. I hope it was to your liking, and I hope the food was pleasant. We are all here to have more Q&A on a one-on-one basis and look forward to interacting with all of you. Thank you again, and wish you a great rest of the day and great rest of the year.
Operator: My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to Northwestern Energy Group Inc 2025 Year-End Financial Results Webinar. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, if you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. And if you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Travis Meyer. Please go ahead. Good afternoon, and thank you for joining Northwestern Energy Group Inc's Travis Meyer: financial results webcast for the full year ended 12/31/2025. As Jordan said, my name is Travis Meyer. I am the Director of Corporate Development and Investor Relations Officer for Northwestern Energy Group Inc. Joining us on the call today are Brian Bird, President and Chief Executive Officer, and Crystal Lail, Chief Financial Officer. They will walk you through our financial results and provide an overall update on progress this quarter. Northwestern Energy Group Inc's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10-K premarket this morning. Please note that the company's press release, this presentation, comments by presenters, and responses to your questions may contain forward-looking statements. As such, I will direct you to the disclosures contained in our SEC filings and the safe harbor provisions included on the second slide of this presentation. Also note that this presentation includes non-GAAP financial measures and information regarding the pending merger transaction. Please see the non-GAAP disclosures, definitions, and reconciliations and the merger-related disclosures included in the appendix of the presentation material. This webcast is being recorded. The archived replay will be available shortly after the event and remain active for one year. Please visit the financial results section of our website to access the replay. With that behind us, I will hand the presentation over to Brian Bird for his opening remarks. Thanks, Travis. Speaking about 2025, first and foremost, I want to talk about how we have done in terms of executing on our strategic initiatives. First and foremost, we announced our agreement with Black Hills Corporation, an all-stock merger of equals. We patiently waited and ultimately closed our acquisition of the Avista and 1126. We recently submitted a $300,000,000 or 131 megawatt South Dakota natural gas project to SPP's expedited resource adequacy study, and we are now including that project in our ongoing capital plan. And we acquired the Energy West and Cutbank Gas natural gas distribution Operator: assets. Brian Bird: On the legislative and regulatory front, we have very, very good outcomes in 2025. On the legislative front, Montana Senate Bill 301 was signed into law, providing greater confidence for transmission investment in Montana, and Montana House Bill 490, signed into law, which clarifies and limits wildfire-related risks, protecting our customers, communities, and investors. So, again, a very good legislative outcome in 2025. On the regulatory front, speaking of wildfire, we also, as part of that legislation, we need to get our wildfire plan approved, and we did get that approval from the Montana Commission in 2025. And then also on the regulatory front, we did complete our Montana Electric and Natural Gas general rate reviews. And then moving forward, thinking about the data center growth opportunities, during the year we signed our third letter of intent with Fonica for 500-plus megawatts. Data center, and we progressed with Sebi from a letter of intent to a development agreement. So that is 2025. More recently, in talking about financial results, and Crystal will get into that here shortly, but the financial results for the full year we reported GAAP diluted EPS of $2.94 and our non-GAAP diluted EPS of $3.58. We are increasing our quarterly dividend by 1.5% to $0.67 per share. We are initiating our 2026 earnings guidance range of $3.68 to $3.83, and we are updating our five-year capital plan to $3,210,000,000, a 17% increase over our prior plan. Speaking of the merger with Black Hills, which we anticipate closing in 2026, we filed joint requests for merger approval in the states of Montana, Nebraska, and South Dakota, but we also filed with FERC. And we recently filed also our Form S-4 and joint proxy. Regarding the Montana IRP, we submitted our draft 2026 Integrated Resource Plan about a month ago. And from a Montana data center perspective, as of yesterday, we advanced our friends at Atlas Power from a LOI perspective to a development agreement. And I will speak to all of these topics a bit more after Crystal's presentation. With that, Crystal. Crystal Lail: Thank you, Brian. In my comments today, I will cover our fourth quarter and year-to-date results. I will also cover, as Brian mentioned, our outlook for 2026 and our updated capital and financing plan. After listening to Brian there, it has been a really, really busy 2025 with a lot of accomplishments, and our team has worked super hard to also deliver on our results 2025, achieving 5.3% growth off of 2024 on a non-GAAP basis. We delivered GAAP earnings of $2.94, which included impacts of merger-related costs, the regulatory outcome rate case in Montana, and a very warm fourth quarter. I will describe those adjustments in a bit further detail here on a later slide. Adjusting for those items, as I mentioned, we delivered $3.58, and that is the efforts after quite a few headwinds during the year to deliver upon our commitments to our shareholders. Moving on to Slide 8. On an adjusted basis for the fourth quarter, we delivered $1.17. Our improved margin reflects new rates, a lot of regulatory execution involved in getting to those numbers, which were offset a bit by mild weather, as I alluded to in this fourth quarter, very warm for us, and impacts of market prices in our Montana PCCAM mechanism. That margin improvement was offset by a one-time charge in the Montana rate review, higher operating costs, and operating costs certainly include merger-related costs as well, and then depreciation and interest expense increases as well. Moving to Slide 9 to talk about some of the adjustments for the quarter. Weather for the quarter was unfavorable by $0.03, but when you compare that to a very mild 2024, however, compared to normal, weather represented a $0.13 impact to us in Q4. Quarter was also impacted by $0.03 of merger costs, the one-time charge for the Montana rate review outcome related to the Yellowstone County generating station and the disallowance of certain costs related to that was $0.38, and $0.03 related to the PCAM reflecting the final order there reflecting cessation of the sharing amount there, offset by a $0.12 tax benefit. You will see that resulted in the $1.17 of adjusted earnings compared to $1.13 in 2024. On a year-to-date basis, moving to Slide 10, our performance is driven by, again, that improved margin driven by regulatory execution offset by detriments of PCAM within of $0.09 from a full-year basis. On an O&M perspective, certainly higher given new maintenance at the Yellowstone County generating facility, the maintenance at our other electric generation, the amount we are spending importantly on wildfire mitigation, and also insurance that has increased in labor and benefits. We also incurred higher depreciation expense of $0.27 and interest expense of $0.23. What I might highlight on this slide is that taxes in the current period include a $0.12 benefit, while 2024 included a $0.39 benefit, which is a good segue to the next Slide 11 to hopefully give you clarity on quite a few things that moved within our earnings from a 2025 full-year basis. Weather, again, was unfavorable by $0.05 compared to normal weather that was $0.18 of detriment for us as we think about our impact to results for 2025. It was a very mild back half of 2025. Most of you will not recall, but we actually started the year through first quarter with favorable weather. So that reversal was really significant for us and impacts also, as we will talk about later, cash and the impact to financing plans. In addition, merger-related costs were $0.15 and the Montana rate review disallowance I spoke to was $0.38. Which notably we have sought reconsideration of that disallowance, but we do not have a clear timeline as to when we might see any impact of that. But that would certainly be a 2026 item, if so. In addition, I spoke to tax benefits and quite a bit of noise within our tax number between last year and this year. There was $0.12 of discrete items benefit in 2025. And that compares to, if you will recall, 2024, we had $0.28 in the prior period. All of that, if you will follow this slide along, gets us to $3.58 of adjusted earnings for our 2025 number, which, as I alluded to earlier, was 5.3% of an increase over 2024. My comment there is, given the significant headwinds we have talked about, the headwinds in our financials from our PCAM mechanism, which, again, I will take a positive out of the Montana rate review outcome indicating that the sharing part of that will be suspended on an ongoing basis. That is important, but that was about $0.09 of impact to us in 2025 total, which we have adjusted out of the fourth quarter here. And then also property taxes being higher, we collect a significant amount of property taxes through our rates. Those increase, and we only recover a certain portion of that between the rate cases. Those were pretty significant headwinds for us during the year, so we are pleased on top of the mild weather that I talked about and the ongoing impact to our financials, we are pleased that delivering $3.58 for 2025. Slide 12, looking forward, from a guidance perspective, we are initiating earnings guidance in the range of $3.68 to $3.83 per share, which represents 5% growth at the midpoint off of our 2025 results and remains anchored to our 2024 base. A significant part of that is moving to Slide 13 and updating our capital plan. Brian mentioned the inclusion of the 131 megawatt generating facility in South Dakota. And also, we have updated to include our incremental full strip ownership. We are very proud of closing those transactions effective 01/01/2026 and being resource adequate to make sure that we can serve our customers. Those two things drive a 17% increase in our overall capital plan over what we have reflected before. You will recall our dedication to having a self-funded capital plan and only issuing equity when it is accretive. On an ongoing basis, I would tell you that the base capital plan that underlies $3,200,000,000 you see here continues to be self-funded. With the incremental South Dakota generation investment reflected here, we do expect to need equity beyond 2026 to fund that investment, which we expect to, if you think about that to be on a 50/50 debt to equity basis, that we would manage that incremental capital. And that is consistent with our overall commitment to maintaining high credit quality in our ongoing plan. Moving to Slide 14 to talk about financing for 2026. Again, I just mentioned that the incremental South Dakota generation investment, that would be beyond 2026. We expect to issue debt to refinance existing maturities and fund our existing capital plan. We closed out 2025 at a lower FFO to debt. That was driven by the things I mentioned earlier of the combination of lack of margins from very mild weather affecting our cash flows and also being significantly under-collected as supply costs on the Montana side. Those two things really drove us closing out the year at a lower level than we would like to. But we remain committed to getting above and staying above our downside threshold. And with that, I will turn it back to Brian. Brian Bird: Alright. Thanks, Crystal. On Slide 16, we speak to the merger with Black Hills and the benefits really to all stakeholders. And obviously, the strategic combination represents a highly attractive value creation opportunity for both companies. On this slide, it really speaks to, certainly going to share all the perspective but also customers. So let me start with shareholders. It increases scale position and growth. Think of moving two companies from a 4% to 6% EPS growth to 5% to 7%. Doubling of each company's rate base totaling approximately $11,000,000,000, both companies having significant growth opportunities and ability to take advantage of this merger today to truly capture those. And as it points out, a little bit lower on the slide, as a larger company, we will be able to expand our investment opportunity. And I should also acknowledge it reduces risk. As a larger company with risks like wildfire risk and other risks that we have in our business, we certainly can sustain those as a larger organization. Also, strengthen the balance sheet and the credit metrics. You heard Crystal speak to that just a moment ago. Obviously, as a combined entity, we have the financial wherewithal to invest more in our businesses as a larger company and do that cost effectively for our customers. And lastly, enhance business diversity. Not one entity will have more than a third in terms of ownership, in terms of representation by a jurisdiction. I think the largest would be approximately 31% for a particular jurisdiction. But also a very, very good mix of electric and gas. And what makes these two great companies, both combo utilities, even stronger on a combined entity. And then the center of this page, and this is really the center of all we do certainly in Northwestern Energy Group Inc, we will speak for our friends at Black Hills. We think about our customers and the substantial long-term value for our customers for bringing these two teams together who are very complementary. We both provide excellent customer service to our customers and are great operators. And I will tell you the savings generated from putting these two companies together ultimately improve the customers in future rate review proceedings. And so, obviously, when people are thinking about affordability, our two companies are thinking about that certainly as we contemplate this merger on a going-forward basis. Moving forward in terms of a timeline, I mentioned earlier that we filed joint applications for approval in three states, Montana, Nebraska, and South Dakota. We did that in Q4, and we have hearings expected in the second quarter of 2026 for those states. We also filed at FERC in 2025. We filed the S-4 joint proxy statement on January 30. And we have shareholder votes both scheduled for April 2. Beyond that, we have also started our integration planning effort. And we do expect anticipated approvals and closing in 2026. Moving forward, thinking about large load customers, and obviously that leads you to discussions around data centers. On Slide 18, I mentioned the far right, you see the Montana large load opportunities. First and foremost, Sadie, I am sure you have been reading about. They have had some issues in terms of property, in terms of their project. They have two sites certainly that they are considering, and right now they continue to, they got a favorable vote here recently to move forward, but they are still looking at the land concerns, and they are dealing with those issues. They have land both in Butte and Anaconda that they are considering. So we continue to work through them as they work through those challenges. We have a development agreement, and we expect to get to an ESA here, hopefully, by 2026. Also, we announced here recently Atlas Power. We have moved from an LOI to a development agreement, and they have been moving much, much quicker, which is good signs. We think from an off-taker or a customer from their perspective, they are getting ready to move forward. That is good news for us. With that development agreement, I would just tell you the benefit of development agreements, these two entities now are putting skin in the game. They put upwards of $500,000 of investment, if you will, for all the studies that are necessary that we need to complete as a utility. And so skin in the game, if you will, for those two entities as we move forward. And I expect at least one of those ESAs to be completed for those two by 2026. Quantica, also making great progress. And hopefully, we will see a development agreement from them relatively soon. As I think about the two states that we provide electric business off to the left, the thing I would say about Montana, we ultimately hope to serve these large load customers on a state jurisdictional basis. And when we have an ESA with one of these parties, we would like to make a filing with the MPSC along with a large load tariff that protects customers, and we are going to do that here in 2026. Regarding South Dakota, there is a significant indication of interest by data centers in the state. The benefit there is any new large load customers that require internal capacity, we have infrastructure riders that can help us with that generation cost recovery. And also the South Dakota PUC has established process for large load customers with a deviated rate tariff. Last thing I would say about South Dakota is during this legislative session we are waiting on sales tax reform in the state, which is something that is very, very important to data centers before they move forward in South Dakota. So watch that in the coming weeks. The second slide I have on data center, Slide 19. The middle of that slide shows letter of intent and development agreements, obviously moving from two letter of intents and the one development agreement to one letter of intent, two development agreements, shows progress there. We would like to move all of those over into the ESA category to the right here relatively soon in 2026. To the far left, I would also talk about data center requests and high-level assessments. You may note that the queue count is actually down a little bit there. And I think what happens, there are a lot of developers here, and they get to a certain point, and if they cannot move forward fast enough, cannot find an off-taker or a customer, that count can reduce. Not necessarily surprised. I think from a high-level assessment, there are some in there we believe certainly could move into that middle category of letter of intent to development agreement. So we are excited there. If we do see some sales tax movement in South Dakota, I expect both of those queue counts to actually go up in 2026. Moving forward on Colstrip. Happy to announce, as I announced earlier, that we closed those two portions of Colstrip, and in addition to our owned 222 megawatts, we have added the Avista 222. That not only allowed us to achieve resource adequacy in Montana, but increased our ownership from 15% to 30%. But knowing that we have not as much control certainly as a 30% owner, we did not have control of the facility as a whole. The incremental Puget piece did two things for us. It moved us from 30% to 55%, giving us that ability to drive strategic direction for the overall facility, but also gave us the ability now to serve large load customers. And so both of those interests, or closing those interests, are operating well for us. And we are excited to have them in the fleet. I will tell you what, I sleep much sounder when cold weather does come to us in Montana and South Dakota. One thing I will say real quickly about Avista and Puget, I think you are well aware. We acquired both of those units for zero, which is a fantastic thing for our customers certainly from affordability and reliability, but we did need to cover our operating costs. And in Montana for the Avista portion, we filed a temporary PCAM tariff waiver with the MPSC in August, and that would provide a near-term cost recovery that is expected to largely offset the approximately $18,000,000 of incremental annual operating costs. That waiver, by the way, was temporarily granted in January 2026. So, hopefully, we will learn more about that waiver in 2026. Hopefully, get full recovery for the full year of those operating costs at some point in the future. From the Puget perspective, we signed a contract in October 2025 to sell that electricity through late 2027. Think of when data centers could come on in the state. And that revenue from that contract is expected to largely offset the $30,000,000 of incremental annual operating costs resulting from the transfer. I think you are well aware we filed with FERC for cost-based rates in October 2025, and we expect approval from that filing in 2026. Lastly, the Northwestern Energy Group Inc value proposition slide, you might have noticed two changes on this slide. The first, Crystal talked to, is the 17% increase in investment over on the right-hand side up to the $3,210,000,000. Second is noting the dividend yield at the top of the page. You might recall that used to say 4%, 5%. I would argue today, we are saying approximately 4%. Keep that in mind as you think about our base plan on the left and our incremental opportunities there in the center. From a base plan, taking that dividend yield plus our 4% to 6% EPS growth, you are looking at an 8% to 10% total return just doing, and I would argue, what utilities are typically doing from electric and gas distribution, transmission, supply investments. This is a kind of bread-and-butter utility investment. And so even with that, thinking about an 8% to 10% total return, and obviously if we are able to capture any data center growth, any work regional transmission, any incremental generating capacity, that return can certainly go over 10%. And so with that, I am going to, from a conclusion perspective, I think you have seen this conclusion slide for many years, I am just going to turn it over for Q&A perspective. Operator: A reminder, if you would like to ask a question during the question and answer session, simply press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Shar Pourreza from Wells Fargo. Your line is live. Brian Bird: Hello? Crystal Lail: Hi. Thank you for the update and great capital plan roll forward. My first question is, Shar Pourreza: previously, you indicated that you file a large load tariff in 4Q. To this ring fence cost for new data center loads, can you update us on the timing and scope? What has changed versus the five, and stakeholders should expect a file tariff at Operator: PS. Crystal Lail: Yes. Whitney, you are cutting out a little bit, but I will take the question. We had said we will file a large load tariff, but I would note that that was tied to signing an ESA. So we want to go hand in hand to file a tariff with a specific contract. Part of that conversation, we have an existing GS2 tariff today. We think we could serve customers off of that tariff, but you want to strengthen that tariff and certainly get ahead of this argument that data centers are not paying their fair share, etcetera. We expect to file that once we have a signed ESA that we can walk through the specific mechanics with the Montana Commission of what that looks like and why indeed they pay their fair share and likely contribute broadly to the system benefit. So once we have a signed ESA, we will plan to file that large load tariff in sync with that. Brian Bird: Yes. The only thing I would add to that is, as I said in the presentation, there is an expectation we would do that by the end of the second quarter. And the reason being, that is when I expect an ESA to occur. And I would say that tariff is ready to go. We are waiting for an ESA. Shar Pourreza: Okay. Sounds good. Hopefully, I become much more audible now. Just for another follow-up, on the merger, there has been focus on large flow data cost, I am sorry, data center cost causation. Stakeholders need or want education, not just on the process. Can you give us an update on how the education plan to stakeholders to demonstrate no harm and affordability has been so far? That is it for me. Brian Bird: I think you are talking from a public process perspective. I think in, yes, you know, where data centers have gotten quite a bit of attention, as you are well aware, throughout the country. And I would argue in Montana, in the community of, obviously, most of the discussion, because Seifi is furthest along in there. And I think the Butte-Silver Bow allowed a lot of conversation. The community ultimately voted 9 to 3 in favor of letting Seifi move forward. So I think I would argue that the data centers are getting to be more vocal. It is talking to the benefits. We, the utility, certainly have been supportive of that effort. And I think what we need to demonstrate, all of us need to demonstrate, is from a tariff perspective, that is our plan, and allow the MPSC to approve a tariff that we would put a tariff in front of them that is going to protect customers. And I think when customers understand that, they are going to feel much, much better about it. Obviously, they are reading what is happening in other parts of the country and how customers have been impacted by data centers, and it is easy to jump to conclusions. And so I think there has been a decent dialogue about this topic. Certainly, I and others have been out talking about it, and I am not saying it is going to be easy either for data centers, but I think thus far, we are making good progress with Xavien, Atlas, and Quantico, as I know, is out there talking about this as well. So I feel pretty good about where we are. Operator: Your next question comes from the line of Aidan Charles Kelly from JPMorgan. Your line is live. Brian Bird: Hey. Good afternoon. Just wanted to touch on the load fund first if I could. It seems like there have been a number of quarters in the past that we have been waiting for an ESA. And, Brian, you mentioned in your prepared remarks some friction on the land considerations with Sabie perhaps going longer than expected. Do you see this issue kind of percolating to other prospective loads such as Atlas and others? Just in general, what do you think is needed to push these development agreements into the goal line at this time? Yes. I think you have seen, I will take a bit of a mea culpa here myself. I think in thinking about ESAs, we at times were the holdup to getting these ESAs done, and we are ready to go from our perspective. And then unfortunately, for Sabie, they ran into this land issue, and they are working through that. So I think this is not just on the utilities to get these things done. In many cases, developers also need to find customers, and before they are ready to sign an ESA, sometimes they need to have that done. It is much easier for hyperscalers, of course, who do not need to find customers. So I do think that Zavie is working awfully hard to get to an ESA. Atlas, obviously, moving to a development agreement, the next step is to get to an ESA. So I have seen that it has taken a bit longer nationally for this process, and certainly, it has impacted us a bit here. But I am also very confident in terms of where we sit with these three providers today or these potential data centers. I feel very good about where we ultimately will get. Got it. Makes sense. And then just turning to the growth outlook, if I could. I see you affirmed the 4% to 6% rate base CAGR post the South Dakota plant, which I believe is directionally around maybe $300,000,000 in CapEx. And then, obviously, you mentioned in the remarks that it is perhaps 50% equity sourced. So I guess my question would be, do you see as the offsetting factors to that share dilution that kind of gives you the confidence of that reaffirmed 4% to 6% EPS CAGR. Crystal Lail: Sure. The great thing about, and we have talked about this, what are the incremental opportunities to that total return, the incremental opportunities to the right side. The incremental generation in South Dakota, we recover cash during, there is a phase-in rate plan rider that allows us to recover. AFUDC is great. It is accretive to earnings, but it is not accretive to cash. As we have talked about how do you finance those things along time, so that opportunity that presents itself with meeting the resource adequacy requirements at SPP, owning that generation here and building that facility, that is the right kind of incremental CapEx that we have looked to layer into our plan. We are excited to do that. That is certainly the kind of stuff that gives us confidence to maintain or even push upward on our earnings range while also financing that in terms that make sense. So that is where we have been pretty clear. That is the type of incremental CapEx we were looking for. That is incremental to our base plan, so we will fund that in a fifty-fifty kind of approach. We will recover cash during construction with the phase-in rates rate plan and then, obviously, ultimately see growth off of earnings out of that once it is in service. Brian Bird: Great. For the insight. I will leave it there. Take care. Shar Pourreza: Thanks, Amy. Shar Pourreza: Thanks, Amy. Operator: Your next question comes from the line of Nicholas Joseph Campanella from Bank of America. Your line is live. Brian Bird: Hey there. Hey. Thanks for, how are you? Thanks for taking the questions. Just wanted to kind of clarify on the overall ESA strategy. Is also my prior understanding was that the system is long, so you may not need for the first couple deals a dedicated framework to pay for the depreciation, the interest, and what would be associated with new build. But just this ESA will inform how you propose an overall tariff for all of that in this upcoming first half here. Is that just the general strategy? I am sorry to make you go back and repeat yourself. Yes. I think as an example for how we want to make sure we are protecting customers. And I think the discussions we are having with data centers, they want to protect customers too, the folks that we are certainly talking to. And so going hand in hand with them with an ESA and a tariff, that is the plan, and that is in the plan by 2026. Crystal Lail: And, Nick, I would add on to that. Just every data center is site-specific. Some of them, to your point, we are long generation. What is the transmission needs? Maybe some of them are not much CapEx. All of that, we do have an existing tariff. I know we talked about that a year ago. We felt like we can serve customers under that. We do still today. As you know, the national narrative on data centers has changed a bit, and there is a lot of what I would call misinformation about what they can do to certainly help shoulder the cost of the grid and, in fact, subsidize some of your other customers. I think everywhere you are going to see commissions want to understand that better. We got feedback from the Montana Commission, and we certainly want to be transparent with them and bring that forth so that you have a positive construct under which you are doing that. So while each one is unique, bringing something forth that demonstrates the value that a data center can have, a large load facility can have on the grid, and that they are indeed paying their fair share while we would be comfortable serving them under an existing tariff, I think there is also a lot of value to making sure your regulators are understanding that and, of course, then the public sentiment around that remains positive. Yes. One thing on that too, Kristi, Brian Bird: sparked a thought for me. I think this issue of protecting customers, I think there is a confusion around why the Puget portion was put into a FERC-regulated entity. Our intent here is actually to protect customers. The need here really for the future piece, we needed it to get control of the facility, but from an energy perspective, we certainly did not need it until the 2027 timetable. So instead of imposing $30,000,000 of costs on our existing customers, we found a means to deal with that and protect customers while that is in a FERC-regulated entity. And where our hope is, as I mentioned earlier, ultimately to move that into a state-regulated entity when we have large load customers we can serve through that. And so that is ultimately what we are trying to do. We would love to see everything on a state-regulated basis. But we do want to serve large load customers in any way that is best to serve our customers today. Okay. Thank you. Thanks for the updated thoughts there. I appreciate it. And then maybe just going back to the financing plan quick. In the prepared, you just kind of mentioned the 13% FFO to debt. Is all incremental CapEx at this point going to require some equity now? And just can you talk a little bit about if these ESAs materialize and you get this load on the system, how that changes the equation around the financing for you guys? Crystal Lail: Sure. We have said repeatedly that we size our base capital plan based off our cash flow availability and to hit our credit quality metrics. Obviously, I mentioned 2025. The key drivers there are falling below the 14% FFO with lack of cash, and that comes from the very mild weather and the margins we would have expected to Operator: I think that is around $80,000,000. So we expect that to come back in 2026. But we are always planning our capital plan to maintain a solid balance sheet and have credit quality. So your question of what happens with incremental capital, and, again, as I alluded to the Aberdeen generating station, we recover cash during construction of that. If you think about the ramp period of any data center and incremental capital that would be required there, you would have a very similar funding mechanism that you see cash during construction. And that is the kind of stuff that is accretive, and we certainly would look to issue equity for that kind of accretive growth. So that is where we have had a dividing line all along, is we will be very disciplined about our base capital plan, and that is a regulatory lag that is 18 to 24 months off of putting that in the ground to recovery for that kind of stuff. We need ongoing cash flows to support that. For stuff that drives growth, as anything large load would, that is the type of stuff we would look to maintain equity issuances where that makes sense. But, again, nothing until 2026. Just to make sure I was clear. We have received 2027 and beyond. Nothing in 2026. Thanks for the time. Brian Bird: Thank you. Thanks, man. Your next question comes from the line of Paul Fremont from Ladenburg. Your line is live. Operator: Thank you very much. My first question has to do with the, for the South Dakota plant, do you have a Crystal Lail: are you in the queue for a turbine, and what would be the commercial operation date of that plant? I will start with the commercial operation date. We are looking at, first of all, we have a plant in construction now. I think you are speaking to the 131 megawatts. That is a $300,000,000 investment. We are already making an investment in 2026 for turbines. Right. And so I would say approximately a third of that will be made in 2026 to get our turbines in place, and the plant is expected to be completed in 2030. Brian Bird: Okay. And you are in the queue where you have, if the turbines are lined up, for that 2030 in-service date, Crystal Lail: Well, we are buying turbines. Brian Bird: Okay. Operator: My next question has to do with, if the endangerment finding Brian Russo: is reversed at EPA, what is that, does that change the potential investment in environmental upgrades at Colstrip? And can you also update us on where things stand in terms of environmental upgrades? Crystal Lail: Yes. I think obviously, we will do whatever we need to, in essence, to keep Colstrip open as long as it is economic. And, obviously, if we are forced to do something we think is not necessary, we would probably invest in a gas plant if we are required to do something sooner rather than later. It has always been our hope here with this investment in Colstrip we can keep that plant open and operating through the depreciable life that we expected in the 2040 timetable. And, again, hopefully, technology, possibly nuclear, possibly long-duration storage, whatever that is, helps us replace Colstrip with something that is cleaner. But if we are forced to do something sooner, either investing in environmental controls, if you will, or ultimately building a gas plant, we will do that too. We need to serve our customers with Colstrip or its replacement. And so it is hard to answer that question today, Paul, until we see ultimately what is happening, but I have to say, what we are expecting out of the administration is certainly helpful for our long-term plans for Colstrip at this point in time. Operator: I would also just clarify our five-year capital plan. We did roll in related CapEx, but that is maintenance CapEx, Paul, is how I would refer to that. Brian Russo: Right. There is no material environmental CapEx in that number. So if something changes over time, certainly, we would talk about that at the time. We had talked about the MATS ruling previously and how that might impact Colstrip, but we never had any numbers in our capital plan related to that. Brian Bird: And Brian Russo: is there, I mean, is there any update in terms of whether those rules will be voted on or applied by the EPA? Or for the time being, should we just assume that nothing is moving forward along those fronts? Crystal Lail: Along that front? Yes. I think we have been expecting to hear something on this any day now. And I guess until we actually see what the rules say, I will hold off on how to respond to that. Brian Russo: And then lastly, any updates on the remaining portion of Colstrip ownership where the parties most likely will need to divest their ownership interests. Brian Bird: You know, Crystal Lail: Paul, we just grabbed these two pieces from Puget and Avista. That 592, we are extremely happy with those. We would like to certainly understand how the commission looks at it and ultimately how things are working out with data centers. You know, we are extremely happy with being able to get to 55% ownership, and I will stop there. Brian Russo: Right. But, I mean, theoretically, how would those costs be picked up if the other owners were forced to exit. Crystal Lail: Are you talking environmental costs that have to be applied? Brian Bird: What are you talking about? Like, if Brian Russo: exit the plant ownership because of state laws, then what would happen to their share of the operating costs? So would they, I guess, would they still be up on the hook for that? Or how would that work? Yes. I think they would be in a tough spot. Crystal Lail: I am guessing, and I am guessing all of them are looking for means to exit other than Talend does not need to exit. But I am sure they are talking to folks about Brian Bird: Great. That is it. Thank you very much. Your next question comes from the line of Rex Savage from Clear Street. Your line is live. Brian Russo: Hi. Thank you. I wanted to ask Crystal Lail: just quickly on merger state regulatory. We have seen a bit of a delay in South Dakota. I was curious if there is anything to be concerned about there. In the Montana review, it looks like some of the intervenors have made the claim that the application is incomplete, perhaps because there is not a benefits study that is in there, maybe for other reasons. So do you feel comfortable with the Montana timeline as it stands, or might we also see a delay in Montana? Thank you. Operator: Sure. I will take that one. So first, your question with regard to South Dakota and the timeline there. South Dakota has a six-month statute, which I would acknowledge is a bit of a quick shot clock on getting through all the process and procedure and making sure they are comfortable with that. We are working with staff on resetting a bit of an extension to that procedural schedule. I do not have any concerns there. They are asking the right questions and going through the right process. They just need a little bit more time, and they would have been in front of both Nebraska and Montana. So we are working with them on resetting the procedural. I still think that they will Brian Russo: likely Operator: in the end, be well ahead of a Montana order even with the revised procedural schedule. So no concern there. You have also seen it progress in Montana in what I would say is a bit normal given the nature of the intervenors there and who they are. So we have responded to the motions there. You have intervenors’ testimony when they come in, and overall, again, exactly as we would expect the docket to progress. Brian Russo: There are the Operator: comments as to maybe commitments that we could make, what they would like to see to better understand that. We do certainly recognize that in each of the jurisdictions we serve, not just the ones we are in, a big part of your local commitment is your utility, and we want to make sure through that the right sorts of ways. So I would not say there is any concern in how those dockets are progressing. The concerns expressed are, I think, typical for each of those intervenors. And the intervenor testimony, I think, paints the path towards the direction of the things they want to make sure are considered in an eventual outcome. Crystal Lail: Thank you. And as a follow-up on Montana, I believe you are going through this IRP process now as well. How does that, if at all, fit in to the review? Maybe not necessarily the review directly, but Ross Allen Fowler: the timing of the review for the deal versus the review of the IRP. I believe the final draft is due in maybe a couple of months, but please correct me if I am wrong. Brian Russo: Yes. The IRP is Crystal Lail: out, and we will have a chance to see. I do not anticipate there is any connection between the IRP and the merger process. Ross Allen Fowler: Thank you. Brian Bird: That concludes the question and answer session. I will now turn the call over to Brian Bird for closing remarks. Crystal Lail: Well, I think Crystal pointed out earlier on the call, we actually had a really very, very good 2025. I mean, obviously, we ran into some issues in terms of the rate review, and I will come there. But remember, I think we need to think about the revenue requirement associated with that. That continues to help us invest as those things we need to to continue to provide good service to our customers. But if you think about our ability to certainly announce the merger and all the work we are doing with our friends at Black Hills to get that across the goal line. Think about our ability now to have Colstrip to be resource adequate in Montana, and certainly in this age when people are certainly very, very concerned about reliability and affordability. I feel much, much better about that in terms of how we serve our customers. And also thinking about longer term, how can we continue to make the investment we have, but also earn the appropriate returns we have for our shareholders. And I think 2025 set us up very, very good for that on a going-forward basis. And with that, I just want to continue to thank all of you for your support of the company and your interest in what we are doing here at Northwestern Energy Group Inc. And we certainly want to thank everyone at Northwestern Energy Group Inc for all the hard work in 2025 as well. So with that, I want to say thanks. Brian Bird: That concludes today’s meeting. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 CoreCivic Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Jed Bachmann. Please go ahead. Jeb Bachmann: Thank you, operator. Good morning, everyone, and welcome to CoreCivic's Fourth Quarter 2025 Earnings Call. Participating on today's call are Patrick Swindle, CoreCivic's President and Chief Executive Officer; and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On this call, we will discuss financial results for the fourth quarter of 2025 as well as financial guidance for the 2026 year. We will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors including those identified in our fourth quarter 2025 earnings release issued after market yesterday as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q and also 8-K reports. You are cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non-GAAP metrics. A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the Investors page of the company's website at corecivic.com. With that, it is my pleasure to turn the call over to our CEO, Patrick Swindle. Patrick Swindle: Thank you, Jeb. Good morning, and thanks, everyone, for joining us for CoreCivic's Fourth Quarter 2025 Earnings Call. On this morning's call, we will discuss our latest operational results and update you on the latest developments and opportunities with our government partners. Following my opening remarks, I will hand the call over to our CFO, Dave Garfinkle, who will provide greater detail on our fourth quarter and full year 2025 financial results as well as introduce our 2026 financial guidance. Dave will also provide an update on our capital structure, including activity on our share repurchase program and other balance sheet initiatives. First, I'd like to provide an update on our activation activities, where we continue to move towards stabilized occupancy in mid-2026. As a reminder, we announced new awards in the second half of 2025 at the 600-bed West Tennessee Detention Facility, the 2,560-bed California City Immigration Processing Center, the 1,033-bed Midwest Regional Reception Center and the 2,160-bed Diamondback Correctional Facility. While 3 of the 4 previously idle facilities continue to receive additional populations, the fourth, Midwest Regional, continues to experience a delay in the intake process as we await the result of a special use permit application that we filed in December 2025. We've been engaged with the city on the application and the conversations have been productive. In aggregate, and excluding Midwest Regional, these 3 new contract awards are expected to generate annual revenue of approximately $260 million once our operations normalize. Once we reach stabilized occupancy on these previously idle facilities, which we expect to occur during the first half of 2026, we expect our annual revenue run rate to be approximately $2.5 billion and our annual EBITDA run rate to increase by almost $100 million year-over-year to approximately $450 million. This is not counting Midwest Regional or any additional contract awards. Let me emphasize that point. Our 2026 guidance is consistent with the commentary on our last earnings call, despite excluding Midwest Regional due to uncertainty around initial detainee intake. Once operational, that facility will provide upside to our initial 2026 guidance. Moving to a discussion of the business climate. In early January 2026, nationwide ICE detention populations were at historical highs of around 69,900 individuals, an increase of almost 10,000 individuals from the end of the third quarter. ICE was our first customer 43 years ago and has been our largest customer for over a decade. From the end of 2024 through the end of 2025, ICE populations in our care increased 5,903 individuals to just over 16,000 or 58%. Nationwide populations from the U.S. Marshals Service, our second largest customer, have declined from the prior year, partially offsetting the increase from ICE as facilities that share contracts between the 2 agencies have extended the capacity to ICE due to the higher demand. Marshals populations are also down nationwide due to fewer apprehensions at the southern border. Our average daily Marshals population has declined by 1,235 individuals from the fourth quarter of 2024. As we continue to look for additional ways to meet our government partners' needs, we believe we can make available substantial capacity to meet future demand. Even after the aforementioned activations, we own 5 idle corrections and detention facilities containing approximately 7,000 beds. Along with search capacity, we've made available at certain facilities and partial capacity we have in facilities that are currently in operation, we've informed ICE that we can provide it with nearly 13,000 additional beds. And this does not include additional capacity we may be able to provide through other means. We are confident that the detention beds that we provide are the most humane, most efficient logistically, most compliant, most secure, are readily available and provide the best value to the government. Our Dilley Immigration Processing Facility is a great example. This is a purpose-built facility for family residential housing that we first operated in 2014 under the Obama administration. Last year, we entered into a new agreement that extends into 2030. As part of that contract, we must meet performance requirements based on a combination of rigorous accreditation and government established performance standards. There are full-time federal monitors on site to ensure accountability in compliance with the contract. This includes specific quality measures and standards for cleanliness, high-quality food and basic necessities, legal access, medical care and translation services. For those of you interested in learning more about this facility, I would encourage you to visit our website at www.corecivic.com, where you can take a virtual-guided tour. Beyond these federal opportunities, we are seeing an increase in opportunities at a state level as well. In addition to increases in populations under existing contracts, we're in discussions with several states in need of additional bed capacity. One or more of these opportunities could include the use of our idle correctional facilities. These opportunities could transpire in the coming quarters. I'll now move on to a high-level overview of our top line revenue and fourth quarter operational performance. Federal partners, primarily Immigration and Customs Enforcement and the U.S. Marshals Service comprised 57% of CoreCivic's total revenue in the fourth quarter. Revenue from our federal partners increased 49% during the fourth quarter of 2025 compared with the prior year quarter. Further breaking down our federal revenue. Revenue from ICE increased $124.4 million or 103.4%, while revenue from the U.S. Marshals Service decreased by $11.3 million versus the prior year quarter. As mentioned, some of this decline is simply a shift in mix where ICE and Marshals share contract. Revenue from our state partners increased 5% from the prior year quarter. This increase includes additional revenue from the State of Montana, resulting from 2 new contracts we signed with the state since the second quarter of 2024 and population increases in Georgia and Colorado. Total occupancy for our Safety and Community segments for the quarter was 78.1%, up 2.6 points since the year ago quarter. The average daily population across all of the facilities we manage was 56,380 individuals during the fourth quarter of 2025 compared with 50,202 in the year ago quarter. This increase was driven by more demand for our services, new contracting activity and the Farmville acquisition that was completed July 1, 2025. Our teams continue to be successful in working with our government partners in managing the additional people in our care for which we are focused on delivering the highest quality services and environment every day. Our fourth quarter results exceeded our internal projections for adjusted EPS and normalized FFO per share by $0.08 each and adjusted EBITDA by $8.6 million. Despite full year 2026 EBITDA guidance near record levels, our stock is currently trading at a discount to our historical trading multiples, which we believe does not reflect the cash flows of our business particularly considering the ongoing ramp of previously idled facilities, giving us good visibility of our growth potential in 2026 and beyond. Therefore, we plan to continue to prioritize our cash flow on share repurchases taking into consideration stock price and alternative opportunities to deploy capital, among other factors. That being said, we have the balance sheet flexibility to take advantage of other growth opportunities that we may identify. The substantial progress made during the year in reactivating previously idled facilities couldn't have been accomplished without the hard work of our employees and strong relationships with our government partners. I'm confident we have the right plan and the right teams in place to be successful, both in these and future activations. In the meantime, we continue to remain focused on effectively managing our core portfolio and ensuring we meet our high operational standards as well as those of our government partners. Without this focus and strong performance, these additional opportunities would not exist. And so as I turn it over to Dave to discuss our fourth quarter financial results in more detail, our capital allocation activities and assumptions included in our 2026 financial guidance, I'd like to again express my appreciation to our 13,000 employees. I want to recognize their focus and commitment to ensuring that everyone in our care has provided a safe, secure and humane environment, delivering industry-leading quality to every individual for which we are responsible. Dave? David Garfinkle: Thank you, Patrick, and good morning, everyone. In the fourth quarter of 2025, we generated GAAP EPS of $0.26 per share and FFO per share of $0.51. Special items in the fourth quarter of 2025 included a $1.5 million net loss on the sale of assets and $0.7 million of M&A charges reported in G&A expense. Excluding special items, adjusted EPS was $0.27 compared with $0.16 in the fourth quarter of 2024, an increase of 69% and normalized FFO per share was $0.52 per share compared with $0.39 per share in the prior year quarter, an increase of 33%. Adjusted EBITDA was $92.5 million compared with $74.2 million in the fourth quarter of 2024, an increase of 25%. Adjusted EPS exceeded average analyst estimates by $0.09 per share and adjusted EBITDA exceeded average analyst estimates by $9 million. The increase in adjusted EBITDA from the prior year quarter of $18.3 million resulted from higher demand and utilization of our solutions by our federal and state partners, including revenue from ICE that more than doubled. The number of ICE detainees in our care followed national trends, which reached record highs during the fourth quarter of 2025. We manage approximately 23% of total ICE populations as of both December 31 and September 30, 2025, compared with approximately 25% at year-end 2024. Revenue from our state partners grew 5% and included notable increases from Georgia, Colorado and Montana. Results for the fourth quarter of 2025 reflect the full activation of the 2,400-bed Dilley Immigration Processing Center, which was completed in the third quarter of 2025. Funding for this facility was previously terminated effective August 9, 2024, and the facility remained idle until its reactivation in the first quarter of 2025. Fourth quarter results also included start-up activities for new contracts at our 2,560-bed California City Immigration Processing Center and our 2,160-bed Diamondback Correctional Facility where we signed new management contracts during the year. Both of these facilities were idle at the beginning of the year and are expected to reach stabilized occupancy in the first and second quarters of 2026, respectively. These 2 facilities incurred facility net operating losses totaling $3.6 million in the fourth quarter of 2025. Other factors affecting EBITDA and per share results included higher G&A expense, more than offset by the favorable impact of our share repurchase program and the acquisition of the Farmville Detention Center on July 1, 2025. Collectively, these 3 items accounted for an increase in adjusted EPS and normalized FFO per share of $0.03. Operating margin in our Safety and Community facilities combined was 22.2% in the fourth quarter of 2025 compared with 23.6% in the prior year quarter. Excluding the 4 facilities in various stages of activation, operating margin was 24.1% for Q4 2025. As these facilities reach stabilized occupancy, we anticipate further margin growth. Turning next to the balance sheet. On December 1, we amended our bank credit facility to increase the size of the accordion feature that provides for uncommitted incremental extensions of credit and expanded the capacity under our revolving credit facility from $275 million to $575 million. Including the original $125 million term loan, commitments under our bank credit facility totaled $700 million which reflects the strength of our accessibility to bank capital and our deep banking relationships. Expanding the size of our revolving credit facility provides us with enhanced balance sheet flexibility while remaining positioned for strategic investments and long-term value creation such as through our share repurchase program. During the fourth quarter, we repurchased 5.3 million shares of our common stock at an aggregate cost of $97.3 million, increasing our year-to-date repurchases to 11.2 million shares at an aggregate cost of $218.4 million. These repurchases represent 10.2% of our outstanding shares at the beginning of the year and reduced the number of shares outstanding to 100 million as of December 31, 2025. Since the share repurchase program was authorized in 2022 through December 31, we have repurchased a total of 25.7 million shares at an aggregate price of $399.5 million or $15.52 per share. As of December 31, we had $300.5 million available under our Board authorization which includes an increase of $200 million authorized by our board in the fourth quarter of 2025, increasing the cumulative repurchase authorization to up to $700 million. After taking into consideration the share repurchases, our leverage measured by net debt-to-adjusted EBITDA was 2.8x using the trailing 12 months ended December 31, 2025. As of December 31, a we had $97.9 million of cash on hand and an additional $311.4 million of borrowing capacity on our expanded revolving credit facility, which had a balance of $245 million outstanding providing us with total liquidity of $409.3 million. Moving lastly to a discussion of our 2026 financial guidance, we expect to generate diluted EPS of $1.49 to $1.59. FFO per share of $2.54 to $2.64. And EBITDA of $437 million to $445 million. Consistent with our past practice, guidance does not include the impact of new contract awards not previously announced because the timing of government actions on new contracts is always difficult to predict. Even though we entered into a new management contract with ICE at our Midwest Regional Reception Center last year, our guidance does not contemplate the ramp-up of detainee populations at this facility as the intake process continues to be delayed by a claim that a special use permit is required to operate the facility. Although we dispute this claim and consequently filed a lawsuit in state court, which remains under appeal, we have nonetheless filed an application for the SUP. Although we can provide no assurance, discussions have been collaborative, and we are optimistic in a favorable outcome, which would be upside to our guidance. We still have 5 remaining idle facilities containing 7,066 beds, and we believe incremental demand for more idle facilities will likely be needed once ICE absorbs the recently contracted beds. With historic funding levels for border security and immigration detention obtained under the One Big Beautiful Bill Act secured through September 2029 and an expectation of a continued increase in detention bed demand nationwide as well as growing demand from existing and potentially new state government partners, we believe there are numerous opportunities to activate additional idle facilities we own. We also believe there could be opportunities to manage additional bed capacity not currently in our portfolio. These opportunities would also be incremental to our guidance after considering any start-up expenses. We plan to spend $60 million to $70 million on maintenance capital expenditures during 2026 and $15 million for other capital expenditures. Our 2026 forecast also includes $35 million to $40 million for capital expenditures associated with previously idled facilities we are activating and for additional potential facility activations in order to prepare these facilities to quickly accept residential populations if opportunities arise. Approximately $23.5 million of the CapEx associated with activations represents capital expenditures included in our 2025 forecast that was not spent by year-end and therefore, has been carried over to be spent in 2026. We expect adjusted funds from operations, or AFFO, which we consider a proxy for our cash flow available for capital allocation decisions such as share repurchases and growth CapEx such as facility activations to range from $245 million to $259.3 million for 2026. We do not believe the share price of our common stock reflects the value of the cash flows of our business as we are trading below historical multiples despite visibility of cash flow growth in 2026 driven by recent contract awards. Therefore, we expect to prioritize our cash flows to continue executing on our share repurchase program, which has been incorporated into the range of our guidance. The amount of our share repurchases will take into consideration our stock price, liquidity and earnings trajectory and alternative opportunities to deploy capital. We expect our annual effective tax rate to be 25% to 30%. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2026 to range from $160 million to $165 million. [ We're ] modeling our quarterly results. As a reminder, compared to the fourth quarter, Q1 is seasonally weaker because of 2 fewer days in the quarter, higher utilities and because we incur approximately 75% of our unemployment taxes during the first quarter, resulting in a collective $0.04 per share decline from Q4 to Q1 and negatively impacting our operating margins. However, in Q1 2026, these negative effects are expected to be offset by facility net operating income generated at our California City and Diamondback facilities, which are projected to reach profitability in the first quarter due to the continued intake of detainee populations. I will now turn the call back to the operator to open up the lines for questions. Operator: [Operator Instructions] And our first question for today will be coming from Raj Sharma of Texas Capital Bank. Rajiv Sharma: I was -- so there were no new reactivations in 4Q. Was that because of the government shutdown or the year-end? Also, there's been a lot of talk of warehouses. Patrick Swindle: So to answer your question -- this is Patrick. So there were no new contracts that we entered into in the fourth quarter. We have been in active dialogue with our customer, and we're always exploring different ways to support their desired enforcement approach. And so I would really look at the pacing of additional capacity is driven by bed demand. We've obviously have available demand within facilities already activating as we believe our peers do as well. And so you would expect that additional capacity would be added as needed to reflect that. And so I certainly wouldn't take the fourth quarter not having a new award is indicative of lack of potential additional demand. It's more reflective of, I think, the ebb and flow of demand that's presenting, and certainly, we're well positioned with 7,000 beds that are presently available in idle facilities, additional 5,000 beds within existing facilities that are immediately available for use. So again, we think we're very well positioned, both with existing contracts and potentially idle facilities as that demand manifests in a way that requires additional contract actions. Operator: Next question is coming from the line from the line of Matthew Erdner of JonesTrading. Matthew Erdner: You talked a little bit about the safety margins and kind of the expectation for those to improve. Is the decline in margin there just kind of as you guys activate these facilities, bring them online, like you're talking about with California City and Diamondback. David Garfinkle: Yes, this is Dave. So absolutely, that's correct. I think if you backed out the 3 facilities that were being activated during the quarter, our margin was around 24%. And so as those facilities do reach a stabilized occupancy in the first half of 2026, we would expect that margin to continue to grow. Matthew Erdner: Got it. That's helpful. And then as a follow-up, you talked a little bit about the increased opportunities specifically to manage other facilities. What's your confidence on, I guess, gaining the capacity for you guys to bring in employees, get it staffed up. Are there any concerns there with staffing that? Just, I guess, what's the dynamic right there at the moment? Patrick Swindle: So we reactivated our South Texas, our Dilley facility, very quickly, we're able to staff that rapidly being able to deliver our activation sooner than we had expected or modeled initially. In our other locations, we've been very successful in being able to staff up. And so we do not believe that our ability to staff would be a limiter in terms of our ability to offer or use our bed capacity. The team is very well structured. They developed operating plans coming into 2025 that would allow them to be able to respond quickly when a new facility activated we've made preemptive investments across our portfolio to prepare those facilities for use. So really, we don't see an inhibitor in our ability to activate either through capital needs or through staffing challenges, our ability to quickly respond to demand if it presents. David Garfinkle: And I'd add, Diamondback, we actually didn't expect that to start taking detainees in until January but we actually activated that one earlier or began accepting detainees earlier in late December. It didn't have a big impact on the quarter, it was very late December, but it was indicative of our ability to hire and meet the demands of our partner in that case. Operator: Our next question is coming from the line of Greg Gibas of Northland Securities. Gregory Gibas: Patrick, Dave, congrats on the results. Wondering if you can maybe speak to the current contracting environment and how your dialogue with ICE and the DHS has trended of late, and also maybe wondering along those lines, if you could or would be willing to opine on the recent headlines related to the Minnesota pullback that Homan announced and possibly investors misinterpreting that as a national mandate change. Patrick Swindle: Sure. So for -- with your first question, the way I would answer that is we are a constant dialogue with our customer as we assess what their needs are and try to evaluate how we can participate in that. And so that dialogue is very consistent today as it's been all along with both current and prior administrations. So we would expect to be actively engaged at all times and discussing what is the need, how can we best support that need? Is that a need that we can deliver high-quality outcomes in a way that we believe we can be successful in supporting their mission. So that's something that we're obviously always focused on always ensuring that we're well positioned to be able to step into those places where we believe we can be helpful to our government partner. If opportunities present in a specific way that would give you more detail, we're certainly going to do that. At this moment, there isn't a specific update I'd give you in terms of pipeline opportunity, but I can assure you that we remain an ongoing dialogue around how we can best support our partners' mission. Second part of that question is, I think you really have to pan back to national enforcement activity and approach. At any given time, ICE is taking different enforcement approaches across the country. And so I think if you were to look at Minnesota, specifically as a discrete example, that was a larger scale discrete enforcement action that obviously is a bit different than what we've seen around the country. And so I think to extrapolate the activity or the action that was discussed this morning nationally, I think it's difficult because I think that was a unique enforcement action. And so if I look the country, I, at this point, don't see meaningful changes in enforcement style or approach as that approach has not been consistent with what we saw in Minneapolis because it was a large-scale discrete initiative. Gregory Gibas: Great. That makes sense. And if I could just maybe ask if you're willing to share any more color on buybacks and intentions there. in terms of shares bought back for the year and like 5% in Q4, pretty impressive. And I just wanted to see if you could provide any additional color on maybe your -- how aggressive you'll be with buybacks going forward? David Garfinkle: Yes. Sure, Greg. This is Dave. I'll take that one. Yes, it was a pretty active quarter. We had indicated we were going to double the pace of the first 3 quarters of 2025 in the fourth quarter. In fact, we bought back more than double the pace in the fourth quarter. We bought back an average, I think it was $18.25 in the fourth quarter, obviously trading lower than that this morning. So we're expect to continue to buy back shares at this price. Even at the $18.25, we felt like it was a good buy trading at a significant discount to our historical EBITDA multiples. So yes, I mean, that's -- we have full support of the Board. So I expect we would continue to buy back shares subject to any legal limitations that there are. Operator: Our next question is coming from the line of Ben Briggs of StoneX Financial. Ben Briggs: Congratulations on the quarter and the guidance. I've got a couple of quick ones here. So fiscal year guidance is for about $441 million. And I know you said during the scripted portion of thecall that $450 million-ish is kind of the new EBITDA run rate. Can you just clarify, does that $450 million EBITDA run rate include the 2 new contracts that you discussed at the beginning of the call, but not the Midwest Regional Facility? David Garfinkle: Yes, you got it exactly right. Ben Briggs: Okay. All right. Great. And then over and above that, if you were to activate the Midwest Regional Facility, what do you think the potential EBITDA upside from that would be? David Garfinkle: Well, we wouldn't disclose the EBITDA associated with that facility. I think we did disclose the revenue associated with that facility. So that's probably the best data I could give you. As you look at our full year guidance for 2026, we do expect still to be at the $450 million run rate in the second half of the year. So if you just back off half of that minus the -- or $441 million as the midpoint of our guidance minus $225 million for the second half of the year, you get to a little over $100 million per quarter in Q1 and Q2. So that's pretty detailed. There is that dip, as I mentioned in my prepared remarks, from Q4 to Q1. The $0.04 decline from Q4 to Q1 for unemployment taxes and utilities. Yes, and Midwest was a $60 million annual revenue. Patrick Swindle: And just to add a bit, I would say, when you look at the guidance that we have provided, it assumes no new incremental contract wins. So whether that's Midwest Regional and ability to activate that facility under the final approval of the SUP, which we're optimistic regarding -- but also any other new business opportunities that present would also provide incremental upside. So in terms of visibility into the guidance, this is probably the greatest visibility that we've had in providing guidance in a number of years, given the pace of growth that we're anticipating in 2026. Ben Briggs: Understood. Understood. I appreciate that. So I guess my follow-up was going to be, so you have these -- you've got 5 idle facilities that you said have 7,000 beds over and above these new contract wins? And then did I hear you correctly when you said with surge capacity very -- the total room for additional population you could have is up to 13,000 beds. Patrick Swindle: That's correct. Ben Briggs: Understood. Okay. I just wanted to clarify that. And then finally, I just want to touch on the revolver that you guys upsized in the share purchases. Does drawing the revolver remain an option for share repurchases? Or are you more likely to fund those repurchases with cash from operations? David Garfinkle: Well, if you take our annual guidance, we always like to use AFFO as kind of the proxy for cash flow available for growth opportunities and buybacks and if you back out the growth CapEx that we have for the activations of the idle facilities, you're somewhere in the neighborhood of $200 million of annual cash flow. So that would be available throughout the year without increasing leverage. But certainly, the revolving credit facility can be used for whatever we wish it to be used for. So yes, it is available. Ben Briggs: Okay. Understood. I appreciate it. Thank you guys for the call and congratulations again. David Garfinkle: Thank you. Operator: And the next question will be coming from the line of M. Marin of Zacks. Marla Marin: So I have a couple of housekeeping questions because you've answered a lot of a lot of things on the call and in the Q&A. You did say during the prepared remarks that between the idled facilities that could be reactivated and other means you have significant capacity for if and when new contracts come online. So in 2025, you made that one acquisition of Farmville, are there any other potential small tuck-ins that you've seen come up that might be on the horizon? Or there's -- it's very remote that, that would be an opportunity. Patrick Swindle: We have a business development team that's always actively out looking at opportunities that may be available. And so certainly, there's nothing that I would say that's imminent today. But we are going to evaluate opportunities that present. And from time to time, there may be opportunities to look at circumstances or situations that would be similar to Farmville. Obviously, we recognize where our stock is trading, and it's incredibly valuable at the current trading multiple. So a multiple would have to be pretty compelling to be better than our current stock price. But we do, on occasion, see those opportunities. And if they do, and we think it's a good strategic fit, we would avail ourselves. Marla Marin: Okay. And then one other question, which is -- and I think other callers, other participants have tried to get at this as well. You have substantial liquidity, and I think that there's potentially a sense on the Street that your liquidity cannot support everything you're trying to accomplish between satisfying new demand for capacity, potentially increasing capacity through reactivating idle facilities, the share buybacks and other potential growth initiatives. Could you just touch upon that, particularly in light of the potential for delayed payments from some of your government partners. David Garfinkle: I think I know where you're going with that. So yes, I mean, we had at December 31, over $300 million available on our revolving credit facility. So really feel like we've got plenty of liquidity to execute our strategy even despite a slowdown in some collections of receivables. So that -- we had -- gosh, it was close to $100 million in cash on top of that. So we are not liquidity-constrained in executing our strategy. So yes. And also during the fourth quarter, expanded our revolving credit facility by $300 million through a supportive bank group. So that bank credit facility is now up to $700 million. So we don't feel like we're constrained at all by liquidity. Patrick Swindle: And maybe to build off that, we've maintained a conservative leverage approach as well. And our EBITDA is certainly growing faster than our lever debt at this point. And so when you think about leverage policy, we're certainly going to continue to maintain a conservative approach. We're going to maintain appropriate levels of liquidity. We did make meaningful investments in the facilities, our idle facilities in anticipation of activation. So we did a bit of preloading in terms of the capital that would be necessary to support activation. So we're going to continue to make measured investments as appropriate, take advantage of opportunities to buy back stock based on its attractiveness. But at this moment, there's nothing that we see on the horizon that would cause us to believe we're capacity limited from a capital perspective. Operator: And our next question will come from the line of Bill Sutherland of Benchmark. William Sutherland: I thought I'd zoom out a little bit here, just thinking about what the growth trajectory might be over a multiyear period for you guys given the given the visibility you have with ICE to '29 and some of the emerging state demand. I look back at EBITDA, even back to '09, and it's kind of been in a very steady range, but no discernible CAGR. So I just wondered how should we think about a potential CAGR here for the next 3 or 4 years? Patrick Swindle: That's a great question. I think as you've said, you've gone back and done a historical review of the growth rate of the company over multiple years. And I think that's important in that what you typically see is that growth will come in periods of demand with very specific customers. So if you look back over the history of our organization, we've gone through periods where we would see significant demand from the State of California, for example, or a significant demand with the Bureau of Prisons or, at present, we're seeing meaningful demand from immigration and customs enforcement. What we know is that you've got large aging infrastructure for many of our state and federal partners you have demand needs that are presenting as both populations grow and service offerings are changing, and we believe we're in a position to provide that. And so I would say we're always going to be in a position where we've got the greatest visibility a year out. but our team is obviously focused well beyond this year and future periods. So I'd love to give you a more precise answer in terms of what would be sustainable growth after the current period. But obviously, that's something that we continue to be focused on, and we'll give updates as our pipeline develops both with other federal and state partners as well as we consider potentially other ways to deliver services to our customers, as we mentioned earlier. William Sutherland: Okay. And you can't get through a conference call now without a question about AI. So are you all -- I guess, what are some of the ways you can apply it to your business model? Obviously, I think this kind of business is going to be a net beneficiary or just pure beneficiary in terms of efficiency. So how do you think it can be used in the organization? Patrick Swindle: Well, there are a number of ways that we have contemplated use of AI in our organization. I think the most obvious in straightforward is in back office efficiency. So as we think about our ERP systems and we think about the ways that we support our facility operations from administrative perspective, we're certainly seeing opportunities to enhance the way that we currently deliver those services. Out in our facilities, there are always opportunities to enhance what we're providing. So whether that be educational opportunities for the individuals in our care. Whether that be security tools that we can use both to actively monitor and make our facilities more safe. Whether that be making our cameras smarter as we're trying to evaluate activities that are occurring in the facility. There are a number of pilots that we have underway across the organization to explore how we may be able to use AI to enhance our services. But I would say we're also very sensitive to the fact that we are in an environment where we're managing care for individuals and want to be sensitive to what we use and how we use it so we can ensure that it's being used effectively. So we do hope to give updates in future quarters. We did make a meaningful investment this year in our team. We hired an executive leader, Laura Groschen, to step in as our Chief Information and Digital Officer. So I would view that as indicative of the investment that we're making to bolster our technology team and grow and build out our capabilities. We do believe that's part of our future. And again, we'll have more to update on future quarters as we were able to talk more specifically around some of those opportunities, some of which may be ultimately commercializable. Operator: And our next question comes from the line of Joe Gomes of Noble Capital. Joseph Gomes: So let's go a little blue sky here. You talked about potential upside for Midwest. But let's assume ICE has got the 10,000 new enforcement employees up and running, increasing the pace of detainees out there. I think you've talked about 12,000 or 13,000 beds between existing contracts and idle facilities. If we got to the point where ICE was to contract for those beds or fill all of those beds. What could that mean for upside in terms of revenue and EBITDA? David Garfinkle: Well, it's a tough question to answer. I guess if you took 13,000 beds, an average per diem, I don't know, just say, $125 a day. That's $593 million of incremental revenue. And if you assume we're on a 23% margin in the fourth quarter, that's $136 million of incremental EBITDA just to kind of use publicly available numbers in our reports. Joseph Gomes: Okay. So it's a potential nice upside, again, blue sky, but just -- would be nice to see that. And then one of the big questions, I think, a concern for investors out there has been the pace of detention by ICE that it's been below what people -- investors had thought was going to be, I think people thought we'd be at that 100,000 level. We're at 70 -- a little over 70,000 here. And what is your kind of viewpoint here? What's your -- what are you seeing in terms of the pace of detention? Have you seen it starting to crawl back up here and we're still waiting to kind of see more of a measured pace here in terms of retention? Patrick Swindle: So I would answer that through a couple of lenses. I guess one of them is if you go back to the end of the prior administration coming into the current administration, you were looking at roughly 45,000 funded beds that were operational. And so you now have increased just over 70,000 beds in a fairly short period of time. I think one of the things that at least has been apparent to me throughout this process is the expectation that one can see a significant change in the infrastructure and ecosystem occur immediately. And when you're looking at the way that ICE approaches enforcement action, nothing occurs immediately. And I think as maybe you or someone else noted, the organization had not fully ramped its team until really the end of the year last year. So as we think about timing, it does take time because it is a very complex ecosystem. And as that ecosystem grows, it's going to result in additional bed demand, it has been slower than I think some thought might occur. But certainly, when you look at -- take a step back at the 30,000-foot level and look at the magnitude of scale that's already increased as well as the timing of when the additional enforcement infrastructure was put in place, one can reasonably expect you would see continued growth. Joseph Gomes: Okay. Great. Congrats on the quarter. David Garfinkle: Thanks, Joe. Patrick Swindle: Thank you. Operator: And the next question is coming from the line of Kirk Ludtke of Imperial Capital. Kirk Ludtke: Patrick, David, can you hear me? In your prepared remarks, I think you said at year-end, ICE detained what, 69,000 and of which you detained 16,000. Occasionally, you see press reports that ICE is exploring other ways of housing detainees, repurposing industrial spaces, warehouses, things like that. I'm just curious where that stands? Do you know offhand how many people are detained in facilities other than the facilities, your facilities or GEOs facility? David Garfinkle: Yes, I'll take that one, Kirk. Yes, correct. The administration has pursued a number of alternatives since the beginning of the administration. You had facilities like Guantanamo Bay, Alligator Alcatraz, some international options, some state capacity blocks of state capacity. And I would say, I think the last time I looked at the total the total number of people in detention in those alternatives, so somewhere in the 5,000 range. Kirk Ludtke: Okay. Is that pretty stable or maybe I hate to ask you to provide guidance on something like that. But I mean, do you see that increasing? Do you think that's a viable alternative for ICE? Patrick Swindle: ICE is going to continue to look at different ways to meet their capacity requirements. And as you look at, obviously, the bed need and availability, we have beds available in specific parts of the country. Our competitors have beds available in specific parts of the country. Sometimes the demand can be national. Sometimes it needs to be more localized. And so depending on locationally where that demand is manifesting, you could see traditional capacity used or you could see other alternatives use. I think there's certainly a lot of exploration in terms of different ways that the goal and mission can be accomplished. And we believe we could be part of some of those. And some of those are probably not best suited for our business model. But certainly, I think that will be an ongoing conversation as the administration thinks about how they can best innovate service delivery and make sure that they have the right bets in the right location they need to support their mission. Kirk Ludtke: Interesting. So it's not that the populations are different. It's more of a geography -- geographical consideration? Patrick Swindle: We don't see meaningful differences in populations across the facilities that we operate. So obviously, there are classification differences within each facility, but -- and facility type is really -- it's less about having a dedicated specific type of facility for a particular population than it is about being appropriately located geographically based on where demand is presenting. Again, some demand is national. So it doesn't matter the location as long as you have a transportation infrastructure that's in place to be able to support that mission. In other cases, there's a preference that it would be in specific areas where incremental need may be higher which may make a distant facility not as viable. Kirk Ludtke: Got it. Okay. That's very helpful. I appreciate it. And I don't know of anywhere that ICE actually discloses the level of actual deportations or detentions. But did you -- if that's available, I'd be -- I'd love to know, or any way to back into that. But do you see anything on the horizon that would allow detentions to step up other than just building out the network incrementally? Do you see any big events that facilitate a ramp in detentions? Patrick Swindle: I believe it's really the build-out of the enforcement infrastructure and the completion of training of those individuals who are being hired and then those folks being deployed to go out and enforce the mission. So I don't view it as much sort of a singular event as I do a progressive build of infrastructure that results in higher levels of enforcement, assuming that the policy remains static. Operator: Thank you. And this does conclude today's Q&A session. I would like to turn the call back over to Patrick Swindle for closing remarks. Please go ahead. Patrick Swindle: Thank you, operator. Since there are no further questions, I'd like to thank you all for joining our call today. We take very seriously the responsibility that we have in managing care of more than 55,000 individuals each day. We're grateful for the confidence our partners place in us as our 13,000 employees strive to deliver the highest quality services and programming for those in our care. Just this last weekend, we were able to celebrate the exemplary service of 3 of our correctional facilities and 3 of our residential reentry facilities at the triennial ACA reaccreditation hearings with near perfect scores. This is just a small example of the work our team does but is indicative of the excellence that we aspire to every day. Our team has also done an exceptional job delivering positive results in our core portfolio and successfully ramping our activating facilities. Our guidance with assumed EBITDA and EPS growth of 21% and 40%, respectively, both at the midpoint is the most significant annual growth of our organization as forecast in many years. As a reminder, this growth assumes only already awarded contracts, excluding Midwest Regional, which is successfully activated would be additive to this initial guidance as would any additional opportunities that present to provide additional services to our federal state or local partners. Lastly, we believe that our shares remain significantly undervalued. Using the midpoint of EBITDA guidance, our shares are currently trading at roughly 6x forward EBITDA, well below our historical trading ranges. We're obviously evidencing our view of value with an active share repurchase program that increased in intensity during the fourth quarter while maintaining our consistent balanced leverage position. We're optimistic that as we successfully deliver on our outlook for this year, we'll see this value recognized in our shares. With that, operator, we'll close out our call for today. Have a great day, everyone. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the lastminute.com Q4 and Preliminary Unaudited Full Year 2025 Financial Results Conference Call. Today's call will be hosted by Julia Weinhart, Head of Investor Relations, and joined by Alessandro Petazzi, Chief Executive Officer; and Diego Fiorentini, Chief Financial Officer. [Operator Instructions] Please note that this call is being recorded. At this time, I'd like to turn the call over to Julia, Head of Investor Relations. Please go ahead. Julia Weinhart: Thank you, Valentina. Good morning, everyone, and thank you for joining us for our Investor Relations call this morning. We value your continued support and are pleased to present our latest developments. After the presentation, we will be happy to address your questions. With that, I hand over to Alessandro now. Alessandro Petazzi: Thank you. Thank you, Julia. Thank you, everyone. Good morning. Thanks for joining us. We have a lot of positive ground to cover today. We're commenting today the final quarter, but also the preliminary unaudited full year results. And I think you've come to know me throughout this year as we complete my first year as CEO of the company. And you probably know that I normally do not like to be blowing my own trumpet, but it is a real pleasure indeed to be presenting such a strong set of results, I would say, quite exceptional, to be honest. If you follow our industry closely, you know that the period from October to December is the lowest from a seasonality point of view. But in terms of year-over-year comparison, actually, Q4 was the strongest period of the year for us. But in general, if we take a look at the whole 2025, we really -- we outperformed the market. We grew our market share in core markets, in the expansion markets in which we started investing this year, we hit and then exceeded the expectations we had and the guidance we already raised in Q3, by the way. So achieving double-digit growth in both revenues and adjusted EBITDA. So as I said, at the very beginning of this journey, I think we're the kind of company that can grow top line, bottom line and cash generation, and that's exactly what happened in 2025 with the holiday packages continuing to be our primary engine and the strategic focus of the company. I would say that we really had a step change also in capital discipline. There's been criticism by some investors in the past about the fact that this company was generating a lot of volumes, but maybe not so much in terms of cash generation. And I think that we can say confidently that this has also changed this year with cash flow doubling compared to 2024. And it's not a one-off thing. It's there to stay. So this is definitely something on which we think the next year will allow us to grow even more. Again, it's not just because the market has favored us. It's something that came from decisions we took over the year, sometimes not easy decisions, but really aim to put the company in a stronger position to be focused on what really matters, what moved the needles. We reorganized the internal structure to allow us to work more efficiently. We made clear calls on where to focus and where not to. We set clear priorities, define what we wanted to do and laid out a 3-year outlook to guide us there starting with already strong execution in 2025, which is the foundation of the next phase of the growth of this company. So 2025 has a clear direction and the focus now is carrying on that energy into 2026. I think it's a very good momentum to enter '26 on such a strong tailwind, and we plan to continue that. So if we look at the numbers a bit more closely, you can see this slide, the financial performance for both the quarter and the full year. And you will notice that the quarter has been growing even more than the full year. So 23% growth on revenues. Adjusted EBITDA, very positive at almost EUR 9 million and adjusted EBITDA minus CapEx, which actually was positive, again, as a proxy of the cash generation even in the fourth quarter, which normally because of the working capital dynamic of our industry has been a quarter in which traditionally we've been having negative free cash flow and negative EBITDA minus CapEx, but not this year. And for the whole year, I think the picture then is pretty similar, 15% growth in revenues, more than proportional growth in adjusted EBITDA. We'll see exactly why and how over the next few pages with our CFO, Diego. And again, let me insist on adjusted EBITDA minus CapEx as kind of a proxy of cash flow, even if we will then take a look at the cash flow in detail later on, but we can say that this number already doubled compared to last year. So again, it shows the strong operating leverage that we currently have in the business. And I would say that the business as a whole is now operating at a new level of financial strength and cash conversion. 2025 was the first year like that. 2026 will be the second one, and we can say that we will confidently move forward in that direction in the future. And with that, I hand it over to our CFO, Diego Fiorentini, to take a closer look at the numbers. Diego Fiorentini: Thank you, Alessandro, and good morning, everyone. As you know, Q4 is seasonally the least relevant quarter for our sector. Despite that, we delivered a very strong close of the year. When we last spoke, we highlighted a clear acceleration in Q3, and I'm now pleased to say that this momentum further improved in Q4. Overall, Q4 revenues reached EUR 77 million, up 23% year-on-year. This brought full year revenues to EUR 361 million, up 15% and clearly above our guidance. Importantly, all 3 core segments delivered a Q4 year-on-year growth above their respective full year growth rate, confirming the strength on the underlying trend. Looking at each segment, Packages, our core product, grew 16% in Q4 and 11% for the full year, demonstrating resilience and solid execution. Flights delivered an outstanding performance, up 48% in Q4 and 31% for the full year with strong acceleration in growth and continued market share gains. Hotels remain solid and consistent, growing 22% in Q4 and 21% for the full year. Finally, as a reminder, the other segment includes the cruise business, which was discontinued in early October. As a result, Q4 reflects the absence of that revenue stream. The strong top line performance translated into solid profit growth. In Q4, gross profit increased 17% year-on-year, while it grew 10% for the year. As already anticipated, gross profit growth was below revenue growth, both in the quarter four and for the full year. This reflects higher investment mainly in performance marketing aimed at supporting acceleration and expanding market share. Let me be clear on this. We increased investment where we saw measurable and accretive returns. Our performance marketing model remains highly data-driven with strict return on investment thresholds and continuous optimization. Looking at the segment breakdown, Packages remained our largest contributor, delivering EUR 20 million in gross profit in Q4, up 14% versus the same quarter last year. Flights continue to let the term -- in terms of growth rate with gross profit up 31% year-on-year, confirming strong operating leverage and scalability in the segment. Hotels remained broadly stable year-on-year with higher marketing investment made in the quarter. Finally, while the other segment showed a year-over-year decline at the revenues level, the dynamic reverses completely at the gross profit level. With the discontinuation of the Cruise business in early October, the segment now reflects a leaner perimeter and delivered a positive gross profit growth in the quarter. On Slide 8, you can see in more detail the composition of our cost structure between variable and fixed costs. Variable costs included a [ 36% fixed ] increase in marketing spend, supporting gross travel value growth momentum and made possible by our stronger financial position. On the other hand, fixed costs were up just 6% in the quarter, mainly reflecting higher variable compensation as we achieved and exceeded our targets. Excluding this performance related component, fixed costs would have been down 13% year-on-year, reflecting the full impact of the cost measures we previously implemented. Looking at the full year, the picture is consistent with fixed costs were broadly unchanged in absolute terms compared to 2024 despite double-digit revenue growth. Taken together, higher revenues and disciplined cost control drove a 4% point reduction in the fixed cost ratio, highlighting clear operating leverage and improved structural efficiency. This slide takes a closer look at the profit and loss, giving you a bit more detail on what we just covered. In Q4, adjusted EBITDA reached EUR 8.8 million, up 62% year-on-year. This strong increase reflects our operating leverage, which amplified profitability even if we continue to invest in marketing and sales. Net result benefit from lower financial costs compared to last year as well as a positive contribution from taxes following the remeasurement of the deferred tax asset. Closing at EUR 1.9 million, earnings per share came at EUR 0.18 compared to a small loss in the same period of last year. Looking at the full year, as we already discussed, revenue grew 15%, while adjusted EBITDA increased 33%, with both metrics comfortably exceeding our guidance. Net result came at EUR 11.6 million, slightly below last year, reflecting the one-off costs related to the cost reduction measures we implemented. That said, the story on operating cash generation is very positive. Adjusted EBITDA minus CapEx, a useful proxy for cash flow, doubled over the year, increasing from EUR 16.2 million to EUR 32.4 million. During our third quarter call, we got some questions on cash generation. So we decided to give a bit more detail to really explain what's driving the numbers. Free cash flow for the year came at EUR 27 million compared to a negative EUR 4.7 million in 2024. And even if you strip out the effect of working capital, which, of course, moves with the gross driven value, free cash flow was still prepared versus 2024 even after accounting for the one-off costs related to the cost reduction initiatives. Our free cash flow to EBITDA conversion has improved significantly, moving from a fixed effectively 0% to 58%. And we are looking to push this further in 2026, building on the strong progress we have already made from 2024 to 2025. Finally, the net financial position stood at almost EUR 32 million, up from EUR 19 million at the end of 2024. As we speak, we have already repaid all the short-term debt that was outstanding at the end of 2025. With this, I'll pass the word to Alessandro, and I'll be happy to take any follow-up questions during Q&A. Alessandro Petazzi: Thank you. Thank you, Diego. So basically, to wrap it up, I mean, you probably don't even need me to highlight how strong this set of results is from 3 points of view, right? I mean the first one is that we did better than we planned, I would say, across the board. We exceeded the guidance that we already raised in Q3, and this is visible at the revenue level, where we grew 15%, where we had a target of low double digits and even more so at the adjusted EBITDA level, where the growth was 33% compared to a 20% guidance, which had been reviewed also pretty recently. And again, these results are, I would say, a combination of a positive trend, right? So it's not just Q4, it's more the entire year across product segments, across geographies. We grew in the core markets. We grew in the expansion markets. And we'll see a bit more details about also our product initiatives in a second. So very robust starting point for 2026. And finally, as Diego mentioned, we really closed the year with a significantly stronger balance sheet, right, driven by both EBITDA growth and a very disciplined approach to CapEx and working capital. So yes, we're delivering on our commits on the one hand, but I would say, even more importantly, we have this trajectory now of our midterm plan on which we are executing against. And the growth is just, I would say, at the beginning. So for me, it is really important also as we move into -- so we talked about the financial results. But I think it is also important to realize that these results do not happen in a vacuum. They happen because there are industrial choices that we make underneath and things that we are working on and that we already delivered and then they translate into these results. So we've decided starting from this quarter and going forward to give you a bit more of a chance to take a look under the hood of what we've done and what we're doing to make these results possible. So the next section, when we say strategic direction, this is it. Well, first of all, the overall strategic direction, I will not spend too much time on this because we insist on this every single time. You've seen this page a few times on Page 13, the pillars of our strategy are strengthening the market presence, evolving our Dynamic Packages product, making sure that we are a travel companion that is relevant for our customers, not only in the moment in which they do the holiday, but really throughout the entire journey and making sure that we have clear idea of what each brand in our portfolio stands for and what is the type of product and audience that are relevant to that with AI, I would say, being the glue that takes it all together as an enabler for the next phase of scaling up. But let's be a bit more concrete, right? Because this could sound like just a framework, but what about the execution on this framework and the things that prove that we're getting there progressively. Well, first of all, the first thing that I'm really happy to announce is that we have indeed launched our free multi-tier loyalty program, which, as you can see, we decided to call PRO, which I think is a nice acronym for perks, rewards and offers and also hints to the idea that with that, you are indeed traveling like a pro. So the concept is simple, and the idea is that the more our customers travel with us, the more benefits they unlock over a 12-month period. Some of these benefits are special discounts because indeed, this is something that people still expect from a loyalty program, but also, I would say, perks and dedicated offers. So it's going to be a mix of financial rewards, I would say, and more qualitative elements, which people have proven to enjoy and also games that they can play that did not have an immediate monetary value, but are designed in order to improve the psychological effect of happiness on our customers if they come back. So the idea is that, again, we want to convert people who maybe got in touch for us for the first time with a price-led approach and make them become loyal customers. We started that in Q4 2025 in the U.K. and progressively, we are rolling that out in all of our markets. But now it's not just about what we did, I would say, is also what we achieved. So if we take a look at loyalty of our customers, you can see on this page that the bookings from repeat customers in 2025 already grew 27% compared to 2024. So clearly, there is -- and this was before the launch of the loyalty program, obviously. So throughout the entire year. So this is very important. This tells us that our brands already resonate with consumers and our value proposition convinces them to come back. So that is something that happens across the board on all touch points, web, mobile and app. But obviously, I would say that the app is at the center of this travel companion bit of the strategy as the go-to device and the go-to product for people who are familiar with the brand and loyal to us. And I would say the numbers have been really interesting on that side as well. I think we never talked about these numbers, and I think it's actually important to give you a sense of how relevant the app already is in our ecosystem and how even more relevant will become in the next few years. We had a 12% growth year-on-year of app downloads to 1.6 million. People who download the app then also use it. We have over 600,000 monthly users for the app. And it represents an important engine of bookings with 20%, 21% of booking shares. And don't get me wrong, we don't think that the app's value is just in terms of allowing people to book a holiday. Yes, that's also there. But let's be honest, they can do it on a variety of touch points. We think that the app value is really as a travel companion. But of course, as you get more used to it and you use it more often, then it becomes natural once the app has all the information about you, it becomes easier also to book there your second or third trip with us. And as we talk about touch points and as we talk about how consumer behavior is evolving in terms of looking for holidays and booking holidays, I think it is really important to take a closer look at AI and how AI is changing the way we all search and get inspired online. This is a topic on which I got a lot of questions and all the one-to-ones I had with you guys over the past few months. And so I thought it was appropriate to take a closer look. And a question that I get all the time, even if it's not always articulated this clearly, but the concept behind this is, okay, what happens to your business if Google search becomes irrelevant? What happens if users search via chatbots, they never click on that, they never land on your website. What happens if agents do all the work on behalf of the customers, and therefore, they're not necessarily influenced by your brand. What happens? And sometimes I get that question in a much more simpler form, which is, well, but now progressively, everyone is looking for inspiration about their travels on ChatGPT. So what happens to people like you, what happens to online travel agencies, right? There's a complete disruption of the business model. And I think it's fair because I think that potentially, you could say, well, if you lose the entry point, then ultimately, you lose the customer. But actually, the evolution we're seeing is much more nuanced than this. And I think it's important to understand certain characteristics and dynamics of our market to really understand what we're talking about here. So on the next page, so first of all, a bit of fact checking, right, how the search and discovery scenario is actually evolving. So historically, I would say, for over 20 years, it kind of stays the same, right? People go to Google, they type holiday for 4 in Mallorca, and thanks to SEM ads or SEO, free positioning, companies like us, they show us at the top, right? So for sure, we're seeing a shift from -- even if typing keywords into a bar, it's still the vast majority of searches. Of course, people are having more conversations with chatbots such as ChatGPT and Gemini by Google. So is this the end of paid ad? Is it the end of Google search? Will AI players become the new OTAs when they eat your cake and your company will become irrelevant? Well, it's a bit different than that. Well, first of all, Google still holds a dominant position. If we're talking about Gemini and AI overviews, basically, the vast majority of customer interactions with some type of AI chatbot is indeed managed by Google. And Google has been adamant that their business model is an ad-based one. They have no intention to become an OTA. For those of you who've been following the sector for a few years, this sounds like Google Flights all over again when Google many years ago now launched Google Flights. A lot of questions like, oh, then the OTAs are done. Google is going to allow you to look flights. And actually, Google's business model has always been to be able to surface the right type of information to the right type of audience and connect that audience and that information with the right advertisers paying them their bills, right? And their adamant, their business model will continue to be absent and also in an AI-first world, their job will be to connect demand and supply. And when they say supply, it means companies like us. Now obviously, other players are emerging. So there's new traffic sources emerging. OpenAI and ChatGPT are the obvious ones. I think it's really interesting actually that because up to now, obviously, these companies have been burning through a huge amount of cash, and that will continue for some time. But at some point, they will also want to understand how they can better monetize what they're doing. And so far, they try to have a premium -- a freemium kind of model with a lot of stuff for free and then the possibility to pay, let's say, $20 a month if you want something more or even more if you want more premium features. But it's pretty clear that it's a pretty niche market, the market in which people are willing to pay for that and potentially they're realizing that ad money is bigger. So I think it's interesting that they started offering ads in the U.S. Now, will this be the end of the game? Because at the end of the day, maybe the end game will be a situation in which all the players managing chatbots will have an ad-supported model. And then for us, it will be an evolution from basically having Google as the main -- as the only actually player for search to having a number of players that we interact with that are really strong on the inspiration phase of the journey and where we can place our ads to make sure we're relevant there. This is one possible scenario. But obviously, we don't have a crystal ball. So it's so early days. It's very difficult to say how the things will evolve. New players might emerge, new models might emerge. So let's say that even if the business model remains or the business model changes in a way that actually it will be customers to pay for the service and there will be no ads, which again, something that right now, we really don't see happening. But even assuming that, that might happen, we believe that lastminute.com is very well positioned to be a winner in this new phase of AI growth and to thrive, not just survive, I would say, in this evolving landscape. And why that? For a number of reasons, which you can see at Page 18. So on one hand, from a technical point of view, we're building an AI-friendly infrastructure, embedding our services where the conversation happens. So you might have seen the PR that we already launched our Flight MCP server in Q4. Now, I get it that it might be a bit technical. The easy way to say that is that it's kind of a universal plug. It's kind of the evolution of APIs, if you want. And that allows LLMs such as Gemini or ChatGPT or Claude to plug directly into our real-time inventory and pricing. And this is very important because it has the power to ensure that when an AI agent moves from the inspiration to actually booking a holiday, we are one of the brands that are surfaced and the agent has directly access to our tariffs, right? So it's very important. The first use case that we -- that this technology enables is the fact that we have an app in the Claude ecosystem. And it will be also very soon available on OpenAI and ChatGPT as well. So I saw that in the insurance sector, a Spanish start-up made a huge wave in the industry to say, "Oh, we have an app on ChatGPT. And so people were like, wow, this company is the one who's going to benefit from all people starting to book their insurance directly on ChatGPT." Well, we're going to be there in a few weeks as well from a travel point of view. But again, this is an infrastructure play. So the MCP, this thing of having the app on ChatGPT, the app on Claude is, I would say, just one of the use cases. There are even more interesting ones that this infrastructure enables. And this is the type of investments that we can do. And of course, other very large companies such as Booking.com or Expedia can do. But if you are a small hotel chain, probably you're not able to do that, right? So that already, I think, creates a most in terms of the winners, the large companies versus the really small ones. The second one is that from a product point of view, we used to be a distribution platform, which was distributing mostly, we can call them commodity products such as flights and hotels. But in reality, over the past few years and even more from now onwards, we have our unique proprietary packages at the core. And so we have these end-to-end holiday packages, which are not just available on any hotel website or airline or even their MCPs. This is a lastminute package. You can only find it on lastminute. And when you find it on lastminute, I don't necessarily mean the website. I also mean the MCP server. I mean everything that is lastminute. So we are the producer of that, not just -- it's produced by Netflix, if you want, not just distributed by Netflix, if you allow me the analogy. And by owning the product itself, we are the provider of this value proposition. Now, people might say, well, but basically, a package is just putting a flight and a hotel together and AI agents can do that themselves or they will be able to do that. And I'm definitely -- I'm not in the camp where people in the industry say, "Oh, but that's more complex. AI is not able to do it." I don't think that's the case. I think any kind of technical complexity, AI will be able to get it. So that's not the point, maybe not now, but in the not-too-distant future, for sure, for sure. That's not the point. So I'm not saying that what we do is so complex, AI cannot do it. What I'm talking about is business models and regulation, right? Because the key thing here is that in order to create a package, we have commercial agreements with all the hotel chains from the big ones, Hilton, Marriott, to the really small ones with independent boutique hotels. We have commercial agreements with all the airlines. We have commercial agreements with transfer providers, with activity providers, with the tons of players in the ecosystem. And for each of those, we have access to those called opaque or opaque or nonpublic rates, which can be used only if you create a package. Now, again, it's really not the business model of Google or OpenAI to start replicating these deals with all these players. And then it's not their business model to be in-charge of customer service when something goes wrong. You get to a lot of times, you book a flight and then the flight is disrupted, it's rescheduled. We are in-charge of that. If there's a partial refund, as the provider of the package, it's our responsibility. All these companies want nothing to do with them. It's the opposite of their business model. They want again to surface someone like us to serve the customer. And it's not just because they don't want to do it, but it's also because from a regulatory point of view, once you are the provider of a package, at least in Europe and in the U.K., you clearly have responsibilities of that. And again, to have a license, you have -- so this is definitely not something that is interesting for this company. So again, AI and chatbots excelling inspiration, but we remain the partner that delivers the actual holiday. So for sure, AI can help you plan, know the context and give you great suggestions, but then to sell a protected package to have the ATOL license in the U.K. to manage the customer operations and service, you need to be a player like us. So I hope that this clarified a few things. But now talking about AI as an opportunity, right? Because let's focus on why this is actually good for us. And I think it's good for us from 3 points of view, and these are the 3 pillars on which we are working on. So internal productivity, of course, everyone gets it. We are embedding AI company-wide to boost, I would say, productivity of our employees. We have already automated a number of processes, and we are working to increase that. We have a new AI automation department under our Chief Data Officer, precisely in charge of that to collect all the initiatives that are happening already around the company and to give a very clear strategic direction using a mix of internal and external tools. Of course, we started with a big project on our customer service side, which really is aimed also to improve the customer experience. So again, I don't see historically, right, you were seeing productivity and customer experience almost as a trade-off. You need to invest more if you want to make customers happy. In this case, I would say, yes, we are investing, obviously, on technology, but then the efficiency will come also with a bigger effectiveness, I would say. So we're also using AI to rethink the travelers' journey in terms of personalization. So the kind of things, the kind of experience that you have right now on ChatGPT, there's no reason why you cannot have it on our website potentially, and in terms of providing that type of, I would say, consultancy, if you want. And then again, as I was saying, Gen AI-powered customer service allows to provide high-quality support 24/7 in all languages initially in the chat and potentially then also with voice. Last but not least, we need to be present where the conversations happen. And therefore, that's why we are integrating seamlessly in the various chatbots. As I was saying, Claude is the first example, but the MCP servers that we now released for flights and we will expand for it to include Dynamic Packages will then be on all the relevant chatbots in the market. And I would say that because this is so interesting and because there's so much happening in the company right now, probably over the next few quarters, we will give you some more insight on the things that we are progressively deploying as they go into production because I think there are so many interesting things that I'm really excited to share them with you. And as we complete this very passionate talk about product and industry, let's go back on Page 21 to what it means from a financial point of view. So our 2026 outlook, you might have, by the way, noticed that this year, we're giving you an indication on what we expect at the very beginning of February. Last year, considering it was my first year in the job, I needed a bit more time to take a look at our budget. And so we gave you guidance much later towards the end of March. So while we're doing that, we think that we're going to keep growing more than the market. So that's going to be constant. We still expect to be growing market share at the expense of more traditional players in both core and expansion markets around Europe. And we expect the growth to be at 10%. Now, you might be -- I can anticipate some questions you might have as soon as we open the floor in a few minutes, which is, well, this year, you grew much more than proportionally at the adjusted EBITDA level than on revenues, why? For 2026, we're forecasting the same type of growth. And I would say there are various considerations here. The first one is that from a strategic point of view, I think that this company underinvested in its own its own brand actually for many years. And this is something that potentially in the short term maximizes or helps maximize EBITDA, especially if revenues are a bit stagnating, but it's not something that makes sense in the long term. And I would say that by excessive short-termism, companies die, right? And this is not us. We have the possibility because we're growing the top line, we have the possibility to also grow the bottom line while still making strategic bets and strategic investments. And one of these is that we will significantly expand our investments in our brands in 2026, again, to -- and these are investments that maybe do not necessarily have an immediate return on revenues. It's different from performance marketing clearly, but they do have a return on a foundation for the future on customer loyalty. So we're really building the steps for our continued long-term success. The other element is that, here, we're talking about it more -- a bit more of a technical one, if you want. We're talking about the adjusted EBITDA, which was EUR 55 million. This year, you might have noticed that actually below the adjusted EBITDA, we had over EUR 8 million of one-off charges. And obviously, we do not expect one-off charges to -- by definition, they're one-offs. So we don't expect such a value in 2026. So actually, the growth of the reported EBITDA will be more than that because of this element, right? And if I take a look at the cash flow, I would say even more so because on one hand, our CapEx reached kind of a plateau in 2025. So we do not expect a growth in CapEx for 2026. And because we're growing the top line and the GTV, clearly, because of the nature of our working capital dynamics, we will also have a very positive effect from working capital on our cash flow. So if you combine all of these effects, the growth of adjusted EBITDA, the more than proportional growth in reported EBITDA, stable CapEx, so that growth will go straight to the, let's say, bottom line of cash generation, right? And then you mount on top of it the positive net working capital effect, then you have a company that we generate in 2026. So very confident to generate even way more cash flow than in 2025 while still growing the top line. So I think it's a very, how can I say, reassuring and positive forward-looking message, both from an industrial and from a strategic and financial point of view. And with that, I leave the floor again to Julia to wrap it up with our financial calendar and then to open the floor for questions. Julia Weinhart: Thank you very much, Alessandro. On Slide 23, we have just wrapped up our latest financial publications you can see and the conferences where we participate in 2026. We will now begin with today's Q&A session, starting with the live questions followed by submitted the ones in webcast. Please note that like always, we might group questions together and they might be slightly rephrased. In line with our privacy and data protection policy, we remind participants that stating your name is optional when asking a live question. With this, I hand it over to Valentina now to start with the first live questions. Operator: The first question comes from Volker Bosse from Baader Bank. Volker Bosse: Volker Bosse, Baader Bank. Yes, congratulations on the great set of results and the convincing outlook. I would like to start with 3 questions, if I may, starting with Page 6, where you give the breakdown of sales growth by product lines. And I mean, in the past, we were used that the strongest growth comes always from the Dynamic Packaging system. Now we see flights up 31%, hotels 21%, which are, of course, great results, but they are exceeding Dynamic Packaging growth. So therefore, my question, is that a structural change? And what has been the driver for that outperformance of hotels and flights? I mean in the past, you spoke about flights as a commodity, and we do not push that and therefore, growth will be lower. So my question would be, how should we look at the growth by the product lines if we model our year 2026 and the following years, just the growth guidance you can give here in that regard? Second question, if I may, would be on your guidance '26. Yes, you always took my question, why EBITDA -- adjusted EBITDA just in line to sales. But you -- thanks for the explanation, more marketing investment, understood. But a bit more details. How do you plan to spend more marketing? Which channels you will use? Will you also use offline channels or online only? Or mean a bit more on how your marketing budget will be spent going forward? And last but not least, a bit more general one. You speak about a robust demand for travel products, which helped you to generate great results on top to your, of course, company-specific initiatives. But my question would be on your expectations regarding market trends in 2026. What is the growth you expect for 2026 from the market side? Do you expect less tailwind for '26? I mean we see that unemployment rates are going up means job uncertainties are rising on the back of weak macros all over Europe basically. But just curious to get your view on these things and how this would affect the travel industry potentially. Alessandro Petazzi: Volker, this is Alessandro. Thanks for the questions. Actually, we had said last time that it would be better to have one question at a time out of respect of the many people who write questions. So we have a lot of that. Because of that, I'll answer 2 of your questions, the first 2, which are really company specific, and then I'll leave the floor for other questions which are company specific. If we then have time at the end, happy to also answer the one on market dynamics, but I would prioritize the others if you allow. So I would say, revenue growth, well, maybe there was, I would say, a conceptual misunderstanding here. What we say is that if we have to bet 5, 10 years down the line, the more we want to be a product-led organization. We want to have a differentiated product that is just specific of us of lastminute, and that's the package. And the evolution of the package, flight plus hotel, it becomes potentially even something more. Now -- and we want to have a more curated approach on the experience. Now, does that mean we're abandoning flights or hotels? Absolutely not. We're very happy about the performance. I would say that for flights, it was about catching up with the fact that, that product had been neglected a bit over the past few years. But maybe in another time, we can go into the details of how we managed to grow so much. We improved the unit economics. That was again done. That's why I want to try and give more details about the things we do internally because then they explain by having a lot of testing on and changing our pricing algorithm. We improved that. We were able to sell more ancillaries and therefore, we were able to have better discounts on Meta channels. That increases the volume. So we will continue to do that as long as possible, right? So in terms of the market evolution, maybe this is something that will change in the next few years. But as long as it doesn't change, as long as there is an audience interested in our flight product, we will continue believing in that, investing on it, improving it and therefore, growing it. So going forward, I would say I expect the growth to be kind of, I would say, similar across our various segments for 2026. I don't necessarily expect one specific segment to really outperform. Clearly, the one difference will be the so-called other because other in 2024 and before included the cruise business, which, as you know, we closed in Q3. So obviously, that number will be smaller going forward. So that's the first one. The second one was about marketing, I guess. Sorry, there's another consideration. What we report as packages is a mix of our own product, the Dynamic Packaging and the fact that especially in Germany with the brand Weg.de, we distribute packages by third-party tour operators to either tour and stuff like that. This is a minor component of the business, so don't think much about that. But of course, strategically, again, that's something on which we are distributing a third-party product. And so the core is our own product. Now marketing, as I use the word brand rather than marketing, not on purpose, right? Because basically here, performance marketing is when you spend money, especially on Google or Meta to drive immediately traffic that is already, let's say, warm, ready to potentially book a holiday, searching for something specific, maybe tomorrow already, searching something in ChatGPT and then it's being ready to book their holiday. Performance marketing, of course, we will increase that in the core markets, in the expansion markets. But the increase there is very data-driven. Every extra euro we spend brings more than EUR 1 in terms of profit. So it's always accretive from an absolute number point of view. What I was talking about here is differently so-called brand, meaning the investments that are not necessarily meant to drive an immediate conversion, but something that builds brand awareness and loyalty over time. Does this mean offline, does this mean out-of-home or TV? Not necessarily. You can do a lot of that on digital channels. But for example, we're talking about YouTube videos on YouTube, on TikTok, on Instagram, but stuff that talks about why lastminute is your provider of choice, not necessarily book now for this deal, right? So it's a different thing. And historically, we haven't really done it a lot over the past few years. I think now that we can afford it, so to say, with the cash flow that we generate, it's now the time to do that investment. And with that, I would pass on to the next question. Julia Weinhart: Thank you, Volker. Valentina, do we have any other live questions in line? Operator: We don't have any more questions from the phone. Back over to you for questions from the webcast. Julia Weinhart: Okay. Then we will now move to the webcast. I will start with the first question we have received today. Will the growing adoption of pay by installment options for Dynamic Packages have an impact on your working capital? Have you structured partnerships with external providers, for example, Klarna, Scalapay, that advance the full transaction amount to you upfront, leaving the credit risk with them? Diego Fiorentini: Thank you, Julia. I'll take this one. Yes, we do have agreements with players like Klarna, Scalapay and PayPal. And those partners are offering the current payment solution to our customers even after departure. In these cases, we are getting the full value of the transaction upfront, and we are not taking any credit risk on our balance sheet. This solution still amounts to a few percentage points of our gross travel value. On the other hand, we still -- we are offering to our customer, our internal solution, both deposit and balance, so deposit upfront, balance before departure or deposit and payment by installments. These options are still with no credit risk for us because our clients are required to pay everything before departure. Julia Weinhart: Thank you, Diego. The next question we have received this morning. Unfortunately, you only communicate the planned change in EBITDA for 2026, but not for the net result. Net result will also be positively affected by missing one-offs that should be communicated. Diego Fiorentini: Thank you, Georgia. Yes, yes, this is a fair point, and thank you for highlighting it. Our primary guidance focuses on revenues and EBITDA because those are the clearest indicator of the underlying operational performance of the company. But it is correct. The next year, we are not expecting significantly one-off item like we had in 2025. For this reason, the net profit will -- we expect it to be higher than in 2025. We'll be in the position to provide greater clarity during the year as the year progresses. Julia Weinhart: Thank you, Diego. Moving to the next question. Dynamic Packages delivered strong growth to EUR 250 million in revenues. Can you decompose this between B2C and B2B white label channels? What's the percentage of Dynamic Package revenue now comes from B2B2C partnerships? Alessandro Petazzi: Thank you, Julia. Yes, basically, you've seen that our packages grew from -- mostly from the new pricing and approach to marketing. The one thing that we're not disclosing now the precise distribution mix, but there's one thing that I can say, and I think also hopefully correcting what was maybe a misunderstanding in the past. We love our B2B2C partnerships. We love our white label partnerships with players like Booking.com and a lot of companies for which we deliver their welfare solutions, holiday [ cards ], other players. We love them, but we think that strategically, it's important to invest in our own B2C brands where we're really building an asset. So the one thing that I can tell -- this is to say that when we say, well, we should increase the percentage of our revenues that come from our B2C proposition, I would say, yes, but we achieved that by making sure that our B2C proposition grows more than proportionately than the other, not by making sure that the others remain either flat or even decreases, right? So in that sense, I can reassure you that indeed, the majority of growth in revenues for our Dynamic Package product in 2025 came from our own B2C brands. So indeed, the proportion of B2B2C decreased as a part of the mix compared to the latest numbers we had disclosed in 2023 and 2024. Julia Weinhart: Thank you, Alessandro. Moving to the next question. Flight revenues accelerated to 31% growth in the full year 2025 after more muted performance previously. What were the primary drivers for this trajectory change? Is this growth sustainable in the future as well? Alessandro Petazzi: Well, I think actually that I already answered this question with answering Volker's live question. And so yes, we will continue to invest in flights. Again, the exceptional growth of 2025, I think, was a function of many things, the improved pricing system, the improved ancillary products which, again, in turn, improved also the way that we showed up in meta channels, also the fact that we have a resilient traffic on the non-meta channels for flights, the fact that we started having more kickbacks from debit card providers because we started progressively having more cash. We could have a bigger portion of the payments going to airlines done with debit cards, which right now provide higher kickbacks than credit cards, and that also improved the unit economics. So it was all about basically the improvement of unit economics. Clearly, you cannot improve unit economics indefinitely, I guess, but you can still grow. Again, I would say 2025, for sure, we had also the fact that the investments was neglected and this type of activity neglected in the prior years. But yes, we expect the growth to continue at a more balanced level with the other products. Julia Weinhart: Thank you, Alessandro. Moving to the next question. Can you please talk about your dividend plans? Diego Fiorentini: Yes. Thank you, Georgia. I just want to remind everybody that these are unaudited results, which means that once the audit is completed in the coming weeks, the Board will propose the 2025 dividend in line with our dividend policy for shareholder approval at the end of June. Julia Weinhart: Thank you, Diego. Moving to the next question. Cash allocation. Given the strong operating cash generation, what are your capital allocation priorities for 2026? Do you plan to accelerate debt reduction considering targeted acquisitions, M&A or invest further in technology and marketing? Could you please explain how do you think about cash generated priorities going forward? Alessandro Petazzi: Yes. Yes. Well, basically, the first thing is that we intend to reinvest in all our strategic drivers. Brand for sure is one of them, strategic initiatives and let's say, improving our product and getting ready for this really fast-changing landscape is also part of that. We also have the idea of keeping disciplined shareholder returns through our dividend policy. So that's going to continue. But I would say more in general, I think we still feel that it's the right time now to have a bit of a war chest in a way to be prepared for whatever market scenario comes up. Basically, I really like the idea of having optionality, especially when there's so much change, right? I think when there's so much change, you want to be in a position to act swiftly if something interesting comes up. For example, we are working a lot now with AI start-ups, I would say, mostly in the AI space, but not just in the AI space, also another interesting project, which maybe we'll tell you a bit more about in the next few quarters, and if opportunities come there. So I'm not thinking about that type of transformational type of acquisition, but if opportunities arise to maybe have direct capital investments in some of these very interesting companies that are developing something that is AI first or that are developing something that is really complementary to our business model, then I want to have that flexibility. So that's what we're prioritizing now. Julia Weinhart: Thank you, Alessandro. Moving to the next question. Your revenue outlook for 2028, EUR 450 million looks very defensive now. Have you plan to do EUR 400 million in '26 already? Can you give us an update, please? Alessandro Petazzi: Well, guys, I would say this is a happy problem to have in the sense that if you look at this company a couple of years ago, the story was completely different, right? Revenues were stagnating, maybe decreasing. Now we have the problem of, say, oops, we're growing too fast, you're not credible in what you're saying if you're not more aggressive. So I would say it's February. There is a bit of a tendency sometimes of the market to say, well, actually, once you give a guidance in the beginning of the year. It's not -- we're not a SaaS business in which you have subscriptions, obviously, there's seasonality, there's stuff. So it's early days, I would say. We're confident that we can deliver on the growth that we talked about for 2026. The moment that this confidence translates into actual numbers, we can think about taking a closer look at our longer-term guidance. Obviously, we will have like a rolling approach to our 3-year plan. So last year, we were talking about 2025, 2026, '27, '28 plan. And later in the year, we will extend it to 2029 and give you a refresh on that based on the actual numbers. I would say, when we are past the peak of the season. Julia Weinhart: Thank you, Alessandro. Moving to the next question. How would tax rate be negative in Q4? Diego Fiorentini: Thank you, Julia. I think I mentioned during the call already, but happy to explain it better. In Q4, we had what is called the measurement of the deferred tax assets. Basically, tax assets are losses that we incurred in the past, but we were not able to record because the expectation for the profitability of the companies was not there yet. With the measures we have taken in 2025, we are now more confident about the possibility to use those losses brought forward. And for this reason, we have recognized these tax losses. Julia Weinhart: Thank you, Diego. Do you consider your fixed cost base as optional at the moment? Any path to further optimize without damaging top line growth potential? Diego Fiorentini: Yes, this is a very good question. The current cost base is something we are happy with at the moment. But of course, this cannot be taken for granted as we move forward. So we will continue to revise our cost base, especially in light of the new technology and the possibility to automate the back office and the accounting operations. Julia Weinhart: Thank you, Diego. Moving to the next question. Thank you so much for the presentation you mentioned. No growth of CapEx for 2026. Does it mean that there was no change in your approach? Do IT app development expenses? Or have you finished the app and there is not much to capitalize? Alessandro Petazzi: Okay. I'll take this. No, I think this would be a bit of a simplistic view. We're not slowing down development. We maintain a significant level of CapEx relative to our EBITDA. It's more that we have reached a plateau in which we think that this is the amount of money that allows us to basically keep on improving our products because there's always something to improve. Keep in mind that also thanks not just but also thanks to the usage, the more widespread usage within the company of AI tools also for coding, we expect a big productivity gain. So with the same type of cost should be able to be faster, deliver more products. So that's more the approach. We started using internally [ Claude co-brand ] with the development team, and we have a target of improving productivity of 15% on that. So that alone means that you can be actually delivering all the initiatives we're talking about without increasing the CapEx amount. Julia Weinhart: Thank you, Alessandro. Moving to the next question. What was the one-off charge in P&L 2025 for? Maybe it was covered and I have missed it. Could you please explain? Diego Fiorentini: Yes. Thank you, Julia. Yes, this was covered during Q2 and Q3 calls. We had 2 reorganization efforts in 2025. The first one during Q2 and the second one in Q3 when we closed the cruise business. There were no other exercises in Q4. Julia Weinhart: Thank you, Diego. With this, we will close our call today. If there are any questions which we couldn't address today, we are, of course, available after the call. You can write us an e-mail or give us a call. With this, I hand over to Alessandro for the final words. Alessandro Petazzi: Thank you, Julia, and thank you, everyone, for joining us. Yes, I think we talked a lot about what we've done in an exceptional -- in what ended up being an exceptional year, to be honest, even beyond our targets and expectations. And we keep on building for 2026 to make sure that we keep this momentum, and we will give you more information, not just on our financial growth, but how we get there and all the interesting things that we are working on. So stay tuned, not just for our investor calls, but also for the press releases we will have over the next few months about some industrial developments. Thank you so much, and see you next time. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Greetings. Welcome to Antero Midstream Corporation Fourth Quarter 2025 Earnings Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Dan Katzenberg, Director of Finance. Thank you. You may begin. Dan Katzenberg: Thank you for joining us for Antero Midstream Corporation’s fourth quarter investor conference call. We will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at anteromidstream.com where we have provided a separate earnings call presentation that will be reviewed during today’s call. Today’s call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President of Antero Midstream Corporation, Justin Agnew, CFO of Antero Midstream Corporation, and Brendan E. Krueger, CFO of Antero Resources Corporation. With that, I will turn the call over to Michael Kennedy. Michael Kennedy: Thanks, Dan. Good morning, everyone. We recently closed the acquisition of HG Mid for $1,100,000,000. This bolt-on asset in the core of the Marcellus Shale adds over 400 highly economic undeveloped locations dedicated to Antero Midstream Corporation that immediately compete for development capital and infrastructure projects in 2026. This asset is a strategic fit in Antero Midstream Corporation’s portfolio and will follow our just-in-time capital investment strategy that generates consistent and repeatable free cash flow. Looking back at 2025, we generated EBITDA growth of 7% year over year, which marked our eleventh consecutive year of growth since our IPO in 2014. Free cash flow after dividends increased by 30%, driven by capital efficient organic growth and throughput from Antero Resources Corporation. In 2026, this EBITDA and free cash flow growth continues, as we expect 8% year-over-year EBITDA growth and 11% year-over-year free cash flow growth. Looking ahead further to 2027, we expect another year of high single-digit EBITDA growth as we realize the full benefits of the acquisition and synergies, including the integration of the water system and Antero Resources Corporation running a three-rig, two-completion-crew development program on our dedicated acreage. Justin will go into the details in his remarks, but the integrated water system combined with our investment in dry gas assets provides high visibility into growth at Antero Midstream Corporation. Importantly, we can achieve this growth with very modest capital budgets, which allows us to further expand our free cash flow after dividends in 2027. With that, I will turn the call over to Justin Agnew. Justin Agnew: Thanks, Michael. I will start with our fourth quarter and full-year highlights on slide number four. Adjusted EBITDA was $285,000,000 during the quarter, which was a 4% increase year over year driven by an increase in gathering and compression volumes. During the quarter, we generated $85,000,000 of free cash flow after dividends, which we used to reduce leverage to 2.7x and repurchased approximately $48,000,000 of Antero Midstream Corporation shares. For the full year, we generated a company record free cash flow after dividends of $325,000,000, which is a 30% increase compared to 2024. This free cash flow growth, driven by capital efficiencies from leveraging our existing assets, generated a 20% return on invested capital, or ROIC, in 2025. Now let us move on to slide number five titled “2026 Capital Budget.” In 2026, we have budgeted a capital investment of $190,000,000 to $220,000,000. The capital budget includes our blocking-and-tackling well connect and water capital, construction and relocation of compression assets, high-pressure gathering trunk lines, and capital to integrate the water systems. It also includes expansion capital on the dry gas portion of the acreage to enhance downstream deliverability to multiple long-haul pipelines. These projects will unlock significant optionality and improve reliability in the dry gas regime that we do not currently have today. I will finish my comments on slide number six titled “2026 Guidance and Outlook.” This guidance includes the impact of the acquisition and divestiture with contributions to guidance based on closing dates of each transaction. For 2026, we are forecasting adjusted EBITDA of over $1,200,000,000 from this point, an 8% increase year over year. As Michael mentioned, after we finish the integration of the acquired water assets in 2026, we expect further growth in the water business in 2027 as we begin servicing locations on HG acquired acreage. After interest, a capital budget of $190,000,000 to $220,000,000, and an attractive $0.90 per share dividend, we are forecasting to generate free cash flow after dividends of $360,000,000, or an 11% increase compared to 2025. Consistent with our historical approach, we expect a balanced return of capital program in 2026 in the form of debt reduction and share repurchases. This allows us to maintain a strong balance sheet with leverage in the low-3x range. Core to Antero Midstream Corporation’s strategy, the recent acquisition highlights the benefit of lower leverage and debt reduction, which allowed us to flex the balance sheet for the HG acquisition. This improves after-tax accretion and, more importantly, allows the value to accrete to our existing shareholders without the need for equity financing. In summary, we expect 2026 to be yet another year of EBITDA expansion, high capital efficiency, and, most importantly, double-digit free cash flow growth. Our organic growth strategy, coupled with a highly accretive acquisition that is fully financed, positions us well to build upon momentum created in 2025. With that, operator, we are ready to take questions. Operator: Thank you. Our first question is from John Ross Mackay with Goldman Sachs. Please proceed. John Ross Mackay: Good morning. Thank you for the time. I want to start on the growth outlook. I understand 2026 and 2027 have some tailwinds from M&A in the headline numbers. What does the longer-term growth look like once the assets are fully up and running, if you are running a three-rig and two-crew program? Michael Kennedy: John, good question. That three-rig, two-crew program does provide continued growth even past 2027, about a couple hundred million a day of growth on throughput volume. So expect that to continue. I think it would still be in the mid- to high-single-digit EBITDA growth like we have experienced over our last eleven years, and we will have in 2025 and 2026. I think that is pretty fair to generate those types of growth in 2027 and beyond. John Ross Mackay: That is clear. I appreciate it. And then on the Antero Resources Corporation side, you were talking about some growth upside plans. You gave the color on the Antero Resources Corporation call, but maybe walk us through the thought process there and what that means both from an EBITDA growth standpoint and a capital standpoint if you move to that higher potential target? Michael Kennedy: Yes, that is the great thing about it. There is really no capital for Antero Midstream Corporation outside of what Justin outlined. It is right in the heart of our field. We already have all the big trunk lines. We have whatever pipelines are necessary. We have the water. A lot of this is dry gas, so it does not need further processing. So really nothing different than these capital budgets that we have experienced over the past couple of years for Antero Midstream Corporation. For Antero Resources Corporation, Antero Resources Corporation is well-positioned partly because of Antero Midstream Corporation, but also because of firm transport optionality around dry gas, being in the right part of the country, and having the ability to transport our gas to the Gulf Coast for LNG. So a lot of different demand centers are coming Antero Resources Corporation’s way. So Antero Resources Corporation is the likely company and most well-positioned to meet the growing demand over the next five to ten years. John Ross Mackay: All right, that is clear. I appreciate the time. Operator: There are no further questions at this time. I would like to turn the conference back over to Dan Katzenberg for closing remarks. Dan Katzenberg: Thank you, everyone, for joining us on the call today. Please reach out with any questions that you have. Have a good day. Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time.
Operator: Welcome, everyone. The Four Corners Property Trust, Inc. Fourth Quarter 2025 Financial Results Conference Call will begin shortly. In the meantime, if you would like to preregister to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Thank you. Hello, everyone, and thank you for joining the Four Corners Property Trust, Inc. Fourth Quarter 2025 Financial Results Conference Call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by If you change your mind, please press star followed by 2 on your telephone keypad. I will now hand over to Patrick L. Wernig, Chief Financial Officer, to begin. Please go ahead. Thank you, Claire. During the course of this call, we will make forward looking statements are based on our beliefs and assumptions. Patrick L. Wernig: Actual results will be affected by known and unknown factors that are beyond our control or ability to predict. Our assumptions are not a guarantee of future performance, and some would prove to be incorrect. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found at fcpt.com. All the information presented on this call is current, as of today, 02/12/2026, In addition, reconciliation to non GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report. That, I will turn the call over to William Howard Lenehan. Good morning. Following my initial remarks, William Howard Lenehan: Joshua Zhang will comment on our investment activity, and Patrick will discuss financial results and capital position. This past November marked our ten year anniversary as a public company. Over the past decade, we have grown from just four employees with 418 properties leased a single tenant into a platform with 44 team members, and 1,325 leases. We've acquired 2,300,000,000 of properties and paid out over a billion of dividends to our shareholders. We are proud of the portfolio and company, and we've built and look forward to continuing our mission to drive shareholder value via conservative and thoughtful capital allocation. During Q4, we acquired $95,000,000 of net lease properties at a 7% blend cap rate. Total, during 2025, we acquired $318,000,000 of net lease lease properties. We largely funded these acquisitions with equity we raised on the end ATM via forward issuance. One important note on our acquisition volume is we accomplished this without the benefit of any large portfolio transactions. Most of the deals in 2025 were midsized transactions between 5,000,000 and 20,000,000 furthering our extremely granular and selective portfolio construction via high quality acquisition. We did this by staying the course of what has become core to FCPT's brand a focus on attractive real estate occupied by creditworthy tenants without sacrificing quality for volume or pat padding investment spread. Even in an era of increased competition for larger net lease portfolios, we believe that we have a business model that can scale and score attractive opportunities for growth. Our in place portfolio retains its workers' quality with zero exposure to problematic retail sectors such as theaters, pharmacies, high rent car washes, and experiential retail. We have side stepped major tenant credit issues including zero bad debt expense in 2025, and have very little vacancy in the portfolio. Our rent coverage in Q4 was 5.1 times for the majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry. To that end, our core anchor tenants of Olive Garden, Longhorn, and Chili's continue to be leaders within the net lease tenant universe. Most recently, Brinker reported Chili's same store sales growth of 9% for the quarter ended December 2025, which represents a two year sales growth comp of plus 43%. Olive Garden and Wildhorn reported same drills same store sales growth of near 56%, respectively, the quarter ended November 2025. Truly amazing results from our largest tenant who represent over 51% of our portfolio rent on a combined basis. This improves our portfolio metrics and further demonstrates the benefits of thoughtful asset selection and alignment with best in class tenants. On the topic of our garden assets, Darden announced last week that they are shutting down the Bahama Breathe brand and are converting many of these locations to other Garden brands. Our current Bahama Breeze exposure is just 1.3% of base rent across 10 properties, which equates to an average rent 341,000 per property which is very reasonable. While it is early, are in discussions with Darden about these properties. And as of now, we do expect several of these stores to be converted to other Darden concepts. Further, these properties are all subject to leases with a minimum of one point seven years of term remaining. During which time Darden will continue paying rent taxes, insurance, and all other costs at these locations while we seek new tenants. In the event that they do become permanent closures, have already received significant inbound inquiries about backloading locations over the past week, We have lots of confidence in the quality of the real estate of these properties and expect they could be retenanted at similar rents. It's worth noting the impact of our proactive approach to portfolio management here. We sold two high rent Bahama Breeze locations back in 2016 and 2018. In the 4.75 to 5% cap rate range. This reduced our exposure to the brand by $2,000,000 in rent roughly 35% of where it would otherwise be today. Continue to make meaningful progress in the area of diversification. Olive Garden and Longhorn are 329% of our rent today, versus a combined 94% spinoff. While 37% of our rents come from outside of casual dining. This includes automotive service at 13% quick service restaurants at 11%, and medical retail at 10%. Our deal sourcing remains focused on central retail and services. In our view, creating a prudently positioned portfolio with limited exposure to TaroSense sensitive sectors and strategy centered on everyday consumer demand. We are constantly evaluating new retail care categories we look to expand the top of our funnel for investments. Similar to our decision to expand into automotive service and medical retail properties, we consider business and AI resilience, availability of creditworthy tenants, real estate quality, and pricing relative attractiveness. Patrick is gonna discuss this in more detail. But a key takeaway is that since 03/2024, our last circled 520,000,000 of acquisitions, essentially all of the 171 buildings purchased over the last eighteen months. Have been funded 85% with equity only. Raised at attractive pricing and the balance funded with low rate term loans. So today, our balance sheet is over equitized. Patrick L. Wernig: I'll repeat that. William Howard Lenehan: Today, our balance sheet is overequitized with net leverage near five times. Further, we raise debt when would have required a 7% plus coupon. Now we can access much more favorable debt capital markets with a coupon rate in the 4.5 to 5.5% range. Depending on the structure and term. Whether term loans or or notes. This is much more attractive given where we're seeing cap rates today. Are proud of the year that we put together from both the capital raising and acquisition funds The team has shown great growth over the last ten years since inception, and we feel that we are well positioned heading into 2026. We enter enter the year with low leverage and ample dry powder for opportunities that may arise. Over to you, Josh. Patrick L. Wernig: Thanks, Bill. I'll start with a review of this quarter's activity, more details on 2025 investments. Joshua Zhang: In Q4, we acquired 30 properties with a weighted average lease term of ten years for $95,000,000 at 107% cap rate. This was a 20 basis point expansion over the previous quarter, our highest blended cap rate in 2025. We finished the year with 105 properties acquired for $318,000,000 at a 6.8% blended cap rate. This represents an average basis of $3,000,000 per property, and continues our strategy of partnering with creditworthy operators in selecting fungible low basis properties to further protect against any downside. Looking back 2025 was one of our busiest years to date. Our total investment volume increased 20% from 2024, and we had 53 unique transactions. Said another way, our team was able to post stellar results without reliance on large portfolio transactions. This is important to note because, one, these large deals often command pricing premiums, for the ease of putting a greater amount of capital to work. And two, they often require buyers to accept all or nothing where a good chunk of properties may not fit our underwriting thresholds. That said, our team remains capable and ready to execute on these larger opportunities when the right deal comes to crack. But we are encouraged our platform can still post significant volume in years but we do not anchor a large portfolio yield sitting in market. In Q4, we also expanded the team's capabilities outside of our main three categories, restaurants, automotive service and medical retail, with our acquisition of a Sprouts grocery store and our first equipment rental acquisition of United Rentals property. As Bill mentioned, our team is constantly evaluating new opportunities in adjacent sectors to understand the resilience of the business and the way they attract in this of their credit and real estate locations versus our existing portfolio. We feel that both the grocery and equipment rental sectors fit our existing underwriting approach of focusing on recession resistant essential service retailers with high quality, and fungible real estate. Similar to how we approach our entrance into the automotive service and medical retail sectors, that is, by dipping our toes and building extensive knowledge next before launching an official strategy, we will follow the same pattern here While grocery and equipment rental are newer categories for us, we chose these specific properties because of their similarities to the asset we regularly purchase in our existing portfolio. For example, both are leased to best in class creditworthy operators in respective subcategories. Sprague's is a publicly traded grocer with more than 400 applications across The US, No debt. Our $8,600,000 basis in this location is also much lower than the 10,000,000 to $15,000,000 we typically see for the branded market. United Rentals is also a publicly traded company with over 1,600 locations across The U. S. And is rated double b plus by S and P. They are the largest equipment rental provider in the nation, and have a demonstrated track record of strong operations. Continue to evaluate similar opportunities in these sectors for only so long as they match our existing underwriting thresholds and investment criteria. Now reflecting on our strategy going forward for 2026. 2025 evidenced substantial repeat counterparty transactions. A trend we expect to continue. Coupled with the expanding top of our funnel, we expect 'twenty six to be another strong year of increased diversification and expanded platform capabilities. Patrick? William Howard Lenehan: Matthew? Patrick L. Wernig: It's Josh. I'll start by talking about capital sourcing and the state of our balance sheet. We have full capacity under our $350,000,000 revolver and feel that we have the liquidity to continue executing our business plan in Q1 and into 2026. With respect to leverage at the end of Q4, our net debt to adjusted EBITDAre was just 4.9x, inclusive of outstanding net equity. Excluding our forward equity balance, our leverage is 5.1 times. This is our sixth consecutive quarter of leverage below 5.5 at the very bottom of our stated leverage range of five to 6x. We've now fully settled our forward equity balance in 2025, but with a fully available revolver, we feel we still have ample capacity on the debt side. After including debt capacity and free cash flow, we have over $220,000,000 in liquidity before reaching the five times leverage, and substantially more than that before approaching six times. Said another way, we believe we could utilize low interest rates for all acquisitions in 2026 and still remain under our self imposed letters. As always, we aim to be optimistic to achieve the best cost capital on our funding decision this time, Martha. We are encouraged by the current state of the term loan market. Which was much more constrained just a few years ago. As a reminder, five year term loans have historically been priced at 95 basis points over SOFR or an all in rate today of approximately 4.6% after swaps and before fees. Private place endowments would be higher than that but also accretive to current market cap rates while offering longer term incentive. With 95% of our floating rate debt fixed through November 2027, at 3% versus spot rate today at 4%. Overall, 98% of our debt staff is fully fixed, and our blended cash interest rate is 4%. We remain we maintain a very healthy fixed charge coverage ratio of 4.8 times. I'd also like to remind everyone that in Q3 of last year, we removed the SOFR credit spread adjustment 10 basis points to our interest expense on the revolver per month. Our new borrowing rate on term loan for silver was 95 basis points and revolver is over plus 85 basis points. We've had a positive flow through to AFFO of approximately $600,000 per year. Turning to debt maturities. Including extension options, we have no debt maturities till December 2026, with $50,000,000 in private notes come due. Our Saturday maturity schedule will ensure we do not face significant maturity loss at any point thereafter. That said, we are focused on the smallest common maturities in '26 and '27, We've been very encouraged by the liquidity in the bank market today. As well as the very attractive credit spreads being achieved in the private placement and public bond sector. Then in other words, we believe we have numerous avenues to address these minor maturities at track rates. And turning to some of the earnings highlights for Q4. We reported Q4 AFFO per share of $0.45 and our full year AFFO was $1.78 per share. Representing 2.9% growth over 2024. Q4 capital income was $67,500,000 representing growth of 11.1% for the quarter compared to last year. Annualized tax base rent that leases in place at the quarter end is $264,200,000 and our weighted average five year annual cash rent escalator is 1.5%. Cash G and A expense was $18,000,000 for the year. The very bottom of our guidance range, and representing 6.9% cash rental income for the year compared to 7.1% over prior year. This improved operating leverage illustrates our continued efforts on efficient growth and the benefits of our improving scale. Our new guidance range for cash generation in 2026 is $19,200,000 to $19,700,000 As for managing our lease maturity profile, 95% of the 41 leases expiring in 2025 remain occupied today, This includes a high renewal rate in two properties that were quickly released to new tenants. Additionally, we've started to make progress on our 42 leases expiring in 2026, Now represents just 1.5% of ABR. Down from 2.6% at the start of 2025. Our portfolio occupancy remains very strong today at 99.6%, benefiting from efforts to release our very limited number of back billing impacts. We collected 99.5% of base rent in Q4, and 99.8% for the year. Last quarter, we did not see any material changes to our flexibility or credit reserves. Do you wanna call out Wendy's slide we introduced the presentation from page 11? We regularly see private market cap rate comps properties similar to the properties owned in our own portfolio. So our public valuation has been lower in recent months. We thought it would be helpful to hear our current implied cap rate to the blended cap rate. Are recently sold on these properties. It demonstrates a sizable gap between the higher value of our underlying asset when the stock is actually trading at. With that, we'll turn it back over to Claire for questions. Thank you.: Thank you. Operator: To ask a question, If you change your mind, please press 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Michael Goldsmith from UBS. Michael, your line is now open. Please go ahead. William Howard Lenehan: Good morning. Thanks a lot for Patrick L. Wernig: taking my question. First question is on the move into Michael Goldsmith: United Rentals and industrial outdoor storage. Can you just talk a little bit about the market you see there, maybe the total addressable size? You know, it feels like some of some of your net lease peers have been moving into that space. So, like, what would you see for like a competition perspective there? And then if you could talk a little bit about how the cap rates in that space compared to the rest of your portfolio, that'd be helpful. Thanks. William Howard Lenehan: Thanks, Michael. Well, I I'm I'd say I've been following the sector for a long time. I was chair of the investment committee at Gramercy, you know, fifteen years ago when we were doing quite a bit of this. It's attractive. It's you know, a lot of the value is in the land residual If you're careful, you can get in at a good basis. There's creditworthy tenants. Joshua Zhang: You know, William Howard Lenehan: it's hard to get new sites entitled Patrick L. Wernig: So there's William Howard Lenehan: some entrenchment if you can find existing site very large addressable market, Joshua Zhang: you know, Patrick L. Wernig: very defensive. William Howard Lenehan: And cap rates that that make sense. So we've looked at a lot of them. We'll continue to to pursue that strategy. There are players who focus on it now. One of them was just taking private by Brookfield, but it's a it's an attractive space. As is grocery, by the way. But we found that very often high credit grocers have you know, a much chunkier purchase price than we typically plan. But but we're looking at both of those sectors and and others on a continuous basis. But answer your question on TAM, you know, we can get back to you, but it's, you know, enormous compared to the size of our company. Michael Goldsmith: Got it. Thanks for that. And then, second question, just following up on the Bahama Breeze. It sounds like you got ahead of this in a little bit in the prior year, so you still have a little bit of exposure here. Yeah. I guess, with I guess the question is just can you just kinda it sounds like rents are about the same of where or, the level of interest is is high, but rents are about the same. Is that the right is that case? And then also, like, if if you compare the publicized list, I think you've got, like, four or five locations remaining. So can you just kinda confirm that? Just talk a little bit more about that. Thanks. Yeah. William Howard Lenehan: I think that's that's right. There will be a handful that get converted to other garden brands. They'll be there may be one that we swap out with Darden for another property. And there'll be a couple that in a year and a half plus we have to release. We've been inundated with people interested in these sites. They're very well located. And I think we're being pretty conservative on the rents. But you know, it's we've sort of been working on this for a week, and we're sorting through a lot of people who are interested in taking the sites. Michael Goldsmith: Thank you very much. Good luck in 2026. William Howard Lenehan: Thanks, Michael. Michael Goldsmith: Thank you. Operator: Our next question comes from John Kilichowski from Wells Fargo. Your line is now open. Joshua Zhang: Maybe just to stay on Bahama Breeze here. Bill, John Kilichowski: forgive me if I missed in the opening remarks. You talked about the rents there. Are you able to talk about the performance at these assets? I'm just if they're getting converted, would that be at the same rent? And then for the assets that would need to turn in a year and a half, I mean, if you're getting substantial interest at this point, is there a potential for even a positive mark to market I'm curious like what the total loss is that you're kind of making into internal estimates William Howard Lenehan: Yeah. I don't I don't think we're baking in losses. At all. These brands are Bahamurisa's brand had limited market expansion Simply, I think a lot of The US has a view on what Bahamian cuisine is. So it worked in the Southeast, Patrick L. Wernig: and William Howard Lenehan: it just wasn't relevant to the total size of garden. And so they'll convert some of these. They have existing leases, so there be a change in the rental rate would be my assumption. But we'll have know, brand new stores with higher AUV brands. And then for 1,325. Patrick L. Wernig: Again, I this is Patrick. I would just add that, you know, when you look at that press release starting put out, and the list of sites that they wanna convert, there's still some moving pieces there. And you know, you have to factor in some of those stores that have really high quality real estate. Are restricted by covenants, by other tenants nearby, or by the shopping center. Itself. So you know, Darden's interest in converting a lot of these sites was clear, and it's just a matter of what they can do within the restrictions that are on those properties. But but the demand in the last week has been I'd say, tremendous from other tenants that wanna backfill these locations. Joshua Zhang: Okay. John Kilichowski: That's helpful. Thanks, Pat. Then maybe one another one for you just on the the balance sheet. You've called the forwards. I think in the opening remarks, said two twenty. Michael Goldsmith: Of John Kilichowski: liquidity gets you to 5.5. I'm just curious how you think about managing the balance sheet. I know, Bill, you kept saying over equitized. At what point, the high end is six, but maybe as you get to five five, in an effort to not necessarily reach the high end, do you start to maybe pull on thinner spreads on equity at a certain point or you kinda stick to your guns that you'll ride you know, that number up to six? And then if at that point, if the equity is knocked you know, cooperating, then you start to pull back on the acquisition cadence. I'm just curious how you think about all scenarios. And, obviously, if the risk off trade works, then great. We get a cost of equity. We keep moving. But just it it trying to think about all scenarios here. William Howard Lenehan: Yeah. I think we've evidenced that we're disciplined in our capital allocation. That we don't go out the risk spectrum on acquisitions You know, we don't provide guidance for a reason. But that said, we have lots of runway with very accretive acquisitions funded with low leverage, inexpensive financing that's readily available today. A way that it wasn't readily available a couple years ago. So I think we feel like we're in great shape and we have minimal maturities to address. So I think we have a long runway of acquisitions Patrick L. Wernig: and William Howard Lenehan: our stock has been soft Joshua Zhang: And I think we Patrick L. Wernig: as William Howard Lenehan: Pat mentioned, added some detail in our presentation of how well supported by NAV we feel our stock price is. But I think it offers, you know, real value today. Joshua Zhang: Got it. Thank you. Patrick L. Wernig: Thank you. Operator: Our next question comes from Anthony Paolone from JPMorgan. Patrick L. Wernig: Can you talk about just Red Lobster exposure? Because I think that's another one that's been out there talking about perhaps more more store closures. William Howard Lenehan: Yeah. I don't think there's much to say. The brand is doing much, much better than it was under prior ownership. Our stores are predominantly in a master lease. It was affirmed when they restructured at the same rent. I think we we feel quite good about that. Joshua Zhang: Okay. Patrick L. Wernig: And then on the diversification, strategy, Anthony Paolone: can you maybe just talk about anything that that you don't want to get into or other areas of interest that that you haven't quite tapped yet? Joshua Zhang: Yeah. I think William Howard Lenehan: you know, we've been very clear. We have a page in our presentation of sectors that we have avoided. I would double down on what's on that page. We try to focus on a balanced real estate and credit approach and we try to stay within Anthony Paolone: sectors William Howard Lenehan: that have been through cycles. And so John Kilichowski: know, William Howard Lenehan: we don't own pickleball facilities that cost $20,000,000. We don't own $9,000,000 car washes. We don't own corporate headquarters in the middle of nowhere. Where Patrick L. Wernig: you can get more spread William Howard Lenehan: and it works typically for a while. Anthony Paolone: But William Howard Lenehan: on lease renewal, you'd have a lot of risk. Joshua Zhang: So William Howard Lenehan: I think we take a much more balanced approach than our peers and it's shown in the last decade that our credit performance has been best in class. Anthony Paolone: K. Thanks. Operator: Thank you. Our next question comes from Rich Hightower from Barclays. Your line is now open. Please go ahead. Michael Goldsmith: Just wanted to follow-up on one of the earlier questions, you know, but but what what's the real Patrick L. Wernig: level Michael Goldsmith: with approaching that sort of six times upper limit on leverage if if that's the only option the market gives you. Know, as far as executing the the the sort of plan for '26 on growth. Anthony Paolone: But William Howard Lenehan: I I think that's a quite a bit of a ways off. So, you know, hard to make predictions that many months in the future you know, So I think we feel very good that we have you know, a couple $100,000,000 of acquisitions before we even have to be thinking about that. And and, honestly, you know, we've had the same Anthony Paolone: leverage William Howard Lenehan: ceiling for since inception, we've essentially never been close to it. You know? So I think that that track record speaks volumes. Anthony Paolone: Alright. Fair enough. Michael Goldsmith: And then as far as the, I guess, the that sort of early vintage of Darden leases coming due, '27. And I I wonder if I've asked this before, but, you know, where do you guys sort of peg John Kilichowski: the mark to market or the recapture rate potentially on those Michael Goldsmith: you know, upon renewal, you know, that sort of thing? William Howard Lenehan: They have multiple five year extension options. At one and a half percent growth, so the continuation of that one and a half percent escalator. Anthony Paolone: So William Howard Lenehan: I would say that our expectation is the vast majority of those will renew at the at the one and a half percent contractual option. John Kilichowski: Got it. Thanks very much, Bill. Anthony Paolone: Yep. Of course. John Kilichowski: Thank you. Operator: Our next question comes from Wes Golladay from Baird. Your line is now open. Please go ahead. John Kilichowski: Just looking at your your know, your valuation chart you put in the presentation. You have a lot of assets that will trade call it mid, low fives and up to the low sixes. Joshua Zhang: Would you have any appetite to to start disposing of some of those assets and recycling into a little bit higher yield and higher growth assets? John Kilichowski: And get the diversification higher. William Howard Lenehan: Yeah. It's always an option. Wes. We've done very little of it, you know, where we have done it. Frankly, was a number of years ago in selling you know, bomber breeze assets at extraordinary pricing. The very high rents. We haven't had to do it in the past. We don't have to do it today. The Darden assets are very, very high quality and very hard to you know, replace. They trade for you know, strong values for a reason. Darden as a company has, you know, $25,000,000,000 market cap. It's credit default swaps. Anthony Paolone: You know? William Howard Lenehan: Are are like a g seven country. So they're hard to they're hard to let go of, to be honest. It's an option. We we know how that works. You know, I would remind everyone that there are read rules You can't just sell properties one by one. Like some people assume you can. Anthony Paolone: But William Howard Lenehan: it's an option. We haven't had to do it yet. Nothing wrong with the hasn't the primer. Anthony Paolone: Okay. And then you did have a a rare impairment in the quarter. What what drove that? William Howard Lenehan: It was a a quick service restaurant that we purchased right at the beginning of our life. It was a Hardee's in Gladstone, Alabama. We've had a hard time releasing it. It's a tiny property. It's kinda hard to write down properties, to be honest. We found that the conditions were right to do it, but it's been vacant for a while and had a hard time releasing it. But you know, one property over 1,325. Anthony Paolone: Yeah. Not not bad. And one last one on the Red Lobster. I think you mentioned there were ground leases Is that for all of them? And can you share the rent level? They're they're mass William Howard Lenehan: leased. And, again, they were just reaffirmed. So I would say there's been a tremendous emphasis on credit issues that aren't credit issues in the q and a. And I would would ask listeners to to sort of see the forest for the trees. The the story here is that we have substantial growth in 2026. Anthony Paolone: That'll be really accretive. Thanks for the time. Patrick L. Wernig: Thank you. Operator: Next question comes from Mitchell Bradley Germain from Citizens Bank. Your line is now open. Please go ahead. Patrick L. Wernig: Thank you. I think, Bill, you talked a little bit about know, obviously, ticket for a grocer. I'm I'm curious how you know, do you potentially look to maybe scale up in in that sort of sector? Michael Goldsmith: Yeah. I think it's very similar, Mitch. William Howard Lenehan: To how we looked at medical retail and auto service. You know, we spend a lot of time doing research upfront. You know, we're we're conservative in what we purchase. And then as we Anthony Paolone: are active in the market, William Howard Lenehan: it helps with with seeing deals, and you get more deal flow. So it's it's no different than what we've done in the past, to be honest. It's just the the attributes of different property types you need to be, you know, sensitive to. And and I think because we've been cautious and you know, you've seen the the positive results on our credit results. Patrick L. Wernig: And do you envision doing direct deals with with grocers or maybe leveraging some of your shopping center John Kilichowski: contacts to Yeah. Absolutely. Kinda scale it up. William Howard Lenehan: It's all it's all of the above, Mitch. We we take a pretty agnostic view on sourcing. So we we source things directly. You know, in auto service, we've had a number of brands that we've had repeat sale leaseback business. But we will look at, you know, we'll look at everything that that we can. Michael Goldsmith: Gotcha. And last one for me is anything not hitting the strike zone today? Patrick L. Wernig: In terms of where you've been allocating capital? Like, are you pulling back in any way at all, or it's all as long as it continues to meet your underwriting criteria, all systems go? Anthony Paolone: Yeah. I think it's the latter. William Howard Lenehan: You know, we we've been pretty you know, thoughtful in what we've acquired, and we don't tend to have a view of buy it And if the performance starts declining, you know, we'll be able to sell it at a great price you know, That that hasn't been the way we've looked at the world. You know, we've proven things in the past, but it's been minimal. And I think it reflects what we've purchased. We feel really good about Patrick L. Wernig: Thank you. Good luck this year. Anthony Paolone: Thanks. John Kilichowski: Thank you. Operator: Our next question comes from James Kammert from Evercore ISI. Patrick L. Wernig: Thank you very much. Perhaps a derivative of where Mitch was heading Michael Goldsmith: Could you remind me what is the percentage of dollars over the past couple of years that really were direct deals with developers we didn't have a broker involved because I'm presuming that the former gives you a better yield Patrick L. Wernig: I'm just curious how that's been playing out. Proportionately. William Howard Lenehan: Yeah. I don't think I wouldn't look at it that way, Jim. I I think that the the returns are pretty similar. You know, sophisticated large brands have access to information They know what their properties paid for. You know, there are some ease of use when you do repeat transactions in the sale leaseback because often you have existing documents that you can replace or you know the people are and and, you know, the sort of cadence of information flow can be better. Joshua Zhang: But William Howard Lenehan: I don't think that there's a you know, some meaningful advantage of doing originated sale leaseback. Michael Goldsmith: Got it. I appreciate that. Not to work against them in any way. William Howard Lenehan: But I don't think I don't think that there's a big difference. Patrick L. Wernig: Marcus triggered it out. Fair enough. Thanks. Thank you. Operator: As a reminder to ask a question, We currently have no further questions. So I'd like to hand back to William Howard Lenehan for any closing remarks. William Howard Lenehan: Thank you, Claire. For 2026, we're in the fortunate position of being able to use very economical long term debt to fund new investments. We see ample external acquisition opportunities. And based on cap rates today, we expect healthy investment spreads and growth for the year. I'd emphasize that in this environment, we do not anticipate anticipate slowing down given our dry powder and where we are seeing our cost of debt capital. Our team will be on the road for some non deal roadshows in Los Angeles and Chicago the weeks of March 10 and March 17, respectively. We'd love to meet with you in person, so please reach out to Patrick or myself to coordinate. Thank you all, and look forward to seeing many of you in person this year. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good day, and welcome to the Innovative Solutions and Support, Inc. First Quarter Fiscal 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Paul Bartolai, Partner at Valem Advisors. Please go ahead. Thank you. Morning, everyone, and welcome to Innovative Solutions and Support, Inc. First Quarter Fiscal 2026 results conference call. Leading the call today are our CEO, Shahram Askarpour and CFO, Jeffrey DiGiovanni. This morning, we issued a press release detailing our fiscal 2026 first quarter operational and financial results. This release is publicly available in the Investors section of our corporate website at www.iascorp.com. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our latest reports filed with the SEC. Additionally, please note that you can find reconciliations of all historical non-GAAP financial measures mentioned on this call in the press release issued this morning. Today's call will begin with prepared remarks from Shahram, who will provide a review of our recent business performance, and an update on our strategic framework, followed by a financial update from Jeffrey. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I will now turn the call over to Shahram. Shahram Askarpour: Thank you, Paul, and good morning to everybody joining us on the call today. I am pleased to report that we delivered a strong start to our fiscal year 2026 driven by organic growth across revenue, net income, adjusted EBITDA, as well as exceptional free cash flow generation. First quarter revenue grew 37% versus the prior year period on increased commercial aftermarket demand and service activity, while adjusted EBITDA grew 141% reflecting a more favorable revenue mix and improved operating leverage consistent with our strategic focus. We continued to make important progress under our IA NEXT long-term value creation strategy during the first quarter, keeping us on track to deliver both on our near-term and long-term financial targets. As a reminder, our IA NEXT strategy prioritizes profitable growth, sustained operational excellence, and disciplined capital allocation as key drivers of long-term value creation. This strategy forms the foundation that will enable us to deliver on our long-term target of $250,000,000 in revenue and adjusted EBITDA margins between 25% to 30% through a combination of both organic and inorganic growth. During the first quarter, we completed all required recertification and resumed full-scale production of the digital flight control computer in support of the F-16 program at our Exton facility as planned. The recertification and resumption of production of the improved programmable display generator is planned for the current quarter and we remain optimistic regarding the long-term growth potential of this platform. The F-16 remains a critical asset for our military as well as many of our allies across the world, and we remain encouraged by the long runway of growth we see ahead. In addition, we still expect to begin insourcing the F-16 product line subassemblies in late 2026. This initiative should contribute to improved and more consistent margins related to these products moving forward. While we are excited by the opportunity for our F-16 platform, we also remain encouraged by the growth potential for our broader defense business. We have made significant investments to position our business as a mission-critical partner within the defense supply chain and believe that our investments, certifications, and relationships, together with a strong backdrop for defense spending, stand to benefit IS&S given our deep inside-the-cockpit expertise. At a product level, we continue to advance our progress towards autonomous flight through our next-generation flight deck, Liberty, with our UMS. Recall that the UMS is an advanced aircraft systems management platform designed to monitor and control multiple aircraft subsystems, from flight controls to environmental and power systems in a unified intelligent architecture. We have completed test flights with our new UMS platform on the Pilatus PC-24 and more recently have begun unit production. We expect to begin delivering the new version to Pilatus in mid-2026. As it relates to inorganic growth, we remain focused on pursuing complementary, accretive acquisitions that expand our capabilities, increase our content per aircraft, position us to realize significant recurring revenue streams, and increase our access to proprietary IP and technologies that enhance our unique value proposition. Historically, for those less familiar, our approach has centered on acquiring aerospace and defense avionics product lines or businesses with significant aftermarket potential. As we enter 2026, our acquisition pipeline has become increasingly active and we continue to evaluate a number of potential opportunities. We remain disciplined in our approach focusing on transactions that advance our strategic objectives and we look forward to updating you on our progress. In summary, fiscal 2026 is off to a strong start with solid operating results and continued progress across our strategic initiatives. We remain committed to our long-term strategy with an ongoing focus on delivering value for our shareholders, much as we have in recent years. With that, I will now turn the call over to Jeffrey for his prepared remarks. Jeffrey DiGiovanni: Thank you, Shahram, and good morning to all those joining us. Today, I will provide a high-level overview of our first quarter performance, including a discussion of working capital, our balance sheet, and our liquidity profile at quarter end, and conclude with comments on our outlook for the business, which remains positive given current demand conditions. We generated net revenues of $21,800,000 in the first quarter, up 36.5% from the first quarter last year, driven by growth in our commercial aftermarket business and higher services revenue. As Shahram discussed, we resumed full-scale production of the digital flight control computer in support of the F-16 at our Exton facility during the first quarter. The recertification and resumption of production of the improved programmable display generator is planned for the current quarter. That said, revenue during the first quarter was negatively impacted by this manufacturing transition, with our F-16 revenues down modestly from last year by approximately $1,200,000. However, we remain on track for a ramp in our F-16 revenues as we move through the year. Additionally, we faced some temporary headwinds in our business jet markets as we gear up to migrate Pilatus to our new UMS 2 platform, thus leading to a decline in revenues of approximately $1,000,000 during the quarter while this transition moves through production. Product sales were $13,600,000 during the first quarter, up from $10,000,000 during the same period last year, driven primarily by stronger volumes of aftermarket product upgrades to commercial markets that include UPS and air transport. Service revenue was $8,200,000, up from $6,000,000 in the same period last year due to growth in service volumes related to the IRUs and radio products line, partially offset by a small decline with our legacy service customers. Gross profit was $11,900,000 during the first quarter, up from $6,600,000 reported in the same period last year, an increase of 80%. The strong growth was driven by increases in revenue and a more favorable mix of products within our commercial aftermarket business. As a result, our first quarter gross margin was 54.5%, up from 41.4% in the same period last year. As we have stated in recent quarters, we continue to expect our gross margins to be in the mid-40% range over the course of the year, with some quarterly fluctuations based on mix, especially as we continue to grow our military and OEM businesses. Commercial aftermarket, which by nature has higher gross margins as compared to military and OEM businesses, increased approximately $5,000,000 over the prior year quarter. Operating expenses during 2026 were $5,600,000, an increase from $5,300,000 during the same period last year. Despite our strong revenue growth, operating expenses as a percentage of revenue were 25.6% compared to 33% in the same period last year. The increase in operating expenses was primarily driven by investments to support growth, including additional headcount in engineering, sales, and services as we have highlighted in recent calls, offset by lower depreciation and amortization expense. Net income for the quarter was $4,100,000 as compared to $700,000 last year. GAAP earnings per diluted share of $0.22 increased from $0.04 last year. Adjusted net income, which includes the same adjustments made to adjusted EBITDA in addition to an adjustment for amortization of acquired intangibles, was $4,500,000 for the quarter as compared to $1,600,000 last year. Adjusted earnings per diluted share of $0.25 increased from $0.09 last year. Adjusted EBITDA was $7,400,000 during the first quarter, up from $3,100,000 last year, an increase of 140.9% largely due to our revenue growth and the more favorable revenue mix. Moving on to backlog, new orders in 2026 were approximately $19,000,000 and backlog as of December 31 was approximately $75,000,000. Backlog represents the value of contracts and purchase orders less the revenue recognized to date on those contracts and purchase orders. The backlog includes committed purchases and excludes potential future sole source production orders from products developed under the company's engineering development contracts programs. Now turning to cash flow, during the first quarter, cash flow from operations was $8,200,000 compared to $1,800,000 in the year-ago comparable period, driven by our solid operating results and financial discipline. Capital expenditures during 2026 were $1,100,000 versus $300,000 in the year-ago period. Despite the increase in capital spending, primarily related to the building expansion, compared to last year free cash flow was $7,000,000 during the first quarter, up from $1,600,000 in the previous year. Our strong free cash flow reflects the limited capital needed to grow our business, which results in strong free cash flow conversion. At the end of 2026, we had total debt of $23,800,000 and cash and cash equivalents of $8,300,000, resulting in net debt of $15,500,000. As of 12/31/2025, we had total cash and availability under our credit line of approximately $83,300,000. Our net leverage at the end of the quarter was 0.5 times. Our modest leverage combined with our availability under our expanded credit facility gives us significant financial flexibility to execute on our strategic initiatives. Before we move into our Q&A session, I would like to provide our current thoughts around the outlook for the remainder of fiscal 2026. As previously disclosed, we continue to expect organic revenue to be essentially flat year over year given the pull forward of revenue related to the F-16 production and service revenue from fiscal 2026 into fiscal 2025 that we discussed last quarter. When we think about our cadence for the balance of the year, we expect second quarter revenues to be in the range of $20,000,000 to $22,000,000, building steadily on a sequential basis as we move through the year. That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To assemble our roster, the first question comes from Robert Brooks with Northland Capital Markets. Please go ahead. Robert Brooks: Hey, good morning, team. Thank you for taking my questions. First, the organic growth you posted in the first quarter is very impressive, and I wanted to dive a little bit deeper into that. Could you discuss what products or specific aircraft retrofits drove the increase in commercial aftermarket demand and sales? Shahram Askarpour: Sure. So in terms of this, it was mainly towards the air transport side of things. We have had some sales of products that we developed and certified roughly last year that are beginning to gain traction, like the ICAS system for the 757/767. We have developed LPV for the 757/767 as well as some software upgrades to update the magnetic variations. So it was a combination of increased sales on the air transport side from new products that we have developed over the last couple of years. Robert Brooks: Got it. And then, following up on that, it seems like a lot of it was new demand generation, right? I guess what I am trying to get at is whether there was any pull-forward in demand, because I know, Jeffrey, you ended the remarks by saying organic revenue is expected to be flat for the full year 2026. Obviously, you just posted a great quarter of growth, so I am just trying to reconcile what happened in the first quarter and then what will play out through the rest of the year. Shahram Askarpour: So again, last year we had significant growth in our revenue, which factors into the basis for the organic growth of this year. The first quarter was very strong on organic growth, but when we look at our business model for 2026, we still believe that our organic growth is going to be in the single digits and will be augmented by acquisitions that we are contemplating. Robert Brooks: Got it. You mentioned you expect revenue related to the F-16 platforms to scale through the year. Is that as simple as your backlog indicating that, or is there something else driving it? You also mentioned in the press release growth opportunities related to the F-16 platform, and I was curious to hear what those growth opportunities look like. Shahram Askarpour: For your first question, on the F-16 platform, we completed the digital flight control computer integration into our system around the end of fiscal 2025. So Q1 was a full load of digital flight control computers that we delivered to Lockheed. The integrated display generator, the IPDG, is being integrated into our system now, so we will see growth in revenue coming from that as it gets integrated and we start delivering from here. The opportunities for growth on the F-16—if you listen to Lockheed, they said they are going to build another 300 a day. Also, we are seeing a lot of RFPs coming in from Lockheed as well as the U.S. government for subassemblies as well as full units, which indicates that there will be future growth from the F-16 platform for us. Robert Brooks: Understood. Congrats on a great quarter. I will hop back in the queue. Paul Bartolai: Thank you. Operator: The next question comes from Greg Palm with Craig-Hallum Capital Group. Please go ahead. Greg Palm: Yes, thanks. This is Danny Eggerich on for Greg today. I appreciate you taking the questions. Maybe just hitting on the quarter—you had provided guidance with just a couple weeks left in the quarter and then saw the upside that we saw there. Any way to dig in further on what you saw the last few weeks and what surprised you to the upside? Jeffrey DiGiovanni: You mean in terms of what we said last time and what we hit? Timing of shipments sometimes—POs came in sooner than we expected from some customers as they were clearing their year-end. Greg Palm: Okay, got it. That makes sense. Then if we can hit on some defense outside of the F-16, any progress on other programs or leads, or what gets you excited in 2026 on the defense side? Shahram Askarpour: There is a fair amount of opportunities coming out right now. There are a lot of RFPs coming up for upgrades of various platforms. For competitive reasons, I do not want to go too much into details, but needless to say that some aircraft within our DoD are getting longer in the tooth and they need upgrades. It seems like the budget is being approved to provide those upgrades, so we see a lot of opportunities there. On some of the platforms, we are on a bid with multiple prime integrators, which indicates whoever wins, we will have some content. Greg Palm: That is very helpful. Maybe one on M&A: now with the CapEx cycle winding down and a nice quarter of free cash flow, and I think last quarter it sounded like the pipeline was robust and there were a couple opportunities that were pretty close. Any change in thinking there? Is there any acceleration in the pipeline and maybe expecting something in the near term? Shahram Askarpour: We are expecting a couple of things in the near term. There were opportunities in the previous quarter and the one before that as well. From a strategic standpoint, they were not completely aligned with our strategic objectives, and when the price went up a little bit, we walked away from it. Greg Palm: Alright, understood. I will leave it there. Thanks. Jeffrey DiGiovanni: Thank you. Operator: The next question comes from Josh Sullivan with JonesTrading. Please go ahead. Josh Sullivan: Hey, good morning. Jeffrey DiGiovanni: Good morning. Josh Sullivan: On the integration of the F-16 components at Exton, you completed the expansion there. Can you give us some color on how that integration has come along, particularly as you are looking at other platforms or products to bring in-house? Maybe where you were ahead of schedule on that expansion and now bringing in products? I am curious how that whole process is coming along. Shahram Askarpour: The F-16 actually took longer than planned. We are at the tail end of these things. A lot of it, especially on the F-16, because you had Lockheed Martin involved and the U.S. government involved, they wanted certain assurances to have enough safety measures before they would allow Honeywell to ship the test equipment to us. That took longer than originally anticipated by Honeywell and us. In general, having been through a number of these, they get planned for five to six months, and it typically takes roughly more like nine months. That is not from our side; it really is from the side of the larger organizations that we acquired these products from, and it takes them longer to close out their books and ship equipment to us. Josh Sullivan: Switching gears, you talked a bit about autonomous flight in the remarks. What are you seeing from market interest on UMS, and where do you want to take the line on automation? On the regulatory environment, as we start to think about things like drones, where are you thinking in terms of that market? Shahram Askarpour: The regulatory environment has had its ups and downs. EASA came out a couple of years ago and said by 2027 they are going to allow Part 25 airplanes to fly with one pilot, and then there was a pushback from the pilot organizations and pilot unions, which companies like Boeing and Airbus backed away from that date. It is something that is going to happen. The timing is not that far out, but it is going to happen. We are seeing a lot of interest in cockpit automation. Eventually, once the regulations change, that would result in one pilot flying the airplane. From the operators and the airlines, they would love that because it saves them roughly about $1,000,000 per airplane per year. But again, regulations have to change, and the pilot unions have to come on board. Meanwhile, we are seeing a lot of interest in levels of automation that lead to that. Jeffrey DiGiovanni: Great. Thank you for the time. Operator: This concludes our question and answer session. I would like to turn the conference back over to Shahram Askarpour for any closing remarks. Shahram Askarpour: Thank you, operator, and thank you everybody for supporting us and attending our call. We look forward to sharing more information with you in the near term. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Brookfield Corporation Fourth Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Katie Battaglia, Vice President, Investor Relations. Please go ahead. Katie Battaglia: Thank you, operator, and good morning. Welcome to Brookfield Corporation's Fourth Quarter and Full Year 2025 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, President of Brookfield Corporation; and Sachin Shah, Chief Executive Officer of our Wealth Solutions business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the year. And finally, Sachin will provide an update on our Wealth Solutions business. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we request that you refrain from asking more than 2 questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and how their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. In addition, when we speak about our Wealth Solutions business or Brookfield Wealth Solutions, we are referring to Brookfield's investments in this business that supported the acquisitions of its underlying operating subsidiaries. With that, I'll turn the call over to Bruce. J. Flatt: Thank you, Katie, and welcome to everyone on the call. 2025 was a very active year for the business. We advanced a number of strategic initiatives and delivered strong financial results. Our cash flows are now supported by our large-scale capital base, which totals $180 billion and the diversification of our platform across asset classes, geographies and capital sources, all of which provide multiple avenues for growth and position our business to remain resilient and grow across economic cycles. In the last 12 months, we raised $112 billion of capital, financed nearly $175 billion of assets, completed $91 billion of asset sales and deployed $126 billion of capital while growing our insurance asset base to $145 billion. That all allowed us to deliver record financial results with distributable earnings before realizations of $5.4 billion and total distributable earnings of $6 billion. Nick will cover financial results in more detail, and Sachin will spend some time discussing our wealth solutions business shortly. Before they speak, I will add a few things. Looking back to 2025 in the stock market, our stock generated a 21% return for shareholders. That increased our 30-year track record to an annual compound return of 19%. That's $1 million with us over that period would be worth $285 million today. Of course, that's the miracle of compounding good results. Turning briefly to the market environment. business fundamentals are strong. Capital markets have improved. Liquidity has returned both in debt and equity markets, interest rates have started to come down globally and transaction activity has picked up. In this environment, real assets should continue to outperform, offering investors the opportunity to earn excellent returns while taking moderate risk. As our platform has grown, so has the scale of the work we do with our partners. Increasingly, we are partnering with the highest quality organizations on large-scale, sophisticated projects that are critical to both national and corporate priorities. Recently, that has included partnerships with NVIDIA, Microsoft, JPMorgan, the United States, French, Swedish and Qatar governments, among others. Our ability to work with counterparties of this caliber underscores the strength, resilience and global reach of our platform. It also reflects a deliberate long-term approach to building our business with great partners. We believe long-term business success requires many things, but 3 in particular stand out together. They make the difference between good and great long-term returns. First, it starts with identifying businesses that can endure and evolve. For decades, we focus on building the backbone of the global economy. And while that focus has remained consistent, long-term success requires evolving as the economy itself evolves. Second, when a business is well positioned and well run, compounding becomes the dominant driver of value creation. Over long periods of time, small differences in annual returns can lead to very large differences in outcomes. And third, and maybe most important, avoiding disruption to the compounding process and business success is critical. Compounding works best when capital is allowed to be remain invested for long periods of time. For us, that means that we must always keep excess capital to ensure that we can ride through any market cycle. And our balance sheet strength, as Nick will indicate later, gives us flexibility to do just that. It allows us to stay focused on long-term value creation, allocate capital selectively and take advantage of dislocations when others are more constrained. Real estate illustrates this well. Over the past 40 years, we have invested in, operated and monetized real estate across many market cycles. Our approach has always been grounded in fundamentals. We acquire assets for value, finance them conservatively and manage them actively. In the most recent cycle, dislocation was driven largely by capital markets and shifting sentiment rather than a deterioration in underlying fundamentals. While many step back, we remained active, continuing to invest, develop and reposition assets. And today, this sentiment is beginning to realign with fundamentals. New supply across core markets is very muted, demand is growing and asset values are set to rise substantially. We enter this next phase from a position of strength, owning the highest quality real estate in supplies constrained markets, operating it through our leading platforms. And as we have seen across cycles, great real estate owned and managed well, always wins over time. That same long-term mindset applies to our other businesses, including how we think about our structure in the public markets. Over the last 15 years, as many of you know, we've offered listed versions of our investment strategies through what we refer to as our listed partnerships. To broaden accessibility for global investors, these are later paired with sister corporate entities. And when we created our insurance business 5 years ago, we followed the same approach, establishing it as a listed sister company to Brookfield Corporation trading under the symbol BNT. These structures have served our business extremely well. But as markets evolve and with the continued expansion of index investing, splitting market capitalizations has become sub-optimal. As a result, we're now focused on streamlining and consolidating our market capitalizations. As an initial step last year, we announced the combination of Brookfield Business Partners with its sister company, Brookfield Business Corporation. This transaction creates a single listed entity that is index eligible for the entire market capitalization and it now reflects the full scale of the business in one company. Building on that momentum, this year, we intend to work on merging Brookfield Corporation with its paired sister insurance entity, BNT. This will streamline our structure and enable the next evolution of Brookfield, bringing together our insurance and our balance sheet investment activities into one entity. This will also add substantial capital to our insurance operations, supporting growth in that business that is underpinned by our real asset-focused investment strategy, while our excess capital will enable us to operate at industry low operating leverage. In closing, we have strong momentum across all of our businesses, significant access to capital and a long runway of growth. We're well positioned and confident in our ability to continue to deliver financial results and compound value for shareholders. 2026 should be another strong year. Thank you all for your continued support and interest in Brookfield. I will now turn it over to Nick. Nicholas Goodman: Thank you, Bruce, and good morning, everyone. We delivered record financial results in 2025, supported by strong momentum across each of our core businesses. Distributable earnings, or DE, before realizations for the year were $5.4 billion or $2.27 per share, representing an 11% increase over the prior year. Total DE, including realizations, was $6 billion or $2.54 per share, and total net income was $3.2 billion for the year. Our Asset Management business delivered record results in 2025, generating $2.8 billion of distributable earnings or $1.17 per share. We raised $112 billion of capital during the year across a diversified set of strategies, reflecting continued investor demand for our fund offerings. Fee-bearing capital increased by 12% to over $600 billion and drove a 22% increase in fee-related earnings to $3 billion. Looking ahead, with strong fundraising visibility, including the launch of our latest flagship private equity fund and our inaugural AI infrastructure fund, and with the announced acquisition of Oaktree, our asset management business is well positioned to deliver another year of meaningful earnings growth. Our Wealth Solutions business delivered strong results in 2025, generating $1.7 billion of distributable earnings or $0.71 per share, representing a 24% increase over the prior year. Our results were driven by continued growth in our insurance platform with $20 billion of annuity sales during the year, alongside improved profitability in our P&C business. On the investment side, we deployed $13 billion into Brookfield managed strategies, supporting a sustained 15% return on our equity, while generating a 2.25% gross spread. And Sachin will expand on this in more detail in his remarks. Our operating businesses continued to deliver stable and growing cash flows, generating distributable earnings of $1.6 billion or $0.68 per share for the year. This performance was supported by strong underlying fundamentals across the platform. Operating funds from operations in our renewable power and transition and infrastructure businesses increased by 14% over the prior year, and our private equity business continues to contribute recurring high-quality cash flows. Within our real estate business, we have seen sentiment realign with the strong underlying fundamentals that have been in place for some time now. The environment today reflects several years of limited new supply across major global markets, while tenant demand has continued to grow, translating into strong leasing activity and meaningful rent growth for high-quality assets. During the year, we signed nearly 17 million square feet of office leases globally with net rents averaging 18% higher than expiring leases across our super core and core plus portfolios. Few portfolio highlights include: in New York, we signed 2.4 million square feet of leases at rents 20% higher than those expiring. In Canada, leasing activity picked up meaningfully over the year. We signed 2.4 million square feet of leases at rents 10% higher than expiring levels. And in London, we signed nearly 800,000 square feet of leases at rents close to 10% higher than those expiring. This lease activity reflects strong demand from large creditworthy tenants such as Moody's and Visa who are relocating their regional headquarters to our properties, alongside many -- of many of our other high-quality tenants that executed long-term renewals and expansions. At the same time, properties that we delivered or substantially repositioned over the past few years, including office assets in major global markets are now nearly fully leased and achieving some of the highest rents on record. As a result, our portfolio finished the year in a very strong position with our super core and core plus portfolios more than 95% occupied and poised to continue delivering robust NOI growth in 2026. Turning to monetizations. 2025 was a record year, advancing $91 billion of asset sales across the business at attractive returns, including $24 billion in real estate, $22 billion in infrastructure $12 billion in renewable power and $33 billion from private equity and other investments. Substantially, all sales were completed at or above carrying values, realizing meaningful value for our clients. During the year, we realized $560 million of carried interest into income and ended the year with $11.6 billion of accumulated unrealized carried interest. And with a strong pipeline of planned asset sales across the business, we expect carried interest realized into income to accelerate over time. Moving on to capital allocation. In addition to investing excess cash flow back into the business, we also returned $1.6 billion to shareholders in 2025 through regular dividends and share buybacks. We repurchased more than $1 billion of Class A shares in the open market at an average price of $36, which represents nearly a 50% discount to our view of intrinsic value including approximately $150 million repurchased since last quarter. We also maintained strong access to capital markets during the year and executed approximately $175 billion of financings across the franchise including $53 billion in infrastructure, $42 billion in real estate, $37 billion in renewable power and more than $40 billion in private equity and other businesses. At the corporation, we issued CAD 1 billion of 7- and 30-year notes at favorable spreads in December and subsequent to year-end, our real estate business completed an $800 million fixed rate financing at a super core office property in Manhattan at very attractive spreads further underscoring lender appetite for high-quality assets. Lastly, we ended the year with a conservatively capitalized balance sheet, strong liquidity and record deployable capital of $188 billion. Taken all together, the strategic initiatives we advanced in 2025 fueled meaningful momentum with a $180 billion permanent capital base, strong liquidity and multiple avenues for growth, we are well positioned to continue compounding shareholder value in 2026 and over the long term. With that, I am pleased to confirm that our Board of Directors has declared a 17% increase in the quarterly dividend to $0.07 per share payable at the end of March to shareholders of record at the close of business on March 17, 2026. Thank you for your time. And with that, I will now pass the call over to Sachin. Sachin Shah: Thank you, Nick, and good morning, everyone. I'm pleased to join the call this quarter to provide an update on Brookfield Wealth Solutions. 2025 was a strong year. We finished with over $140 billion of insurance assets, generated $1.7 billion of distributable earnings and delivered a return on equity above our mid-teens target. As we look ahead to 2026, we are very well positioned to deliver continued growth across both our retirement and protection businesses. As always, our ability to invest into the broader Brookfield investment platforms continues to be a key advantage for us. Access to long duration, real asset equity and credit strategies that provide stable recurring cash flow growth and attractive returns provides a differentiated foundation for driving the business forward. On our current trajectory, we expect to end 2026 with circa $200 billion of insurance assets, over $2 billion of distributable earnings to Brookfield and a capital base exceeding $20 billion, well above our regulatory targets. Importantly, this growth is supported by a highly diversified business across multiple scale geographies, high-demand retirement products and a growing protection franchise which together provide multiple avenues to source long-duration, low-cost liabilities. We have a number of important priorities in 2026, and I will highlight a few of them now. which we believe will drive stable, reliable earnings growth over the next decade and should lead to continued growth in the value of our business. First, we are focused on closing, integrating and scaling our U.K. acquisition. Over GBP 50 billion of pensions are expected to come to the U.K. risk transfer market in 2026 and over GBP 500 billion of pensions will come to the market over the next decade. This represents a large and growing opportunity set. We have made substantial investments in the pension markets acquiring platforms for value while building out operational capabilities required to scale. Our recently announced acquisition of the Just Group in the U.K. is expected to close in the first half of 2026 and we are already advancing plans to grow that business and execute on over GBP 5 billion of pension opportunities annually. At the same time, we are working to grow our footprint in Asia where savings products continue to be in high demand as populations age and retirement income is highly desirable. Japan's life and savings insurance market is one of the largest globally with approximately $3 trillion of assets on insurer balance sheets today, reflecting the depth of long-term savings and retirement liabilities that create significant opportunities for retirement income and growth-oriented solutions in the region. More broadly, across Asia Pacific, demographic shifts are driving a rapid increase in financial assets with life and pension savings representing an increasing share of household wealth. We are in the early stages of building our business in Japan and broader Asia, having completed our first transaction in Japan at the end of 2025. We have a strong pipeline of opportunities ahead of us, which should translate into $3 billion to $5 billion of annual flows over time. In the U.S., we are expanding our retirement distribution capabilities to drive in excess of $30 billion of inflows into the business annually over time. U.S. fixed annuity demand exceeded $300 billion in 2025 as aging populations continue to look for stable retirement income. A significant portion of that demand flows through large bank and broker-dealer channels, which have been a key area of focus for us. On average, these channels account for 2/3 of U.S. retail annuity sales, whereas they have only represented about 1/3 of our sales historically. Given the sustained demand through these channels, we have been investing into these relationships. We've expanded our offerings on one such platform already this year are on track to launch a second before the end of this month and expect to launch 2 additional platforms within the calendar year. Given our expansion, our annualized organic inflow should comfortably grow to over $25 billion in the near term. As it relates to our protection franchise, we are prioritizing and identifying opportunities for scale as markets soften through selective M&A, organic growth and expansion of our reinsurance capabilities. Our protection business delivered $8 billion of float to manage in 2025 at virtually no cost of funding. We have made tremendous progress to date focusing the business on reducing risk, exiting low profitability lines of business, and positioning for softer markets ahead, which we believe will lead to more compelling growth opportunities over time. Lastly, we are continuing our pivot towards equity-oriented strategies to enhance investment returns using our strong capital base to deliver higher quality earnings with lower operating leverage. In 2025, we deployed $13 billion into Brookfield originated strategies and average net yields of 8.5%. We also made additional commitments to Brookfield-sponsored private funds, which will be further accretive to our earnings as those funds call and deploy capital over the medium term. To bring this together, the strategic initiatives we have executed to date, together with our priorities outlined for 2026, position the business for continued earnings growth. We have a platform that benefits from diversification across distribution channels geographies and product types, allowing us to access the most competitive risk-adjusted cost of capital. With a strong pipeline of real asset investments across Brookfield's various strategies, we feel confident in our ability to continue compounding our capital at well above our mid-teens targets. Thank you for your time. And with that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions]. And our first question will come from the line of Kenneth Worthington with JPMorgan. Kenneth Worthington: You've spoken in the past about scaling the P&C business. And today, you called out the protection business and the improved profitability a number of times in the prepared remarks. So I was hoping you could flesh out your comments and talk about where the business stands today, maybe a bit more on how you plan on scaling it from here? And then lastly, what's the right relative size of the P&C business to the life and annuity business for you? Sachin Shah: Sure. It's Sachin here. So you're right. We've talked a lot about our P&C protection business, as we call it, I would say the last few years, and you would know this just from the general market backdrop has been a very hard market. You've seen record profits in established P&C platforms. And during that period to acquire businesses for value was very difficult. Owners would expect significant multiples on book capital and not everyone had a great platform or has a great platform, yet valuation expectations were tremendously high. Our approach during that period was to acquire platforms where we felt we could acquire them at a significant discount to book, work on repositioning them and really orient them to the next cycle that will come, softer markets and ensure that we have a good risk culture, a good cycle management culture and that we could grow them organically even if markets start to soften, which we're seeing pretty significantly right now, in particular on the property side. Where that leaves us is we now have a business that is generating strong profits. We've been able to reposition our investment portfolios much more to equity-oriented strategies we are breakeven on underwriting profit and we'll be generating underwriting profits going forward. And we now have a platform that as markets soften, we think that we can pursue M&A. There will be some platforms who struggle in this environment. We think we can build out reinsurance capabilities. and we can continue to diversify our lines. So I think from the outlook perspective, the business has a very strong outlook ahead. In terms of size, we have about $3 billion of capital that supports our protection business, $8 billion of float. And I think we could comfortably see a path to $20 billion to $25 billion of flow by the end of the decade. I'll pause there. Operator: And that will come from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: I wanted to ask around the decision to simplify the structure and collapse BNT. So I know you called out a few reasons in the letter, but can you maybe unpack the decisioning there why now and the expected time frame? Nicholas Goodman: Bart, it's Nick. I think in the letter and in Bruce's comments, we provided a lot of the background. What I'd add to that is -- we have seen an evolution in public markets. And as our business has evolved, we do believe at this point in time, it makes sense to streamline and simplify and we've seen the benefits of that play out for BBU. And as we think about -- when we set up BN originally -- sorry, BWS, when we started investing in insurance, we did so thinking it was a very attractive stand-alone investment opportunity. And to stand it up on its own 2 feet, we set up a paired security BNT that added value and provided optionality as we continue to scale the business. I think, as you know, as we've discussed, we see things quite differently now. The insurance business has scaled meaningfully. There's great growth potential ahead for that business. And as it's grown, we've realized the tremendous synergies that it has with overall Brookfield and therefore, it has increasingly become more integrated with the corporation. And today, the business fully benefits from the investment ecosystem of BAM, offering ideal investment solutions to back the liabilities that we have. But we think the next step is to also allow the business to fully benefit from the capital base of the broader Brookfield the full $180 billion of capital that we have to back its growth while allowing it to maintain low operating leverage. So what that means for the business is that we're working on a plan to combine BN and BNT into a single listed company, one security. We would see no change to the governance, the management team, the investment processes, the risk framework within the business, but the end result would be a streamlined structure that provides investors with simpler access to our business, will sustain and ultimately enhance the long-term growth profile of the business. So we will continue to work on that. And as we said in the letter, we'd like to think we can execute it within the next 12 month. Bart Dziarski: Great. Very helpful. And then just sticking with, I guess, Brookfield Wealth Solutions. Very strong ROE. It looks like it's north of 15%. I think we get it on the asset side as to how the strategy is differentiated. Is there anything on the liability side that's also contributing to that? And what's the outlook there in terms of preserving that ROE in this year? Sachin Shah: Bart, it's Sachin. Yes, on the liability side, we've really been focused on diversification of product type. That started with simple annuities and a small P&C business. It's really morphed into geographic expansion, a multitude of retirement products that we sell through all of our businesses, getting into the pension markets and scaling there and broadening out our P&C business. What that really means in practice is at the top of the house, we can look at where our capital is allocated, and we can allocate it to where the cost of funding is the lowest. And therefore, we can move our capital around by geography, by product type and ensure that as competition increases in one area, we move away to an area where we see better value. We couple that with our investment franchise at Brookfield and that leads to really robust spread and really robust total returns for the business. Operator: That will come from the line of Alexander Blostein with Goldman Sachs. Alexander Blostein: Thank you. Good morning, everyone. Just maybe another one around P&C. Definitely seems like you guys have been hinting to that for a couple of quarters now, but it definitely feels like you're leaning into that more aggressively, both organically and perhaps inorganically. How are you thinking about the risk that brings to the BN platform as a whole, obviously, quite different than the annuities business. And when we think about the opportunity that, that creates for BAM as far as incremental assets that could be managed or fall under the IMA. What would be the implications for the management fee business? Sachin Shah: I'll start with, just the balance sheet of the P&C business. As you know, it's a lower leverage business. So I think it requires capital to grow, but you don't get the same operating leverage as you do an annuity business. And for that reason, you don't get the same projected assets going over to BAM. That being said, our annuity business is very large. It's global. And we really have focused the last 5 years on scaling that. So we have a regular flow of capital coming into the group. On the P&C side, the real benefit for us is there will be times where that business, we see opportunities to drive our funding cost down because we can move into parts of the protection market that don't have as much competition. And remember, the annuity market today is very competitive. All of our peers are in that space. Many small asset managers have gone into it and all the incumbent insurers are very aggressively growing their retirement business as well. So it was prudent for us to build other levers to drive funding costs down and to be able to allocate capital in parts of the business that have less competition. Alexander Blostein: Got it. All right. That's helpful. Okay. Second question for you guys, maybe pivot to real estate. The fundamentals in the business look like continue to improve. If we look at NOI, FFO, any of the metrics you guys put out, it looks like it's been a nice improvement over the last couple of quarters now, but help us maybe unpack what's been driving that? And within that, I believe there's quite a bit of floating rate debt that still benefits the cash flows of your real estate franchise. Maybe help with some sensitivity around kind of, I don't know, 25 basis point cut in rates, how much does that impact the cash flows across the entire BPG real estate franchise? Nicholas Goodman: Alex, listen, I think we've talked at length about the fundamentals and the market dynamics going on in global real estate right now, and they are continuing to build momentum. And I'd say that's across the highest quality office and retail. If you look at the office markets in global gateway cities, there is very low to no new supply coming on market. New supply is not expected for -- in large scale anytime soon, and yet tenant demand continues to grow. And we've seen that inflection point in that business in the last couple of years, this year, accelerating still going on with a number of tenants. We're actively engaged with through a very large requirements for high-quality space. We signed -- 2 of the largest leases in downtown last year, I think, is the largest ever move of a tenant in the downtown core are definitely for some time into a trophy building and we can see that momentum continue. Look in London, one of the tightest markets globally now setting record rents with each lease we signed in the city, tenant demand in Canadian Wharf, the strongest we've seen -- so those are the underlying drivers for the growth in the NOI in office. Now as we move those tenants in and we vacate space, it takes time to come through the numbers, but the underlying momentum and the valuation appreciation is coming through the numbers and in retail -- the sales continue to be very strong. We have a very strong seasonal performance in our assets this year, strong total year and again, expect sales growth this year with strong tenant growth. And all of these assets continue to sign leases at very strong positive spreads to the leases that are expiring. So that's driving the NOI growth, and we see that trend continuing. The capital markets are incredibly supportive of these assets. We just completed a financing in downtown New York last week and the debt stack was 10x oversubscribed up and down the stack. So the capital markets are incredibly constructive. We continue to drive in spreads. So that's driving the NOI performance. On the FFO, you're right. We have some floating rate debt. We're probably right now about 75% to 80% fixed rate. But that floating rate movement, 25 basis points, it's probably roughly about $35 million to FFO on an annualized basis. But I'd say there's more going on than just rates coming down. We have the benefit of tightening spreads, and we have the benefit of some delevering come through the P&L. So I think the FFO trajectory continues to look positive from this point forward. Operator: And that will come from the line of Michael Cyprys with Morgan Stanley. Michael Cyprys: I wanted to ask about BWS. Heard the helpful commentary around some of the initiatives globally. I was hoping maybe we could double-click on Asia. And if you could maybe elaborate a bit on some of the steps you're taking to grow your footprint in Asia, what we can expect from Brookfield here in '26 and over the next couple of years? I think you mentioned a pipeline. Can you just elaborate on that pipeline, what that looks like? And then in Europe, as we move past the just deal, and we look out to later this year into '27, can you speak to some of the stuff that you're going to be taking to capture the opportunity set in Europe? Sachin Shah: Sure. It's Sachin here. So first on Japan, I would say our pipeline -- we've been pretty active for the last 3 years in the Japanese market with teams on the ground focused on relationship building, leveraging the broader Brookfield brand. And as you know, there has been a pretty steady history of Japanese insurers undertaking reinsurance with foreign counterparties. And we've been able to build trust. We've been able to get onto the list of acceptable counterparties. We completed our first deal as we've announced last year with Dai-Ichi Frontier Life. I would say we now have strong relationships with half a dozen of the top insurers in Japan all of whom are advancing discussions with us about entering into partnership deals on both flow and in-force reinsurance. Not all of them will hit, but we expect a number of them will. And we feel pretty good that we will have just a recurring steady flow of reinsurance relationships in the country. Beyond Japan, we're actively looking at markets like Korea and Hong Kong, Taiwan, where you have a similar savings dynamic that's occurring and aging populations that really aren't earning a proper yield in their savings products and look to insurance products to supplement returns for themselves. And I would say we're actively conducting outreach in those markets as well looking to build on our pipeline. Europe, I would say, is a bit more of a challenge. We've spent a lot of time in Europe. On the annuity side and on the protection side. But I would say on the annuity side, the market there is much more regulated around what's called the with-profits business. And what it effectively means is your ability to generate spread is very limited by regulatory constructs. So I think if we're going to advance our business in Europe, we're going to do it very slowly, very carefully and make sure that we don't end up in a situation where -- the things that were good at Brookfield investing into real assets are not able to be done, that would be problematic for us. Michael Cyprys: Great. And then just a follow-up question, if I could, on carry. I was hoping you might be able to help how are you characterizing the outlook here for carry into '26 relative to '27? Nicholas Goodman: Thanks, Mike. So I think we had a good performance in 2025, probably slightly ahead of plan for the year. And I know we've talked in the past about seeing an inflection point coming this year. The pipeline for monetizations continues to be very strong as we look out this year. And I'd say it's active in the right areas as it relates to carry. It's active specifically in the funds that are relevant for realizations across infra, real estate and within Oaktree. So I think we feel -- we feel good about where we are today. Obviously, we feel very good about the valuation of the assets we're bringing to market. Timing is slightly outside of our control. But if we had to estimate, we think we'd see it start to step up in the second half of the year and then continue to scale into '27 and '28, as we've talked about before. So the valuations are good. The processes are going. The pipeline is strong, and it just depends on timing now. Operator: And that will come from the line of Mario Saric with Scotiabank. Mario Saric: Just wanted to talk about the dividend increase. The 17% was the largest in some time kind of double 5-, 10-year CAGRs, the largest amongst the Brookfield publicly traded companies this year. I'm pretty sure it's not a result of lack of investment opportunities as we're hearing on the call. So I'm curious whether the increase is kind of a shift in dividend growth policy that better mirrors expected underlying cash flow per share growth going forward? Nicholas Goodman: Yes. Mario, it's Nick. No, I think it's more simple than that. We obviously split the shares. And at BN, we haven't done sort of fractions of a penny increases. So we stuck with a penny. The payout ratio is still very low, as you know, -- so whilst it looks like a high increase on paper and it is a nice increase, the payout ratio is still very low and it's not a change in strategy. We still are focused on reinvesting capital back into the business. And when we return capital to shareholders, we look to do it opportunistically through buying back shares. So I don't think it's a significant change in strategy. It's more a product of the fact that we split the shares this year last year. Mario Saric: Okay. Makes sense. And my second question, in the letter to shareholders, you talked about identifying fees that enable investment growth. You've talked a lot about digitalization, decarbonization and deglobalization as maintained over the past decade, kind of associated with your commentary about the need of an organization to evolve over time, if you have to guess, what are some themes that you may be discussing at your Investor Day 5 years from now that may or may not be ticked on what you're talking about today. Nicholas Goodman: Listen, I think the themes that we have today have a long runway ahead of them. We are in the very early stages of the build-out of supporting the growth of AI and this revolution. And I think the themes will still be anchored by the same fundamental principles. They're anchored today by the same principles we were talking about 10 and 15 years ago. So it's very hard to predict exactly what we'll be talking about 5 years from now. But I think it will be anchored on the same core fundamentals, but we do expect a very long runway from the current themes that are driving the growth of the business. Operator: And that will come from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Just a quick question on the North American residential portfolio. Just looking at the operating FFO this quarter, stepping up from Q3. Was there any increase in activity on sales this quarter versus the prior quarter? Or is that just more reflecting some of the seasonality in the business? And then kind of maybe talk through some of the outlook around that portfolio into 2026? Nicholas Goodman: Yes. It's very much due to seasonality. The best way to analyze the performance of that business would be comparing the quarter performance for the prior year quarter as opposed to the prior quarter. There tends to be seasonality and strong performance in Q4. And when you look at it compared to Q4 of last year, we did have a onetime gain on a sale of a large lot. So there is an outsized gain in last year's numbers. I think that the trend in that business continues to be what we've talked about for a while. It's a very well-performing business for us, very well run, generates good cash flow. But for sure, we are seeing muted activity in the housing markets in Canada and the U.S. for now. We expect that over time, the performance will improve as we see a shortage in housing, and we are very well placed with a very nimble platform and if you think back to Q1, we did derisk that investment by pulling out $1 billion of capital by exiting a few of our master planned communities, and we've positioned that more as an asset-light business now -- we continue to scale the land servicing and land management businesses for our clients, generating fees for Brookfield Asset Management. But I think as we look forward, we do see sort of muted performance at the start of this year, but very well positioned to benefit when the market improves. Jaeme Gloyn: And then following in the same theme around the real estate assets, if I kind of go back to a couple of Investor Days, the view would be that real estate assets would sort of decline through the 2029, 2030 period. But we've kind of seen that tick up over the last several quarters. So I guess, is that a reflection of just paying out of the assets for now until better monetization opportunities present themselves? And do you see that sort of accelerating in the early part of the year, second part of the year? Or is it maybe more of a '27 story when you see that start to unfold and see the capital levels start to drift lower? Nicholas Goodman: Yes. Listen, I know I'm going to say that we've necessarily been aggressively acquiring as -- and stepping up from acquisition, but we have obviously, been holding on to the assets. We've been focused on operational improvement and performance. And we've seen that. And as I said, the operating fundamentals have been strong for a while now, and that growth is only accelerating. Capital markets get stronger by the day. And I think we are seeing market sentiment and broad market sentiment out of those really involved in the business day to day, really start to appreciate what's going on in the office market and the durability of high-quality office in the cycle and in long-term growth. And I think as that sentiment and acceptance broadens, you're going to see transaction activity really pick up. We've seen it more broadly for real estate businesses that we sold last year around the world, and we expect it to pick up for high-quality assets. The exact timing is always as hard to give you, but I do think it's close to coming back in a meaningful way. And when it does come back, we will be poised to monetize a number of assets in the portfolio. Operator: And our next question that will come from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Thanks very much, and good morning. With respect to the plan to merge BN and BNT, if I recall correctly, there were some tax advantages associated with the holding BNT. So I'm curious if losing those is effectively the cost of simplification. And to the extent that these were just paired securities, maybe you can elaborate a little bit more on how the insurance business was not previously benefiting from a full capital base of Brookfield. Nicholas Goodman: Cherilyn, it's Nick. Listen, I think the -- we will be very focused as we work through this process over the next 12 months of preserving and maintaining all the operational benefits we have in the business. So you can be assured that we're focused on preserving that. I think today that it's a paired security but it is technically under insurance, a separate ownership structure. So while per security, the ownership chain is slightly different. So as we have looked to capitalize BWS since inception, it has involved us actually moving capital over the business of the BN balance sheet. And I know that's a subtle difference, but having them under the single ownership will allow us to put the business under the total capital base of the organization. So it's a slight structural nuance. It served a lot of benefits as we've grown the business for inception, but there is a clear benefit now to putting them together and realizing that full potential. Cherilyn Radbourne: Okay. That makes sense. And then a question on BWS and the reallocation of the flow to ban managed strategies. I think you reallocated $13 billion in 2025 versus annuity inflows of $20 billion. So I assume that still results in some timing-related pressure on the spread. Does that $13 billion need to step up in 2026? And can it step up as BAM holds first closes on 3 large flagships? Sachin Shah: Cherilyn, it's Sachin. So first, the $13 billion that we invested into BAM strategies, that represents the illiquid private portion of our total asset base, which today is about 50% liquid, 50% private and we'll stay in that range. So I would say, in fact, as we've been rotating the asset portfolios from companies that we've acquired, we're exceeding our 50% target because we started with a very large liquid base of assets. So as money comes in, you should think of it that in general, half the money will stay in liquid cash and liquid securities and half the money will go into Brookfield private fund strategies or other opportunities that come into the Brookfield investment universe. So I'm not worried that we won't be able to keep pace. In fact, we've been exceeding the run rate pace that we need to achieve. Cherilyn Radbourne: Okay. So if I understand that correctly, basically $10 billion of the $20 billion should have gone into private strategies. And so the $3 billion is kind of a catch-up on the liquidity that you had entering the year. Is that a good way to think about it? Sachin Shah: Yes, that's correct. If you were to keep it very simple, that's the correct way to think about it. Operator: And that will come from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay. Sachin, I wonder if you could just unpack something you said a little bit earlier in -- I think in response to kind of managing the cost of funds you were talking about having the flexibility or the ability to kind of allocate capital to the lowest kind of cost of fund I guess, jurisdictions to generate the returns. When I look at your cost of funds throughout the year, presumably, you've been doing that. So is this as good as it gets -- or can cost of funds come lower from here? And how quickly can you pivot from one jurisdiction to another in the capital allocation? Sachin Shah: Sohrab, so first of all, it's not as good as it gets. I think there's still -- there's always room to do things better in a business. I think Japan, in general, is a low funding cost market. So as we build out there, that should help us drive our funding cost down. The P&C business is when run well, and you saw it in this year's results, we had 0 cost of funds. So they meaningfully drive down your funding cost. And as we grow both of those areas of the business, you should see that help drive the weighted average cost of funding down. In terms of the speed at which you can move, we're in the market every day. We have products that get repriced on the annuity side monthly. And so we can pull back pretty quickly. Pension markets are bid on as individual transactions. And when they get too expensive for us, we pull back on bidding on them and P&C float has a shorter duration. So you can quickly shrink your book if you feel like the markets there are either softening too much or there's too much capital chasing deals. So for us, it was important to have that level of diversity, and we think we can be pretty nimble. Sohrab Movahedi: Okay, that's excellent. And given that flexibility and nimbleness, is it aspirational of me to think you could move that 15% ROE higher? Or is that 15% target given everything you just said? Sachin Shah: I think -- the way I would look at it is we are trying to maintain a pretty conservative balance sheet. We're trying to keep leverage levels low, and we're trying to keep capital base high. All of those things go against higher returns, as you can imagine, but they lead to a safer balance sheet and a higher quality of earnings. If you couple that with our investment strategy and our ability to drive funding costs down, that's why we say mid-teens is our target. If we ran at the same operational leverage as maybe some of our peers in the space, the returns would be higher, but we would be taking more risk to do so. So I would look at it as if we're trying to build a business for a very long-term horizon, we're trying to do so where we've got a lot of excess capital, and we're pretty comfortable that mid-teens is just a good target for us to maintain. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Ms. Katie Battaglia for any closing remarks. Katie Battaglia: Thank you, everybody, for joining us today. And with that, we'll end the call. Operator: Ladies and gentlemen, thank you for participating. This concludes today's program. You may now disconnect.
Carolina Stromlid: A warm welcome to RaySearch 2025 Year-end Results Presentation. My name is Carolina Stromlid, and I'm Head of Investor Relations. With me today are our CEO and Founder, Johan Lof; and our CFO, Nina Gronberg, who will take you through the key highlights and financial results. After the presentation, we will open up for questions. Feel free to submit them in the Q&A chat or ask them live. With that said, Johan, over to you. Johan Löf: Thank you, Carolina, and welcome again, everyone. So this is the agenda for this webcast. I will start with an introduction about RaySearch, then I will summarize Q4 and the full year. After that, Nina Gronberg will talk about the financial development. Then I'll take over again and mention the dividend proposal that we have. Since there is a strong focus on AI these days, I will make a deep dive into what that means for RaySearch. And then I will just summarize the presentation and make an outlook. After that, we take Q&A. So a few words about RaySearch. RaySearch is a pure software company, and we are dedicated to cancer treatment software. And we have 4 platforms, RayStation, RayCare, RayIntelligence and RayCommand. What we see in this image is a comprehensive cancer center. And our long-term goal is to support such a center with all the software that they need. So not only radiotherapy, but also support for chemotherapy, surgery, tumor board meetings and other things. So that's a long-term vision for RaySearch. So far, we have focused mainly on radiation therapy of cancer. What we see in this image is the user interface of RayStation, our treatment planning system. And it summarizes quite well what's going on in treatment planning, radiotherapy. In the upper left upper -- let's see, upper right image here, you see a machine. This particular machine happens to be an X-ray by Hitachi. And we can see in this image how the machine moves around the patient. So it rotates and it also swivels this ring around the patient. So one thing that we have to do in our treatment planning system is to model this machine, so we understand how we can move and also the physics of the beam, so we can calculate dose in the patient, et cetera. The next thing we need is a model of the patient. So we see the patient in the middle upper image here and also in the other images, you see different cross-section of the patient. And we also see the dose distribution, which is the color wash overlaid on the CT images. And the idea here is that we get a high dose to the tumor, which is the red color in this image and low dose to the organs at risk outside of the tumor. For example, you see the spinal cord in this surgical view that it has a very low dose. The lower right image shows the patient from the source. If you look at the patient from the source, this is how the patient would move. It looks like the patient rotates, but it's actually the source that rotates around the patient. So this is, in summary, what we are doing in treatment planning for radiotherapy. We also want our systems to absorb data as we treat the patients so that all of our products will automatically capture the data that is being generated before the treatment starts, during the treatment and during follow-up what happens to the patient after the treatment. And by absorbing all of this data in the system RayIntelligence, we can achieve clinical insights and feed information back to our systems to improve the systems. And some of those icons are -- represent machine learning models, but it can also be other aspects and other types of clinical insights. And we use this feedback data to improve our algorithms. We have some examples of that already out in the field. We can improve the efficiency of the operation. Ultimately, we want to provide decision support so that the members of the Tumor Board, for example, can make the best possible choice of strategy for the patient and ultimately improve outcomes. I show this diagram just to illustrate the long-term journey in terms of revenues. The reason is I want to highlight that we shouldn't look at RaySearch revenues on a quarterly basis. If you zoom out a little bit, this one goes all the way back to 2008. We can see that there has been a steady growth of revenues year after year. The 2 pandemic years are an exception, and we understand why those were -- those 2 years were weaker. But besides those, there has been a steady growth of the company, even though you may see fluctuations between quarters. Okay. And now I will make a few comments about the last quarter and also the full year. So Q4 was a strong finish of the year. Net sales grew by 16% to SEK 375 million, which is all-time high. Adjusted for the strong currency headwinds, the growth would have been 28%. Recurring support revenue was SEK 139 million, which corresponds to 37% of the total revenues. The strong sales translated directly into improved profitability. Operating profit increased by 25% to SEK 92 million, resulting in a 24% EBIT margin. Adjusted for currency losses, the margin would have been 27%. So for the full year 2025, net sales increased by 13% to SEK 1.34 billion, marking the highest annual revenue in the company's history. Organically, net sales grew by 19%. Recurring support revenue was SEK 524 million, which corresponds to 39% of the total revenues. Operating profit was SEK 292 million for the full year and the margin 22%. If we adjust for currency effects and extraordinary items, the operating profit would have been SEK 353 million and the margin of 26%. Let me briefly highlight a few of the new orders and expanded installations we secured during the quarter. We continue to see solid momentum with strong license sales to both new and existing customers across all regions. Greater Poland Cancer Center expanded its RayStation installation to include Proton Therapy, bringing photon and proton planning together on a single platform. The University of Pennsylvania, one of the premier proton therapy institutions in the U.S., selected RayStation as a unified treatment planning system for proton therapy across its 3 clinics. And Universitätsklinikum Gießen und Marburg in Germany chose to replace Philips Pinnacle, which reaches end of life in 2027 with RayStation. We have also seen strong clinical progress during the quarter. The Royal Marsden NHS Foundation Trust achieved a major milestone by performing its first online adaptive treatment on the standard Elekta linac using RayStation's adaptive planning module. Until now, most online adaptive treatments have been limited to specialized machines that a few centers have. This achievement makes online adaptive radiotherapy accessible to far more clinics and patients. At the Southwest Florida Proton Center, the first patient treatments were delivered using RayStation and RayCare together with IBA's Proton Therapy System, enabling highly precise treatments, including proton arc therapy. Together with the trend to Proton Therapy Center, we performed the world's first clinical proton arc treatments in 2025, a technique that improves dose distribution by using many beam angles and optimized energy levels. This achievement was actually named one of the top 10 scientific breakthroughs of the year across the entire field of physics by Physics World, and that's something that we are very proud of. And now I will hand over to Nina, who will go through in more detail the financial development. Nina Gronberg: Thank you, Johan. Taking off from your presentation and the numbers in brief, we can conclude that it has been high interest in RaySearch solutions throughout the year, and that goes both from new and existing customers and in all of our regions. And that is also something that is very much reflected in the numbers for the last quarter. Order intake increased by 8% in the fourth quarter and 17% for the full year. And I want to highlight that these numbers include the effects from the stronger Swedish krona, which, as you know, has affected us a lot during the year. And that goes both in terms of growth and on the bottom line. Order backlog end of December amounted to SEK 1.528 billion, and the book-to-bill ratio was 0.9, both in the quarter and for the full year. Moving on to net sales. We finished the year beating the last sales record by far. Net sales of SEK 375 million means a growth of 16%. The organic growth was 28%, showing that the underlying business really performs well. License sales growth was 15% in quarter 4 and support sales grew with 6% year-on-year. When we take out the currency effects from the support sales numbers, the growth was 16%. The high net sales drove EBIT to SEK 92 million in the quarter and strengthened the margin to 24% compared to 23% for the same period last year. Currency losses from the revaluation of working capital affected EBIT with just above SEK 10 million. And adjusted for that, the EBIT margin would have been 27%. Next slide is the rolling 12 development of net sales and EBIT and the perspective that we believe gives a better description of RaySearch's business performance. For the full year 2025, net sales increased 13% to SEK 1.344 billion. The organic growth was 19%. And with an EBIT of SEK 292 million, we ended the full year 2025 with a margin of 22%. That is equal to last year, but also burdened by SEK 37 million in currency losses. Adjusted for those and an additional SEK 23 million that we treat as nonrecurring costs, the margin would have been 26%. Moving to the next slide, showing the revenue split and where I focus on the revenue from support, we saw a growth of 11% in our support revenue for the full year 2025. With the steady growth we have in our support revenue over time, we increased the robustness in the business from recurring revenue. And for the total year 2025, the portion of recurring revenue in relation to total net sales was 39%. Cash flow in quarter 4, as you can see here on the next slide, improved significantly and amounted to SEK 91 million, and that includes positive effects from a lower working capital. We will continue to put focus on having a good cash flow in 2026. However, I want to point out that I also -- or what I also said in quarter 3 that the cash flow can fluctuate also going forward. We always seek to work with standard payments or standard payment terms in our customer agreements, but we also have situations where the gap between sales and payment is longer. It can be tenders or framework agreements or related to certain markets, sales that comes with a good profit, but where we have to accept later invoicing. We want to have a position where we sometimes for strategic reasons and in relation to important customers can choose to accept profitable sales over short payment terms. And with the cash balance end of 2025 amounting to SEK 407 million and no loans, we have a solid financial position. The next slide shows the contract assets, that is our customer receivables and also our contract liabilities, and that is the balance sheet items that shows how much payments we have received from our customers in advance. We have, during 2025, moved away from a position where our contract assets were lower than the contract liabilities. And that is, to a large extent, dependent on that we have delivered on prepaid sales in our backlog. But I want to point out that a net position of SEK 118 million is still a good position. But of course, this doesn't take away our intention to lower this number and to improve the working capital where we can during 2026. And with this, I hand over back to you, Johan. Johan Löf: Thank you very much, Nina. So I will just briefly mention the dividend proposal. So we are pleased to announce that the Board proposes a dividend of SEK 4 per share for 2025, which is up from SEK 3 per share. The dividend will be decided at the Annual General Meeting on May 7. The Board has also revised RaySearch dividend policy effective from 2026. The goal is to distribute 50% of profit after tax annually, taking into account the company's capital needs, investment opportunities and overall financial position. And now I would like to devote some time to AI and how it affects RaySearch. It's very important to note that AI is something very positive for RaySearch, and it's definitely not a threat against our products. There has been some belief in the community in general for software companies that AI can create and replace ordinary system development. That's probably true for simpler applications and with thin functionality and not so much data. With our large and complex systems, it's not doable for AI today. AI can only produce smaller snippets of code with high quality. Also, in our field, we need very deep domain knowledge. We also need to consider patient safety as well as cybersecurity and we are liable for that, and we have to take responsibility for the code. AI could never make sure or promise that there is no ML treatment of patients, for example. So we -- as a company, we need to understand the code and make sure that it doesn't harm any patients as we treat millions of cancer patients, and we cannot make a mistake one single time. There are also huge data requirements in our field. We need clinical data, images, plans, contours, et cetera. We need to perform measurements for machine modeling and quality assurance. Then we have the medical device regulations such as FDA where we, as a company, have to promise and document that our system performs according to the requirements and that it is a safe application. And AI doesn't take any responsibility in that regard. And it's also -- we are existing in an ecosystem with many, many partnerships with machine vendors and our installed base of about 1,200 clinics. And in order to develop these platforms that we develop, we need to do that in partnership with all of these stakeholders. So AI for RaySearch is a very useful thing. We have a large machine learning department at RaySearch, where we leverage AI for our products. For example, we have a functionality in RayStation called deep learning segmentation, where we based on images such as CT images and MR images can automatically segment the organs in the patient, as you see in that image to the right. So those are about 200 structures in the patient that has been automatically segmented with deep learning segmentation, and it takes about 1 minute to do that, which would take many hours to do in a manual setting or in a manual manner. And this is used clinically throughout the world and only 2025, 270,000 patients were segmented using this particular module. This leads to significant time savings, and it also increased the segmentation quality, and you can achieve better consistency over different users and over different institutions. The second product that we have in RayStation is deep learning planning. So here, we automate the very time-consuming task of treatment plan generation. 7,000 clinical treatment plans have been generated by our customers so far, but this is increasing rapidly now as more and more customers get their hands on this technology. This increased plan quality and again, consistency and saves a lot of time. It also opens up for multiple treatment plan generation for patients so that we can explore a larger solution space. One good example is a customer in Belgium, Iridium that have now automated almost all of their prostate patient planning using the AI capability in RayStation. So what they have seen is that the deep learning planning models outperform manual planning by a human being, achieving superior quality and consistency. And you can see some of the time savings that they achieve. So on the patient modeling side, they save 44% time and on the plan generation side, they save 47%. We also use AI to help develop our developers write code faster. So AI can then, for example, Microsoft Copilot can help our developers to find bugs, can explain complex code and patterns write tests and also help with documentation. But it's important that developers stay in control. They always review and modify the AI output. The code that's generated by AI is not always -- is not very tidy or beautiful. So we have to -- the developers have to stay on top of that. Okay. And now the final section of the presentation is a quick summary and outlook. So we saw that we had record high net sales despite macro uncertainty and a very heavy currency headwind. In spite of that, we could show solid profitability and also improved cash flow, which is that we are very happy about. There is still a strong demand for RaySearch Solution and increasing demand, I would say, for RaySearch Solutions across all the regions. And we are confident about our EBIT margin target of at least 25% in 2026. So with that, I will open up the Q&A session. And I believe Carolina will manage the questions. Carolina Stromlid: Thank you, Johan. Yes, we will start the Q&A session with live questions. But before we do that, I would like to remind you that you can post written questions in the Q&A chat. So let's start with the first question that comes from Kristofer Liljeberg at DNB Carnegie. Kristofer Liljeberg-Svensson: Yes, sorry. I have quite a number of questions. Maybe I'll start with 3 and then come back. So first... Johan Löf: Kristofer, can I ask you to ask one question at a time? Kristofer Liljeberg-Svensson: Okay. Maybe then I would like to ask about the support revenues, if there are any one-offs here helping that in Q4 or if that's a good starting point for 2026? Nina Gronberg: Yes, that's a question for me then. Yes, we have some one-offs. It is not very much. But I mean, it is a little bit tricky, I think, to talk about one-offs in our support revenue because we always have a little portion of that. We have situations where our customer contracts are -- I mean, there is a delay in timing when they are renewed. And it might be that we -- because of that, have revenue for, I mean, more than 3 months in 1 quarter. So it's a little bit too hard to say, Kristofer, give a straight answer to that. But I would say that you can use this as the base going forward. Johan Löf: Please go ahead, Kristofer. No, no, take one question at a time. That's all. Kristofer Liljeberg-Svensson: Okay. That's helpful. Yes. My second question, the news that you set out a couple of weeks ago about Royal Marsden doing online adaptive on Elekta machine. was this without RayCare? And if so, how are they able to do that? I don't know if that's -- if it's possible to just give a quick answer on that. Johan Löf: Yes. There was on the Versa HD Elekta machine. So far, only RayStation without RayCare, but that means the workflow is somewhat clunky, it takes more time. And -- but it is doable to do it, and that's the important message here. They will implement RayCare going forward and then the workflow will be smoother and quicker. Of course, it's more -- they have also a Radixact machine, so we'll be quicker on that machine given that we have interoperability between RayCare and the Radixact. And it will be also smoother on a TrueBeam, Varian TrueBeam since RayCare is fully integrated. But the point here is that even without this strong integration, you can do it, but it's not as quick. Kristofer Liljeberg-Svensson: Okay. That's helpful. And my third question, if you could comment on the Pinnacle conversion in Q4 and the outlook for that here in 2026. Johan Löf: Yes, we will of course, focus -- this is the last year that Pinnacle is around. So there will be a strong focus during 2026. In -- Q4 was actually surprisingly low. It has been a quite high percentage of license sales in previous quarters. In Q4, it was actually the license revenues from Pinnacle conversion was only 11%. So that shows that we can -- because I think that has been discussed and there's been a lot of questions about whether we are able to convert other clinics than Pinnacle clinics, but that shows you that, that's very possible. Carolina Stromlid: The next question comes from Mattias Vadsten at SEB. Mattias Vadsten: Can you hear me? Johan Löf: Yes, we hear you loud and clear. Mattias Vadsten: Good. I will always take them one by one. So you shared the license share of Pinnacle here in Q4, which was a low number. Could you share that for the full year? And also, that leads me to believe then that the conversion -- the Varian conversion and Elekta conversion must have been very strong to end the year. So just yes, if the momentum has switched gears there and what's driving that? That's the first one. Johan Löf: Yes. Okay. So first, you asked for the full year number, I think it was 23% license revenues from Pinnacle conversion. Yes. It's just that we have been able to convert other types of clinics. For example, this large University of Pennsylvania order in Q4, which was, I believe, SEK 57 million, around that number. Nina Gronberg: Revenues in order. Johan Löf: What was it in SEK 53 million in revenue. Nina Gronberg: A bit above SEK 40 million. Johan Löf: And that was an Eclipse conversion. So that, of course, affected that mix for the Q4. So -- but this will vary from quarter-to-quarter. It's very hard to predict. We will have -- since we have a time-limited opportunity now for Pinnacle conversion, there will be a strong focus for that in 2026. Mattias Vadsten: Good. And then I have a follow-up on Kristofer's question on the online adaptive radiotherapy that you can perform on Elekta, Linacs and TrueBeam with RayStation. But do I still read you correctly that in order for a clinic to seamlessly sort of perform online adaptive, you would still need RayCare in the future? Or how should I interpret that? Johan Löf: That's correct. And to have like a broad clinical use for this RayCare is needed. So you have understood that correctly. Mattias Vadsten: Okay. Good. And do you expect it to be frequently used among those clinics that have RayCare for maybe 2026 and the years to come? Johan Löf: The main drivers for RayCare going forward now that we have a very good combination of equipment with RayStation, RayCare and Varian TrueBeam where you can make extremely effective online adaptive treatments. So we see a lot of -- well, all over the world for this combination. Mattias Vadsten: I will limit myself to one more question. So in terms of the new orders, the University of Pennsylvania, if that was recorded as sales in Q4? And then maybe the same question for Greater Poland Cancer Center as well. That's my last one. Nina Gronberg: Yes, it was a big portion of the order was recorded as sale as Johan also just said. Carolina Stromlid: We have a question from Oscar Bergman at Redeye. Oscar Bergman: Yes. Just wondering if you can give an update on roughly how many Pinnacle centers are left to convert? And also then were there fewer conversions in absolute terms from the clinics in Q4? Or have you sort of lost any market share on conversion? Johan Löf: Okay. We don't know the number of Pinnacle clinics. It's in flux right now. So it's very hard to know the number of remaining Pinnacle clinics. In some countries, there are almost none like in the U.K. and Japan, they have been basically all converted. In Germany, there are quite a few remaining in the United States and China. But it's a couple of hundred. I can't give you more detail, but there's still a big opportunity out there. And no, we have not lost market share in terms of Pinnacle conversion. It's rather that other conversions have been -- because we look at percentages here. So in absolute numbers, we haven't -- we are still very successful in converting Pinnacle clinics to RayStation. Oscar Bergman: Okay. I always asked about RayCare, and I have to ask about it also this time. I just wondering how many new RayCare centers were signed in Q4? And perhaps also if you can elaborate on what remains the largest obstacle for increasing RayCare clinics. Johan Löf: No. There are no real obstacles. We had, I believe, 4 RayCare orders in 2025 in total. Of course, that's not where we want to be. But we see -- we believe that this will ramp up during 2026. And okay, one obstacle is the online adaptive capability, which needs 2 new versions of RayStation and RayCare requires FDA approval, and that takes the time it takes. It's not something we can -- it will be affected to some extent, but it will also in the hands of FDA. But -- so that's needed. But in Europe, the online adaptive treatments on this platform will start during spring. So we see the first. And that's also a good message for the U.S. market because then it's just a matter of time before they can get their hands on this functionality as well. So regarding ramp-up of RayCare, it only takes time, but there is a lot of interest for RayCare now. There are no particular obstacles in place. So we are quite confident that we will see, let's say, over the next 2, 3 years, a good ramp-up of RayCare sales. Oscar Bergman: And I think in the Q3 report, you mentioned that you opened up some modalities for a customer base for a 6-month trial period. Just wondering if we can get an update on how that has progressed so far. Johan Löf: It's still limited to a couple of countries, and it's progressing well. So they are very happy that they can try out new functionality. I think the limiting factor there is the time they have at their disposal. They're running very busy clinics, and it's hard to spend time on just exploring new functionality. But otherwise, it has been very well received in the countries where we have opened up so far. Oscar Bergman: Okay. And just a final question. I know you're not supposed to give your view on the share price, of course. But at these share price levels, why are you focusing on dividends rather than stock repurchases? Johan Löf: Yes, that's a good question. I think buying back shares is an interesting option that we will look into deeper. So we are looking into that for sure. Carolina Stromlid: We will now take a question from [ Ariane Nothermeer ]. Unknown Analyst: Can you hear me? Johan Löf: Yes. Unknown Analyst: I have a question about the order backlog. So we have seen it steadily decrease over the past few years and right now is on the 1.1x for the sales for this year. Why is it decreasing so much? And is this like a problem for revenue growth going forward? Or is there something else going on here? Johan Löf: The main reason why it has shrunk lately is the dollar effect or the currency effect. So no, we don't really see it as a problem. Unknown Analyst: Okay. So you don't think that is limiting growth like over the past few years? Johan Löf: No. Carolina Stromlid: We will now move back to Kristofer Liljeberg at DNB Carnegie. I guess you have a follow-up question. Kristofer Liljeberg-Svensson: Yes, a few more. First, just a clarification. The 11% and 23% you mentioned for Pinnacle conversion part of total license sales or is that for total license sales or license sales to new customers? Nina Gronberg: Out of total license sales. Kristofer Liljeberg-Svensson: Yes. Great. Then a question on the cost and particularly administration costs seem to have remained high here in Q4. Sequentially given that, I guess, third quarter, you should have had the extraordinary cost, much of that in that line or... Nina Gronberg: Sorry, Kristofer, can you please... Kristofer Liljeberg-Svensson: If I look at the administration costs, they remain at a quite high level. They're actually higher in Q4 than in third quarter and second quarter when I guess you had cost for the employee conference? Or was that another cost line? Nina Gronberg: No, it's included in the administration costs. Kristofer Liljeberg-Svensson: Okay. But did you have such costs this quarter as well? Or why does administration costs remain so high? Nina Gronberg: No, we didn't have those costs in this quarter. And yes, it's a good question. I must come back to that one. I haven't looked at it from that perspective. Kristofer Liljeberg-Svensson: Okay. And then maybe, Johan, I don't know if you want to say, you sound pretty positive in the CEO word in the report. So when it comes to the sales outlook for 2026, do you expect this a similar positive trend here or anything that could change that? Johan Löf: No, to achieve the 25% EBIT margin and -- with at least 25% EBIT margin that relies heavily on sales growth. So we are positive in that regard. Carolina Stromlid: Now we have a question from [ Mats Andersson ]. Unknown Analyst: I have a question about Ortega order. In Q3, you said that the first will have income in Q4. So my first question is how much is the income in Q4? And when will the next delivery to next center, don't know? Johan Löf: I didn't hear which -- was it Ortega you were talking about... Unknown Analyst: Yes, Ortega. Johan Löf: No, that will come -- there hasn't been any revenue from that during 2025. But our estimate is that there will be revenues from at least 2 centers during 2026 from the Ortega order that will be delivered and booked as revenue. Carolina Stromlid: Moving on to the next question that comes from Carlos Moreno. Carlos Moreno: In the -- you're obviously very near your kind of previously set medium-term margin targets. And you mentioned in Q3 that you might revise those targets, give new long-term guidance. Do you still expect to do that at some point during 2026? Johan Löf: Yes. During 2026, we will communicate a new, let's say, 3-year margin target and possibly some other financial target. But you can expect that will be communicated. Carlos Moreno: And is that with like the half year or the first quarter or sometime during the year? Johan Löf: I don't know for sure. It involves the Board has to make a decision. So I can say by myself. But that's not a problem. We want to communicate a new, let's say, medium-term target. Carlos Moreno: Sorry, I interrupted you. I apologize. Sorry. Johan Löf: No problem. Go ahead. Carlos Moreno: No, no, that was it. That's good. So we're going to get some new targets sometime during the year. And by the sound of it, we're going to get margin and maybe sales. There's going to be some sort of more than margin medium-term target. Okay. And I just want to add what the -- another person said. I mean, if your shares are just being pushed down because they're in some basket, I appreciate the dividend is fantastic, but it just seems to me you have to be on the other side of AI selling, and it just seems to me a buyback is -- there'll come a point where spending your cash on buying your shares is a very sensible investment, right? And to me, it just seems like an extremely good idea. But anyway, I just wanted to look at that. Johan Löf: I note your comment, and I think you're probably right. Carolina Stromlid: And we have a follow-up question from Ariane Nothermeer. Unknown Analyst: It was answered, sorry. Carolina Stromlid: We have a follow-up question from Mattias Vadsten. Mattias Vadsten: I just thought if you could help disclose some outlook on timing of approvals, release of modes to expand the use of the software products you have to further cancer therapy areas. Johan Löf: Time line for that is -- so if you take liver ablation, for example, that can be used in Europe as of now. There, we are waiting for 510(k) clearance in the U.S. Chemotherapy will be clear sometime during 2027. And surgery will be -- yes, that's even further into the future. So I can't say that. But liver ablation will be first, chemotherapy after that and then surgery is coming after that. Carolina Stromlid: Thank you all for your questions. With that, we will conclude today's presentation. A recording will be available shortly on our investor website. And if you have any additional questions, you are very welcome to reach out to us. We appreciate your participation today, and we look forward to connecting with you again on April 29 when we present our Q1 results. We wish you a pleasant rest of your day. Thank you. Johan Löf: Thank you. Nina Gronberg: Thank you.
Deborah Honig: All right. I think we can get started. Good morning, everyone. Thanks for joining us. We have an update from Microbix to discuss the Fiscal Q1 2026 Results. A sequential improvement quarter-over-quarter, so starting to see a rebound in company progress after 2025, which we all know is a bit of a down year due to events outside the company's control, but things seem to be tracking in the right direction. So here to tell us more about that, I have Cameron Groome, CEO; Jim Currie, CFO; Ken Hughes, COO. We won't be working off a presentation today. We will be finalizing the presentation with the Q1 numbers. So you can expect to see that online either later today or tomorrow at the latest. And we will have a Q&A section. So feel free to enter questions in the Q&A box. And again, not working off a presentation, but we are going to talk about forward-looking statements. So if you'd like to know more about those, you can find them on the presentation on the company's website. With that all out of the way, I'll hand the mic over to Cameron, who I think is going to give us a little bit of a review on the quarter. Cameron Groome: Thank you. Good morning, Deborah. Thank you, Deborah and everyone. Deborah, you didn't want to spend 5 or 10 minutes reading through a detailed safe harbor statement. Deborah Honig: Yes, I would love to. Should I pull it up? Is everyone... Cameron Groome: Sure. Why don't we assume it's been read, and we'll refer to the one in the quarterly disclosure and leave it at that. Deborah Honig: Yes, everyone can go back to bed, my interpretation of it. Cameron Groome: Okay. Well, pleased to announce our results for the first quarter of fiscal 2026. That is just to remind everybody, the 3 months ended December 31, 2025, as we operate on a September 30 fiscal year. The results for Q1 reflect the start of our ongoing work to recover our sales above our engineered breakeven point following the disclosed setbacks with 2 large clients in the second half of fiscal 2025, as you were describing, Deborah. Our revenues came in for Q1 at $4.2 million for the quarter, and that's up 13% from the prior quarter and in line with our budget expectations. And that revenues, we recorded a controlled net loss for the quarter of $1.2 million, using up some of our substantial cash reserves. And we continue to view this as a tactical setback, not necessitating a change in the strategic direction of the corporation, whereby we're building our revenues with the test makers, with the PT/EQA providers, that's the proficiency testing and external quality assessment agencies that support the quality of lab testing and with the clinical labs themselves, and we have a growing portion of revenues that are more widely distributed, which is a positive for the business as we've seen what you can experience with customer concentration issues. I'll shortly ask Jim to go into some more detail about our Q1 results in terms of the composition of sales, our margins, our costs and our uses of cash, followed by Ken, who will touch on our operational progress. But first, I just want to highlight some of our recent disclosures. Across Q1 -- and just before I get into the disclosures, I'll just emphasize that our policy is to disclose things once they are signed, sealed and delivered. We do not typically disclose projects that are not either generating -- already generating revenues or have formal agreement associated with them. So that's our watermark or waterline there on which we surface and discuss things. So just when you see these news release disclosures that are often written as much to highlight our progress to potential clients and our reach and sophistication, these are things that are done, and I'll just want to reemphasize that. In across Q1, the September -- October 1 to December 31 period, you've seen us disclose some announced new clients and new client programs in the molecular pathology and point-of-care genetics testing field. So again, taking us continuing our moves to support oncology-related testing as well as genetics-related testing to add to our addressable markets and add to our long-standing expertise in the infectious disease space. So those programs announced in the fall as well as 2 further test maker relationships, one in the United States with Sekisui, supporting a point-of-care testing system and another with Seegene in Mexico beginning with support for cervical cancer screening program. So again, this is Microbix continuing to prove our growing thought leadership and our reach across the industry with each of those programs linked to immediate sales, as I referenced earlier. I'll have some further comments as well about client programs and what we've announced just since the new year. But let me first ask for Jim's comment and further color on our Q1 results. Jim, if you'd like to go ahead, that would be great. James Currie: Sure, Cameron. Thank you. Yes, Q1 was a sequential growth quarter. When compared to last year, we saw a rather significant decline in revenues of 30%. That, however, was a result of predominantly the lack of sales through our distributor in China. And that was -- the differential from quarter-to-quarter was over $2 million. So that's where we saw a rather significant decline in our antigen business, which was down 49% because of that lack of revenues. Now without that, lack of Chinese distributor revenues. The rest of our antigen business was actually up 5% for the quarter -- quarter-over-quarter. Antigen business -- sorry, the QAPs business was up at $1.9 million, a 15% improvement over last year. And so combined, we saw $4.2 million worth of revenue for the quarter. Gross margins, again, disappointing in comparison to last year as well as expectations. This is a result of the fact that we've got fewer products going through production with the lower sales, absorbing a similar level of fixed overheads. As we move towards our sort of breakeven point of in excess of $5.5 million, we'll start to see the margins improve as well as our profitability level. Operating expenses for the quarter were at or below expected levels as we continue to try and keep control of our costs during these quarters as we lead up to quarters with more significant revenues. On the -- Cameron talked about the cash flow consumption during the quarter. Most of that was a result of timing of receivables and collections of receivables. We finished Q4 with a fairly low level of receivables. And for the end of Q1, it was a high level. So -- and in fact, during January, we received payments of $3.3 million and our cash balance at the end of January was $10.6 million, so up $1.5 million from our closing at the end of December. So $3 million is not what we expect to see on an ongoing basis for the consumption of cash. From an inventory standpoint, inventory was still relatively level as we retain stock of predominantly finished goods to support our antigen business as well as the growth in our QAPs business. And that's about all I've got to cover off on the financial side for right now. Cameron Groome: Well, thank you, Jim. I'll take a few moments now to just discuss the disclosures we've made thus far in 2026. Now in January, we provided an update on our recombinant antigens program. And that's creating the ability to synthetically make the test ingredients, the antigens as well as our long-standing expertise in creating native antigens from actually culturing viruses and bacteria and so forth. The ability to make those ingredients is synthetically is very important. Our team, as we announced in January of 2025 and then updated in January of 2026, our team successfully onboarded these important technologies. And in January, what we announced was our first commercial product resulting from that, and that's the SARS-CoV-2 viral capsid antigen, which is now actively being used in our QAPs, in our own products, and that strengthens our supply chain, improves our margins and we'll ultimately be adding that product to our and other recombinant products to our catalog of test ingredients that we can sell more broadly. So very successful outcome on that program. Also earlier this month, February, we disclosed progress in our QAPs business as it relates to our PT/EQA clients. These are the proficiency testing and external quality assessment agencies that regularly challenge the clinical labs with programs to which they subscribe with our test patient sample mimetics, so that tests can be checked that a positive is a true positive and a negative is a true negative. The first program we disclosed was progress with our QAPs oriented towards molecular pathology. This is the combination of traditional pathology methods looking at cell type and confirmation with PCR or other molecular testing to look for genetic signatures and improve the accuracy of certain diagnoses, specifically related to cancers and infections that may cause granulation cyst that could look like cancer. That work was presented at Labquality Days in Finland, one of our PT/EQA important clients. Closer to home, we're also very proud to be permitted to disclose that the College of American Pathologists has joined the Microbix family of customers. The College of American Pathologists is the world's largest provider of PT/EQA programs to support the quality management in clinical labs, and we're now supporting the QAP on some important PT/EQA programs, again, adding to our -- demonstrating our thought leadership, adding to our relationships and frankly, our revenue. So thank you, and welcome to the College of American Pathologists. So that takes us up to date on some of our disclosures. And maybe I can now ask Ken to comment further about our operational progress. Ken? Kenneth Hughes: Right. Absolutely. Thanks, Cameron. On the operational side, as the group knows for the last couple of years, we've been building both capabilities and capacities at Microbix. And we continue to drive efficiencies in that regard to reduce production costs through operational excellence. We've been making more and more use of our electronic quality management system in this regard. We've been improving throughput in manufacturing and yields and also reducing the testing burden, which speaks directly into the associated costs. As Cameron said previously, we've added recombinant capabilities to our other classical and synthetic biology capabilities, and that's exemplified by the recent announcement of the SARS-CoV-2 antigen production and commercialization. The group will be unsurprised now to learn that there's a rich pipeline of recombinant products coming down the pike, and they will be used both for antigens themselves and for raw materials and supply chain for our QAPs production going forward, which again will secure supply chain and reduce costs and contribute to operational excellence. So really at the operational level, everything is going very well, and we think we're just going to continue to drive efficiencies, reduce costs, increase yields and then move on from there. So I really have to say about [ QAPs ] going very well. Cameron Groome: Thank you, Ken. Ken, I'd be remiss if I didn't also ask you to just provide a little bit in the way of updates with our -- about our therapeutics program, Kinlytic. Kinlytic is for resolving blood clots in venous catheters. And I know we have some important upcoming meetings, and I don't want to get too far ahead of our skis, but maybe just give a hint that that's continuing to progress. Kenneth Hughes: Absolutely. As we've discussed many times, the relationship with Sequel and their financial backers remains very strong with frequent constructive meetings. The work is proceeding at our drug substance, that's the purified urokinase molecule itself, contract manufacturer. It's also now proceeding at the drug product, which is the formulated and filled and finished the salable unit with our drug product contract manufacturer as well and in testing development. And in all cases, things are going very well. I said last time that Sequel and Microbix would be updating the U.S. FDA on progress with a formal submission in the new year, and that it was expected to be uncontroversial. Well, that's occurred, and it was as uncontroversial as expected. The FDA feedback was basically that they appreciated that we are updating production processes contemporary standards, looking to eliminate animal-based components and replace them with synthetic components, which is actually expected in those contemporary standards, and that's going very well. They also said that we should just carry on and continue to use the guidance they provided to us in our formal meeting in 2023. So that was great, uncontroversial, and we're just proceeding. The project as a whole is proceeding as expected. We're first going to address the USD 0.5 billion catheter clearance market, but now we're also looking at other geographies and catheter prophylaxis and looking at the logistics, the even more lucrative and bigger opportunities are related to pulmonary embolism, which includes peripheral arterial occlusive disease, deep vein thrombosis and stroke. So the relationship with Sequel remains good. The feedback from the FDA is constructive, and we're moving forward, as we said. So I have nothing negative to say on that project either. It's proceeding as it should and very well. Cameron Groome: Perfect. And we'll continue to provide updates as we move forward as well in our written disclosures. I'll just highlight there is some expanded disclosure in the management discussion and analysis in terms of forward-looking information as well as in our management information circular on some of the performance feedback measures that we institute internally. So while those can be mind-numbingly boring documents to read, I do encourage those that want to take a deeper cut. We do expend some effort on those to make sure you're getting full plane and true disclosure in a timely manner. So do have a look if you've got interest or bandwidth. Those are available both on our website and at sedarplus.ca. Thanks, Ken. Thanks, Jim. As everybody can see, the whole Microbix team has been really busy adding to our capabilities, our product offerings, our client projects and our client relationships. And this is really all targeted towards delivering value to not just our customers, but of course, our shareholders as well. And we very much thank everybody for taking the time this morning to join us and for reviewing our results for the first quarter of fiscal 2026. With that, it's probably a great time, Deborah, to move over to questions. And if I can ask you to moderate on reading the questions, and we'll focus on giving the answers. Deborah Honig: I'm here for it, Cameron. All right. So let's start with some investor questions. So was the sequential improvement at all due to seasonality? Cameron Groome: I don't -- I wouldn't say so, no. I think that is -- there's always some issue of order timing and where a product may get finished and released by QC and QA to ship to a client, but there's no specific seasonality in that quarter. Jim, would you want to expand or differ on that? James Currie: No. No, I would agree, Cameron. I don't think there was any seasonality that impacted between Q3, Q4 and Q1. Cameron Groome: Great. Okay. Thank you. Deborah Honig: And accounts receivable more than doubled versus Q4. Is there any unusual reason for that? Cameron Groome: Yes. I think a resumption in client orders and the flow, just the timing of orders, what we carried over quarter end was a higher balance of receivables from product that have been shipped, but invoices not yet collected. And that was reflected in the cash flow from operations figure reflected that increased flow of working capital into accounts receivable. But as Jim has indicated, those receivables have since been collected, moving our cash balances higher and our receivables figure lower. So just the normal business flow there and what was carried across a quarter end snapshot of the balance sheet. James Currie: Yes. Timing of shipments has an impact on it, typically, I guess, in Q4, the shipments were earlier in the quarter, and we collected a good portion of them during the quarter, whereas in the first quarter of this year, we had a fair number of shipments that went out in December and obviously weren't collected by December 31. Cameron Groome: Yes. And our vast majority of our sales are business to business. And we're -- normally, it's a very rare situation that we ever have a bad receivable, and I don't think I've ever recalled anything -- any provision annually in excess of maybe $50,000, Jim? James Currie: Yes. We've kept a provision of $35,000 for quite a while because we have next to no write-offs from our customers. Cameron Groome: It's not to say somebody doesn't push it out a little bit on the collection -- on the payment timing, particularly. Some clients have a regular habit of doing that, but they are all creditworthy. Deborah Honig: Okay. Great. And then OpEx in the quarter -- OpEx was low in the quarter. Is that a seasonal effect? Or should we see OpEx stable going forward? Cameron Groome: Take it away, Jim. James Currie: Yes. I mean, seasonality, I don't know whether you call it seasonality, but for some reason, Q1 always tends to be a lower spend level from an OpEx standpoint. Some of it's due to the fact that the -- for instance, from the sales and marketing front, not as much activity on the trade shows, et cetera, in the first quarter. We'll start to see that bump up in Q2 and Q3 as there's been a number of trade shows that have been attended and are being attended to in the next -- in the coming months. So that impacts us as well as our R&D spend. I think our R&D spend will go up. So I wouldn't expect the operating expenses to stay at the Q1 level, but they're not going to jump up dramatically throughout the year. I mean we've been pretty consistent recently with our operating expenses. Cameron Groome: Yes. And this is very much holding the line on the expense side as we build the revenue side of back up from some of those customer setbacks. Deborah Honig: And when will China purchases start for the next flu season? And are you seeing any signs of sales resuming there? Cameron Groome: China is not the most transparent market. We've certainly been pushing hard at our distributor to get a good handle on that. We've not seen sales in China resume too much of an extent as yet. We're continuing to be told that it's a flu incidence and inventory being consumed from tests that were built for last season, but we've not yet seen a resumption in draw of antigen sales into China. So it continues at a very low level right now. Deborah Honig: Okay. And -- what is the revenue potential with the College of American Pathologists? Cameron Groome: Well, that client will certainly start well -- is well into the 6 figures for 2026, and we would view that as a -- we would be targeting them to be a meaningful 7-figure account for Microbix. So it comes with each additional program that we support and the rollout of new programs across the potential base of about 22,000 pathologists and labs that the college supports. Now not every lab is testing for every pathogen. So it's always a subset of that potential pool. And we look at modeling those as we go forward and seeing what it can be. But it is meaningful for us, and that's why we disclosed it, of course. Deborah Honig: Got it. And when would you typically see China start buying again to the next flu season if they're going to? Cameron Groome: I think we'd see that over the late summer to early fall, we should see what's going on there. And we've been supporting on Chinese manufacturers on some of the childhood disease testing, but principally in the respiratory disease side of things. And some of the immunologic testing that happens in China, there's a lot of air pollution is an issue in China as is a large population in concentrated urban centers. So oftentimes, people can have low-level infections and you're really not going to get useful information out of PCR tests if somebody has a low-level infection, but that's really not the problem. So the immunologic tests are used looking for an acute phase antibody reaction indicative of an active walking pneumonia. And that's where we've been supporting testing in China. So it's really about the incidence of potential respiratory bacterial infections that we're supporting in China more than it is in relation to cold and flu. So the bad seasons, I think, are where our products get used more extensively and that form of testing is done more extensively. Deborah Honig: Understood. Was Sequel always aware that animal components would need to be replaced with synthetic? Or is that new information? Cameron Groome: No, we've all been aware of that from the very outset of the program, and that's felt not meat and potatoes work really to bring that up to contemporary standards. So this has always been on the -- completely well-known on the path for redevelopment and relaunch. So no surprises there. Kenneth Hughes: Yes. None whatsoever. Let's remember that the original urokinase, Kinlytic, abbokinase, as was, production process was developed in the 1970s. And then the last time it was updated by Abbott before it became Kinlytic was just at the turn of the millennium. So not much of updating has gone on in the last 2 decades. The expectation is to bring it up to contemporary standards. Animal-derived products can be replaced by plant-derived versions thereof and indeed growth factors from -- derived from pigs or cows can now be replaced with recombinant versions. This is standard fare. It also goes down to the downstream, the chromatography resins and the filters that you can use to clean up feedstock are so much better these days and the levels of purity can be much higher can be realized. This is entirely expected. It's been discussed with the FDA. It's not required to eliminate animal components, but we're asked to make best efforts, which is just contemporary standard. And this is going very well, and that's why we had an uncontroversial meeting with the FDA. We're just doing what we agreed to do, and we're proceeding forward. Cameron Groome: Yes. Well said. Deborah Honig: Would you expect any big QAPs customers will shift to commercial sales with any of your products this year? Cameron Groome: Repeat that to me? Deborah Honig: Would you expect that any big QAPs customers will shift to commercial sales with products? I think they're asking, are you expecting any large orders? Cameron Groome: Yes. We are certainly targeting large orders and large programs with different major multinationals. But again, that's aspirational. That's not forward-looking information. We will announce agreements again, when they're signed, sealed and delivered. We -- the fish may be on the line, but thank you. We'll announce it when it's been reeled into the boat and is in the cooler, not when it's on the line. Thank you. So yes, there are multiple large clients with significant projects that we're working on now. And when those reach a point at which we can make specific disclosures, we'll do so. Deborah Honig: And are any of the large orders expected for products that are commercial, not in development? Cameron Groome: Just thinking. Yes. Typically, they are -- they can be for an existing assay on an existing instrument platform and in which case you're replacing an incumbent supplier. They can be for a new assay on an existing instrument platform, in which case you're -- there is a large installed base of instruments, but the assay is new. And then there can be a new assay on a new instrument, in which case, of course, there isn't an installed base. So we're working across each of those categories in our efforts to secure new client programs as well as new clients. And you see some of that, for example, with Seegene, Mexico. Well, that is a support for an existing assay on an existing instrument, where they're penetrating new markets, in this case, Mexico and -- or you can have in the case of Sekisui in the United States, where it is support for a new assay on a new instrument in a new market. So each of these will accelerate and have a different shaped S-curve for adoption. But that's a little more granular than we're prepared to go and really investors have to rely either on the analysts or themselves to model out those expectations. That's a little more liability than we're willing to take on. Thank you. Deborah Honig: Last question here. So last webinar, you indicated a 30% increase in revenue off the 2025 low point for fiscal 2026. That seems affirm today and today's results were said on plan. Microbix also expected profitability in fiscal Q4, July to September quarter. Do you still expect profitability to be reached by Q4? Cameron Groome: I think we're targeting to get back into the $5.5 million to $6 million range, and that's our breakeven point there. I think profitability in Q4 may be a bit of a -- there won't be -- there shouldn't be a meaningful loss in Q4, but I don't think there'll be significant profitability based on the numbers we're looking at currently. Now that's things, again, that's based on orders we can reasonably anticipate at the present time, we could well exceed those numbers if some of the new business development projects that we're hunting land and begin to generate revenues in that -- in those final quarters. But again, we're setting annualized revenues at 30% above the Q3 low point. So in the $18.5 million to -- $18 million to $19 million range for the full year is a reasonable expectation, and that's the sort of budget targets and that will be distributed quarter-by-quarter based on order timing and when we actually ship product. And that's consistent with the forward-looking information that is in our management discussion and analysis that you should be relying on if you're looking for detailed information rather than the more off-the-cuff commentary I can give here. Deborah Honig: Congrats on the success with FDA and on the uncontroversial feedback. What is the timing for final FDA approval? Cameron Groome: Well, tough to know on FDA approval because the FDA can be faster or slower to review a file. What we're working to generate is the best possible supplemental Biologics Licensing Application or sBLA filing that we can generate. And there's some moving parts always on that based on the package that we can generate. So what we're doing now is the most robust modernization of the drug substance manufacturing, and then we'll be completing as another step of the formulated drug product, that's the final product in the vial. And then we'll be doing as many purity and potency assays on that as we can preparatory to an sBLA submission. And that certainly won't be in 2026, but I think we can look for that in the latter part of 2027, and that's remained a consistent target for us, but there's any number of moving parts to that equation. Kenneth Hughes: I would just add, yes, 2027 was the stated target at the beginning. It remains the same based on what's going on. We have parallel drug substance and drug product development. So the technical aspects are going expeditiously. We're at the mercy of the regulator. They can be very quick. But there is a market demand for urokinase. We have a monopolist that has difficulty supplying or servicing the market right now. And I think we've already told the group that the European regulators have already reached out to us to ask us not to forget about them and their market. So they want the urokinase product on the Kinlytic product on the market as well. So there is a driver there, but there is politics and there is capacity at the regulator. But right now, 2027 remains the goal. Deborah Honig: A follow-on question here. Has FDA confirmed the sBLA is okay given the replacement of animal products with synthetic? Cameron Groome: There's no -- sBLA has not been filed yet. So that happens at the end of the process. So what we're continuing to do is keep the FDA updated through the process. So this is a touch point, not an endpoint. Kenneth Hughes: The replacement of animal-derived components with either plant-derived or recombinant components is entirely expected and entirely uncontroversial. This is just part of the engineering of a process. It has no effect on the sBLA or the regulatory filing. It's just doing things according to contemporary standards. It's been discussed since day 1. It's not perceived to be in any way a controversial situation. Why would you use an animal component when a synthetic one is available? Cameron Groome: Exactly. Deborah Honig: So the filing path remains the same? Kenneth Hughes: Absolutely. Cameron Groome: Correct. Yes. Deborah Honig: And can China use the antigens they have in inventory? Or do they need new antigens for new strains? Cameron Groome: The antigens are designed to work across multiple strains. So inventory kept at minus 80 has a long shelf life. If the product however has been incorporated into a test, then it has a defined shelf life. And tests can either be -- ingredients have a long shelf life, finished tests have a defined shelf life and they either have to be sold or they risk expiring unused. Deborah Honig: Got it. And can you update us... Cameron Groome: Yes, go ahead. Deborah Honig: Sorry, go ahead. No, no, no, you go ahead. I'm switching gears. Cameron Groome: Yes, I was just going to say, it's always more challenging when you're once removed from the client relationships and working through a distributor to get that kind of detailed intelligence. And that's -- we have not, however, built boots on the ground sales infrastructure in China. That's something a little beyond our current aspirations. Deborah Honig: And can you update us on the NCIB for the quarter and looking forward? Cameron Groome: Absolutely. Well, we renewed the NCIB. This is the normal course issuer bid for those that don't speak financial. And that's otherwise known as the share buyback program. So we renewed that in early December. And under the normal course issuer bid renewal, we're allowed to buy back a certain number of shares every week and react to one block trade per week. But Jim, maybe I'll ask you to touch on the specifics of the renewal, what we're currently doing and what we've done so far this year. James Currie: Yes. Under the renewal -- to be honest, I can't remember the exact number. It's in excess of 20,000 shares per week that we can acquire, but we've... Cameron Groome: Per day, Jim. James Currie: Per day, sorry. Thank you. But we've chosen to currently repurchase at a level of 15,000 per day given our current situation. And we've -- since in Q1, we acquired about 700,000 shares at a cost of about $175,000. And through January and today, we've repurchased approximately 1 million shares to date. That is both the old NCIB through December 9 and the new one starting December 9, 2025. And our plan is to continue repurchasing at the 15,000 per day level unless we see a reason to change that. Cameron Groome: Yes. And this is really -- thank you, Jim. This is really striking a balance between more than offsetting any usage of -- for stock options, but over roughly a 250-day business day calendar year, repurchasing at 15,000 shares a day will result in the repurchase of about 3.75 million shares, well in excess of any option awards that are granted. So the company continuing to be in a net anti-dilutive position, but not burning through an excessive amount of our cash. Now, as we see landing large new client programs, we may get more aggressive on that and move up to the full daily repurchases as well as potentially blocks. But currently, we're moving between -- at a heightened level, last year, we were buying back 12,000 and change a day. So we are buying back more shares on a daily basis this year, and we have the potential to move up to that maximum. And I did pull up, but I'm not pretending this is from my memory either, but I did pull up the daily maximum is 20,339 that we would be able to buy back per day, and that's based on 1/4 of the average daily trading volume on the shares of the TSX for the most recently completed 6 months prior to the renewal, drives some mechanics of that. Deborah Honig: Great. I don't see any other questions. Cameron, do you want to give some final thoughts? Cameron Groome: Yes. I mean, for concluding thoughts, as Ken said, we continue to build the capabilities and capacity, but also we're continuing to demonstrate some real thought leadership within our industry and across our different customer categories. And we continue to add new client relationships in the PT/EQA provider space with the major test makers, test manufacturers and with individual clinical lab customers. So we're not only seeing an increase of revenues -- an increase of customers, but we're seeing an increase of touch points with those customers, and that's driving not only revenue growth, but dispersion of our revenues across a greater number of customers, which ideally reduces volatility going forward. So we're doing the right things for the right reasons. And I think you're seeing that reflected in the number of great customers that we're engaged with and as well as the financial results that we're going to be -- have reported and are going to be reporting. Deborah Honig: Well, it's good to see you making progress. Thank you all 3 for your time this morning. Thanks to the audience for your participation and your questions. As always, if anyone has any follow-up questions or would like a meeting with management, please feel free to reach out to myself. I'd be happy to set that up. And yes, thanks, everyone, for your time. James Currie: Thanks, everyone. Cameron Groome: Thank you. Kenneth Hughes: Thank you, Deborah. Cameron Groome: Thank you so much. Thanks, everybody. Thanks, Deborah. Kenneth Hughes: Take care, guys.
Tadeu Marroco: Good morning, everyone. I'm delighted to welcome you to our Full Year 2025 Results Presentation. With me this morning, Javed Iqbal, Interim CFO; and Victoria Buxton, Group Head of Investor Relations. I will begin with our transformation highlights. Javed will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead given the clear momentum we are driving. We will then take your questions. With that, I would like to draw your attention to the disclaimers on Slides 2 and 3. So let's begin by looking at the positive transformation momentum we are driving. Starting with some key highlights. We added 4.7 million smokeless consumers, bringing our total to 34.1 million, mainly driven by our continued strong performance in Modern Oral. This marks our strongest growth acceleration to date and position us well for 2026. We delivered 2025 group results at the top end of guidance, driven by resilient delivery in combustibles and an excellent performance from Velo in all three regions. Our disciplined focus on quality growth continues to improve returns on more targeted investments with new category contributing now up 77% at constant rates. Alongside this, we remain committed to investing behind our premium innovation launches, supporting long-term value creation. We continue to deliver strong cash returns for shareholders. In addition to our progressive dividend, in December, we announced an increase to our share buyback to GBP 1.3 billion in 2026. Looking ahead, we are confident in returning to our midterm algorithm this year with accelerated momentum through the second half of 2025, positioning us well for continued delivery. I'm proud that we have delivered on all of our 2025 priorities. And I want to thank our teams around the world for driving these encouraging results. Our performance reflects the clear momentum we are driving as we continue to build a track record of delivery. I'd like to take a moment to highlight two areas from last years that stand out to me. First, the return to both revenue and profit growth in the U.S. for the first time since 2022, a significant milestone driven by stronger combustibles performance, a return to revenue growth in Vapour in the second half and Modern Oral. As a result, we grew 30 basis points of combustibles value share. Second, we are delivering quality growth in new categories, launching premium innovations in each category while delivering a return to double-digit revenue growth in second half and category contribution growth up 77% for the full year. The progress we made in 2025 reinforces my confidence in our future delivery. And with that, I will hand over to Javed to take you through our 2025 performance in more detail. Syed Iqbal: Thank you, Tadeu. And good morning, everyone. I'm pleased to share that we delivered results at the top end of guidance on a constant currency basis. The performance was driven by return to growth in the U.S., a robust performance in AME and the strength of Modern Oral globally. Our reported numbers reflect some adjusting items, including nearly GBP 1.6 billion, mainly related to the annual amortization of our U.S. acquired trademarks, a net credit of GBP 524 million following a change in the forecasted outlook for the Canadian combustible industry. We also recognized a gain of nearly GBP 900 million from the partial monetization of our ITC stake. To give you a clear view of our underlying performance, I will focus on constant currency adjusted and where applicable, adjusted for Canada metrics. You can find further detail on adjusting items and share data in the appendix. We delivered group results at the top end of guidance, supported by accelerated momentum through the second half. Group revenue increased by 2.1%. Adjusted profit rose 3.4%. Adjusted profit from operations grew 2.3% and adjusted diluted EPS was up 3.4%. Let's now turn to New Categories revenue grew by 7%, driven by outstanding growth in Modern Oral, which was up strongly by 48%, with heated products up 1%. This was partially offset by a nearly 9% decline in Vapour, mainly due to continued illicit pressures in the U.S. and Canada. Our second half use performance showed a clear improvement versus the mid-teens decline in H1, supported by early signs of strong enforcement activity in the U.S. We continue to deliver quality growth with gross profit up over GBP 200 million and category contribution reaching GBP 442 million. This reflects our disciplined approach to return on investment, targeted investments in high-value markets and increasing scale benefit across our portfolio. I am proud of the progress we are making. And I'm particularly pleased with our accelerated H2 momentum, where we returned to double-digit new category revenue growth. Now turning to combustible. Revenue grew 1% with volume decline more than offset by continued robust price/mix across markets. We delivered quality growth here, too. Both gross profit and category contribution increased 2.5% driven by a strong performance in the U.S., positive price/mix and continued productivity and simplification gains, which I will speak to shortly. Our performance highlights, the breadth of our global footprint, with strong delivery in the U.S. and AME, more than offsetting fiscal and regulatory headwinds in Bangladesh and Australia, which impacted total group revenue by around 1% and group adjusted profit from operations by around 2%. This resilience and increasing momentum in H2 reinforces our confidence in future delivery. Turning to our regions, starting with the U.S. In Combustibles, we delivered a 4.6% increase in revenue with our strengthened portfolio, sharper execution and enhanced revenue growth management, driving price/mix, including excise duty drawback. Value share increased 30 basis points with volume share down 10 basis points. In New Category, revenue grew nearly 20%, driven by the success of Velo Plus, which delivered over 300% growth. While Vapour revenue was down 3.4% for the full year, we are encouraged that Vuse returned to revenue growth in H2, supported by early signs of enforcement actions. Overall, U.S. revenue increased 5.5% and adjusted profit grew 5.9%, mostly driven by a strong combustible performance. Importantly, Velo Plus reached positive category contribution within its first year, underscoring the scalability of our Modern Oral business model. Tadeu will share more detail on the U.S. shortly. In AME, we delivered another robust performance. Revenue grew over 3% with Combustible up more than 2%, supported by strong delivery in Brazil, Turkey and Mexico with solid pricing. New Category revenue increased 4.3%, mainly driven by Modern Oral, which grew over 17%. We are the clear Modern Oral leaders in the region with over 60% volume share in top markets, selling at a premium and strongly outperforming peers, which Tadeu will expand on later. Growth was further supported by heated products with revenue up over 6%, driven by Italy, Germany and Ukraine. This was partially offset by competitive dynamics in Romania as we reallocated resources ahead of the glo Hilo launch. Vapour revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and excise changes in U.K., France and Poland. Adjusted operating profit grew by nearly 10%, driven by operating leverage and efficiency gains in Combustibles and scale benefit and resource allocation driving improved contribution across all three new categories. AME is a true multi-category region, delivering high-quality growth and demonstrating the resilience and balance of our portfolio. In APMEA, growth in key markets, including Pakistan, Nigeria and Indonesia was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2% with Combustibles down 8.3%. New Category revenue was down 7.6%. Strong growth in Modern Oral was more than offset by heightened competitive activity in heated products in the value-for-money segment in South Korea and Japan, along the phaseout of our super-slim platform. Our Vapour performance reflects strategic decisions taken to reduce our footprint and reallocate resources away from markets where regulation and enforcement do not support a responsible competitive landscape. Adjusted profit was down 17.9%, mainly due to challenges in Bangladesh and Australia. As we continue to navigate headwinds into 2026, we expect our performance to stabilize for the full year, supported by Bangladesh as we lap last year's decline and with the drag from Australia becoming progressively less material year-on-year. Turning now to our group operating margin, which was broadly flat at 44%. We successfully offset inflationary and FX pressures through a strong U.S. performance, higher profitability in New Categories and continued cost savings. Transactional FX headwinds on adjusted profit of approximately 1% were primarily driven by Turkey, Japan and Nigeria. At current rate, operating margin expanded by close to 10 basis points. BAT has a strong track record of disciplined and cost savings, and we continue to build on that foundation. Since 2023, we have delivered GBP 1.2 billion in productivity savings. These efficiencies help us offset inflationary pressures and foreign exchange headwinds, while continue to fund innovations and growth in New Categories. In 2025 alone, we absorbed around GBP 300 million of inflationary cost increases in addition to transactional FX. Looking ahead, we remain focused on simplifying Combustibles and scaling new categories, targeting a further GBP 2 billion in productivity savings by 2030. In addition, we now expect our Fit2Win program to deliver GBP 600 million of annualized incremental savings by 2028. We expect around GBP 500 million of these savings to be delivered by 2027, with the remaining benefits realized by the end of 2028. We are committed to reinvesting these savings to support further sustainable growth initiatives. Fit2Win is a transformational project that is reinventing BAT. As outlined at our 2025 half year results, it is centered on optimizing processes and ways of working to create a leaner, faster and more data-driven organizations. Since half year, we have made strong progress. We have expanded the program to include organizational streamlining to sharpen our focus and improve speed of execution, allowing us to raise total annualized savings by a further GBP 100 million. To unlock these benefits, we now expect around GBP 600 million of associated costs over the next 2 years. As a structured time-bound program, GBP 500 million will be treated as adjusting, including around GBP 100 million of non-cash items. As previously guided, this spend is already underway with the majority of costs expected to be incurred this year and concluding in 2027. Bringing it all together, earnings per share increased by 3.4% as operating profit growth and lower share count was partly offset by net finance costs, our reduced share of ITC profits and tax. Our underlying tax rate was 24.5%. Our strong cash generation continues to enhance our financial flexibility. This has enabled us to announce a 2% increase in our dividend and increase our share buyback by GBP 200 million to GBP 1.3 billion for 2026. Alongside this, we continue to delever to 2.55x adjusted net debt to adjusted EBITDA at the end of 2025, and we remain on track to be within our 2x to 2.5x target range by year-end. While our 2025 cash delivery was impacted by the CCAA upfront payment and the prior year deferral of tax payments in the U.S., we remain on track to deliver more than GBP 50 billion in free cash flow by the end of 2030. And we continue to focus on our capital allocation priorities, which are investing in transformation, balancing, deleveraging with progressive dividends and sustainable share buybacks and selective bolt-on M&A to support our transformation. I am excited about the future and confident in our ability to deliver our midterm algorithm of 3% to 5% revenue growth, 4% to 6% adjusted profit from operations growth and 5% to 8% adjusted diluted EPS growth. Our return to this midterm algorithm in 2026 marks a major milestone in our transformation journey and reinforces the strength and resilience of our strategy. Our confidence is underpinned by continued growth in the U.S., robust multi-category delivery in AME, low double-digit New Category revenue growth led by Velo globally, a further improvement in New Category contribution and continued savings from our productivity programs. Although we still have more work to do, and it will take time to stabilize performance in APMEA, we will continue to invest in our premium innovations rollout. As a result, we expect 2026 to be at the lower end of these ranges and our profit performance to be second half weighted, driven by the phasing of New Category investment and as Fit2Win savings build through the year. And with that, I'll hand it back to Tadeu. Tadeu Marroco: Thank you, Javed. So moving on now to the positive transformation momentum we are driving. In 2023, when I became Chief Executive, I committed to sharpening our focus and execution guided by a refined strategy and ambition to become a predominantly smokeless business by 2035. And I'm proud to say that we have made significant progress across all three strategic pillars as we continue to build a track record of delivery. While there is still more to do, I'm confident that our focused investments and sharp execution are driving real momentum, as you can see from our 2025 results. Our progress underpins our confidence in sustainably delivering our midterm algorithm, while continuing to reward shareholders with strong cash returns. I'd now like to highlight five points that demonstrate this. First, we have successfully reset our U.S. business, returning to revenue and profit growth in 2025. While the U.S. macroeconomic environment remains dynamic, the pace of Combustibles industry volume decline started to moderate in 2025, down 7.4%. Against this backdrop, driven by the actions we have taken to strengthen our portfolio and sharpen execution, our U.S. Combustibles business delivered strong revenue and profit growth in 2025. Driving value from our Combustible business is essential to funding our transformation, and the U.S. is a key driver of this. In line with this strategy, we gained 30 basis points of total industry value share. I'm particularly encouraged that our financial performance accelerated in the second half. This positive momentum reinforces my confidence in the resilience of our U.S. Combustible business and our ability to deliver sustainable value going forward. Velo Plus is the fastest-growing Modern Oral brand in the largest Modern Oral value pool globally. Since launch at the end of 2024, it has already reached the #2 position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. And we are pleased to -- that our share momentum has continued into the start of 2026. Velo Plu has more than doubled its consumer base and driven over 300% Modern Oral revenue growth, capturing around 70% of industry volume growth and 80% of industry value growth in December. All of this is underpinned by a consistent repurchase rate of around 70% throughout the year. Importantly, we achieved positive category contribution within the first 12 months of launch, fully aligned with Velo's global payback profile. The total U.S. Modern Oral category continues to grow strongly and has already overtaken the size of the legitimate Vapour category at over GBP 2 billion of revenue in 2025. Velo Plus is a great product. And these results demonstrate this in what remains a highly dynamic category. Its impressive. It's impressive success also highlights the broader strength of our U.S. capabilities and executional excellence from consumer insights and branding to enhanced digital analytics and distribution enabled by a rejuvenated Reynolds. Our performance was further enhanced by the successful launch of Grizzly Modern Oral in the summer, which achieved close to 2% volume share by year-end, taking our total volume share of U.S. Modern Oral to 25.8%. Through this momentum, I'm delighted to announce that at the end of the year, we reached global volume share leadership in Modern Oral, measured across the top Modern Oral markets, representing around 90% of total industry revenue. Second, we are premiumizing our new category portfolio. Velo is already the clear European leader around 6x larger than our nearest competitor. We continue to focus on consumer-led innovation to strengthen product satisfaction among adult consumers and extend Velo's success. At the start of this year, we began the nationwide rollout of our latest innovation, Velo Shift in Sweden, following a successful pilot with key retailers and online partners. Velo Shift is reshaping the Modern Oral experience, featuring a new comfort pouch design, five distinct sensory flavors and a differentiated hexagonal can that stands out on shelf. Trading at a premium to the core Velo range, Velo Shift is already driving incremental share in the channels where it has launched with further market rollouts planned through 2026. These results highlight not only the strength of Velo brand and innovation pipeline, but also the quality of our execution across European markets. We see premium Vapour Done Right as a highly attractive untapped segment for further value creation. Vuse Ultra is our most advanced Vapour device yet, driving meaningful performance improvement for Vuse in markets where we have launched, including value share gains of nearly 80 percentage points in Canada, close to 4 percentage points in Germany and above 2 percentage points in France. As Javed highlighted, we have made proactive strategic decision to focus our execution on the largest profit pools with more supportive regulation and enforcement. Vuse Ultra is central to this approach, and I'm encouraged by the strength of its early performance with further launch planned in the key markets in 2026. Our breakthrough innovation platform, glo Hilo, introduced our first showpiece device and is designed to establish glo in the premium segment. While still early days, we are starting to drive encouraging results in priority launch markets, Japan, Poland and Italy, with the majority of consumers new to glo coming from both premium Combustibles and the broader Heated Products category. We are also strengthening glo's overall brand equity across key consumer metrics. This consumer response is translating to early volume share momentum. We are encouraged by early trial to retention rates of around 50%, providing further confidence in the platform's potential. In 2026, our focus will be on accelerating trial among premium consumers across both Combustibles and Heated Products, supported by target online and in-person activations. We will continue to scale glo Hilo through additional market rollouts in the largest Heated Product profit pools where we can generate the strongest returns. Overall, we remain confident in the strength of this innovation platform and expect to progressively build share within the premium segment over time. As Javed highlighted, the Heated Products category remain highly competitive, and this has impacted our 2025 performance in the value for money segment where we are present with glo HYPER. Introducing glo Hilo into the premium space allow us to further differentiate our tier -- our portfolio. We see a clear opportunity to strengthen glo's overall performance across both premium and value for money segments. Central to this is the launch of our next-generation glo HYPER device from Q2. The new glo HYPER delivers a step change offering, quick starts, longer started session length, new connectivity and a replaceable battery. These innovations significantly improved the consumer experience, and we are also further enhancing the consumables range. Taken together, these upgrades create a much stronger proposition designed to reinforce our competitiveness in the value for money segment. Third, I'm proud of the strong progress we have made improving New Category profitability. Since 2021, we have driven a GBP 1.4 billion improvement in Category contribution with all three New Categories contributing to this momentum. Importantly, we have achieved this, while continuing to invest in our transformation to drive future sustainable growth. Our new categories are meaningfully contributing to group results as we benefit from increased scale, reflecting traction in established markets while continuing to invest in new market launches. This supported by more consistent and constructive regulatory frameworks, such as those in place for Modern Oral in 24 markets, up from just 4 markets in 2022. We have sequentially improved our performance each year. And through our quality growth approach, we remain committed to driving sustainable profitability improvement moving forward. Fourth, I'm encouraged by the signs of positive progress we are seeing in the regulation and enforcement of new categories, especially in the U.S. While the Vapour category continues to be impacted by the proliferation of illicit products, Vuse returned to revenue growth in the second half after 18 months of decline. This has been supported by increased state level enforcement with Vapour directory and enforcement legislation representing around 50% of tracked industry volume by year-end. In addition, Vuse performance in the second half benefited from a competitor exit, further strengthening our market position. Our recovery has also been supported by early signs of increased federal enforcement targeting borders and larger distributors, resulting in high levels of seizures and fines. Looking ahead, we are encouraged by the increased focus and funding directed towards strengthening the FDA's enforcement capabilities. We were also pleased to receive a favorable initial determination on our International Trade Commission complaint from the administrative law judge who has recommended a general exclusion order on imported illicit Vapour device. We expect a final determination from the ITC in the coming weeks, which will then be subject to a 60-day presidential review. With an estimated 7% of the U.S. Vapour industry value still illicit, we are hopeful the authorities will continue with enforcement initiatives in 2026. Reynolds continues to advocate for a level playing field so that adult nicotine consumers have access to high-quality compliant Vapour products. Over time, we believe Vuse is well positioned to benefit from strong enforcement at both the federal and state levels. In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adult smokers who would otherwise continue to smoke to transition to less risk alternatives, reinforcing their role in tobacco harm reduction. We welcome the FDA's new pilot program to streamline the PMTA review process for nicotine pouches. This is an important step towards keeping underage appealing illicit products out of the market, while giving responsible manufacturers a more predictable path to PMTA authorization. We are confident in the strength of our science and portfolio, and we look forward to being able to complement our existing U.S. portfolio with Velo Max, a higher moisture Modern Oral product in 2026, and we have increased capacity to support our sustainable growth agenda. And the final point I would like to highlight is that our financial flexibility continues to strengthen, and we remain on track to generate more than GBP 50 billion of free cash flow by 2030. BAT is a highly cash-generative business, delivering at least 100% operating cash conversion annually since 2020, 100% of operating cash conversion, reflecting our strong cash discipline and clear focus on returns and enabling us to return GBP 34 billion of cash to shareholders over the same period. We remain committed to delivering sustainable shareholder returns with a 25-year track record of dividend growth and our sustainable share buyback program. I'm confident that we will sustainably deliver our midterm algorithm as we are firmly committed to growing revenue sustainably and improving profitability. To conclude, we are carrying momentum into 2026, underpinned by a robust innovation pipeline, strong strategic partnerships and confidence in our future fit capabilities. We are executing with discipline and delivering against our priorities. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation together with strong cash returns. I'm excited about the future for BAT and believe we are well positioned to deliver long-term sustainable growth and value for our stakeholders. Thank you for listening. We will now be joined on stage by Victoria for the question-and-answer session. Victoria Buxton: Thank you, Tadeu, and good morning, everyone. [Operator Instructions] Tadeu and Javed will be very happy to take your questions and I will now hand over to the conference call operator. Operator: Our first question is from Andrei Andon-Ionita from Jefferies. Andrei Andon-Ionita: First of all, two questions on Modern Oral, please. Number one, what are your expectations in terms of performance in the U.S. in fiscal '26 for Modern Oral specifically? And secondly, are these expectations underpinned by the FDA approving the European Velo product for sale in the U.S.? Or are they mainly driven by the existing Velo Plus product? And perhaps finally, in terms of profitability, could you tell us a bit more about how you expect New Categories profitability to evolve in fiscal '26? Tadeu Marroco: Okay, Andrei, thank you for the question. We have -- look, we have a very strong product with Velo Plus in the U.S. The levels of retention has been 70% throughout the year, which is really, really a very strong rate when you compare with other offers in the market. So basically, at the back of that, we believe that the product is competitive enough to continue growing in the U.S. market, has all the indications from that. Today, we still have a low level of awareness in the brand around 30%. And we are present now in 150-plus outlets, 1,000 outlets, which accounts for something like 93% of the total oral revenue. We are also seeing that the average daily consumption as new products start to be more satisfying for consumers in the U.S. is increasing. So it used to be around 2.8 pouch per day. Today is around 3.6 pouch per day. If you compare that with the European market, which is around 6 pouch per day, you see a lot of potential growth still in the U.S. and the Nordics is 12 pouch per day. So when you pull all this together, a strong product and the dynamics of the market evolving at the pace that it is in the U.S. So the expectation is that we will continue growing. That's why we are investing in capacity, like I mentioned during my presentation. We mentioned Velo Max, which is even higher moisture product that we have as part of the pilot that the FDA is running. We welcome the, first of all, that FDA is embracing nicotine pouch as a key category to address tobacco harm reduction in the U.S. because it's the lowest risk profile, if you want. There is no inhalation, there is no tobacco. There is no smelt that is much easier for consumers of cigarettes to convert into a much lower risk profile product. So they are put in place these pilots. We hope that for the next few months, we see our products, and we are cautious that other competitors will come with other products as well. And for us, there is no problem with that. But when I look outside the U.S. where everyone is free to compete, the leading brand outside the U.S. is Velo. Like we said, in Europe, our volumes in Velo are 6x higher than the second largest competitor. So what we want to see in the U.S. is a level playing field, because in a level playing field, we know that we can win. So that's the first question on Velo. In terms of profitability, we have made a very strong profitability to -- improvement in profitability when you compare that not long ago, back in 2023, we're just reaching breakeven in this category. And today, we have a 12% category contribution. Obviously, I always said that this will not be linear year-after-year because there will be years where we're going to reinvest back in the business at the back of exciting innovations. And 2026 is one of these years because as I said during my presentation, we have now premium innovation in every single of those categories. So we want to roll out glo Hilo. We want to roll out Velo Shift. We want to carry on rolling out Vuse Ultra. So we are not concerned about stipulating a specific pace of category growth year-on-year, because this will vary over time, but the trend is very clearly, the category will continue to grow. Operator: We'll now take our next question from Faham Baig from UBS. Mirza Faham Baig: The first one is on guidance for full year '26. You've guided for the lower end of the midterm targets. Could you maybe share factors that could result in the performance, whether in '26 or beyond that, getting you to the middle or even upper half of the range would be helpful. And then the second question is on heated tobacco. I guess it was a tough year in 2025 from a share perspective. How do you think about share progressing through 2026, particularly as competition in the category is intensifying? Tadeu Marroco: Okay. Thank you, Faham. Look, I'm going to start with the second one first, and then we address the guidance. Yes, we clearly see areas of improvement in our performance in Heated Products. What we saw throughout '26 is that the below WAP, which is basically where we were present until the launch of glo Hilo later in the year has been very competitive in some of the key markets. And that's the reason why I have just made the point today that we are coming with a revamped hyper product that we believe that together with revamped consumables, will strengthen our position in that particular segment. So we are very encouraged by what we have seen of the performance of this product and in initial tests that we have been doing. And we believe that this will support our performance moving forward. And obviously, glo Hilo will complement that, because it's the first attempt that we have done in the -- where 7% of the value of the category sits, which is the AWAP, the premium part of it, which is -- and we are extremely pleased with the performance. We are growing week-after-week with a level of retention of 50%. And this complemented by a revamped value for money proposition gives us the confidence that we can revert this trend and start growing from here. Now in terms of the guidance, I think that Javed can explain a bit more about 2026. I just want to call the attention that after 2 years of investing, resetting our business, the U.S. business, our innovations pipeline, BAT is ready to go back to the midterm algorithm that we have always had in the company around a 3% revenue, 5% revenue, leading to a 4% to 6% operating profit with a kick around 1% to 2% for EPS. That's the range of 5% to 8%. Obviously, our targets have incorporated the transactional FX. I always try to make this disclaimer about BAT's target. And -- but the profile of growth of this range will differ now from where we were, I would say, several years ago because the New Category will be even more prominent on that. Out of the 3% to 5%, we have mentioned before that Combustible, we expect to be delivering around 1% to 2%. And with the U.S. being in the medium term between 0% to 1% and the rest of the group, the international part, I would say, the other two regions above 2%. And in 2025, we have, despite all the difficulties that we face, mainly in the APMEA region, we were able to deliver 1%. And we said that Bangladesh and Australia had an impact of 1% at top line, which otherwise will be high end of this range. So I'm very confident that moving forward, we can comfortably be delivering within those range. And when you move to New Categories for the algorithm to work, we had to deliver double-digit New Category, hasn't been the case in 2025, basically because of the headwind we face in Vapour. There are a number of reasons for that, but mainly related to the illegal market in the U.S. that now we are seeing signs that the authorities, be federal or state level addressing. So we expect moving forward to have less of a drag and eventually even a tailwind coming from Vapour that will be supportive of the category for BAT. THP, we just spoke about, and we expect to accelerate our growth from now on with those offers. And obviously, Modern Oral, we have a leading brand now, and we expect to grow from strength-to-strength. So I'm very confident about being able to deliver the double-digit New Category revenue growth to deliver 1% to 2% on the Combustible side. This will flow through to the 4% to 6% in terms of increasing margins that is supported by all the productivity savings that we have already mapped out until 2030. And specifically in '26, I would like to Javed to comment about. Syed Iqbal: Thank you, Tadeu. I think on 2026, specifically, if I go region-by-region, and then we can look at overall. In case of APMEA, as I highlighted, that we expect Bangladesh to be not a big drag, but Australia still remain a meaningful drag, which is becoming smaller and smaller every year. So in 2026, Australia will still be a drag, but will be less meaningful in '27. Having said that, also, we will continue to invest in the rollout of premium innovations in APMEA as well, as you saw in terms of glo Hyper. So that where we'll be there as well. The other thing in that area is that in case of AME, we still face headwinds from the illicit environment in Vapour and also the regulation changes in Poland, which happened at the end of the year, which has made the legal Vapour out of the market, which is again a drag for us. Coming to U.S. You have to keep in mind that comparative from '24 to '25 versus '25 to '26 is very different. We are -- we had a very good performance in '25, so that comparatives changes. And also, we are assuming for now stable volumes in Vuse in U.S. So we are expecting that the enforcement level as we've seen so today will stop that decline, but we'll keep the volume overall stable. And lastly, also we highlighted in our pre-close trading update that we are exiting certain geographies, which are not adjusted, but they will have an impact on our numbers in 2026. So I hope this all gives you an idea why the lower end of 2026. But having said that, we are all very proud and confident in the business that we are entering the first year of our midterm algorithm. Operator: Our next question is from Rey Wium from Anchor Stockbrokers. Rey Wium: I just want to get back to -- I mean, it's quite interesting to listen to your optimism around the New Categories. And I just had a quick look at the numbers. Obviously, Modern Oral is doing exceptionally well. You have the opportunity for Vapour to at least stabilize and heated tobacco. I don't know whether the jury is still out there. But I don't know if you can just talk high-level stuff here to give us an idea how do you -- which of these categories give you or makes you the most excited in terms of the future growth in terms of that, I mean, especially now into 2026, you talk of a double-digit revenue growth? And then just a follow-up. Just on Australia, I mean, it's quite interesting because I sit in this market. I mean, the legal market is now down to like 3 billion, 6 billion or less. Now clearly, I mean, if I look at Japan, I mean, that's basically what Japan will consume in the space of 7 days. So I mean, I struggle to understand why do you say it will still be a drag. Is it not a time that you could consider to exit this market? So I'm just curious to hear your thoughts around that. Tadeu Marroco: Okay. On the New Categories, obviously, Modern oral is the exciting category out of the three. The pace of growth of Modern Oral around the world is very clear. And even in markets where there is no oral tradition, you take, for example, the U.K., when we launched Velo here 4 years ago, the incidence of nicotine and oral was zero. And today is around 3%. sporadically, it can go all the way to 4% in terms of use. And this is happening also in the likes of Poland. It's happening in emerging markets because it's very affordable and like Pakistan that is doing extremely well. South Africa doing extremely well, Kenya. So there is a massive potential, and we are very pleased with the fact that now we have 24 markets already that have passed legislation. The last one has actually been Argentina a few weeks ago. Portugal has just passed legislation as well. So we see clearly a lot of potential in this category, and we are obviously very pleased that we have a leading brand in this category. In terms of tobacco heating product, it is a GBP 9 billion revenue category in which BAT has just below GBP 1 billion. So there is a lot of white space for us. And it has been more and more competitive. But we have now a product that is being present in the value side of the category, if you want, on the premium side that has never been the case before. So with glo Hilo, we are tapping a very, very -- has been an untapped subcategory within the category for BAT. And we are extremely excited about this possibility of occupy some of that white space in a category that is still growing, not at the same rate of Modern Oral, obviously, but it still grows at a mid-single digit -- high single digit, so. And Vapour is a difficult category because of lack of enforcement and/or regulation. And that's the reason why we have -- there is actually difficult to compete with some of these illegal products or products that doesn't have concerns in terms of responsible way of doing Vapour. That's why we came with this campaign. Because you see a proliferation of device with thousands of puffs that have a very different negative risk profile than the ones that we sell. So there is no level playing field. And the reason why we are addressing a premium subcategory within Vapour with the likes of Vuse Ultra, is exactly a recognition of that. We are not really competing for volume. We are competing for value and offering consumers a responsible way to do Vapour. And obviously, the U.S. is the largest Vapour market. So all the attention is to the FDA that I think that has given some indications now that they understand that the root cause also of the problem is the lack of level playing field. And hopefully, we can see some of the pilots that they are doing now in nicotine pouch into Vapour in the future as well. So that's the New Categories. Australia. Look, Australia has, as you know, come with -- since the introduction of plain packaging in 2012 with a very misguided and illogical regulations year-after-year and increasing excise at much higher than inflation to a point today that the average price of cigarette legal market in the Australia is more than 20 -- equivalent of GBP 20, GBP 22 and whereas the illicit products is around GBP 6. So as a consequence of that, 65% of the combustible market now is illegal. They have, in essence, reduced the average price for consumers. And for the first time in many years, we see an uptick of incidence of smokers in Australia. Not just they decimated the tax collection, but also with this illogical regulation, they are seeing now incentivizing consumers to smoke a product that is much cheaper than the legal market and obviously carry on with all the criminality as we know, have seen in many different markets. Now the impact for us is that has always been a very important market for BAT. And -- but like Javed said, we'll come to a point that becomes insignificant. So the drag in '26 will not be the same as '25. It's still a drag, but it's not been the same. And from there on, if the government carries on doing that, which seems to be heading towards 100% illegality anyway. We don't even need to take this issue leave because the direction of travel has been very clear. If you add the Vapour category that has an incidence of 9% of adult consumer and is 100% illegal today, 85% of nicotine consumption in Australia today is illegal. So it's just a question of a couple of years and unless they decide to do something more reasonable. Operator: Our next question is from Pallav Mittal from Barclays. Pallav Mittal: So, two of them. Firstly, on the U.S. business, clearly, your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your U.S. volume portfolio is right now benefiting from the excise duty drawback? And how much scope does it have to increase in the future given your global business? That's the first one. And then secondly, I appreciate all the commentary on your NGP guidance for 2026. But your low double-digit growth, it still -- I mean, seems like you're factoring a pretty sharp normalization versus what we can see in data, especially on nicotine pouches and the e-Vapour side of things. So can you just help us understand the moving parts for your low double-digit guidance for '26? Tadeu Marroco: Okay. Javed will cover your second question. On the duty drawback, this is a long-standing legislation in the U.S. to incentivize local manufacturing and promote export from the U.S. So obviously, what we are doing is exactly that. Reynolds has invested more than $200 million in terms of manufacturing over the last couple of years. We have generated more than 800 jobs, and we increased our purchase of leaf in the U.S. by 65%. And today, Reynolds is the #1 company in terms of volume of leaf purchase in the U.S. market. So we are not making disclosure specifically about the duty clawback impact. But one data point for you to consider is the fact that our revenue in Combustible would have been positive independent of the duty drawback. So it's important to mention that because at the end of the day, when you go back to what I was referring to in terms of the long-term algorithm, we expect the U.S. market in terms of combustible to be declining at rates around 6% to 7%. And this should be, given the elasticity and that still exist in the market, the possibility for Reynolds to get to a positive revenue around 0% to 1%. In the current years, it has been more than that because the company is doing extremely well in terms of the strength of the portfolio, but also the duty drawback is helping for those in that sense as well. But independent of the drawback, we are positive, and I feel very comfortable with the range that we have set ourselves for our long-term algorithm. Syed Iqbal: I think on the overall New Category revenue guidance of low double teens is one thing is one -- a couple of points. One, in the U.S., even as I explained in my presentation, that we had a negative number for the full year on Vuse. So what we are expecting in the Vuse numbers to be flattish. Because it will require a more meaningful and more stronger enforcement. And given a very complex and long supply chain, even those measures will take time to have a meaningful impact. So even the ITC regulation, which today was talking about, if it gets passed through, it will be much later in the year when we'll see some meaningful impact. And having said that, also, as I highlighted, the regulations, for example, in Poland and Europe, which has put a drag on the Vuse volume, because it has made the whole illegal business negative in that number, so that's not possible to enter that market. And also the highly competitive environment we see in the BWAP segment within the Heated Product portfolio, as we were talking about earlier, that competitiveness will continue to be there for the short term. So if you put all these together, that's why our guidance on the low end of the teens. But having said that, we are very confident in midterm that Velo will lead the charge of New Category revenue growth, being the fastest-growing brand in the fastest-growing nicotine category globally, including U.S. However said that, given all these points, that's why we have guided on this front as the low teens for now. Operator: Our next question is from Simon Hales from Citi. Simon Hales: So a couple for me. I wonder if I could just first come back to some of those comments you just made on the U.S. business on a go-forward basis. Javed, just back to the point in terms of the Vapour performance and the flat Vapour expectation for 2026. I'm still just trying to square that circle given you've had pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapour aren't a straight upward line, but we're still probably going to annualize at least through the first half, some of the building enforcement we saw in 2025, and that should help the Vapour category, one would imagine or the legal Vapour category in the first half. So are you, therefore, expecting as we come into H2 of 2026 to see your Vuse business down year-on-year to get you back to that flat guidance for the year? That's the first point. And then secondly, on the U.S. today, you talked about 6% to 7% being the normal run rate of decline on Combustibles volumes. Is that something you expect to see in 2026? And could you also perhaps talk a little bit about what you're doing in discount at the moment, the performance of Doral last year and your plans on that brand going forward? Syed Iqbal: Okay. So if I take the first one. So I think one thing which I have to highlight further on the second half performance of 2025 of Vuse in U.S., other than the enforcement, there is also one item which will not see repetition was the delisting of competition product in which Vuse gained. So 63% of those consumers stayed within the closed systems. And in RCS system, Vuse gained more than their fair share of our category. So that is one thing, which is also boosting Vuse performance in the second half. So I wouldn't be reciprocating that second half into the full year of '26. Full year of '26 is more focused and will be more dependent upon the level of enforcement we see. And as also highlighted by Tadeu that although we have seen regulation covering 40% of the legal volume, but level of enforcement varies from state-to-state. So one, not having that one-off of the exit of a competition, which we gained more than fair share. And enforcement still seems to be early days. So that's why our guidance on the Vuse comment was made by me. Tadeu Marroco: Yes. On the volume side, my comment is more, I would say, hypothetical situation. It's not a 2026. What's happening in the U.S. market is before. If you go back to 2020, 54% of the nicotine users were using traditional nicotine products, combustible traditional oral. You go now to 2025, it is 34%. So the balance is happening -- what's happening is the transition of these consumers to either poly using or using solo users of becoming solo users of smokeless products, either Modern Oral or Vapour products. So obviously, the secular decline that was related to ADC and level of incidents reducing over time around 4% will not be coming back. That's my point. So even if you see a meaningful enforcement in Vapour in disposables that we know that has currently plays a role in terms of the level of decline of cigarettes, even if we see that, even if we see improvement in the macroeconomics in the U.S., it's very hard to imagine the market going back to 4% decline because of the dynamic of the poly users and solo users in New Categories that I was referring to. So my point is that in the long run, with a meaningful enforcement in disposable with macroeconomics is strengthening between 6% to 7%. I think that where we see today in the next couple of years in the scenario that we are seeing, I think that the performance in '25 around 7% to 8% is a more reasonable one to assume. So that's what I would assume. Now obviously, this is overall market. When you separate from the overall market, the deeper discount has a very different dynamic. We are seeing more activity there from competitors. And as a consequence, we saw the deeper discount growing by 10% in 2025 was even higher than the 7% that they grew in 2024. So we have been piloting Doral to your question. We have been always very mindful because despite the fact that the deeper discount is growing as opposed to the general market, the 95% of the value continues to be outside the deeper discount. So we are very mindful in terms of testing the product. In this case, it's Doral. We did pilots in Louisiana, in West Virginia. And what we are seeing in those pilots is suggesting that we'll be able to expand Doral for other states as well, taking into consideration the source of business, the potential down trades of our own brands. We are doing that with the value in mind. We are not doing that for the sake of market share. We want to expand Doral in the states where that makes sense from the value point of view. Operator: Our next question is from Richard Felton from Goldman Sachs. Richard Felton: Two, please. First one is on Vapour. So look, great news that the U.S. is starting to take some proper enforcement action against illicit Vapour. But your comments point to, I suppose, a challenging environment in markets ex U.S. So thinking about those ex U.S. markets, are you seeing any shifts in appetite from governments or regulators to start to enforce against that illicit segment a little bit more stringently? Or does that remain very challenging? Any comments on some of your top Vapour markets ex U.S. on that topic would be very helpful. And then the second one, sorry to come back on the duty drawback question. I appreciate you don't want to give us the exact numbers for 2025. But just sort of, I suppose, from a high-level perspective, thinking about duty drawback into 2026, is the tailwind going to be more or less than it was in 2025 at a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful. Tadeu Marroco: Okay, Richard. Look, Vapour is -- I don't think that there is a one size fits all here. There are -- we know based on our own experience that when we have geographies where we have retail license, we have proper regulation and proper enforcement. I would say, for example, France is one of the case. You just can sell Vapours in tobacconist stores. And if you are caught selling, for example, disposable now, you have a massive fine in euros. And this helps with the discipline in the market. And in the U.K., for example, despite the fact that we have been asking for a retail license, and we haven't seen the movement in that direction. There is a tobacco Vapour bill being discussed as we speak. And hopefully, they will address that. But the attempt to ban disposable has failed because the manufacturers that are not responsible, they try to circumvent in the case these regulations. So 50% of the market is illegal today in Vapour, and this is a demonstration of how difficult the governments find to either regulate, but more important to enforce regulation in some markets. We have -- as much as we can, and we have promoted this Vapour deserves better campaign, we have been very vocal about what are the measures that government should be taking into consideration to try to discipline that. And this, with no surprise, you will see us talking about retail license, hefty fines if they got caught, a more stringent discussion in terms of age verification when you buy the product and a negative lease to avoid things like sucralose in the liquids to sweet the liquids. So there is -- in our webcast and all that, there is a plenty of -- but there is still a lot of work to be done on that. And as a consequence, we are trying to -- as part of our resource allocation, return of investment mindset, the quality growth, which is not just about top line, but also bottom line, we have been focus on more important markets, the likes of France, like I said, the likes of Germany, the likes of Italy, which is standing out from others and then pulling back in markets like Malaysia, for example, and South Korea and so on and so forth. So that's the situation on Vapour and outside the U.S. In terms of duty drawback, look, I'm not giving guidance specifically for the drawback. There is -- we see that the benefits that we generate for the economy, for example, is the driver behind as much as we can start to grow employment and growing the activities in the farmers, domestic in the U.S. We carry on, obviously, this is not forever. This will be like you suggest, a peak. And in the meantime, we are strengthening our portfolio in Combustible. We are seeing the overall market decline being more supportive, which is also important for the future. And more important is us being able to create a strong position outside Combustible, because I understand the concern on the Combustible side, but overall nicotine in the U.S. is growing. It's growing value and is growing volume. So despite the fact that you see consistent decline in cigarettes, you see massive increase in the Modern Oral space, you see a strong increase still in Vapour, unfortunately, on the illegal side, but it's very encouraging the signs that the new administration is giving to address that. Because in untapping this potential there, there is not much concern about the direction of the cigarette, because what we want in essence, is exactly to migrate smokers out of cigarettes towards those products. But what is needed is a level playing field. Operator: Our next question from Bastien Agaud from Bank of America. Bastien Agaud: Bastien from Bank of America. I just have a quick one on the buyback. Your net debt is close to your target GBP 2.5 billion, and your free cash flow in '25 was quite strong. So my question is regarding the buyback, GBP 1.3 billion for 2026, what kind of margin do you have to potentially increase it at some point or another during the year? I understand that your debt is approximately 70% in dollar. So could be quite volatile on that. So -- but just to understand the moving parts on your buyback for full year '26. Syed Iqbal: I think, Bastien, thank you very much. We started a sustainable share buyback program in 2024, and we started it with GBP 700 million. And now we are at GBP 1.3 billion with an increase of GBP 200 million for 2026. We remain our focus on cash and also delever. We have to enter into the range of 2 to 2.5. And also, we want to make sure that we continue to deliver additional incremental dividend in sterling terms and continue our 25 years plus record on that front and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation in medium to long term for the business. So for now, I'm very comfortable with the increase we have done of GBP 200 million from GBP 1.1 billion to GBP 1.3 billion for 2026, and we keep on focusing on generating cash to bring us back into our range of 2 to 2.5 and continue a sustainable buyback. Operator: Our next question is from Damian McNeela from Deutsche Numis. Damian McNeela: First question is just on U.S. combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the subsegments that you operate in and what the sort of outlook for '26 might be for pricing given the very strong year last year. And then the second question is on CapEx. You've indicated a step-up this year. I was just wondering whether that level of CapEx is what we should be expecting for outer years past 2026. Tadeu Marroco: Look, on the CapEx side, we are increasing at the back of investments mainly on the Modern Oral space. Most of the CapEx today is being reverted back to the New Categories and giving the space for us to continue growing. We don't have huge expectations to be much beyond the level that is currently. And this is suiting us well because at that level, we still can be very close to the 100% of operating conversion. It's not a limitation, but it's just a fact that with this level of CapEx, address the business needs at the same time, it puts us in a strong position to continue having high levels of operating cash conversion, which is very helpful for the financial flexibility and capital allocation that Javed was referring to. On the U.S. combustibles, look, I cannot be talking about pricing. And we -- what I can say to you is that the price elasticity is still very benign in the U.S. when you compare the price of cigarette vis-a-vis the average household income. And obviously, there is a dynamic that because of the specific tax that when we increase the price of a pack of cigarettes, the manufacturer have a higher benefit than the consumer perceive as a price increase, which is also helpful. And -- but what Reynolds has been doing is laddering some of our brands. We did that very successfully with Newport. We have launched Pall Mall Select as well, which is another laddering. And we have now Doral, like I said, in pilot phase that we probably will expect to roll out to more states. But I cannot speculate with you about future price. Operator: That was the last question today over the phone. With this, I'd like to hand the call back over to Victoria. Over to you. Victoria Buxton: Thank you very much, everybody, for your questions. I'm afraid that's all we have time for today. So if you put a question into the web, then the IR team will be delighted to answer the question as soon as we can. I'd now like to hand back to Tadeu today for closing remarks. Tadeu Marroco: Okay. Thank you all for listening today and for your questions. To close, I'm confident we have the right building blocks in place to deliver our midterm algorithm supported by delivering 2025 results at the top end of guidance. We will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback and enabling us to deliver long-term growth and value creation. Thank you again for joining us. I look forward to see many of you at the CAGNY Conference next week, where we are presenting on the 18th of February.
Operator: Good day, and thank you for standing by. Welcome to the Calian Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to you for speaker today, Jennifer McCaughey, Director of Investor Relations. Please go ahead. Jennifer McCaughey: Thank you, Didi, and good morning, everyone. Thank you for joining us for Calian's Q1 2026 Conference Call. Presenting this morning are Patrick Houston, Chief Executive Officer; and Will Majic, VP Finance. They will present our Q1 results provides insight into our strategic initiatives and discuss our outlook for the remainder of the year. As noted on Slide 2, please be advised that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results. As a reminder, all amounts are expressed in Canadian dollars, except as otherwise specified. With that, let me turn the call over to Patrick. Patrick Houston: Thank you, Jennifer, and good morning. Following a strong finish to FY '25, we carried that momentum into a record Q1. Revenue reached $208 million and adjusted EBITDA totaled $23 million, both new company highs for a first quarter. Revenue increased 12% year-over-year, including 6% organic growth. Adjusted EBITDA rose 28%, driving margins to 11%. Performance was fueled by robust demand across our Defense and Space segment and several businesses within Essential Industries, along with the contribution from recent acquisitions, margin expansion and strong operational execution by our team. Momentum behind our Defense and Solutions continues to build, driven by sustained activity in Europe and rising demand in Canada. These market signals and early wins make it clear that investing now is critical to ensuring we capture the expanding opportunity set in this fast-moving environment. Our Space Solutions are also experiencing renewed momentum, highlighted by the signing of 2 new antenna contracts this quarter totaling more than $35 million. We concluded the quarter with $171 million in new signings and a robust backlog of $1.4 billion, providing a strong foundation for continued growth and success in coming quarters. Let me spend a moment on our new structure we introduced this quarter. As you know, we simplified our operating model to better align with market demand and serve our customers more effectively. We moved from four segments to two: Defense and Space and Essential Industries, a change driven by clarity and focus. The new structure brings our capabilities together under a simpler, stronger model that reflects how customers think, buy and expect solutions to be delivered. It is designed to integrate the essential elements in one place, technology, expertise, delivery and customer insights. By aligning these strengths, we can develop integrated solutions faster, collaborate more effectively and scale our impact. This realignment is a deliberate step in our long-term growth strategy, reinforcing our core capabilities and enhancing our ability to deliver mission-critical solutions. It also provides greater transparency into how we operate and where we're directing our efforts. In the near term, our Defense and Space segment, representing approximately 2/3 of revenue will focus on developing differentiated solutions to meet growing demand and the needs of our customers in Europe, the United States and Canada. Our Essential Industries segment, representing roughly 1/3 of revenue is focused on margin expansion while benefiting from organic growth tailwinds in Health and Energy. With actions already in motion and teams executing against disciplined plans, early progress is evident. We expect margins to improve meaningfully throughout the year, exiting at double-digit levels. Taken together, these actions position us to accelerate profitable growth and strengthen the business for the long term. With a clear structure, sharper focus and disciplined execution, we're well positioned to capture emerging opportunities and deliver sustained value to customers and shareholders. Now a few words on our operations. Let me begin with Defense and Space. Our Defense Solutions continue to build momentum with sustained activity across Europe and solid progress on key initiatives in Canada. Growth is broad-based, spanning mission-critical areas, including health care, manufacturing, cybersecurity and military training. In Europe, FY '25 performance was strong, driven by the successful integration of Mabway and the execution of multiple NATO contracts. That momentum has carried into the first quarter as European governments facing heightened and immediate security requirements accelerate procurement decisions. At the same time, countries are actively diversifying, creating new opportunities for Canadian companies like Calian across manufacturing and defense supply chains. To capitalize on this demand, we expect to increase investment in the region, particularly in talent, infrastructure and technology. These investments are deliberate and targeted positioning us to scale responsibly, deepen customer relationships and establish long-term leadership in the European defense market. In Canada, we're seeing early but encouraging signs as activity levels increasing and broader plans are being developed. Our ongoing engagement with federal stakeholders continues to shape our understanding of future requirements. The forthcoming defense industrial plan is expected to mark a meaningful shift, positioning defense as a driver of economic growth while strengthening national security. Calian is well positioned to benefit across training, manufacturing and in-service support. In January, we announced that Calian will mobilize a significant amount of capital from multiple sources to accelerate the development and deployment of sovereign C5ISRT capabilities to Calian Ventures. This initiative brings together capital from ventures, co-development of new IP with Canadian small and medium-sized businesses, regional investment agencies and federal programs to accelerate capability development at scale. As demand increases, we're challenging ourselves to think differently, finding new ways to deliver greater value through cost efficiency, streamlined delivery and an innovative technology and service models. This mindset is central to strengthening our competitive position and improving outcomes for our customers. While the direction of travel in Canadian defense is clearly positive, the precise timing of opportunities remains difficult to predict with high certainty. We will continue to monitor developments and closely remain disciplined and agile as the landscape evolves. Turning now to our space solutions. The space industry continues to evolve at a remarkable pace, driven by the greater need for speed, commercialization and dual use. One of the most important shifts we're seeing is the growing role of ground infrastructure and the ability to deliver seamless connectivity no matter the constellation. As data volumes increase and constellations expand, operators are scaling global ground station networks and increasingly turning to ground station as-a-service models to gain flexibility, efficiency and speed to market. More broadly, the industry is maturing rapidly. satellites, ground systems and software are becoming more tightly integrated, all intensifying geopolitical and commercial competition. These forces are reshaping long-term strategies and accelerating innovation across the sector. We're seeing these trends clearly reflected in our own business. After a period of slower growth, our ground station activity has regained momentum. This quarter, we secured a contract of more than $30 million with a leading global space technology company to design and manufacture advanced ground stations for their next-generation satellite systems. We also won a contract from Germany's Federal Ministry of Defense, represented by the University of Federal Armed Forces in Munich to deliver an advanced full-service QV-band antenna ground station in support of scientific and modern military satellite communications. These wins highlight the increasing convergence of defense and space and reinforce the strategic rationale of our dedicated Defense and Space segment. Together, they underscore Calian's reputation as a trusted provider of mission-critical infrastructure in complex, high-consequence environments. Taken together, our progress across defense and space reflects the relevance of our capabilities and the scale we've developed in this market over the last decade. Our focus is to deliver for our customers in our existing relationships while seeking broader mandates where Calian can serve as prime vendor to deliver integrated solutions that customers will value for decades to come. Let me turn to Essential Industries. Revenues in our Essential Industries segment increased by nearly 20% in the quarter. The growth was driven by the strong performance of our AMS acquisition, which has meaningfully strengthened our position as we expand in the Arctic region. This addition provides a durable footprint and advances our broader strategic priorities. We also returned to organic growth, modest but an important inflection point for this business. The improvement was led by our U.S. commercial operations, which have rebounded and resumed growth following a challenging year. With a strengthened backlog in place, this business is well positioned for sustained momentum. Expanding and delivering differentiated solutions across critical industries, including health and energy is a core pillar of our strategy and will enhance the resilience and value of our overall portfolio. Looking ahead, we remain focused on margin expansion with the right mix of growth and operational discipline. We expect continued improvement in profitability. I'll now turn it over to Will to discuss Q1 results. Will? Will Majic: Thank you, Patrick. Q1 revenues increased 12% to $208 million and represents a record quarter. This growth was driven by both Defense and Space and Essential Industry segments. Acquisitive growth was 6% and was generated by the contribution of AMS completed in May 2025 and Infield Scientific, which closed in October 2025. We successfully built on the momentum from last quarter, achieving organic growth of 6%. This marks our second consecutive quarter of positive organic growth, signaling that the headwinds we previously faced are beginning to subside. With this progress, we are returning to the levels of organic growth we experienced in prior periods, which is a promising sign for our business. As those challenges recede, we are increasingly optimistic about our outlook and confident that we are moving beyond the difficulties of the past. This positive trajectory positions us well for continued growth and success in the quarters ahead. Q1 gross profit increased by 21% to $71 million as compared to $59 million for the same period last year and represents a record high. This increase reflects revenue growth, changes in mix and contributions from acquisitions. Similarly, gross margin increased from 31.8% to 34.1%. Q1 adjusted EBITDA increased 28% to $23 million, significantly outpacing revenue growth. This increase was driven by strong performance across our key businesses as well as the execution of cost optimization initiatives implemented at the end of last year. It was partially offset by a few onetime items. As a result, adjusted EBITDA margin reached 11%, up from 9.6% for the same period last year. With the implementation of our new operating structure, the allocation of shared services expenses in fiscal 2025 has changed from what we reported last year. As a result, fiscal 2025 will reflect higher shared services expenses. This increase does not represent higher overall costs, but rather reclassification driven by a new structure and updated cost allocation methodology. We've already begun analyzing these costs to identify opportunities to streamline processes and eliminate redundancies. Based on this work, we will implement targeted efficiency initiatives to optimize resource allocation and manage overall expenses. This disciplined phased approach is designed to build a more agile, cost-effective organization that supports our long-term strategic objectives. Turning now to cash flow and capital deployment. In Q1, we generated $7 million in cash flow from operations compared to $4 million last year, primarily due to higher profitability, partially offset by higher interest and income tax payments. Working capital efficiency was approximately 10%, up from 8.5% in the same period last year, primarily reflecting working capital acquired through recent acquisitions. Consistent with prior years, the first quarter saw a seasonal use of working capital, which we expect to reverse in the coming quarters as we converge towards our long-term target. Operating free cash flow increased 21% to $16 million, reflecting strong cash conversion at 69% of adjusted EBITDA. Turning to capital deployment. During the quarter, we used cash on hand and a portion of our credit facility to fund $2 million in capital expenditures and $18 million in acquisition-related payments, including earnouts. This included a $12 million acquisition of Info Scientific as well as the second year earn-out payment relating to our August 2023 acquisition of HPT with the remaining balance of this earnout to be paid over the coming quarters. This earnout reflects HPT's strong performance and successful integration into our operations. We also returned $3 million to shareholders through dividends. Looking ahead on M&A, our pipeline remains robust with multiple active discussions underway. We are optimistic about completing several strategic transactions in fiscal '26. And as we've outlined previously, acquisitions continue to be our top capital deployment priority. Let's take a look at the balance sheet and cash availability. As of December 31, 2025, we had drawn $165 million on our debt facility. During Q1, we drew an additional $34 million to pay for the acquisitions of Infield Scientific, earn-out payments and general operating purposes. We ended the quarter with net debt of $102 million, representing a net debt to adjusted EBITDA ratio of 1.2x. This is still well below our threshold of 2.5x. We have ample financial flexibility to support our growth strategy as the combination of the unused portion of our credit facility, our cash position and our accordion represent close to $250 million. Now let's turn to our fiscal '26 outlook. Our fiscal '26 outlook has not changed since last quarter. Over the next several years, we are targeting annual revenue growth of 10% to 15%, driven by a combination of organic expansion and strategic acquisitions. This is consistent with our historical 12% revenue CAGR over the past decade. As we execute on the strategy, our focus remains on expanding EBITDA, free cash flow and return on invested capital by prioritizing high-growth verticals, streamlining operations and deploying capital with discipline. As a result, we expect adjusted EBITDA growth to consistently outpace revenue growth in the midterm. We will balance this with investments to ensure our solutions continue to lead and ensure we can capitalize on upcoming opportunities. Our first quarter underscores this approach with revenue up 12% and adjusted EBITDA increasing by 28% -- for fiscal '26 based on our existing business, we anticipate double-digit growth in revenue and adjusted EBITDA compared to fiscal '25. This outlook is supported by sustained momentum in our Defense and Space and Essential Industry segments, cost optimization initiatives and the full year contributions from our recent AMS and Infield Scientific acquisitions. From a capital deployment perspective, we expect working capital usage to track in line with revenue growth. Capital expenditures are anticipated to remain in the $10 million range, supporting both ongoing operations and targeted growth investments. Our dividend policy remains unchanged with a target payout of 25% to 30% of operating free cash flow, reflecting our commitment to shareholders -- to shareholder return while maintaining financial flexibility. Consistent with our strategy, M&A will remain our primary use of cash as we continue to expand our capabilities and broaden our market reach. For the remainder of the year, we expect to pay earn-outs for AMS for about $5 million in Q2 and the residual balance of the HCT earn-out over the next few quarters. With improved support for our share price, we have temporarily paused our share repurchase program and redirected capital towards higher priority strategic initiatives. We remain open to resuming buybacks on an opportunistic basis, subject to market conditions and our overall capital allocation framework. This approach preserves flexibility and ensures capital is deployed where it can deliver the greatest long-term value. We remain focused on executing our strategy and driving value for our stakeholders. I will now turn the call back over to Patrick for closing remarks. Patrick? Patrick Houston: Thank you, Will. To close, Q1 reflects a strong start to the year and reinforces our confidence in Calian's strategy and execution. We delivered record first quarter results, strengthened our backlog and continue to invest deliberately in the areas where we see the most compelling long-term opportunities. Our simplified operating structure is already sharpening our focus and improving how we deploy capital, talent and capabilities across the organization. Momentum in defense and space is building. Our Essential Industries business are progressing as expected, and our balance sheet provides significant flexibility to pursue growth opportunities while maintaining discipline. While the external environment remains dynamic, the fundamentals of our business are strong. We're focused on executing well, scaling responsibly and creating long-term value for our customers, employees and shareholders. And with that, Didi, I'd like to open the call for questions. Operator: [Operator Instructions] And our first question comes from Nicholas Boychuk of ATB Cormark Capital Markets. Nicholas Boychuk: I'm hoping we can start the questions here just on the organic framework that happened this quarter and unpack a couple of the moving parts. So first, you noted that health care and learning were both doing particularly well. Are you able to share any color on the activity that's driving that? Like are we seeing a little bit more service usage from the Canadian Armed Forces and maybe a return to NATO learning spend? Patrick Houston: Yes, a few points on that. I think what we're seeing is, I mentioned in my comments, continued strength in Europe. I think that we saw that continue in Q1. I think the environment there is strong, and the team is doing a great job delivering. In Canada, I think we've started to see some signs of reversing what had been cuts that we saw this time last year. So I think that's been positive, and the team is doing a great job meeting it. So I think it's just been more activity on existing engagements we have. And certainly, we're getting ready to see further increases in the coming years. Nicholas Boychuk: Okay. That's good. And then there was a little bit of a disconnect in that same organic thread just related to the cybersecurity signings. So you mentioned in the PR and the MD&A that the organic growth that was driven this quarter wasn't necessarily tied to the essential industries, which I would interpret to include the cybersecurities yet in the backlog growth, you specifically called out $50 million worth of contract signings, which extremely exciting. Are you able to kind of make that connection for me? Is there a return that we're seeing in cybersecurity and we should be thinking a little bit more about that business growing this year? Or is that just a one-off contract maybe related to a defense contractor or defense business? Patrick Houston: No, great point, picking that up. We are seeing a return both on commercial and in defense. The signings in this quarter were strong. We ended the quarter with good backlog across both of those verticals. We weren't able to deliver this quarter. So I think that will come in the coming quarters, but I think it's a strong sign that we're seeing some momentum there. So I think it will be a strong year this year for cybersecurity. And it's good coming off of last year where there were some demand challenges and push out and some of that's starting to come back into reality here for us. Nicholas Boychuk: Great. And last one for me, just on the gross margin performance. I appreciate the comments that a lot of the changes were either related to mix or the layering of acquisitions. Anything you can share though on whether or not this was kind of a transitory quarter or if there's some permanence to that and that we should be thinking that the 34%-ish range is kind of where you expect it to be trending moving forward? Patrick Houston: Yes, good momentum this quarter. There is some seasonality to the business depending on deliveries of hardware and mix, as you mentioned. I think we are seeing -- to the extent the mix continues to improve longer term, it's a target we're trying to increase. But I'd say in the short term, between the low to mid-30s is where we should be. And I think it's something that we can -- we've been keeping it now at that level for several years, and I think we can continue to do that. Operator: And our next question comes from Stephanie Price of CIBC. Sam Schmidt: It's Sam Schmidt on for Stephanie Price.I wanted to ask about the Canadian military recruitment. The Canadian Arm Forces noted an increase in the number of applications they're receiving. How should we think about the opportunity for Calian here? Patrick Houston: Yes. I think lots of in the news about the renewed push from Canadian Armed Forces to increase. I think it's an important part of their strategy to recruit and retain more people. This entire environment has created a lot of momentum for them in terms of getting more applicants. And when we talk to the Canadian Arm Forces, they're excited about the possibility -- the biggest challenges they have right now is getting that people recruited in and trained as quickly as possible so that they can be operationally ready. I think that's for Italian one of the early opportunities for us is to really assist there. So I think we're still pretty early days. But I think in the coming years, if it can sustain its momentum, I think our ability to really be a great partner to GM force is to train those people and make them soldiers ready to act on that of Canada, I think, is a big opportunity. Sam Schmidt: That's helpful. And then just one more for me on the cost optimization initiatives. Can you speak to how those contributed to the margin expansion in the quarter? And how should we think about margins going forward as well as any color you can share between the segments? Patrick Houston: Yes, we did take some measures. I think we mentioned it in the Q4 call to try to return some of the profitability levels we thought we could in some of the commercial business I think you saw some of the benefits of that here in Q1. I feel there's more to do. I think you heard both and Will in my comments that we are working on continued increases in efficiencies and profitability in essential industries as well as on the corporate side. So I think there's more to come, but I think you saw some of the early returns here this quarter, and those are positive signs. Operator: And our next question comes from Rob Goff of Ventum Financial. Rob Goff: Thank you very much, and good morning. My question would be with respect to the defense industrial policy. Are there any things that we should be looking for within that policy release in terms of time lines or allocations of budgets? Patrick Houston: Yes, this has been something we've been -- well, not just us, the entire industry has been waiting for. I think it's going to come out here shortly or the indications we've received. I think it's an important position here for Canada. I think what you're going to see is time the link between this increase in defense spending in Canada and how that's going to affect the broader industry in Canada, GDP growth. So I think the linkage between those two things is going to be a lot stronger than maybe in previous plans. It's also going to set priorities for Canada and which technologies and solutions that they see as important to be sovereign. I think that's somewhere where Calian can really differentiate given our position. So we're anticipating this coming out shortly. I think it will help us target our investments towards places where the Canadian government and Canadian armed forces want to see momentum quickly, and our team is ready to act on that when it comes out. Rob Goff: And with the Maiden Canada focus, does it make you look perhaps longer at building up manufacturing capabilities? And is that any way related to your acquisition pipeline? Patrick Houston: Great point. I think we have a differentiated asset that we do have manufacturing really across Canada, both on the East and West Coast. I think it's a capability we've had, and we can certainly flex in this new world. To the extent we get strong demand signals, it is somewhere that we will invest in order to increase capacity. But right now, we have a lot of capacity that we can deploy quickly and we'll work with both -- can Air Forces, but also large primes that are looking to bring some of the manufacturing here in Canada in order to help differentiate their offering, we'll certainly look to partner with them. Operator: [Operator Instructions] And our next question comes from Paul Treiber of RBC Capital Markets. Paul Treiber: Just a question in regards to learning and training, specifically around new weapon systems. Have you seen a correlation between training spend and the procurement of new weapon systems in the past? And do you expect that to continue going forward? Patrick Houston: I think in the training environment, there's 2 things. I think there's a question we got earlier about just increased capacity. I think that's important. The other one is as we -- Canada is -- has spoken about procuring new technologies, new systems that really kind of modernize the -- can Armed forces. The introduction of these new technologies does drive capability training that is required, how do you operate with these new assets. I think Calian is differentiated there that we can bring in a multitude of different assets in order to train as effectively as possible. We're a bit agnostic from working with all of the partners. So I think that helps us differentiate there. So I think that will be long term. I think first, we need to procure these systems, deploy them and then the training will come from there. But I think it's just part of this longer investment in terms of modernizing -- can Armed Forces and increasing their capability. Paul Treiber: And secondly, just on the M&A environment, and you talked about the pipeline being quite robust. How are valuations tracking within the defense market at the businesses that you're looking at? And then how do you look at balancing the strategic value of those acquisitions versus the desire to maintain strong returns on capital? Patrick Houston: It's a great point. We're spending a lot of time looking at acquisitions, both in defense and space and in our central industries. I think there is an opportunity to consolidate some of these defense and space assets into ours and drive more synergy. Your point is valid on the valuation expectations from sellers and what they're looking at in this environment. I think it will challenge us to look at different deal structures that helps balance what's the forward opportunity and try to share that with the sellers. So I think you'll see us continue to work there, try to find the right deal structure for the right situation. But I'm confident that even in this environment, we can find good assets that we can buy and grow in the future. Paul Treiber: And then just lastly, just on the portfolio review. Obviously, there's been a lot of dislocation in public markets around the value of software. Does that have an impact on your portfolio review and buyer interest in those assets being noncore? Patrick Houston: I don't think so. I don't think that the assets we're reviewing in that space don't really play there. So I don't expect it to change the appetite on that. I mean, we continue to put effort towards that -- and we'll likely come to some conclusions here later this year on direction, but it's still something we're working on. Operator: And our next question comes from Michael Kypreos of Desjardins. Michael Kypreos: We've seen some reports lately that the recruitment of the Canadian Forces have already experienced a pretty significant step-up in activity. Have you seen any of this yet to flow through your health or learning businesses? Or it's a bit too early? Patrick Houston: Mike, It's probably a bit too early. I think what we've seen, and you heard me in our prepared comments that the activity levels have increased. I think you've seen that in the growth in or defense space business. So I think the overall activity both for new recruits and existing members across training and health care has increased. I think that will continue. Their ability to just continue to stay on track on their recruitment targets will be important and will drive continued growth in the future, but it's still pretty early days. Michael Kypreos: That's helpful. And maybe any way to frame the upside for Calian is some of these recruitment targets that are being put out in the media actually come through or achieved by the Canadian Sources? Patrick Houston: Yes, it's hard to try to draw like a one-to-one relationship there. I try to think about it more broadly. the investment that the Canadian government has talked about in -- can Air Forces is significant. It spans both people, new capabilities. And as I mentioned in the question on the defense industrial plan, things that they want to be done in Canada now. And I think that's the biggest shift and maybe the biggest opportunity for Calian. There are certainly all of the activities we do today. We've been doing them for decades, and we're a trusted partner. But really, the biggest opportunity, I think, for Calian is to move into new areas that use the same solutions and skills that we have, the trusted track record and trust we have from the Canadian Armed Forces to supplement what we're doing today and do that for the next decade. So that's probably our biggest opportunity. So I'd probably think of it more broadly than just more people in the short term. And I think that's the opportunity that the team is excited to tackle. And certainly, we're there to support and invest to make that happen. Operator: I'm showing no further questions at this time. I'd like to turn it back to Patrick Houston for closing remarks. Patrick Houston: Thank you, Didi. I'd like to thank each of you for attending the call today. We look forward to providing you an update on our next quarterly call in May. And with that, Didi, we can close the call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, everyone, and welcome to Yatra's Fiscal Third Quarter 2026 Financial Results Call period ended December 31, 2025. Today's call is hosted by Yatra's Co-Founder and Executive Chairman, Dhruv Shringi; and CEO, Siddhartha Gupta. The following discussion, including responses to your questions, reflects management's views as of today, February 12, 2026. The company does not take any obligation to update or revise the information. Before they begin their formal remarks, please be reminded that certain statements made on this call may constitute forward-looking statements, which are based on Yatra management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results -- for a description of these risks, please refer to Yatra's filings with the SEC and the press release filed earlier this morning on the IR section of Yatra website. With that, let me turn the call over to Yatra's Co-Founder and Executive Chairman, Dhruv Shringi. Dhruv, please go ahead. Dhruv Shringi: Thank you, operator. Good morning, everyone. Thank you for joining us on [Technical Difficulty] third quarter and 9 months ended fiscal year 2026 earnings. Let me start by briefing you first on the events that happened during the quarter, and how it has impacted the industry, and then our CEO, Siddhartha Gupta, will brief you on the operational performance and the financial performance in greater detail. The third quarter, which is typically a strong period for leisure travel in India, witnessed healthy demand across [Technical Difficulty] limitations which led to operational challenges for the airlines and a spike in cancellations across the entire country. Market data indicates that domestic [Technical Difficulty] and recovered in the second half of the month, and we've seen those factors continue to rise in the month of January and thereon. But the key positive during the period was the divergence between domestic and international travel trends. While domestic travel experienced short-term headwinds in December, international travel remained strong with healthy year-on-year and sequential growth. This reinforces that outbound and long-haul travel is in a structural up cycle, benefiting organized travel platforms like Yatra with strong corporate and international travel franchises. Also, the recent union budget sends a clear message and positive signal about the government's long-term commitment to the travel and tourism sector. By positioning tourism as a strategic growth engine linked to the employment generation, foreign exchange earnings, and regional development, the policy framework shifts from episodic support to building a more structural and sustainable ecosystem for travel and hospitality in the country. Key measures such as rationalization of tax collection at source on overseas tour packages to a uniform 2% rate, lower upfront cost improved outbound segment. In addition, increased emphasis on domestic connectivity through infrastructure investments, including high-speed rail corridors, waterways and regional access, among the initiatives to enhance hospitality capabilities through a National Institute of Hospitality and large-scale skilling programs, expand the talent pipeline for the tourism sector. There is a growing demand for Indian organizations to help digitize travel procurement while using AI-driven platforms that offer end-to-end automation, self-booking tools and integrated expense management, prioritizing compliance and cost savings. AI and predictive analytics platforms make travel procurement by forecasting demand, optimizing costs, enforcing policies and ensuring risks are attended in real time. AI-enabled self-booking tools can perform real-time policy compliance checks, flag risks like disruption or itinerary analysis and personalize itineraries with safety insights. The generative AI shifts from reactive auditing to predictive spend, cutting administrative friction and enabling productivity boosts in procurement. Yatra through its corporate self-booking platform, supported by AI bot and its richer expense management solution is taking the lead in driving this shift in industry dynamics. Moving on more specifically to our business for the quarter. Our B2C business, as was predicted earlier by us, [Technical Difficulty] is now still growing profitably. Additionally, our corporate and MICE business [Technical Difficulty] was well on track to deliver our strongest third quarter yet. With the exception of the recent inflation [Technical Difficulty] about our operational performance in the quarter. We remain richly supported by our continued focus on scaling the Corporate Travel business. The steady growth in corporate bookings, along with the increasing contribution from higher-margin hotels and MICE segments, positions us well for sustained margin expansion and improved profitability over the long term. With this, let me now introduce you to Mr. Siddhartha Gupta, who recently joined us as our new CEO. Siddhartha brings with him a wealth of experience across the B2B SaaS industry, and in his last role, was the President of Mercer Consulting in India and was also heading their SaaS-based talent acquisition business globally. Prior to this, Siddhartha has also held leadership roles in large tech and SaaS companies like SAP and HP. With that, let me hand you over to Siddhartha. Sid, over to you. Siddhartha Gupta: Thank you so much, Dhruv. Operator, I hope I am loud and clear on the line. Thank you so much, Dhruv, for giving a preamble on our quarter performance and the industry trends. A very good morning to everyone on the call. Adding to Dhruv's comments, despite an industry-wide disruption in the airline sector during the quarter, Yatra continued to deliver in its Air Ticketing business, supported by seasonally strong B2C travel demand. Gross bookings in the Air Ticketing increased 22% year-on-year, supported by 14% growth in air passenger, which far exceeds the industry growth of about 1%. Take rates also improved from 6.2% to 7.1% on account of the quarter being more B2C focused. In the Hotels and Packages segment, overall performance during the quarter remained healthy. However, we did see some temporary impact in the MICE and the Corporate Events subsegment, with a few bookings getting deferred due to flight disruptions. Just to remind listeners, it was the disruption in the IndiGo Airlines schedule in India. This resulted in a modest onetime impact on the quarter, part of which we expect to roll over in quarter 4, supported by the continued strength in underlying Corporate Travel demand. Gross bookings in the segment grew 20% year-on-year, excluding the impact of deferment of the MICE business. Hotels would have grown over 30% on a stand-alone basis, supported by strong growth in our corporate business and in our affiliate business. While gross take rates moderately -- moderated slightly from 12.2% to 11.7% year-on-year on account of change in business mix, gross margins improved further from 9.7% to 10.2% year-on-year, reflecting prudent discounting in B2C and better margin realization from suppliers for corporate hotels. Our B2B to B2C mix was approximately 60-40 for the quarter versus the 9-month average of 65-35 in favor of B2B. Our Corporate Travel business continues its strong momentum. We onboarded 40 new corporate clients in this quarter, collectively adding an annual billing potential of INR 2.2 billion. As mentioned earlier, the disruption happened during the highly productive first 2 weeks of December, when Corporate Travel usually peaks before holidays. We saw deferment of MICE travel into Q4 and subsequently, few of the groups moved to Q1 of the next financial year as a direct result of uncertainty in the travel during that period. This disruption not only adversely impacted our operating performance, but also led to incremental working capital deployment where advances had already been paid to vendors for MICE Groups. These impacts were largely limited to the month of December, and the business is back on track. In the Corporate business, there's more to cheer. The early response to our expense management solution has been very, very encouraging, and we have onboarded 8 customers now on our expense management platform. Early traction proves that Yatra understands the pulse of what our corporate customers need. This solution has not only become a door opener to get new accounts, but also gives us a huge upsell potential in our existing accounts. A few thoughts on what you can expect from Yatra in quarters ahead. Our consumer-focused line of business has returned to growth path while improving margins. This was a result of sharp execution, coupled with successfully tapping into partnerships and affiliates for demand generation. In the near future, you should hear more on organic demand generation projects making impact, helping us further improve margins in this line of business. Our corporate value proposition still has a huge headroom for growth. Online penetration is around 23%, and we have laid a strong foundation for chasing this potential. We have sharpened our go-to-market by establishing separate teams to chase large and small and medium enterprises. Demand generation is amplified by a new inside sales team now, which has started augmenting the efforts of the team on ground. Early signals are very promising. Beyond new customer acquisition, our farming team have won multiyear renewals from some of our largest customers this quarter, proving that corporates want trusted partners who can deliver value to them. Needless to say that our success is closely tied to the speed at which we can deliver tech innovation. Our early investments in adding talent to our product and tech team have started showing results. You can expect us to further add gap between us and what's available in the market. Hope that gives you a flavor of where we're headed. At this moment, I would have paused and handed over to Anuj Sethi, who is our CFO, to brief you on the financial performance for the quarter under review. He has got caught up in a medical emergency. Hence, I'll take you through the financial performance as well, and then me and Dhruv will take the questions together. On the financial performance, for the third quarter of financial year '26, on a consolidated basis, our revenue from operations grew 10% year-on-year to INR 2,577 million or approximately $29 million, driven by steady demand across our key segments with robust growth from air ticketing business. In terms of segmental performance, our Air Ticketing passenger volume grew 13% year-on-year to 1,491,000. However, gross bookings grew 22% year-on-year to INR 16,931 million or $188 million. And Air adjusted margins rose 40% year-on-year to INR 1,195 million, or $13 million with adjusted margin percentage improving from 6.2% to 7.1%. Under Hotels and Packages segment, hotel room nights grew by 22% year-on-year to 508,000. Gross bookings increased 20% year-on-year to INR 4,306 million or close to $47 million, with adjusted margins expanded 15% year-on-year to INR 502 million or $6 million. On the liquidity front, cash and cash equivalent and term deposits stood at INR 2,042 million or $23 million as of 31st December 2025. Gross debt has marginally increased from INR 546 million as of 31st March 2025 to INR 583 million or $6 million as of 31st December 2025. With this, I would like to hand back to the moderator and open up for question-and-answer session. Operator: [Operator Instructions] First question comes from Scott Buck with H.C. Wainwright. Scott Buck: First, I'm curious, the revenue growth deceleration in the quarter, is any of that structural? Or you're viewing that all as just kind of the ebbs and flow of managing some of the macro challenges that are out there? Dhruv Shringi: Scott, this is largely seasonal in nature. Quarter 3, if you would recall, is one of the lowest quarters for business travel, given the holidays that we have for Christmas, New Year and for Diwali, Dussehra, which both happen in this quarter. So effectively, you lose 1 month out of the 3 in holidays. And then it got compounded this year with the flight disruptions that happened during the first 2 weeks of December. So it's not a structural shift. It's just a one-off, given the disruption that happened in the industry. Scott Buck: Okay. That's fair. Second, I just want to ask about the MICE business. Are you seeing some of the macro challenges out there, whether it's tariffs or anything else, having an impact on that business? I know there were some headwinds in the quarter. Dhruv Shringi: No, we haven't really seen any impact of that, especially things like tariff and all. We do, in fact, expect that given that there is a new trade deal which is in place between India and the EU and India and the U.S., we will see business travel scale up even further when it comes to travel between both Europe and the U.S. But we're not really seeing any headwinds per se on account of these. Sid, if you want to add something extra on that? Siddhartha Gupta: Yes. So this MICE as a segment has grown and has tremendous potential for us to grow into. This was a very fragmented market about 3 to 4 years back. And now over the last 2 years, Yatra has become one of the top 3 players operating in this space in India. And Indian economy is one of the fastest-growing economies. So there are multiple industries where corporates are traveling, not only outside India, but within India as well. And hence, there is a huge headroom for growth. What we've seen is that this entire segment is getting more formalized. So instead of very small players operating these events for corporates, now the corporates prefer doing business with large vendors like ourselves. So I think there's a huge potential, and we don't see any disruption in this space at all. Scott Buck: Great. That's helpful color. And then last one for me, guys. You continue to do a really nice job adding new corporate partners on the travel side. I'm curious how many of those kind of obvious or low-hanging fruit opportunities are still out there? And at some point, do you need to change or pivot the way you're pitching some of these customers to continue to bring on that Corporate Travel business? Dhruv Shringi: I think at this time, we have got a lot of headroom in this. Our initial mapping had suggested close to about 13,000 organizations that we could target as part of this. We are still just in excess of about 1,000. So I think there is a lot of headroom for growth for us in this sector. I think Siddhartha coming on board will also sharpen our focus on how we go to market. And maybe Siddhartha can elaborate a bit more around how he's gone ahead in the short period of time in augmenting the sales team and putting in some new things in place, which will help us drive further growth. Siddhartha? Siddhartha Gupta: Yes. So to add, I concur with Dhruv completely. We have barely scratched the surface. There is a huge headroom for growth because the offline Corporate Travel still is the majority market and the value proposition of Yatra from providing an online Corporate Travel platform, which caters for all uniqueness of every corporate customer has a huge headroom for growth. To give you a parallel, in my days at SAP or Hewlett-Packard, corporate India itself has more than 30,000 companies, which are potential customers to Yatra. We have just about crossed 1,300 right now. So there's a huge headroom for growth for us. From a go-to-market standpoint, we have commenced a very ambitious and aggressive go-to-market sharpening exercise at Yatra. We have divided our go-to-market into 3 pillars. One is -- so we've separated these teams out. One is the elite sales team, which looks at only large enterprises and tries to get us more inroads into large corporates where travel spends are very high. Then we've got a separate team, which is looking at small and medium enterprises, which operates through digitally creating demand and then through an inside sales, landing it into our kitty. And the third bit is we are already one of the larger players in India from a large enterprise automation. So we have a very large existing account base. So we have a team called key account managers, and it's headed by a very senior leader here in India. And the mandate there is to upsell and grow our existing relationships where we are introducing newer solutions like expense management and other solutions and especially international hotels and travel so that we are able to upsell into our existing customer set as well. So overall, we are sharpening the go-to-market, running a very strong cadence on a weekly basis to ensure that spikes remain healthy and conversions remain healthy as well. So you should see momentum pick up from here, and we expect our strategy of leaning more towards B2E to grow Yatra being very successfully executed over the next 3 to 4 quarters. Operator: [Operator Instructions] We have no further questions, so I'll hand back to the management team for any final remarks. Dhruv Shringi: Thank you, operator. Siddhartha Gupta: Dhruv, would you like to.... Dhruv Shringi: And thank you, everyone, who joined the call today. And as always, we remain committed to driving shareholder value and being able to address any questions that you might have. Siddhartha and I are always available. Please feel free to reach out to us through our IR firm, ICR, and they can direct you to us. We look forward to engaging with you and continuing to deliver on the strong results that we have done for the last few quarters. Thank you for your time today. Siddhartha Gupta: Thank you so much, everyone. Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Anna Tuominen: Good afternoon, ladies and gentlemen. My name is Anna Tuominen. I'm the IRO of Marimekko. Thank you for joining us today. We have the opportunity to hear our President and CEO, Tiina Alahuhta-Kasko, in a few minutes to go through Marimekko's Q4 and full year results from 2025. And after that, we have reserved some time for Q&A with Tiina and our CFO, Elina Anckar, answering your questions. You can type in your questions using the chat function already during the presentation and then we'll start going through them after we first heard Tiina's wise words. Tiina, please go ahead. Tiina Alahuhta-Kasko: Thank you so much, Anna, and good afternoon, everyone. It's my pleasure to share with you a few words about Marimekko's results in 2025. So let's get started with the fourth quarter of the year. As it pertains to our business development in the last quarter of the year, of course, the market situation continued to be challenging. But despite of that, our net sales grew from the comparison period's record level, fueled by our international sales and our operating profit margin was at a good level. Altogether, our net sales in the fourth quarter grew by 1% and totaled EUR 54.7 million. Our net sales were driven especially by increased retail and wholesale sales in the Asia Pacific region in spite of the globally uncertain market situation and the weak consumer confidence. In total, our international sales increased by 5%. Net sales in our home market in Finland were down by just 1% as retail sales declined in the environment that in Finland remained highly price sensitive and tactical. Then as it pertains to our profitability, our comparable operating profit totaled EUR 8.8 million, equaling to 16.1% of net sales. It was decreased by higher fixed costs, while then improved relative sales margin and increased net sales had a positive impact on profitability. Overall, our cash flow from operations strengthened and our financial position continued to be strong. Overall, as we now have entered to the 75th year of Marimekko's operations, our brand is as vibrant as ever. Then, of course, our strong financial position, paired with the sustained profitable growth and positive development of our business, they put us in a great position to continue scaling up the global brand -- Marimekko brand phenomenon growth also in the now started year. But let's have a closer look now behind the drivers in net sales and operating profit. So starting with the Q4 net sales, which increased by plus 1% to EUR 54.7 million and being boosted in particular by the increased retail and wholesale sales in the Asia Pacific region. Overall, the net sales in Finland were close to par to the comparison period as our retail sales declined in the highly price-sensitive and tactical operating environment. However, wholesale sales grew by 2% when the domestic nonrecurring promotional deliveries increased. In our second biggest market area, the Asia Pacific region, our net sales grew by 10% as retail sales in the region increased by a very strong 24% and wholesale sales by 9%. Internationally, overall, our retail sales also grew in all other market areas. And in total, our international retail sales grew very strongly, so plus 20%. And in total, our international net sales grew by 5%. Then when looking at the full year '25 performance, in total, our net sales increased by 4% to EUR 189.6 million, boosted especially by the growth of wholesale sales in the Asia Pacific region and in Europe as well as the increased retail sales in Scandinavia. The operating environment in Finland continued as challenging. And as estimated earlier, also the nonrecurring promotional deliveries in the domestic wholesale sales were considerably below the comparable year. But in spite of this, our net sales in Finland increased. Our retail sales in Finland were on par with the previous year's record level, while then wholesale sales increased by 1% and licensing income grew significantly. Then when we look at our second largest market area, the Asia Pacific region, that increased by 2% when both wholesale and retail sales grew. So while we had a good development in this core business of retail and wholesale in the Asia Pacific region, the net sales in that region was negatively impacted by the considerable decline in the licensing income in the region. Overall, when we look at the group net sales performance in the full year level, as estimated since the beginning of 2025, the licensing income was considerably lower than in the previous year. And that, of course, had a negative impact on the total net sales development as well. In total, sales grew by 7% with retail sales increasing in all and wholesale sales in almost all international market areas. So international sales, plus 7%. I think that's a good testament on us progressing well in our scaling journey despite the volatilities and uncertainties in the world economy and consumer confidence. Then when we look at our net sales breakdown per market area and by product line, no major differences or changes in the split by market area. So Finland continuing to be the strong home market and then Asia Pacific being the second largest market, but also solid kind of shares across Scandinavia, Europe and North America. When we look at the net sales split by product line, fashion is there the biggest product line. And actually on a full year level, we saw the strongest growth from the fashion product line, namely 12%. Our omnichannel store network also expanded in 2025. And today, 174 Marimekko stores around the world serve our customers. And our online store serves customers already also in 39 countries. Our brand sales in the full year amounted to EUR 385 million and 62% of our net sales came from the international markets. Then when we look into our profitability in the fourth quarter, our comparable operating profit margin -- profit was at a good level, amounting to 16.1% of net sales. Our operating profit was decreased by a higher fixed cost, while then the improved relative sales margin and increased net sales had a positive impact on our profitability. When we look at the drivers behind the fixed cost increase, they were due to, in particular, the higher marketing costs, but also due to increased personnel expenses. Then when we look at what is behind the increased personnel expenses, it is the general pay increases in different markets as well as the increased personnel costs in stores to support retail. The relative sales margin was improved by margins per product being at a good level as well as lower logistic costs than in the comparison period, while then the relative sales margin was weakened by higher discount. When we look at the situation cumulatively, our cumulative operating profit increased by 1%, and our comparable operating profit margin was at a good level, actually 17.1% of net sales, which I would say is a good outcome, especially in the volatility of the world situation. Our operating profit was, of course, boosted by the net sales growth, while then on the other hand, the higher fixed costs and weakened relative sales margin had a negative impact on the operating profit development. The fixed cost growth was attributable to, in particular, the increased personnel expenses, but also they were due to the investments in digital development. The reasons behind the personnel expenses increase were actually the same as in the fourth quarter. The relative sales margin was negatively affected then by especially higher discounts and as estimated by significantly lower licensing income. In addition, also unrealized exchange rate differences had a weakening impact on sales margin. while the relative sales margin was then supported by margins per product being at a good level. There were several key events that took place in the fourth and last quarter of the year that really show how we're progressing in scaling up the global Marimekko brand phenomenon and our growth. Let's have a look. First of all, at the end of October, we opened our historically first Paris flagship store. Paris is, of course, no doubt the most important fashion capital in the world whose impacts in brand awareness and positioning expand beyond Europe to also North America and Asia. This way, our presence in Paris supports the scaling of our brand phenomenon and long-term growth across channels and international markets. In the fourth quarter, also Marimekko store, originally opened in 2012, reopened as a flagship store in the same street in Hong Kong, which again allowed us to reinforce our brand awareness and positioning across the broader Asia region. Also, new Marimekko stores were opened in Tokyo and Bangkok along with 8 pop-up stores that delighted customers, mainly in Asia as well as a pop-up cafe, which all complement our omnichannel store network. We also progress and continue to invest in our digital business. We launched at the end of the fourth quarter, a new Marimekko app that really offers an inspiring shopping experience and a digital home for our renewed loyalty program. The app also allows people to peek behind the scenes into our printing factory, into our print archive. And this app really allows us to deepen the engagement of our loyal customers. So really much at the core of our D2C business. In the fourth quarter, we also hosted local collaborations, namely the JW Marriott Hotel in 9 places hosted Marimekko rooms as well as events as well as in Taichung in the Sundate Cafe, the experience was addressed in the Marimekko Prints. And these kind of creative brand experiences that really connect with the local culture and community, they really allow us to differentiate from the competitors and introduce our brand yet again to new audiences, in this case, in Asia. To close the year, the Field of Flowers touring exhibition that actually has been, during the course of the year, touring and visiting a total of 11 cities, especially in Asia, made stops in Shanghai and Sydney. The Field of Flowers exhibition showcases the newest Marimekko floral print design, production, and these touring exhibitions have also featured pop-up stores, where people have been able to buy a bit of the new designs to their homes. Sustainability is one of the key strategic success factors in our scale strategy, and we believe that determined efforts to develop sustainability support our long-term success. In 2025, we continued our progress in our sustainability work and actually achieved 3/4 of our very ambitious targets in our previous strategy, sustainability strategy term on the greenhouse gas emissions and water use reduction. Then moving on to the outlook of 2026. Just a few words in general to get started. Of course, there are significant uncertainties related to the development of the global economy, such as the tensions related to geopolitics and trade relations, and the rapid changes in the trade policies, as well as other uncertainties, are reflected in consumer confidence, purchasing power and behavior, and thus can have a weakening impact on Marimekko. In addition, also, possible disruptions in production and logistics chains, and changes in these chains caused by the uncertainties may also have a negative impact. But of course, as usual, we're always monitoring these situations and developments and will adjust our operations and plans accordingly if needed. A few words about seasonality. So due to the seasonal nature of our business, a major portion of our company's euro-denominated net sales and operating results are traditionally generated during the second half of the year. It's also good to remember that the timing between quarters of the non-recurring promotional deliveries in Finnish wholesale sales and their size typically vary on an annual basis. Licensing income in 2026, we forecast to be approximately at the level of the previous year. Then, continuing to the net sales development outlook for 2026, starting from Finland, our important home market. Despite the weak market situation, our net sales, in the domestic market, Finland, are expected to increase in 2026. Sales in our domestic market are impacted by the continued weak general economy and low consumer confidence, as well as the development of purchasing power and behavior. The operating environment continues to be tactical and price sensitive, which continues to have an impact on the business. What is good to note is that in 2026, the non-recurring promotional deliveries in wholesale sales are expected to grow from the comparable year, and they will be weighted in the second half of the year, as in 2025. What is also good to note is that the development of the domestic sales is estimated to be more muted in the first quarter of 2026. Then moving on to the international. Overall, international sales, we estimate to grow in 2026. When it comes to the Asia-Pacific region, our second largest market area, we expect our net sales to increase in 2026. However, it's good to note that due to timing reasons, the development of sales in the Asia-Pacific region is estimated to be more muted in the first quarter of the year. In 2026, the aim is to open approximately 10-15 new Marimekko stores and shop-in-shops, and most of the planned openings will be in Asia. When it comes to growth, investments, and costs, of course, we develop, as always, our business with a long-term view and aim to continue scaling our profitable growth in the upcoming years. Thus, our fixed costs are expected to be up on the previous year, so also the marketing expenses are expected to increase. When it comes to the tariffs in the U.S., maybe a few words about that. So the increased tariffs in the U.S. have a direct impact only on a small part of our business, as the entire North American market accounted for 6% of our net sales in 2025, and we as a company are taking diverse measures to minimize the negative impacts of the tariffs. Then the early commitments to product orders from partner suppliers, which is typical of our industry and partly further emphasized due to the different factors, weakens our company's ability to optimize our product orders and respond to rapid changes in demand and supply environment, and thus increases business risks. There are also uncertainties related to global production and logistics chains, but of course, we always work actively in various ways to ensure competitive and functioning production and logistics chains, to mitigate the increased costs and other negative impacts, and to avoid delays, and to enhance inventory management. When it comes to our financial guidance for 2026, we expect our net sales for 2026 to grow from the previous year, and our comparable operating profit margin is estimated to be approximately 16% to 19%. The development of consumer confidence and purchasing power in our main markets, in particular, cause significant volatility to the outlook for 2026, and this development is strongly impacted by rapid changes and uncertainties in geopolitics and global trade policy, among others. In addition, possible disruptions in global supply chains can cause volatility to the outlook. Then finally, a few words still about the proposal for dividend for 2025. Our board of directors is proposing to the AGM that a regular dividend of EUR 0.42 per share to be paid for 2025, and this is, of course, in line with our dividend policy, or actually higher than that. With these words, I would like to open up the Q&A. Thank you for listening. Anna Tuominen: Thank you, Tiina. And I would like to invite also our CFO, Elina Anckar, here for the Q&A. And just to remind you, you can still type in your questions using the chat function, and we'll go through them. But let's start with a couple of questions related to the events that you went through. There was a lot happening in Q4. So the Paris flagship store, has it met your expectations? Are you happy with the launch? Tiina Alahuhta-Kasko: So, of course, it's very early days still in Paris, as the opening took place at the end of October. I think that overall, as I mentioned in my presentation, taking the step to open a flagship store in Paris is a significant milestone in our scale journey, namely because of Paris being the fashion capital of the world, The store caters not only for the local consumer, and this way supports us, in our Europe strategy. Many of you, you might remember that, we are working on modernizing both our brand and our distribution network in Europe, but equally, Paris is a destination for tourists. So we see that, good, inspiring presence in Paris can also support our awareness and positioning efforts, more widely, including also in Asia and in North America. Anna Tuominen: What about the new Marimekko app? That was even more recent launched. But are you able to share some details on how that's developing? Can you see some impact on customer engagement or... Tiina Alahuhta-Kasko: So of course, the Marimekko app was launched even later at the end of the year. And we're very excited about the Marimekko app. We have a very strong technology team at Marimekko, and we work in various diverse ways how to advance further digitalization of Marimekko's business to even better serve our customers and to support our efficiencies. The app plays a really important role in our direct-to-consumer business as it allows us to have a deeper engagement with our loyal customers and also provide to them an even more personalized experience. So they're excited to continue on that journey. Anna Tuominen: Yes. A question related to sales, especially the Finnish sales. At least in Finland, one can see that there's been quite a lot of campaigns lately. Is this something that you consider necessary in this market environment? And the question -- and the person asking the question is asking also that assuming that fewer campaigns would result in higher profitability. Tiina Alahuhta-Kasko: So overall, if we look at the domestic market, like Finnish market sentiment over the course of the last couple of years. So of course, we know that the general economic situation in Finland has been quite gloomy and the consumer confidence has been very low. And all of these uncertainties have also reflected in general in the marketplace to highly tactical and price-sensitive behavior in the marketplace. So in order for us to be competitive, there are 2 things. We need to have commercial excellence so that we are relevant for the customers in the climate where we operate. And even more important is that we continuously invest into the desirability of our brands and the hype around it. So both are important to succeed in this kind of a more challenging market situation. Anna Tuominen: There needs to be a balance. Tiina Alahuhta-Kasko: Yes. Anna Tuominen: Another question related to sales, maybe for Elina, about the licensing income, especially licensing income in 2026, so this year. Is this level of licensing income that we saw in '25 and that you're guiding now for '26, is it sort of a new normal, or should this be viewed as particularly low level, or how should investors look at the licensing income going forward? Elina Anckar: Yes. Regarding licensing income, that is something that we actually give a market outlook every year. And for the year '26, we have said that the licensing income will be more or less in line with the '25 levels. But it's good to remember that when we look at backwards, years '23 and '24 were, like record high in terms of the licensing, but we will announce the outlook for the licensee fee every year. Anna Tuominen: There's also a couple of questions related to specifically marketing costs. So maybe I'll continue with the CFO. So you're guiding marketing costs to increase in '26. Is that in absolute terms or as a percentage of sales? And is there any way of giving a sort of guidance on how much they will increase? And what drives this kind of increase in '26? Elina Anckar: As Tiina has already talked about like the importance of us continuing like increasing the brand awareness and the brand loves and the hype and in overall like making sure that we do invest into the growth even if the market situations are a little bit tougher. So for that perspective and based on a very strong financial situation, we are increasing our financial spend. And we're talking about like euro values here in terms of like the spend. And if we look at backwards, year '26, we spent some 6% of the turnover to marketing and the year before, the same 6%. Tiina Alahuhta-Kasko: And maybe one addition to this is that when the market -- general market situation around the world is more challenging, it is also very much an opportunity for companies with a strong balance sheet and continued positive performance of our profitable growth and positive performance of our business to then invest into fueling our long-term growth. So we see that this also very much as an opportunity. Anna Tuominen: There actually was another question also related to this that why not adjust these fixed costs, especially marketing to be closer to the long-term target, but then you would lose the opportunity to invest in growth. Tiina Alahuhta-Kasko: Yes. We have a scale strategy. So we are all about building our long-term growth. Anna Tuominen: That was actually all the questions this time. So we would like to thank you for joining us, and we hope to see you next time as well. Tiina Alahuhta-Kasko: Thank you. Elina Anckar: Thank you.
Unknown Executive: Good afternoon, and welcome to Outokumpu's Fourth Quarter Results Webcast. I'm Johan, responsible for Investor Relations. We will begin with the presentation from our CEO, Kati ter Horst; and our CFO, Marc-Simon Schaar. After the presentation, you are welcome to ask questions over the line. With that, I'm pleased to hand over to you, Kati. Kati Horst: Thank you very much, Johan, and also very, very welcome from my side. We are here today in the studio in a very snowy beautiful Helsinki. So let's go then directly to the business and talk about the fourth quarter and also some comments, key comments on the full year. So if we look at the whole year as such, I think the comment there is that the stainless steel market did remain weak and was very much pressured by the uncertainty we saw in the markets and also the especially low-priced Asian imports coming to Europe. So our full year adjusted EBITDA then decreased to EUR 167 million, and the profitability improved very clearly in BA Americas and in Ferrochrome, but then they declined in business area Europe, if you compare year-on-year from 2024. Then the Q4 '25 profitability was impacted both by market weakness, but also the temporary challenges we've been having with the supply chain planning solution in the ERP rollout in business area Europe. We do expect more favorable market dynamics going forward, and I'll come back to that in a little while. Also I would like to remind you that we are advancing our EVOLVE growth strategy by investing in the pilot plant in the U.S., to develop this proprietary technology we've been talking about, which is aimed at producing low CO2 metals and first focus being on ferrochrome and high chromium content metal. CBAM and tariffs are now the 2 elements that we see changing the import picture both in North America and Europe. So on the left side, you see Europe. The Q4 figures include October and November. And you can see that the imports have come down. Same has happened in North America because of the tariffs. And this is something, especially now in Europe, that we do expect to continue this quarter. I wanted to give also a bit of a sense from the Q4 of the sentiment in different customer segments. So you basically see here our key customer segments and the colors are giving a bit of the sentiment. And you can see that the sentiment has been quite subdued. So either no change or even a little bit slightly negative on the automotive and heavy industry side. But now that we come to the beginning of '26, I think it is changing a little bit. So first, I would like to comment on Europe that we clearly see that CBAM and the expectation of the coming safeguards are supporting demand for European suppliers. It's not necessarily helping to increase the end customer use demand. And there, we don't see really clear signs of recovery yet. But demand for European producers, we do see supported by the policy instruments. Then on the Americas side, I would say that we now see some first signs on a market recovery or economic recovery, however you want to call it. And that was also reflected a bit in the clearly better PMI index that was published in January. It basically jumping to 52.6 points. And I think that is also what we see in our order books and the sentiment that we see being somewhat more positive than before in the Americas. There's one customer case here I wanted to share with you because it is basically an example of one of the product developments in Outokumpu that highlights how our innovative material development. In this case, the Lean Duplex Forta provides a solution for very challenging customer needs in the real life, and it also helps to support the energy transformation and sustainable products and minerals and metals. So the customer here is Metso, very much in the space of mining and minerals and metals. Then moving forward, commenting then a bit on the Q4 result more. So we have clearly here a situation where Europe was weak also for the whole year and where BA Americas and Ferrochrome had a very solid performance. The European weak financial performance very much based on the market weakness and the sustained pressure from the imports. And then as I said earlier, also in the Q4, some temporary challenges that we've been having with our supply chain solution in this ERP implementation. We have had significant improvement profitability in BA Americas. That has been driven very much by the higher volumes and lower cost. And then really in BA Ferrochrome, we've actually seen a third consecutive year of improvement. And we also do see the robust demand continuing for our low emission European Ferrochrome. And then maybe on the own measures, I could comment that we had the target to have EUR 60 million savings in short-term cost-saving measures. So we have reached EUR 63 million by the end of the year. We have also reached the targeted level of EUR 350 million on this 3-year run rate program that we've been running by the end of '25. And therefore, also that program is now closed. Then moving to sustainability and commenting on some of the key items there. So our solid sustainability performance continued in Q4. We were also present in the COP30 and had some really good interactions with some of our customers, but also different politicians, talking about energy, talking about carbon capture, and other important topics. On safety, we are on a world-class level in the process industry. We had a challenging Q3. And I was very happy to see that now in Q4, we are really back on track in our safety performance with a total recordable incident frequency rate of 1.4. If we then look at the recycled material content, actually, all the quarters in 2025 we were at the record high level of 97% of recycled material content. And of course, together with the actions we've taken in energy efficiency and optimizing our processes, this has really delivered continued emission reductions for Outokumpu. And this becomes a more important topic going forward. So the low EU ETS emission intensity that we have, coupled with the free allowances that we have going forward, is really supporting our competitiveness, and I come a bit back to that a little bit later. Our sustainability leadership was also recognized externally. Earlier in the year, in '25, we got again the EcoVadis Platinum. And then towards the end of the year, the CDP's A rating for the climate was received. Then a couple of words about how CBAM and the phaseout of the free allowances under the EU ETS are expected to impact our business. So when you look at the left side, CBAM basically impacts the top line, while then the discussion of the free allowances is a cost question to the industry and for the players. So both in stainless steel and in CBAM or both in stainless steel and ferrochrome, so the key importers to Europe have carbon intensity default values that are clearly higher than the European benchmark. And this is clearly expected then to shift demand more towards the European suppliers. So you can see here in the left and in the middle the black bar presenting the imports and then the green bar representing the European reference values. Further then, I would like to point out that Outokumpu has been one of the early movers in smart decarbonization, and that has now resulted in a very competitive position under the EU ETS. So we basically have available free allowances covering our needs until 2030. I have here then another example on how we can reduce carbon emissions through partnerships that actually create win-win business concepts in the ecosystem. So this is a partnership that we have announced as an MAU with Norsk e-Fuel where basically the concept is that the side stream of our ferrochrome production, the CO gas, we can deliver that to Norsk e-Fuel for the production of sustainable aviation fuel. The beef here for us is that we are really -- by selling the CO gas, we are really reducing quite substantially our emissions. And for them, it's a very cost-effective and good raw material for producing sustainable aviation fuel. So here, let's see how this continues going forward, but these are continuously the type of opportunities we are looking in partnerships. And then now I think I would like to hand over to Marc-Simon to talk more details about our financial position and the results. Marc-Simon Schaar: Thank you, Kati. Good morning, good afternoon, everyone, and thank you for joining us today. Despite the challenging market environment, our solid financial foundation positions us well for future growth. Let's take a closer look at our financials at the end of the year. During the fourth quarter, our strong liquidity increased to EUR 1.2 billion. With positive free cash flow and the dividend payment in October, our net debt increased slightly -- only slightly during the quarter. At the same time, we secured a new unsecured EUR 800 million sustainably linked RCF with a 4-year maturity and an option to extend until 2032. The new facility replaced 2 previous RCFs of the same amount, but with improved and more flexible terms. This once again demonstrates the strong and continued support from our lending partners. Now let's take a look at our fourth quarter profitability. Our fourth quarter group profitability of EUR 10 million was mainly impacted by lower deliveries and a lower pricing level in Europe. The decrease in stainless steel deliveries to 365,000 tonnes was driven by continued market weakness and challenges related to the new supply chain planning solution, as mentioned earlier. These negative impacts were partly offset by improved cost performance and higher electrification aid. Let's now take a closer look at the performance of our business areas in the fourth quarter, starting with business area Europe. Overall, the market conditions in Europe remained weak during the quarter. This was evident in manufacturing activity as the euro area PMI remained below 50 much for the second half of the year, indicating continued contraction in the sector. Against this backdrop, volumes were lower during the quarter. This reflected both the ongoing market weakness and a temporary impact from the implementation of the ERP rollout, which we expect to normalize going forward. The weaker pricing environment also weighed on spreads, namely our price net of raw material costs. And this impact was partly offset by improved cost performance, supported by higher fixed cost absorption as production activity increased. In response to the prolonged market weakness, we continued to take decisive restructuring actions to safeguard our cost competitiveness. These actions form part of the EUR 100 million restructuring program announced in connection of our Q2 2025 results, which runs through the end of 2027. As part of this program, we expect to realize cost savings of EUR 50 million this year with a primary focus on business area Europe and group functions. Looking ahead, we also expect demand for domestic producers in Europe to be supported by the introduction of CBAM from the beginning of this year. With that, let me now turn to business area Americas. Despite seasonally lower deliveries, business area Americas delivered another strong performance in the fourth quarter. Improved product mix and lower variable costs more than offset higher fixed costs related to the annual maintenance shutdown in the U.S. as well as lower gains from timing and hedging effects and the usual seasonal decline in deliveries in the Americas market. During the quarter, demand in the U.S. continued to shift from imports towards domestic producers following the tariffs imposed by the U.S. administration in July last year. However, underlying end-user demand remained weak. Similar to Europe, manufacturing activity was contracting with PMI levels below 50 throughout the quarter. On a more positive note, we have recently seen early signs of improving market activity in the U.S. In addition, the Mexican government implemented tariffs on Asian imports, supporting domestic producers such as ourselves in Mexico. Looking ahead, our focus in business area Americas remains on strengthening operational excellence to fully unlock the potential of our asset base while advancing our commercial strategy through an expanded product portfolio and a more differentiated go-to-market approach. With that, let's have a look to business area ferrochrome. We are very pleased that the strong financial and operational performance in business area ferrochrome continued during the quarter. Against the backdrop of ongoing supply constraints in Southern Africa and continued geopolitical tensions, demand for our low-emission European ferrochrome offering remained strong throughout the quarter. While total deliveries declined due to lower internal demand, external deliveries increased, underlying our strong market position. With the introduction of CBAM from the beginning of this year, we expect this positive trend in external demand to continue. Profitability in the fourth quarter benefited from higher prices, lower variable costs supported by the electrification aid and improved fixed cost absorption driven by higher production levels. Looking ahead, despite the termination of electrification aid and the increase in mining tax in Finland from the beginning of this year, we see our ferrochrome business as very well positioned for the future. Our strong strategic setup, the continued expansion of our product portfolio into higher-margin ferrochrome as part of our EVOLVE strategy, and improving mining efficiency through the expansion of the sub-level caving concept will support further value creation in the business. Examples of our product portfolio expansion include our move into medium and high-carbon ferrochrome as well as low titanium products during 2025 already. In addition, recent underground drilling confirms that our mineral reserves and resources provide sufficient ore availability well into the 2050s, offering long-term visibility without the need for any major additional investments. With that, let me turn to some final remarks on the group's overall financial position. Despite the low profitability in the fourth quarter, our free cash flow improved significantly compared to the third quarter, driven by a strong release in working capital. Our ability to release additional working capital was limited by temporary challenges related to the implementation of the ERP system. As a result of the dividend payment of EUR 61 million during the fourth quarter, net debt increased slightly to EUR 265 million. Given the current market environment, our primary financial focus remains on maintaining strong capital discipline with a particular emphasis on working capital efficiency. Now with that, I will hand it back over to you, Kati. Kati Horst: Thank you, Marc-Simon. So going forward, based on our EVOLVE growth strategy, our focus is clearly on cost competitiveness in our foundational sustainable stainless steel business, while we are then targeting transformative growth in Advanced Materials and low-carbon metals through the technology development. And on the next slide, just as a reminder, as communicated last summer during our Capital Markets Day, here you see the pillars of our EVOLVE growth strategy. So it's maximizing the value from sustainable stainless steel, both in Europe, Americas, growing profitably in Advanced Materials and alloys, then working on technology to create innovative materials and low carbon, of low CO2 metals. And this is exactly the USD 45 million investments we've done on the pilot line in the U.S., which is proceeding well. And then, of course, we continue to focus on total shareholder returns as well and keeping our balance sheet healthy at the same time that we want to keep the possibilities open to invest in growth. Then we would be moving here now to the dividend proposal from the Board of Directors. And the proposal is EUR 0.13 per share for the year 2025 and to be paid in 2 installments. And I think it's important to mention this is very much according to our dividend policy where we also say that we need to look at the company's financial performance in the cyclical market conditions while we maintain the financial flexibility to invest in transformative growth. You see here our dividend per share and earnings per share. And then if you look at over the 5 years and you include this proposal of EUR 0.13, we have actually paid over the 5 last years, about EUR 0.5 billion of dividends to our shareholders. Then we move to the outlook for the first quarter of 2026. And in the first quarter of 2026, the adjusted EBITDA improvement is expected to benefit mainly from the recovering stainless steel deliveries, the volumes, which are forecast to be 20% to 30% higher compared to the fourth quarter in 2025. And the change in deliveries mainly reflects the normal seasonality that we have in the market, but also the exceptionally low level of business in business area Europe in the comparative period, so fourth quarter, which was then impacted also by the challenges related to the supply chain planning tool in the ERP rollout during the fourth quarter. And then with the current raw material prices, some raw material related inventory and metal derivative gains are forecast to be realized in the first quarter. And then our outlook for Q4 2026. So our adjusted EBITDA is -- in the first quarter of '26 is expected to be higher compared to the fourth quarter of 2025. Then I would like to summarize a bit with this slide, some of the key messages from today. And I would start by saying that we do expect more favorable market dynamics going forward in 2026. So in Europe, this culminates very much currently to CBAM and the proposed safeguards as they are supporting demand for low emission stainless steel and ferrochrome, supporting European suppliers. In the Americas, we see a positive outcome of the -- potential positive outcome of USMCA negotiation would really support our business in Mexico and also create more capacity for us eventually to sell in the U.S. And like I said earlier, we see also first signs of economic and end-user demand recovery in the Americas. So being clearly more positive than in Q4. And then we expect this robust demand for our ferrochrome to continue also supported by the continued uncertainty on supply on the market. And if I look at all the business areas, we are very much working on the commercial strategies and the product portfolios, and I see that we have a lot of opportunities in that side. Ferrochrome is already now bringing 3 new products to the market. So this is the way to continue. And on the EVOLVE strategy, I mentioned the technology development. It is very important for us, and we will tell you more about that as we go forward. So I'm very optimistic about our future, our possibility to grow and improve our financial performance and resilience. And then I think this takes us to the Q&A that we are now ready for. So please, happy to hear your questions. Operator: [Operator Instructions] The next question comes from Tristan Gresser from BNP Paribas Exane. Tristan Gresser: The first one, I just wanted to ask about Americas. There was a strong performance in Q4. Any one-off tailwind that was in there that will not repeat into Q1? Or is the type of margins on EBITDA per ton that you've seen and done in Q4? Is that kind of a normalized level that you see for the coming quarters? Is there more of the price increase to flow through in Q1? Or that's all in the results we've seen in Q4? And now with the visibility you have and you flagged a bit of improvement as well on the demand side, do you think you can reach your EBITDA target for the division of EUR 150 million, EUR 200 million in 2026? And if not, if you can tell us why? Marc-Simon Schaar: Maybe I can start with taking your first part of your question, Tristan, on the performance and if there are any extraordinary items within the result. The answer is clear, no, and we can expect then this result to be an underlying result then also going forward plus then the market dynamics which we see now. We expect a seasonal uptick in demand over here. And while we're not giving any price outlook, I think given the current situation and then referring also maybe to the early signs of a market recovery explains, I think, a bit about how we think about the overall market and the dynamics coming with that one. Tristan Gresser: And regarding the EBITDA target of EUR 150 million to EUR 200 million, is that achievable for 2026? Kati Horst: Well, I would say, if the market recovery continues, then I think there are possibilities to go towards that, yes. Tristan Gresser: All right. That's clear. And then kind of a similar question around Europe. I mean, it's always a market that is a bit difficult to calibrate. How do you think about the margin improvement for 2026? I mean you went from negative EBITDA adjusted EBITDA in Q4. The market was tough. There was a bit of one-offs. But consensus has EBITDA per tonne for the Europe division going above EUR 150 per tonne by Q4 this year. Do you think that's feasible? And if you can talk a little bit about the market environment as well. We've seen prices going up. I guess, margins are going up at the moment as well. If you can discuss a bit your order books and the impact of CBAM, that will also be helpful. Marc-Simon Schaar: Yes. So maybe if I start and then Kati can chip in and add. I think in the fourth quarter, we have seen the lowest volumes driven by the weak market. Yes, we also had here the implementation of the supply chain solution, which I mentioned before. But what we do see and from preliminary data also in January is that CBAM is somehow supportive, as I mentioned before, expecting also a shift towards domestic producers in the European market over here. And as such, also seeing then a margin -- relative margin improvement here in Europe as well. Kati Horst: And let's just say, command, that needs to also happen. If you look at the overall volumes, demand in Europe and the price level. So yes, volumes need to increase and deliveries need to increase and prices need to increase. Tristan Gresser: Okay. That's clear. But you're confirming that margin improving at the moment. And just the CBAM and the safeguards, is that enough for you to go back to historical margin levels? Or do you think absent a more pronounced demand recovery that on the end user side that you're not necessarily seeing at the moment, it will be difficult to reach, let's say, historical margin level already this year without the demand? Marc-Simon Schaar: I think that certainly CBAM and then safeguards are supporting us here and what you just described. At the same time, yes, we see increased activities, but this is not coming really from an underlying demand in the end user segments. And to be clear, in order to get back to historical levels, we also need further demand from the market side as well, given also the capacity utilization we are currently running still being on the low side. Operator: The next question comes from Tom Zhang from Barclays. Tom Zhang: Two as well for me, please. So yes, maybe just on ferrochrome. I know a lot of the quarter-on-quarter improvement was from these electrification aid. But I think underlying, you also talked quite positively about the ferrochrome market, which I was a little bit surprised by because stainless volumes have not been very strong. There was still a lot of stainless imports and CBAM, I guess, will help, but it's only just coming in from January. Is there much of a step-up again into Q1 for the underlying ferrochrome business? And so as I kind of look at Q1, even without the power subsidies, do you think it's possible that ferrochrome earnings can remain fairly stable? Marc-Simon Schaar: I think maybe if I can take that. When it comes to Q4, yes, there was a positive element of then the electrification aid, as we mentioned before. What we have seen as an increase from the third quarter to the fourth quarter, I would say, approximately half or a bit more half of that improvement is coming from that electrification aid. And the rest is real underlying improvement, stronger performance. Coming to the market side, yes, stainless steel demand is lower, is weak. However, we're constantly also reporting that the demand for, again, our European low-emission ferrochrome is very solid. And as such, we saw an increase, not in internal demand, but in external demand. We're also expanding our product portfolio, as I mentioned before, so these are areas and topics together then also with improving our cost performance in ferrochrome with this new or continued expansion of our mining method, sublevel caving, that's all contributing positively. Now if we think about then Q1, certainly, the impact, which I mentioned to you before the electrification aid, but then also the impact from the mining tax in Finland then will have a negative impact in the fourth quarter compared to -- in the first quarter compared to the fourth quarter. However, we continue to improve on the mix side and also on the cost performance. So I would only bake half of the impact of electrification and mining tax into the forecast. Kati Horst: And maybe to add to that a bit that just as a reminder, so we're delivering now internally, externally about 400,000 tonnes of ferrochrome. We have a capacity of 500,000 tonnes. So we have capacity to increase also external deliveries. And maybe another aspect just to add that this portfolio development in ferrochrome, low titanium ferrochrome, medium carbon ferrochrome and now our latest test based on concentrate, more than 60% chrome content ferrochrome, they bring us also to other customer segments. So it's not only then stainless steel anymore being the customer, but there are other segments. So we see the outlook for ferrochrome quite positive. Tom Zhang: Okay. Okay. That make sense. I think in -- sorry, just following on from me quickly. I think in Q2, you guys had talked about a mining tax could be a sort of EUR 50 million hit. Is that still the right number to think about? Kati Horst: No, it's -- so I can be a bit more specific on that. So the mining tax increase now for this year. So last year, we paid about EUR 8 million. This year, we are paying EUR 21 million based on the current premises and volume estimates. So it's a EUR 13 million increase in mining tax. And what does continue in Finland, the parliament has asked the government to look at also at the hybrid model, which would be partly based on royalty and partly then based on the actual result. So that discussion should continue this year. And then the other item there was the electrification aid. So Outokumpu has been getting in total about EUR 20 million in the electrification aid. So if you put those together, then the impact, I think, right now is about EUR 30 million, EUR 35 million. Tom Zhang: Very clear. And then the second question was basically around, there's been a lot of headlines around ETS reform or potential extension of free allowances. As I understand, that would potentially mean CBAM also needs to be drawn out to adhere to WTO. Given your emissions are already well below international levels, you're covered for allowances out to 2030. Do you see the extension of free allowances as a bit of a risk for stainless? Or do you think it's kind of not too material? Kati Horst: No, I don't -- at least from our perspective, I don't see that as a big risk. Of course, there's a lot of discussions going on. If my understanding is correct, there will be some kind of a review now in the summer of the EU ETS system. But I think that's also about should it be extended to some other sectors where it's not now yet. So we will definitely hear more about the review and what is being reviewed in the summer. But I think it is -- I think European Commission is still quite determined to their emission reduction targets. And of course, EU ETS system also goes a bit hand-in-hand with CBAM. So we need to see also the effect in the CBAM going forward. But I think it's definitely a competitive advantage to have been an early mover in this area in the case of Outokumpu. Marc-Simon Schaar: And maybe to add also with smart decarbonization here as well. And I think Kati has mentioned one example, how we think about ecosystems and partnering and making the reduction in emissions as economically feasible. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: I have a couple of questions left. First about CBAM and safeguards in Europe, like how do you see the situation if you think about scrap value chain, like if the end user demand is declining due to these new regulations, even though it would be positive for your stainless side. But do you think that scrap suppliers would face some problems, for example? Marc-Simon Schaar: Well, Anssi, if I can take that question, then I think that -- well, overall, there is then a stronger demand for stainless steel scrap. And this is what we do see then in the market as well. But overall from -- I can only speak from an Outokumpu point of view that through our partnerships with our suppliers being very well covered and also going forward. Anssi Raussi: Okay. That's clear. And then about BA Europe, like what kind of delivery times you have right now? Because I think your contracts are so-called all-in price-based contracts. So how long it takes before we see this positive changes in market environment in your P&L? Marc-Simon Schaar: Maybe to start with, not all of our business is on effective pricing. So I would say around 30% of our business in Europe is based -- still based on base plus alloy surcharge and our U.S. business is completely on base plus alloy surcharge. Certainly, we have around 1/3 of our annual expected volumes under contract. These contracts being concluded by mid to end of last year. And as such, there is naturally a certain delay in here. But we should see a gradual improvement here from the first quarter in business area Europe. Operator: The next question comes from Dominic O'Kane from JPMorgan. Dominic O'Kane: I have 2 questions. So first, could you maybe provide us with an update on your current thinking for Tornio? And then second question is a related question. If we think about cash flow, you've had 2 successive years of negative calendar year free cash flow. You've done a good job on working capital management, but it may be that is going to be difficult to continue and replicate going forward. And so if I think about what you said at the Capital Markets Day, you didn't provide us with any forward-looking guidance for 2026 CapEx. So I just wonder if you could maybe just help us with those building blocks. Are you able to maybe give us an update on 2026 CapEx? And how should we think about the free cash flow potential in 2026? Kati Horst: So if I leave the cash flow question to Marc-Simon, I could maybe comment on Tornio. So you're referring to this potential investment in the annealing and pickling line in Tornio. We said in the fall when we were discussing the mining tax topic that is currently on hold. So now we know what the impact on the whole Kemi Tornio setup is cost-wise without this electrification aid and the mining tax. So what we are doing currently, we're updating the investment case and also, of course, looking at is there is there other ways? Are there other items we can take in so that this investment case basically reaches our hurdle of 15% of ARR for foundational investments. So the investment case is still valid and it's being reviewed now with new assumptions as some of the cost assumptions have changed, and we also have some other ideas what more we could do. So it's under review currently. Marc-Simon Schaar: Yes. And if I then continue on the cash flow question, first of all, during fourth quarter, as mentioned earlier, our ability to reduce working capital was. if I think about the first quarter, yes, business activities do increase, as we mentioned before, our volumes. Then we have also seen the nickel price increase, but expectation at the moment is that working capital will only increase moderately into the first quarter of this year. We do think then for the entire year, I mean, that pretty much depends also on how business activities and prices further develop that we, as a management team, are very committed in focusing on improving our working capital and particularly inventory efficiency now during this year and have dedicated programs in place. Coming back to your particular question around CapEx guidance for this year is around EUR 200 million. And then if we think about financial expenses, pretty much in line with what we have seen this year around, I would say, EUR 50 million. In terms of taxes, I would add or take similar levels as we had a cash out in this year according to our plan. And then we do have restructuring provisions here as well, which we should take into account and which we have been reporting earlier as well. Dominic O'Kane: Could I just ask on the EUR 200 million CapEx, does that include anything for Tornio? Kati Horst: No. So if we look at like a bigger investment on the AP line or we would look at more transformative investment in Avesta, no, it does not include that. And maybe as a reminder, we capped our CapEx this year also because of the financial performance cash flow to EUR 160 million -- and I think we arrived at EUR 145 million. So that was also how we were managing the cash. So I think EUR 200 million is more going on the ongoing initiatives, what we have, normal maintenance that we have. And then potentially other investments, they would probably not start in '26 yet impacting our CapEx, but later. Dominic O'Kane: But the announcement on the CapEx in the U.S. with new proprietary technology, the USD 45 million, that's being part of the EUR 200 million as well. Kati Horst: Correct. Operator: The next question comes from Maxime Kogge from ODDO BHF. Maxime Kogge: So my first question is on dividend because there have been some expectations on our side, on the sell side, that you would at least roll over the existing payout and you have cut it by half. So it's fair considering the other constraints you mentioned. But going forward, how should we think about your dividend payment ability? Is it fair to assume that as long as you have not been back to this ratio of net debt to EBITDA of 1, which is your long-term target, dividends are going to stay quite limited? Kati Horst: Well, I think our kind of target in the dividend area is, of course, to continue to deliver stable and growing dividend over time. We just have to maybe remember in what kind of cycle we have been and what kind of financial performance we have had -- so that consideration is there. And then the other consideration is, of course, the financial health. So our balance sheet and then also keeping this room for potential investments in transformative growth. So those are the aspects that we are considering in the dividend policy, and that's why the proposal now of the EUR 0.13 dividend per share. Maxime Kogge: All right. Second question is on the nickel price. So price of nickel has surged by 20% over the last 2 months. So when we ask a question to your main competitor, they were relatively dismissive of any impact since they procure most of the nickel needs from scrap. That's the same for you. But still, would you believe that there could be a positive price volume impact associated with higher nickel price in the sense that distributors in such phases of higher nickel prices tend to rush to buy material. And yes, would it apply in particular in the U.S. where the market is more geared towards distributors, plus you have this pass-through mechanism of the base plus alloy surcharge, which is working quite well unlike in Europe? Marc-Simon Schaar: Yes. To answer your question directly, with the higher nickel price, also we expect an improvement here on the price level and also within our margins. Maxime Kogge: Okay. But you don't see any volume impact associated with that, do you? Marc-Simon Schaar: We do need to see here really a recovery in the underlying demand, certainly with CBAM, as mentioned earlier, and then let's see safeguards coming in that there is a shift in -- from imports to domestic producers, but we definitely need to see how the economic activities are recovering. Maxime Kogge: Okay. Fair enough. And just last one is on your long-term EBITDA target. That's also in light of comments made by your main competitor around its own long-term target of EBITDA that it dropped from EUR 800 million to EUR 700 million to EUR 800 million, and that was despite a big acquisition made in between. As far as you're concerned, you have a very ambitious and very high long-term EBITDA target at EUR 750 million to EUR 850 million. That's an improvement over the existing EUR 500 million, EUR 600 million. I understand this target is based on the quite high base prices, plus you have the benefit of this new investment. So how comfortable are you with this target given the fact that prices remain quite depressed at this stage, plus consensus has expectations at a much lower level, including for '26 and '27? Marc-Simon Schaar: I think you mentioned yourself here the pricing environment right now, and this is -- and also the long-term target here as well. And this is how we should look at this as well. We also said this is then the target looking through the cycle here as well and having the improvements as we communicated during the Capital Markets Day through investments in the foundational business here, which is then building up here the improvements. And yes, we're still comfortable around this level. Operator: The next question comes from Bastian Synagowitz from Deutsche Bank. Bastian Synagowitz: I have 2 quick ones left as well, please. Maybe firstly, on Americas where you've been doing quite well. You mentioned the U.S. MCA agreement. I guess we don't know what the outcome will be, but could you briefly remind us on the sensitivity to your numbers in the current price and margin environment should the U.S. tariffs be dropped completely? That is my first question. Kati Horst: Yes. Maybe I'll start with that. I'm not so much talking about the whole USMCA for instance, with Canada, but more referring to the negotiations and the sentiment we have from the negotiations between Mexico and the U.S. So I think they've been constructive, quite positive. Of course, we don't know the outcome. But what was done in Mexico now as well, Mexico imposed 50% tariff for Asian imports as of beginning of the year. That is, I think, something what you have been also asking for. So that has happened. That gave us some opportunities for price increases. And it could also support then demand to a domestic supplier in Mexico, which we are the only one. But of course, there is a tariff now between U.S. -- from Mexico to U.S. of 50% for steel. And it doesn't take into account whether the steel has been melted in America or not. So that is, of course, an upside for us if we can also use the Mexican capacity for the needs of the U.S. market because the Mexican market currently is very weak. It can recover with some of the measures somewhat, but we would very much in this situation, want to use the capacity more for the U.S. demand as well. So therefore, if this tariff would become lower or disappear, of course, that would support our business clearly. Bastian Synagowitz: And could you maybe just give us like a quick understanding on what the sensitivity is if that 50% tariff would be dropped, just looking at the cross shipments from the U.S. into Mexico and vice versa? Kati Horst: Well, I think in the past, the shipments have not been so very high because the Mexican market was also doing well. So probably 10,000, 15,000 tonnes. But we have, of course, more capacity in Mexico. So should the Mexican market stay weak, which I, of course, don't hope and the tariff would not be there, it would give us opportunities to bring even bigger volumes to U.S. Bastian Synagowitz: Okay. Understood. Okay. Great. And could you just clarify the Mexican tariff, does that also cover at least part of your client sectors as well on the downstream side? Kati Horst: So yes, so there's a derivative list, and there are certain products then on the derivative list where there is no tariff that are made out of steel. I think refrigerators happens to be one of them. But it's a bit of -- it depends what is on the derivative list and what's not on the derivative list. But everything that's in the form of raw material as steel is tariff by 50%. Bastian Synagowitz: Okay. Got you. Thanks, Kati. Then lastly, are there any big items for us to keep in mind for 2026 on the maintenance side? I guess there's probably the usual, but I don't know, is there anything extraordinary here? And then also anything similar, any one-offs like the ERP, which you had last year, which we should just factor in? Kati Horst: No. No, nothing major. Operator: The next question comes from Igor Tubic from DNB Carnegie. Igor Tubic: I just have 2 follow-ups. You mentioned that the mix in Americas improved. I just wonder what we should expect in terms of Q1 for 2026, both for Americas and for Europe? And then also if you can comment anything about in what segments you saw an improvement, so to say, in the mix in Americas? Kati Horst: Well, I guess, we have to start by saying we don't guide on the PA level for the Q1, but you saw our guidance of improving volumes in stainless steel between 20% to 30%, so that goes both -- it's combined Europe and Americas. I think that is an answer on there. And then if we look at the -- I could maybe generally answer that if you look at the end user segments that are booming in Americas, data centers is one, electrification goes forward. But I think this is also very much about our own work. So we are digging deeper to different customer segments where we see opportunities for our product portfolio. So we are becoming more of a market maker in the segments where we want to grow. So this work, I'm also expecting to bring some results in the coming quarters. Marc-Simon Schaar: And maybe to come back a bit more on the first quarter, I think the best way really to look at our first quarter and the guidance is, as we said and stated in the guidance, it's the volume recovery. There are, of course, a couple of offsetting effects left and right that the major driver is really the volume recovery in the first quarter. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: One quick left from me. Could you give -- I think this is a bit of -- you answered partly, but could you give any indication how your lead times have developed now under the CBAM game effective 1st of January. So have you seen increasing order books for yourself? And any indication of how lead times have developed after this? Marc-Simon Schaar: Yes. Lead times have developed. Lead times have improved. And right now, we're middle of February, and we have already started booking into the second quarter, April into May. Joni Sandvall: Okay. And maybe a quick one also just to confirm, was the ERP rollout completed already during the Q4? Marc-Simon Schaar: Well, it is a huge project in itself. We talked about the difficulty and the implications from the supply chain solution as part of the ERP program. And the aftercare will still continue into the first quarter of this year. But yes, we expect then by the end of the first quarter to have then a stable situation going forward. So being temporary. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Kati Horst: Thank you very much for your active participation today. And I think this, in principle, concludes our session today. Like I said a while ago, I think we are really confident about our future going forward. So we will look at growing this company. We will gain the resilience, and we will work hard to improve our financial performance. So thank you very much for being with us today and talk to you then again in our -- when we talk about the Q1 results in the spring. Thank you very much. Marc-Simon Schaar: Thank you.
Operator: Good morning, and thank you for standing by. Welcome to the Sphere Entertainment Co. Fourth Quarter and Year-end 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Ari Danes, Investor Relations. Please go ahead. Ari Danes: Thank you. Good morning, and welcome to Sphere Entertainment's Fiscal 2025 Fourth Quarter and Year-End Earnings Conference Call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, will provide an update on the business; Robert Langer, our Executive Vice President, Chief Financial Officer and Treasurer, will then review our financial results for the period. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 4 and 5 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to Jim. James Dolan: Thank you, Ari, and good morning, everyone. This morning, we reported our fourth quarter financial results, which serve as continued validation of the business model behind Sphere. Our success in Las Vegas, including most recently, the Wizard of Oz is an important blueprint for our long-term vision, a global network of spear venues powered by our proprietary technology and immersive content. And we're now one step closer to realizing that vision. Last month, we announced that we will bring the second Sphere in the U.S. to National Harbor in Maryland, which is minutes from DCs. National Harbor is one of the top tourist destinations in the Mid-Atlantic with more than 15 million annual visitors. This 6,000-seat Sphere venue will be built with support from the Peterson Companies the land owner and developer of National Harbor. As well as the state of Maryland and Prince George's County. The project will utilize a combination of public and private funding. This includes approximately $200 million in state, local and private incentives. We are moving quickly to finalize agreements and secure necessary approvals and believe the venue could be open in 4 years or less. In Abu Dhabi, we have reached the final stages of preconstruction and expect to share additional updates in the near future, including details on the site location. We are also in active discussions with a significant number of domestic and international markets regarding large and smaller scale Spheres. We will update you on our progress over the course of the year. Moving beyond expansion. We continue to invest in immersive technology and experiential content to fortify Sphere's leadership position. As you've seen, the Wizard of Oz at Sphere has been both a critical and commercial success. With over 2.2 million tickets now sold and approximately $290 million in ticket sales. Later this year, we plan to release the Wizard of Oz 2.0, an enhanced version of the production with new scenes and new 4D effect. We are also on track to complete our next theater experience from The Edge later this year. In addition, we continue to have positive discussions with IP holders regarding new sphere experienced projects. So in summary, we are pleased with the momentum we're seeing across our business. Especially our progress towards a global network of spheres, which we believe positions the company for substantial long-term growth. With that, I will turn the call over to Robert, who will take you through our financial results. Robert Langer: Thank you, Jim, and good morning, everyone. For the December quarter, we generated total company revenues of $394.3 million and adjusted operating income of $128 million. Our Sphere segment generated revenues of $274.2 million, an increase of over 60% compared to the prior year period. This growth was mainly driven by higher revenues from the Sphere experience, which reflects higher per show revenues due to the impact of the Wizard of Oz as well as an increase in the number of performances. In addition to higher revenues from the Sphere experience, we also saw revenue growth in concert residencies, and Exosphere advertising and sponsorship. Overall revenue growth was only partially offset by the absence of a brand event held in the prior year quarter as well as other revenue decreases. Fourth quarter adjusted operating income for our Sphere segment was $89.4 million as compared to an adjusted operating loss of approximately $800,000 in the prior year quarter. This reflected the increase in revenues as well as lower SG&A expenses, partially offset by higher direct operating expenses. The increase in direct operating expenses includes higher expenses associated with the Sphere experience. This was mainly a result of higher per show expenses due to the impact of the Wizard of Oz as well as a higher number of Sphere experience performances. SG&A expenses for the December quarter were $104.1 million, a decrease of $14.9 million year-over-year. This includes the impact of $4.6 million, primarily related to executive management transition costs in the current year quarter as compared to $12.4 million of executive management transition costs and nonrecurring costs related to MSG Networks in the prior year period. It also includes the impact of the company's focus on driving cost efficiencies this year. Turning to MSG Networks. The segment generated $120.1 million in revenues and $38.6 million in the AOI in the December quarter. This compares to $139.3 million in revenues and $33.7 million in AOI in the prior year period. These results reflect an approximately 14.5% decrease in subscribers and the impact of lower affiliate rates as well as the impact of recent amendments to MSG Networks media rights agreements with MSG Sports and certain other professional teams. Turning to our balance sheet. As of December 31, our Sphere business had net debt of approximately $56 million. This reflected approximately $477 million of unrestricted cash and cash equivalents, $259 million in convertible debt and the $275 million term loan related to Sphere in Las Vegas. In January, the company refinanced the credit facility related to Sphere in Las Vegas. This refinancing extended the facility's maturity for a new 5-year term ending in January 2031 with an improvement in the borrowing rate and no change in the term loan balance. We also added a $275 million revolver, which is currently undrawn and will be available for general corporate purposes. At MSG Networks as of December 31, net debt was approximately $128 million. This included $159 million outstanding on the MSG Networks term loan, which, as a reminder, is that recoursed only to MSG Networks. And with that, we will now open the call for questions. Operator: [Operator Instructions]. Your first question comes from the line of Brandon Ross from LightShed. Brandon Ross: Jim, you mentioned in your prepared, you're in several discussions on new big and small Spheres. How many Sphere expansion projects, full-size versus smaller scale, do you expect to be able to begin in the next few years? And knowing you're capital light on most, how many projects can you guys handle managing at once? James Dolan: Well, it's a good question. I mean my initial answer is basically as many as we can get, assuming that they're all profitable and makes sense. I guess the limiting factor with it, Brandon, is that how much can the management team and the operation handle and we've decided the team to handle quite a few. So the -- over the next few years, I don't think you should be surprised by the 5 or 6 projects going on at once. Hopefully in the best markets. But if we can figure out how to do more and there's more opportunity, we're going to try and take advantage of it. Keeping in mind that we will separately finance them, right? So the resources will, I believe, will be there. Brandon Ross: Got it. And in the press reports about the capital Sphere, they said it was going to cost about $1 billion. have the elevated construction costs had any impact on your conversations at all with potential partners? James Dolan: Not on the conversations that the -- I mean, the model still very much holds up to support that level of investment. I'm hoping we bring it in for less. We're working on that right now. I mean, we're constantly working on -- there's new -- besides, there's an increase of cost, but there's also new construction methods, which help lower costs. And we're a company that likes to go out and try to do stuff. And so we're looking at some of those new construction methods and see what we can do to lower some of the costs along with it. But it's still -- the model still holds up. Operator: Your next question comes from the line of David Karnovsky from JPMorgan. David Karnovsky: Jim, just on National Harbor. Can you speak a bit more to how you settled on the location as optimal for the small-scale Sphere? Just any background on the process would be helpful. Thanks. James Dolan: Good. The interesting question that -- because I'd love to tell you that we plan this right up to every little nuance. But the fact is that Virginia and Maryland, we're in a competition that spin up the process of looking at the project, and we got a very good offer kind of really great location, and we took it. So the -- it's -- but that one even surprised us because of the dynamics involved with it. David Karnovsky: Okay. And then you noted for National Harbor, $200 million of funding against the $1 billion cost that you and Brandon were just discussing. And can you just help us bridge that financing gap? And then we haven't seen any mention of an operating partner. So is this a venue you potentially plan to run and consolidate in the financials? James Dolan: Hang on, David, can you restate that? Robert Langer: Yes. He just mentioned that the $200 million of government funding will be part of it, and we haven't -- we haven't mentioned we have an operating partner, how are we planning funding the rest? James Dolan: I think there's a lot of different ways that we can do it. I mean the -- I assure you we'll do it in a way that will be the least expensive. And -- but there is -- I mean, we could do this the -- practically just on stand-alone financing just on the projects itself because our lending institutions are bullish on our projects and they are willing to lend into them. But having partners also is -- there are advantages to that, particularly if they're in-market partners that they have. I mean we're right next to the MGM, right? I'm not saying they're going to be our partner, but they - but when we build the Sphere, as we've seen in Las Vegas, right, it affects the entire community, right? And the entire business community, and they benefit from it. And so working hand-in-hand with the rest of the community, probably a good act. So it's a long-winded answer to saying there's a lot of different sources. Operator: Your next question comes from the line of Stephen Laszczyk from Goldman Sachs. Stephen Laszczyk: Jim, curious if you could talk a little bit more about how ticket sales for WOZ are trending into what's usually a seasonally weaker period in Vegas over the winter? And then if there's anything you're seeing on the demand front from the show that's encouraging your thinking in one direction or the other on things like show count and pricing as we head into the spring and the summer? James Dolan: Well, with us today is Jen Koester who wasn't expected to answer a question, but this is really her area. So go for it, Jen. Jennifer Koester: Hey, Stephen. We've seen Las Vegas headwinds our way, but we've been resilient and experienced strong growth despite headwinds this past year, and we feel confident that we'll continue to do the same in the next year. In terms of ticket calendar and show calendar, we have been aggressively putting forward days where we have multiple shows, these side-by-side, and we continue to enhance that and grow revenue per day. So that's really been a lot of the strategy is demand forecasting based on visitor rates. We believe there will be a strong convention season next year, and we're putting together a show schedule that reflects that. James Dolan: And we talked about in our remarks, Wizards of Oz 2.0. I think -- I'm not even sure to be honest whether we need Wizard of Oz 2.0 with the demand that we're seeing. But we're going to do it anyway. And I think that will probably make that product get even more legs. And then we have product behind it that we think it's going to be maybe as good as Wizard of Oz. Stephen Laszczyk: Great. And then, Robert, maybe on the cost side, SG&A came in a bit heavier. In the fourth quarter, even adjusting for some of the management transition expenses. Just curious if there's anything more you can say on SG&A in the quarter and then perhaps the outlook for the expense line item in '26? Robert Langer: Of course, Stephen. Well, let me start by pointing out that we are extremely focused on managing our cost infrastructure as efficiently as possible. We have identified a number of fast saving opportunities in 2025 and brought the SG&A number meaningfully down versus the prior year. In regard to the fourth quarter SG&A numbers, you pointed out, they did include certain executive transition costs as well as expenses related to share-based awards, which are mark-to-market on our stock price. Adjusting for these items, our SG&A expenses in the quarter are actually quite similar to levels we saw for the rest of 2025. Looking to '26 and beyond, we will absolutely continue to look for further cost saving opportunities wherever it makes sense. But we will balance that with ensuring that we have an infrastructure in place that supports the global vision in growth for Sphere, which Jim laid out. So as you would expect, there will be quarter-over-quarter fluctuations for timing reasons, to market adjustments or other nonrecurring expenses like the one we saw in the most recent quarter. But overall, we will continue to focus much on -- very much on managing our SG&A line efficiently, and we believe that our business is poised for significant growth in the year ahead. Operator: Your next question comes from the line of Joe Stauff from Susquehanna. Joseph Stauff: Jim, you had mentioned that you'll complete the Edge later this year. Wondering if you or Jennifer can kind of talk about how we should think about when you might launch that? What's involved with that? James Dolan: Well, I suspect that, that will debut from The Edge sometime in the fourth quarter, that they could slip into the first quarter. I mean a lot of it depends on Wizard of Oz, right? That the -- I'm selling out the capacity, right. I'm not sure I want to disturb that model. And that's really what drives those decisions, is the desire to maximize revenue inside of the facility. But the -- I think that from the edge and other products that we're working on are all designed to do just that, maximize the use of the capacity and bring the highest return? Operator: Your next question comes from the line of Peter Supino from Wolfe Research. Logan Angress: This is Logan Angress on for Peter. Jim, in the context of a broader sphere franchise rollout, how do you think about the potential cannibalization or competition between spheres, for example, what a potential franchisee on the East Coast be concerned at all that they'd have to compete with the newly announced National Harbor Sphere for demand? James Dolan: I really don't see that. The -- we're trying to -- we're going as fast as we can. We think, right? And building more spears because we see great opportunity out in the worldwide and domestic marketplace. And, I mean Las Vegas, I mean, our total -- Jen, you would know. I mean, our total attendance this year is around 4 million, somewhere in that, right? I mean that the -- these markets rates can certainly handle that. And so I'm really not concerned. I think that will we have a lot of opportunity. I don't see one, especially when you take a look at Las Vegas because, I mean, Las Vegas, we have our customers come to see us right? But they also come for conventions, they for lots of other reasons. Then the same thing will be true with National Harbor. That's why we say I already have 15 million people who come annually. That the -- and so I don't really see one market disturbing the other. Operator: Your next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Ryan Sigdahl: You mentioned positive discussions with other IP holders in your prepared remarks. I guess if you could elaborate on that, I guess, in the context of the success Wizard of Oz and really the longevity of demand and the strength there as it's continued now for a handful more months than the last time we spoke. So I guess the question is, what does that pipeline look like? Any additional details you can give from interested IP holders and how those conversations are going? James Dolan: We are in discussions with other IP holders. And there are some great products out there that we would like to develop while we develop some of our own IP. And so that's moving along. You do have to take into account that the -- right now, we have One Sphere, right, which is there is not -- I won't say completely sold out, but it's doing pretty well. So how much room do I have the -- so we watch the pacing on it, et cetera. But I will say one thing that every IP holder that we talk to is incredibly enthusiastic about taking their IP and putting it into this new medium. They all would like to do it. And there's just a question of what's the what's the payback for them, what's the value of it debt? And how much revenue can we build off of their IP. Operator: Your next question comes from the line of Peter Henderson from Bank of America. Peter Henderson: Can you provide an update on the residency pipeline through 2027? Just what you view as the sort of optimal number of residencies annually? James Dolan: Yes, we're pretty much booked the I mean I think there might be some slots available still in '27. I don't think there's hardly any left in '26. It might be a week at less than '26 somewhere. -- we're basically sticking to long weekends, right, taking advantage of how the Las Vegas market kind of runs and -- there's no shortage of artists who want to play. And we're focused on these days on we're bringing the artist rigs in the customers, right? And then we're running the wisdom of ours right now in tandem with those events. So we're looking for customers who want to come to see us twice on the weekends. And so far, that's going pretty well. Ari Danes: We have time for one last caller. Operator: Our final question comes from the line of David Joyce from Seaport Research Partners. David Joyce: You made a recent announcement that included the Delta having a new branded space within the sphere. Could you please update us on the rest of the sponsorship strategy, just the updates there and on the excess of your progress? James Dolan: That's a Jen question. Jennifer Koester: So we're off to a strong start in '26. If you looked at our performance at CES this year, our year-over-year growth was strong read advertisers like Google and Delta and Lenovo running every day during CES, we also held the second CES keynote at steer in a row. And then the other thing that we were particularly excited about, and I think it gives us some good projections on where we can go is that we debuted the first interactive game experience on the Exosphere in partnership with LEGO and Lucas' film, Star Wars. And we're going to continue to look for opportunities like that selectively that give us the opportunity to drive additional revenue as well as showcase our technology and innovation capabilities. We're making progress, as you mentioned, with our roster of official partners. You mentioned Delta. We also have recently announced Anheuser-Busch and we're in active conversations with a lot of other food chip brands in this regard. So we expect to have more announcements like this throughout the year. But overall, I think we're well positioned for growth in this area for the coming year. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Ari Danes for closing remarks. Ari Danes: Thank you. We look forward to speaking with you on our next earnings call today. Have a good day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.