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Operator: Ladies and gentlemen, welcome to the Schindler Full Year Results 2025 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Brorson, Head of Investor Relations. Please go ahead. Lars Wauvert Brorson: Thank you, Valentina. Good morning, ladies and gentlemen, and welcome to our full year 2025 results conference call. My name is Lars Brorson. I'm Head of Investor Relations at Schindler. I'm here together with Paolo Compagna, our CEO; and Carla De Geyseleer, our CFO. As usual, Paolo will discuss the highlights of our 2025 results and our 2026 market outlook, and Carla will take us through the financials. After the presentation, we are happy to take your questions. We plan to close the call at 10:30 local time. And with that, I hand over to Paolo. Paolo, please go ahead. Paolo Compagna: Good morning, everyone. I'm pleased to be back to report on our '25 results. But today, before I dive into the results, let me take this opportunity to take a step back and reflect on the journey over the last few years. You have seen we have titled our first slide, operational recovery completed as we see 2025 as marking the final year of our operational recovery. For those of you who have followed us for a while, you will recall that in '22, we faced severe supply chain challenges, steep declines in many of our major new installation markets and a significant drop in earnings and cash flow, and the company had to perform an emergency landing. Four years on, after some very difficult decisions taken by our majority shareholders and the Board at the end of '21, and thanks to the hard work and dedication of nearly 70,000 employees, I'm pleased to say that we have emerged from this period as a stronger and more resilient company. Well, one could say Schindler is back. We have made clear structural improvements to our supply chain. We have enhanced our product competitiveness and innovation and strengthened our global footprint and maintenance portfolio, including exiting smaller markets where returns were not aligned with our objectives. And from a financial perspective, the company has delivered 12 consecutive quarters of year-on-year EBIT margin improvement with high cash conversion. That is something we are really proud of. Now looking ahead to '26 and beyond, accelerating growth becomes our key priority, but without compromising on our commitment to the continuous improvement in operating margins. This I'd like to underline. An important part of the strategy is the commercialization of innovative standardized New Installation and Modernization products and our industry-leading digital offering for our Service customers. More on that shortly. Now let me touch on the highlights of 2025. Firstly, we delivered on our promises by achieving our financial targets. Growth was a little softer than we would have liked, but it was another year of a strong operating performance with a reported EBIT margin coming in at 12.6% versus our initial expectation of around 12%. I'm pleased to see that the efficiency initiatives launched over the last few years yielded good results, something we will build on in '26. Second, I'm comfortable saying that we are back in Modernization. I was very open with you 2 years ago that we were behind and having to catch up. Today, I believe we are increasingly leading in terms of competitiveness and momentum of our product portfolio, and I'm very optimistic about '26. In '25, Modernization orders were up 19%. And importantly, revenue was up 12% as backlog execution accelerated in the final quarter of the year. I'm confident that we can continue to expand our capacity and execute successfully also in '26. Third, a word on product momentum. We see signs that our efforts on product portfolio in the last years are starting to yield commercial results. And this will support us executing our strategy to accelerate profitable growth. The rollout of our standardized modular platform has been completed according to plan, positioning us well for NI recovery in our key markets. The rollout of our U.S. mid-rise product has clearly exceeded our plans in '25 and sets us up, I believe, for a continued market share gain in '26, too. And in Modernization, we continue to industrialize our operation and standardize our product portfolio. We are seeing very good traction with our standardized packages, and it is not only driving growth, but also enhancing our competitiveness and supporting our journey towards higher profitability in Modernization going forward. Fourth, despite the pressure in '25 from lower NI conversions and our decision to be more selective in recaptures, we continue to make good progress on our maintenance portfolio, which was up mid-single digit in value terms in '25. I believe we have an industry-leading retention rates on our portfolio, but I still see potential for this to improve. That will come in part as we leverage connectivity to improve the offering for our customers and to drive incremental digital revenue streams. Fifth, we delivered on operating cash flow of CHF 1.5 billion for the year, a second year of very strong cash conversion. Carla will elaborate on this. But this strong cash flow allows us to invest back into the business whilst also accommodating our shareholders with an increased payout. And I'm pleased to announce that the Board has proposed a dividend of CHF 6 for '25 as well as an extraordinary dividend of CHF 0.80. Let me touch on our China operations. I told you at the beginning of '25 that we had to take some tough decisions in order to realign our organization and set us for the future growth opportunities, especially in Modernization and Service. Now we are starting to see encouraging signs of operational improvement as we enter '26. A big thank you to our Chinese colleagues for all the effort in '25. Finally, a word on sustainability. We continue to make a good progress on our agenda. In 2025, Schindler's sustainability management system was recognized with an EcoVadis Platinum medal, ranking Schindler in the top 1% of the more than 150,000 companies worldwide. In addition, Schindler was once again included in the CDP A list of companies operating according to the highest environmental standards. So let us now look back at the global elevator and escalator market development in '25. Turning to Slide 4. Focusing on our updates on what we said in October after our Q3 results versus the year ended. First, we saw a strong Q4 in the U.S. new installation market, while demand in Brazil also developed slightly better than anticipated. Therefore, our assessment for Americas in 2025 has been revised to low single-digit growth from earlier flat. Second, we witnessed a strong finish to the year in India and Southeast Asia, lifting the Asia Pacific market growth comfortably above 5%. And finally, the Service and Modernization markets saw a good development in line with our expectations. So how did we perform in this market environment last year? Turning to Slide 5. First, in Service, our maintenance portfolio units continued to expand with the strongest growth in Asia Pacific, excluding China. In Americas, we saw a modest decrease as indicated already in October. This was a result of our increased selectivity when it comes to recaptures that we decided to pursue as well as from softer conversions. Given the normally longer lead time, especially in North America, the decline in our NI orders from 2023 was still having some impact last year. In Modernization, we have been able to maintain the strong momentum and saw double-digit order growth across all regions, except for Asia Pacific, excluding China, due to a lower level of large project bookings in both Q4 and full year. China was the standout with growth of close to 50% as we benefited from the massive equipment renewal program with well over 100,000 elevators replaced throughout the country. In New Installations, our global order volumes declined by over 10% due to China, where, as mentioned before, we have been repositioning our operations to be ready for capturing future growth opportunities. In the rest of the world, our NI orders grew mid-single digits, driven by solid growth across the Americas as well as in Asia, excluding China and notably in India. Now moving to our market outlook for '26 on Slide 6. We expect the Service markets to continue to expand across all regions with the lowest growth rate in the Americas and the highest in Asia Pacific, driven by India. The Modernization markets will continue to see robust mid- to high single-digit growth across the world. In China, the so-called bond program is expected to continue on an even larger scale, and we currently estimate another double-digit growth for the Chinese market also in 2026. In new Installations, we anticipate the global market to decline by more than 5% due to China, where the market is expected to suffer another contraction of more than 10%. While key real estate statistics saw double-digit declines with home starts by floor area falling around 20%, and this is now following at 3 years of 20% plus declines and also to be considered the higher tier cities, which earlier in the year performed relatively better than smaller cities, deteriorated sharply, especially in the final quarter of '25. Across the EMEA region, we expect good development in the Middle East to be coupled with important German market returning more firmly to growth as already evident from the double-digit pickup in multifamily building permits based on latest data available. Significant state support is aimed at easing the chronic housing shortage and stimulating investment, including increased funding for social housing, fiscal incentives such as the 5% aggressive depreciation for new rental residential buildings as well as the so-called Bau-Turbo initiative to fast-track housing projects. And we anticipate Asia Pacific, excluding China, to continue to expand by high single digit with broad-based growth across the region, led by India and Southeast Asia. With that, let me turn over to Carla to walk us through our financial results in more details. Carla Geyseleer: Thank you very much, Paolo. Good morning, everybody. So I propose we start with Slide 8. So that is our usual summary slide of the quarter compared to the last 4. So overall, Paolo mentioned it already, very pleased with the progress that we have made on the profitability over the recent years as well as our continued high cash conversion. I also acknowledge, as Paolo mentioned, that there is room for improvement in terms of growth, something I will touch on shortly when we discuss the '26 guidance. Firstly, reflecting on '25, Q4 marked the 12th consecutive quarter of year-on-year improvement for operating margins. So our reported EBIT margin was up 180 basis points versus quarter 4 in '24 and our adjusted margins up 100 basis points. For the full year, our reported EBIT margin landed at 12.6% versus our initial expectation for the year of 12%. So a very satisfactory performance, and I'm pleased to see that the efficiency initiatives launched over the last few years yielded good results in '25. Secondly, we had a strong end of the year for operating cash flow. Quarter 4 came in at CHF 523 million and the full year at CHF 1.5 billion, just shy of what we have seen the year before. Finally, our net profit continues to increase versus last year in both absolute and margin terms despite the decline in financial income as well as the FX headwinds. Now moving to our order intake development on Slide 9. You heard Paolo saying that our global New Installation order volumes declined by over 10% in '25. In quarter 4, our NI order volumes declined by over 15%. So clearly, a soft quarter for our New Installation business, driven primarily by China, down mid-30s in the quarter as we remain -- and we remain committed to our strategy of pricing discipline and as we continue to reposition our operations here towards future growth opportunities. So even though China made up less than 10% of our group order intake in '25, it continues to be a burden to our growth. We also had slightly softer development in the quarter in some of our Southern European and Middle Eastern markets, partly due to fewer larger projects here. So overall, a quarter with limited organic growth as a decline in New Installation almost fully offset the growth in Service and Modernization. Now if you look at the full year '25, order growth in local currencies came in at 3.1%. Excluding China, however, order intake grew 5.4%. So our growth in '25 was very much driven by Modernization, which grew 19% for the full year and 15% in quarter 4. Growth here was broad-based in '25 with strong double-digit growth across our 3 regions: EMEA, Americas and APAC, with China clearly a standout, up close to 50% in '25, driven by the government's bond program. Service orders grew mid-single digits organically in which combined with the strong MOD growth offset the decline in New Installations. Now finally, a word on currency. So the FX translation headwinds amounted to more than CHF 450 million on our order intake in '25 due to the strength of the Swiss franc versus major currencies, notably the dollar. And it's worth noting that these FX headwinds are not abating. Rather based on current FX spot rates, they will intensify in the short term. Now in terms of order backlog, it was up 1.2% in local currency at the end of '25, driven by Modernization, which was up double digit. Our backlog margin was stable sequentially in quarter 4, but still clearly up year-on-year. Especially the backlog margin in our U.S. business was stable sequentially in Q4, and we are starting to make progress on repricing our backlog here for the tariffs implemented in '25. We expect these repricing measures to continue over the coming quarter. Now moving on to our revenue development on Slide 10. The organic growth, both in the quarter and the full year, was driven by Modernization, up 22% in quarter 4, 12% for the full year '25. You will recall that we spoke of some operational challenges during '25 in terms of scaling up our delivery capabilities in Modernization, so we were pleased with how the year ended. And going forward, we continue to make good progress on scaling our capabilities and driving more efficient backlog execution. Now outside of Modernization, revenue in New Installation was down high single digit in '25, driven by China, which was down mid-20s, whilst other regions were down low single digit for our New Installation business. Service was up mid-single digit in '25. Now moving to Slide 11, operating profit performance. Let me say that I'm proud of what the organization achieved in '25 in terms of efficiencies. We have spoken over the last few years of shifting the corporate culture towards a mindset of continuous improvement, and we are really starting to see that more clearly, which is driving our financial performance. We delivered 12.6% reported EBIT margin in '25 and 13% in the final quarter of the year. And you can see the operational improvement of CHF 35 million in quarter 4 and CHF 163 million for the full year. That reflects primarily good progress in SG&A savings, but also supply chain and procurement savings, which continued to deliver in '25. Price and mix were contributors, but less so than efficiencies. One important operational achievement in '25, which I want to flag was the implementation of the ERP system in our U.S. operations. The U.S. is now fully integrated with the rest of our global organization. And as we complete this integration, leverage our global ERP platform, this should yield further operational efficiencies. Now restructuring costs in '25 came in at CHF 54 million, slightly lower than the up to CHF 70 million we had guided to initially, partly as some of our initiatives shifted into '24. So that meant that restructuring costs were below the level of '24 and hence, a small positive in the EBIT bridge. Now moving to the net profit. You can see that net profit grew to CHF 277 million in quarter 4, reflecting a 9.9% margin, close to CHF 1.1 billion for the year with a margin of 9.8% despite lower interest income and onetime financial gains in last year's period. So I'm very pleased with that result. Now moving to the operating cash flow on Slide 13, which reached CHF 523 million for the quarter and CHF 1.5 billion for the year, just shy of last year's exceptionally strong performance. Again, the uptake in our operating earnings drove the strong performance in '25, whilst net working capital improved, but less so than in '24 and hence, a headwind in our year-on-year bridge. This moderation in net working capital came partly as a result of less down payments for our New Installation business in '25. Now moving to Slide 14. So happy to share that the strong cash generation in '25 also allows for further distribution to our shareholders. So I can report, Paolo mentioned it already, that the Board has proposed an ordinary dividend of CHF 6 per share for '25 as well as an extraordinary dividend of CHF 0.80, reflecting a payout ratio of 72%. This higher dividend should also be seen in light of our solid balance sheet with our net liquidity position further boosted in '25 from the reduction in our Hyundai stake and the lower interest rate environment in Switzerland as well as our continued focus on delivering a more competitive yield for our shareholders. Now let me also mention a word on the share buyback program, which we launched in November '24. And this program has been running according to plan with the total number of shares, both registered and participation certificates bought back during '25 amounting to over just 700,000 shares for an amount of CHF 200 million. Now before I move on to discuss our '26 guidance, allow me a moment to zoom out a bit to give you a bit of a broader perspective on our financial performance. So if you look at the bottom 3 charts on this slide, I think you'll appreciate the quality of our business model. Cash conversion and return on capital compared to most other industrial sectors, both are high and stable. I'm very pleased to see the progress that we made since '22. That means that our balance sheet continues to strengthen, ending the year with a net liquidity of CHF 3.9 billion. Now this cash compounding wouldn't be possible without a stable and a growing top line. And as you can see from the top 3 charts, our long-term growth level is really healthy, led by a strong Service growth and with a balanced regional exposure. I think that is very important to remember at a time when we and the broader industry go through a bit of a softer patch in terms of growth. Now being a Swiss company has also meant facing significant currency headwinds over the past decade with FX shaving off over CHF 3 billion cumulatively of our top line over the last 10 years. Now moving towards the end and giving a bit of perspective on the '26 guidance. So for this year, we expect to achieve low to mid-single-digit revenue growth in local currency and an EBIT reported margin of 13%. As Paolo said, we are looking to accelerate the profitable growth and believe we have the right strategy to do so. In terms of revenue growth in '26, we expect to see continued strong growth in MOD, up double digits in local currency in '26, whilst New Installation should start to stabilize, consistent with our market outlook of recovering new installation markets ex China. But of course, with some lead time before that impacts our revenue. Going forward, in '26 and beyond, we also see an opportunity to complement our organic growth with inorganic initiatives across key strategic markets. Looking back over the last 3 years, we acknowledge the contribution from M&A has been lower than usual as our efforts have been more internally focused. But going forward, with the benefit of a sound financial position, I expect us to increase the pace of selective bolt-on acquisitions. Now as for the margin guidance of 13% in '26, it's very much driven by continued productivity improvements, increasingly from field efficiency. We expect an acceleration here to offset a moderation in procurement and SG&A savings such that we can achieve the same overall level of incremental savings in '26 as we did in '25. Now let me touch on the midterm margin guidance, which we will update later in the year. But let's be clear, we continue to expect a continued improvement of current levels over the midterm. One important difference to '25, however, will be the impact from mix. As you know, we have benefited significantly over the last few years from positive mix as our Service business grew strongly, whilst New Installations declined. But as our New Installation business expectedly starts to stabilize and Modernization grows strongly, the margin tailwind from mix will neutralize in '26 or perhaps even turn modestly negative. And finally, in terms of restructuring costs, we expect up to CHF 60 million in '26 on a par with the level in '25 and still burdening our reported EBIT margin. Now a word on tariffs, which I believe we have managed well in '25. As I mentioned, with the U.S. tariff costs now reflected in our backlog, we will continue to work hard at mitigating the impact, including making price adjustments to offset the impact. In terms of the annual gross P&L impact from tariffs, we estimate that to be around CHF 18 million based on current tariff levels, so lower than the initial estimate of CHF 33 million, which we provided to you in April last year. Again, we expect to offset most, if not all, of that with pricing and cost mitigating actions. So to conclude, let me end by thanking together with my colleagues in the Executive Committee, our close to 70,000 employees across the globe for their tremendous efforts in '25. And as we start out in '26, I believe we are in a great position to execute on our strategy, which we look forward to sharing with you at our upcoming Capital Markets Day. And with that, I hand back to Lars. Lars Wauvert Brorson: Thank you, Carla. Yes, as Carla mentioned, let me remind you of our Capital Markets Day scheduled for the 3rd of June this year at our headquarter here in Ebikon in Switzerland. We look forward to seeing as many of you as possible here on the day. Now with that, Paolo and Carla are happy to take your questions. In the interest of time, please, can I ask you to limit yourself to 2 questions only. And with that, operator, please, let's take the first question. Operator: [Operator Instructions] The first question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I will take two, but I'll take them one at a time. The first one in terms of your order organic growth rate, it seems significantly lower, I think, than some of the peers that we have seen reporting recently. You mentioned China, but some of them also have pretty big China businesses. You mentioned large projects. Can you give us a little bit more of a color? Was it unintended, you didn't take some of those large projects. Did you lose some market share for some other reasons? Just breaking down the competitive landscape context to understand this lower number than peers? Paolo Compagna: Well, there's a very simple answer to a complex question. There are 2 main reasons for the development of our OIT, which you see. Number one, yes, China was down for us. And this we have communicated. One reason is also the adjustment in structure we have initiated last year. We talked about it was mid of the year, and this kept us quietly busy till end of the year. So yes, in China, for us, it was kind of expected that we would take less of the market than possibly, I don't know, our competitors. There's a second and rightly so, you said, a second momentum, which had an impact on our OIT, and it is the deliberate, more selective approach when it comes to large projects. And here, I'd like to be very clear. We have to separate, let's say, the mass business in NI, residential, commercial and selected large, large projects, which -- we shared this in Q3 and also over Q4, we were very selective in also key markets not to take things which would feed what we call the boa constrictor, you remember, 3 years ago once again. And both had the impact, which you see, especially in NI. Daniela Costa: Got it. And then the second question is just on margins. So you've hit the 13%, and you've exceeded what you've expected earlier in 2025. And I think in the press release, you call it that the operational recovery phase is completed. I believe some time back, you talked about getting your margins over the long run to best-in-class peers, which are still a bit higher. So should we interpret this that the route to get there is just more dependent on just operating leverage? Or are there still any idiosyncratic actions? Just how do we read this operational phase is completed and the ambition to get to best-in-class peer margins over the long run, how do we get there? Paolo Compagna: Yes. So my statement is clear. The operational recovery, which we started mid of '22, this we see as completed as we gave ourselves a target, which was also shared with the market, and we aim to be there in the course of this year finally. So hence, bear with us until we meet at our Investors Day in summertime, where we will then share with you also what are our next steps and plans. But as Carla mentioned before, very clearly, and I said it before, our intention, our plan, our commitment is to continue a journey of margin expansions while we accelerate growth is what we internally call now '26, the profitable growth agenda, which then we will share more details in June when we meet. But thank you for your question. It's very important to be mention here and today that the journey is not an end. We have just moved now from one phase to the next. But yes, the recovery we started. Remember, factories, key markets, we shared this all with you. This we see as completed. Operator: Next question comes from Vivek Midha from Citi. Vivek Midha: I have one question and one follow-up, please. On the order intake, still a similar development to the third quarter on the Americas Service business, the slight decline in the unit growth. Just thinking ahead to 2026, is this something we should expect to persist through the first half of 2026, given your continued selectivity, maybe some lingering effects from the weaker 2023 NI order intake. When does this start to fade out in your view, in your orders? Paolo Compagna: Vivek, we shared in Q3 the impact of our strategy, especially on portfolio selectivity in recaptures, right? These are recoveries from the market, which we don't intend to change. However, the soft contribution from NI conversions from '23, this we expect to be over in the course of this year. So hence, to your question, we would not expect the same trend continuing in '26. Vivek Midha: Understood. Just following up on that. When you say for 2026, so should we already expect that to be visible by the first quarter? Paolo Compagna: That's a valid assumption. Now Q1 is always -- I think Q2, Q3 is where we should see a change in the trend in the U.S. market in portfolio for us. Vivek Midha: That's very clear. My other follow-up, if I may, is on the 2026 margin guide. How much are you assuming as raw material or commodities headwind within your guidance? Carla Geyseleer: Thank you for that question, Vivek. Of course, we will see some headwinds when it comes to the raw materials, especially in the copper and aluminum, also to a certain degree, steel in the U.S., but that has all been included in our guidance, yes. So we consider that. Vivek Midha: Okay. Understood. Do you have a number? Could you maybe quantify that for us, please? Carla Geyseleer: Yes. I mean this could go up to CHF 15 million, even CHF 20 million depending on the scenario that will pack out, yes. Operator: The next question comes from Andre Kukhnin from UBS. Andre Kukhnin: I'll start with one on the growth guidance, the low to mid-single digit. You've got 3% orders growth in 2025. I guess that underpins the lower end of the low to mid-single digit. Could you just talk about what kind of variables are out there? And how do they need to evolve for you to land in the higher end in that kind of mid-single-digit mark for 2026, please? Paolo Compagna: Andre, if I look back to '25, the order intake growth was a mixed picture between what we could have in China, which was, as I shared before, lower than expected. And I must say, in the rest of the world, our growth was significantly higher. So now looking to '26, your question is how confident can we be to get to a higher growth rate? And why can we talk about profitable growth? The answer is very clear. Outside China, and allow me to do this separation for all transparency, we expect to further grow a bit higher than last year. And in combination with a little recovery in China, this would lead to the guidance we have shared this morning. So we are quite confident that we can get to OIT growth we have communicated. So a combination of China little recovery and further expansion outside of China. Andre Kukhnin: Great. And my second question is kind of a follow-up, but I just wanted to see if we could build a couple more pieces of the profit bridge for 2026. Carla, could you help us with how much was the mix help in 2025 that you now guide to be neutral or slightly negative? And also for Service growth for 2026, what would you anticipate compared to the mid-single digit in 2025? Carla Geyseleer: Look, I mean, first important, I would say, contribution will come also in '26 from the efficiency. So that will continue. And I clearly outlined that. So it's not because, let's say, procurement and SG&A saving and supply chain savings are maturing that we will see less incremental because, obviously, it is our intention to monetize more on the other efficiency, mainly in the New Installation, Modernization and to a certain degree also in the Service business. So that is definitely one important element. The other important element is that we see also more stable markets when it comes to pricing, especially in NI and MOD and I'm really talking about outside China. So that goes, of course, hand-in-hand with the recovery, although, I mean, a gradual recovery that we see in some of our key markets. So that definitely will also play a role. In terms of mix -- well, in the overall margin uptake, we said always, well, in some of the prior years, it could have gone -- it was around 1/3 of margin uptake. We are fully aware of that. So we consider that, that full neutralizes actually in 2026. It could be even, as I said, slightly negative depending then on how the growth of the Modernization goes and the recovery of the New Installations. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. Can you comment on your Modernization order book versus capacity? I know in Q3, there were some issues on kind of throughput and delivery. I'm just wondering where you are on that journey. And then the second question, just a clarification around the tariff number. So CHF 18 million, is that a number we should be using in our bridge? Or should we think about that against the backlog, i.e., more than 1 year? Paolo Compagna: John, let me elaborate on MOD, which is a very good question. As last year, and I was saying before, you remember, we had to catch up on Modernization growth, which now in '25, we could do. And as I said, we intend to continue in '26. If we look at the execution, which is nothing else than the translation into capacity to execute the backlog, we could accelerate throughout '25 as we were able to build up resources in almost all key markets. And we continue to do so. Hence, as of the top line contribution, the execution is supposed to continue to accelerate. And our resources, which you say is capacity, will be continuously adjusted. However, for the backlog execution of '26, we are quite already prepared. But we continue to invest as we expect, as I said before, Modernization also beyond '26 to be a significant business driver. But for '26, the resources are almost there. Carla Geyseleer: John, Carla, I will take the question on the tariffs. The CHF 18 million that I referred to, that's actually the gross impact. So as we are going through the usual mitigation measures, I expect very little to impact our P&L. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: Carla, I think I've got one for Paolo and one for Carla. Maybe product momentum first, if I could. And just going back to your comments, Paolo, in terms of the standardized modular platform rollout and also the kind of standardized MOD packages. Is there any way you could say what percentage of the way through the rollout we are for NI and MOD? And what proportion of revenue in '25 was already attributing to the new standardized? And what you'd expect it to be when it's all rolled out and when you think you get to that point? I guess that's the first question. And maybe I'll come back with the second. Paolo Compagna: James, now connection was a bit weak. Is this about the level of standardization. Carla Geyseleer: It's very -- you are difficult to understand. Paolo Compagna: We got it. It's about the level percentage of standardized solution, right, within NI, right? James Moore: Yes, If I -- just to repeat, so you can hear it. Just if you could say what proportion of revenue was standardized in '25 for NI and MOD? And what you think it will be when you get to the end of the journey and when that is? Paolo Compagna: Okay, very good. So we've got -- actually in our own program, we have progressed, I would say, NI, more than the half. In Modernization, we have to separate between full replacements and partial replacements. In the full replacement, we have a very high level of standardized solution already. In partial replacement, we are already 50% of it, and it's continuing to increase. Second part of your question, by when do -- or what could be the ultimate target of standardization in both businesses? Well, we would love to see one day in New Installation, a standardization level of 85%, 90%, one could say, and similar one day Modernization, while admitting for everyone to remind that Modernization is also due to the complexity -- we were talking about this last year, remember, of the complexity of the existing portfolio, which makes it much more difficult to get to a high level of standardization. So here, I think the whole industry is working hard to get to this level, also to have 80% plus of standardization will take longer. But ultimately, it's what we have to get to. James Moore: Very helpful. I wondered if I could ask about margin mix in 2 dimensions, really. Just behind the 130 basis point expansion in your adjusted EBIT margin in the full year, could you provide some qualitative color on margins by type and region? I guess, would it be possible to say if NI, MOD and Service margins all expanded? And if you could rank them, that would be great. And I'm trying to avoid asking for a number. But equally, could you do the same regionally? Did all move forward? Or did we see China stepping back? And what really drove the uptake regionally as well? Carla Geyseleer: Yes. So first of all, what is important to share that is that the uptake of the margin is really based on a big number of operations. So it is globally spread. So it's not a few that are fueling the uptake. It's really globally, you can say that the -- everybody is contributing to the uptake of the margin, I would say, with the exception clearly of China, which is anyway a bit of a different market now. So that's from a market perspective. Secondly, when you look at, okay, where is the efficiency really coming from? Well, our 4 building blocks, they are not new. They have been clearly communicated on a regular basis. So still in '25, the major impact is coming from supply chain and purchasing savings. That is number one, followed by the SG&A savings because there clearly, our restructuring plans are paying off and are yielding results and then followed by the efficiency in NI, MOD and EI. And obviously, they had quite a good basis already this, what I call operational efficiencies. In '25, we can really see them accelerating. And obviously, that will continue in '26 and that increment in that area will offset the less increment that will be generated in terms of the SG&A. So that is to give you a bit of flavor where it is coming from. Obviously, I referred already to pricing. Pricing was healthy outside of China. So that clearly has also a contribution. So that's, in a nutshell, how the bridge actually looks like between '24 and '25. Operator: The next question comes from Martin Flueckiger from Kepler Cheuvreux. Martin Flueckiger: Two questions. Firstly, I would just like to get back to the slides, I think the first one, yes, operational recovery completed, it's called, where you described the growth in your maintenance portfolio being mid-single digit in local currencies. Just wondering whether you could break that down in terms of units and pricing growth as well as also that more than 40% of equipment being cloud connected. I was just wondering how much of that is just connection without customers paying for it? Or put differently, how much of that more than 40% is actually paying clients? That's my first question. I'll come back with the second one. Paolo Compagna: Yes. Without going now to which market has developed how, the mid-single-digit growth, Martin, on portfolio is actually well distributed everywhere. And I like in all [indiscernible] with may be a bit difference on China as always. As obviously, the big reduction in NI sales of the last year is hitting also the growth of the portfolio. But for the rest of the world, the development, especially in value was equally distributed. So I would not have any region or country to say, oh, there we did a big either pricing or whatever increase. So it's well distributed, and we are very happy about that. Then considering... Martin Flueckiger: Sorry, I think there's a misunderstanding here. I was referring to the split between unit growth and pricing within that mid-single-digit growth rate in local currencies. It's not the geographic contributions I'm interested in. I'm more interested in the volume pricing effects there. Paolo Compagna: No. Well, it's -- I think it's both low single digit -- it's low single-digit growth in both. So it's quite equal. So it's not that we have a significant unit growth with low value. I can say -- and this is maybe also important to understand that the portfolio growth came also with a quite equal price and value development. So it's both similar. Martin Flueckiger: That's helpful. And with regards to the more than 40% connectivity, are all of these paying for connectivity or just a part? And if yes, what's that part? Paolo Compagna: Well, difficult to say in detail which part it is. Then also the connectivity, I must say a larger part is contributing with a paid service, but by end, the level of paid services is very different country by country. So then if we have to say the number of the percentage of the connected units, how many do contribute, I would say the percentage is significant. The magnitude of the contribution of the connectivity is very different country by country. Martin Flueckiger: Okay. That's very helpful. And then my second question would be on BuildingMinds. I think a topic we haven't touched upon in any of the quarterly calls for quite a while. Just wondering how happy are you with the developments? And how much longer are you going to invest into BuildingMinds? And what are the operational, let's say, improvements or developments that you have seen in connection with the start-up? Paolo Compagna: Yes. So well, it's two questions in one. Let me summarize. BuildingMinds is now in the phase of scaling up the business model. As shared before, the platform has been completed and the team in BuildingMinds is now working on scaling up the business model, hence, in growing the business. The second part of the question, connectivity as a contributor. Connection to Schindler in the business, this is limited to some countries in which we have joined or shared customers. But on a broader base, this remains a separate entity. Operator: Next question comes from Martin Husler from Zurcher Kantonalbank. Martin Huesler: I also have two questions. First question, could you please share your ideas on M&A, maybe in terms of segments and regions? And up to what size would you consider M&A transactions? Paolo Compagna: Yes, Martin, as Carla was sharing before, we were all the time looking at very selective bolt-on M&As. And here, I have to also add in some selected markets. What we like to do now more in '26 and beyond is to expand the number of markets we will be ready to invest. And coming to the size, well, a bolt-on acquisition can have different size, right? It depends of the target. So there might be no direct limit. However, for us, it was always important to identify targets in whatever specific country, which do fit to our organization. This is what made our M&A strategy in the past successful, and it is something we aim to keep in mind. Martin Huesler: And then maybe the second one on cash returns to investors. Why do you flag an extraordinary dividend of CHF 0.80 and not just increased your dividend to CHF 6.80. Maybe can you also expect a new share buyback program after November '26? Carla Geyseleer: Well, I mean, thank you, Martin. I very much appreciate the question. But if you allow me, I would like to give more insights on shareholder return policy and share buyback programs in the Capital Markets Day later on in the year. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: I'll keep them quite short. If I start with the order intake, I mean, I take the China drop and you're being quite selective. But even outside of China, it's quite a big difference versus what we've seen from some of your peers. I'm just wondering if you could just elaborate on the competitive dynamics around large projects and how competitive pricing is? And if you don't think you can get the returns expected on these large orders, then why perhaps some of your peers could actually take them on? I'll stop there. Paolo Compagna: Well, we normally don't comment on what competitors take in. But let me explain what we have done in '25 and what we intend to do in '26. And this is a clear combination of reaction to markets, which, by the way, Carla was mentioning some of our key markets, let us also look at Europe. And you remember, I was quite concerned the last years when it came, by example, to Germany. Now we see also Germany coming to a more positive momentum. What does it mean? In terms of order intake, yes, it's clear, '25, we were selective. We were more selective in the range of the large projects, especially in countries, mainly China, where we were on top of it also reorganizing our structure. In terms of pricing development, here, I'd like to distinguish between these large projects and, let's say, the residential commercial day-to-day business, let's call it this way, in which we see in many markets, pricing opportunities coming up for '26, which will allow also to work more intensively on order intake without jeopardizing our commitment to margins. How much this will be possible to complete? The answer, when it comes to large projects, well, some large projects we do and we will continue to do. Would we accept everything which some of competitors might accept in there. This, I don't like to say we would do. However, all in all, I think the '25 order intake, yes, was very much driven by these 2 decisions and '26 without changing the strategy that much, we are quite confident that we can generate a higher OIT just also by, let's say, business outside of large projects. Rizk Maidi: Understood. And then very quickly, a follow-up. Can you, Carla, maybe comment on the incremental savings in '25? So roughly ballpark, is it CHF 150 million to CHF 170 million. And same thing, if you could just quantify the mix impacts. I'm getting roughly to 40 to 60 basis points, just if you can comment on those. Carla Geyseleer: I would say you're in the right direction, yes. Operator: Next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: My first one would be on Modernization growth into '26. Obviously, you are building the delivery capabilities, and we see accelerating top line growth in MOD in Q4 already. As you continue to grow it in '26, would you expect MOD backlog to actually decline in '26 or the new demand will still be strong and MOD backlog will still grow? So that's my first question. Paolo Compagna: Vlad, that's a very good question. So first, your assumption should be right. We intend to further grow in Modernization, OIT, but also top line, it means revenue. So hence, we are working to also expand our execution capabilities. Will the backlog continue to grow? Well, I think a little backlog growth should be there, but this will depend very much of how much we can accelerate execution. So therefore, both assumptions are right. Yes, we continue to grow. Yes, we expect higher top line contribution from modernization and maybe a slightly backlog growth, too, as we expand also the execution capability. Vladimir Sergievskiy: Okay. That's very clear. The second one is a very quick one. How do you see the bridge between adjusted EBIT and reported EBIT in 2026? You mentioned CHF 60 million of restructuring costs. Is there anything else in this bridge? Carla Geyseleer: Yes. Well, I mean, it's very restricted to the restructuring costs and the BuildingMinds. And obviously, BuildingMinds has become, I mean, less of a drag also compared to 2025. So yes, there are only duty elements, and I would like to keep it like that. You remember that a couple of years ago, we said, look, I mean, if it's recurring cost, it needs to go into the pure operational, and we like to keep the adjustments to a minimum. Lars Wauvert Brorson: We will take one final question, operator, please. Operator: The last question for today comes from Aron Ceccarelli, Bank of America. Aron Ceccarelli: My first one is on cost savings. You've clearly done a remarkable job over the last 3 years on executing on these efficiencies. If I take your slide of EBIT bridge for 2025, could you perhaps strip out the numbers of cost savings out of this CHF 163 million operational improvement, please? And when you look at 2026, you talked about operational efficiency to basically be the same ballpark of what you deliver on procurement. Can you maybe talk a little bit about in the real world, what are you accelerating there? That would be my first question. Carla Geyseleer: Yes. Thank you for the question. So in '25, I mean, a major part from these operational improvements are coming from what we call the SG&A savings and the supply and procurement savings. So these are the 2, I would say, major ones because they matured already these initiatives and obviously, they yielded very, very well. It doesn't mean, of course, that there were, of course, also efficiency savings in the operation, as I just mentioned before, in the New Installation and in the Modernization, and obviously, they will accelerate in '26. So overall, when we talk about these savings, we aim to go for a similar level in '26 than what we have seen in '25. However, the composition is slightly different. Aron Ceccarelli: And if I look at the CHF 163 million, is it fair to assume that 50% of those kind were savings? Or is it less -- just to have a rough idea? Carla Geyseleer: Yes, yes, absolutely. Yes, I confirm that, yes. Aron Ceccarelli: Around 50%, okay. And my second question is on China. You changed management, I think, at the end of the first half. Clearly, we saw a deterioration on orders and sales there in a tough market. Perhaps could you talk a little bit on real world, what are you guys doing now there? And where are we in the process of the restructuring, please? Paolo Compagna: Yes. The restructuring we have announced last year has been executed, and it consisted in a reset of the leadership team, which has been done. So this was done in the second half of last year, and it has been completed as well as a reorganization of the branches, which has been executed to a large extent last year. So actually, the restructuring we have announced in Q3 last year has been executed in Q4 with some minor actions still to come now in Q1. So hence, we expect in the course of this year,to see first impacts coming out of those actions. Operator: Yes, ladies and gentlemen, that was the last question. Back over to you, Lars Brorson for any closing remarks. Lars Wauvert Brorson: Thank you very much, operator. Thank you all for attending today's call. Please feel free to reach out to me and the IR team for any follow-ups you might have. I know there are a couple of follow-up questions in the queue. So please do reach out. The next scheduled event is our presentation of the Q1 results on April 23. You'll also find our reporting calendar for 2026 at the end of today's presentation deck. So with that, thank you very much, and goodbye. 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: Hello. Welcome to the Alfen 2025 Full Year Results Conference Call hosted by Michael Colijn, CEO; Onno Krap, CFO. [Operator Instructions] I would like to now hand the call over to Michael Colijn. Mr. Colijn, please go ahead. Michael Colijn: Thank you, Maria. Good morning, and welcome to Alfen's Full Year 2025 Earnings Call. Thank you all for taking the time to join us today. I'm Michael Colijn, Chief Executive of Alfen, and I'm delighted to be leading this trading update with you today. Joining me is Onno Krap, our CFO, who will talk you through our financial performance later in this presentation. Today's agenda is structured to give you a comprehensive view of our 2025 performance and our path forward. I'll begin with the highlights of 2025. We'll then dive into each of our 3 business lines. Onno will follow with our full year 2025 financials. I'll then outline our strategy update. We'll conclude with our 2026 outlook before opening the floor for your questions during our Q&A session. 2025 was a challenging year for Alfen. At the same time, our focus on cost control and operational discipline allowed us to maintain a stable adjusted EBITDA margin at 5.8% of revenue. This highlights the resilience of our business in a difficult market environment. Since joining Alfen 4 months ago, I spent significant time getting to know our organization's employees and partners, engaging with key customers, major supply chain partners and our investors. The past period has reinforced my view that Alfen is a company with potential. Alfen's products and services are crucial for the European energy independence and energy transition. Looking ahead to 2026 and 2027, we are focused on translating Alfen's strong strategic position into performance. To capture our strategic position, Alfen has embarked on company-wide transformation to align organizational capabilities with the revised strategic focus of customer centricity, product excellence and digitalization. This transformation is essential as we work to navigate current market conditions and position Alfen to better capture future growth opportunities. Looking ahead to 2026, this will be a transformational year in which Alfen repositions for profitable growth. We expect revenue to be between EUR 435 million and EUR 475 million with an adjusted EBITDA margin between 4% and 7%, while maintaining CapEx below 4% of revenue. I will dive deeper into our transformation and 2026 outlook later in this webcast. Let me turn to our Smart Grid Solutions business. In 2025, SGS generated revenue of EUR 189 million compared to 2024 revenue of EUR 210 million. Market conditions remained mixed throughout 2025 with headwinds in smart grid solutions caused by labor shortages, regulatory constraints and grid congestion, while underlying demand drivers linked to electrification remained intact. Activity increasingly centered on battery energy storage integration, transport distribution stations and the rollout of SF6 free substations in preparation for European regulation. We maintained a balanced revenue mix with 70% of revenue generated by high-volume transformer substation sales to grid operators and 30% by project sales. Our adjusted gross margin remained stable at 22.4% compared to 22.8% in 2024. Looking ahead, we are starting to see regulatory tailwinds that will benefit both the product and project smart grid business over time. For example, the European grid package published in December and the Dutch Environmental and Planning Act will contribute to increasing the speed of permitting and the availability of capacity on the transmission grid. Installation capacity will also be increased by the scaling plan 2030 published in November 2025, where Dutch DSOs, contractors and government launched a plan to accelerate grid infrastructure deployment. And Alfen is prepared to capture a significant part of that growth. Our EV charging business faced significant headwinds in 2025, with revenue ending at EUR 120 million compared to EUR 153 million in 2024. This decline was driven by increased competition in the EV charging home segment and reduced installation rates in the public segment. Our adjusted gross margin for EV charging improved significantly to 43.4% compared to an adjusted margin of 36.1% in 2024, primarily due to lower component prices. A significant achievement at the end of 2025 was the introduction of 2 innovative chargers, the Eve Single Plus and Eve Double Plus. These new products feature vehicle-to-grid ready capabilities, compatibility with a wide range of vehicle brands and energy systems, smart charging capabilities with OCPP 2.x compatibility, ancillary services for charge point operators, reduced installation costs for charging plaza applications and the secure ad-hoc payment options by dynamic QR codes. Over 2025, the battery electric vehicle market in the EU regained momentum with high double-digit growth rates in car registrations year-on-year across the EU. Importantly, European Union legislation continues to confirm the electric future with both short and midterm accelerators. Even though the European Commission has lowered several 2035 CO2 tailpipe emission reduction targets for cars, this still shows the future of mobility is electric. New initiatives such as greening corporate fleets and the automotive omnibus further support market development. We also see that market uptake will be increasingly driven by economic and customer preferences, such as the superior total cost of ownership and performance compared to internal combustion engine vehicles. These economic and customer preference factors are overtaking the importance of regulation in driving EV adoption. Our Energy Storage Systems business demonstrated resilience in 2025 with increasing revenue by 1.6% to EUR 125.6 million compared to EUR 123.7 million in 2024. This growth occurred despite market headwinds as energy storage system prices kept falling sharply in 2025. The gross margin for energy storage system was 22% in 2025 compared to 29% in '24. This was due to revenue recognition timing effects and an increased share of large-scale battery projects with a lower margin. Despite these challenging market conditions, we achieved several significant commercial wins during the year, and I give you 2 examples. For NOP Agrowind, Alfen will be doing the full engineering, procurement and construction scope for a 49-megawatt, 196-megawatt hour battery electric system, including the grid integration. Additionally, Alfen will be manufacturing 56 Mobile X units for Greener Power, Europe's largest temporary battery fleet. On the innovation front, we launched a new inverter design, significantly reducing noise levels and making the system more suitable for urban and other noise-sensitive environments. This development strengthens our competitive position as energy storage systems increasingly move into densely populated areas where noise considerations are critical. The backlog for energy storage systems for 2026 revenue was EUR 122 million at the end of 2025. This positions us well for 2026, and we still expect to book some orders in the first half of the year that will contribute to revenue in 2026. I now hand over to Onno to walk us through the 2025 financial performance. Onno? Onno Krap: Thank you, Michael. Our revenue in 2025 was backloaded towards Q4 due to a number of end of the year projects that were commissioned. We delivered revenue of EUR 120.1 million, representing a 12% decline compared to EUR 135.7 million in Q4 2024. This year-on-year Q4 decline was driven by lower EV charging revenues and by lower revenues in smart grid solutions. Smart grid solutions revenues in the Q4 2024 comparison base were higher than normal due to the production catch-up to recover from lower output early in 2024. Our adjusted gross margin for Q4 2025 remains stable, 24% of revenue in Q4 2025 compared to 25% of revenue in Q4 2024. The lower adjusted gross margin was driven by lower margin in energy storage solutions due to revenue recognition timing effects and a lower margin in smart grid solutions due to a relatively high share of transport distribution stations delivered with a lower margin compared to private domain stations. This gross margin effect was partly offset by a higher gross margin in EV charging due to lower component prices. Adjusted gross margin in Q4 2025 was lower than earlier in the year due to a business line and mix effect, relatively more revenue in ESS, relatively more. We also delivered a number of mid-voltage distribution stations at slightly lower gross margins. Adjusted EBITDA for Q4 2025 was 4.6% versus 5.7% in Q4 2024. This reduction was driven by a margin as well as a deleveraging effect. Looking at our full year 2025 income statement, I'll walk you through the key financial metrics and how they compare to our 2024 performance. Starting with revenue, we generated EUR 435.6 million in 2025, which leaves us at the lower end of our updated revenue guidance of EUR 430 million to EUR 480 million, as we already indicated during our Q3 earnings release. The decline represents a 10% decrease from EUR 487.6 million in 2024. Our gross margin for 2025 was EUR 124.9 million, representing 28.7% of revenue compared to EUR 115.4 million or 23.7% of revenue in 2024. The significant improvement in gross margin percentage was mainly driven by a large amount of one-off costs in 2024, totaling to EUR 24 million, among others, a provision for the moisture issue as well as a provision of obsolete EV charging inventory. When we look at our adjusted gross margin, which provides a clear view of our underlying operational performance, we see it remained relatively stable at 28.1% in 2025 compared to 28.6% in 2024. To calculate our adjusted gross margin, we exclude a provision of EUR 1.8 million in obsolete inventory for EV charging components, offset by a EUR 4.1 million reduction of the moisture issue provision. Moving to our operational costs. Personnel costs decreased significantly by 15.2% to EUR 73.8 million in 2025 from EUR 87.1 million in 2024. Our adjusted personnel costs exclude EUR 1 million in restructuring costs and some minor other adjustments. Other operating expenses also declined meaningfully by 21.1% to EUR 25.7 million in 2025 compared to EUR 32.5 million in 2024. Our adjusted operating expenses exclude EUR 1.2 million in one-off transformation costs for R&D and EUR 0.8 million in share-based payment expenses. In the next slide, I will explain in more detail how our adjusted operational expense have changed as a result of our cost control efforts and rightsizing. EBITDA improved from a negative EUR 4.2 million to a positive EUR 24.8 million, mainly driven by the absence of previously mentioned significant one-off items in 2024. Adjusted EBITDA remained stable at 5.8% of revenue, while dropping in absolute terms from EUR 28.5 million to EUR 25.5 million. Adjusted net profit remained stable at EUR 3.2 million. Throughout 2025, we implemented significant cost reduction measures. These actions were necessary to align our cost structure with revenue developments. Total personnel expenses and operational costs were reduced by 16.8%, our most substantial cost reduction in absolute terms came through organizational rightsizing, where we reduced our workforce from 1,053 FTEs at the end of 2024 to 923 FTEs by the end of 2025. We achieved meaningful reductions in other operational expenses, which decreased by 21.1% to EUR 26 million in 2025. These savings came from multiple initiatives across the organization. Moving forward, we will continue to maintain this disciplined cost and efficiency approach. Our net debt position continued to improve throughout 2025, demonstrating our commitment to maintaining a healthy balance sheet. Looking at the most important balance sheet movements. Current assets decreased by EUR 46.2 million, driven by further inventory reductions and a reduction of trade receivables as our end of year 2024 position was higher than normal on higher volumes of substations towards year-end and a number of battery outstanding receivables. On the liability side, noncurrent liabilities decreased by EUR 6.8 million, caused by a reduction on provisions and scheduled repayments of borrowings, while current liabilities decreased by EUR 44 million due to a reduction of trade payables as we paid our year-end bills. Our net debt position improved further from EUR 32.7 million at the end of 2024 to EUR 20.7 million at the end of 2025. Operating cash flow was EUR 32.5 million positive in 2025 compared to EUR 55.8 million in 2024. Operating cash flow was highly influenced by the inventory reductions in 2024 as well as in 2025. Further, we remain well within our bank covenant requirements. Our net debt to adjusted EBITDA ratio stayed below the maximum threshold of 3:1 as stipulated in our banking agreements. This improved net debt position gives us a solid financial foundation as we navigate through 2026 transformational phase. Our working capital position showed significant improvements throughout 2025, declining from EUR 92 million in 2024 to EUR 77 million at the end of 2025, reflecting our disciplined approach to inventory management and improvements in AR position. The most notable improvement came from our inventory reduction efforts. Between 2023 and 2025, we reduced overall stock levels and strategic down payment by 45%, equivalent to EUR 79 million. In 2025 alone, we achieved a substantial 20% decrease in inventories, representing EUR 20 million in reductions. This was driven by several key factors, selling a number of long-term energy storage inventory items and continuing to sell EV and battery charging inventory. Moving forward, we will continue to focus on further bringing down EV charging inventories to optimize our working capital position. Trade receivables decreased significantly in 2025 by EUR 32.9 million, mainly reflecting the normalization of elevated receivable levels at the end of 2024. These higher levels were driven by the ramp-up in volumes with grid operators in the second half of 2024, following the resolution of the moisture issue that had affected the Smart Grid Solutions business. On the payable side, our trade payables was reduced by EUR 40.9 million as certain larger accounts payable position were due towards the end of the year. The effect of our energy storage business on our working capital position continues to be positive. This continued positive impact is dependent on a continuous flow of energy storage contracts incoming for which prepayments are due. Overall, the working capital improvements contributed meaningfully to our positive operating cash flow of EUR 32.5 million in 2025. I now hand over to Michael Colijn, who will walk you through the strategy update and outlook. Michael Colijn: Thank you, Onno. When we look at the energy transition today, one thing becomes very clear. The ideal solutions are those that are cybersecure, easy to deploy and compact. And the reason for that lies in the underlying market trends that are shaping demand across the sector. First, the trend of electrification continues and is now combined with the need for energy security. Geopolitical tensions remind us that independent and cybersecure infrastructure is not optional. It is essential. This means customers are increasingly demanding electricity systems that are strengthened, controlled locally and protected against cyber threats. Second, we continue to integrate more renewables, and that push is decentralizing the grid. As solar and wind capacity grow, we need smarter grid connections and energy storage to close the gap between moments of high generation and high demand. But these trends introduce new challenges. We see rising grid congestion driven by electrification outpacing the expansion of the grid infrastructure. This creates pressure on our customers to find solutions that reduce or avoid the need for new grid connections. As a result, demand is growing for smarter energy assets. And finally, we are seeing execution constraints in the downstream value chain. Permitting cycles are long, qualified labor is limited and space is often scarce. This puts a premium on compact systems that are easy to deploy. Our strategy and our portfolio are best designed exactly to address these needs. Everything we do starts with our purpose, securing the electricity needed to keep life happening every day, everywhere. Today, energy security is more critical than ever. Our customers rely on us because our products must always be safe, reliable and trusted, especially as electricity is increasingly the backbone of mobility, communication, heating and industry. But being reliable isn't enough. We have to deeply understand our customers, not just what they ask for, but what they actually need to operate, grow and stay resilient in a world that is rapidly changing. Anticipating those needs is what sets us apart. And the role we play goes far beyond the customer relationship. Electricity is at the heart of society because when something goes wrong, when the lights go out or systems fail, households, businesses and entire communities feel the impact immediately. We, as Alfen, exist to prevent that. We believe deeply in the energy transition, and we believe in keeping electricity safe and reliable. And we believe in growing our business so that we can deliver reliable energy wherever and whenever society needs it. That sense of responsibility has shaped us for decades, and it will continue to guide us as we transform for the future. We take sustainability as a given. When we look at the environmental pillar of ESG, we have SBTi validated CO2 reduction targets and have achieved strong CO2 reduction across Scope 1, 2 and 3 in 2025. We are even on track to meet our 2030 SBTi validated target for Scope 1 and 2 already in 2026, ahead of time. On the social dimension, we're committed to being a responsible employer. For example, Alfen trains new technical personnel through the Alfen Academy. From a governance perspective, we maintain the highest standards of business ethics, transparency and accountability, and we are proud to be able to say that in 2025, there were no violations or irregularities reported on, for instance, the code of conduct. These efforts are also externally recognized as we are ranked in the top ninth percentile by the 2025 Sustainalytics rating. Let us now dive into what Alfen offers at a glance. Across our 3 business lines, we provide end-to-end solutions that are designed, engineered and built in Europe, supported by our own R&D, production, project management and service organization. In smart grid solutions, we deliver distribution substations and grid infrastructure that help operators strengthen the grid and enable electrification. Customers choose us for reliability, compact design, ease of deployment and integrated functionality. In EV charging, we offer highly reliable AC chargers for home, business and public locations with strong interoperability, smart charging capabilities and remote service built in. Our focus is on reliability, connectivity and ease of installation. And in energy storage systems, we provide multi-megawatt stationary solutions and mobile storage systems that help customers manage limited grid capacity, integrate renewables and optimize energy use. Here, we win on end-to-end service, local grid expertise and performance guarantees. Together, these business lines give us a diversified complementary yet resilient offering, one that directly responds to the needs of the market. Alfen operates across Europe with our headquarters and primary manufacturing facilities located in the Netherlands. We have established a strong presence in key European markets with our core markets being the Netherlands, Germany, Belgium, France and the Nordic countries. We build scale by growing with our customers. As they expand, we expand with them. For example, in the United Kingdom, we followed our battery electric storage systems. Local presence is core to our model. It allows us to serve customers with speed, high quality and deep market understanding. Today, we already operate with local sales and service teams across many European countries, and that network continues to grow. Each new country we enter often starts with one business line, but that local presence becomes a stepping stone to build out the next, especially in regions such as Southern Europe. This allows us to grow in a disciplined, scalable way. And once we achieve overlap between our business lines in the market, we unlock a major advantage, the ability to offer integrated solutions, for example, across Benelux, Germany and the Nordics. This European footprint, combined with our local depth, positions us strongly to support the energy transition wherever our customers need. Looking across our 3 business lines, we see sustained strong growth. Starting with smart grid solutions, we see increased demand from grid operators who are under pressure to expand and strengthen grid infrastructure to accommodate electrification. In the private domain, we observed increasing demand in the key segments such as fast charging, commercial and industrial storage, which are illustrative for the broader market environment. Also in EV charging and energy storage, we continue to see strong sustained double-digit growth across Europe. On the EV charging side, the number of installed charge point keeps rising as electric vehicles become more affordable and increasingly attractive for consumers. In energy storage, growth is even steeper. As more renewables enter the system, the need for storage to balance the grid increases rapidly. These long-term views reaffirm that Alfen is present in the right markets. To capture these growth opportunities, we are embarking on a comprehensive transformation. The goal of this transformation is threefold: to get closer to our customers, to achieve product excellence and to further digitalize our offering. Our transformation is guided by 4 core principles that will shape every decision we make and every initiative we undertake. The first of these 4 is total customer confidence. We want to build complete trust by being reliable, responsive and locally present across Europe, so we retain customers for the long-term and grow with them. The second is perfect product foundations. This means consistently delivering high-quality products that meet customer needs today and anticipate their needs tomorrow while optimizing the total cost of ownership. The third is smart services innovation. We will add more value to our customers through bundled, relevant and dependable solutions, enabling a step change in how we support them. And finally, a fighting fit model. We will evolve our structures and ways of working to enable the aforementioned 3 principles and to ensure we operate safely and effectively as we scale. These 4 principles define how we will transform and how we will position our company for the next phase of growth. Let me provide a couple of concrete examples of how these 4 principles will translate into action across our organization. For total customer confidence, we're building out 24/7 response capability and increasing our local-for-local presence. Under perfect product foundations, we're adopting a more networked approach to engineering and moving to modular, scalable software development. For smart services innovation, we're investing in remote monitoring and predictive maintenance, and we're equipping our field teams with remote diagnostics to resolve issues quickly. And within our fighting fit model, we're implementing a new operating model with clearer P&L accountability, and we're optimizing end-to-end processes within each business unit. For every business unit, we have developed a strategy that will guide commercial activity, European expansion and product and digital solution development. In smart grid solutions, we are concentrating on the 5 strongest growth segments, including public networks, fast charging, logistics, C&I sites and rail with a more proactive market outreach. We are also expanding in Europe by leveraging our existing relationships in private segment grid solutions. Across all markets, we will continue to differentiate through reliability, compactness, ease of deployment and our turnkey integrated offering. In EV charging, we continue to focus on AC charging for the home, business and public segments. Towards the future, we are simplifying the portfolio from 5 to 3 AC charger types to reduce cost and complexity while continuing to stand out with reliability, smart charging features, interoperability and strong remote aftersales support. Geographically, we will expand our core markets into Italy, Spain, Portugal and plan for re-entry into the U.K. And in energy storage systems, we are increasing commercial efforts in both utility scale and mobile solutions and further expanding into fast-growing C&I segments. We will prioritize our existing core countries with selective expansion based on clear criteria. Our edge remains our end-to-end service capability, local grid expertise, performance guarantees and particularly in mobile, our interoperability and plug-and-play peak shaving functionality. Together, these strategies give each business unit a sharp commercial focus while ensuring we differentiate through reliability, innovation and local customer relevance across Europe. As part of our smart services innovation, we are strengthening and expanding our digital solutions across all business units to improve performance, efficiency and customer experience. In smart grid solutions, customers can already configure substations directly through our webshop, influencing production planning in real time. And we are developing the station of the future, integrating predictive maintenance and remote connectivity into transformer substations. In EV charging, we are launching 2 major digital upgrades, a new mobile installer app that reduces on-site installation time by up to 90% and our new EVE control platform, which will provide advanced asset management, full remote service and simpler configuration of chargers. And in the battery energy storage, TheBattery Connect platform gives customers full visibility and control over their systems. It processes massive volumes of data in real time, enabling continuous optimization and fast reactions to any system alerts. These digital solutions are already creating value today, and they will become an even stronger driver of reliability, uptime and customer satisfaction as we scale. To support our transformation and accelerate our execution, we will adopt a business unit structure. Each business unit will be led by a dedicated business unit director. This structure brings several advantages. First, it moves us closer to the customer. More of our organization will be directly connected to customer-facing roles, giving us faster insights and quicker responses. Second, it allows for faster strategy execution. Strategic direction can be translated more directly into team priorities without unnecessary steps or complexity. Third, it increases accountability. Each BU will own its business outcomes end-to-end below the management Board, ensuring clear responsibilities and stronger performance management. And finally, it reflects the different dynamics in each BU, whether it's product versus project environments, commercial go-to-market approaches or operational requirements. At the same time, we will continue to leverage shared support functions and other synergies. This gives us the best of both worlds, greater speed and customer focus within each BU while still capturing synergies across the company. To fully enable our strategy, we need to strengthen the capabilities of our organization. By Q2 2026, we will transform both the skeleton and the nervous system of the company, the structure that supports how we work and the culture that guides how we behave. First, on the structural side, the skeleton, while maintaining overall headcount, we will reallocate capacity towards the capabilities that are critical for our commercial growth strategy. This means strengthening areas such as digital solutions, project management and service. As part of this shift, we do anticipate reductions in some areas and increases in others. And to support this transition, we will take a restructuring provision of approximately EUR 4.5 million in 2026. Second, on the cultural side, the nervous system. We will embed a company-wide culture focused on customer centricity. We have defined and will roll out consistent leadership behaviors across the organization, and we will clarify roles and accountabilities to ensure everyone knows what they own and how to contribute. Together, these changes will help us get closer to the customer, improve reliability and further digitalize our offering. Looking ahead to 2026, this will be a transformational year for Alfen. We recognize that before we can accelerate growth, we must first transform our operations and complete the organizational changes necessary to position us for sustainable success. This year will be about building the foundation for top line growth. For 2026, we are guiding revenue between EUR 435 million and EUR 475 million. Let me provide some context on how we see each business unit contributing to this guidance. The 2026 backlog for energy storage systems is at EUR 122 million, and we still expect to book several orders that will lead to revenue in 2026. Smart grid solutions revenue is expected to increase both in the project business as well as in the product business. For 2026, we expect a decline in EV charging segment, while the product portfolio is being renewed and competitive pressure persists. Our adjusted EBITDA margin guidance for 2026 is between 4% and 7%, and our CapEx is expected to remain below 4% of revenue. Looking beyond 2026, our ambition for 2027 is to return to profitable growth. By then, we expect our transformed organization, strengthened commercial strategies and enhanced digital capabilities to position us to capture significant growth opportunities across all 3 business lines. These investments we are making in 2026 are specifically designed to establish Alfen as the partner of choice for customers across Europe's energy transition. Thank you very much. We now open the floor for questions from our analysts. Operator: [Operator Instructions] Our first question comes from Nikita Papaccio. Nikita Lal: The first one would be on EV charging inventory. Could you give us any indication where are you currently? And what is the targeted level? The second one is on the decision to re-enter the U.K. in the charging business after exiting this, I think, last year. Just wanted to understand what has changed the situation in the U.K. What do you expect there? And what might be the cost to re-enter the country again? And the third one on the timing of your restructuring provision of the EUR 4.5 million. The organizational structure should change in Q2. Should we expect the provision to be booked in Q2 as well? Onno Krap: Nikita, this is Onno. Thanks for the questions. On EV charging inventory, we are currently -- at the end of 2025, we are at EUR 28.8 million in inventory for EV charging. The expectation is that there's around EUR 10 million of excess inventory still in there, and that will be brought down over the, let's say, next 2 to 3 years. We won't bring that down full year 2026 yet. So we need a little bit longer for that. Michael Colijn: On your second question regarding the U.K. re-entry plan for EV charging. I believe it was absolutely the right decision for the company to reduce its number of geographies last year when it had to realign and strengthen its core while reducing headcount. In our revision of our strategy for this year, we looked at how we would enter the U.K. and with what purpose. And there are 2 significant differences between the way we were operating prior to last year's withdrawal. The first is that we've taken a local-for-local approach, building teams in countries that can understand regulation, be close to the customer and really support the business there, both in terms of sales, service and project management. And the second, especially relevant for the U.K., is that we grow with our customers. We have several customers that have indicated with whom we're doing business already in different geographies that they wish to expand their portfolio with us into the U.K., and we are looking to do that together with them, thereby reducing risk on market traction, reducing operational expense to trigger the market and allowing us to grow neatly next to our customers. Onno Krap: I will take the question on restructuring. The expectation is to book most of the restructuring provision in Q2. It could be that a portion will still move into Q3. And the expectation is also that the cash outflow is around -- is most likely in Q3. Operator: Our next question comes from Ruben Devos from Kepler Cheuvreux. Ruben Devos: The first one is just on the gross margins. I think if my math is a bit right that the Q4 adjusted gross margin came in around 24%. I think in the rest of the year in '25, you were around 29% to 30%. So I think you've talked about mix effects from more storage revenue and a shift towards these lower-margin transport distribution stations in smart grids. So if the '26 sales guidance assumes growth in both storage and in smart grids, should we expect that same mix of Q4 to somewhat persist throughout the year? That's the first question. Onno Krap: Your analysis is right. Those are the main drivers for the somewhat lower margin in Q4. And also, if you take a look at the guidance that we have given by product line or by business unit, then SGS somewhat higher, battery somewhat higher and EV charging somewhat lower. That does mean something -- that does mean that our average margin will come down in 2026, and that's also reflected in the guidance that we have given on the EBITDA margin. Ruben Devos: Okay. And just to further build on that, I think you also talked a bit about '27. You're guiding for a year-on-year improvement in revenue and adjusted EBITDA margin. I think not too long ago, you were sort of talking about getting towards a low double-digit EBITDA margin in the mid-term. So maybe could you help us understand what a realistic 2027 exit rate would look like? Is low double-digit still on the table at this point as a mid-term objective? Or do you have a bit of a new look on that? Onno Krap: Yes. I don't really want to go beyond the guidance that we have been given so far. So the guidance for 2027 is moving in the direction of profitable growth and to -- and we're giving that guidance for a reason, and I don't want to basically go beyond that, and I'll mention any numbers on that. Ruben Devos: Okay. Fair enough. Then just a final one on the backlog of energy storage. I think it was a EUR 127 million, of which EUR 122 million for '26 delivery. That looks already like a strong coverage, right, relative to the sales you realized last year. I think you also talked about project execution timing that would drive the conversion. So basically, my question is how much sort of contingency is built into the guidance for this year for potential project delays? And what is -- if 1 or 2 larger projects slip into '27, how impactful could that be? Onno Krap: Yes. Good question. So -- but we -- if we take -- currently taking a look at the backlog that we already have and taking a look at the planning of the backlog from an execution and revenue recognition perspective, then we do see that the revenue is somewhat front-end loaded. So that basically gives some confidence that we have -- we have some cushion if something gets delayed, it gets delayed to Q4 and not delayed into 2027. And with respect to the orders that we still expect basically on top of the EUR 122 million that will lead to revenue in 2026, they have to come in relatively soon. So let's say, within the next 2 months, and that has to do with the fact that we do see increasing lead times of some key components, sometimes even going up to 40 weeks. So you can imagine that if we get an order in, let's say, in April with lead times of more than 40 weeks, it's difficult to realize those still in 2026. So timing is of the essence here also to book the initial orders to realize revenue in 2026. Operator: The next question comes from Jeremy Kincaid from Lanschot Kempen. Jeremy Kincaid: I have 3 questions, but let's start with the first one. On your EV charging guidance, you're obviously talking to continued competitive pressure and a decline from '25 to '26. But obviously, this year, you've launched some new products with -- which have new innovations. And I think I also read that you undertook a pricing reset. And so even after these steps, you're still going to be losing market share. So I suppose my question is, what is it going to take for you to stabilize market share or even grow? Michael Colijn: Thank you for the question. I think the steps that we are taking in the EV charging space are threefold. First of all, there's ongoing simplification of the portfolio, whereby the features inside the chargers are being designed to meet the latest expectations of our customers in terms of energy management, load balancing, VTG capability. And the other part is that each charger will be made more suitable across a larger number of geographies. The third element, which is playing on the minds of our customers is in terms of uptime, ease of installation, ease of use and really ensuring that we are best-in-class once again, which we were for a long, long time, and we did not pay enough attention to that in the last few years, and we've now launched the development of these new chargers, and we expect them to have the traction that we need. The initial response from our key customers is very positive, and we look forward to regaining traction with them during this year. Jeremy Kincaid: Okay, sure. And then on smart grid solutions, you're also talking to a broader international expansion. I think in the past, you've talked to the fact that you're reluctant to do that because grid networks are different. Are you able to talk to the rationale for the geographic expansion now? Michael Colijn: Absolutely. I think there are 2 markets that we serve within the general smart grid solutions area. One is the public one where we serve the grid operators. And what we're talking about here today is not that. We are discussing the private market, such as fast charging hubs, logistics, the C&I market, solar and wind farm support. These are behind the meter, specifically designed to support larger energy consuming or energy-generating projects, whereby standardization is possible across geographies, and there is not the need to meet complex grid requirements that we see in the public market. Jeremy Kincaid: And then the final question, Michael, if you look -- to look 5 years into the future, which of your 3 business units do you think would be the largest? Michael Colijn: Well, I'm in love with all 3 of them. So we are happy to focus on them. And joking aside, I think the strength that we will build out in the future is the synergies between them start to become more visible as projects become larger. To give a few examples of what we've done in the second half of last year, we've combined SGS, smart grid solutions with charging capability for really large international distribution companies. We've built out a combination of battery with smart grid solutions where peaks and troughs in demand can help those solutions where grid connections are difficult. And we've seen an increase in the number of smart grids at local level where we combine our SGS solution with either a battery or charging or simply getting the grid locally strengthened. Those type of synergies, we expect -- we see them, and we expect a bigger uptake in the future because intrinsically, we see an increasing complexity of the grid at the decentralized level, and that's where we're playing. Jeremy Kincaid: Sure. Okay. I suppose a final comment, it would be helpful to receive some sort of measure on that interconnectedness going forward to be able to assess that. But I fully understand your point. Operator: The next question comes from David Kerstens from Jefferies. David Kerstens: I've got 2 questions, please. First of all, on your revenue guidance, I think you upgraded that slightly from low single-digit back in November to growth of up to 9%, maybe 4% on the midpoint. What's driving that upgrade? And when you compare that with the market growth data that you provided in the strategy update, should we assume a further acceleration towards double-digit growth longer-term? That's my first question. Onno Krap: Okay. So I'll start with that one. Break out the revenue guidance, I think to a certain extent, Michael already also gave an indication there is in smart grid solutions, we do foresee modest growth or relatively low growth with the grid operators for this year. But in the project business, where we are also -- we expect some decent growth and we classify the work that we do for the mid-voltage distribution station, we classify that in our project business. That's where we expect a significant part of the growth coming from in the SGS business. If I then move to battery business, I think we tried to explain kind of the foundation of our guidance very much already backed up by the EUR 122 million in backlog that we have in portfolio already, plus the number of orders that we have visibility on and we expect to book in the next 2 months. So that's basically driving the guidance on batteries. And then we also see for 2026, a decline in EV charging. And -- but of course, I mean, that's something that's a position that we are not satisfied with. And I think all our efforts during 2026 will be focused on making sure that we reverse that trend, become more competitive and reverse that to a growth in 2027. That combined basically led us to guide you on 2027 that it will be profitable growth without, at this moment in time, putting any percentages on that. We will do that as soon as we have more visibility in that direction. David Kerstens: Okay. I understand. Second question is on the geographical expansion in EV charging. You already touched upon the expansion and re-entry in the U.K. You talk about increasing competition in EV charging. I was wondering how do you now see the competitive landscape in the various markets like Italy and Spain, which you are now targeting as well as in the U.K. I think there are many -- from what I understand, many local brands. And how do you expect for Alfen to build a position in these local markets? And what would be the associated cost for marketing to get into that market again? And will you mainly focus on the home segment? Or is this mainly in the public domain where you're looking to expand in these markets? Michael Colijn: Okay. A couple of questions there. Let me strip them down. First of all, the strategy is for us to be local for local and where we expand into the geographies based on our customers' wishes to expand. We see some pull from customers that are choosing Alfen because of reliability and a long history in EV charging. And we do see an increased competitive landscape in terms of the number of competitors, both local and international. When we look at the ability to drive innovation and our ability to maintain cost, we believe we have positioned ourselves for being very competitive across the different geographies in Europe. And we're not doing a single bet on a single country, you can see from our expansion plan that it is a multipronged approach, whereby volume is one of the key deciders for us to play in the geographies that we've mentioned today. In terms of the segment, the highest volume segment is the home market, followed by business and then finally, public. We believe that the mix of being in all 3 gives us an advantage in terms of platform, in terms of scale and in terms of being able to offer our customers what they're looking for. David Kerstens: And can you talk about the associated cost of this geographical expansion? Does it require advertising campaigns to expand in the home market? Michael Colijn: Not really. This is a relationship-based business-to-business market that we're in. We're not looking to develop a brand image around the charging facility. Operator: The next question comes from Thijs Berkelder from ABN AMRO ODDO BHF. Thijs Berkelder: First question on guidance 2026 on margins. In November, you still guided for 5% to 8% adjusted EBITDA margins, as I recall. And now you pushed that down to 4% to 7%. Can you explain the reason why you're pushing the margin guidance down? And why would you in '26, not be able to beat your '25 margin? What are the key factors there? And maybe David already hinted at larger -- higher marketing costs, other extra costs whatever -- can you explain? Onno Krap: Sure. It's actually twofold. One is based on the fact what I mentioned on kind of the mix that we see for 2026 between business units. SGS and batteries are increasing, but they have a lower gross margin than our EV charging business and EV charging business is declining somewhat. So in the mix, we see a reduction in our gross margin. I already said, okay, that -- I already said that that's a trend that we have to reverse, but that reversal will -- we're working on that to reverse that towards 2027. At the same time, we're also saying this 2026 is a transformational year. And transformation means change and change doesn't always come for free. So we expect certain costs and maybe even certain inefficiencies during 2026 that lead to additional costs and therefore, pushing down our overall EBITDA margin. And that's why we came to the guidance between 4% and 7%. And if you take the midpoint of that one, in absolute terms, that will be EUR 25 million, and that's more or less the same as where we are in 2025. Thijs Berkelder: Okay. Then coming back on the EUR 25 million as a starting point and roughly translating into -- I'm looking now more -- much more at cash flows. Your cash flow from operations, excluding working capital effect last year was around EUR 20 million, I think, and that's before your, let's say, necessary investments in personnel for technology, what have you of close to EUR 10 million. So net of that, it's only EUR 10 million and after lease payments you have to pay off around EUR 8 million. You have very minimal organic cash flow left in '25 and in '26, given your guidance and the cost you will have to pay, it won't be much different. How as a CFO, are you looking or protecting your downside? Given all the staff reductions, I would have expected at least in terms of guidance that the low end of the margin guidance would not be further guided down. Onno Krap: Yes. No, I think your analysis is correct. We need around EUR 30 million to EUR 32 million in EBITDA to be autonomously cash flow positive. And so from that perspective, 2026 will be a year where that will not -- will be approximately EUR 5 million to EUR 6 million negative. At the same time, we do still expect for 2026 certain improvements in working capital, especially in inventory. We still have -- and I just elaborated on that one. We still have some excess inventory in EV charging, and we still have a couple of items in batteries that we expect to reduce during 2026. So from that perspective, and without basically really giving guidance on that, I mean, I'm not overly worried about the fact that we won't be generating cash next year. And then definitely to put towards 2027, I think we need to see an improvement to basically also create -- reach an EBITDA that will be in itself cash flow positive. And from there on, we build on further. Thijs Berkelder: Yes. Third question is on, Michael, you're optimistic on your end markets. Your end markets are growing, maybe even now starting to accelerate a bit further. But to catch that growth also abroad, are you not scared that your working capital management is now too tight and simply your balance sheet situation and cash flow requirements will prevent you from growing with the market and will only force you to not grow with the market? Michael Colijn: I think for 2026, we see that we are not growing as fast as the market, also not in our outlook because we believe this rebalancing is necessary. Indeed, when growth picks up, there is a challenge of balancing cash flow and growth capital needed. I would say I would be -- it's a happy challenge to face in the future when we are looking at cash needed for accelerated growth. What I can say on the 3 different segments that we serve, when we look at the battery storage side, payments are usually upfront that really helps us in managing cash, and we've seen some of that already in 2025. When we look at our SGS performance, we see that our grid operator companies are getting better at their forecast prediction and there is a balance in their payments versus their offtake. And so I'm not too concerned about that either. When we look at the EVC charging, increasingly, we are working and we are working in this year towards having framework contracts in place, whereby the predictability of the volume becomes better. Having said that, we see that already with those customers, their payment cycles are stable and good. And as we grow with them, I wouldn't expect sudden unexpected growth leading to a lack of payments as we ramp up. So of course, we are watching this carefully, but I'm not overly concerned about the growth because of those reasons. Operator: The last question is from Luuk Van Beek from Degroof Petercam. Luuk Van Beek: A couple of questions. First, on the cost savings. Previously, you indicated that you were already at to, say, a minimum cost level that cutting further would hurt your commercial and innovation capabilities. Now you see room to still make further cuts basically in the organization and then free up money to invest in your new strategy. Can you explain how you have found new ways to save costs basically? And if we can see the OpEx and the personnel cost level of H2 as a sort of run rate for next year? That is the first one and I'll come back later with other ones. Onno Krap: Okay. Yes, on the cost savings side, the cost saving on personnel, you mainly see during 2025. And so we brought down the number of FTEs by around EUR 120 million -- [indiscernible] the change that we are, at this moment, looking for, for 2026 in the organization is not so much focused on cost savings. It's much more shifting a certain part of the organization into an area where we see more need for it in digitalization, in projects and in services. So the focus here is not on cost savings. The focus here is redirecting capabilities from one side of the organization to the other to basically make us stronger and to accelerate growth. Apart from that, especially if you take a look at our OpEx, I would call it the discretionary spending, we will continue to focus there and making sure that when we spend money on outside vendors that we always think twice and make sure that we spend it wisely in order to make sure that it contributes to the health of the organization or to basically making sure that we generate more revenue. I think that's the approach. I think maybe coming back to the question of ties, and we are not trying to starve the organization. That's not what we're trying to do. But we're trying to be very conscious on where we're spending the money, how we're spending it and to make sure that it is optimal and not in the direction of starving the company. I think that's in no ways what we're trying to accomplish. Luuk Van Beek: And then I have a question about the gross margin in EV charging, which was supported by lower component costs in H2. At the same time, you are cutting your prices, obviously, to be more competitive. How do you look at the balance between further support from lower component costs and a negative impact from pricing cuts going forward? Onno Krap: Okay. Now there is an impact of lower components costs we saw more or less starting to happen in Q2 last year and continued in Q3 and Q4. Expectation is that we will also see that effect in 2026, not so much that components costs will become even lower. But I mean, this effect is here to stay. At the same time, we continue to see competitive pressure. That's also where some of the guidance is coming from that -- in 2026, we will see some lower revenue. To counteract that, we will definitely also work on pricing. So my expectation is that gross margins for 2026 will definitely not go up. And we will use a little bit of the room that we're currently seeing in our margins to make sure that we stay -- that our pricing stays competitive. Luuk Van Beek: Okay. That's clear. And then last quarter, you mentioned that you had a new type of transport distribution station, which was much larger the turnkey. Can you comment on the build the progress? Do you still expect that it will become a significantly larger part of your revenues in smart grid solutions this year? Onno Krap: Yes. We -- the part of the growth that we are currently forecasting or guiding in 2026 is actually coming from the increase in these transport distribution stations. So definitely, we see that increasing, and we see actually also for the longer-term quite some opportunities there. Those are stations that are significantly larger or significantly more from a pricing perspective, larger than the ones that we sell on a regular basis. And we have a pretty strong position there at this moment in time, and we intend to build that further in the years to come. Luuk Van Beek: And my final question is about the reporting. You will now move to the organization by business unit. Does it also mean that we will get the EBITDA by business unit in the future? Onno Krap: It's likely that we will move in that direction. Timing of that will still depends, but it's likely that at a certain moment in time, we will move in that direction. Operator: Thank you. And with that, I will now turn the call back to Mr. Colijn for any closing remarks. Please go ahead. Michael Colijn: Thank you all for joining us today for Alfen's Full Year 2025 Earnings Call. We look forward to updating you on our transformation and financial performance during our Q1 trading update on May 13. Have a good day. Operator: Thank you. You can now disconnect.
Operator: Good day, and welcome to the Vertex Fourth Quarter 2025 Earnings Conference Call. All participants are in listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 Joseph Crivelli, Vice President, Investor Relations. Please go ahead. Joseph Crivelli: Hello, and thanks for joining us to discuss Vertex's fourth quarter results. Christopher Young, our President and CEO, and John Schwab, our CFO, are also with us today. During this call, we may make forward-looking statements about expected future results. Actual results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission. Our remarks today will also include references to non-GAAP metrics. A reconciliation of these metrics to GAAP is also provided in today's press release. This call is being recorded and will be available for replay on our Investor Relations website. I'll now turn the call over to Christopher Young. Christopher Young: Welcome everyone and thank you for joining us. It's great to join you on my first earnings conference call as President and CEO of Vertex. Our financial results for the fourth quarter came in as expected. Revenue was $194.7 million, in line with our guidance for the quarter, while adjusted EBITDA exceeded the high end of our guidance at $42.5 million. For the full year, Vertex delivered double-digit revenue growth along with solid profitability. Since this is my first time speaking to our investors and analysts, I wanted to cover a few topics. First, why I'm excited to join Vertex at this point in the company's history. Second, I'll give you a perspective from my conversations with customers, partners, and employees over the past three months. And third, my view on how we can accelerate our revenue growth. Then I'll share some exciting new business wins from the fourth quarter. Many investors have asked me what attracted me to come to Vertex. But I'll start there. First, I was drawn to Vertex's incredible blue-chip customer base, which includes over 60% of the Fortune 500. Around the world, leading enterprises trust Vertex to stay compliant with ever-changing indirect tax requirements. Our customers described to me that Vertex is trusted, reliable, flexible, and has the deepest domain expertise in the industry. Likewise, our partner ecosystem is built on strong, long-standing relationships with the key technology and implementation partners that serve this customer base. These partners consistently recognize Vertex as the leading provider of indirect tax solutions for the enterprise. At the same time, both groups want to see us move faster and drive more innovation. And meeting that mandate will be job one for us in the near term. Second, Vertex has a long-standing track record of revenue growth, profitability, and positive cash flow across economic cycles, as well as clear growth vectors for the future. Our core expansion is steady, and our land and expand motion is proven. We have a new high-growth business in compliance and e-invoicing, which exceeded our expectations in its first year and has meaningful catalysts on the horizon. Third, I believe Vertex has an incredible opportunity to transform our business and help our customers transform theirs through artificial intelligence. This aligns well with my career experience, particularly my most recent role. There, I spent considerable time building partnerships with and, in several cases, investing in companies driving AI innovation. And I did that while working closely with many of my Microsoft teammates who are developing their own AI technologies. Turning to our near-term priorities. While our full-year growth was healthy and respectable, in 2025, we saw lower entitlement growth, a moderation of new upsell and cross-sell revenue, and slightly higher customer attrition. This impacted our retention metrics, which John will discuss shortly. In looking at customer attrition, business and market factors such as M&A and bankruptcy were the single largest driver of 2025 attrition. And this is largely uncontrollable by Vertex. It's also important to note that attrition continues to be concentrated in smaller accounts. The average annual revenue per customer for lost accounts in 2025 was under $50,000, far below our overall average revenue of $138,000 per customer. Finally, I'll note that competitive losses are a modest component of attrition. And Vertex continues to win far more ARR from competition than we lose to our competition. That said, we are taking several actions to mitigate controllable attrition by expanding customer success coverage to a broader cohort of customers and leveraging AI tools to better serve our customers. Our AI Copilot in the product will help customers address more questions without needing to call us for help. We have also implemented analytics to predict potential customer attrition so that we can engage them more proactively, including personal phone calls from me to address their concerns. I'm also confident that our new product offerings, including e-invoicing and smart categorization, will help us accelerate cross-sell and upsell revenue in 2026. And we are already seeing measurable traction with both. On a positive note, revenue from new logos remained healthy and was up 20% in 2025. This included both competitive takeaways and customers who previously used homegrown solutions and switched to Vertex. It is essential that we continue to seize this opportunity. Now let's talk more about AI. Vertex is well-positioned to help tax departments improve their workflows with artificial intelligence. Indirect tax compliance is rule-dense, data-heavy, and highly repetitive. It's the type of work that lends itself well to AI transformation. And we are starting from a fortified position as Vertex software is embedded in the workflows of our customers. In addition, our customers place a premium on tax accuracy, something they have trusted Vertex with for years. And I'll add that our revenue-based pricing model insulates us from the concerns investors have around SaaS companies with seat-based licensing models. As I shared earlier, I see significant and unique opportunity for us to capitalize on these trends. And that's one of the reasons I joined Vertex. In 2025, Vertex made significant investments in AI products, tools, and functionality. This included the launch of our smart categorization offering, which is squarely in the wheelhouse of AI adoption. It reduces the manual work tax departments undertake every day to ensure their product SKUs are mapped to the correct tax rates across all jurisdictions. During the early adoption phase, we secured several marquee six-figure wins in the retail industry. To address this growing opportunity, we are broadening functionality in smart categorization to cover our full retail customer base. We will expand smart categorization to additional industries where the offering has applicability. In addition, in 2025, we expanded the capabilities of Vertex CoPilot. CoPilot, in turn, helps us understand the tasks and features customers are interacting with Copilot about, providing us with insights in the areas that are causing friction in the use of our solutions. This can help us enhance our products, develop new AI features, and inform future product development. Finally, we continue to leverage our partnership with Kintsugi. On last quarter's call, we highlighted Kintsugi powered by Vertex, which enables SMBs to automate key compliance functions while providing real-time dashboards for jurisdictional liability and exposure tracking. Then in December, Kintsugi and Vertex partnered with cpa.com to launch an AI-driven solution to help accounting firms deliver automated, accurate, and scalable sales tax compliance for their clients. This then helps our partners in the accounting industry unlock new advisory revenue opportunities. While all this is a good start, we can do much more with AI. I see a large opportunity on this front. It's my personal goal to transform Vertex into an AI-first business both in how we work internally and through the new capabilities we deliver to our customers. I will have more to share on this transformation in the near future. With that, let's review some examples of how companies are depending on Vertex to stay in compliance with indirect tax. First, wins within our installed base. It's not uncommon for enterprise customers to use Vertex in one area of the business and a competitor in another. In many cases, over time, these customers will reevaluate their tax software footprint and standardize on Vertex. As an example, a customer in the metals and mining industry dramatically expanded its relationship with Vertex in the fourth quarter. This customer had used Vertex's returns filing managed service for years, even though it was using a competitor for tax calculation. However, during an SAP S/4HANA transformation, the company made the decision to standardize on Vertex. As a result, this is now a fulsome mid-six-figure relationship, including sales and use tax calculation as well as exemption certificate manager SAP Plus tools, SAP Accelerator, and other Vertex offerings. In the fourth quarter, we also won in-store point-of-sale tax calculation for a global quick-service food and beverage retailer. This long-standing Vertex customer historically used us for tax calculation for its mobile app and gift card businesses, but a homegrown solution at the point of sale. They switched to Vertex during a redesign of their point-of-sale system, leading to high six figures of new revenue. In the Oracle ecosystem, we increased our business with a relatively new customer in the computer products manufacturing industry. Earlier this year, the customer spun out from its parent company and selected Vertex for use tax calculation. In the fourth quarter, they completed the transition and added sales tax calculation, leading to six figures of new annual revenue for Vertex. Turning to new logos, we landed one of our largest new logos ever in Europe with a leading healthcare provider. Revenue for this new customer will be well into the seven figures. This deal was catalyzed by a global SAP S/4HANA transformation led by our partners and DMA. It included value-added tax calculation across the customer's global footprint, as well as sales and use tax in the United States. The customer will also be using our end-to-end compliance offering to file returns in 30 countries around the globe. Also in conjunction with an SAP S/4HANA transformation, a major North American power utility selected Vertex as its first-ever indirect tax provider. This enterprise customer with revenue of nearly $10 billion was previously using manual solutions for use tax calculation. In addition to use tax calculation, this mid-six-figure deal, which is referred to us by our partner Accenture, also included SAP Plus tools, Vertex Consulting, and other ancillary products and services. This deal validates the greenfield opportunity for Vertex with large companies that are still using homegrown solutions for indirect tax. In the Oracle ecosystem, a software provider in the payment space selected Vertex to displace an entrenched competitor. We were differentiated by our ability to support the customer's massive scale and volume of transactions as well as our referenceability across the Oracle ecosystem. This led to low six figures of new revenue for Vertex. Now turning to e-invoicing. In our first full year in the business, we've seen strong traction with both existing customers and new logos. Accelerating demand around upcoming mandates, especially Belgium, which launched its e-invoicing mandate in January, and significant product differentiation for our end-to-end offering, which includes e-invoicing, as well as VAT calculation and compliance in a single unified platform. We continue to believe our platform is unique in the marketplace and gives us a competitive advantage. Now let me give you some color on the types of e-invoicing deals we won during the fourth quarter. Wins with existing customers included a global payments company that selected Vertex for e-invoicing mandates in Belgium, Poland, and France. A consumer products company that selected Vertex for mandates in Germany, Belgium, and Poland. And a consumer electronics company also selected Vertex for mandates in Italy, Belgium, Poland, and Denmark. Note that all of these examples are long-standing scale customers. And the e-invoicing cross-sell increased our ARR with these customers on average by over 20%. This should give investors a sense of the upsell opportunity that e-invoicing represents within the installed base. New e-invoicing logos include a 14-country win with a German building products company. E-invoicing and value-added calculation for Belgium, France, and Germany with a North American energy products company. And a deal for Belgium, Germany, France, and the UK, and Ireland for the North American healthcare products company. All these new logos were in the mid to high five-figure range, and while this is lower than our overall average revenue per customer, these initial engagements gave us a launching pad for our proven land and expand sales motion. Not just with additional e-invoicing countries, but for the full suite of Vertex tax compliance solutions. So to summarize, Vertex had a solid fourth quarter. 2025 revealed some challenges, but I am confident that we have a cohesive plan to restore accelerating growth in the business. Our AI opportunity is in focus, and our first offering, smart categorization, is making a real difference for enterprise customers while driving revenue. And we have a growing opportunity in global compliance as e-invoicing mandates continue to proliferate around the globe. All in, I believe I'm joining Vertex at an extremely opportune time. With that, I'll turn the call over to John to discuss the financials in detail. John? John Schwab: Thanks, Chris, and good morning, everyone. I'll now review our results in detail and provide financial guidance for the first quarter and full year of 2026. In the fourth quarter, revenue was $194.7 million, up 9.1% compared to last year's fourth quarter, and in line with our guidance. For the full year, revenue was $748.4 million, up 12.2% from 2024. In the fourth quarter, our subscription revenue increased 8.9% year over year to $166.2 million. For the full year, subscription revenue was $639.7 million, up 12.8% year over year. I want to provide additional details and clarity around the impact of true-up revenue on our revenue growth. True-up revenue is the payment that is owed to Vertex when a customer overruns its contracted entitlements. It is recognized as revenue in the quarter, and the payment of a true-up typically coincides with the corresponding increase in ARR. As a reminder, we historically have realized $1 to $2 million of true-up revenue in the first three quarters of the year and $2 to $4 million in the fourth quarter. In 2024, we called out elevated true-up amounts relative to expectation. However, in 2025, as we had mentioned, this did not recur. And renewing customers were generally within the usage limits of their contracted entitlement amount. As a result, true-up revenue in 2025 was approximately $10 million lower than 2024. This alone reduced our 2025 full-year revenue growth rate by just under two percentage points. Lower true-up revenue in the fourth quarter reduced the year-over-year revenue growth rate by approximately four percentage points. And the impact on subscription revenue was approximately two percentage points for the year and five percentage points for the fourth quarter. Turning now to services revenue. Our services revenue in the fourth quarter grew 10.2% over last year's fourth quarter to $28.5 million. Full-year services revenue was $108.8 million, up 9.2% year over year. Our cloud revenue was $94.6 million in the fourth quarter, up 23% from last year's fourth quarter. Note that the decrease in quarterly cloud revenue growth was due to the lapping of the Ecosio acquisition and the elimination of the inorganic contribution to the growth rate. For the full year, cloud revenue was $352.9 million, up 27.9% year over year and generally in line with our guidance of 28% growth for the year. Annual recurring revenue or ARR was $671 million at quarter end, up 11.3% year over year. At year-end, net revenue retention or NRR was 105%, and gross revenue retention or GRR was 94%, within our targeted range of 94 to 96%. Average annual revenue per customer or AARPC was $137,867, up 12.4%. And our scaled customer growth in the quarter was 12%. For the remainder of the income statement discussion, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to GAAP results in this morning's earnings press release. Our gross profit for the fourth quarter was $140.4 million, and gross margin was 75.7%. This compares with gross profit of $133.9 million and a 75% gross margin in the same period last year. Our gross margin on subscription software was 82.7%, compared to 81.4% in last year's fourth quarter and in 2025. And gross margin on services revenue was 34.9% compared to 37.6% in last year's fourth quarter and 28.8% in 2025. This reflects lower Ecosio margins driven by increased consulting investments to support our revenue growth. In the fourth quarter, research and development expense was $19.9 million compared to $17.3 million last year. For the full year, R&D was $71.3 million compared to $56.4 million last year. With capitalized software spend included, R&D spend was $42.8 million for the fourth quarter and $159.8 million for the full year, which represented 22% of revenue for the fourth quarter and 21.4% of revenue for the full year. The increase in R&D spending was a result of the 2025 investments in Ecosio and AI that Chris had detailed earlier. Our selling and marketing expense was $48.7 million or 25% of total revenues, an increase of $5 million and approximately 11.4% from the prior year period. For the year, our selling and marketing expense was $178 million, up 15.3% from last year. The increase in selling and marketing expense in the fourth quarter was due to costs from our Vertex Exchange conference, which was held in October. And general and administrative expense was $36.2 million, up $2 million from last year. For the full year, general and administrative expense was $149.3 million compared to $128.2 million last year. Adjusted EBITDA was $42.5 million, an increase of $4.4 million or 11.6% year over year. And full-year adjusted EBITDA was $161.5 million, representing an increase of $9.6 million or 6.3% over 2024. Both were approximately $500,000 above the high end of our guidance. This represents adjusted EBITDA margins of 21.8% for the fourth quarter and 21.6% for the full year. Our fourth-quarter free cash flow was $10.1 million, and for the full year, free cash flow was $47.6 million. This was a bit lower than expected, as the fourth quarter is usually our strongest free cash flow quarter. While collections were lower than typical for the fourth quarter, I will note that in January, we realized approximately $7 million of cash collections in excess of what we've seen in previous years. In the fourth quarter, we repurchased approximately $10 million of our shares in the open market under our stock buyback authorization at an average price of $20 per share. We have approximately $140 million remaining under our authorization. We ended the fourth quarter with over $314 million of unrestricted cash and cash equivalents and $300 million of unused availability under our line of credit. Now turning to guidance. For the full year of 2026, we expect revenues of $823.5 million to $831.5 million, cloud revenue growth of 25%, and adjusted EBITDA of $188 million to $192 million, reflecting a margin of 23% at the midpoint. For the first quarter of 2026, we expect revenues of $193.5 million to $196.5 million and adjusted EBITDA of $40.5 million to $43.5 million, reflecting a margin of 21.5% at the midpoint. Chris will now make some closing comments before we open up for Q&A. Chris? Christopher Young: Thank you, John. Before we take your questions, I want to thank all of our Vertex employees around the world for their unwavering dedication to serving our customers in 2025. Their commitment to our mission to accelerate global commerce with a global compliance platform strengthened by AI is evident in everything they do. They exemplify the strong culture that defines Vertex, and I'm truly proud to join this team and honored to be able to lead it. Earlier this year, I introduced our employees to my foundational tenets to make 2026 and beyond a success for our company and for our investors, and I'll share them with you now. First, we play to win. That mindset raises our bar on product quality, customer outcomes, and how we show up for one another. We put the customer at the center of everything we do. We are constantly asking how will what I'm doing today help a customer succeed. We earn trust through outcomes. We achieve results with speed, agility, and integrity, and we never compromise on doing things the right way. We'll move faster, adapt quickly, and never settle for less than excellence for teammates, customers, and partners. We will innovate boldly without fear. Progress demands smart risk, and we'll try new approaches, learn fast, and keep pushing the boundaries, especially where AI can remove friction and unlock value. And finally, we will communicate with candor and transparency. We'll speak plainly about what's working and what isn't and help each other improve. That's how I've operated throughout my career, and that's the ethos that I'm committed to bringing to Vertex. On that foundation, I'm confident that we will continue to win in the market, accelerate growth, and capitalize on our market position as the leading provider of indirect tax solutions for the enterprise. And with that, operator, please open the call for questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question comes from Andrew DeGasperi from BNP Paribas. Please go ahead. Andrew DeGasperi: Good morning. Thanks for taking my question. Christopher, I know you've been there only a few weeks, so maybe this is a little unfair to ask. But maybe elaborate a little more in terms of what you said were the losses to competitors at the lower end of the market. Was this like a price-driven change? And I assume this is not AI-related. Is that correct? Christopher Young: That is correct. And thank you for the question. You can call me Chris. No problem on here. I appreciate it. In reference to those remarks, what I was talking about is our overall attrition. As you saw from some of the numbers, attrition was higher in 2025 than we've experienced in the past. And some of the drivers of that were, number one, M&A and bankruptcies, which we've talked about on prior earnings calls, that was up this year. And that was a significant factor in this. But the second one is that we saw our highest amount of churn in our smaller customers, those that would have had ARR of under $50,000 per year, and that compares to an average ARR per customer of $138,000 per year. So it was concentrated in smaller customers. Some of those went to competition, but when we look at our head-to-head performance with competition, we're winning more ARR from our competitors than we're losing to competitors. Andrew DeGasperi: Helpful. And I guess in terms of maybe as a follow-up to John, in terms of the confidence that you have in achieving the guidance for next year. I know this year, you've had a lot of variables to play with. How confident are you on the growth for, you know, 10-11% next year? And what sources of upside or surprises do you think could be in store for you? Is it e-invoicing? Is it the AI product that could potentially do better? John Schwab: Yeah. Thanks, Andrew, for the question. In terms of our guidance philosophy, it hasn't changed. Again, you know, we took a very thoughtful approach to setting it where we set it. We feel very good about it. And, you know, we took into consideration a lot of the activity and the things that we saw develop during 2025 into it as we set it. And so listen, our plan is to get back to that, you know, beat and raise cadence that we've had for a number of years, and we want to make sure that we took everything into consideration and set it at the right levels to do that. So we feel good about that. And listen, when I think about 2026, you know, clearly, we think there is good opportunity there for activity around the e-invoicing, which is, you know, many of the mandates are coming live at the back half of the year. And so that is certainly one of the growth vectors that we see out there that we're chasing after. And I think Chris talked a little bit about SmartCat and the activity there. I mean, that's a nice product. It's got some traction with some very big customers, and I think that's an exciting tool out there, and it's going to be interesting to see how that plays out over time. Operator: Thank you. The next question comes from Christopher Quintero from Morgan Stanley. Please go ahead. Christopher Quintero: Hey, guys. Chris, it's great to meet you. My first question is for you. So you have a really interesting background and set of experiences at Microsoft, McAfee, Cisco. Curious what parallels you can draw from your time at each one of these, and what you think will be particularly helpful from these experiences here as you lead Vertex. Christopher Young: Yeah. Thanks for the question, Chris. I appreciate it. And, you know, when I look at our company and I look at our business, there's a couple of parallels that stand out for me. The first one, I'll go to my most recent. You know, obviously, I spent a lot of time at Microsoft. A lot of the time there was, you know, when generative AI first started to change what we were seeing in the industry, including what we were doing with OpenAI. And, you know, you could see that there was going to be a real opportunity for companies to transform themselves using AI, both what they do internally and, in the technology industry, what we would deliver to our customers. And so I spent actually a lot of last year really looking at what I thought would be the industries where there was opportunity to transform. And, you know, this was one category that I thought, you know, because of where we sit, because of the kinds of work that happens in finance and accounting departments, that, you know, given the position we sit in, we can offer them AI capabilities that really take a lot of the task work off of their plates. And that's something that we think is a huge opportunity. It's why, you know, I spent time talking about what we're doing with smart categorization. You could look at returns processing as another category where it's heavily manual. And we believe there's opportunities like that to help our customers automate what they do using generative AI, which will save them time, save them cost, and improve their overall experience. If I kind of go back from there, you know, I think Vertex does have some similarities to what I saw in the cyber landscape. Cyber is one of those categories that you constantly are refreshing your content. One of the things that makes cyber companies great is they understand the threat landscape, and it's ever-changing. And in our business, the compliance landscape is ever-changing. There's constantly new tax rules. There's new compliance mandates. That's what we're seeing in the e-invoicing space. And I think one of the things that have told me about Vertex, which gives me a lot of confidence in what we're doing and our position in the market, is that they really trust our content work. They purchase from us because they see us as delivering the best content in the industry. And they recognize that it's ever-changing and that they look to Vertex to stay on top of it. You know, I had one customer tell me in specific. He said, I'm able to run a lean tax department because I rely heavily on Vertex to deliver both the accuracy of your calculations and the updates of your content where we operate that keep us up to date on what we've got to comply with across our different jurisdictions. Christopher Quintero: And then I also wanted to ask about the net retention rates. Obviously, that came down a bit. And it makes sense in the commentary you all gave. Curious about your expectations around where that should be on a kind of more medium-term normalized basis and how long you think it can take to get back there? Christopher Young: We're very focused on improving our net retention rates, and there's a tremendous amount of effort that's going in right now to both introduce our newer product offerings like compliance e-invoicing to our existing customer base. And that, you know, every customer that I've talked to, this is either something they are actively doing or it's certainly on their radar screen. You know, whether it's US customers that are doing business in other countries with those mandates or whether it's, you know, customers in Europe or in Latin America that obviously have those mandates in their home countries and in other countries where they're doing business. So we see that as an opportunity to grow, to help our customers grow spend with us, and they're looking for us to help consolidate some of the work that they're doing in that category. We believe AI is still earlier than where we are with compliance and e-invoicing, but we see AI as an opportunity there. We've introduced other additional products in our portfolio, services we're offering around returns processing, certificate exemption certificate management is another category where we, you know, we brought some new product to market just last year. So we see opportunities for growth with our customers, and we're really trying to lean heavily into new products that we can bring to them. And then, as I said on the call, we're also trying to engage customers more directly to prevent attrition. And some of that's about just understanding their needs, being proactive about that, even to the point where as we identify customers who are at risk, I'm getting on the phone with them myself and talking to them and making sure that we understand what their needs are so we can better serve them going forward. And in some cases, I've seen some examples where we've been able to turn a situation that might have been challenged into one where we're able to do more with those customers. And that's what I'm shooting for here with our team. Operator: The next question comes from Joshua Reilly from Needham. Please go ahead. Joshua Reilly: Alright. Great. Thanks for taking my questions and congrats, Chris, on joining the company here. As we think about the pipeline for 2026, it seems like the biggest swing factor for accelerating ARR growth is still winning those SAP ECC customers, given the size of those potential deals and volume of customers. Is that how you're thinking about things as well? And how is that pipeline shaping up today? Christopher Young: Yeah. We had a good 2025 in our SAP pipeline, and I shared with you all some of the wins that were part of that migration that customers are doing with SAP from ECC to S/4HANA. The way I would characterize it is I think some of the expectations that were there a year ago, we didn't realize it the way it was expected a year ago. But we do continue to see sort of a steady growth of these opportunities. And we're winning our same win rates on each one of these opportunities as they come up. But I think a couple of things that we're seeing. One is it's taking customers longer. I think you've seen some of that in the broader market space. And we're also seeing that it's not necessarily like the timing is a little harder to predict when the tax engine decision will happen in their overall migration process. But, you know, we have a very close partnership with SAP. We work very closely with their teams. We also obviously work very closely with a lot of our SIs and the big four accounting firms that work very closely in this space. They always propose us as the core enterprise solution for this because of the work and the value that we're able to bring to customers. And so, you know, we feel good about this pipeline. We feel good about our win rates. But, you know, we just want to be balanced about how we're going to see that business flow over the course of the next couple of years. Joshua Reilly: Understood. What does it look like in terms of expanding customer service or customer success to a wider group of customers? Do you need to hire more people? Can you give us a sense of what are the thresholds to get this expanded service and how quickly that's going to be implemented? Thank you. Christopher Young: It's actually one of the biggest focus areas for me with AI is our customer success and customer support. I think we can do both. We will add people in some targeted places, but more importantly, this is an area where we have an opportunity to make our team members more efficient so they can actually spend more time with customers and less time filling out paperwork on the back end or hunting for information. Understanding, you know, because as you can imagine, every interaction with a customer requires them to get information, understand what's happening in the customer's environment. We believe we're going to automate all of that with AI, and that will allow our customers to...Christopher Young: ...have a more seamless experience. By automating these processes, our team can focus on higher-value interactions with customers, addressing their needs more effectively and efficiently. This approach will enable us to expand our customer success coverage without necessarily having to scale our headcount proportionally. We are committed to leveraging AI to enhance our customer service capabilities and ensure that we are meeting the needs of our customers in a timely and effective manner. This is a key priority for us as we move forward. Operator: Thank you. The next question comes from Brett Huff from Stephens Inc. Please go ahead. Brett Huff: Thanks. Good morning, everyone. Chris, welcome to Vertex. I wanted to ask about the competitive landscape. Can you give us a sense of how you see Vertex positioned against your main competitors, and what differentiates Vertex in the market? Christopher Young: Thanks for the question, Brett. I appreciate it. When I look at the competitive landscape, I see Vertex as being very well-positioned. We have a strong reputation for delivering high-quality, reliable solutions that our customers trust. Our deep domain expertise in indirect tax compliance is a significant differentiator for us. We are known for our ability to stay ahead of the ever-changing tax regulations and provide our customers with the most accurate and up-to-date content. Additionally, our strong partner ecosystem, which includes key technology and implementation partners, further enhances our competitive position. We are recognized as the leading provider of indirect tax solutions for the enterprise, and our customers value the flexibility and reliability of our solutions. As we continue to innovate and expand our offerings, particularly in areas like AI and e-invoicing, we believe we will further strengthen our competitive advantage and continue to win in the market. Operator: Thank you. The next question comes from Samad Samana from Jefferies. Please go ahead. Samad Samana: Hi, Chris. Congrats on the new role. I wanted to ask about the AI initiatives you mentioned. Can you provide more detail on how you plan to integrate AI into Vertex's offerings and what impact you expect it to have on the business? Christopher Young: Thanks, Samad. AI is a significant focus for us, and we see it as a transformative opportunity for Vertex. We are integrating AI into our offerings in several ways. First, we are using AI to enhance our existing products, such as smart categorization, which helps automate the manual work tax departments do to ensure product SKUs are mapped to the correct tax rates. This reduces the time and effort required by our customers and improves their overall experience. Second, we are leveraging AI to improve our internal processes, such as customer support and success, as I mentioned earlier. By automating routine tasks, we can free up our team to focus on higher-value interactions with customers. Finally, we are exploring new AI-driven solutions that can provide additional value to our customers, such as predictive analytics and advanced data insights. We believe that AI will not only enhance our current offerings but also open up new opportunities for growth and innovation. We are committed to being an AI-first company and are excited about the potential impact it will have on our business and our customers. Operator: Thank you. This concludes the question and answer session. I would like to turn the conference back over to Christopher Young for any closing remarks. Christopher Young: Thank you, everyone, for joining us today and for your thoughtful questions. I am excited about the future of Vertex and the opportunities ahead of us. We are committed to driving innovation, delivering value to our customers, and achieving our growth objectives. I look forward to updating you on our progress in the coming quarters. Thank you again for your support and interest in Vertex. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Urban Edge Properties Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Areeba Ahmed, Investor Relations Associate. Please go ahead. Areeba Ahmed: Good morning, and welcome to Urban Edge Properties 2025 Year-End Earnings Conference Call. Joining me today are Jeffrey Olson, Chairman and Chief Executive Officer; Jeffrey Mooallem, Chief Operating Officer; Mark Langer, Chief Financial Officer; Heather Olberg, General Counsel; Scott Oster, EVP and Head of Leasing; and Andrea Draven, Chief Accounting Officer. Please note today's discussion may contain forward-looking statements about the company's views of future events and financial performance, which are subject to numerous assumptions, risks, and uncertainties in which the company does not undertake to update. Our actual results, financial condition, and business may differ. Please refer to our filings with the SEC, which are also available on our website, for more information about the company. In our discussion today, we will refer to certain non-GAAP financial measures. Reconciliations of these measures to GAAP results are available in our earnings release and our supplemental disclosure package. At this time, it is my pleasure to introduce our Chairman and Chief Executive Officer, Jeffrey Olson. Jeffrey Olson: Great. Thank you, Areeba, and good morning. 2025 was another strong year for Urban Edge Properties. We generated FFO as adjusted of $1.43 per share, representing 6% growth, driven by the continued execution on our signed but not open pipeline and 5% same property NOI growth. During the year, we continued to set new leasing records. We executed 58 new leases at a record same space cash rent spread of 32% and achieved record shop occupancy of 92.6%. New lease spreads have now exceeded 20% for four consecutive years, reflecting strong demand and limited availability of high-quality retail spaces throughout our market. Given these dynamics, we expect new lease spreads will remain above 20% in 2026. Leverage has clearly shifted to owners of high-quality shopping centers. Our infill densely populated portfolio continues to attract leading retailers, especially for anchor space. Nearly all our national retailers are telling us how difficult it is to expand in our markets due to limited supply, supporting our expectation for healthy rent growth in the coming years. Our signed but not open pipeline continues to be a key driver of growth. In 2025, we commenced over $16 million of new annualized gross rent, including openings from Trader Joe's, Burlington, Ross, Nordstrom Rack, Atlantic Health, Tesla, and many high-performing shop tenants like Cava, Shake Shack, First Watch, Starbucks, and Club Pilates. A remaining signed but not open pipeline is expected to generate an additional $22 million of annual gross rent, representing 8% of current NOI. Our development and construction teams continue to be key drivers of value creation. During the year, we completed 14 projects totaling $55 million, generating unlevered yields of 19%. We currently have $166 million of redevelopment projects underway, expected to generate a 14% unlevered return. Over the past three years, FFO as adjusted has grown at an average annual rate of 6% to $1.43 per share in 2025. This exceeds our 2023 Investor Day target of $1.35 per share and ranks among the highest growth rates in our peer group. This outperformance is a testament to several factors, including our best-in-class team, favorable shopping center fundamentals, and accretive capital recycling. During this period, we acquired nearly $600 million of high-quality shopping centers at an average 7% cap rate while disposing of approximately $500 million of non-core lower growth assets at a 5% cap rate. Looking ahead to 2026, our goals include achieving FFO as adjusted growth of at least 4.5%, same property NOI growth above 3%, and returning leased occupancy toward our historical high of approximately 98%. Our acquisition guidance includes a $54 million shopping center under contract. While we have not included additional acquisitions or dispositions in our guidance, we remain on the hunt for growth opportunities and have several deals in early stages of underwriting. Looking to 2027 and beyond, we expect to increase FFO by at least 4% annually. Our growth outlook is highly visible, with a significant portion coming from six anchor repositioning projects, including Bruckner, Bergen, Cherry Hill, Hudson, Plaza At Woodbridge, and Yonkers. These projects will include new retailers, including BJ's, Trader Joe's, Burlington, HomeGoods, and Ross, and high-quality shop tenants such as Chipotle, Chick-fil-A, T-Mobile, and Cava. Through 2027, more than 80% of our same property NOI growth is expected to come from executed leases, LOIs, and contractual rent increases. Based on the expected timing of rent commencements, we believe 2027 NOI growth will be approximately 5%. We are proud of our sector-leading performance over the past three years and remain well-positioned to build on this momentum in 2026. I will now turn it over to our Chief Operating Officer, Jeffrey Mooallem. Jeffrey Mooallem: Thanks, Jeff, and good morning. Our fourth quarter results capped an exceptional three-year run at Urban Edge Properties, characterized by continued leasing momentum, disciplined redevelopment, accretive capital recycling, and ongoing enhancements to our tenant roster. Let's get into some of the details as well as the reasons why we are so bullish that this run will continue. During the fourth quarter, we signed 47 new leases totaling more than 200,000 square feet, including 14 new leases at an 11% same space spread, and 33 renewals at a 17% spread. That brought our total for the year to 58 new leases for over 360,000 square feet, at a same space spread of 32% and 104 renewals for over 1,000,000 square feet at a spread of 11%. On a portfolio our size, any given quarter can have an outlier or two. But a 32% spread on new leases across the entire year is direct evidence of the competitive tenant demand and increased pricing power that we've seen across our portfolio. Year-end same property lease occupancy was 96.7%. Anchor occupancy ended the year at 97.5%, down 50 basis points from last year, while small shop occupancy rose to a record 92.6%, up 170 basis points from last year. The decline in anchor occupancy is a result of taking back one space, at home at Ledgewood Commons, which we expect to re-tenant soon at a strong overall spread. Nationally, shopping center vacancy remains near historic lows. Supply constraints are especially pronounced in the Northeast, where new construction represents only 0.2% of total supply. Finding land and securing entitlements is extremely difficult in our markets. And even if you do, current market rents do not support today's ground-up development costs. We believe the current supply imbalance will continue, allowing us to negotiate even better lease terms, both economic and non-economic. As it relates to our SACS exposure, we had two SACS OFF 5TH locations at the end of 2025. Our location in East Hanover, New Jersey was paying about $800,000 a year of gross rent and closed in January. The space has excellent visibility in a strong submarket, so we expect to re-tenant it accretively in short order. Our location at Bergen Town Center is one of only 12 OFF 5TH stores that will remain open at full rent. That list includes some of the best retail assets in the entire country, such as Woodbury Commons in New York, Buckhead Station in Atlanta, the Gallery at Westbury Plaza on Long Island, and Sawgrass Mills in Florida, just to name a few. Further testament to how special an asset Bergen Town Center is. Turning to development, we stabilized three projects in the fourth quarter totaling $12 million of investment as rent commenced for Tesla at Total Commons, Dave's Hot Chicken at Yonkers Gateway, and First Watch at Bergen Town Center. These projects will generate about a 26% yield. We also activated four new projects totaling $28 million, bringing our redevelopment pipeline to $166 million with a projected unlevered yield of 14%. As usual, nearly all of our active redevelopment projects are tied to executed leases. At Sunrise Mall in Massapequa, New York, we executed a lease termination with Dick's Sporting Goods in the fourth quarter, the last tenant remaining at the mall. This clears one of the final hurdles needed to advance the project, and it will enable our application for an Amazon distribution center on approximately one-third of the Sunrise Land to advance quickly through the entitlement process. While the Amazon approvals remain our focus, we are in discussions with a variety of users for the remainder of the site, and we hope to have more to announce later this year. And finally, on the capital recycling side, we have executed an agreement to acquire a property in New Jersey for approximately $54 million. The asset is located in a dense, high-income submarket, is 95% leased, and it will generate an accretive yield for us from day one. Closing is expected by the end of the first quarter, so we should have further details on this property on our next call. With that, I'll turn it over to our CFO, Mark Langer. Mark Langer: Thank you, Jeff, and good morning, everyone. We delivered another excellent quarter, capping off a very successful 2025. FFO as adjusted was $0.36 per share for the fourth quarter and $1.43 per share for the full year, representing 6% growth over 2024. Same property NOI, including redevelopment, increased 2.9% for the fourth quarter and 5% for the full year. This growth was driven primarily by rents commencing from our signed but not open pipeline and higher net recovery income, partially offset by higher snow removal expenses, which had a 110 basis point negative impact on same property NOI growth in the quarter. Full-year FFO as adjusted benefited from lower recurring G&A and extracting operational efficiencies as we continued to make progress reducing costs. Our balance sheet remains very well positioned, with total liquidity of $849 million and no amounts drawn on our line of credit. During the quarter, we paid off the $23 million mortgage at West End Commons at maturity using cash on hand. We have no debt maturing until December 2026, with three mortgages aggregating $114 million coming due at a blended 4% interest rate, which we expect to refinance or repay. We ended 2025 with net debt to annualized EBITDA of 5.8 times, below our target of 6.5 times, which provides us with flexibility to seek growth opportunities. Subsequent to the quarter, we amended our line of credit with a new $700 million facility maturing in June 2030 with two six-month extension options and simultaneously executed two $125 million twelve-month delayed draw term loans with a five-year and seven-year maturity. While we do not have immediate plans to draw on the term loans, the delayed draw feature allows us to do so for twelve months from closing and provides us with added flexibility as we pursue our growth plans. Turning to our outlook for 2026, our initial FFO as adjusted per share guidance range is $1.47 to $1.52 per share, reflecting 4.5% growth at the midpoint. Key assumptions within guidance include same property NOI, including redevelopment growth, of 2.75% to 3.75%. Our NOI guidance reflects the full-year fallout from SACS at East Hanover and assumes credit losses of 50 to 75 basis points. On the revenue side, our NOI growth assumes $6 million of gross rent is recognized in 2026 from our signed but not open pipeline, of which 75% is expected to come online in the second half of the year. Therefore, year-over-year NOI growth is expected to build in the second half of the year with lower growth rates in the first two quarters. As I noted, we continue to carefully manage G&A expenses. In 2025, our total recurring G&A was $34.5 million, a decrease of 4% from the prior year. In 2026, we expect recurring G&A to be $34.5 million to $36.5 million, an increase of 3% at the midpoint. As for capital spending, we have $166 million of active redevelopment projects, with $86 million remaining to fund. We expect to spend about $70 million to $80 million during 2026 on these projects and have also budgeted $20 million in maintenance CapEx. As announced in our press release, our Board recently approved an 11% increase in our dividend, to an annualized rate of $0.84 per share, reflecting an FFO payout ratio of about 56%. We expect the dividend to grow as earnings and taxable income grow, while we focus on preserving free cash flow to fund our active redevelopment pipeline that is generating healthy returns. This new dividend reflects the projected growth in our taxable income in 2026. In closing, we are well-positioned to continue driving earnings growth by delivering redevelopment and anchor repositioning projects, obtaining attractive economics on new leases, sourcing new acquisitions, and maintaining a strong balance sheet. With that, I'll turn the call over to the operator for Q&A. Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question. Ronald Kamdem: Hey. Great. Just two quick ones. Starting with the shop occupancy, you know, obviously a pretty strong year. 170 basis points year over year. Just hoping you could give some comments on sort of what your expectations going forward in terms of how much more upside is there in that number? Thanks. Jeffrey Mooallem: Ron, good morning. It's Jeffrey Mooallem. Yes, we've messaged pretty consistently that we think that we can get to a steady state somewhere in that 94% range. Once you start getting above 94%, you're really looking at maybe are you not being strategic enough with some of your shop space? There's always gonna be some static vacancy that comes from turning over, you know, vacancies, from tenant A to tenant B. There's always gonna be some, you know, functionally obsolete, you know, back of house storage type space that sits there on our report. When you start backing those out, we feel like 94, 95, 96 is really about as much as we want to push it. This has been an opportunity for our leasing team now that we're into this rarified air on shop occupancy to actually go back around some of the existing tenants and look at, you know, is this a tenant we could get out? And we can replace at a really healthy spread? So it's not just what's vacant today, but it's also about over, you know, better improving the leasing on what's actually occupied. So 93, 94 is probably a good safe bet for us in 2026. Helpful. My second question was just I think capital recycling has been a big theme for you guys. Just maybe talk a little bit more about sort of the acquisition pipeline and some of the cap rates. And then on the disposition side, sort of what are you sort of willing to put on the table this year? In the portfolio? Thanks. Jeffrey Olson: Ron, it's Jeffrey Olson. I mean the acquisition market is maybe as competitive as I've seen it. So cap rates are continuing to come down. There's been a lot of increased interest in the space from institutions. There are a lot of lenders out there, the banks, the insurance companies that are lending at very attractive rates. So the good news is that it makes our existing assets more valuable and will probably allow us to do more capital recycling than we had originally intended because we should be able to get better cap rates on what we're selling. Finding properties at attractive valuations is hard. This property that we found in Bridgewater, we're super excited about that one. I think we're getting that at a cap rate that's north of 7.5%, and it has decent growth attached to it. The tenants include the likes of Chipotle, Shake Shack, Cava, and there's also a health and wellness component to it. I'm hoping that we're gonna be able to use the proceeds from that asset to serve as a 1031 exchange for a center that is Kohl's anchored in New Jersey that would actually be accretive on a cap rate basis first year as well. And if so, it would take Kohl's from being our number three ranked tenant by revenue down to number seven. Then we also have a space in Framingham, Massachusetts that we'll take back from Kohl's that would reduce their exposure even further. So that is the plan as of the moment. Ronald Kamdem: Helpful. That's it for me. Thanks so much. Jeffrey Olson: Okay. You bet. Thank you. Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good morning. Thanks a lot for taking my question. Can you walk us through the same property NOI growth path over the next couple of years? You did healthy growth in 2025 of 5%. You're pointing to 2026 midpoint of 3.25%. And then mentioned earlier, Jeff, that 2027 will be approximately 5%. So can you kind of walk through what are the puts and takes that drive the deceleration in '26 and then should drive the reacceleration in '27? Mark Langer: Thanks. Sure. Good morning, Michael. It's Mark. So let's just talk from '25 to '26, your first question about the deceleration. Really two things I would point to that are behind that. First is just the fallout from at home last year as well as SACS that we talked about this year. That's a little under $2 million of NOI headwind there. Then I think it was actually you had asked even on our last call whether there was any one-time benefits that came through in '25, and we talked about a 125 basis points of lift for some pretty sizable out-of-period collections that we got in '25 as well as some prior year CAM bills. And so those items, you know, we put more in the one-time bucket. And look, it's not unreasonable to think that we could have other, you know, one-time benefits this year, but unless we have visibility of them, we don't bake them into guidance. So between some of the tenant fallout and those one-timers, that will get you to the deceleration. The second question regarding how do we then pick up in '27, that's really the beauty of what Jeff talked about with our visibility from just the signed but not open pipeline. That we can see 80% of NOI growth coming from stuff that's already executed that we have to deliver. And that maps, Michael, to what we've disclosed kind of in our signed but not open bridge. So those would be the two big factors. Michael Goldsmith: Mark, thanks for that. That's really helpful. And then just as a follow-up, I think last year, you started with a bad debt guidance of 75 to 100 basis points, believe, in your prepared remarks, you talked about 50 to 75 basis points. So can you talk about what's the what changes this year and does that reflect just kind of those in the watch list that, you know, the names that you kinda talked about just in the prior response coming out, and that gives you a cleaner portfolio based on what you see right now for '26? Thanks. Mark Langer: Yeah, Michael. Look, I think it's a function just of some of the changes in the environment. When we sat here last year, the names that we were worried about between Party City and Michael's and Joanne's and At Home which, you know, did file but took longer than we thought. So, really, the bad debt guidance this year is lower just because when we look through our portfolio tenant by tenant and really think about, you know, where is the most elevated risk of someone that's really gonna fall out, we just feel better about the environment with our tenancy today than we did, you know, last year, a little bit on the margin. As you said, you know, the 50 to 75. So it's really just a function of our assessment, you know, looking through the tenancy of the portfolio today. Michael Goldsmith: Thank you very much. Good luck in 2026. Mark Langer: Great. Thank you. Operator: Thank you. Our next question comes from the line of Michael Gorman with BTIG. Please proceed with your question. Michael Gorman: Thanks. Good morning. Mark, if I could just go back to the same store for a second, you mentioned the tenant fallout. You also mentioned snow removal costs in the fourth quarter, I thought I heard. And I'm just wondering what you might have baked into the 2026 guidance for the winter storms that have already gone through the Northeast that might be having an impact there. Mark Langer: Yes. I mean, January was certainly off to a tough start. So what I can tell you, Michael, is our guidance range this year accounts for our estimate of what we incurred in January. We're still going through and closing the books for that. Luckily, February, while brutally cold here in the Northeast, knock on wood, you know, hasn't had additional snowfall. So we feel that we've appropriately provisioned for snow in our guidance. Michael Gorman: Okay. That's helpful. Thanks. And then maybe just switching to the redevelopment pipeline. You talked about it a bit in the prepared remarks. 14 projects completed successfully last year. I think another 13 are gonna complete this year. You know, you have a few listed out as potential starts. Can you just talk about additional opportunities, especially if acquisitions are going to remain challenging to maybe accelerate starting new redevelopment projects in the existing portfolio? Thanks. Jeffrey Mooallem: Yeah. Good morning, Mike. It's Jeffrey Mooallem. Yeah. I think you can think about our redevelopment program in two buckets. One of which is really the kind of blocking and tackling stuff that we consistently get these double-digit yields on where we're re-tenanting an anchor space, we're adding a pad, we're maybe expanding a building somewhere. You know, the sort of the day-to-day, for lack of a better term, development work that we do here where we're repositioning our portfolio and constantly trying to improve it and enhance it. And if we can do that with better tenancy, maybe add some GLA, maybe turn a vacant old bank pad into a new restaurant pad, and do that in that 14, 15, 16% yield range. We're doing that all day long, and that comprises our $166 million redevelopment pipeline. The second component of it is what we would call sort of the bigger undertakings that frankly don't, you know, get reported every quarter because they don't come along every quarter. So things like Sunrise Mall, Jersey City, New Jersey, Hudson Mall, Yonkers, Bruckner. Some of our bigger projects where we are maybe having to go through a year or two of entitlement work, in order to get to where we wanna get to, and they might involve some demolition. They likely will involve an anchor tenant, like an Amazon or, like, Walmart. Those projects take longer and are more complex and cost more money. But they add significant growth to us when they do come online. The perfect example being in 2027 when we'll see a lot of our heavy lifting at Bruckner come online. So, you know, we generally like to play in those two fields. I don't think you're gonna see us buying a lot of vacant land and building ground up, as I mentioned in my remarks. It doesn't really pencil out for anybody these days. And when we have the opportunity to hedge the portfolio in either a small bucket or a large bucket, that's what we're trying to do. Michael Gorman: Great. Thank you for the time. Operator: Thank you. Our next question comes from the line of Michael Griffin with Evercore ISI. Please proceed with your question. Michael Griffin: Great. Thanks. Three Michael Gs in a row. Gotta love it. Jeff, my question to you is just on the leasing on the quarter for new lease spreads came in at about 11%. I know that these things can be choppy quarter over quarter, and it seems like you're projecting 20% new lease spreads for the year ahead. But I mean any kind of puts and takes or things just on the quarterly number that maybe it came in a little bit lighter? Can you give us some context around that? Jeffrey Mooallem: It was just a low number overall. It was only on 37,000 square feet of space. So I think you have to look at it more on a four-quarter rolling basis. Michael Griffin: Great. That's some helpful context. And then maybe just going back to kind of the capital recycling theme. Is there an opportunity, I guess, within your centers to potentially carve out and dispose of the, you know, anchor tenant that might be there for a while, but has flat lease escalators. Right? You know, I think about, like, the Home Depot at Hanover Common. Right? High-quality tenant in a great center, but probably doesn't have a lot of growth there. Is that, I guess, a capital recycling avenue that you can then redeploy those proceeds into higher growth opportunities while still maintaining, you know, some of the other tenants within the center? Jeffrey Olson: Yes. I mean, I think it is. What we don't want to do is chop up the center. So in East Hanover, because Home Depot shares a parking lot with other tenants, it just makes it more complicated, and we want to be in control. But we absolutely have, you know, freestanding Home Depots and Costcos and Lowe's that operate independently, where the land is subdivided or it will be. So, we do think that's an attractive source of capital. And we've been using that over the last several years. So we have sold some spaces back to Home Depot and others. Michael Griffin: Great. That's it for me. Thanks for the time. Jeffrey Olson: Okay. Appreciate it. The next Michael G, please. Operator: Thank you. Our next question comes from the line of Floris Van Dijkum with Ladenburg Thalmann. Please proceed with your question. Floris Van Dijkum: Thanks. I'm definitely not a Michael G. So thanks, guys, for taking my question. So getting maybe a little bit more into the capital recycling which you guys have done incredibly well over the last couple of years, mind you. But as cap rates have compressed in your core markets, maybe talk about the, you know, the cap rates added and, you know, the spread that you've historically achieved. How is that? It looks like it's shrinking if I look at what you did the assets you sold last year and the asset you bought in Massachusetts. There's a 50 basis point spread there. It's still positive. But you used to be able to get significantly higher spreads on your capital recycling. How do you see that transpiring going forward? Maybe if you can talk a little bit about that and what you think is happening to cap rates. Jeffrey Olson: Yeah. I mean, spreads clearly have narrowed. So I think achieving a 200 basis point spread, as we've done, is unlikely. But I think what's highly likely is that, you know, that spread of 50 basis points, call it, that we did last year, when you look at the growth rate on what we're buying versus what we're selling, I think there may be a two to 300 basis point spread in growth on an annual basis. So we are looking to use capital recycling to accelerate our internal growth by selling some high-quality, you know, good credit assets that might have 1% growth and exchanging those in an accretive manner initially with assets that might be growing at two and a half to 3% and might have some opportunities for redevelopment in the future. Floris Van Dijkum: Thanks, Jeff. Maybe my follow-up. If you could talk a little bit about two assets in particular. One, Gateway, which has very low rents. Curious as to what you're doing to optimize rents and growth in that asset. And then Bruckner, which, obviously, you're spending a lot of capital, which should be one of your best assets when it's fully completed. And do you think you can do something like what you've done in Bruckner at Gateway going, you know, I guess is my question? Jeffrey Mooallem: Hey, Floris. Good morning. It's Jeffrey Mooallem. Yeah. Let's take Gateway first. I mean, as you're right, big piece of property, sitting in Everett, Massachusetts, you know, Boston skyline on the horizon right next to Encore hotel and soon to be right next to the new Major League Soccer stadium in New England. So it's just a fantastic piece of land. Unfortunately, it's got a lot of tenants with a lot of long-term leases, so we could snap our fingers and get space back, I think you'd see us, you know, be able to meaningfully move the needle on what that asset could look like and the rents that we could achieve on it. But, like a lot of these types of power centers, it'll be a longer, slower one. As we get space back, we're able to re-tenant it. Would love to add a Trader Joe's or a Sprouts or a high-end grocer there. We just don't have a space for them. So that will be something we continue to talk about internally. But, right now, it's pretty much fully leased. There's one small vacancy that we have a lot of interest in. But, until we can get some of the anchor and junior anchor space back, there's not a lot more we can do there. Bruckner is a perfect example, though, of what happens when an opportunity does present itself. Losing the Kmart there gave us the opportunity to really rethink not just the Kmart and the Toys R Us that was in front of it, but the whole shopping center. And if you look if you were to go out to Bruckner today, you would see a pretty heavy construction site. And if you go out to Bruckner a year from now, you would see a Chick-fil-A on the corner open for business, a Chipotle open for business, and hopefully a BJ's Brewhouse and a Ross Dress for Less open for business. So when you add those kinds of tenants, you're adding effectively a third grocer with BJ's to the ShopRite and the Aldi that are already there. When you add those kinds of tenants and you bring in more soft goods, we have Marshalls, we've got Burlington. Now we'll be adding Ross and another soft goods tenant next to Ross. And then, of course, you add food offerings like we'll be able to put in, anchored by Chipotle and Chick-fil-A. Like, that asset really does become a complete redevelopment and one that we're incredibly proud of. Jeff likes to say that when he started Urban Edge, it was the ugliest shopping center he ever saw. And now we all kinda think it's one of the nicest shopping centers, certainly in, you know, in the five boroughs. So, Bruckner is a good litmus test for where we'd like to get to, but we have to have the space back first to get it. Jeffrey Olson: And to put Bruckner in context, I think our NOI was around $7 million last year at Bruckner. And in 2028, we're expecting it will increase by $8 million to $15 million. So it's driving a lot of growth over the next several years. Floris Van Dijkum: Thanks, guys. Jeffrey Mooallem: Thanks, Floris. Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Olson for any final comments. Jeffrey Olson: Great. We appreciate your interest in our company and look forward to seeing you soon. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Chimera Investment Corporation Fourth Quarter Earnings Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Miyun Sung. Thank you. You may begin. Miyun Sung: Thank you, Operator, and thank you, everyone, for participating in Chimera Investment Corporation's fourth quarter 2025 earnings call. Before we begin, I would like to review the Safe Harbor statement. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These events are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the forward-looking statement disclaimers in our earnings release and our quarterly and annual filings. During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earnings for reconciliations to the most comparable GAAP measures. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call. We do not undertake and specifically disclaim any obligation to update or revise this information. I will now turn the conference over to our President and Chief Executive Officer, Phillip Kardis. Phillip Kardis: Thanks, Miyun, and good morning, and welcome to the Chimera Investment Corporation fourth quarter 2025 earnings call. Joining me on the call are Subramaniam Viswanathan, our Chief Financial Officer, Jack Macdowell, our Chief Investment Officer, and Kyle Walker, the President and CEO of Home Express Mortgage. After my remarks, Subramaniam will review the financial results, Jack will review our portfolio, and then Kyle will review Home Express's results. Last year, we provided a consistent message. We said we were not playing defense; we were building a hybrid REIT designed to endure. Durable companies are built on clear thinking, long-term orientation, and discipline. Early last year, we laid out a simple actionable plan: diversify our portfolio, strengthen liquidity, and expand our fee-based income. And we were explicit about how 81% loans, 3% agency securities, and 16% non-agency securities. We ended the year at 61% loans, 16% agency securities, and 10% non-agency securities, 11% lending activities, and 1% MSRs. We are not yet where we intend to be, but the direction is unmistakable and the progress significant. We also increased third-party AUM from $22 billion to $26 billion, added advisory services to three of our securitizations, and successfully integrated our loan data into the Palisade's systems, which is already improving the performance of the legacy portfolio. And we closed on Home Express Mortgage, one of the largest non-QM originators, an acquisition that expands both our capabilities and our reach. Though we raised approximately $120 million in unsecured debt, the majority of the funding for this transformation came directly from our own portfolio, exactly as planned. Through asset sales and collapsing select securitizations, we generated approximately $485 million for an aggregate total of more than $600 million to redeploy into higher value activities. While our orientation is always long-term, we are beginning to see near-term results. Our earnings power has begun to increase, enabling us to raise our dividend by 22% quarter over quarter to $0.45 in the first quarter, and our board expects to maintain that dividend level for the remainder of the year. That combination of earnings momentum coupled with disciplined capital allocation is how sustainable value is built. As we transform Chimera into a long-term hybrid REIT, we have been clear that we are not changing who we are, but expanding how we apply our capabilities. We remain at our core focused on a set of competencies we know well. Our hedgehog nature. But as every durable enterprise learns, evolution requires clarity of purpose. Simon Sinek phrases it, it starts with why. And we know our why. We are here to give investors broad exposure to the entire real estate ecosystem through a diversified set of assets, operations, and income streams. That exposure shows up not only as dividends but as enterprise growth. Our how is straightforward: manufacture and acquire a diversified portfolio of residential assets that generates net interest income, gains on sales, and fees from operations. Our what is equally clear: consistent reliable dividends across market environments while growing enterprise value over time. Many REITs, including us, are viewed as a quasi-bond; book value is treated as principal and dividends as coupons. That is not who we are becoming. We are building an operating company with capacities to compound value while delivering a tax-advantaged dividend. As such, neither book value alone nor dividends alone tell the whole story. What matters is long-term intrinsic value per share supported by a consistent dividend. As we look towards 2026, our priorities remain unchanged. We are focused on the long game, on building a diversified residential platform capable of generating long-term value for both our customers and our investors across a wide range of economic environments. We will continue to diversify the portfolio, expand liquidity, and grow our fee-based income, both organically and through thoughtful acquisitions. As we have said before, we are not merely building a bigger company; we are building a better one, engineered for resiliency and longevity. Now I will turn it over to Subramaniam to walk you through the financials. Subramaniam Viswanathan: Thank you, Phillip. With the acquisition of Home Express, a material portion of our business is now operations in addition to our investment portfolio. As a result, we have reevaluated our financial reporting. Beginning with the fourth quarter, we now have two reportable segments: our investment portfolio and our residential origination platform. The investment portfolio segment consists of our investments and third-party advisory business, for which Jack will provide more detail. Our residential origination segment consists of the standalone mortgage origination business, for which both Jack and Kyle will provide more details. And now I will review Chimera's financial highlights for the fourth quarter and full year of 2025. GAAP net income for the fourth quarter was $7 million or $0.08 per share. And GAAP net income for the full year was $144 million or $1.72 per share. GAAP book value at the end of the fourth quarter was $19.70 per share. For the fourth quarter, our economic return on GAAP book value was negative 0.9% based on the quarterly change in book value and the $0.37 fourth quarter dividend per common share. And for the full year, our economic return was positive 7.4%, which includes $1.48 of dividends declared in 2025. As Phillip noted, this morning, the company announced first quarter 2026 dividends of $0.45 per share, an increase of 22% from prior quarterly dividends, and our board expects to continue the dividend for the remaining March 2026. Our earnings available for distribution for the fourth quarter was $45 million or $0.53 per share. And our EAD for the full year was $141 million or $1.68 per share. Turning now to our reportable segments. For the investment portfolio segment, during the fourth quarter, our economic net interest income was $65 million. The yield on average interest-earning assets was 5.9%. Our average cost of funds was 4.5%, and our net interest spread was 1.4%. For the residential origination segment, during the fourth quarter, Home Express funded $1 billion in production with a gain on sale premium of 358 basis points on loans sold and settled. Home Express EBITDA, defined as earnings before taxes, depreciation, and amortization, was $11 million for the quarter, and Home Express annualized EBITDA ROE was 16.2%. With respect to leverage, our total leverage for the fourth quarter was 5.1 to one, while Rico's leverage ended the quarter at 2.4 to one. Rico's leverage increased this quarter as we continue to increase our capital allocation to Agency RMBS securities and the addition of warehouse lines from the residential origination segment. For liquidity and strategic developments, the company ended the year with $528 million in total cash and unencumbered assets, compared to $752 million at the end of the third quarter. Cash decreased as we completed the acquisition of Home Express for cash consideration of $244 million and total consideration of $272 million. On the investment portfolio side for the fourth quarter, we added $6 million of Agency RMBS during the quarter net of sales. We continue to rebalance our portfolio as we redeemed $70 million of securities from SIM 2022 I one securitization and sold the underlying loans with a principal balance of $166 million, releasing approximately $28 million of equity. We also sold $33 million of non-agency RMBS subordinate securities. At year-end, we had $6 billion of total consolidated secured financing outstanding. $802 million related to our residential origination warehouse loans and $5.2 billion for our investment portfolio. Of this $5.2 billion relating to our investment portfolio, $3.3 billion was secured financing for agency RMBS positions. We maintained $2.9 billion of hedges against this exposure, a combination of swaps and swaptions across varying maturities. $1.9 billion of secured financing was for residential credit exposure. Of that, $1.3 billion or 66% included either non or limited mark-to-market features. $1 billion or 51% of this floating rate facilities. We also maintain $2.15 billion with a combination of swaps, options, and interest rate caps across varying maturities to hedge our interest rate risk related to residential credit exposure. For 2025, our economic net interest income return on average equity assigned to the investment portfolio was 10.8%. Our GAAP return on average equity was 4.4%. Our EAD return on average equity was 11%. And our EAD return on average tangible equity was 11.9%. And lastly, compensation, general and administrative expenses increased by $22 million year over year, which was primarily driven by the inclusion of staffing costs and G&A expenses related to Palisade's acquisition in December 2024 and Home Express acquisition in 2025. Compensation expense of our investment portfolio was lower during the fourth quarter due to the absence of severance costs that were recorded in the third quarter and a lower incentive compensation accrual in Q4. Together, these items contributed approximately $0.05 to EAD for the fourth quarter. We consider both these items to be non-recurring and do not expect these compensation-related benefits to continue to EAD in future periods. Servicing expense decreased by $2 million year over year due to lower loan balances and loan counts related to our portfolio reallocation strategy. Our transaction expenses were higher by $10 million this year, reflecting the cost associated with Home Express acquisition. To close, as Phillip noted, and our financials are beginning to show, building a diversified residential platform that is generating income from assets, gain on sale, and fees from operations. I will now turn the call over to Jack to review the portfolio and investment activity. Jack Macdowell: Thanks, Subramaniam, and good morning, everyone. 2025 was a pivotal year for the business and our capital allocation strategy. As Phillip mentioned in his remarks, we began the year with a clear objective to reposition the investment portfolio to be more balanced and liquid while strengthening our earnings power. That plan included increasing our allocation to liquid agency MBS, adding MSRs to help offset interest rate and prepayment risk in other parts of the portfolio, and applying our asset-level credit risk management capabilities to enhance performance across the loan book. Over the course of the year, we generated more than $600 million of capital through portfolio and capital markets activity, including $291 million from refinancing select investments, approximately $195 million from divesting assets that no longer met our return thresholds, and $116 million from our senior unsecured notes offering. These actions supported our portfolio allocation realignment and, importantly, positioned us to pursue a broader business transformation through the acquisition of Home Express. During 2025, we purchased over $3 billion of agency MBS net of sales and launched our MSR strategy. As a result, our capital allocation shifted from approximately 97% residential credit at the start of the year to 72% at year-end, with the balance now allocated across agency MBS at 16%, MSRs at 1%, and 11% to our Home Express lending platform. This was all carried out alongside a relatively dynamic market backdrop. Following the volatility spike in April, agency and non-spreads tightened throughout the remainder of the year. In the fourth quarter, agency swap OAS continued tightening by approximately 22 basis points, while generic non-QM AAAs were firmer by five basis points. Treasury yields had a tightening bias during the year as the front end was driven primarily by expectations for Federal Reserve easing, and longer-term yields reflected inflation and fiscal considerations. The two-year, ten-year treasury spread ended the year at 69 basis points, approximately 37 wider than where it began, with roughly 15 basis points of that occurring in the fourth quarter alongside the Fed rate cuts. Lower treasury yields helped guide mortgage rates down approximately 70 basis points for the year, with 15 basis points coming in the fourth quarter to end at 6.15%. Our book value is sensitive to yield curve dynamics because both our securitized loans and the related liabilities are recorded at fair value. As the curve steepened in recent quarters, loan values increased. However, those gains were more than offset by increases in the fair value of our securitized debt, resulting in lower reported book value. In the fourth quarter, our Agency MBS portfolio contributed positively to book value as spreads tightened, while our aggregate loan portfolio was roughly flat. However, as Subramaniam noted earlier, overall book value declined 2.7%, attributable in large part to the increase in value of our consolidated securitized debt and activities related to the Home Express acquisition. Our earnings power increased during 2025, reflecting deliberate portfolio repositioning, improvements in capital allocation, and contributions derived from the Home Express acquisition. The Federal Reserve's easing provided some benefit through the asymmetry in our liability hedge structure related to the residential credit portfolio. In the first full quarter with Home Express contributions, the business generated a distributable ROE as measured by EAD over average common equity of 11% annualized. This compares to 7.16 in 2024, representing an increase of nearly 400 basis points. During the fourth quarter, we exited approximately $33 million of legacy non-agency RMBS, releasing roughly $6.7 million of capital at a breakeven ROE of 7%. We also exercised our redemption rights on the SEM 2022 I1 investor loan securitization, sold $166 million of underlying loans, and generated $28 million of net capital after satisfying debt obligations, with a breakeven ROE of 3%. We added approximately $6 million of Agency MBS in the fourth quarter and ended the year with over $3 billion consisting primarily of specified pools selected for call protection characteristics. Performance in our seasoned re-performing loan portfolio remains stable. Prepayments were primarily driven by housing turnover, and we saw a seasonal 50 basis point increase in delinquencies during the fourth quarter. Otherwise, no other notable trends. Looking ahead, we expect 2026 to focus on continuing to unlock capital and redeploy into investments that are earnings accretive and align with our portfolio repositioning objectives. This may include exercising additional securitization redemption rights and divesting of assets that no longer meet portfolio objectives or return thresholds. We expect our capital deployment efforts will remain focused on Agency MBS, MSRs, sponsored securitizations backed by Home Express production, and other select credit investments. While positioning ourselves to capitalize on potential platform acquisitions as they emerge. Agency MBS continues to serve as the most liquid component of our portfolio, enabling efficient deployment following capital markets activity, asset sales, or portfolio runoff, while preserving liquidity for future investments and other strategic initiatives. At approximately 7.5 times leverage, the agency portfolio continues to generate run-rate ROEs in the low to mid-double digits. We are seeing strong demand for non-QM loans and related securitized products to start the year. Generic non-QM AAA spreads have tightened approximately 20 to 25 basis points year to date, surpassing 2025 levels. While we intend to retain portions of Home Express' production for our securitization program, we will continue to evaluate relative value between selling the loans in the secondary market and securitizing and retaining portions of the capital structure in our investment portfolio. 2025 represented a meaningful transition year for the portfolio and the broader business. We repositioned capital, diversified sources of earnings, and expanded platform capabilities. As Phillip mentioned in his remarks, while our core discipline remains unchanged, we believe these steps enhance our value proposition and improve the durability of our earnings profile. With that, I will turn it over to Kyle to discuss Residential Origination. Kyle Walker: Thank you, Jack, and good morning, everyone. I would like to begin by noting that the transition into the Chimera organization has gone smoothly throughout our first quarter of ownership. Although the relationship is new, we are already seeing meaningful synergies between the Chimera Palisades platform and Home Express. Home Express currently has 332 employees and is licensed to originate mortgage loans in 46 states. We primarily focus on originating non-QM consumer and business purpose loans through a network of 6,000 mortgage brokers and bankers. These loans are sold in pools to investors who either aggregate and securitize the loans or hold them in their portfolios. Home Express originated $1.04 billion in loans during the fourth quarter, representing an 18% increase over the third quarter and marks a record for our company. For the full year 2025, we originated $3.4 billion in loan volume. As Subramaniam noted, Home Express's EBITDA was $11 million in the fourth quarter. Throughout 2025, we have been focused on expanding our lending capacity by further building our sales and operations teams. We believe this, combined with our continual technology enhancements, will support the continuation of our origination growth into future quarters. We have always been very focused on our cost metrics, and we reached a new record low GAAP cost to originate in the fourth quarter of 201 basis points, which produced a debt margin of 111 basis points. In 2025, we launched a non-delegated correspondent program to serve a growing segment of mortgage bankers seeking to fund non-QM and business purpose loans. Home Express underwrites these loans to our guidelines with the bankers funding the loans in their names. We now have 55 mortgage bankers approved to deliver closed loans to Home Express. While volume in this channel was modest in the fourth quarter at $47 million, we expect it to represent a growing share of our origination volume going forward. We increased our total warehouse funding capacity to $1.35 billion in the fourth quarter, which we expect will be sufficient to fund our anticipated growth in the near term. With the anticipated continued growth of the non-QM and business purpose market, we are optimistic that our business will continue to grow, and we look forward to realizing the benefits that our partnership with Chimera can deliver. Thanks, Kyle. We are glad to have Home Express as part of the Chimera team. And as you said, we are already seeing the benefits of the partnership. Now we will open the call for questions. Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Trevor Cranston with Citizens JMP. Please proceed with your question. Trevor Cranston: Hey, thanks. Good morning. Looking at the Home Express numbers, obviously, the fourth quarter was pretty strong, both in terms of production volume and gain on sale also saw a nice jump. Can you give us an update on kind of how you guys are seeing volume and gain on sales so far in the first quarter? I know you mentioned that your AAA spreads have tightened quite a bit year to date. Thanks. Kyle Walker: We are seeing the typical seasonal reduction in volume after the holidays. But we think that 2026 is going to be a great year. We think the first quarter is going to be a pretty good quarter in comparison to last year. We are seeing the gain on sale premiums to be pretty good in comparison to the fourth quarter, and we are optimistic about the revenue for the first quarter. Trevor Cranston: Got it. Okay. That is helpful. And then as you go through the year and continue to free up capital in some cases and reposition the portfolio, can you talk about where you see the best relative value today between adding more agencies after the spread tightening that has occurred versus potentially doing securitizations of non-agency assets? Jack Macdowell: Yeah. Hey, Trevor. This is Jack. You know, one of the things that we continue to be really focused on is the portfolio construction. So there are certain objectives that we have that we have talked about in terms of what we are trying to do with the portfolio, namely, creating more balance. And part of that is having that liquid component with agencies, which I think we have done a really good job in 2025 of building up. The other bookend there would be to have somewhat of a hedge vis-a-vis our MSR allocation, which at 1% continues to be well below what our otherwise target would be. And then in between those two bookends is the credit piece of the portfolio where, you know, we think that having the Home Express production in-house and being able to securitize that and retain certain parts of the capital structure in our investment portfolio can certainly be accretive. As you point out, agency spreads have come in where we are holding leverage right now. We still see that as, you know, relatively attractive or at least meeting our return threshold somewhere in that low to mid-double digits. But I would say where we are from an allocation perspective today, we are pretty comfortable with, you know, plus or minus another 5%, I would say. So, really, for the balance of the year, that will continue to serve as our liquidity bucket. MSRs continue to be a focus of ours. And right now, as Kyle mentioned, we are seeing pretty strong demand in the secondary market for loans. So we are constantly evaluating the cost-benefit analysis of selling loans in the secondary market versus retaining them for our investment portfolio. Trevor Cranston: Got it. Okay. I appreciate the comments. Thank you. Operator: Thank you. Our next question comes from the line of Douglas Michael Harter with UBS. Please proceed with your question. Douglas Michael Harter: Thanks and good morning. Was hoping you could put the dividend increase in context, kind of how you thought about the size of that increase and how you think about kind of retaining some capital for book value growth, being able to grow the investment portfolio operating businesses versus kind of maximizing the dividend? Phillip Kardis: Hi, this is Phillip. Thanks for the question. I think as we look at that issue, what we look at is we look at it over the period of the year. We recognize as we become more of an operating company, we expect EAD to potentially be variable from short period to short period, but so how we look at it is we look at it over the course of the year, we feel like that dividend is one that will have sufficient EAD coverage on. And will provide us sufficient coverage for us to have the proper allocations to help grow, you know, the operating aspects of our business. So that is the kind of the balance we struck and to give the market some feel for where we think we will be throughout the year. Douglas Michael Harter: And I guess just on that point, would you expect going forward to kind of give guidance for the full year in the first quarter dividend or is that kind of unique to this year since it is kind of the first? Phillip Kardis: Yeah. I think, I mean, that is hard to say. As we looked at it for this year, we did think it would be helpful to the market to address the questions that you ask, which were like how much do you expect in a dividend? How much do you expect to retain? And we thought rather it would be helpful to the market to go ahead and try to lay out what our expectations were. Whether we proceed to continue to do that, you know, a year from now, we will just have to wait and see. Douglas Michael Harter: Okay. I appreciate that, Phillip. Thank you. Operator: Sure. Thank you. Our next question comes from the line of Bose Thomas George with KBW. Please proceed with your question. Bose Thomas George: Hey, guys. Good morning. On the residential segment, are you guys originating second liens at the moment? Or is that an incremental opportunity? Then where do you see industry non-QM volume in 2026 versus 2025? Kyle Walker: We currently are not originating second mortgages. We originate through a wholesale brokered network, and it is difficult with small loan amounts, like second mortgages, to originate those in a profitable manner. So we have not gotten into the second mortgage market. All the statistics and analytics that we see for non-QM and business purpose loans in 2026 are growing, increasing over 2025. So we are seeing numbers as large as 20% to 25% growth in the market. So we are anticipating that the market is going to grow and that we will get our share of the increased market going forward. Jack Macdowell: Yes. And hey, the other thing, Bose, I would just say on the second lien side, I mean, when you have a servicing business, as you know, that is a very good mechanism for sourcing second lien borrowers in a way to kind of address some of the prepayment activity associated with your MSRs. So perhaps at some point down the road, that could be more of a strategy for us. But at this point, as Kyle said, it is not something that, you know, we are originating. And then just in terms of the non-QM volume outlook, this was a major thesis for us early last year as we were sort of thinking about the acquisition of Home Express and the viability of doing that. And, you know, I think 2025 sort of supported our case, but going into 2026, I mean, we saw a considerable increase in both origination volume and non-QM in 2025, plus issuance volume. And looking out into 2026, I mean, we are projecting just on the origination volume side, that could be anywhere from $110 billion to $130 billion, which is based on modest growth in overall mortgage originations, including conventional and agencies, plus having a non-QM capture, you know, another 100 basis points or so of wallet share. Bose Thomas George: Okay, great. That is helpful. Thanks. And then actually just switching over to the change in book value this quarter and the reduction of the value related to your securitized debt. Is that happening mainly because that is more liquid than the loans on the other side? And should we just kind of see that as a timing issue? Jack Macdowell: Yeah. I mean, it is a good question. So maybe we will just address what value quarter to date. I assume somebody is going to ask that. So we are basically flat to down, call it, 30 basis points quarter to date. And the one thing and maybe it is a good time just to talk about our views of capital at risk and value at risk. There has been a pretty heavy steepening in the yield curve during 2025. I think in the prior quarters, we have talked about the impact on our loans as well as on our securitized debt. And basically, loan values have been but the value of our securitized debt has increased at a faster pace, having the effect of reducing reported book value. Okay? And while that is an important accounting outcome, it does not really change how we view our economic risk or capital at risk. And that is because a core part of our strategy is exercising the call rights that we own on our securitizations where we redeem the bonds at par. And, you know, basically, the mark-to-market fluctuations in our securitized debt, it does not affect the economics of our call option nor does it affect the earnings power of our capital. So just want to give you kind of a, you know, how we think about that. We are focused squarely on managing capital at risk, and the way that we think about that is we evaluate based on the cash flow generating capital that we have, not on the short-term valuation movements of our securitized liabilities. Bose Thomas George: Okay, great. That is helpful. Thanks. Operator: Thank you. Our next question comes from the line of Eric Hagen with BTIG. Please proceed with your question. Eric Hagen: Hey, thanks. Good morning. Maybe following up on this bullish non-QM outlook. I mean, do you think there is any room for credit enhancement levels to come down in the securitization trust? And to the extent that we ever saw more flexibility for credit enhancement levels, how do you think that would drive your appetite to take leverage on the subordinate pieces that you retain from securitization? Jack Macdowell: Yeah. Good question. I mean, look, on some deals, we see quite a bit of differentiation among, call it, AAA enhancement levels across various deals. And we see the rating agencies consistently reviewing their models as more data comes in. And you are as aware as anybody that losses have been de minimis in the non-QM sector, but we are seeing the 2022, '23 cohorts where delinquencies are creeping up. So I guess our expectation is not that there is a material decline in credit enhancement levels. And for us, Eric, I mean, we actually look at securitization in two different components. One, horizontal risk retention and vertical risk retention. So the horizontal, obviously, we have, you know, certain types of requirements with respect to how much we must retain if we are holding horizontal. And then on the vertical side, we are holding most of that would be AAAs. So for us, it is really just an economic consideration. The nice thing about securitizing and retaining the horizontal piece is that you are basically, you know, funding your investment with fixed-rate term financing, so you are not taking liquidity risk. And certainly, from that perspective, we are more comfortable taking the leverage. And if it was like mark-to-market repo. Eric Hagen: That is really helpful color. I appreciate that. Right here. As you guys know, the administration is focused on reducing mortgage rates by buying agency MBS, but the GSEs, of course, still hold a huge portfolio of mortgage loans, which they usually target for loss mitigation. Do you guys think the GSEs could ever look to sell more of the loan portfolio mainly in an effort to, like, create more room for MBS purchases? And do you think there is a deep enough market for them to potentially pursue that opportunity? Jack Macdowell: Are you talking about the, like, the NPL sales? Eric Hagen: Yes. Much. Yeah. Oh, yeah. Exactly. Jack Macdowell: Yeah. For sure. For sure. I mean, I would hope that they would. I mean, they have certainly been, you know, sellers in the past. So that could certainly be an avenue that they have used historically, and they could certainly use again to the extent that the economics made sense for them to do so. Eric Hagen: Okay. Thank you, guys. Operator: Thank you. Our next question comes from the line of Kenneth Lee with RBC Capital Markets. Please proceed with your question. Kenneth Lee: Hey, good morning. Thanks for taking my question. Just one on third-party assets under management and the growth around there. How do you think about the potential contribution of fee revenues or fee-related earnings over time? To see a meaningful pickup, would there have to be a pickup in loans under management? Or is there any other avenues that you are looking at there? Thanks. Jack Macdowell: Yes, I mean, that is certainly a focus of ours to diversify our earnings and grow our fee-earning capabilities. I mean, that group is really bifurcated into two different pieces. One, the majority of which is managing, you know, loans on a third-party basis, and that creates a couple of different fee revenue streams. So we are constantly working to, you know, grow that business both sort of with external loans, and there are also synergies with respect to Home Express production to the extent that we sell loans and we can retain the asset management function on a go-forward basis. So we are certainly looking to exploit some of those synergies as well. And then on the more discretionary, you know, credit fund side, you know, we certainly remain focused on, you know, looking at building separately managed accounts and growing fees through that channel as well. Kenneth Lee: Gotcha. And then relatedly, are you seeing in terms of client demand or interest for the loans? Is there any kind of color around the mix of either institutional investors? What types? Sounds like from the prepared remarks, you are seeing stronger demand there, but just want to get a little bit more color on that. Thanks. Jack Macdowell: Yes. If you are talking about the demand in the secondary market for Home Express' loan sales, I mean, it is a consortium of different buyers from insurance companies to dealers to, you know, asset managers who oftentimes are crossover between securities crossing over into the loan space. So, yeah, I mean, just like we have seen spreads tighten on AAA non-QM, 20 to 25 basis points start of the year, we are seeing very strong demand for non-QM loans in the secondary market from a whole host of investors. And maybe just to follow up on that question, the types of investors, I mean, you continue to see insurance companies looking to crossover and get exposure to the whole loans. So that is an area I think that we continue to be focused on to the extent that we can provide somewhat of a one-stop shop for folks who are looking to get exposure to non-QM loans, but perhaps do not have the infrastructure to manage those loans. We have the in-house capability, and we can provide that one-stop shop. Kenneth Lee: Very helpful there. Thanks again. Operator: Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back to CEO, Phillip Kardis, for closing remarks. Phillip Kardis: I would like to thank everybody for participating in our 2025 fourth quarter earnings call, and we look forward to speaking with you again for our 2026 first quarter earnings call. Thanks again. Operator: Thank you. And this concludes the conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Pegasystems Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Peter Welburn, Vice President, Corporate Development and Investor Relations of Pegasystems. Peter? Please go ahead. Peter Welburn: Thanks so much, Krista. Good morning, everyone, and welcome to Pegasystems' 2025. The words expects, anticipates, intends, plans, believes, will, could, should, estimates, may, forecast, and guidance or variations of such words and other similar expressions identify forward-looking statements which speak only as of the date the statement was made and are based on current expectations and assumptions. Because such statements deal with future events, they are subject to various risks and uncertainties. Actual results for fiscal year 2026 and beyond could differ materially from the company's current expectations. Factors that could cause the company's results to differ materially from those expressed in forward-looking statements are contained in the company's press release announcing its Q4 2025 results and in the company's filings with the Securities and Exchange Commission including its annual report on Form 10-Ks for the year ended 12/31/2025, and in other recent filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. Although subsequent events may cause our view to change except as required by law, we do not undertake and specifically disclaim any obligation to publicly update or revise these forward-looking statements. Whether as the result of new information, future events or otherwise. Our non-GAAP financial measures discussed in this call should only be considered in conjunction with our consolidated financial statements prepared in accordance with GAAP. Are not a substitute for financial measures prepared under U.S. GAAP. Constant currency measures are calculated by applying the 12/31/2025 foreign exchange rates to all periods shown. Reconciliations of GAAP and non-GAAP measures can be found in the company's press release announcing its Q4 2025 results. And with that, I turn the call over to Ken Stillwell, Chief Operating Officer and CFO of Pegasystems. Ken Stillwell: Thank you, Peter. I'm thrilled to share the financial highlights of what's been an outstanding year for Pega. Execution by our global sales team, powered by our blueprint experiential sales approach drove top-line outperformance in 2025. And our company-wide commitment to Rule of 40, supported by robust internal adoption of AI built natively in our platform delivered bottom-line outperformance as well. Let's start with the top line. Total ACV grew 17% year over year as reported, and 14% in constant currency. Beating our guidance. Pega Cloud ACV, once again, drove that growth. Increasing 33% year over year as reported. And 28% in constant currency. That was a pretty significant acceleration from last year's 18% growth rate as reported and 21% in constant currency. And Pega Cloud ACV growth accelerated sequentially in all four quarters in 2025 in constant currency, demonstrating the power of both our cloud-first strategy and blueprint our AI design agent. Three factors drove our ACV growth acceleration in 2025. First, the blueprint revolution has been key to our growth. Blueprint moved from a promising experiment in 2024 to a fundamental change in how we sold in 2025. Enabling a completely new experiential sales process. Our Blueprint agent is now core to how we operate. Shaping everything from how we sell to how we deliver and drive client's success. Second, we have the strongest global sales execution that we've ever had. We drove a highly effective, disciplined, and scalable sales cadence worldwide, an unwavering focus on customer outcomes. Our account executives executed exceptionally well against our target account model, reinforcing the importance of focus, and discipline. And third, we've been increasing demand from our clients and partners for Pega's differentiated predictable AI agents, integrated into proven enterprise workflows. As a result of these factors, our net new ACV increased by 37% year over year in constant currency. Looking ahead, we're confident in the durability of our ACV growth. Because of the strength of our moat. Pega is deeply embedded in our clients' core operations, through vertical-specific workflows, and it's integrated at enterprise scale. Supporting hundreds of millions of users globally. Pega has become a trusted compliance backbone for our clients and for regulators worldwide. And you may have noticed that we just achieved ISO 442001 a two and a certification across Pega Cloud services. Our GenAI solutions, and our predictive and adaptive analytics capabilities. Pega's financial performance achieved several key milestones in 2025. Among them, free cash flow increased 45% year over year to $491 million. Exceeding our guidance by $51 million. This outstanding improvement in free cash flow was driven by our ACV growth and reflects the full strength of Pega's subscription model and the benefits of our subscription transition. Our strong free cash flow generation provides us with the flexibility to invest for growth, while also returning significant capital to shareholders. In 2025, our capital allocation strategy stayed firmly focused on driving long-term shareholder value. Our top priority continued to be investing in organic growth including product innovation, go-to-market capacity, where we generated consistent strong returns on invested capital. We also maintain a strong balance sheet. We ended 2025 with $426 million in cash and investments. During 2025, we repaid $468 million of debt. Repurchased $498 million of shares, and distributed million dollars in dividends. This reflects the strength and durability of our business model. Looking ahead, we are confident in our ability to sustain this balanced and disciplined approach to capital allocation. Our contractually committed backlog grew 28% as reported year over year, and 23% in constant currency. And now exceeds $2 billion as reported for the first time in Pega's history. The biggest driver of our backlog increase was the increase in Pega Cloud backlog. Which grew 36% as reported year over year. Pega cloud backlog now represents 74% of total backlog. Which is amazing. We're also really pleased that the Supreme Court of Virginia unanimously affirmed what the Virginia appellate court also unanimously recognized that the trade secret trial and resulting verdict were fundamentally flawed. What this means is that the $2 billion verdict is gone. For more details, please see the email I sent to our employees on January 8 which we filed as an 8-K. Moving to 2026 guidance. As a reminder, we provide only annual guidance, not quarterly guidance. We typically do not update guidance during the year unless we have a material acquisition. Here are our key guidance metrics for 2026. Total ACV growth of 15%, Total revenue of $2 billion an increase of approximately 15% and a very significant milestone for the firm. And free cash flow of $575 million a 17% increase over 2025. With our rapidly increasing free cash flows, our board also authorized an additional $1 billion in buyback capacity. This authorization reflects our confidence in the durability of our cash flows and our commitment to disciplined capital allocation. We don't provide quarterly guidance, I've received feedback that's helpful when I provide a few thoughts on modeling our business for 2026. First, with our subscription transition complete, you'll notice in our 2025 result, and in our 2026 guidance. That revenue growth and ACV growth are more closely aligned. Going forward, we expect this trend to continue. A dynamic some of your models may not have fully reflected yet. Now that Pega Cloud ACV is greater than 50% of total ACV, our annual revenue becomes more predictable. Second, in 2026, we expect the progression of our net new ACV to follow a more historically seasonal pattern with a significant amount of our net new ACV occurring in the second half of 2026. This timing reflects the nature of our contract renewals which are more concentrated into Q3 and 2026. As a result, we expect subscription license revenue to be back-end loaded as well. Third, as AI reshapes how Pega and its partners deliver solutions with Blueprint, we intentionally reduced our professional services billable headcount and increased our reliance on partners for delivery. So we expect full-year professional services revenue to represent roughly 10% of our $2 billion revenue guide in 2026. Finally, but also the most impactful factor is our rate of Pega Cloud ACV growth. Pega cloud ACV has accelerated for four consecutive quarters, fueled by the strength of Blueprint and strong execution. We expect this growth acceleration will continue to be driven by AI-powered automation initiatives by CIOs and executives prioritizing productivity and efficiency gains. Given these dynamics, we expect 30% in 2026. And you can see that acceleration signal in our current Pega cloud backlog growth. In conclusion, we've made tremendous progress in transforming our business model over the last several years. Looking back 2025 was a year where we positioned Pega exceptionally well for continued growth acceleration. Thanks to all of our employees for running the business with a rule of 40 mindset. We look forward to seeing investors in the next few weeks at upcoming investment banking conferences and also please mark your calendars. Our annual investor session will be held on Monday, June 8 at the MGM Grand in Las Vegas, Nevada in conjunction with PegaWorld, our annual client conference. We'd love to have you join us there in person. And with that, I'd like to hand it over to Alan Trefler. Our founder and CEO. Alan Trefler: Thank you, Ken. And it's a pleasure hearing you tick off those numbers. It's really was a terrific 2025, and though it actually feels like a long time ago, we should take a brief moment and enjoy it. Now that that moment has passed, let me tell you about what's gonna be happening in 2026. I'm really proud of our team coming into this year because what we have is the basis for some things that can be really really exciting. You know, in '25, we launched the Infinity platform as the first real agentic enterprise transformation platform. And we really extended our leadership position in the industry reports that matter the most. To our customers and prospects. You know, I love, if you go to our website, to have people see how Gartner and Forrester reflect on what we do and what we are doing. And being in this position where as a rule of 40 plus company, where you have the resources, we have the balance, I think we have the maturity, to go after this opportunity as we look to break the $2 billion a year threshold once again, it's really an exciting time. But it all comes down to what clients need. And, you know, I recently returned from Davos where I had dozens of conversations with senior leaders and global organizations. And they really mirror a lot of the discussions that we have all the time. Now there's lots of presentations and lots of noise even the occasional Super Bowl ad. About AGI, you know, artificial general intelligence. And how that's going to change the world in speculative perhaps dramatic ways. But in more normal settings, leaders are focused on the urgent practical questions. How do we leverage AI to reimagine our business? How to simplify. And modernize operations, and improve the customer experience? And, you know, the issue here isn't the AI models. We made some great decisions about being able to be pretty fungible in how we chose one model versus another for different settings. And, boy, that has turned out to be the absolutely right way to go about it. But that real question is not just the model. It's how and when do you use it. And I spoke about this at our last call, but it's so important. I think it's worth taking a few minutes and really going through it again. Our competition broadly is taking generative AI models and using them at runtime. Let me explain what that means. It means that when a customer or a staff member engages with whatever system is involved here, that model is reasoning there in the moment. From scratch. Trying to figure out what to do. And, you know, there are times when that's just fine. To tell you the truth. I mean, you know, when we use our blueprint technology, to rethink and reengineer and reenvision a set of complex business processes we do exactly that. We're using our real-time capabilities to engage with the designers. But if we're actually looking to do the work, we think it's a mistake, a serious mistake, to at runtime routinely go and call the model as if it's discovering what you're trying to do for the first time. Structurally. Our competition, whether it's, you know, Microsoft or Salesforce or ServiceNow, our competition rethinks the problem from scratch over and over again. And the slightly frightening thing is the models don't always come up with the same answers. Even in situations and regulated industries. Where coming up with the same answer is not just important. It is imperative. And people who have fallen or are falling into these traps some of them, I think, are starting to realize there's a problem here, a problem that Pega does not have, but a problem that is structural and endemic to the alternatives. And so you can hear the noise, and you can hear the wild claims. You can hear that LLMs can quote, you know, do it all. But the reality is the LLM will work best when used the right way. Now we've seen of late, think it's referred to as the SaaS pop up, sespocalypse. Where, you know, software companies have been really real live and obviously that's struck us as well as other firms. I think there's a lot of guilt by association here in this space. Let me share my views on that. First of all, there are definitely some software companies that are gonna die. The reality is every time there's a big technical shift, you see that sort of thing happen. I think, you know, software companies that are basically glorified spreadsheets with limited functionality. Yeah. You can do all sorts of magical things and Claude or even Copilot that enable you to go after those types of applications. But the applications we do for our clients the very, very large ones that we've historically worked with, and the more mid-market ones we've never gone down market, but the more mid-market ones that we've talked about wanting to open up as we look to scale up this business. That those companies really have processes that run them. And they want those processes to be respected. They want architectures that will be able to do reliable repeatable and our favorite word predictable, things. And authoring prompts is not a way to achieve that. Whereas building workflows that are intrinsically agenda. So what we've done is made it so that every workflow is able to run as an agent is able to call other agents from other companies, and is able to be part of a fabric that orchestrates processes across the enterprise and lets people interact conversational, less people interact in ways that leverage their whole collection of workflows. In ways that are at once innovative and predictable. And when we can explain this difference to organizations, we see lights go on. And it's very, very, very exciting. The thing about these set of differentiators is this is a structural advantage. This is not one of those things where one LLM is six weeks ahead of another. This is a difference in philosophy that goes to the very core and powerfully allows us to leverage our long, long history as a workflow model system. To be able to do what you need to do for customers, to be able to build a workflow that can run at scale that can be used through the power of AI and can incorporate and orchestrate AI in a way that is turning it over to a model is frankly a little bit freaky and unpredictable in my view here as well. Now having been able to do this for such a long time, I think the conjunction of this brand new SPIFI technology. Putting a real powerful sheen on Pega's traditional business is the sort of thing that I think a lot of customers are realizing can give them what they need and give them in a way that they can predict and that they can understand. Now I do have people ask, well, in this world in which you can generate vast amounts of code, right, where you can go to a cloud code or a codex or can, like, write programs. Who knows? Maybe that will be used to take out applications. Why is this still relevant? I'm gonna tell you exactly why it's relevant, more relevant than ever. It goes back to something that we've been saying literally for thirty years. The problem is not generating the first limit of code. Easy to do. The machines do it well. And for some problems, maybe that's all you need. But for the problems we solve for our clients, it's not just about day one. It's also about being able to go back in day 30 know what you have, be able to navigate it and figure out how I'm going to change it. How I'm going to evolve it. To use our trademark term, how are we going to build for change? We have the build for change system. Period. Well, that's a good trademark, which is nice, but we have the system, which I think is actually more important. And what people generating code have are, you know, instant legacies. And by the way, we use it too. Yes. You can create some really interesting things, when we're writing our systems. You wanna use the cogeneration. Because the world has changed in that way. But you want a structure. This is why I say a structural advantage. And that structure are libraries of workflows that enable the business to scale, predictability enable the business to operate objectively with reliability and able make make the software able to orchestrate between different agents, systems, and environment. And these are we believe, the fundamentals of what makes Pega special and quite quite different. Now I couldn't be fair without going back something I've talked about a lot. Which is I think the starting point for all of this, which is bluebird. Blueprint is the AI design engine. For the enterprise. It takes and it continues to get better, by the way, every every two weeks, there's something new. So if you haven't been on, blueprint.com and tried it, it's worth doing. It gets more and more exciting, and amazing every two weeks. Blueprint, the design agent, unleashes innovation. It really lets you describe what you want your business to be. It can go out to your website and see what you say about your market. It can go out to all of the all of the interfaces that you can upload into it so we can actually see how to hook this in to the actual systems that you have in your back office. And it allows you to have these instant and productive conversations with team members to be able to collaborate and to build out what you want the system to work. With. As I mentioned before, this has completely changed our go to market. We're having similar productive conversations with clients about how they want to see an application and know with certainty that they're gonna be able to get something that doesn't rely on PowerPoints. It allows on an experience that they can literally touch they can literally converse with. They can engage intently with it. And can do it in the first ten minutes. That we sit down with them? We're so excited about what this does, but I will tell you that my excitement is increased because this year, we've added features to enable not just our intellectual property, to be put into something called a vector database and incorporated in Blueprint, but to enable 10 of our best partners to be able to put their intellectual property their proprietary intellectual property, available only to them into BLUEPRINT. So when those partners are with one of their clients, they can use Blueprint as a vehicle to sell their projects. With their IP. And, you know, this is very new. But I think this is gonna be a tremendous opportunity for us to change the way we go to market by really leveraging the partners. And I'll tell you that still early stages, but these partners are enormously excited. You can see an interview with me and Ravi Kumar. The CEO of Cognizant. In which he directs his teams not just the Pega teams, but the company in general. To go and understand and use this technology. And I think Blueprint offers this chance that I have not seen before in the my history of attacker. And we've seen it turn into real results. For example, Proximus, which is the leading telecom provider in Belgium, recently used Blueprint to redesign a critical application in one day and actually get it into full production on Pega Cloud to four months. And this is so much more. Than they would have ever been able to do before. So exciting here as well. So, look, we love the term vibe coding. I don't know if it's gonna stick or not, but we're adding vibe features to Blueprint. To make it work. But all of this is much more than just five coding sort of a personal app to do something for you. This is about building enterprise systems to enterprise standards. With enterprise interfaces and reliability and the capabilities that you need to be able to run your business on it. And of course, run your business reliably and predictably. Now in addition to the apps that customers wanna have, we think that this is also a great chance to get rid of apps that customers wish they didn't have. And this is where you know, we made a recent acquisition, and this is where we built technology and we have key partnerships. With companies like Accenture and Wipro to be able to analyze existing legacy systems rethink with AI. Put them into blueprint, allow collaboration and then put them on this fast track. The legacy modernization. The thing I will tell you is it's not just faster. It's better. So I think being able to do this in conjunction with our partners is gonna allow us to accelerate our transformation. And going to allow us to achieve a whole new level of scale. And I'm really excited with the senior executives who I'm at Davos who love this stuff, actually. And they love it because if you go on to Blueprint, and you are signed on as one of these partners, we actually put their logo. We give them full credit for their IP contributing to this picture. And it's something that the bank can use in their selling motion. As well. So I think that the opportunity here out of Blueprint and where Blueprint is and will be going. Just continues to open new doors for us. So look, 2025 proved that disciplined innovation can win. And, you know, the market forces that are there, there's a lot of confusion. But the truth is the truth. Enterprises really wanna transform. They really wanna save money. They wanna do a better job for their customers. And work for us. Are at the heart of how enterprises work. Our Shutter Cloud Infinity platform was built for this moment, and predictable AI gives customers the advantages of the AI, but also really gives them the predictability of reliability so that we don't have to worry about a lot of things that I see other people agonizing about. In '26, our focus remains clear. Helping customers move from experimentation to execution, and move to outcomes from talk. And I am super excited by what I'm seeing. Pega is built for this era. We are built for change. And we are excited for what's next. Krista, you can open up the line for questions. Operator: Thank you. If you would like to ask a question, please press. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please requeue. And your first question comes from Steve Enders with Citigroup. Please go ahead. Steve Enders: Okay. Great. Thanks for taking the questions this morning. I guess I just wanna start on just the deal environment and what you're seeing out there in terms of the macro. You know, understand that there's a it's like things are resonating on Blueprint and AI messaging. But just, I guess, what are you seeing in terms of deals getting across the finish line? Just how would you kind of characterize the current environment, and how you're thinking about that into '26? Alan Trefler: So, you know, I think the interesting thing about the blueprint approach and the whole way we've gone about using and pitching it is it so reduces friction around engaging the client. Because it's a very low cost, low risk transaction. For the customer to take a meeting and see what one of his systems could have been. Just need a little information. About what the systems are and what they do. And the fact is he doesn't touch him. And feel it. In the first hour. I think that's not the same as, you know, getting the check. But it does put the whole mindset at ease. So I would describe the early stages of the pipeline as really excitingly advanced. We've also used Bloomberg internally to create the workflows in our sales automation technology that enable us to evaluate a customer see what we know about them, see what's available on the web, see what other systems you know, these people who still upload us notes and TIBCO. And other sorts of things, see what other systems they have. And then actually be in a position to propose how they could do legacy transformation. And is all very fresh. It's a great use of AI. And it matches our, what we call, customer product matrix. With an actual customer and the information we have about that actual customer. And I think that also lets us open up a whole new set of conversations. Which from my point of view is pretty exciting. Ken Stillwell: I think, Steve, I'll add just a maybe a more tactical point on this. I don't I know that in my, you know, ten years at Pega, that I've seen more discussion with our clients around getting off of old legacy environments. Like, the pace at which that conversation is happening and how much people are engaging with Blueprint and how the, you know, many people or how many clients are coming, you know, to visit us that we're doing, like, we're actually doing workshops on trying to identify which systems. It's like the pace of that is I've not seen that speed. So that's really exciting for us, you know, just in terms of really the pace of digital transformation. Steve Enders: Okay. That's great to hear. And then I guess to follow-up, just in terms of, you know, I guess, the confidence on the ACV guide, you know, I guess, what is it that you're seeing out there that gives you that feeling you're gonna be able to hit that 15% and I guess the question we're getting from investors is, I think, the, you know, four q ACV number people were maybe hoping for a little bit of a better number there in seen a bit of a continued acceleration. And so I think it is, you know, like, maybe slip into '26 or just yeah. What is it that you're saying that maybe provides that perspective that you're gonna 15% for '26. Ken Stillwell: Well, I think, you know, our growth rate pretty much our constant currency growth rate paid stayed pretty consistent across the year. It was kind of right around that 14% number all through the year. So I and it was well above our guide. I think it was a fantastic year and a strong finish. In terms of the future, I think it really comes down to you know, our net retention rate. Is expanding at the same time that we're actually targeting new logos. And Blueprint is much more prominent, which really builds the bridge for us to grab new logos at a pace that we haven't been able to. So that's really what it's a combination of NRR increasing and us going you know, having the opportunity to go after new logos. And really starting to see some early success of that. Steve Enders: Okay. That's great to hear. Thanks for taking the questions. Ken Stillwell: You got it. Operator: Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Please go ahead. Rishi Jaluria: Wonderful. Hey. Hi, Ken. Thanks so much for taking my question. Maybe I wanna start by thinking about you know, the role that you can play now as enterprises actually start to live deploy agents, obviously, technology has a lot of promise. We've seen a lot of great demonstration. But just given how nation protocols like MCPU and a to a have been, you know, maybe it's been maybe these multi exempic systems are maybe been a little bit more limited. So the question I wanna ask is, as enterprises, you know, start to get a little bit more serious about deploying hundreds or thousands of agents, can you maybe help us understand, as how can that serve as a tailwind for Pega both in terms of being able to bring together, Alan, as you talked about in the prepared remarks, you know, agents from disparate systems and get them to work together. But also thinking about, you know, having helping agents trigger workflows across systems from different technological spans, because I can imagine they're not embedded to build to work with mainframe systems or on-premise data stores. Maybe just help us understand how introducing this complexity can be a tailwind for Pega, what role you can play there, and then I've got a quick follow-up. Alan Trefler: Yeah. I think this is where we have some of our I think, structural advantages. With Pega, I don't expect that customers will having to install tens of thousands of agents. I think the people who want to install tens of thousands of agents are delusional. And, you know, we went through a parallel environment years ago, around interfaces. People talked about microservices and the question was how many of these microservices should connect your enterprise? The reality is the people who put too many of them found that they went out of control. I think having an agent control tower to control your agents tells you something about the architecture, which is not a good thing. In Pega, if you have an application, that has, say, 40 or 60 workflows in it, and we have applications that have even much more than that. The Pega super agent is able to run all 40. And if any of those agents and any of those steps need to learn something from another agent that's not a Pega agent, or need to, you know, go to a third party, it can fire off an MCPA two a. Request that's already built into the system. To be able to incorporate or orchestrate what that agent does with the work of another agent here. But the idea that the competitors have will you go and you use a prompt studio to create literally thousands of agents. That are defined in English and that are gonna do the right thing reliably. That is so much weaker than saying, hey. I've got workflows that I know can run my business. I can do it at scale. I can do it do it at high volume and do it predictably. And the Pega agent is able to run any of them. Does that make sense to you? Rishi Jaluria: Yeah. No. Absolutely. That's very helpful color. You know? And then maybe I wanted to follow-up and think about Blueprint. Obviously, great to see this turn from kind of idea into reality show up in numbers, which is great to see, especially with the accelerating ACV. What I wanna maybe, understand is you know, one of the theories when you first launched Blueprint is that this could help meaningfully shorten, sales cycles and get customers from ideation to live deployment and value sooner. And I think you actually talked about that, but, you know, in kind of the time since you launched Blueprint, is there any way to quantify you know, how that has impacted whether it's, you know, on sales cycles, whether it's on, you know, just a lap time from first conversation to live deployment. Ken, you did talk about NRR improving. Maybe any message you can share to kind of quantify the impact that Blueprint has had on would be helpful. Thank you. Ken Stillwell: So we so, yeah, so I we will we're going to we'll be basically about one year into the into the blueprint data when we get closer to our Investor Day, Rishi. But I will give you I will give you some of the early signs that we're seeing. We are seeing faster pipe build, faster progression, and faster close times. Across the board with Blueprint. And so the key with that is to get into those new workflows. Even with existing clients or with new logos, so we are seeing those early signs. We'll be a little bit more precise with how some of that data because we'll kinda have about a year of that data when we get closer to Investor Day. But we are seeing the signs of it impacting all the important factors pipe build, pipe progression, win rates, you know, so we're we are seeing the early signs of that. That's what gives us you know, a key part of giving us confidence of accelerating our growth. Alan Trefler: We've seen a massive acceleration or improvement in the training time for new staff. I would say, you know, we used to we hire somebody. We often take five or six months before we look loose on a client. Everybody's in the field in a month. Plus, and a lot of that is that Blueprint just makes it so easy for them to get it. And for them to explain it to their clients. Rishi Jaluria: Gotcha. Very helpful. Thank you so much, guys. Ken Stillwell: Thanks, Rishi. Operator: Your next question comes from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. On BLUEPRINT, guys, how where are we on that app modernization journey? You know, that was always the dream. In theory, you would think Blueprint and AI can really help there. But how close are we for that dream to kind of come through? That would obviously unlock a lot of opportunities with so much legacy code still out there. Alan Trefler: So the capabilities are very rich. We have out of the box interfaces with Accenture. And other partners that AWS that will enable their tooling which like, reads COBOL code and does other sorts of things, to feed into Blueprint to complement I actually prefer using things like user manuals and outcome-oriented documents. And it's I see an enormous amount of interest from clients in terms of doing that. I think this will be a good year for that. We've also made it so that BLUEPRINT can modernize you know, we have a couple of pretty old Pegasystems that are out there with some of our clients. And we've added facilities so that Blueprint can also modernize an old Pegasystem. And I think that's also positive. So the feedback we're getting clients is quite a bit of interest, and I expect that we will have several success stories of customer standing offices here, success stories at PegaWorld with you. Raimo Lenschow: Yeah. Okay. Perfect. And then one for you, Ken. Thank you. The if you look the PegaCal ACV really strong, can you talk a little bit about where are we on that client cloud getting client help people to migrate over versus new opportunities, and how that's how do you think that's gonna play out in 2026? Thank you, and congrats from me as well. Ken Stillwell: Thanks. Thank you. Yeah. So we I touched on a couple of things. I'll maybe be a little bit more explicit. Professional services, ballpark around 10% of our revenue. Pega Cloud, ACV is going to continue to accelerate. Pega Cloud ACV is going to be 30%, plus in 2026. That's translating into the revenue. Our term license will, you know, we'll still have slight, growth because clients, when they migrate, you tend to keep some level of concurrent rights as they go through that migration. Those migrations don't typically happen in, like, a weekend. They typically happen you know, application by application as they're migrating. So even though clients are moving to Pega Cloud, you do still have, like, a little bit of a slower, growth deceleration on the term license. So you'll see Pega Cloud growing 30% plus. You'll see kind of maintenance, you know, flat to slightly declining. You'll see client cloud kind of being a slower grower, just because of those concurrent rights as people migrate. The majority of our Pega cloud growth is coming from new activity, new volume, whether that be expansion of existing apps or new apps. But the pace of it migration has been pretty consistent in '25 and '24. We think '26 will be kind of same level of migration. It's kind of happening, you know, consistently across our client base. Raimo Lenschow: Okay. Perfect. Thank you. Alan Trefler: Yep. Operator: Your next question comes from the line of Devin Oh with KeyBanc Capital Markets. Please go ahead. Devin Oh: Hi. Good morning. Alan. Thanks for taking my questions here. I got a couple of quick follow-ups to start. The 15% ACV growth guide is that a constant currency basis or a reported basis? And I just quickly follow-up in on the NRA extension comment. Historically, you guys have kinda talked about at the 110% level. Is that correct? How much of an expansion have you guys been seeing from that? Ken Stillwell: It's so on the it is constant currency because our ACV is a balance sheet measure. So we are just we're only a month away from 12/31. So we're not assuming much movement on the currency. That is a constant currency number. On the NRR, we're somewhere in the ballpark of 150 basis points higher on our NRR for 2025 over 2024. And that number will probably that level of NRR will probably stay consistent into 2026. We'll see a little bit more growth from new logos and expansion through our autonomous partner selling motion. But so we're up about 150 basis points or so on NRR. Devin Oh: Got it. Super helpful context. And then maybe just switching gear a little bit. I know you guys had a pretty meaningful presence at AWS re:Invent in December. Just would love to hear some of the feedback from customers on some of your product releases, and pipeline build coming out of that event and we'd love to get an update on kind of partnership with AWS and how that is evolving in the near term. Thank you. Ken Stillwell: Maybe I'll start and then let Alan jump in. So I think the most critical alignment between AWS and Pega is that both of us are aligned with looking at legacy workflows using our tools, I. E. Blueprint, to transform, you know, using the AWS transform tool to actually adjust in the Blueprint to essentially redesign and reimplement those that work that's actually living in those legacy systems. And that gets on to Pega cloud, is aligned with AWS because that gets on to the AWS cloud. So that's just a tremendous alignment there with basically inspecting and digesting the actual activity that's happening. Leveraging Blueprint to build out those workflows, and then those running on AWS. So very good alignment between our selling teams, the AWS selling team, and the Pega selling team, to execute on that. So that's kinda what's happening around that relationship. Alan Trefler: And I'll just add. I think it's really going in a good direction. And I think you'll see a lot of AWS and PegaWorld. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Please go ahead. Patrick Walravens: Oh, fantastic. Thank you. And congratulations, you guys. Alan, can you help us figure something out here? So, you know, twenty years ago, you were there when on-premise died and SaaS took over. And now it feels like we're in a similar transition. What are the characteristics that we should look for in software companies to figure out who's gonna make it through that transition and then you can overlay how Pega fits into that. But you start with just a general framework for us, I think that would be incredibly helpful to everyone. Alan Trefler: Well, sure. I obviously have some views in the same space. I would say that I think the death of SaaS may be somewhat exaggerated. But there are aspects that certain companies under more pressure or less pressure. I think the things that we find give us a lot of encouragement in this COVID environment is, you know, first and foremost, businesses have lots of stuff to orchestrate. Know, the whole Gartner quadrant, which came out last year called Vogt, business orchestration and automation technologies. Where, by the way, if you look at the picture, begs the clear number one. In both. I think it's a very, very strong area sector that's going to be strong in an agentic world especially because being able to do the orchestration and being able to do the automation is gonna be absolutely key. And that is what we do. Now I think the SaaS companies that or the non-SaaS companies that are gonna struggle are ones that are kinda little small things where you know, candidly, you could just get some COVID and then take care of it. You could run it in a spreadsheet. Know, with Copilot. There's lots of places where the barriers to entry or somebody writing some computer programming have just massively been reduced. But building a major system that does orchestration across a business and then has to worry about things. And I'll just drop in a couple of the words of art that we use, worry about things like you know, two-phase commit. How do you make sure that when you commit records to the database, that they're there and they're reliable because you're doing something that is important. Having things that have a lot of industry IP, also, I think can create a bit of a moat for companies. Though some of that can be under attack because the AI can actually use that IP too. It can incorporate a But the thing that I would say is most important is is the system built for change? Because the problem with these code-based systems that are attacking the SaaS world is they don't have a particularly visible architecture. They're just kind of written. And, you know, going after somebody else's 3,000 modules of code is incredibly daunting and very, very difficult to do correctly. In our world because you know, you can see the blueprint. We have so much scaffolding and infrastructure. We have the idea of a case. We have the idea of stages. We have the idea of steps. Have the idea of service levels, of personas. Our systems are built around the business entities of an organization. And because they're built that way, it's possible to navigate and, as a result, possible to change it. Businesses that require change I think, are gonna be the ones that are gonna be most interested in a technology like ours. And the businesses where can just write something that's gonna sit on the shelf for two, three years or months, Alright. That makes sense? Thanks, Alan. Patrick Walravens: Yeah. Yeah. That's great. That's great. Operator: Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Please go ahead. Blair Abernethy: Thanks and nice quarter. Guys. Just two quick ones for me. First, on duration on contract duration. I wonder if you just sort of talk us through how that's was trending. In Q4, particularly, you know, Pega Cloud versus your on-premise renewals? And then secondly, just looking forward to 2026, and the mid-market, what sort of, changes or how what what sort of learnings have you pulled in the last year or so? And what's your, I guess, how much emphasis are you really putting into in the mid-market next year? Ken Stillwell: So duration, Blair, has been pretty consistent. No big no big changes there. I mean, there's always, like, quarter to quarter little anomalies just because of the weight go into backlog, but there's no fundamental change in the duration that clients looking for. We're not seeing, you know, any big shift there. I think Alan's point on the on the going after I'll just generalize and say new logos as opposed to any particular segment of I think what Alan's point about blueprint how important Blueprint is to the ability for an account executive to ramp quickly, the ability for us to target and the ability for us to get into a really engaged pipeline building activity in a very short period of time is what gives us a lot of confidence around scaling the engagement aspect, whether that be through the autonomous partner selling through a partner's or through our direct target org model. We've never really had that confidence in the past because there was a long lead time to monetization of those account executives. So we're much safer in terms of trying to push for acceleration growth. Blueprint changes that completely. So that's the big that's the big focus area for us at twenty six is like, really, really running that those that that play out. To make that, really help us to help us to scale, our growth. Blair Abernethy: Great. Thank you. Ken Stillwell: You got it. Operator: We have time for one more question, and that question comes from the line of Mark Chappell with Loop Capital Markets. Please go ahead. Mark Chappell: Hi. Thank you for taking my question. Ken, I was wondering if you could just talk about the firm's investment priorities for the coming year. Ken Stillwell: Investment in terms of areas of growth of spend. Is that what you meant, Mark? Mark Chappell: Yes. That's right. Yes. I want I think so we're gonna get we're gonna get optimization across a lot of our P and L lines. Our gross margin is pretty respectable now, but it's not likely to go backwards. You know, we'll get leverage out of our R&D group as we use more, you know, kind of by coding and AI in our actual processes, including our operational processes. So we will see some gross margin kind of optimization around aspects of our business. Our sales and marketing teams, I think a lot of that is really around kind of the digital engagement and what we're doing, like, in our ability to engage with our clients in a really leveraging kind of agentic processes, how we engage. In the target org model, there will still be an investment in relationship selling because there are still on the other side of those enterprise relationships there. That is not a you know, that's we're not we're not talking to boss right, when we're doing enterprise, selling. So I think there's probably an area around some of our selling capacity, some of our investment in our partnership. In fuel, our innovation, I think, will quite frankly get some operating leverage as well as our operations. And we're, you know, we're gonna see our free cash flow continue to expand as we grow because you know, we really are starting to get to that of, you know, we're hitting the efficiency stages that you're seeing that come through in our know, in our acceleration of margin. I think one of the things that I think is really probably one of the biggest disconnects that we're seeing is there is such a disconnect between the narrative that people are talking about around what's happening in enterprise and what we are seeing with our clients. Our clients have massive amounts of transformation that they need to do. They need the agents to be guided, to be structured, to follow the rules, to execute at scale. And the concept of a digital twin type agent disrupting and changing that momentum, think, is really the disconnect that we're quite puzzled by in terms of what we're seeing with our clients and what some of the narrative is. So we're gonna continue to invest. In engaging with our clients and helping them on that journey in there's not one client that's not focused on trying to optimize their legacy systems. And this is, like, the perfect moment for us. Mark Chappell: Thanks. Then as a follow-up here, regarding the recent headcount reduction restructuring, there's a couple of articles out there mentioning that the company was transitioning to an AI-first delivery model. Wondering if you could just kinda elaborate on what that means. And practical terms. Alan Trefler: Well, I think that Blueprint is an example of an AI-first delivery model. I mean, Blueprint has completely changed. You know, Blueprint lets you go from ideation and things that used to happen on whiteboards and post its over weeks. To something where you're right on the system collaborating it and it can load into an honest to god runnable Infiniti system. So the ability to operate at not just better speed but I think better quality is very much built into what we are working on with Blueprint. And we've already achieved a chunk of that. More to come this year. Mark Chappell: Thank you. Ken Stillwell: Thanks, Mark. Operator: This concludes our question and answer session. I will now turn it back over to Alan Trefler, Founder and CEO of Pegasystems. Please go ahead. Alan Trefler: Thank you, to all who joined. We appreciate it. I just want to mention PegaWorld again. June 8 is Investor Day, so investors are free. To attend from the seventh to ninth. I think you would find it to be insightful because in this world of insane noise and the noise out there is crazy. There are real substantive differences. And you can see and touch and understand them. In conjunction with our customers and partners. So please come join us there. That will be terrific. And I will just tell you that I feel that we as a company were built for times like this. So may we live in interesting times collectively. Thank you very much, everyone. Operator: This concludes today's conference call. Thank you for participation and you may now disconnect.
Operator: Greetings, and welcome to the Solstice Advanced Materials Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now my pleasure to turn the call over to your host, Michael Leithead, Vice President of Investor Relations. Michael Leithead, please go ahead. Michael Leithead: Thank you, and good morning, everyone. Welcome to Solstice Advanced Materials Inc.'s fourth quarter 2025 earnings call. We released our fourth quarter 2025 financial results earlier this morning. Today's presentation, non-GAAP reconciliations, and our earnings press release are available on the Investor Relations portion of Solstice's website at investor.solstice.com. Our discussion today will include forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. Joining me today are David Sewell, our President and CEO, and Tina Pierce, our CFO. David will open today's call with highlights of our fourth quarter results. Tina will then review our segment performance and financial outlook before turning the call back to David for closing remarks. We will then be happy to take your questions. With that, I'll now turn the call over to David Sewell. David Sewell: Thank you, Michael Leithead. Thank you, everyone, for joining us today. During the fourth quarter, Solstice Advanced Materials Inc. continued to deliver strong financial and operational results as we transitioned to an independent public company following the completion of our spin-off from Honeywell on October 30. I would like to take a moment to thank our entire Solstice team who continue to deliver for our customers throughout this transition. Across the business, we are seeing increasing momentum driven by secular growth trends in areas such as nuclear energy, AI, and data centers that are well aligned with our differentiated technology platforms. This momentum was evidenced in our fourth quarter results surpassing our expectations. Not only does this reflect continued strong demand for our solutions, but it also speaks to our strong operational execution as we transition to operating as a standalone company and execute our strategy to drive long-term growth. Solstice finished 2025 with a return on invested capital of approximately 19% and net leverage of 1.5 times EBITDA, which we believe reflects the specialty nature of our portfolio and offers us significant financial flexibility. When combined with the key secular growth trends we are seeing in our core offerings, Solstice has the ability to invest in multiple high-return projects. Over the past few months, we've announced our investment to double sputtering target capacity in Spokane, Washington, to meet accelerating AI demand, our investment to expand production for our Spectra defense fibers, and just last night, we announced our ongoing efforts to expand the capacity of our nuclear conversion business to facilitate the ongoing nuclear renaissance. Guiding our capital deployment is our disciplined capital allocation strategy as we look to balance opportunities that will unleash long-term growth and shareholder returns. With that in mind, we are pleased to announce today the initiation of a quarterly dividend of $0.75 per share, marking an important milestone as we begin to return capital to shareholders. As we close out 2025, we are confident that we are well-positioned for the year ahead. Consistent with the framework we laid out at our Investor Day this past October, today we are providing guidance for the full year 2026, representing low single-digit revenue growth and mid-single-digit adjusted EBITDA growth versus the prior year at the midpoint. In addition to the full year, we are also sharing today our outlook for 2026 in an effort to provide additional color on the momentum we are seeing and the shape of the business in our first full quarter as a standalone entity. Turning to Slide four, before we dive into our results for the full year and the quarter, I would like to begin by taking a moment to discuss our nuclear business, which we also call alternative energy services. Solstice is a leading participant in the U.S. nuclear supply chain with our Metropolis Works facility serving as the only UF6 conversion site in the United States and a sixty-plus year history as a reliable and trusted partner to our customers leveraging our proprietary expertise. Solstice is highly committed to the exciting future of the nuclear industry, and we anticipate that we will be increasing our production in 2026 by about 20% over our planned capacity in 2024 to support our customers' needs. We are expecting to achieve greater than 10 kt of production here in 2026 due to the disciplined capital investments we have taken as well as operational improvement to enhance site reliability with higher production backed in part by the U.S. Department of Energy. As the world and particularly the United States continues to invest in nuclear energy, all stages of the value chain will be needed to support fuel production. Even with our expansion to 10 kt annually, our current facility is largely contracted through 2030 today as evidenced by our $2 billion-plus backlog. With robust demand from our customers, Solstice is now actively evaluating further ways to expand our UF6 production to meet this demand. We are having active discussions with customers about ways to remain their trusted supplier long-term. Additionally, we have retained a leading engineering procurement and construction provider to conduct initial engineering analysis, and we will provide an update when further progress is made. It is important for us to reemphasize here that Solstice will maintain its disciplined high ROIC mindset that underpins any of our potential investments. Finally, we wanted to take a moment to touch on the near and medium-term earnings dynamics for this business. When the Metropolis facility was idled in late 2017 during a much different nuclear environment, this business took on a series of product loans to keep its customer commitments. The last of these loan returns has been scheduled to take place in 2026 and limits the amount of product we are able to sell into the open market. This is anticipated to impact 2026 revenues by approximately $30 million. As we move beyond that period, we have very high visibility to double-digit EBITDA growth CAGR through 2030 based on our current backlog and facility production. With that, I'll now turn it over to Tina Pierce, our CFO, to discuss our financial results for the full year and fourth quarter in more detail. Tina Pierce: Thank you, David Sewell. Moving to Slide five, I'd like to begin by providing an overview of our full year 2025 consolidated results. For the full year 2025, Solstice recorded $3.9 billion in net sales, up 3% year over year. If we exclude the opportunistic nuclear sales in 2024 that we detailed at our Investor Day, full year net sales would have been up 6%. As David mentioned, our net sales for the full year exceeded the top end of our previously disclosed guidance range. In our Refrigerants and Applied Solutions segment, we saw 16% year-over-year growth in refrigerant sales driven by strong demand as we continue to capitalize on the HFO transition throughout the year and penetrate new growth markets like data centers. In our Electronic and Specialty Materials segment, we achieved strong 7% sales growth in Electronic Materials reflecting robust demand for our differentiated technology platform. Adjusted standalone EBITDA for the full year 2025 was $957 million, reflecting a 4% decrease year over year and an adjusted standalone EBITDA margin of 24.6%, consistent with the approximately 25% margin guidance given at our Investor Day. This year-over-year decline was primarily driven by the ongoing transition to low global warming potential refrigerants, which more than offset favorable pricing. In addition, we delivered a return on invested capital of approximately 19%, demonstrating a disciplined and strategic approach as we accelerate investment in high-growth areas of the business. Finally, we reported net income attributable to Solstice of $237 million for the full year of 2025. The decrease year over year was driven by the impact of higher income tax expense resulting from frictional taxes associated with the spin-off as well as interest costs we began to accrue on our new debt following separation. Turning to Slide six, I'd like to discuss our fourth quarter 2025 consolidated results in more detail. In 2025, Solstice recorded $987 million in net sales, up 8% year over year. In our Refrigerant and Applied Solutions segment, strong performance in our Nuclear business drove top-line growth for the segment as well as continued strong demand for refrigerants due to the HFO transition that I mentioned on the prior slide. In our Electronic and Specialty Materials segment, similar to our full-year performance, we achieved strong top-line growth in Electronic Materials driven by robust demand reflecting continued momentum from the strength in our order book we reported last quarter. Adjusted standalone EBITDA for 2025 was $189 million, reflecting a 20% decrease year over year and an adjusted standalone EBITDA margin of 19.1%. This was largely due to anticipated transitory costs as well as the impact of the previously mentioned HFO transition in refrigerants. Our margin was also negatively impacted by the effects of plant downtime and under absorption as we had anticipated when we discussed our 3Q results. Finally, we reported net income attributable to Solstice of $41 million for 2025. The decrease year over year was in part due to higher net interest expense and non-controlling interest. Turning to Slide seven, I'd like to discuss in more detail the key drivers of our year-over-year net sales and adjusted standalone EBITDA performance in the fourth quarter. Beginning with our net sales of $987 million for the quarter, organic net sales growth was 6%, including approximately 2.5% from volume growth, and 4% due to pricing. This primarily reflects volume growth and favorable pricing in both nuclear and refrigerants as well as volume growth in electronic materials. These increases were partially offset by lower volumes in healthcare packaging, safety and defense solutions, and research and performance chemicals. Our net sales growth also included a 2% increase due to foreign currency translation. Turning to our adjusted standalone EBITDA of $189 million for the quarter, the decrease year over year was driven primarily by previously anticipated factors including transitory costs as well as the contemplated plant downtime and under absorption that we discussed during our third quarter earnings call. Additionally, the shift in refrigerants product mix, including the effect of imported product mix, impacted margin. While this transition results in a year-over-year margin decline, we remain confident in our continued leadership in the space and the long-term trajectory of our refrigerants business. Specifically, we are encouraged by the significant increase in demand for our low global warming potential refrigerants for stationary applications due to the ongoing regulatory transition towards next-generation HFP solutions and expect to see long-term margin tailwinds as the aftermarket grows. As we will discuss shortly in the outlook section, we believe most of these near-term impacts are behind us. And we fully expect to return to an approximately 25% EBITDA margin here in 2026 and beyond. Turning to Slide eight, I'll now discuss the results in each of our two segments in more detail, beginning with refrigerants and applied solutions. Overall, the segment achieved $710 million in net sales for 2025, reflecting 10% growth year over year. This growth is composed of 8% organic net sales growth and a 2% increase due to foreign currency translation. The segment posted $190 million in adjusted EBITDA for 2025, down 25% year over year, and an adjusted EBITDA margin of 26.8%, down 12.25 basis points year over year. As mentioned previously, this decrease was primarily driven by anticipated transitory costs and shifts in stationary refrigerants product mix. Additionally, EBITDA was negatively impacted by plant downtime and under absorption, including in healthcare packaging due to anticipated customer destocking. These impacts more than offset favorable pricing and volume growth in the segment. Looking at performance for our sub-segments, refrigerants net sales increased 20% year over year to $367 million driven by both favorable pricing and volume growth. Our refrigerants business performance is supported by its strong aftermarket presence as well as the diversity of end markets, including data centers, which continues to see accelerating demands. In nuclear, net sales of $111 million represented growth of 39% year over year. This significant year-over-year sales growth was driven by both favorable pricing and increased volumes while our backlog remains robust. Building Solutions and intermediate net sales were $181 million, down 5% year over year. Although continued softness in the construction market impacted performance, we remain focused on driving LGWP solutions and on continuing our strong operational execution to ensure we are well-positioned to serve our customers upon a return to more normalized demand in key end markets. Lastly, healthcare packaging had $52 million in net sales, down 25% year over year. The decline was driven by anticipated customer destocking during the quarter. We are encouraged by recovering order patterns seen so far in 1Q that we believe indicates this destocking is largely behind us. Now turning to our electronic and Specialty Materials segment on Slide nine. The segment achieved $277 million in net sales for 2025, reflecting 4% growth year over year. This growth is composed of 2% organic net sales for 2025, down 11% year over year. The segment posted $51 million in adjusted EBITDA and a 2% increase due to foreign currency translation and an adjusted EBITDA margin of 18.4%, down two ninety-four basis points year over year for 2025, reflecting 4% growth year over year. The decrease was primarily driven by the previously mentioned plant downtime and anticipated transitory costs. Looking at the performance of our sub-segments, Electronic Materials net sales increased 19% year over year to $112 million due to volume growth driven by strong demand. We continue to invest in capacity expansion for electronic materials to ensure we're well-positioned to capture growth from secular trends for semiconductors, AI, and data centers. Safety and Defense Solutions had $43 million in net sales, down 10% year over year. This decrease was due to lower volumes as a result of order timing during the quarter. We continue to anticipate long-term growth in this business, including strong performance in 2026, and we are investing in capacity expansion to support growing market demand for our Spectra line of solutions. Finally, Research and Performance Chemical net sales declined 3% year over year to $121 million. This decline was primarily driven by a softer demand backdrop, particularly in our specialty additives product offerings. Moving to Slide 10 to discuss Solstice's balance sheet and capital management. As David discussed earlier, our strong balance sheet and cash flow generation continue to enable financial flexibility. Our capital expenditures for the full year 2025 were $408 million, a 38% increase compared to the prior year period due to planned increases in capital spending to drive long-term growth. We remain focused on reinvesting in the business to unleash growth in the high-return areas such as our recent announcement in Electronic Materials and Spectra. Adjusted standalone EBITDA less CapEx for the full year 2025 was $549 million, a 21% decrease compared to the prior year driven by higher capital expenditures and the decline in standalone adjusted EBITDA. Cash conversion finished the year at 57%. Turning to our capital structure, we have maintained a conservative leverage profile and strong liquidity position. As of 12/31/2025, our long-term debt was $2 billion, and we had cash and cash equivalents of $534 million, resulting in net debt of approximately $1.4 billion and a net leverage ratio of approximately 1.5 times based on our full year 2025 adjusted standalone EBITDA. As of 12/31/2025, we also had $1 billion of availability under our revolving credit facility. Combined with the cash on our balance sheet, this results in approximately $1.5 billion of total liquidity. Our capital allocation priorities will continue to guide how we deploy capital. As a reminder, these include first investing in high-return organic growth projects, maintaining a strong balance sheet and strong liquidity position, accelerating growth through selective M&A, and returning excess capital to shareholders. As David mentioned earlier today, we were pleased to announce a quarterly dividend of $0.75 per share, delivering on our commitment to initiate a regular dividend at a conservative level. Turning to Slide 11, I'd like to discuss our outlook and financial guidance for both the full year and 2026. For the full year 2026, we expect to deliver net sales between $3.9 billion and $4.1 billion, adjusted EBITDA between $975 million and $1.025 billion, and adjusted diluted earnings per share between $2.45 and $2.75. Additionally, we expect capital expenditures between $400 million and $425 million. Our outlook for the full year assumes a stable macroeconomic environment as well as the estimated $30 million of revenue impact from our final nuclear loan return that David mentioned. Additionally, we expect an approximately $30 million cost impact from TSAs. You can find additional full year 2026 modeling considerations in the appendix to this presentation. For 2026, in order to provide additional insight into our first full quarter as a standalone company, we are also today providing guidance. We expect to deliver net sales between $935 million and $985 million and adjusted EBITDA between $235 million and $245 million, which implies an adjusted EBITDA margin of approximately 25%. Our outlook for the first quarter assumes continued momentum in refrigerants, nuclear, and electronic materials. It also reflects a sequential increase in margin on the roll-off of certain costs. And finally, it assumes a year-over-year margin headwind primarily due to refrigerants mix reflecting a continuation of the dynamics discussed today relating to the HFO transition. Finally, given the robust interest and the exciting growth outlook for our nuclear business, we do plan to host a webinar later this year to talk in greater depth about this business. I'd now like to pass it back over to David Sewell for some closing remarks. David Sewell: Please turn to Slide 12. With strong performance in 2025 and accelerating momentum throughout the fourth quarter, we are confident that we are well-positioned to deliver on our full year 2026 guidance. As we have transitioned to a standalone company with an independent strategy and refined operating model, we believe we are in the early days of unlocking Solstice's full growth potential. As we discussed today, Solstice is well aligned to strong secular growth trends such as nuclear, advanced computing, data centers, and defense spending. And we are prioritizing investments in these compelling areas as part of our differentiated growth strategy. Given our strong financial position, we are able to invest high-return capital in these businesses to capture this growth while also initiating returns of cash to shareholders. Finally, guiding all of these decisions is our rigorous focus on safety, operational excellence, durable margins, and return on capital. We are incredibly excited about the significant opportunities for growth ahead, and we are confident that our market leadership and differentiated technology will enable us to deliver meaningful value creation in the months and years ahead. We look forward to sharing additional updates throughout 2026. With that, we are now happy to take your questions. Operator: Thank you. We'll now begin the question and answer session. Our first question today is coming from John McNulty from BMO Capital Markets. Your line is now live. John McNulty: Yes, good morning. Thanks for taking my question and congrats on a great start. Looking forward to more going forward. So I guess I wanted to start out with a question on the nuclear platform. When we look at kind of what's happened over the past few years in terms of demand, you can see pretty steadily both the spot and the contract price have gone up in some of the data that's out there at least. I guess, can you help us to think about how pricing may flow through this business for you looking out over the next few years? David Sewell: John, thanks for the question and the comments. The nuclear business, obviously, there is a spot pricing market and you can track that spot pricing market. It has gone up substantially since we've restarted the plant in 2023. And if you look at our price at our backlog through 2030, we do lock in contract pricing for that. So as new orders continue to come in, they continue to come in at incrementally higher prices as they align with the market in the tight supply-demand dynamics. Our backlog is, you know, can be anywhere from three to five years, and then we have a spot market where we'll keep a little bit of capacity for the open market, which obviously gets premium pricing. So when you combine all those factors, and you look through 2030, you'll just see incrementally growing pricing as the demand and the spot market continues to increase, which it's shown over the last couple of years. And through our contract pricing through 2030. Tina Pierce: I would just add there, the double-digit earnings growth CAGR from '26 to '30, that certainly pricing is a component of that. John McNulty: Got it. Okay. Fair enough. And then maybe just as the follow-up. I guess, can you give us some at least preliminary thoughts around the comment that came out last night around the potential to expand capacity? I guess can you help us to think about the permitting process and maybe potentially just the scale that you're considering just given kind of what you see in terms of overall demand from your customers. Is it something that could be as big as 50% capacity expansion or even maybe bigger than that? I guess can you help us to frame that a little bit in terms of how you're thinking about it going into the look at the, you know, with your EPC partner? David Sewell: Sure. Absolutely, John. The way we're looking at it is really first starting with conversations with customers right now. On what that demand profile is gonna be in the future. Obviously, it's an incredibly tight market. You've heard our current administration talk about a 400% increase in nuclear energy output to 2050. And then if you peel back the onion even more, there are currently 75 to 77 new nuclear reactors being constructed. With another 100 plus announced that they will be constructed. So we're trying to take all of that new demand into account. And with our return on invested capital profile that we need, we want to make sure we're aligned with what that customer need is, what that capacity need is gonna be, you know, obviously, especially being the only converter in the United States. So I mean, I don't want to not answer your question. You know, at minimum, we'll continue to debottleneck. But with the engineering work that we're doing, it would entail potentially, you know, brick and mortar, new capacity, that could be significant. But we need to tie in the customer demand, you know, out past 2030 and what that looks like with all this new construction that's happening. And then, obviously, we work closely with the DOE to ensure that's aligned as well. So, you know, as soon as we get, you know, better clarity on what that demand is and what that pre-engineering work looks like, we'll certainly share it. I would tell you though that initial conversations with customers right now are very positive. Operator: Thank you. Our next question today is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live. Kevin McCarthy: Yes. Thank you, and good morning. With regard to your refrigerant sales of $1.5 billion in 2025, can you comment on how your mix of HFOs versus HFCs evolved and what you're expecting along those lines for 2026, please? David Sewell: Sure. I'll start and I'll certainly have Michael Leithead and Tina Pierce jump in. We have seen over the last couple of years a continued evolution of our product mix from HFCs to HFOs. We are now stronger in HFO sales than HFCs. I believe that number was 60% HFOs. And if you look out over the next couple of years, I would say we expect it to get to approximately an eighty-twenty split of HFOs to HFCs. There will be a continuing need for HFCs, especially in the aftermarket as you can imagine, as well as our blends. But Tina Pierce and Michael Leithead, certainly have you add color. Michael Leithead: Yeah. Just to build on what David Sewell said there. If you go back to our Investor Day, we had guided to greater than 60% HFOs, less than 40% HFCs. Obviously, we're seeing, as David Sewell mentioned, significant momentum, particularly as you go into the second half of this year. And as you well know, 454B and the uptake there has driven a lot of that. So, we have that as well as some of the new data center demand, which continues to accelerate. So overall, continuing to see a very nice mix shift there. Kevin McCarthy: Great. And then if I may come back to the UF6 business, maybe a few questions there. How did your backlog trend in the quarter? And I think you made a comment that you anticipate a $30 million sales impact from the loan return. Sounds like that's kind of a one-off event. But perhaps you can just comment on how you would expect your sales volume to trend in 2026, maybe gross and net of that loan return, please? David Sewell: Yes. So obviously, that loan return goes back to when our plant was idled. We had been on the receivership of loans to keep our customers in production, and now this is the final of the loan payback. If you were to look at 2026, even with the loan payback that occurs of that $30 million, we still anticipate kind of a low to mid-single-digit growth rate in nuclear. So even despite that headwind, we're still going to grow. And then obviously, to your point, it's kind of a one-timer for '26, and beyond that, those loans were all repaid, and then it's full production growth in that double-digit EBITDA CAGR that Tina Pierce referred to. Tina Pierce: And I would just add there that our backlog is in excess of $2 billion, and we have a good line of sight through 2030. And as we've mentioned before, about 10% of that would be open for spot sales at a favorable spot pricing right now. Operator: Thank you. Next question today is coming from Joshua Spector from UBS. Your line is now live. Joshua Spector: Yes, thanks. Of a similar line of thought here. Just not sure if you can get a little bit more granular on the UF6 pricing in 2026 and 2027, understanding there's backlogs and pricing will take time. But will there be any increase in contract pricing in 2026 versus '25? Or is that all longer-dated? That $30 million of loan repayment, can you size that in terms of EBITDA? David Sewell: Yes. Joshua, I'll answer it as best I can without, you know, obviously, customer pricing. The orders that we're shipping in '26 are probably orders that have come in in that 2020-2023, 2024 time frame. So if you look at, and a good guide point could be if you just look at spot pricing over the last few years, you've seen incremental step-up in pricing, and that's probably directionally close or reflective of our contract pricing. So every year that our backlog continues to ship, it's going to be incrementally improved pricing from how those contracts were set up when we received those orders. There are inflection points in our pricing that cover inflationary aspects. So we do get increases on top of that. From that regard. But just our backlog, to help maybe give a constructive outlook on it, it gets incrementally better through 2030 on a pricing standpoint as the market continues to increase on its market pricing. Joshua Spector: Okay, thanks. And the EBITDA impact of the $30 million loan repayment? Tina Pierce: Well, we don't give exact EBITDA on our sub-segments, but we have talked about the margin profile is similar within our RAS segment. So I think it would be fair to estimate around a $10 million impact in EBITDA for 2026. Operator: Thank you. Our next question is coming from Arun Viswanathan from RBC. Your line is now live. Arun Viswanathan: Thanks for taking my question. Hope you guys are well. I guess I just wanted to ask about refrigerants. We've gotten some questions on, I guess, OEM inventory backlog. Maybe you could just address that and I guess how that plays into your outlook for HFO growth in 2026. Are you still kind of catching up to some prior shortages? And or do you see that as a potential headwind as you move through the year? Thanks. David Sewell: Yes. Thanks for the question. The shortages that occurred earlier in 2025 are by and large well behind us. We feel really confident in our supply chain moving forward. And then with our outlook for 2026, we really feel confident in our growth outlook and everything we're seeing. And as you keep in mind, we have an OEM business. And then almost half of our business is automotive. And then at a macro level, half of our business is aftermarket. And now we're seeing really strong data center growth in refrigerants. So when you couple all that together, we feel really good about the growth aspects of refrigerants. We feel very good about the stability of the supply chain and being able to maintain excellent service for our customers moving forward. Arun Viswanathan: Okay. Thanks for that. And then just on the electronic materials side, it sounds like you have a relatively robust outlook there. Is there a way you can maybe describe what you're seeing, by end market or by maybe product line? Where are you seeing the most strength and potential for upside? David Sewell: Thanks. So I'll give a higher-level look, and I'll certainly have Tina Pierce maybe provide some additional commentary. As we look at the demand for leading-edge nodes, it's really been remarkable. And our sputtering targets with our copper manganese sputtering targets are just really an excellent and preferred solution as you get down to three nanometers, two nanometers, and really below seven nanometers in general. So we feel great about the demand for our electronics business. We feel really good about memory as well. That demand is very strong as you can imagine. So overall, this is driving the acceleration of our CapEx investment in our Spokane manufacturing site. And that's in effect to ensure we can keep up with the demand profile throughout the rest of the decade. Tina, any other commentary? Tina Pierce: Yeah. I think the demand signals that we're seeing absolutely reinforce the decision that we made to expand our Spokane facility. In terms of the other businesses, Safety and Defense Solutions, we made another announcement there. We see a strong growth profile this year for that business. And then for research and performance chemicals, of that business, our specialty additives business is related to construction. And this is where we've taken a more conservative view. We're not expecting a significant improvement in the construction. Operator: Thank you. Our next question today is coming from Hassan Ahmed from Olympic Global. Your line is now live. Hassan Ahmed: Good morning, David Sewell. David, I know there are a lot of moving parts around this, but I'm just trying to reconcile the Q1 guidance range you guys gave with the full year 2026 guidance. I mean, very simplistically, I sort of sit there and take the midpoint of your Q1 range, call it $240 million in EBITDA, I mean, come up with $960 million full year, you know, if I go to the high end, that's $980 million. And the midpoint of your 2026 guidance is $1 billion. So I mean, as I sort of hear your commentary, a lot of sort of growth kicking in, you know, a lot of the one-offs that you guys saw that compressed the margins in Q4 are being reversed in Q1. And I understand the seasonality and other factors as well. But could you talk a bit about, and I know you touched on this a little bit earlier, some of the headwinds and the tailwinds that go into that bridge from, call it, Q1 to full year 2026. David Sewell: Sure. I'll kick it off, and I'll turn it over to Tina Pierce. One of the two biggest areas that are really more of a 2026 one-time situation is our continued transitory costs from the split with Honeywell, you know, and the TSA agreements we have in addition to the nuclear piece. And, Tina Pierce, why don't you just kind of walk through some of those transitory costs that are kind of negating some of the really exciting growth aspects that we have. Tina Pierce: Yes. As we mentioned in terms of the second half of the year, we had some transitory items in 2025. Specifically, it was like an FX hedge that Honeywell had placed. We unwound that in October. And then as we stood up a logistics center from Honeywell, we had additional cost rollover from that. Specifically for the first quarter, if we just look at the year-over-year margin decline, there are really a couple of things. One is the stationary, the fact that there's still more OEM sales. The 454 did not really kick in until the second quarter of last year. So there's still some impact from that. Our corporate expenses have ramped because we really didn't stand the organization up until the second half of last year. And then finally is the TSAs that David Sewell referenced. And we started to incur those in November and December. And if you recall, this is roughly $30 million, and it tends to be a little bit heavier in the first half as we do all the IT transitions versus the second half. And then I'd say just in terms of just some comments around 2026, we do see, as you alluded, strong growth in our nuclear business, electronic materials, refrigerants, defense. We've taken a more conservative stance on construction. We see that we can likely cover price any inflation through price, slight tailwind on FX, and then the transitory items that we spoke about. And then the nuclear loan repayment, we already mentioned that's roughly $30 million of impact. So that's kind of how we're seeing the year shape up. Hassan Ahmed: That's very helpful. And as a follow-up, just around capital allocation, I know you guys just instituted the dividend policy. But broadly speaking, I know you guys are new in the public domain and, you know, maybe a little sort of cautious around M&A and the like. But how are you thinking about M&A, particularly in light of some of the run-up in materials, chemical valuations that we have seen over the last couple of weeks, right? I mean, at times, you know, it may be worthwhile to put aside how new you are as an independent company and maybe take advantage of cheap valuations. Right? David Sewell: Yeah. I think it's a fair comment. I would say what we're really grateful for is to have such a strong balance sheet. And since our spin, we've really started to develop a robust M&A pipeline, quite frankly. So I think M&A in the future is certainly on the table. We do want to ensure it fits our strategy, it fits our return profile, and the markets we serve. But we do feel like with our balance sheet, we are well-positioned. And to your point, if there's a very attractive, you know, bolt-on asset or that that's available at the right price, I think it would be fair to say, you know, we might move faster than in typical circumstances. Operator: Thank you. Next question today is coming from John Roberts from Mizuho Securities. Your line is now live. Evan Rodriguez: Thank you. Again, it's Evan Rodriguez for John. A quick one on refrigerant. As you continue to transition from HFC to HFOs, like what should we expect the margin hit to be? Essentially, like how should we think of the margin degradation as you continue to transition in that business? David Sewell: Yes. The way I would think about it is, short term. Because we do get higher margins in the aftermarket. So as we transition to HFOs, you know, those are newer units most typically. So once they're in the market for a couple of years, then the aftermarket kicks in. And then that's where you will start to see the margin neutrality from HFCs. Having said that, you know, as Tina Pierce mentioned, you know, we went through that in '25 and in the beginning of 2026. But our anticipation is we'll start getting those aftermarket sales more robustly in 2026. And then as that flows through, I think margin continuity comparatively to HFCs is very realistic. Evan Rodriguez: Okay. And in terms of timing, like do you expect your transition to be completed by the end of 2026, or does that spill over into 2027? Like when do you expect your transition to be completely done? David Sewell: Well, we expect the full transition to be done in early 2026. And then the aftermarket should kick in from transitions that happened in the previous few years. And then obviously in Europe, that transition happened several years ago. So they're completely transitioned over to HFOs. And then in early 2026, we should be complete. Operator: Thank you. Next question today is coming from Duffy Fischer from Goldman Sachs. Your line is now live. Duffy Fischer: Yes, good morning, guys. First question again just around refrigerants. When you look at 2026-2027, is there any additional regulatory help for volumes in those years that would create an opportunity for HFOs to take market share from HFC? David Sewell: You know, Duffy, I think the legislation is by and large taking place. Europe is fully converted. The U.S. will be mostly converted. The only caveat with that is on commercial refrigeration. That still has not converted yet. So from a regulatory standpoint, if that gets accelerated, that would certainly accelerate the conversions in commercial refrigerations. But we're anticipating that to be over the next couple of years. So that could certainly be a tailwind. The other piece really would be Asia. There is talk that Asia will convert to HFOs, you know, by the end of the decade. We remain cautious that that happens. But if it does happen as anticipated, that could be a huge tailwind for us. Duffy Fischer: And could you size your data center business is growing rapidly in refrigerants. How big is data center as a percentage of your refrigerants business? David Sewell: You know, we don't split it out, Duffy. The way I would say it is it's growing rapidly. It's certainly a smaller piece of our business, but it's growing very fast. I think we referenced double-digit growth in our data centers. We are doing what we can mostly split it out, but we don't have it 100% split out just because we're a step removed from the installation. So we haven't given a number yet, but that is something we'll continue to track and provide when ready. Michael Leithead: Yeah. And it's Michael Leithead. I'd be remiss not to add we're really excited about data centers because we really attack it from three fronts at Solstice. We get a lot of questions around refrigerants, and obviously, there's a lot going on around next-gen refrigerant and cooling solutions. But you also have to remember on the electronic material side of the house, we're doing on the chip to get the heat off of the chip as well as our nuclear business, sort of where we started the call. A lot of the nuclear energy is going to fuel data center growth. So we're really excited around if a lot of the data center growth comes to fruition, we attack that opportunity from really at least three different angles from an overall Solstice perspective. Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Michael Leithead for any further or closing comments. Michael Leithead: Great. Well, look, we really appreciate everybody joining us today to discuss our fourth quarter results. And please follow up if you have any questions. Thank you and have a good day. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Good day, and thank you for standing by. Welcome to the Humana Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks which are available on our website. We will begin this morning with brief remarks from James Rechtin, Humana's President and Chief Executive Officer, and Chief Financial Officer, Celeste Mellet. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-Ks, our other filings with the Securities and Exchange Commission, and our fourth quarter 2025 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our Investor Relations site. All participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Manager's explanation for the use of these non-GAAP measures reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, the call is being recorded for replay purposes. The replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I will turn the call over to James Rechtin. James Rechtin: Thank you, Lisa, and good morning, everyone. Thank you for joining us. Let me hit the headlines. We are pleased with our solid 2025 performance. We continue to feel good about our membership growth. We remain committed to a consumer-centric strategy that is responsive to what our patients and members want and need. And we also recognize that to do that, we must deliver a stable and compelling margin. That requires regularly adapting to our funding environment. We will continue to do this to adapt to our funding environment to ensure that we stay on track with unlocking the earnings potential of the business by 2028 as we laid out at our 2025 Investor Day. Now I will briefly describe the progress we are making operationally. And as usual, I will frame my comments today around the four drivers of our business. That is first, product and experience, which drive customer retention and growth. Second, clinical excellence, which delivers clinical outcomes and medical margin. Third, highly efficient operations. And fourth, our capital allocation and growth in both CenterWell and Medicaid. I will wrap up with additional commentary on the advanced rate notes. Most of my time today will be spent on Medicare product and experience given the continued concerns that have been expressed by the market. So let me start there. First, let me clarify what I believe are the real questions related to growth. Is this quality membership with attractive economics? Can we operationally absorb the growth, and are we sufficiently positioned to fund the growth? Second, let me take a moment to remind everyone how we think about growth. Our focus is on maximizing customer lifetime value and customer NPV. To maximize lifetime value and NPV, two things must be true. We must be priced appropriately to a sustainable and compelling margin, and we must retain our membership year over year. The way that we do that is by investing in an exceptional experience that fuels improved health outcomes and member retention. We also have moved away from past strategies built around loss leader plans. We design all of our plans to be priced to a sustainable margin. Adjusting for stars. Third, let me provide an overview of our growth and why we like the growth. We grew by approximately 1,000,000 members or 20% in AEP. Our retention rate improved over 500 basis points year over year. And I'm gonna keep emphasizing that that is good growth. Over 70% of our new sales were switchers from competitor plans. On average, switchers have better economics. Now I recognize that there are concerns about switchers from plan exits that our competitors have done. We did not have a high percentage of members impacted by competitor plan. We absorbed approximately 12% of these members. That is notably less than our market share. 70% of new sales were in with four stars or better. And nearly 30% of our new sales were bounce-back members. So these are members that we have seen before in previous years. We recognize them, and we are pleased with the mix. Over 75% of our new sales were from higher lifetime value channels, so they're from better sales channels. This is nearly a 10 percentage point improvement year over year, and, again, we view this as a very positive development. When we look at full year 2026, we do anticipate individual MA membership growth of approximately 25%. And I will continue to remind everybody that as we collect new information, and as the market evolves, we are continuing to manage our go-to-market strategy dynamically. We have levers to pull if and when needed, and we are constantly that. Now fourth, let me briefly touch on the economics of our growth. We expect our new members to be accretive to the enterprise in 2026. We also continue to expect that when normalizing for STARS, our 2026 pricing results in a doubling of individual MA margin year over year. My final point on growth is that we feel good about our operational capacity to absorb the growth. As we previously stated, capacity. this is a focus area for us. We are committed to not outgrow our operational and to ensure a quality experience and quality care for our members. We have been very much managing this proactively. The early signs on our ability to onboard are positive. In January, during the height of onboarding, we'll touch on just a few examples. We reduced our complaints to Medicare year over year. We improved our transactional net promoter score. So this is a measure of customer service when members interact with our service center or contact center. And we increased our completion rate for health risk assessments. And I'd also just point out that complaint to Medicare, CTMs, and health risk assessments, HRAs, these are both star metrics. Where we are ahead of where we were a year ago. In both of these areas. So let me close with this. We expect our growth to be accretive in year. But more importantly, it further fuels our ability to unlock our earnings potential by 2028 as we laid out at Investor Day. In recognition of the high level of interest in our overall growth strategy, president of enterprise growth David Dintenfass, will join Celeste, George, and me again today. For Q and A. Now let me briefly turn to clinical excellence and touch on our STARS performance. Efforts to strengthen our STARS program continue to progress as anticipated. Our outlook remains the same as previously communicated. We feel good about our operational progress so far. We continue to be confident that we are on the right track to return to top quartile STARS results in b y '28. Once the hybrid season is complete next quarter, we will provide some additional visibility into our final operating results. However, we will not speculate on thresholds. Turning to highly efficient operations, we are making meaningful progress which is evident in our 2026 admin expense ratio. Celeste will provide more color on the drivers of this improvement. And regarding capital allocation, we continue to grow our Medicaid and CenterWell footprint. Medicaid now spans 13 states. Including Georgia and Texas, which are anticipated to launch next year. We also hope to soon announce a strategic acquisition in the primary care space. Celeste will also provide color on our capital efficiency efforts that ensure that we have the capacity to fund both our member growth and some continued m and a while protecting our credit rating, which is a priority. Before concluding today, I also wanna touch on the advanced rate notice. I understand, I recognize, that there is concern around the rate notice. As I've I as I've said in the past, Medicare Advantage sits at the intersection of US fiscal pressures and a program that is incredibly popular with seniors. Every administration wrestles with how to balance these two forces. We are committed to always protecting our consumers the best we can, and we are very aware that we must do that within the constraints of the annual funding environment. If that funding environment cannot fully support our benefit structure, then we will adapt as we have in the past. But right now, we must wait and see where the final rate notice comes in. So in conclusion, we expect to keep moving forward with margin progression in 2026, adjusted for STARS. We continue to feel good about the way our member growth is setting us up for this year in subsequent years. We are making progress on Starz. We will adapt to the rate notice once it's final. Before turning it over to Celeste, I am pleased to share that Aaron Martin joined the company in January as president of Medicare Advantage and a member of the enterprise leadership team. Aaron joins Humana with vast experience in health care, including a focus on making health care more convenient, engaging, and valuable to customers. He will be working closely with George and the team over the coming months and will elevate to the president of insurance role upon George's retirement. We're excited to have Aaron on the team. And expect that you will have the opportunity to hear from him later this year. With that, I will turn it over to Celeste for a few remarks before we go to Q and A. Celeste Mellet: Thank you, James. I will begin by echoing a few key messages. First, we delivered on our commitments in 2025. We reported adjusted EPS of $17.14 in line with expectations and above our initial guidance of approximately 16.25 while electing to make higher than initially planned investments to accelerate our transformation and position us well for the future. Second, we remain confident in our customer-led strategy and 2026 membership outlook. We expect new members to be enterprise accretive in 2026 on average. More importantly, we expect the membership to drive significant lifetime value further fueling our ability to unlock the earnings potential of the business by 2028, as laid out at our Investor Day. Third, we always take an appropriately conservative approach to final guidance. For 2026, the level of conservatism in our initial guide is higher than typical to account for the dynamic environment. Fourth, we are confident in our ability to fund the 2026 membership growth and are comfortable with our capital and our debt to cap level. Finally, we are committed to delivering a stable and compelling MA margin and unlocking the earnings potential of the business by 2028. Our MA benefit strategy must and will contemplate the funding environment each year. We must drive sustainable earnings and appropriate returns for our members and our patients. to be able to provide excellent health outcomes and service. Turning to brief comments on 2025. Our results for the year were underpinned by solid performance across the insurance and CenterWell segment. The full year insurance segment benefit ratio of 90.4% came in slightly better than our guidance. The full year ratio includes a benefit set aside for a potential doc fix in 2025, which was then invested in areas such as network management, and increased administrative costs to support things such as technology in other areas that position us well for the future. I will now pivot to further details on 2026. We expect full year adjusted EPS of at least $9 with the anticipated year over year decline driven by the previous communicated bonus year 2026 STARS headwind net of mitigation. We remain confident in the overall assumptions used in our 2026 pricing. As a result, we continue to anticipate doubling individual MA pretax margin in 2026 normalizing for STARS. Meaning, if 95% of our members were in four plus star plans, consistent with 2025, we would see a doubling of individual MA margin in 2026. The expected underlying margin expansion is aided by clinical excellence and operating efficiency efforts which are progressing as anticipated. Further, early indicators such as risk scores, pharmacy claims, and hospital admits per thousand or APTs are in line with expectation. All in, after accounting for the 26 stars headwind, our initial guidance assumes individual MA margins are slightly below breakeven. Let me touch briefly on the STARS headwind. The net STARS headwind for 2026 including individual and group MA, is approximately $3.5 billion. This is net of both contract diversification and provider offset. Which as a reminder, are lower than typical due to our star support for providers. When calculating the headwind for '26, it is important to keep the membership and revenue growth in mind which is why the number is larger than what we have previously discussed with you. While we now have 45% of members in four plus star plans for '26, Our expected membership base will also be 25% higher due to the '26 member growth. Which includes strong retention. Higher retention means that we kept more members on the 3.5 star contracts than we previously expected. In addition, rated below four stars approximately 30% of new sales were on contracts for b y '26. Turning to our ongoing efficiency efforts. We expect significant improvement in our consolidated operating costs ratio for 2026. The decrease is primarily driven by operating leverage from membership and revenue growth, along with tactical cost cutting and transformation efforts. Partially offset by the impact of the star rating headwind. As outlined at last year's Investor Day, we have made meaningful progress on tactical efficiency improvements, including consolidating our supplier base and the early retirement program we discussed with you last year. These actions have contributed to year over year operating expense ratio improvements. Looking ahead, we expect our broader transformation efforts to increasingly impact results beginning this year. This includes expanding outsourcing capabilities, simplifying and standardizing processes, and leveraging technology and automation. For example, our work with partners to outsource components of some corporate functions is progressing as planned delivering improved capabilities and cost efficiencies. These items are just a sample of our multiyear transformation that is driving efficiency and changing how we operate. I will now speak to the balance sheet and our plans for funding the 26 membership growth. As I discussed throughout 2025, we have been focused on efforts to increase the efficiency of our balance sheet and fortify our foundation. These initiatives include optimizing legal entity structures, refining reinsurance and risk transfer arrangements, selling noncore assets, and managing the timing and structure of capital deployment. Of note, the capital optimization progress made to date significantly reduced the required funding for expected membership growth in 2026. Despite expected premium growth of 40% from '24 to twenty six, our statutory capital requirements will increase by less than 20%. These improvements in capital efficiency will offset over $3 billion of growth in our capital requirements from the '24 through '26 representing the overwhelming majority of the capital needed to fund 2026 membership growth. While maintaining capital with a prudent buffer above regulatory requirements and rating agency expectation. Finally, after contemplating capital to work require to fund '26 membership growth, and select small to midsized strategic m and a opportunity which we expect to fund with the sale of noncore assets, we remain comfortable with our debt to cap levels which are expected to remain largely flat year over year. We remain committed to prudent debt to capital management are focused on maintaining our credit rating. In summary, we are pleased with our solid performance in 2025 and believe '26 represents an important step forward on our journey of unlocking the earnings potential of the business by '28. Including delivering a stable and compelling MA margin. I will turn the call back to Lisa to start the Q and A. Lisa Stoner: Great. Thank you, Celeste. Before starting the Q and A, just a quick reminder that in fairness to the long list of those waiting in the queue, we ask that you please limit yourself to one question. Operator, please introduce the first caller. Operator: Thank you. As a reminder to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Our first question comes from the line of Stephen Baxter with Wells Fargo. Your line is now open. Stephen Baxter: Yeah. Hi. Thank you. We hear you on the membership growth being enterprise accretive. I mean, I guess, potentially could you expand a little bit on the level of earnings that you can drive purely outside of the MA underwriting? And then as we look at the MA underwriting margins, and I isolation, being slightly below breakeven, how would we contrast that against your retained growth versus the new growth that you expect to take on this year? Celeste Mellet: Hi. Thank you for your question. So when we talk about enterprise accretive, we are including the earnings associated with CenterWell. So if you recall last year, we had a headwind in CenterWell Pharmacy because of the decline in membership. This year, we have a significant tailwind in CenterWell Pharmacy associated with the new membership. We also will have greater patients and at CenterWell PCO and expect to see an increase in home health volumes also related to the membership growth. And all of that growth across CenterWell is very positive from a margin perspective. As it relates to individual MA margins, as I mentioned, we expect them to be just below breakeven in total in 2026. While we don't provide cohort level margin information for competitive reasons, I'm gonna give you a little more detail this year given the unique dynamics. So when you take the STARS headwind into account, the margins look largely similar for new and continuing members due to the following. First, on continuing members, they're disproportionately impacted by the STARS headwind, with the majority on contracts with less than four Stars. Absent the stars headwind, as we've talked about extensively, margin would be significantly better. New members are less impacted by the STARS headwind, so 70% are on four plus STAR plans, but 30% are on plans with less than four stars. They have a similar margin to the existing cohort for a couple of reasons. One, the cost of acquisition. Which is a little bit lower this year due to the actions we've taken, but still significant. And two, a higher MLR as associated with the new members driven by one, lower MRA if conditions have not been previously captured, and in some cases, potentially higher med costs if they have not been managed before joining Humana. So net net, the overall margin for the existing and the new cohorts are fairly consistent but for very different reasons. Stephen Baxter: Thank you. Operator: Our next question comes from the line of Justin Lake with Wolfe Research. Your line is now open. Justin Lake: Thanks. Good morning. I wanted to focus on kind of the trajectory forward. To Steve's question, you're losing you have slightly below breakeven margin in the insurance business in the new members. Can you talk a little bit about how I'm estimating you got about 2,500,000 new members here. To Humana. It's a huge cohort. How is the typical progress if we think about removing stars from the equation, what's the typical progress in margins over a three- to five-year period? How should we think about that cohort becoming accretive? And then if James, to your comments on getting back to 75%, the or I should say the top quartile on stars, what would be the net benefit in 2027 from that? Approximately compared to the $3.5 billion pit? Headwind you had this year? On a net basis? Thanks. Celeste Mellet: Justin, I'll take the first part of your question. George may add to it, and then James will jump in. In terms of the margin progression, if you think about, like, from year one to year two, you have a pretty substantial pickup as you have a more normalized marketing load. So your marketing load takes around five years fully run out, but it typically will be cut in half between the first and the second here, though. First and second year, though slightly less because of some of the actions we took this year, some of the levers that we pulled. Second, you have an improvement in your medical benefit ratio throughout the period. So you'll have an improvement in the second year, then the third year, then the fourth, then even in the fifth is probably where it normalizes. So you should have a fairly substantial increase in the first year with the combination of the marketing load being lower and then that improvement in the MLR. And then you know, slow improvement on the cohort in the years after that. George, anything you might add to that? George Renaudin: Yes, Celeste. Thanks. The other things that I would just think about is you onboard members and move them through their experience with us. Just three other things to think about that helps improve the margin as well. First, of course, is MRA, which, as we continue to work coding, getting members appropriately coded in the follow-up care that they need, as a result of the assessments that we do, we find an improvement both the coding and in their medical management. And that's the second part of that medical management also is able to kick in. We have many programs, many value-based programs as well as our care management programs that will take effect and that helps in the ongoing years. And third, if you think about how the membership comes in, they come in and typically, there's a lower share of them that are paneled to value-based partners or well-performing value-based partners. So as they progress through, they become more and more paneled to those well-performing value-based partners, which also helps improve the margin over time. So there really are three major impacts that happen as those members come in. And as we get them, into our programs and provide better outcomes for them. James Rechtin: Yeah. Let me jump into the STARS question. I presume the nature of the question is you're trying to understand the difference between 95% of membership in a four-star plan and our metric of seventy-fifth percentile. I that what is that delta? The Let me remind everybody that we have chosen to anchor on seventy-fifth percentile for two reasons. One is as changes in policy change the nature of STAR's performance across the entire industry, it is better for us to index to the industry than to a specific number. Obviously, anything that changes across the industry, you would expect to be incorporated into pricing and benefits over time. And so it wouldn't have a net impact on margin or overall profitability, but it could have an impact on the revenue. And the second reason that we anchored on seventy-fifth percentile is that from a planning perspective, we felt it was prudent to anchor on a place that gave us some planning flexibility over time. And so that was the rationale for seventy-fifth percentile. The challenge that we have in giving you a specific number is that this does, at the end of the day, tie back to where is the industry performing and what are the policy changes impacting STAR's. So we don't have a specific number that we can give you around that. But what I would again emphasize, and I know I just said this, but whatever that number is, if we're at the seventy-fifth percentile, we feel comfortable that we can accommodate that in our pricing our benefits in a way that will not have an impact that we should be able to achieve our margin expectations over time. Celeste Mellet: And if I can just add, Justin, in the numbers we laid out for you at the Investor Day, we were the 2028 number reflects or the math as I told you guys to do, reflects stars at the seventy-fifth percentile. So that is the headwind of not being at the 95% is reflected in what we've laid out for you. Operator: Thank you. Our next question comes from the line of Ann Hynes with Mizuho Securities. Ann Hynes: Thanks for the question. How did your expectations for 2026 change versus your thoughts on Investor Day? I know you didn't give guidance, but you did say 2026 would take a step back. But I think the step back is probably a little steeper than what we thought. Can you just provide what the big deltas were from then to now? Also, you said in your prepared remarks that the guidance is more conservative this year than normal years. You just go through what part of guidance you think is the most conservative? That would be great. Thank you. Celeste Mellet: Ann, I think the biggest difference between where we were at Investor Day and where our guidance played out is really the embedded conservatism in our numbers. So within the assumptions themselves, you know, we tend to always have conservatism in MRA be given that don't have a full picture until later in the year. We based on what we have today, we're feel very good about where we are. In terms of our trend, I'll share with you what's embedded in the guidance, but what we did in the end is basically haircut where we landed just given our known headwinds and tailwinds. So while some of the assumptions have conservatism embedded, there's just a broader haircut. So what's embedded from a trend perspective is cost trends that look a lot like 2025, but slightly higher for a reason I'll lay out. So as a reminder, we assume the higher end of mid-single-digit medical costs for 2025 and low double-digit RX trends, that is about where we landed. So '26 would be similar, though higher because of the lack of doc fix in 2025 and the inclusion of Doxx in 2026. Ann Hynes: Thank you. Operator: Our next question comes from the line of Benjamin Hendrix with RBC Capital Markets. Your line is now open. Benjamin Hendrix: Hey. Great. Thank you very much. I wanted to zero in quickly on the 140,000 new DSNP members to 18% growth there. Just, if you could kind of frame how that compared to your expectations both in the absolute number and then also on the profile, were they bounce-back members? Did they come from exited communities from your competitors? And, you know, the degree to which they're paneled to your value-based partners thinks. George Renaudin: Hey, Ben. Thanks. This is George. So on the DSNP, the absolute number is higher than our expectations because our overall growth is higher than our initial expectations. But as a percentage, it's slightly lower. So that's the way to think about the DSNP membership. Now to your other questions, as James said in his opening remarks, we did not gain our market share, if you will, of those plan exits from our competitors. And so that holds true across the business. And to your last question about value-based partners, as I said, the membership comes in oftentimes, not paneled at the same level as our ongoing block of business. And we would expect, as we do every year, that the amount of paneling to increase year over year. Now having said that, our duals, because most of them are on HMO products, do tend to come in paneled. So, when you think about the dual membership, versus our core membership, the dual membership would be a greater share paneled compared to the overall block of business. Benjamin Hendrix: Thank you. Operator: Our next question comes from the line of Joshua Raskin with Nephron Research. Your line is now open. Joshua Raskin: Hi. Thanks. I'll apologize for the redundancy and where I think I'm going. But as you mentioned the individual margins that are slightly negative in 2026. So going back to the Investor Day from June, is there anything you've seen that changes your view the ultimate margin profile of this now larger book of business and as you as you look out to 2028 and specifically any updated views around attaining that top quartile stars rating as well as perhaps the impact of the 2027 rate notice. Celeste Mellet: Hey, Josh. I'm gonna take a crack at your question, then James will jump in. So as you think about 2028, wanna remind you of our scale. So with the growth this year, it gives us quite a jump on achieving the 2028 target. So if you look at the operating cost ratio, the improvement is fairly significant even accounting for the STARS headwind, and that's really driven by the operating leverage from membership and revenue growth. The cost cutting that we've talked about is consistent with what we talked spoke with you about at the Investor Day. We're on track for that. And then, you know, the operating leverage does reflect you know, the investments we made in onboarding and ensuring that we have the right capabilities in place with the expanded medical base or with the expanded member base. So we are ensuring we spend the money to do it right, but still have the significant pickup. So I think about the step forward in terms of operating leverage. And as I mentioned in my opening remarks and James mentioned as well, we're gonna you know, we'll adapt to the funding environment. So we expect to continue to make good progress on 2028 and feel good about our trajectory so far. James Rechtin: Yeah. So let me hit stars, and I'll touch on the rate notice as well. On STARS, again, what I'm gonna emphasize just philosophically is the single biggest thing that we were adjusting to as we went through AEP and as we considered OEP and Roy. Is our ability to onboard, and a big portion of that is what can we absorb from a star standpoint. Again, there's only so much that you have clear visibility into early in the year. We try to give a couple of examples there with both CTMs and with the HRAs. Where we do have some early look at progress. And progress is actually quite positive. And to be clear, that's not on an absolute basis. That's on a per member basis. That is adjusted for the cohort who is onboarding. Know, the other thing I would point out on STARS, there's a couple of things that we're doing differently versus two years ago that also better positions us to manage a large new member cohort. One is we are simply starting our programs earlier in the year. So if you went back two years ago, we would really start most of our proactive programs in the second half of the year and sometimes as late as the fourth quarter of the year most of those are starting late first quarter, early second quarter. When we get our initial data on those members on those members' health status. The second thing that I would point out is we have gotten much better at using that data to do appropriate targeting. To understand who very early in the year has already cleared a whole bunch of STARS metrics. And therefore, where do we devote our resources to close gaps for those who have open gaps? So both of those things just put us in a operationally in a much better place to handle STARS. Now look, I'm also just gonna state the obvious. This is STARS. It is a relative score. There is always risk in this. You know, can we you know, can we say that there's no risk? Of course, we cannot. But can we say that we feel good about our ability to mitigate that risk yes, this has been very much top of mind. So let me flip the rate notice here for a second. I don't know that I have a lot to add over my initial comments. You know? I think everybody is well aware that the advance rate notice is you know, came in below medical cost trend. Like, that's not that's not new at this point. We you know, we recognize the pressures that are constantly being balanced here. We are you know, we are doing what we can to advocate for our members and our patients to make sure that we get to a appropriate funding level that protects their interests. And, you know, at the end of the day, you know, this is a difficult dynamic, but we will adjust to wherever the final rate notice lands. You know, like, that you know, that is the bottom line. Wherever we end up at the end of the day, we will adjust to that. And between now and then, we're gonna do everything we can to advocate for our members. Operator: Thank you. Our next question comes from the line of Scott Fidel with Goldman Sachs. Your line is now open. Scott Fidel: Thanks. Good morning. Can you give us some detail into relative to the 25% overall MA growth that breaks down in terms of PPO? Versus HMO in terms of the relative growth rates that you're seeing across there? And then, also, in terms of relative to the metric you had around the percentage of new members that you gained from competitor exits maybe hone in on the PPO specifically what percentage you estimate for the PPO product. Thanks. David Dintenfass: Yeah. Hey, Scott. This is David. We won't be able to disclose all those details, but what I would say is this, is that between HMO, PPO, and frankly, across our plan, we've tried to have a reasonable margin across all of them. That's part of the new strategy. It's not to have higher margin and lower margin plans and be worried about outgrowth in the lower margin plans. So we can't disclose the exact growth rates, but, you know, the ability for both of those to be accretive much more balanced than it has been in the past. Scott Fidel: Thank you. Operator: Our next question comes from the line of A. J. Rice with UBS. Your line is now open. A. J. Rice: Hi, everybody. I appreciate all the comments about different aspects of operating leverage and so forth. But just to make sure I got the right perspective on it, I think at the Investor Day, you talked about the transformation initiative broadly. Having a improvement from 25 to 20 to twenty twenty eight of 1.6 to 2 billion in pretax earnings. I know there's a lot of things going on this year. But in your '26 outlook, how much of that will you have realized this year, if any, And how much sort of progressively do you expect to get over the next few years to get to that? Level? I don't know if there's upfront costs, so maybe it's not having any impact to positive this year, but just some flavor how we can sort of track how you're progressing, given that's a big part of the getting to the earnings power of the company for twenty eight. Celeste Mellet: Yeah. Thanks, AJ. So there, as I said before, there are two components of the operating leverage. There's the revenue growth which is driven by member growth and then growth in CenterWell. And then the cost savings. So in terms of member growth and the pickup at least from a member volume perspective in CenterWell, we have we are close to where we would have expected to be in 2028. In terms of the cost cutting, we are only just beginning. So we expect a significant pickup in '27 and then '28. So we still have quite bit to go the same sort of trajectory as we talked about at the Investor Day. We've been very deliberate about how we do the cost cutting. We wanna ensure that we do it in a way that makes sense and is sustainable and doesn't put the business risk put business as re at risk as we do it. So still quite a bit bit to go there. So we continue we expect to continue to see upside there. Let me also remind you that we expect continued growth in terms of our clinics in Centerwell as well as progress in some of the strategic initiatives on the pharmacy side that we've talked to you about. And we also expect to continue to see improvement in the margin in group MA. We did have you know, before the STARS headwind, this year, a 500 basis point pickup due to recontracting efforts. There's still several 100 basis points to go. We still have upside in Medicaid as we continue to move through the J curve. And then moving through the J curve also on the center well PCO clinic. So all in, we still think there's there's upside through both the overall work we're doing on margin improvement as well as the cost cutting. Operator: Thank you. Our next question comes from the line of Jason Kusorla with Guggenheim Partners. Your line is now open. Jason Kusorla: Great. Thanks. Good morning. Maybe just looking back to 2025, your investments spend that you spiked out appears to be or appears to have totaled well over $550 million. Which which seemingly indicates that your individual MA business outperformed pretty well this year, kind of netting against those investments. Can you remind us how much of that investment spend is run rating into 2026? And relative to how you're thinking about guidance and your conservative posturing, are you taking a similar approach in terms of spending away any outperformance this year, or can you frame how you're thinking about further investment spend? Thanks. Celeste Mellet: Yeah. So let me hit the first part. So we your your estimate is close to about right in terms of the incremental investments. We did you know, we do have a lot that we wanna do to transform the company, we did invest there. As it relates to this year, we are not currently contemplating any incremental investments. We are continuing to just generally invest in the company. We are not cutting back on tech investments. In fact, that's a little bit higher. We're not starving the business as we move forward. We're trying to balance the short term and the long term, but we are being very mindful of our spending. And then in terms you know, and as it relates to STARS, we talked about last year being a transition year. So the overall STARS investments on a PMPM basis are down, That's driven by sort of scaling back in some of our old programs and scaling up some of a lot of the new programs, including the work we're doing about member onboarding and some of the other things that James spoke to you about. We've also found much more efficient ways to improve stars. So overall, actually, our star spend is is fairly consistent with last year on an absolute dollar basis, but on a PMPM basis, it's down significantly, and that's driven by the 25% membership growth. And I forgot the second part of the question. Jason Kusorla: If you were thank you. Just if you were going to Celeste Mellet: Oh, yeah. Sorry. You did some incremental investments for Yeah. Sorry. You know, we we if if we decide to do that, which we may, we will be very transparent. Transparent with you if we decide to make investments throughout the year, we will share that with you so you understand the operating performance versus you know, where we might be offsetting it with investments. Operator: Thank you. Our next question comes from the line of Ryan Langston with TD Securities. Your line is now open. Ryan Langston: Great. Thanks. On the higher level of bounce-back membership recapture, is there a way to generally think about how long those members have been away from Humana? And then on V28, you previously said it's about 160 basis point impact just given the sort of level of new growth. Is that still in the ballpark? Or is there anything to add there? George Renaudin: Right. On the bounce back, we'll be able to disclose specific details. We look back over several years to say where have the member has been bouncing back. And obviously, the more recent membership is a bigger percentage of the overall, but we look back several years to say which members do we actually have previous experience with, and that's the close to 30% number. And this was the second part of the question that I Celeste Mellet: Yeah. And on V28. Yeah. Your number is correct. Nothing has changed there. Yeah. Operator: Thank you. Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Line is now open. Elizabeth Anderson: Hi, guys. Thanks so much for the question. I was wondering if you could talk a little bit more detail about the change in EPS seasonality this year. It's a little bit different than prior SKUs. Just wanted to better understand if that's all IRA related or if there's anything else involved in there. And then any early comments that you guys can share on OEP in terms of what you're seeing in terms of additional retention or anything else there? Thank you very much. So the seasonality is a bit different than last year. The underlying factors are the same. So the IRA is driving you know, steeper curve a steep curve, but it's I guess, aggravated, if you will, by the stars headwind. So as you you have the the loss of operating leverage from STARS, and that that sort of aggravates the second half of the year. Versus 2025. But, otherwise, outside of STARS, the trajectory would be very similar. David Dintenfass: And and it was what you asked about AEP. It's a little early to know. Again, we quoted a 500 base point improvement in AEP. I think for OEP, it's too early to know, but we do think there's upside to that. I mean, we like the momentum. As James said, we're liking the transactional NPS. There's a lot of indication that our members are liking the benefits stability. And so, we do think there's upside, but it's just early to have a number. Operator: Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. Your line is now open. Kevin Fischbeck: Great, thanks. I wanted to ask about 2027 thoughts. Obviously, you're not concerned about how things are going to play out from a cross perspective in 'twenty six, but the market is. I want to understand how you guys believe your visibility is going to play out over the next several months? Is there anything you're doing extra to make sure that if there is an issue, it is in fact captured before you have to submit bids for 2027? And then it's not clear to me what you mean when you say you're going to factor in you know, the rate environment for 2027. Know, we've seen a bunch of companies more recently just say, we're focusing on margin, wherever membership lands, it lands. And the market seems to like that. But your LTV commentary seems leave some wiggle room to kinda say, no. I need to retain members. So, like, what does it mean? Like, to to adjust to the rate? Are you going to immediately go back to the margin trajectory you were on, or are you gonna have to balance margin and membership growth? You think about LTV? Thanks. Yeah. Hey. Thanks for the question. On the first half of that, you know, we we have a good look at member performance by around April and and then we have a better look in May. And both of those views are early enough that if we need to make adjustments in the bid, we can make adjustments in the bid. So we should have a solid enough understanding of what the current cohort looks like. At the type of bit at the time of bid and be able to incorporate that in. So we feel good about that. And by the way, that is no different than other years. So so we feel good there. On the second half of the question, yeah. Let let let me be clear. We we made a set of commitments to ourselves and to investors at Investor Day last year. And we are standing by those commitments. And and so our focus is on retaining membership to be sure but it is on getting the first goal is to get to the margin trajectory that this business needs to be on over the long term. Right? Like, we are focused on getting to the right long term sustainable, durable, attractive margin. And and and, yes, we're gonna retain as many members as we can along the way. Are we focused on new member growth? No. Like, new member growth is not the focus. It is great experience. It is retention, and it's getting to the right margin. Profile. Kevin Fischbeck: Thank you. Operator: Our next question comes from the line of Erin Wright with Morgan Stanley. Erin Wright: Sorry. A two-part question here. I'm going back to the rate notice. But is there anything specifically on the rate notice that you would have outsized exposure to relative to the industry from a coding perspective, or can you talk about some of those components of the rate notice and how you're thinking about that? And then, you know, just from a, you know, statutory capital perspective and the requirements there, the more favorable positioning, was that associated with deemphasis of certain states or jurisdictions, and is there more to do on that front? And and or more to accomplish there and then just your capital deployment there on? Thanks. James Rechtin: I'm now focused on the second question. Remind me what the first question The rate notice. Oh, the rate notice. Yeah. Yeah. Yeah. So on the rate notice, the you know, first of all, we're still working through some of the detailed analysis. But the high-level message is the changes that have occurred from a policy standpoint this year do not have the same type of variance that v 28 had. In general, most of the industry should be impacted around a pretty narrow band around the industry mean. And so even as we're working through some of the details, you know, we feel pretty confident that everybody's gonna be a margin of error around the industry beat. Celeste Mellet: Yeah. And in terms of the capital activities, we have done most of the work that we think makes sense in terms of redomestication, which is move really focusing on moving around the legal entities. There is more work that we can do that there is more opportunity for us on some of the other areas, including reinsurance. So you know, we'll we still have those in our pocket as we think about going into 2027, etcetera. But overall, we're very happy with the progress we made and expect to continue to really focus on ensuring that we have the right amount of capital in place, but not too much, which becomes a drag in terms of our overall and our ability to invest in other areas. Erin Wright: Thank you. Operator: Our next question comes from the line of Matthew Gillmor with KeyBanc. Your line is now open. Matthew Gillmor: Hey, thanks for the question. I wanted to ask about value-based contracting. Can you just remind us the proportion of MA members that are capitated? Versus other risk models? And is there any comment in terms of how that's changed that you're thinking about 2026 and future periods? George Renaudin: Hey. Thank you for the question. I appreciate that, Matthew. So the percent of membership is relatively the same about a third in full risk, a third in value-based, other types of value-based, and then the third that are in either non-value-based or just some basic pay for performance. You know, one of the things that I mentioned before is that when you have an influx of members, generally, that number comes down a little bit at the start of the year. And as the year progresses, when members are choosing primary care doctors and or we have claims-based attribution of members into panels, that number builds back up. So that's the typical thing we see. We work with many high highly performing value-based partners and do not have really a significant percent of our membership with any particular provider. And we continue to see value-based partners, wanting to grow with us. We have many value-based partners that we've been speaking to as recently as in the last month or so that want to expand significantly with us. So we feel good about where we are with the value-based partners, and very much appreciate all the good things they do for our members contribute to better health outcomes and higher quality care. Operator: Thank you. Our next question comes from the line of Lance Wilkes with Bernstein. Your line is now open. Lance Wilkes: Yeah. I wanted to on the value base a little bit. Just ask for 26, what's the impact to MLR, if any, of, of any changes to value-based care financial terms or carve outs of things, or is that fairly stable and related to value-based care? What's the what's your sense of the capacity to absorb the magnitude of risk that you're talking about? And then just a quick cleanup question. In the incremental investments that you made in twenty five, what portion of that, if any, was in would have been in the medical cost? Or attributed medical costs? Thanks. Hey. Nothing really has changed with regard to the financial performance of the value base. Providers as far as proportionally how they contribute to our margins. So what we've shared before in Investor Days and what we shared before still holds true. I won't go into many details there because, obviously, those contracts between us and our value-based providers are proprietary, but we do a lot of work with them to help support them, to help them be successful in caring for our members and improving the health of those members. So nothing really has changed there from a value-based standpoint, except for I will say that a couple things we talked about before. The first is that we did provide significant support to them in 2025. By, taking back the Part D risk, which given the volatility that can have at a relatively smaller number of membership, for our value-based partners, we didn't think it actuarially made sense for them to take on that risk so we took that back. Now significant assistance to them in '25, and we continue then to '26. Additionally, we've said before, we also have done a lot of work to help mitigate the stars impacts of '26. So we continue to work with our partners in a very collaborative way. And appreciate the work they do for us. Celeste Mellet: And as it relates to the incremental investments, I'd say 90% were in medical costs. Operator: Thank you. Our last question comes from the line of Benjamin Mayo with Leerink Partners. Benjamin Mayo: James, any meeting changes to your provider contracting strategy year? I feel like I've heard provider contracting a couple times on the call, so just wondering if something's changed to minimize that friction. And I guess I mean this through the lens of a stars question around satisfaction. Thanks. Yeah. There have been a number of things we've done. I just mentioned two with what we did with Part D and what we've done with supporting and mitigating the STARS headwinds. But we also are continuing to do many things across broader landscape. We have a whole team that is looking at how we improve our contractual relationships with our providers. In a number of ways, including, as you mentioned, reducing the friction. We did make a large announcement last year about how we're improving the prior authorization process to decrease number of things that take prioritization and to increase the automation of how we do prior authorizations as well. One of the things that we have continued to do and that we have historically been very good at, for example, is for both our rural and nonrural providers. We, essentially pay on average those claims in under fifteen days. So we think that we also appropriately help our providers with their payment rate. So there are a number of things that we do to improve, and we have teams that are very much focused on, improving this provider relationships and reducing the abrasion. They are oftentimes the face of Humana to our members, and we wanna make sure that we maintain great relationships with them. James Rechtin: Hey. With that, I'm gonna turn to the close. And as we close out, I'm gonna start I'm gonna end where we started with the key messages that wanna make sure everybody understands. Again, we're pleased with our 2025 performance. We continue to feel good about the membership growth. We remain committed to a consumer-centric strategy that is responsive to what our patients and members want and need, and we recognize that to do that, we must deliver a stable and compelling margin. So I'm just gonna say that again. We must deliver a stable and compelling margin. And that requires that we adapt to our funding environment. We will continue to do that to ensure that we stay on track with unlocking the earnings potential of the business by 2028 as we laid out at our 2025 Investor Day. With that, I would thank you for joining us this morning and for your interest in Humana, and I wanna thank say thanks to our 65,000 associates who serve our members and our patients every day. We appreciate your support, and we hope you have a great day. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Emily: My name is Emily, and I'll be your conference operator today. At this time, I would like to welcome everyone to Avantor's Fourth Quarter 2025 Earnings Results Conference Call. After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now turn the call over to Chris Fiedick. Chris, you may begin the conference. Chris Fiedick: Thank you, operator. Good morning, and thank you all for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer. Press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantursciences.com. Following our prepared remarks, we will open the call for questions. A replay of the call will be made available on our website later today. During this call, we will make forward-looking statements within the meaning of the U.S. Federal Securities Laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events, or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release in the supplemental disclosures package on our Investor Relations website. With that, let me hand the call over to Emmanuel. Thank you, Chris. And good morning, everyone. Thank you for joining us today. Emmanuel Ligner: I'll cover three topics to begin the call. First, project revival and our progress to date. Then our strategic objective for 2026 and how we will track our progress. And finally, my observations about the health of our end markets. I will then end the call over to Brent. We will discuss our financial performance, and 2026 guide in more detail. And after Brent comments, I will make some concluding remarks. Our previous earning call, I introduced the Avantor revival program, which is designed to sharpen our strategic focus and to improve execution across the organization. Revival consists of five pillars: evolving our go-to-market strategy, improving our operation, optimizing our portfolio, simplifying our processes, and lastly, strengthening talent, and increasing accountability. We are executing this plan with urgency, and in the three months since launching the program, we have already made important progress. Our top priority has been the go-to-market pillar. And recently, we made a fundamental shift in how we run the company. We now operate Avantor with two new business units: a product-agnostic channel and a channel-agnostic product business. Customers and their needs are at the center of this reorganization, and we believe that this delineation maximizes the possibility that every product and every service is delivered in a way that delights customers. Effective in Q1, we will alter our reporting segments to reflect this go-to-market approach and align external reporting with how we now manage a business internally. Next, we have recommitted to the VWR brand for our channel business. One of my earliest observations when meeting with suppliers or customers to the channel and our associates was that everyone refers to us as VWR. So as of a few weeks ago, the distribution channel of Avantor is once again known as VWR. We intend to capitalize on VWR's tremendous brand recognition and long-standing goodwill with customers around the world. In Q4, we launched an important update to the VWR e-commerce platform, and we have committed to invest an additional $10 to $15 million in 2026 to upgrade our customer's interface. Enhancing our digital capabilities is one of our highest priorities given their importance to so many of our customers. In the operations pillar, our new Chief Operating Officer, Mary Blend, has hit the ground running. Mary and her team have thoughtfully identified $20 million of investment to enhance our ability to serve customers. Next, we have established a revival project management office led by Allison Hosak that will coordinate our collective effort and will ensure accountability. Lastly, our team across the world has embraced revival, and I am thrilled by their willingness to make the changes necessary to maximize our potential. While I am optimistic as ever about the future of Avantor, I want to be crystal clear that 2026 will be a year of transition and investment as we reinforce the foundation of this great company. Significant investment will be made across the organization with our strategic priority in mind, driving sustainable, profitable top-line growth. We will compete vigorously but rationally, and we will work relentlessly to ensure customers are delighted about Avantor. As such, the most important metric to track our progress will be organic revenue growth rate, and we intend to demonstrate improvement over the course of 2026. We have a significant amount of work ahead, but the fruits of our labor will be meaningful when we execute our revival plan successfully. We believe that Avantor can grow at a faster rate, generate attractive margins, produce strong free cash flow, and do all of this in a far more consistent manner. Before Brent discusses the financials, I want to share what we are seeing across some of our key markets. First, let me echo recent comments from others in our industry. After a challenging 2025, our end markets feel more stable, though, naturally, some areas are in better shape than others. The biopharma end market continues to be healthy, with production levels growing at attractive rates and many companies identifying investments that will expand capacity or improve efficiency. This bodes well for future demand from this important customer cohort. The primary growth driver of our bioprocessing business is patient demand for biologics, which has remained strong. We expect demand for biologics to grow in 2026 and beyond based on customer development pipelines, the number of recent FDA approvals, and the pace at which existing therapies are being adopted. Customer inventory levels across JT Baker and other process chemicals appear to be reasonably normal, and we expect demand for our products could improve modestly in 2026, having exited 2025 with a book-to-bill ratio of more than one. On the Masterflex fluid handling side, we remain well-positioned in areas aligned with customer preferences, including single-use assemblies, fluid management, and modular processing solutions, which support flexibility and faster deployment when customers choose to invest. 2025 was a difficult year for our early-stage biotech, education, and government customers, but we are cautiously optimistic that those end markets are near the bottom. While it is difficult to predict if or when Avantor might see improved demand, we are pleased that certain headwinds facing those customers may be dissipating. The fourth quarter was one of the best quarters for biotech funding in recent years, and this momentum continued in January. Across the education and government end market, which we serve primarily with VWR, we have seen indicators of an improved funding environment in Europe and Japan, but there remains uncertainty in the U.S., which represents a large percentage of our education and government business. While we are encouraged by expectations for an NIH budget in 2026, customers remain hesitant to spend money even when it is committed and received. This, coupled with reductions in headcount and program cuts over the past year, leads us to believe that we will not see a noticeable increase in customer spend until we have an extended period of funding and outlay stability. Before I turn the call over to Brent, I want to note that we are pleased to welcome Sanjit Mehra and Simon Diggumans to our board of directors. Sanjeev and Simon add deep global leadership, financial expertise, and strategic insight. Brent? Brent Jones: Thank you, Emmanuel, and good morning, everyone. I'm starting with slide four. We delivered a Q4 largely in line with expectations, with organic revenue growth, adjusted EPS, and free cash flow at or above our guidance. For the quarter, reported revenue was $1.66 billion, down 4% year over year on an organic basis and squarely in line with our guidance. Adjusted EBITDA margin was 15.2%. Adjusted EPS for the quarter was 22¢, at the midpoint of guidance. Free cash flow was $117 million. Excluding transformation expenses, free cash flow was $150 million at the high end of guidance. Adjusted gross profit for the quarter was $524 million, representing a 31.5% adjusted gross margin. This is a decline of 190 basis points year over year, driven mainly by unfavorable segment mix and product mix, as well as price actions in the lab to protect and grow market share. Adjusted EBITDA was $252 million in the quarter, which came in at the low end of our expectations. This was largely driven by gross margin, but also some modest headwinds due to revival-related spending as we have kicked off this program in earnest. Adjusted operating income was $225 million at a 13.5% margin. Interest and tax expenses were better than expectations, and as a result, adjusted earnings per share were $0.22 for the quarter, a $0.05 year-over-year decline. In Q4, we purchased $75 million worth of stock under the $500 million share repurchase program our board of directors authorized last fall. We paid down approximately $300 million of debt in 2025 and added approximately $120 million of cash to the balance sheet. Our adjusted net leverage ended the quarter at 3.2 times adjusted EBITDA, flat to last year. Leverage increased by a tenth of a point sequentially, largely due to FX impacts on the balance sheet that were higher than our expectations, as well as lower LTM EBITDA. Turning to our full-year results on slide five. Reported revenues were $6.552 billion, down 3% on an organic basis. Adjusted gross profit for the year was $2.14 billion, representing a 32.7% adjusted gross margin. Adjusted EBITDA was $1.069 billion in 2025, representing a 16.3% margin. Adjusted operating income was $958 million at a 14.6% margin. Putting all of this together, adjusted earnings per share came in at $0.90 for the year, at the midpoint of our updated Q3 guidance. We generated $496 million in free cash flow in 2025. Excluding transformation spend, we generated $599 million of adjusted free cash flow. Free cash flow conversion was nearly 98% when adjusted for the cash costs related to transformation. Laboratory solutions revenue for the quarter was $1.116 billion, a decline of 4% versus the prior year on an organic basis, representing the higher end of our guidance of down mid-single digits. Sequentially, sales grew modestly on an organic basis. The market environment remains reasonably stable, albeit at lower levels of activity than we would like to see. The prolonged government shutdown certainly had an impact in the quarter, but we also saw some modest end-of-year budget flush that we did our best to capitalize on, particularly with equipment and instrumentation. Our channel business, which represents approximately two-thirds of the business, was down mid-single digits, with strength more than offset by headwinds in consumables and E&I. Our services business was down low single digits, and our specialty business was essentially flat, with proprietary chemicals up low single digits. For the full year 2025, laboratory solutions revenue was $4.4 billion, a decline of 3% versus 2024 on an organic basis. Adjusted operating income for laboratory solutions was $114 million for the quarter, with a 10.2% margin. Adjusted operating income margin declined 290 points year over year and 110 basis points sequentially from Q3. The primary driver of the sequential margin decline was mix, with stronger equipment and instrumentation and specialty procurement sales at lower margins. Pricing also contributed to the margin decline. For the full year 2025, Laboratory Solutions' operating income was $510 million, with an 11.6% margin. Bioscience production revenue for the quarter was $548 million, which reflects an organic decline of negative 4% versus the prior year, representing the high end of our guidance. This also represents mid-single-digit growth sequentially. Bioprocessing, representing about two-thirds of the segment, saw a high single-digit decline at the better end of our expectations of down high single digits to low double digits. Within bioprocessing, process chemicals performed as expected, down double digits year over year. This was largely due to the ongoing backlog we are carrying, as well as a particularly difficult comparable in 2024. Process chemicals were up modestly on a sequential basis. On the order side, our process chemicals business, excluding serum, had a book-to-bill of more than one for the quarter, and this order book is up high single digits year to date. While we continue to have operational bottlenecks, these did not materially impact our Q4 performance versus expectations. Our backlog did not reduce meaningfully in the quarter and remains too high, but this is receiving intense focus from the operations and supply chain teams in line with our revival objectives. As expected, single-use was up low single digits both year over year and sequentially. Controlled environment consumables were down modestly sequentially and somewhat weaker than expected. For the balance of the segment, silicones performed largely in line with expectations, and applied solutions outperformed due to electronic materials. Adjusted operating income for bioscience production was $127 million for the quarter, representing a 23.2% margin, down 340 basis points year over year. This decline is significantly due to volume-related fixed cost absorption and mix. On a sequential basis, adjusted operating income was down 100 basis points, in part due to additional spend to drive better operational performance. For the full year 2025, Bioscience Productions adjusted operating income was $518 million, with a 24.1% margin. Please turn to Slide eight. As Emmanuel noted, we have optimized our go-to-market strategy, and as a result, we are resegmenting the business in 2026. Slide eight graphically depicts the key elements of this resegmentation, as well as our new nomenclature for the business. This resegmentation reflects how we now run the business, with a product-agnostic channel on the one hand and channel-agnostic products on the other. You will find detailed disclosures in the form 8-K we filed earlier today. Please turn to slide nine. The larger segment is VWR distribution and services, coinciding with our relaunch of the VWR brand last month. This will include most of the former Laboratory Solutions segment but now will include CEC, and will no longer include our proprietary laboratory chemicals business, as well as a few other small businesses where we manufacture products. The guiding principle for the VWR distribution and services segment is a product-agnostic channel primarily composed of third-party content, but that also includes VWR-branded products. Over 90% of this segment will be our channel business, and the balance will be our services offerings, which include our on-site services, where we manage our customers' inventories and stock rooms, as well as our equipment services business. Based on 2025 revenue, the channel piece of this segment was approximately $4.4 billion, and the services piece was approximately $300 million. What we are now calling our VWR distribution and services segment represented about 72% of our enterprise revenue in 2025 and had an adjusted operating margin of 11.5% for the year. I am now on slide 10. The other segment will be bioscience and medtech products. This segment includes most of the former bioscience production segment, with the addition of our proprietary laboratory chemicals business and a few other small businesses where we manufacture products, and the removal of CEC. Again, the guiding principle for this new segment is a channel-agnostic product business. The components of this segment are process chemicals, fluid handling, NuSil, and research and specialty chemicals. As you can see by the slide, process chemicals include our proprietary JT Baker products used in production environments, from solvents to salts to excipients. Fluid handling includes our Masterflex pumps and associated tubing, as well as skids and other fluid management solutions. NuSil includes our well-known high-purity silicones that are used in medical and industrial applications. Finally, research and specialty chemicals capture the balance of our portfolio, including diagnostic chemicals, proprietary lab chemicals, electronic materials chemicals, and serum for biologic applications. For fiscal year 2025, process chemicals generated approximately $500 million in revenue, fluid handling generated approximately $400 million in revenue, NuSil generated approximately $350 million in revenue, and research and specialty chemicals generated approximately $600 million in revenue. Combined, what we are now calling our bioscience and medtech products segment represented about 28% of our enterprise revenue in 2025 and had an adjusted operating margin of 26.7% for the year. Please turn to slide 11, where I will discuss our 2026 guidance. For 2026, we expect organic revenue growth of negative 2.5% to negative 0.5%. We expect FX will contribute 1% to the top line, resulting in reported revenue growth of between negative 1.5% and positive 0.5%. We expect that VWR growth will somewhat outpace that of bioscience and medtech products during the year. We continue to drive operational recovery and process chemicals and have the benefit of a strong order book in the business. Bioscience and medtech products do face difficult comps in 2020 in its research and specialty chemicals subsegment, specifically in electronic materials and serum, as well as with NuSil. VWR will be impacted by a continuation of the various dynamics discussed on prior earnings calls. As Emmanuel mentioned earlier, we will continue to compete vigorously but rationally and believe that this business will exit 2026 on more stable footing. We are making a variety of investments to enhance our value proposition and to better serve customers, which we believe will improve the performance of this franchise over time. Moving to profitability. We anticipate that our EBITDA margins will contract by as much as 100 to 150 basis points in 2026, similar to our margin level exiting 2025. Margins will be pressured by a variety of factors, including bioscience and medtech product growth due to headwinds stated before, mix shifts, revival investments, incentive compensation reload, as well as price-cost spread. While our cost-saving initiatives remain on track, they will only offset a portion of the headwinds that we will face this year. Moving below the line, we anticipate interest expense will approximate that of 2025 as FX movements offset the benefits of debt repayment, and we anticipate a tax rate of approximately 22.5%, similar to 2025's rate. Finally, we assume a fully diluted share count of 685 million shares for the year. All this translates to an adjusted EPS outlook of 77¢ to 83¢ for 2026. We expect to generate between $50 million and $550 million of free cash flow in 2026, and we once again expect our free cash flow generation to be back-half weighted. Our guidance does not assume any share repurchases during 2026. A few comments on phasing. In Q1, we expect to generate EPS of between $0.15 and $0.16 per share. We will face the same margin headwinds in Q1 that we do for the full year, but Q1 bears the additional burden of being the historically softest quarter of the year for our industry, plus our cost initiatives will have a greater impact later in the year. We may also be impacted by the severe weather across the U.S. recently. Emmanuel Ligner: Finally, capital allocation. Debt reduction remains a top capital allocation priority as we remain committed to reducing our leverage sustainably below three times net debt to adjusted EBITDA. We built cash and paid down a meaningful amount of debt again in 2025. At the same time, we continue to believe that our current share price fails to reflect the intrinsic value of our platform, so we may choose to repurchase shares opportunistically with excess cash. With that, let me turn the call back to Emmanuel. Emmanuel Ligner: Before we move to the Q&A session, I want to spend a few moments discussing two important topics: our cost base and our go-to-market strategy. I've spent my career in organizations famous for their continuous improvement mindset, with a particular focus on eliminating wasteful spend and recycling it into growth-oriented areas. The continuous improvement mindset is central to my management philosophy. I see many opportunities for Avantor to become more efficient. At the same time, I see many opportunities to make important growth investments across the business. With our focus on revival, we will no longer report progress related to our previously discussed cost transformation initiative. Now we will continue to target those goals internally as a strategic objective separate from or in addition to revival. This doesn't mean that we are no longer focused on reducing costs in the business, but I believe that we should not have competing or potentially conflicting priorities as revival is our critical focus going forward. Through 2025, we have a run rate saving of $265 million, ahead of our original expectation. Revival is about much more than cost. It is about driving sustainable top-line growth and operating more efficiently. When you marry this to the actions already taken, this will provide a strong foundation to drive improved operating leverage and margin improvement that follows from it. Next, I want to dive deeper into the rationale for our new go-to-market strategy and the corresponding resegmentation of our business. Over the last six months, I have traveled the globe to engage with customers, suppliers, and other external partners. During those travels, too frequently, I've encountered confusion and misunderstanding about who Avantor is and what we do. This confusion ends today. Avantor is a house of powerful brands. Brands such as J.T. Baker, Masterflex, NuSil, and VWR. Each of our brands has a unique heritage, and often our brands are synonymous with attributes such as quality or reliability. Our new go-to-market strategy will facilitate sharper market positioning and will clarify our identity, allowing us to capitalize on the equity of those powerful brands. The distribution business will build on VWR's history of offering private label, third-party solutions, and services, while the product franchise offers a diversified portfolio of best-in-class manufactured products. By swapping certain business activities between the two segments, we will better organize the company to meet customer needs, as the requirements of VWR customers differ from those of a J.T. Baker customer. These pivotal changes should improve our go-to-market effectiveness by enabling each business to focus on its respective customer service needs, product life cycles, and value proposition. In addition, we have created clear operational swim lanes, which in turn will result in better operational transparency and accountability. Finally, we believe that our new structure will enable more focus and faster decision-making, as each segment is free to pursue its own strategy without any tension between a high-volume distribution engine and a product-focused manufacturing engine. To conclude, I am as excited as ever about the future of Avantor and confident that the successful execution of Revival will help us reach our vast potential. The company boasts a series of world-class assets, including its people, and I am delighted by how swiftly and energetically the team has responded to change. Avantor is in transition, and 2026 will be a year where we invest purposefully and sensibly to strengthen all aspects of our business. The ultimate goal, of course, is for the business to produce financial results that are far more attractive than what we have shown in recent years. Thank you again for joining the call. Operator, let's switch to Q&A, please. Emily: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by 2 to withdraw yourself from the queue. Our first question today comes from Casey Woodring with JPMorgan. Casey, please go ahead. Casey Woodring: Great. Thanks for taking my questions. Maybe just to start, you said that you expect growth in VWR to somewhat outpace that of bioscience and medtech for the year. Can you just unpack that? What are your segment growth expectations for the year? And then maybe just by quarter, can you talk about what you expect in Q1 in both segments and then the phasing throughout the course of the year? Brent Jones: Yes, Casey, it's Brent. Thanks for the question. There are some limitations on what we're guiding to there, but that comment really is driven by, as we noted in, frankly, in my remarks there, we have a number of particularly difficult comps in the bioscience and medtech products business. In serum, in electronic materials, and NuSil. Those are creating several hundred basis points drag on growth there. So that we expect will bring it somewhat below where the VWR channel would be there. So that's the primary driver. We're not really laying out phasing of the growth throughout the year. When we think of Q1 and what builds the Q1, you know, we guided to $0.15 to $0.16 for the quarter, which absolutely implies it should be the low point of the year for most financial metrics. We're not getting the other elements of it. You'd expect doing the math there that organic revenues would decline by 5% or more, which will be offset by a meaningful FX tailwind there. Casey Woodring: Okay. Got it. That's helpful. And then, you know, just curious if you highlighted that in 2026 it's going to be a year of transition and investment. Just on the latter piece, how are you weighing some of these investments, the $10 to $15 million in e-commerce versus some of the cost savings initiatives that are in place? And if you can give any update in terms of how much, by way of cost savings, Revival will generate, and if we'll see any of that in 2026? Thank you. Emmanuel Ligner: Casey, Emmanuel. I think what is very important to understand is we are absolutely not abandoning discipline and cost saving. We have cost transformation initiatives. Okay? What we really want to make sure is it's part of revival, and it's really combined with what we are starting to do. The other thing is, as I said in my remarks, look. It comes from organizations which are very well known and where I have been very well trained on continuous improvement. And what is continuous improvement mindset is really making sure they take out the waste but you also reinvest this waste into opportunities that you have. And this company on both segments has tremendous opportunities. So remember in the revival, we have a pillar which is about optimization. That's where the initiative on cost out is going on. And then at the same time, we have to invest in our e-commerce channel. We have to invest in talent as well. And so this is where we are. The goal, Casey, of revival, I mean, I don't have to remind everybody about it, but it's really about driving urgency to grow the business top line, sustainably, but also profitably. So that's the goal that we have is to really make sure that we take cost out, we reinvest, and the outcome is top-line growth profitably. Emily: Great. Thank you. Our next question comes from Brandon Couillard with Wells Fargo. Brandon, please go ahead. Brandon Couillard: Hey. Thanks. Good morning. Emmanuel and Brent, I mean, maybe the high level would be helpful to get your perspectives on the degree to which you've kinda discounted the guide because stress tested your assumptions, especially coming off the successive number of cuts last year? Just trying to get a feel for elements of conservatism that may be embedded in either the top line or the margin outlook for the year. Brent Jones: Yes. Look, Brandon, number one, very, very mindful of that. There are a huge number of moving parts that are gonna impact the P&L in '26, and the timing and the magnitude of all of them, it's difficult to reflect. But really, we've taken all the pluses and minuses here, and I would say the guide is neither conservative nor aggressive. It's very prudent. And that's really the approach we've taken here. Brandon Couillard: Okay. Then as far as the margin guide goes, I've heard you call out $15 million for e-commerce, another $20 million for, you know, your ability to serve customers. Are there any other investments that you specifically call out? Should we view those as kind of one-time in nature as we think about what the margin could look like beyond this year? Thanks. Brent Jones: Yeah. I mean, Brandon, a few things. The $20 million on the operations side is going to be much more capital than OpEx in terms of some of the digital are gonna be capital. I think a few things we were thinking about the adjusted EBITDA margin path here. Think of Q4 as a starting point and while I wouldn't exactly call that a run rate, I think that's an important jumping-off point. Then you incorporate in our comments of biotech and I'm sorry. Bioscience and medtech products or we'll probably shorthand this BMP. You know, that will probably grow at a lower rate than VWR. So then you have a segment mix issue there. And then within that, the comments I made about headwinds in serum, electronic materials, NuSil, those are really key drivers of margin. Marrying that to the VWR side, margins negatively impacted really by a continuation of the recent trends that we've seen in that business. There are some other revival investments there. Wouldn't say the magnitudes that Emmanuel called out are probably the really significant ones. And, otherwise, these are gonna be very tactical things. He's made comments about certain senior hires and all the rest of it, but that's what I would put together for the margin story. Emmanuel Ligner: And if I just add something, I think I shared that philosophy as well in my first call. It's also about self-funding. Okay? So we spoke a lot about that internally as if there's a need for investment within revival, we need to make sure we self-fund it, which means that we need to find optimization and waste in other areas to be able to reinvest. Emily: Thank you. The next question comes from Paul Knight with KeyBanc. Please go ahead. Paul, your line is now open. Please proceed with your question. Paul Knight: Sorry. My question is a two-piece. Yeah. You hear me? Go ahead. Go ahead. Emmanuel Ligner: Yeah. Yeah. We can now. Yeah. Yeah. Paul Knight: Yeah. As you look at this year, I guess we view it as an investment year. What kind of margin impact are these investments creating? Is it 100 bps? Is it 200 bps? Is it 50? Could you kinda give us a range on this, you know, implement revival, fix manufacturing a bit, fix e-commerce? What is this kind of margin impact in your view that, like, previous question, could dissipate in future years? Emmanuel Ligner: That's a very good question. I think first of all, I will qualify this year as a transition year, okay, more than an investment year. Transition means that we have a lot of change going on. We have a lot of work to do. Okay? We have to make sure that we operate and we go to market differently, and we already started. And so remember, revival that we just introduced only three months ago, and the team is really in action. And I'm super thrilled by the reaction of the team and the engagement that we have. So I will call it a transition year. I will not call it an investment year. And as I said, all the investment that we need to do will need to be self-funded. So what we are guiding today is what we're guiding, and I don't think we will go into the granularity that you're asking about how much revival is investment or not. Again, if there is more investment that we'll do, which are going to be much more material, we'll share that with you guys. Three months in the road, we already take a lot of action. We relaunched VWR, which, by the way, received great feedback from suppliers, from customers, for our own people. So the team is energized. I participated in a self-conference in America. Last week, I was in Asia for the stem cell conference. And in two weeks, we will be in Europe. The vibration is the vibe and the energy of the people is really good. So I don't know if you want to add anything, Brent, but I don't think we'll go that granular. Brent Jones: Yep. I mean, Paul, I would just I would also ground yourself in our comments on, you know, the exit rate coming out of 2025 in Q4 and the number of moving pieces we have, particularly in the bioscience and medtech business, which is, you know, very significant margin impact there. Paul Knight: Yeah. And then last question would be, what do you think the growth rate of the industry is under normalized conditions? Emmanuel Ligner: What is normalized condition? I mean, is it normalized condition from a or is it normalized condition from us and on which period, you know, during the transition year or not? I think look. What I'm I'm still really looking into this trying to really evaluate what will be the future. What is very important is that we execute what we said we will. That we got into the detail that we compete rationally, and that we, we just move on. So let me I've been here only six months, so I need maybe a bit more time to come back to you, but, this is a very good question. Paul Knight: Thanks. Emily: Thank you. The next question comes from Michael Ryskin with Bank of America. Please go ahead, Michael. Michael Ryskin: Great. Thanks for taking the question. Beat a dead horse, but I wanna go back to margins again. Just the 2026 guide, if we if we look at, you know, both 4Q and jumping point, just sort of, like, the total year over year. One thing you guys haven't talked about a lot so far than price and share gains and share losses. You would assume a little bit on the fourth quarter of lowering price to hold off the volume. So I was wondering if you could elaborate on that. I mean, is this is this a race to the bottom? Sort of, you know, how viable is that of the long-term strategy? Just could you talk about, you know, share losses, especially in the lab distribution side of things. And just you know, once you get through all of that in 2026, is this the bottom on margins? Can you expect margins to go from here? Or are we still sort in the process of figuring that? Brent Jones: Yeah, Michael. Thank you. Look, in Q4, the biggest impact on margins was mix. There was a little price and there was a little negative price in Q4. Primarily the lab business there. You know, we're being careful with all the moving pieces going forward into '26, so that's why we're using that as a jump-off point. But you know, our assumptions in the plan for next year include, I would say, when you look at the gross, or when you look at the revenue outlook, we're expecting, you know, very, very flat volume on the lab side and some price, but not a dramatic amount. And we're expecting better price on the bioscience side with a little less volume there. So let's say that, you know, we think we're in a point that we can execute against that reasonably on price, and we don't see it as a race to the bottom. Emmanuel Ligner: And I just want to maybe make one comment. We are working really hard to make sure that Q1 is the low point. Michael Ryskin: Okay. Alright. I'll follow-up offline. And then for my other question, you mentioned in your prepared remarks you had a comment about book to bill greater than one. I just want to be clear on that. Is that with bioprocess specifically? Was that one of the subcomponents of bioprocess? And just know, depending on where that is, I'm kinda trying to reconcile that with the biosciences and medtech guide, which are the implied guide for 2026. I mean, I guess, why why isn't if the book to bill greater than one, why does not translate to slightly better growth in that segment? I know you called out some tough comps, but just sort of like, you know, let's put that greater than one number in the context and what that means to. Thanks. Brent Jones: Yeah. Michael, that as well as the full year high single-digit growth was a Process Chemicals comment. Process Chemicals excluding serum there. And you know, and that certainly is a better part of the story for twenty-six. Emmanuel Ligner: And, Mike, you remember that we have some bottleneck in supply chain. We have identified the need to invest about $20 million. Mary and her team are working super hard to make sure that this is put in place. But as you know, a lot of those equipment or investment needed, it takes time. It's custom-made. It needs to be deployed. It needs to be validated. So, you know, we're super pleased to have a book to bill superior to one, but there's a few things that we need to do in supply chain to debottle the neck that we have right now. Michael Ryskin: Alright. Thanks. I'll leave it there. Emily: The next question comes from Dan Brennan with TD Cowen. Dan, please go ahead. Dan Brennan: Great. Thank you. Thanks for the questions. Maybe, I guess, the first question would just be back to the margins. I know you're not going to give a lot of granularity, but a little bit more of a bridge would be really helpful if you could. I mean, going from 16.3. I know, Brett, you said you're saying start with four q, but could you just give a little more color about how we think about organic margins, how we think about the investments, how we think about, you know, kind of other levers. You know, you're talking about mix. That would really help us since I think that's a QE's month that was down this morning. Brent Jones: Well, Dan, I think you answered a lot of the question within that. Again, the Q4 exit rate is a really important grounding point. We know, we do have a modest incentive comp reset that creates some, you know, and some merit that creates some headwind on the SG&A side. You know, we're obviously running productivity actions against those things. You know, we will have those mixed pieces on the bioscience and medtech side there. There are headwinds there, and then obviously driving, you know, driving price and lab and putting that all together. I don't think we'll have a more concise bridge for you here. That's also why we're going to EBITDA margin generally because, look, we understand where Q1's gonna be. As Emmanuel said, we expect that to be the low point, and we'll drive sustained continued improvement throughout the year. Dan Brennan: Okay. Then maybe Emmanuel, you know, you talked about the tour you did with customers and the strong receptivity on VWR, the channel business. Can you just zoom out a bit on the channel business and just give a perspective on how we might think about the outlook there, like, any comment on what your share on that business is? How you're competing with your biggest competitor there, Thermo? And kind of as we look out, you know, what you think that business could sustain from a growth and margin basis to look at a few years. Thank you. Emmanuel Ligner: Yeah. Look. Again, spent a lot of time with suppliers in particular and customers. Look after a challenging 2025, I think we're seeing some stability in the market. I think Corey and the team have done a really good job to renew really important contracts for us. As I said, with opportunity and, of course, those opportunities are licensed to hunt, I will say. Okay? So it takes time to really go and convert those things. But, we have I feel I feel that we we are looking at at at some you know, leaving 2025 in a 2026, sorry, in a better position that that we were leaving 2025. We'll continue to compete vigorously for sure, but we want to compete also rationally. Okay? I think this is very important for us. So there's a variety of investments that we are doing. We are bringing a lot of talent in that organization. Okay? We have a new relationship leader. We have a new pricing leader, which is very important. For us. We are investing into the e-commerce. We had our first release of our upgraded e-commerce platform in December, and I think the launch of re of the relaunch, I would say, of VWR, as our distribution brand is really, really resonated very, very well with the market. So I feel really encouraged by the feedback that I received from the VWR ecosystem. And, again, I think that, we would like to 2026 in a more stable footing. Emily: Great. Thank you. The next question comes from Luke Sergott with Barclays. Luke, please go ahead. Luke Sergott: Great. Thanks for the question, guys. I just wanna talk about Emmanuel. You talked a little bit about, you know, not sacrificing growth opportunities for cost savings as you had seen in the past. Can you give us some examples of what you, you know, as you're the first six months in and looking at some of these missed opportunities? You know, and how you would have done things differently, and then we can get into some more pointed questions, I guess. Emmanuel Ligner: Sure. I mean, one example, like, straight to my head is in certain, I will say, VWR specialty, we may have cut too many specialists. Okay? So when you cover a territory, you know, with mean, just to take an example, if you cover England with 10 specialists in the past, which was probably too many, Okay. Okay. But, maybe cutting down to two is too little. And that's what we are really looking at in the go-to-market pillar of revival is really looking at, the specialists, the account managers, the deployment of all those people by territory, by geography, to opportunities. And, so 10 was maybe too many. Two is too little, maybe the right number is five. And it's those types of approach that we have by country, by territory, by product segment for both VWR on one side and BMP on the other. What was the second part of your question? Luke Sergott: No. That was I mean, just what you would have done differently. Was it. I was Yeah. I guess and as we think, I mean, I'm not gonna talk on the margin, obviously, but, you know, you think about the investments here. You got the resegmentation. We've seen this kind of revitalization story before with you guys. So, you know, what are the differences in the go-to-market strategy here? What kind of investments did you need to make? And then, you know, how should we think about those investments across the two segments? Is this gonna be on, like, VWR, and we should expect that business to grow in '26? Is this just like investment and trying to hold clients in without losing any key more key customers? Emmanuel Ligner: That's a great question. Look. The basic decision for the change in the go-to-market and the resegments business is really coming from customers. And it's really about the confusion that I heard when I spent six months on the road. Okay. We have an opportunity to be clear. We have an opportunity to leverage the advantage of who we are, where we're coming from, from VWR, from JT Baker, from Masterflex, from NuSil. And it helped us to just better organize ourselves, really being much more focused on the customer's needs, and you can appreciate the customer needs of VWR customers, which want a channel, which want a fast delivery, which want very fast services, at a great price point is different than bioscience chemicals, which are, you know, designing into a process or a molecule manufacturing. And so those different needs deserve different commercial approaches, different support, and that's what really motivated our decision here. It's about better organization, it's really about making sure that we can compete, that we can be more nimble and more agile. And, of course, one thing which I think is extremely important as well, is you have better accountability across the organization. So that's really what motivated us. In terms of investment, again, we'll make investments in both segments where we see the opportunity. I gave you an example in VWR, but there's plenty of other opportunities in the BMP segment. So we'll make investments against where we need to go after opportunity. Again, the goal is to really drive sustainable, profitable top-line growth for us. Luke Sergott: Got you. Thank you. Oh, by the way, is in your guide, is VWR gonna grow? Sorry about jumping in there last minute. Emmanuel Ligner: Well, I think as I said, we feel that with the investment we're doing, with the passion that is behind, we will exit 2026 in a more stable footing. Luke Sergott: Alright. Gotcha. Thanks. Emily: The next question comes from Vijay Kumar with Evercore. Vijay, please go ahead. Vijay Kumar: Hey, guys. Thank you for my question. Emmanuel, maybe one on, you know, given the new segmentations, right. Is there what was the organic growth for VWR in bioscience medtech in fiscal '25? When I'm looking at the numbers, did bioscience and medtech grow in that '25? If it did, what was bioscience versus medtech? Just maybe some context. In this new segmentation. Is that like, how does it help you in better aligning the business? You know, you mentioned go-to-market. Right? Like, what's changed versus prior and how you go to market? Brent Jones: So here, just on the technical side, we haven't provided that historical, but it's you know, the portfolios aren't that different in the aggregate, so your growth path will be similar to what we provided on the historical segments. Emmanuel on the segmentation change. Emmanuel Ligner: Go-to-market. What change is, you know, from a customer standpoint, when you want to buy a product which is through a distribution channel, a buy-to-sell, you know, you get everything in there. Okay? Remember, one of the things that we move, I think, which was in the slide, was the CEC. And the CEC, it's love, it's mask, it's many products that you use. Across various places, but, of course, also in biomanufacturing. But you buy them through your indirect sourcing team. You buy them through a distribution. So, you know, CEC, which was part of the BPS, now it's going back to VWR because the customers buy them from an indirect sourcing organization. They buy them through VWR. So it just makes more sense for the customers. It is simpler for the customers to know which product is served by which team, by which commercial team, under which contract. So it's all about clarity. It's all about customer centricity around their demands. How do they want to be served. Vijay Kumar: Understood. That's helpful, Emmanuel. Maybe my second follow-up is, hey. Share count, Brent. You ended, I think, at six seventy-nine. Why is it going up to six eighty-five? And given what you mentioned about Q4 stability, can we expect EPS to grow in fiscal 'twenty-seven? It's a directional qualitative kind of question. Brent Jones: Yeah. But I'll take the first part and then do to Emmanuel on the second. We just diluted dilutive share is dilutive comp grants in that as well as it moves on stock price and that. So there's nothing dramatic underlying that assumption. On the diluted share count. Emmanuel Ligner: I think look. Six months in the job, three months in revival, I think it's really too early to talk about, you know, what's going to happen after this transition year. So I really want to focus on where we are today, all the work that we have to do, revival, and then, you know, we continue to understand more, learn more, and hear more from suppliers, customers, and we'll take it one quarter at a time. Emily: Thank you. Thank you. Next question comes from the Thank you. Our final question today comes from Matt Larew with William Blair. Matt, please go ahead. Matt Larew: Good morning. Thanks for squeezing me in. You have the new segments here. And obviously, on the BNP side, you referenced sort of the channel agnostic being the theme. But it also spreads not just across channels but across end markets. And customer classes. And, you know, some are more scaled than others. Last quarter, you referenced the idea of M&A. You know, wanting to bring M&A inside of a healthy organization. This year, it was about making the organization healthy. What about just from a current portfolio standpoint as you now assess the scale needed to be successful within each of these subsegments? I mean, what's your take on kind of the portfolio that sits today and where you'd like that to be? Emmanuel Ligner: Yeah. Look. We shared that in the past in terms of portfolio. We are doing a lot of work. We've done some really good Brent is leading this pillar in Tide Revival. They have targets which have been identified. And, you know, as we said in the past, everything is on the table. No taboo. Right? We are really looking at everything. And there's some things which are going on, and, of course, we will talk to them when they happen, but, we're moving full speed ahead on the portfolio. I think it's very important as well to remember that, I really want to make sure that this resegment is understood and the fact that it did us opportunity. Right? You when you look at the BMT channel agnostic, it means that the team is now open to new opportunities, open to new ways to reach customers in an area like in Asia, like I was in weeks ago, there is opportunity. And this is why we are doing this is making sure that we look at those two businesses really separately in terms of opportunity. There is opportunity, and we are enthusiastic about it. That's what we will do. But, portfolio, we're working on it. And when we have things to share with you, we will do so. Matt Larew: Okay. Thank you. Thank you. Emily: Those are all the questions we have time for today, and so I'll turn the call back to Emmanuel for closing comments. Emmanuel Ligner: Thank you. Thank you very much for joining the call today. Let me conclude by just maybe repeating what I've said in the opening remark. Avantor is in transition, and 2026 is really a year where we will invest purposefully and sensibly to really strengthen all aspects of our business. The ultimate goal for us, of course, is for the business to produce financial results that are far more attractive than what we've shown in recent years. And you have the full commitment that the team is working really, really hard on this. So thank you again for joining the call. And talk to you soon. Emily: Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Welcome to the Cellebrite DI Ltd. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. So others can hear your questions clearly, we ask that you pick up your handset for the best sound quality. Andrew Kramer: Lastly, if you should require operator assistance, please press star 0. I would now like to turn the call over to your first speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours. Thank you very much, operator. And welcome, everybody. Andrew Kramer: To Cellebrite DI Ltd.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. I'm joined today in Israel by our primary speakers, Thomas E. Hogan, Cellebrite DI Ltd.'s CEO, and David Barter, Cellebrite DI Ltd.'s CFO. Marcus Jewell, our CRO, is also participating. This call is being recorded, and a replay of the recording will be made available on our website shortly after the call. We'll also add a transcript. Please note a copy of today's press release and financial statements, including GAAP to non-GAAP reconciliations, is available on the Investor Relations web at investors.cellebrite.com. In addition to the press release, we post a separate investor presentation that provides an overview of the business and our recent financial performance. I'd also like to remind everybody that the slide in your webcast viewer is a placeholder only. There are no actual slides to accompany our prepared remarks. We also publish supplemental historical financial information for each quarter of 2025 and 2024 along with full year 2023 and 2022 on our Investor Relations website. Additionally, unless stated otherwise, our discussion of our fourth quarter and year-end 2025 financials as well as the financial metrics provided in our outlook will be done on a non-GAAP basis only, and all historical comparisons are with the comparable periods of 2024. I'd like to remind you that today's discussion will contain forward-looking statements including, but not limited to, the company's business operations and financial performance. All forward-looking statements are subject to risks and uncertainties and other factors that could cause matters expressed or implied by those forward-looking statements not to occur. They could also cause the actual results to differ materially from the historical results and/or from forecasts. Some of these forward-looking statements are discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20-F filed with the SEC on 03/18/2025. The company does not undertake to update any forward-looking statements to reflect future events or circumstances. And with that said, I'll now turn the call over to Tom. Thomas E. Hogan: Thanks, Andy. I'll just jump right in. We closed 2025 with a solid fourth quarter that capped a year marked by meaningful strategic progress. We cemented our insights offering as the gold standard in digital forensics. Drove strong adoption of our SaaS and cloud-based offerings, extended our integrated AI functionality, completed our first material acquisition, and added important talent across the company. Grew ARR by 21% in 2025, which factored the combination of a four-point headwind from our US federal unit's actual performance versus our original plan, and a nearly four-point tailwind associated with the close of Keryllium. Overall, our ARR growth reflects expansion across all of our major geographies and our flagship offerings. We outperformed relative to guidance on both our fourth quarter revenue and our adjusted EBITDA. Our growth and ongoing spend discipline delivered strong free cash flow of $160 million in 2025, and a 34% free cash flow margin. I'd like to quickly share some of our fourth quarter highlights accomplishments that position us for accelerated growth in 2026. First, we've now converted 55% of our installed digital forensics space to Insights exceeding our 50% target and reinforcing our market-leading capabilities. Second, we doubled down on our mobile research to ensure our unlock capabilities continue to keep pace with the major phone manufacturers. We believe these investments extend our leadership in Android and we'll reassert our leadership in iOS. We expect this range of leadership capabilities will hit the market over the coming six weeks and position Cellebrite DI Ltd. as both the leader across each major segment as well as the clear leader from a comprehensive cross-platform perspective. Third, SaaS and cloud adoption remains outstanding. ARR for these offerings grew north of 50% and now represent 22% of total ARR. Guardian's impressive trajectory continued with its now sixth straight quarter of 100% plus year-on-year growth. Guardian forensics is rapidly becoming the industry's de facto repository for evidence that matters and where chain of custody is critical. Fourth, we completed our acquisition of Keryllium, in early December while we continued our work to gain final clearance from CFIUS. Keryllium's ARM virtualization technology remains an industry-unique and powerful asset. Customer interests across both defense and intelligence and the private sector continues to exceed expectations. We remain confident this asset will be highly accretive to our growth and will exceed our pro forma expectations when we announce the transaction in June. Looking ahead to 2026, we start the year well-positioned to reaccelerate growth with initial guidance of 18% to 19% as compared with our organic growth of 17% in 2025. We see several levers for further acceleration as our portfolio and solutions evolve over the coming quarters we chose to take a prudent approach to our guidance until these assets become generally available and we can confirm expected market adoption. Let me recap the primary contributors to our expected reacceleration. First, core demand for our solutions remains strong. Macro tailwinds around crime, population growth, the use of digital in both the pursuit and resolution of crime, continues to climb as validated in our recently released industry survey. And the constraints associated with human capital persist. Unfortunately, these known established macros have been exacerbated the past year by increased geopolitical tensions around the world. Second, the well-chronicled disruptions in The US federal segment. Are thankfully now behind us. Excuse me. We expect the roughly flat growth performance of this unit in 2025, to reaccelerate and to exceed the company's overall growth rate in '26. There are multiple drivers that will contribute to this resurgence in growth. Pent-up demand in core unit growth, increase in focused federal funding, and the final DOJ sponsored authorization to operate for FedRAMP level four which we expect to obtain before the end of this quarter after a lengthy eighteen plus month process. Federal ATO will pave the way for Guardian and our cloud assets in The US federal market. Augmenting these growth engines is our increased focus on more targeted defense and intelligence solutions, as well as the product fit of Keryllium and DNI. Given current mid-quarter visibility, we're optimistic this unit will get off to a fast start in the first quarter. Third, we've elevated the quantity and quality of our go-to-market organization with a roughly 20% expansion in sales executives and our increased investments in enablement and training. Fourth, within digital forensics, there are several important levers in terms of insights conversions, the value proposition of our insights upgrade cycle is now well understood and many agencies have incorporated their upgrades in their planning and budgeting cycles for 2026. These dynamics position us well to drive conversions this year by an additional 25 plus percent. Just as important, based on our anticipated platform leadership, we expect accelerated growth in the unlock business as we enter the second quarter and the remainder of 2026. Fifth, took an important and exciting step today with the agreement to purchase SCG Canada. The deployment of drones globally is not just growing. It's exploding. The drone market is expected to grow 20 plus percent annually, and surpass $53 billion by 2026. Its constructive use cases are broad ranging from surveillance and commerce, to the safety of local law enforcement and national defense. Unfortunately, drones also enable nefarious use cases. The US alone reported over 1.2 million drone violations in 2025. We believe drone forensics will rapidly become one of the most significant data sources for making our nation's communities and businesses safer. Given our leadership, in digital forensics, and our customers' trust and dependence on our digital insights, adding drone forensic leadership was both a logical and candidly necessary strategic decision. This is a capability that will bring immediate value to defense intelligence and law enforcement agencies as well as to the private sector that's charged with securing airspace around critical infrastructure prisons, and dense location locations such as airports, and sports venues. This represents a modest but important move to address an emerging need and further elevate the impact of our AI-powered platform for multi-data source analysis. We expect to close this transaction by the end of the first quarter and we'll share additional details upon closing. Sixth, with the recent closure of Keryllium, we enter this year transitioned from a reseller to a fully integrated selling motion. We're driving elevated education and training, across the Cellebrite DI Ltd. go-to-market team and customer base and see meaningful growth opportunity across both the public and private sectors. Keryllium will also clearly exceed the company's overall growth rates. We're excited and optimistic about our progress in emerging leadership, in digital investigations, analytics. These strategic assets grew 2.5 times faster than the overall business in 2025. Guardian Collaborate and Guardian Forensics are well-positioned to sustain their 100 plus percent year-over-year growth rates. In addition to the important ATO for The US federal market, we expect to obtain similar certifications in Australia, New Zealand, and select European nations later this year. We will also launch Guardian Investigate this spring. This product is squarely focused on enabling criminal investigators detectives, analysts, prosecutors to build stronger case narratives collaborate seamlessly in a secure workspace, leverage a diverse set of data sources and file types, including traditional smartphones, but also adding important sources such as call detail records, open source intelligence, video, RMS, ballistics, and license plate data, and ultimately leveraging the most powerful AI-enabled analytics in the industry to navigate and interrogate this mountain of important evidence. Feedback from beta and customer design partners has been exceptional, and we think is a harbinger for accelerated deployment and growth in the '26. Pathfinder, our flagship analytics solution for multi-phone forensics, continues to grow deliver important levels of insight and productivity to a growing percentage of our Insights installed base. And last, but certainly not least, is our progress in the thoughtful and ethical use of GenAI. We've been pioneers in the use of machine learning and AI for the past decade. And plan to extend that leadership in 26. While many view AI as a threat to software, we view AI as an absolute tailwind across three fronts. The first is applying it across our internal organization to drive productivity and efficiency and this initiative is well underway. Second, AI enables significant improvements to the productivity of users of the Cellebrite DI Ltd. portfolio which ultimately elevates our value proposition and customer retention. And third, we see meaningful opportunity to monetize unique and focused agentic applications that bring rich capabilities that transcend a range of use cases from child exploitation and missing children to cybercrime to stagnant cold cases, and major criminal investigations. I wanna briefly expound on our constructive view on AI and why we view it as a force multiplier from both the business and a societal impact. Cellebrite DI Ltd.'s mobile extractions are at the epicenter of the most valuable complex, and difficult to obtain sources of evidence that are relevant to virtually every investigation, and the corresponding power and capabilities of any AI engine. Said more simply, our unique intimacy with the most complex evidential artifacts give us a unique advantage in harnessing AI for good. That in his intimacy is then compounded by our domain expertise with investigative workflows leveraged by hundreds of man years of law enforcement experience. And finally, Cellebrite DI Ltd.'s history is grounded in the quality ethics, compliance, and security that's earned us the trust of thousands of the largest and most sophisticated public safety and government agencies around the world. GenAI can and will be a powerful force for good but the stakes involved in crime and sovereign defense demand that advanced analytics are complemented by full traceability ethical use, and human verification. To conclude, I'm proud of our progress in 2025, We navigated turbulence in The US federal space, while still delivering healthy growth in both the top and bottom line. Just as important, we made critical investments throughout '25 that span organic innovation, strategic partnerships, and targeted acquisitions. Leadership and innovation matter and we continue to invest in the long-term growth and leadership of this company. We enter '26 with a truly differentiated end-to-end AI-powered platform that delivers high-value insights and intelligence, from an expanding range of data sources. Are already hard at work on where and how we can expand our value for '27 and beyond. We have a bold aspiration to not just solve crime with efficiency, but to ultimately drive a material reduction in crime itself. Proud of our impact in the world, and we're anxious for the future. With that, I'll turn the call over to Dave. He'll do a click down on the details and add further insight to our first quarter and full-year guide. Dave? David Barter: Thanks, Tom. I'd like to briefly share highlights from the fourth quarter and full year. ARR grew 21% to $481 million which includes Keryllium. We closed the acquisition, December 1, Keryllium's ARR was $16.1 million. Excluding this, our ARR grew 17% year over year and sequentially ARR increased 6% over Q3. Perhaps even more noteworthy, after experiencing headwinds in the first three quarters, our net new ARR growth in Q4 was back to prior year levels. This aligns with the remarks and the confidence we shared on our last earnings call that growth would reaccelerate in FY 2026. Geographically, The Americas represented 53% of total ARR, while EMEA represented 35%, and Asia Pacific represented 12%. Terms of growth rates by geography, The Americas grew 19% with our US state and local government and Latin America teams leading the way. EMEA grew 24%, and Asia Pacific increased 23%. Higher growth solutions like Pathfinder, Guardian, and now Keryllium have become a larger percentage of our ARR mix. At the 2025, these solutions represented 14% of total ARR. And we anticipate that this mix will continue to ship closer to 20%. By the end of the coming year. Turning to revenue. In our Q4, revenue grew 18% to $128.8 million which includes approximately $1 million from the Keryllium acquisition. The full year, revenue grew 19% to $475.7 million Our software solutions drove approximately 90% of our fourth quarter and full year total revenue. Our fourth quarter gross profit increased to $110.8 million which represents a gross margin of 86%. Our full year gross margin was 85%. Fourth quarter adjusted EBITDA of $38.3 million increased 33% over the prior year and the margin expanded by three forty basis points to 29.8%. The full year, we generated adjusted EBITDA of $127.6 million or 26.8% on a margin basis. Achieved this level of profitability despite a strong FX headwind as the shekel strengthened materially, against the US dollar. As Tom noted, we have continued to balance the investments required to drive innovation and fuel expansion with our focus on giving our teams the AI-enabled tools to elevate productivity and efficiency. We ended 2025 with 1,285 employees, up 10% over 2024. Turning to the balance sheet. We ended 2025 with $535 million in cash, cash equivalents and investments, up $52 million despite the outflow of $147 million in net cash used to acquire Keryllium in December. Free cash flow for the fourth quarter was $82.3 million For the full year, cash flow was $160 million or 34% on a margin basis. This represents 30% growth over 2024 free cash flow of $124 million or a 31% margin. As a reminder, we remain very focused on reaccelerating ARR growth while maintaining a free cash flow margin of at least 30%. As a vertical software company, we believe benefit we'll benefit be a beneficiary of AI we are of the view that a strong ARR growth combined with a strong free cash flow margin strikes the right balance and enables us to serve all stakeholders. Let's shift gears and take a look at our 2026 expectations. Before I review our guidance, I wanted to share a few thoughts around our guidance philosophy in response to investor questions on this topic. We were very deliberate about not changing Cellebrite DI Ltd.'s guidance framework, when I joined the company midway through 2025, we have modified our guidance philosophy. 2026. In particular, we focused on setting prudent ARR and revenue expectations around tighter ranges that are corroborated by our renewals, deal pipeline, and applicable RPO coverage. Accordingly, use tighter ranges for our quarterly and annual ARR and revenue targets. As we execute over the coming quarters, we'll reassess and revise those top line targets as appropriate. And the same is true for adjusted EBITDA. Our initial view into 2026 ARR calls for a reacceleration in our growth rate versus the 17% organic expansion we delivered in 2025. I'd like to quickly revisit the framework from November on the 2026 drivers. First, winning new logos and increasing price or mix. On existing offerings is expected to generate several percentage points of growth. Second, insights. Through conversions, more pervasive deployments, and ups on unlocks is anticipated to support growth in a meaningful way. Our third growth driver involves Guardian and Pathfinder. The cornerstones of our digital investigation and analytics offerings. We expect this will contribute mid-single-digit percentage points to our ARR growth. Keryllium, our fourth driver, continues to experience healthy customer interest and demand. While it is still early days, we expect a contribution of at least a couple of percentage points to growth. And finally, we expect to improve gross retention. In terms of our planned acquisition of SCG Canada, we have not yet incorporated any contribution into our outlook since the deal has not yet closed. It is worth noting that while SCG is currently a small business, it will bring innovative technology that we believe is highly complementary to our platform and will benefit greatly from our global distribution. Looking at the first quarter, we expect ARR growth in the range of $491 million to $493 million or 20% to 21% growth. The combination of our recent Q4 ARR and our anticipated Q1 ARR demonstrate not only sequential stability, but an expansion motion in terms of absolute dollars versus the comparable quarters one year ago. We expect first quarter revenue in the range of $127 million to $129 million an increase of 18% to 20% adjusted EBITDA in the range of $26 million to $28 million with a margin of 21% to 22%. For full fiscal year 2026, we expect ARR the range of $567 million to $573 million or 18% to 19% growth. Revenue in the range of $565 million to $571 million or growth in the range of 19% to 20% and adjusted EBITDA in the range of $149 million to $155 million with a margin of 26% to 27%. As Tom noted, are in the early stages of evolving our products and packaging in ways that are intended to ultimately make it easier for customers to expand the range of solutions they subscribe to over a multiyear period as they take advantage of our cloud and AI-enabled offerings. We anticipate this will serve as a stronger foundation for durable ARR growth, We also expect that a byproduct of this transition will be more ratable revenue recognition over time. As a result, we continue to view ARR as the most relevant top line KPI. As you consider our outlook for profitability, I'd like to highlight a few elements. We anticipate in line with prior fiscal years approximately 60% are adjusted EBITDA dollars will be generated during the second half of the year, will be accompanied by stronger adjusted EBITDA margins. Our profitability, also reflects two transitory headwinds that weigh on margins. The first item reflects the absorption of incremental Keryllium costs we've added following the acquisition. We expect this impact will dissipate by the end of this year as top line expands. The other factor is foreign exchange. Most notably the continued continued strengthening of the shekel against the US dollar. We continue to thoughtfully manage our overall cost structure while also taking pragmatic steps to limit the impact of FX, volatility. In terms of free cash flow, we're expecting 2026 to be another strong year with anticipated FCF margins in excess of 30%. And finally, I'd like to offer a thought on Cellebrite DI Ltd.'s rule of x performance. Historically, we have calculated our rule of x by adding our ARR growth rate and our adjusted EBITDA margin. As we have scaled our business and matured our execution, we have delivered adjusted EBITDA margins at levels well above the original floor of 20%. Accordingly, we now view 25% adjusted EBITDA as our new floor on profitability. Which also correlates at a high level with a free cash flow margin of at least 30%. Since more ratable revenue will impact both top line and bottom line rates of expansion. Will be using ARR growth and FCF margin to measure our rule of x. We feel this will provide investors with more clarity and insight. Building on Tom's comments around rule of x, we begin the year with an outlook in the upper forties and an objective to drive performance to 50 plus. Overall, the team delivered a successful 2025 despite the transitory headwinds in The US federal market. We are moving into 2026 with optimism around our prospects to further reaccelerate ARR growth while delivering attractive profitability, and free cash flow. Look forward to sharing our progress in 2026 with you. As we execute on our plans over the coming quarters. Operator, that concludes our prepared remarks. We are ready for Q and A. Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when posing your questions. To provide optimal sound quality. Thank you. Our first question is coming from Bhavin Shah with Deutsche Bank. Your line is open. Please go ahead. Bhavin Shah: Congrats on solid year and a strong '26 guide. Maybe first on the acquisitions. I mean, kind of announced SDG Canada expecting to close kind of two deals in quick succession. Are you guys thinking about ensuring that you can execute against the strategy for for both of these deals? Along with maintaining a focus on the core. Feel like you have to make any internal changes as you fold these companies in, and how do you guys think about allocating resources amongst the core relative to Keryllium and SDG? Thomas E. Hogan: This is Tom. I'll take it. So first, you know, the the Keryllium transaction took longer to close. Than we anticipated The good news with that is we've now had you know, essentially seven plus months since we announced the deal. To get into a rhythm and a cadence, we we inked the reseller deal quickly after announcement given some of the delays And so from a training, go to market, know, there there were limitations, obviously, that you have where you can't fully operate as one entity. Pre close. But but while it may feel concurrent given that you know, that closed early December, and we expect to close SCG by you know, the end of this quarter. Realistically or from a sort of a executional challenge perspective, there was pretty good spacing between the two. Then the second thing that and I'll probably anticipate the question that somebody's gonna ask is, you know, how big is the breadbasket? With the FCG deal? They're currently we're super excited about it because just the the drone world is is, as I said, is exploding and having market leading drone forensic capability is hugely compelling. And so we think the growth trajectory of that business is also gonna be I'll just say, and and I hate to use exaggerated. Terminology, but breathtaking. I think description. But for for our stakeholder it's a currently a small operation. So they're they're the market leader in our view, but we're talking about a business that's low single digit millions. And so you know, the complexity of that business and by the way, this is what we do. So instead of using, our know, devices on UFEDS to extract forensic data from phones We're now using their CFID to extract forensics from a drone. And so, this couldn't be more sort of core and complementary to who we are and what we do. So the dive difficulty here is actually you know, relative to a standard acquisition, the dive difficulty here is low. Bhavin Shah: That's super helpful there. And just a quick follow-up. Just just on the last point you're talking about, the drone opportunity understanding it's still very nascent here, but but, like, how did this kind of come about in terms of looking at the asset? Was this something that customers are asking for? And or is this something that, look, as you look two to three years, five years down the the the pipe, like, this is something that's gonna be more meaningful, like, what what's what's your omit and and how we can help? But are coming from as well. Thomas E. Hogan: Yeah. So good news is the answer is both. So in particular, in the short run, and Marcus might comment on this, But in the defense and intelligence world, they're already a, they're already using the technology. As they look to their plans and procurement, and the need to expand given the the proliferation of drones the demand from our mutual customers is loud loud and clear. And then as we do strategic planning, you know, one of the things you you would expect from us is to always look out, kinda skate to where the puck's going from a TAM perspective. Perspective. And say, are adjacent markets that bring Big Tam to the Cellebrite DI Ltd. value proposition. And the moves we're making in the whole investigative world in analytics now combined with the moves we're starting to make in drones the TAM of those two added markets is actually about 5x the core TAM that we've been chasing for the last nineteen years. So both from a strategic planning and customer demand, It was sort of one of those it's one of the most obvious strategic moves I've seen in my forty three years. Marcus Jewell: I'll add sorry. I'll just add to Tom's comment there as well. But, yes, there is customer demand, you know, where we're deploying you know, we we we are frankly take data from sensors. The biggest sensor out there is a cell phone. But a drone in for deployed in borders and those areas is is one of the other sensors, which is definitely required. So, yes, there is already demand, and there's already trading for for those solutions. Operator: Thank you. Our next question comes from Jonathan Ho with William Blair. Please go ahead. Jonathan Ho: Hi, good morning, and let me echo my congratulations as well. I wanted to start out with maybe a little bit more color on the investments that you made to extend your mobile forensics leadership that we'll see later on this quarter. Could you maybe help us understand, you know, what this could mean from either improving net retention, win rates, or, you know, product expansion, perspective? Thomas E. Hogan: Yeah. So Jonathan, the the investments were basically doubling down with our internal research team. To both extend our leadership in Android and to also ensure that look. We we love for people to just standardize on us for the front end unlock and access from a platform perspective, but we don't want them to feel like they're making any sacrifice. So the goal is to have a leadership offering in both of the major OSs, Android and iOS. And so the investments were made in our internal research team to make that happen. In conjunction with several external partnerships which, by the way, is is not new. It's it's sort of a standard operating procedure for us for the last fifteen plus years. To leverage the combination of our internal badged researchers with some of the best and brightest researchers in the world to help complement our capabilities. And so we've doubled down on one of those partnerships. And we've added another one that helps bring new attack vectors for exploits and vulnerabilities when you roll those partnerships together with the innovation, that's why we feel so optimistic about us having a a very clear leadership position across the board. And if that comes to fruition given the importance of access, it will clearly drive accelerated growth on the front end of our unlock access and our insights, you know, penetration and market share and year to year growth. Jonathan Ho: Got it. And then just in terms of your comments around the U. S. Federal government spending environment, where are you seeing maybe the most pent up demand? Where are you seeing sort of improvement in terms of sort of the malaise that we saw last year? And what sort of gives you the confidence that this can, you know, sort of return to a stronger growth rate? Thomas E. Hogan: Yeah. I I covered the like, the macro categories, but I'll let Marcus because he's really dialed in and close to this. He he can give you maybe a better answer, but I think you'll hear there's sort of you know, empirical data and meat behind our enthusiasm. But, Marcus, why don't take a shot at Sure. At that question. Marcus Jewell: Yeah. It it's kind of a a do say, as we said over the last six months. So so what we're seeing is remind reminding everybody of the use cases which are used. There's obviously the defense and intelligence use cases, which the world continues to get stranger and stranger and more threat. So in four deployment areas, where data collection the new kind of war situation is incredibly important. We're seeing those use cases build out and a lot of confidence build around those, not only on a level, but also on a global national level. And you saw that strength in our EMEA results as well. Border security continues to be across the world, a big area. And a lot of money is going into that. And then there's also some external things. There's a World Cup FIFA World Cup coming to The US. That's gonna be potential for a lot of serious crime, and that has to be prevented as much as possible. And we are used in in the deployment of those areas. So that's the confidence that we see The agencies, remember, under the big, beautiful bill, we're giving a two year budget. So they're able to get ahead now and start thinking and plan more strategically. And our competitiveness with our product means that we feel comfortable in those positions. So it's the same story of those hardening use cases with more stability from that. And then the final point, as Tom mentioned in opening remarks, will be the ATO. Authority to operate for our Guardian solution, which means we are unique in a position the only people that can actually store and share forensic data under the FedRAMP approval, and that opens up multiple petabytes of opportunity for us to capitalize once we get through the ATO process in the next few weeks. Operator: Thank you. Our next question comes from Shaul Eyal with TD Cowen. Your line is open. Please go ahead. Shaul Eyal: Thank you. Good good afternoon, everybody. Congrats on solid 2025 completion. Tom, maybe just for clarification, I've I've been getting some some emails from investors. On that small drone tuck in acquisition, the scope, the the the low single digit millions, I think you've indicated, is that the price paid or is that potential ARR contribution, I don't know, like, you know, first half or, you know, maybe even, like, you know, first quarter once you close it. And maybe any headcount number you can provide us with as it relates to this acquisition. And I have a follow-up. Yep. Thomas E. Hogan: Yep. Okay. Good question. So let let me be clear and helpful. So we're inheriting a low single digit ARR run rate. It's a it's a it's a small scale, although market leading, solution. Price paid, we haven't closed yet, so there's a couple of conditions that we're we're chasing down here in the in the next week or two. We'll be in the $15 to $20 million range for the company. And then, you know, it it will be disappointed in the midterm if the the ARR growth potential for that business isn't well north of that $15 to $20 million. So this this we're hitting this at the right time. Which know, part of what we we moved fast here. And we think asserting ourselves as a first mover at scale to address drone forensics is going to pay big dividends for the company. Shaul Eyal: No question about it makes makes whole of sense. Maybe with respect to the model, how how should we be thinking about second half versus first half linearity? Should we be most should it mostly resemble 2025 trends, or should should there be any maybe kind of little little deviations as we think about second half versus first half? David Barter: Great question. Thank you for asking. I would actually model the from a top line perspective model it pretty close to twenty April terms of that split, which was largely a little less than 40 in the first half and 60 in the second And that kinda maps to what I think Tom highlighted in his remarks around the number of offers that are that are coming to market. Shaul Eyal: You so much. Good luck. Operator: Thank you. Our next question comes from Jeffrey Van Rhee with Craig Hallum. Your line is open. Please go ahead. Jeffrey Van Rhee: Great. Thanks. Thanks for taking the questions. Congrats on that free cash flow margin in particular. Tom, on the AI side, spend a second and talk a bit more about these opportunities. Specifically, you about AgenTeq applications, cybercrime, child exploitation, etcetera. Just talk a bit more about exactly what those would be and how you monetize them, if you would. Thomas E. Hogan: Yeah. So so we're we're we're parallel track kinda tracking our our efforts in AI. So there's a lot of work being done by the core product and technology team to integrate advanced AI capabilities that drive productivity. So you know, think things like media class and summarizing text chats and report generation and identifying conflicts in testimony and just you know, a list of things that that Turbocharge our current stack and deliver a lot of productivity. To our users. And we're and we're gonna continue to elevate and identify more opportunities to do that real time. In parallel, we have a innovation an AI innovation center that's been missioned with with developing more specific AgenTeq applications in use cases that that based on feedback from design partners and some sort of of early evaluators, I guess, are getting we're kind of pleasantly shocked at at people's enthusiasm, to to begin to deploy these AgenTeq apps. And and I gave you some examples. You know, and I won't name the departments, but in talking to the chief of the investigative unit in The US the large US police department, know, his his response was, so wait a minute. I can deploy this app and just turn the engine loose on a stack of missing children cold cases and see what this application can surface that might provide added insights that we had overlooked and then merit or make it worth the time of a to circle back and and pursue the investigation. So in terms of your your question, Jeff, about monetizing the the candid answer is we are working on that real time, like, as we speak. To to figure out And I think a lot of software companies are are sort of wrestling with what what do you sort of bundle as an enhancement and a, know, a value add to the the the product's core capability, which we're doing with Guardian Investigate, And then what are the things that you can monetize? And then and then what are the price points? But one of the messages I would give to the shareholder base is candidly, the the guidance that we have in place today assumes the assumption in the guidance assumes that we don't monetize any of that. In '26. And based on the feedback we're getting, I actually think there is gonna be an opportunity in fiscal and calendar '26 to start to monetize some of these Agenza cap applications. Jeffrey Van Rhee: Yeah. Great. Fantastic. A couple maybe from Marcus. Just, Marcus, looks like I think maybe Tom called it out in the script spending or adding 20% more capacity in terms of sales heads. Talk about just where you're allocating those heads? Like how are you thinking about the assignment and and where you're pointing those folks? And then in particular, if you comment on DNI, obviously, with SCG and Corellium, you seem to have a deeper toehold and TAM opportunity in D and I. Does that require a different motion, different touch points? And is that an area of particular focus? Marcus Jewell: Indeed. Yeah. Let let me break that down. So in in let's we'll start with public safety, which is the the largest part of the business. As you know. There's there's still scope for ad heads there. We feel that we our coverage, even in SLG in The US, can increase, and so we've increased and penetration especially into the medium and small agencies across across The US. So that's one area where we put a well a well-trodden motion, and we repeat and extend on that. The the next area, which is which is probably getting missed is through the play. We have a Viper, which is a pen testing solution, which is proving very, very interesting and successful with the enterprise. So we've increased our coverage in the enterprise business for our mobile app penetration testing. Actually, financial services is one of the largest customers we have. A lot of you guys on the banks there run multiple apps, and they need to be checked that they're safe and kind of be penetrated, and and that's been a real uptick for us. So we've increased our coverage on the specialization there. Then the third area is D and I, and we're delighted that we brought back one of our leading salespeople who left us for a little break and has come back to head up a global development there. He's an special forces person and is driving a new global standard for us around the DNI space, and we've added resources both in Europe and The US to cover that. Jeffrey Van Rhee: Wow. Maybe just one last for me then, Marcus. On the On the Fed ramp, is that is there a back backlog sitting there that have been kind of waiting for this? And should you see a surge from that? And then maybe, to put a finer point on it, I think, the prior call, you were or Tom, I believe, had mentioned a very large deal. I believe you'd said the largest deal that you'd ever seen. That was looking like it was lined up for an $1.26 close. If I have that right, can you give any update on that? Marcus Jewell: Yeah. So let let me tackle the second part of the question first. So we have we have multiple threads of large annual spend in in the first and second half of this year. So we feel confident about our position trending there, but I'd like you to think about that. There's not one single customer that's actually three or four different programs which are all in 7 figures for us. So we continue to track well, and we feel good about our technical evaluation position multiple threads there. The the second point is is could you actually ask the first question again? Sorry. I lost my thread there. Jeffrey Van Rhee: I think we were talking about the federal side. I was most interested in the in the big deal Mhmm. You know, that you had talked about. Marcus Jewell: Yeah. The big deal continues to track well. So so we we feel good about that. These big deals tend to, you know, scale up and grow. Procurement can be complicated, but we feel good. But I want you to think that there's not one There's multiple agencies both in in in state and local and in federal, which have multiple big deal opportunities us. So we continue to track well against the one we highlighted. We're actually adding fuel to the fire on that. And then the first part, sorry, was ATL has come back to me now. Yeah. Look. I mean, when you say backlog, I've got to be careful because the backlog would suggest that we have a purchase order. What we do have is we've seen our largest bid go out. We have scoped an initial contract for a large federal agency in their storage requirements, which exceeds nine petabytes. And that would equate to a very large deal that would that would be certainly the single biggest transaction we would have ever done. And we continue to track well. We want to get through the ATO process. Which we're confident on, and then we will talk about turning that into real revenue as quickly as we possibly can. Operator: Thank you. Our next question is coming from Michael Cikos with Needham. Your line is open. Please go ahead. Michael Cikos: Great. Thanks for taking the questions here, guys, and I'll echo the congratulations on the strong finish to the year. I wanted to come back to the insights conversions and the unlocks for a second. Can you help us think about how the adoption of unlocks trended in Q4 And Dave, I know you went through a number of different vectors that gives you guys confidence in that ARR reacceleration in the coming year. But what are your assumptions as far as how insights and unlocks play into that? I just wanna make sure I was clear on And then I have a follow-up. David Barter: Okay. Mike, let me let me kinda break them apart between the Insights and the Unlock because I think they'll have different dimensions. So I think we ended it with insights at about 55% Overall, I think we feel good. I think that will follow our deal overall broader deal seasonality just from the standpoint that the transitions will probably occur with deal contract expirations. And so probably follow that linearity of or the seasonality I just described earlier around how how things unfolded over the course of fiscal year twenty four. I think the unlocks will be a little bit different just from the standpoint that as Tom alluded to, There is, you know, work and new technology that'll be hitting the market. And so that really will start to kick in in I'll call, late Q1, but really Q2. And then I think it builds and it ramps from there. Now some of it will be linked to expiring agreement. Some of it will be expansions of existing deals, and that's a little why we kinda called out in his remarks. We wanna see how the market reacts to give you a little bit more color around how it unfolds. So we have a we have a we have a I guess Mike, I have a thesis, but I I need a little bit more data on that was kind of incorporated in the guidance. Michael Cikos: Understood. Okay. Thank you for that. And then for the the follow-up here, just wanted to get a better understanding I'm happy that we have Corellium in the rearview as far as the closing in December. And then the expectations for a couple of percentage points growth in the in the coming year. Can you just help us think about the cost base that Cellebrite DI Ltd. is now carrying for that asset and how that impacts the calendar '26 guide. And I know you cited specifically Karelium as well as the headwind from an expense perspective tied to FX. But just wanted to make sure I was thinking through that properly. David Barter: Yeah. So let me maybe just kind of tether with some numbers. I mean it's about a point of compression on margins due to Keryllium and I think as we shared in the remarks, we'll grow into it over the course of the year. So it's a little bit heavier in the first couple of quarters. We'll get some leverage in the second half. And as we go into 2027, we'll be cooking well. And so we kinda picked up a, you know, a a wonderful, wonderful technical team, and they've just they're really excited with what they're already doing. And then FX a healthy you know, it's, it's more than a point, that that's ultimately burdening the p and l. We ended the year with a pretty healthy hedge. But nonetheless, we are taking on a healthy point of compression just due to the strength of the shekel. So about about two points of extra headwind than what we expected in think it ends up being a temporary headwind in the sense that I think it actually passes through the p and l this year. We kind of come out the other side with better profitability And again, I think cash flow margins continue to remain at a at a pretty compelling place. That help, Mike? Operator: Thank you. Our next question comes from Brian Essex with JPMorgan. Your line is open. Please go ahead. Brian Essex: Great. Thank you for taking the question. And congrats on the results. Great to see the stabilization, particularly in the Fed. Maybe, Dan, if I could if I could maybe have you unpack a little bit of the commentary you had on the guidance, particularly with regard to the prudence of guidance and the tighter ranges around ARR for your targets. Could maybe help us understand the philosophy that the company had over the past few years and maybe how that's changed how it's tighter? Is it you know, where where are you narrowing the guardrails? Is it Is it around upside to give yourself more cushion? Or maybe just help us understand the the level of conservatism in the setup as we kinda head into fiscal twenty six. David Barter: Okay. It's a great question. Thank you. I think if you were to rewind the clock and compare, where we are today versus where we were, I think we had a $15 million spread on ARR last year. Right now, we're calling $6 million spread. And I think what you probably Brian, you've seen is I think there's a a pretty healthy degree of forecast accuracy. And so we've rolled through and, quite frankly, you know, the business, and it has a strong customer base motion, and it's complemented by a smaller new logo motion just given how the initial lands happen. So we really used our customer base motion to really inform it. And so we actually looked at the pattern of our expirations, looked at the upsell. This is where we went from the expirations to the expansion at the time of renewal. That's what we started to model in. And then we built in some of those points that Tom talked about, but where we had a little bit less visibility, that's where we snapped the chalk line. So that's how we kinda ultimately got to a $6 million spread. Looking at the 18 to 19, and then we pulled it through the p and l. So maybe the vary that variability was previously included in the in the in the guide, and maybe you're pulling that back a little bit. Correct. I mean, I I in general, I kinda look out and, you know, as I look at it, I try to go for a high degree of visibility. And then as I get a little bit smarter, ultimately, that's what I and so, you know, people a little bit as you've kinda looked Okay. Super. Oh, yeah. Sorry. And then maybe just to follow-up on your comment around gross retention. You know, the comment that you expect to improve gross retention, where have you seen maybe the points of improvements, and how does that, like, translate into what you have for expectations? Into into fiscal twenty six? David Barter: Yes. Great question. I guess I start to see it almost beginning with our of our flagship for our platform in the form of Insights and Unlock. And so I think there are signs that that's going to get better. I think quite frankly, you know, with the maturity of where we're at both on Pathfinder and Guardian, we see the signs whereas we have customers really operating on very current versions of Pathfinder and expanding on those versions, and then certainly, quite frankly, just to build out on the gradient platform. So there there's a number of compelling features. And then as Tom alluded to, the customers that are starting to experiment, these are our design customers using AI that naturally tag into both Guardian and Pathfinder. And so they will get quite frankly, pronounced impact from from the adoption of AI and the fact that they're uploading more and more data and using it that way, I think, gives us increased conviction. Brian Essex: Got it. Very helpful. Thank you so much. Operator: Thank you. Our next question comes from Eric Martinuzzi with Lake Street Please go ahead. Eric Martinuzzi: Yes, Tom, I wanted to dive a layer deeper on your comments regarding AI. Curious to know, in your conversations with customers, obviously, there's tools that they use outside of your c two c platform. Are they pulling you in a direction as far as where they want you to see enhancements made in the platform, is it just, hey. You know, we've got AI within the c two c platform and people aren't straying from that. I'm not can you try that again? I'm not sure. I ask again to just make sure I answer the Yeah. There are kind of open market tools for generative AI outside of the C2C platform. Just curious if customers are pulling you in a direction where they wanna see investments made in your platform, tools they're using that aren't built. Okay. No. Yeah. Yep. The the good news is you know, everybody's tinkering. And what the early tinkerers are discovering especially as they start to see and hear about what we're doing, Candidly, they're seeing a huge gap in what we're able to produce in terms of the the the depth the quality, of the kind of the AI output which makes sense for the reasons I shared earlier given, you know, our knowledge and access to, you know, the complex and critical phone data. And so instead of them saying, the honest answer right now is instead of them saying, hey. Can you kinda shift course 10 degrees here because this is what would help me or this is where I'm going? Is they're learning and discovering what we're doing actually, what they're saying is I'm gonna stop and I'm I'm gonna adopt you know, the products and the capabilities that you're bringing to market. Understand. And then is that as you look at the pipeline, and this is kind of product development pipeline, You talked about forensic investment as a key area. How are you using AI in that forensic investment? Part of the RD? Are we using You're because you wanna be you wanna maintain your leadership. Oh, you wanna make using AI for leadership and for Right. On the fur specifically in the forensics part of the product. Yes. So if your question is, are we leveraging AI to to extend or maintain the forensic capability? Is that the Yes. You know, to be honest, what what leveraging more right now from a technology perspective is the Keryllium asset. So that's been you know, been a a tool for us for the past you know, five years, and now we own it. So we use that to accelerate the identification of vulnerabilities and exploits. If the question is, is there a magic AI engine that can go surface vulnerabilities, Maybe that will happen in three years or five years, but but we don't we don't see that right now. Yeah. And just, obviously, the all software stocks and and yours in particular seem to have gotten hit here in the past few weeks. And with that assumption in mind, it just it's a head scratcher for me. I'm sure it is for you guys as well, but just had to ask a question. Yeah. No. It's it's I think what we would say generally is given the nuance of what we do, the specific use cases, the work the complexity of the data on phones, This is not some standard research or task that that know, the a lot of these engines are capable essentially outsourcing and and driving. And so this is why we think AI for Cellebrite DI Ltd. and probably a handful of other companies in very specific Nuance industries. This is actually a tailwind and a force multiplier for us. That we're gonna harness in in both deliver value to our shareholders, but also deliver more value in speed and insight to to our customers. So Thanks for taking my questions. Yeah. We scratch our, yeah, we scratch our heads on the whole AI is gonna make software go away, we we have kind of the complete opposite view. So Operator: Thank you. Operator, any other questions? This does conclude the Q and A portion of today's call. Would now like to turn the floor over to Andrew Kramer for additional or closing remarks. Andrew Kramer: Thank you, operator, and I'd like to thank everybody for joining us morning. If you do have any questions, please feel free to follow-up with Investor Relations and we look forward to speaking with our shareholders and prospective shareholders over the coming days and weeks. Thank you. Operator: Thank you. This concludes today's Cellebrite DI Ltd. fourth quarter and full year 2025 financial results conference call. Please disconnect your line at this time, and have a wonderful day.
Operator: Welcome to 2020 Bulkers Q4 2025 Financial Presentation. [Operator Instructions] This call is being recorded. I'll now turn the call over to CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q4 2025 Conference Call for 2020 Bulkers. My name is Lars-Christian Svensen, and I will be joined here today by our Chairman, Magnus Halvorsen; and our CFO, Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These assumptions reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may differ materially from those anticipated. I will now continue with the highlights of the quarter. We reported a net profit of $13.8 million and an EBITDA of $16.5 million for the fourth quarter of 2025. We achieved an average time charter rate of about $39,300 per day in the same period. Our total dividends amounted to $0.63 for the months of October, November and December 2025. In October 2025, we signed an agreement to sell the Bulk Sao Paulo for a total of $72.75 million with Q1 2026 delivery. In November 2025, we signed further agreements to sell the Bulk Sydney and the Bulk Santos for a total of $145.5 million. These 2 vessels will also be delivered to new owners within Q1 2026. In subsequent events, we reported an average net TCE earnings of about $30,800 per day for the month of January 2026. And this morning, we also announced a dividend of $0.15 for the same month. And with that, I will now pass the word to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $13.8 million and earnings per share of $0.60 for the fourth quarter of 2025. Operating profit was $15.8 million and EBITDA was $16.5 million for the quarter. Operating revenues and other income were $21.4 million for the fourth quarter. The average time charter equivalent rate was approximately $39,300 per day gross. Vessel operating expenses were $3.5 million, and the average operating expenses per ship per day were approximately $6,300 in the fourth quarter. G&A for the fourth quarter was $1.1 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148.4 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $15.5 million for the quarter. Cash and cash equivalents were $22.1 million at the end of the quarter. The company declared total dividends to shareholders of $0.63 per share for the months of October, November and December 2025. That completes the financial section. And now over to you, Magnus. Lars Halvorsen: Thank you, Vidar. As our remaining ships will now soon be delivered to their new owners, I just wanted to reflect and summarize a little bit the 2020 Bulkers history and the financial returns we've generated for our loyal shareholders. We started out in 2017 by ordering 8 scrubber-fitted Newcastlemax vessels at New Times Shipyard paying at the time, all-inclusive $47.6 million. And we believe at the time, there was a very interesting risk reward given the attractive newbuilding prices and falling order book. As we became an operating company, we remained profitable every single quarter from the delivery of our last vessels. And looking at what this has meant in terms of returns, the company was initially financed by $142 million in equity through a number of share issues. As of and including the declaration we made today, we have declared a total of $251 million in dividends and distributions to other shareholders. And as we've reported today and Vidar went through, we expect to have net proceeds from the sale of the last vessels amounting to around $311 million after all debt has been repaid. Additionally, we have around $50 million on cash on the balance sheet as of today. What this means for the investors who supported us throughout the whole story, participating prorate in every equity offering since November 2017, we've generated an IRR of 28% per annum measured in dollars. For those and perhaps more relevant who came in on the IPO on then Oslo Axess in June 2019, the annual return, including dividends, has been 31% measured in U.S. dollars. This compares to 17% for the S&P 500 and just under 16% for the Oslo Stock Exchange measured in dollars for apples-to-apples comparison. As we stated in the release today, our intention is to, as soon as possible, return all the proceeds from the sales to shareholders as well as the majority of cash on hand. We will retain a small amount in the company to support G&A, which will enable us to stay listed while we can evaluate potential strategic or other opportunities. Before I go to the Q&A, I'd like to thank everyone who's been part of the story so far. We obviously wouldn't have been able to do this without the investors. And I think particularly the ones that supported us in a very challenging share offering in May 2019. At the time, dry bulk was not exactly in fashion. It was very tough to get it done. And also a big thanks to the employees, the Board, the banks, brokers, New Times Shipyard and of course, very importantly, our very good charters, so -- which we have remained very loyal to. And with that, I'll leave it over to the operator for questions. Operator: [Operator Instructions] As there appears to be no questions in the queue, I'll hand it back to the speakers for any closing remarks. Lars Halvorsen: Okay. I think we've said what we want to do. So thank you, everyone, for dialing in. And if you have any questions that you didn't ask, feel free to reach out to us. Thank you very much.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Fourth Quarter and Full Year 2025 results of Ahold Delhaize. Please note that this call is being webcast and recorded. During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks and uncertainties, other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q4 and full year 2025 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. There, we provide extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, Frans, over to you. Frans Muller: Yes. Thank you very much, JP, and good morning, everyone. In 2025, we operated in a rapidly shifting environment, frequent and unpredictable government policies, pockets of inflation and volatility and rapid advances in AI and technology. In that context, being a consistent and trusted partner for customers, associates and all other stakeholders matters more than ever. As you will have seen in our release this morning, I'm proud to say we are delivering on our Growing Together commitments and are well positioned for what lies ahead. Our execution through the holiday season is a great example of how our growth model is coming together, allowing us to finish the year on a high. And for the full year, net sales increased 5.9%, while comparable sales, excluding gas, increased 3.2%. We delivered a healthy underlying operating margin of 4%, diluted underlying EPS growth of 7.8% as well as strong free cash flow, allowing us to increase shareholder returns. In Grocery, success is never driven by only one thing. It's a result of many details coming together and that on an everyday space. As our capabilities mature and integrate, our execution in turn is becoming more connected. The backbone of this is that the flexibility we have created in our ecosystem to deploy scaled and yet tailored solutions, the resilience of our local value propositions and brand personalities and the disciplined execution driven by aligned teams with a strong culture of ownership and accountability that underpins the Growing Together strategy. So let me unpack this a little bit more in detail with some practical examples. First, starting with the customer. Let's talk about strengthening customer value through trusted products. Across our markets, our local brands invested in price and value by lowering prices and broadening own brand assortments in key daily needs. In the U.S., we had our first full year investing towards a total of $1 billion in price investments over those 4 years. And at the same time, we strengthened our own brand assortments, adding 1,100 new products in the U.S. and 1,450 in Europe. In Europe, where own brand penetration is close to 50%, our assortments are a clear competitive advantage. Over the past year, we expanded collaboration through our AMS buying alliance, and this delivered quality improvements while also generating cost savings with a further expansion planned into 2026. These efforts are truly resonating with customers. Own brand growth continued to outperform the rest of the store with group level penetration reaching 39.8%, reflecting strong appreciation for quality, health, value and innovation. The next core block is vibrant customers experience, covering every interaction between our brands and customers in stores, online and through services. Customers increasingly expect convenience, personalization and a seamless integration across channels. In the U.S., we completed the rollout of PRISM, creating a unified digital backbone for personalization at scale, as it enhances opportunities in advertising and retail media. This enabled us to reach around 32 million customers and deliver 14 billion personalized offers in 2025. Customers are also responding positively to our shift forward towards the same-day delivery and partnerships with DoorDash and Instacart with additional partnerships planned. Together, these initiatives strengthen relevance, convenience and loyalty across channels. In addition, in 2025, we opened 220 new stores and remodeled more than 450 locations, maintaining a modern, healthy and attractive store fleet. As a result, we have strengthened our #1 or #2 positions in most of the markets where we operate. Another factor, which is unlocking compounding opportunities for us, is driving customer and business innovation, where digital, data and AI are increasingly powering both customer value and performance. Technology and AI represent a growing share of our EUR 2.7 billion in annual CapEx. We are applying these capabilities across our ecosystem, improving availability and forecasting, enabling AI-assisted customer journeys and scaling predictive and visual intelligence solutions. These investments, combined with our focus on local store-first fulfillment and a more asset-light operating model, are yielding good results. Online sales grew 12.9%, led by 22.8% growth in the U.S. Food Lion had a standout quarter with over 35% e-commerce growth and a 2% point increase in penetration. With the recent closure of 6 e-commerce fulfillment facilities, we have now completed the shift to our store-first operating model. In the Netherlands, the Albert Heijn app plays an essential role in daily lives for millions of consumers. Supported by generative AI, the app is becoming more personalized, multilingual and intuitive, making it easier for customers to plan meals, manage rewards and discover inspiration and new recipes. At bol, we continue to innovate across the end of the journey -- the end-to-end journey. AI-powered features such as Gift Finder and Spot & Shop are increasing engagement and reach. By combining rich shopper insights with impactful campaigns, bol was named the #1 retail media publisher for the second year in a row in the Netherlands. Retail media, as you know, is an increasingly important growth machine for the company. The key strength is our ability to build once and scale across brands. With one global retail media platform, we can deploy new solutions quickly across markets while tailoring execution locally. So with strong capabilities in place, growth now is more about culture rather than capability, which you can see in our people decisions. Good examples here are Margaret's move from bol to Albert Heijn or Keith brought a remit in the U.S. as a Chief Commercial and Digital Officer. Both Margaret and Keith bring deep retail media and technology expertise into grocery, also understanding the importance of developing best-in-class digital offerings and boosting capabilities across the commercial value chain through the power of AI. This reflects our belief that a win at one brand is a win for all brands and that scaling talent and capabilities is just as important as scaling technology. So let me now turn to shaping our portfolio to drive growth and excellence, where disciplined portfolio decisions and operational execution work hand-in-hand. In Europe, we welcomed Profi at the beginning of 2025, establishing a strong platform in Romania for future growth. Throughout last year, Profi opened 70 new stores, marking the start of a promising growth trajectory. At Albert Heijn, we opened 19 new stores and launched a major refresh of the Fresh Square concept in more than 500 locations, responding to growing demand for convenient, nutritious food solutions. In Belgium, we now recently completed the acquisition of Louis Delhaize, adding 303 stores and expanding our presence in convenience in 2026. As the largest food retail group on the U.S. Eastern Seaboard, we see meaningful runway in a still fragmented market. In a region where supermarket volumes declined in 2025, we delivered positive volumes by leading into price, own brands and omnichannel convenience. In the U.S., Food Lion launched 153 remodels and started construction on 93 remodels in the Greensboro market, which will be launched later this year. Stop & Shop remodeled over 30 stores, deploying an efficient use of capital, progressing on their revitalization plan. As part of this plan, Stop & Shop improved store standards, service and value perception. Price investments now cover more than 65% of the fleet, supported by stronger own brands, new marketing and in-store signage, upgraded stores and improved execution. Through the combination of these efforts, we have seen steadily improving trends in comparable sales growth, including volume growth, by the way, and in our Net Promoter Score, or NPS. Especially encouraging are the year-to-date improvements in value for money and ease of shopping, showing the holistic nature of Roger and his team revitalization efforts. Finally, let me spend a moment on healthy communities and planet because we believe the everyday choices we all make do matter. As a family of great local brands, we are ambitious about the measurable impact we can have, striving to make healthier options more accessible and affordable, supporting the natural systems that make food possible and reducing waste across our value chain. An important part of this, something we don't often talk about, is our U.S. pharmacy business, which plays a growing role in customer trust, health access and loyalty. Millions of customers use our pharmacy services, placing them amongst our most engaged shoppers with the majority of them paying primary -- with the majority of them being primary customers. With ongoing drug store closures, our pharmacies also provide an important access point for health services in their local communities. Under the Inflation Reduction Act, Medicare prices will come down for 10 high-cost drugs. From a financial perspective, Jolanda will share additional figures as part of the 2026 outlook, which for all intents and purposes is a technical change for us. More importantly, for many customers, this provides meaningful financial relief, potentially freeing up spending for other everyday needs. As we leave 2025 behind, we can be proud of the progress achieved and the strong foundation built in the first year of Growing Together. Our strategy has been pressure-tested, our capabilities are evolving and our teams are operating in a strong rhythm, which is delivering compounding results. We are carrying this momentum into 2026 with confidence in our execution, our portfolio and our ability to continue to create value for customers, associates, communities, and of course, shareholders. With that, I will now hand over to Jolanda for more detail on our financial performance and outlook. Jolanda Poots-Bijl: Well, thank you, Frans, and good morning to everyone. Our performance underlines the resilience and flexibility of our brands to deliver also in dynamic market conditions. It's a good reflection of how we're balancing our growth investments and cost-saving strategies in the U.S. and in Europe, whilst remaining laser-focused on creating the best customer value proposition for every wallet. Our growth model is built on a simple and repeatable cycle. That cycle is anchored in the strength of our local brands, our leading omnichannel capabilities and the customer value proposition that resonates. By combining sales-led growth with disciplined cost control and thoughtful capital allocation, we can invest in price, convenience and digital while maintaining strong free cash flows and returns. So let's dive deeper into the numbers. Net sales grew 6.1% to EUR 23.5 billion in Q4 and 5.9% to EUR 92.4 billion for the full year, driven by strong comparable sales, both in the U.S. and in Europe, portfolio expansion, including Profi and continued growth in omnichannel. Q4 comparable sales were 2.5%, which includes a negative impact of 0.1 percentage points from weather and calendar shifts and a negative impact of 0.2 percentage points from the end of tobacco sales in Belgium. Online sales grew 12.9% in Q4 and 13.3% for the full year, reflecting strong momentum in online grocery across both regions. Underlying operating margin was 4.2% in Q4 and 4% for the full year. Strong U.S. performance more than offset headwinds from Serbia pricing regulation and first-time integration of Profi. Diluted underlying earnings per share was EUR 0.73 in Q4, up 11.9% and EUR 2.67 for the full year. Q4 IFRS operating income was EUR 899 million, corresponding to a 3.8% margin. IFRS results were EUR 96 million lower than underlying, mainly due to the impairment charges related to the strategic shift to a local store-first omnichannel fulfillment model in the U.S. For the full year, IFRS operating income was EUR 3.5 billion, representing a 3.8% margin. The EUR 192 million difference versus underlying was largely driven by portfolio optimization actions, including the shift to a store-first model in the U.S. and the acquisition and integration costs related to Profi. These actions reflect disciplined portfolio management aligned with our strategy. Operational excellence remains a core enabler of our Growing Together strategy. Through our family of great local brands, we leverage scale to combine sourcing power and scale tech to deliver local impact in a simpler, smarter and more seamless manner, unlocking new efficiencies through automation and innovation. In 2025, we delivered nearly EUR 1.3 billion in save for our customer savings, in line with our ambition for the year. These savings are reinvested with discipline into price, technology, store upgrades and sustainability initiatives, increasing value for customers, creating free cash flow and returns. This also includes investments in growing complementary income streams such as enhanced personalization and support services for brand partners, creating a capital-light revenue stream. With double-digit growth in 2025, we are making good progress towards complementary income of around EUR 3 billion by 2028. Let's now take a closer look at our regional performance. On Slide 21, for your convenience, we present the impacts of weather and calendar over the last quarters by region. U.S. net sales were EUR 13 billion. Comparable sales, excluding gas, increased 2.7%, driven by continued growth in online and pharmacy sales. The cycling of Hurricane Helene had a negative impact of approximately 20 basis points. Online sales growth reached an excellent 22.8% for Q4 versus last year, driven by strong performance across all our brands. The combination of our delivery speed, customer reach and extensive assortment, enabled by our strategic shift to same-day delivery and ongoing partnerships with DoorDash and Instacart, is what wins over customers. Underlying operating margin in the U.S. was 4.7%. The margin outperformance was driven by higher sales leverage, improvements to our online margins, the positive impact from a shift in category mix and lower shrink levels, which more than offset price investments and the dilutive impact from ongoing growth in pharmacy sales. Last October, we announced plans to develop a state-of-the-art DC in North Carolina. This investment adds capacity and automation in a key growth region. It improves efficiency and service levels and supports the long-term needs of our local brands, including Food Lion. And as you all know, Food Lion has been on an impressive trajectory of growth with Q4 marking the 53rd consecutive quarter of growth. In Europe, Q4 trends were in line with the prior quarter. Net sales were EUR 10.5 billion, up 11.2%, partly due to the Profi acquisition, an increase in comparable sales of 2.4% and new store openings. Comparable sales had a negative impact of 50 basis points from the cessation of tobacco sales in Belgium and calendar shifts. In Q4, online sales increased by 6.6%, driven by double-digit growth at Albert Heijn. The strength of our European brands, their ability to adapt in complex conditions and their relentless focus on cost savings allowed us to deliver an underlying operating margin of 4.1%. This was slightly better than anticipated, considering the headwinds from the sudden government decree and intervention on the limitation of prices in Serbia. Some of the brand highlights in the quarter include Albert Heijn reaching a record market share of 38.2% for the year, Delhaize Belgium completing its transformation and expanding in convenience and the CSE brands, particularly Romania, demonstrating resilience and readiness for renewed growth. At bol, Q4 capped a strong year with high single-digit growth, record Black Friday sales and 70 basis points of market share gains as the brand successfully countered increased competition from Amazon and Chinese players. Full year underlying EBITDA increased to EUR 207 million, driven by advertising growth and cost discipline. Moving now to cash flow. Free cash flow was EUR 1.5 billion in Q4 and EUR 2.6 billion for the full year. This exceeded our guidance for the year and is in part a reflection of the strong holiday period and solid Q4 performance. Additionally, our gross CapEx spend was lower than our original guidance for the year due to the timing of new store openings as well as the finalization of our project plans around the construction of the new Food Lion distribution center. Given the overall performance, I'm pleased to announce our proposal to increase the dividend for 2025 by 6% to EUR 1.24 per share. This reflects our stated ambition to sustainably grow dividend per share and generate strong shareholder returns. To that end, we also initiated a EUR 1 billion share buyback program for 2026 earlier this year. Finally, let me add some insights to Frans's comments on our healthy community and planet priorities. Through our trusted products, we are making healthier and more sustainable choices easier and more affordable. We do this by improving nutritional value, increasing transparency and using data and insights to guide customer choices. In 2025, the percentage of own brand healthy food sales was 52.1%. Like-for-like, we improved with 40 basis points compared to 2024 as our CSE region implemented the Nutri-Score methodology changes in 2025. Our total tons of food waste per food sales decreased 39.1% versus the 2016 baseline. This is a 4.4 percentage point improvement versus 2024, driven by smart sourcing, better inventory management and more donations. CO2 emissions in our own operations decreased 39.1% versus our 2018 baseline, which is an improvement of 3.4% versus last year, mainly driven by the installation of more sustainable refrigeration systems. Virgin plastic in our own brand packaging decreased 10.9% versus 2021, which is an improvement of 0.8 percentage points versus last year as our brands were able to increase the percentage of recycled content in our own brand product packaging. This progress reflects a true company-wide effort and something that deeply matters to our people. It is embedded in how we operate and is why healthy communities and planet remains a key priority for us. Now, turning to our guidance for 2026. First, a few specific items to reflect in your 2026 models. The Inflation Reduction Act will reduce U.S. pharmacy sales by approximately $350 million with no impact on underlying profit. The Delfood acquisition is adding over $200 million in European sales. And 2026 includes a 53rd week, which is expected to add 1.5% to 2% to net sales and 2% to 3% to underlying net income from continuing operations with no significant impact on operating margin. Our outlook reflects a disciplined approach to maximizing returns while maintaining flexibility. We expect an underlying operating margin of around 4% with limited downside expected given our strong operating momentum and the good start of the year. Mid- to high single-digit EPS growth at constant rates, a free cash flow of at least EUR 2.3 billion and a gross CapEx of approximately EUR 2.7 billion. While we do not provide quarterly guidance, some phasing effects should be expected during the year, as we flow investments in line with real-time trading conditions, allowing us to stay sharp, calibrate actions iteratively as new learnings emerge and remain flexible to market developments, including macroeconomic and geopolitical uncertainties such as Serbia. For 2026, you can, therefore, expect a persistent focus on value for customers, continued growth of our brands, disciplined investment in stores, logistics and digital and a relentless focus on cost and cash flow. This is how we operate, consistent, disciplined and delivering compounding results. And with that, I will hand back to Frans for closing remarks. Frans Muller: Thank you very much, Jolanda. As you have heard, and as you have seen, our Growing Together strategy is now fully in motion. The focus ahead is simple, doing more, even better. We have spoken today about many of our capabilities, but in an industry like ours, one of the most powerful and often underestimated is thriving people being connected to their communities. The partnerships between our brands and the communities they serve is as important an asset as scale or technology or algorithms. This proximity to our customers, listening carefully, learning continuously and adapting quickly to what matters most in their daily lives is, therefore, the real oil that makes the ecosystem run smoothly. Therefore, also a big compliment to our teams for a remarkable result in 2025. Behind that, everything we do is within the framework of a clear operating reality. We remain laser-focused on cost, disciplined in how we allocate capital and deliberate in sequencing investment so that growth is funded, repeatable and resilient. This is how we create value every day for customers, associates, communities and shareholders and why we enter 2026 with confidence. With that, thank you for your attention. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And our first question today comes from the line of Frederick Wild from Jefferies. Frederick Wild: So the first one is, would you be able to help us understand the competitive and consumer environment at the moment in the U.S. and your outlook there for 2026, including things like food inflation? And how you expect volumes to develop? Secondly, you mentioned, Jolanda, a cadence throughout the year. Given what's happening in Serbia, given maybe some of the U.S. pressures we're seeing at the moment, can we take those comments to mean that you're expecting a -- the year to sort of sequentially improve as we go through it? Frans Muller: Thank you, Frederick, for your questions. On the consumer sentiment in the U.S., if you read the newspapers that people think, hey, it is a weaker sentiment than we had seen before. We also saw here and there reports of negative volumes in the U.S. in the market in itself. If you look at our numbers, we came out the 2025 year with positive volumes in the U.S. with flat volumes in 2025, the fourth quarter. And I think this is also caused by the fact that we have very strong market positions, #1 and 2 positions in the U.S. that we are very connected to our communities, that we have a very good proposition, that we invested online technology and in our stores. So I think we are competing quite strongly. On inflation, we see in food at home Northeast inflation of 2.2% at the moment. And if you ask my prediction, which is not so easy, then I think we see a flat inflation, 2.2%, going forward in the 2026 year. That's how we calculate this. So that's a little bit on inflation. That is on consumer sentiment. And when people talk about consumer sentiment, sometimes we forget 2 things that we are in a food business. So we are not in a discretionary type of business, that we have a very strong brands, #1 and #2 position, 90% of our sales and that we -- and I tried to convey this in my note that we have very strong community connections. And the element of trust is super important, and that's what we earned over the years, and that's only strengthened during COVID. And that's, I think, what we also benefit from now, plus our price investments, a EUR 1 billion price investment over 4 years in the U.S., our strengthening and growing own brand share. So I think we have a good proposition here to support the customer journeys, not only physically, but also online and also through AI and technology. Jolanda? Jolanda Poots-Bijl: Yes. And thank you for your question. Yes, the cadence, as we guided in our storyline just now, we are confident. We started the year well, and we have given a guidance of around 4%. That cadence is something that we don't want to dive into. Europe and U.S. might have different cadences for us started. And we want to allow ourselves the flexibility to invest where we see an opportunity and do that in the perfect cadence to create value for our customers, but also for our shareholders, of course. Frans Muller: And we are in a growth strategy together? Jolanda Poots-Bijl: Yes, that's why we're heading forward fast. Frans Muller: We are going to grow the business. Jolanda Poots-Bijl: And that's what we're investing in. Operator: We will now go to the next question, and your next question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a big picture one. Just trying to understand how you approach margins on a group level because you consistently talk and communicate and guide on a group margin level. Is that how you run internally as well as in -- if you expect some weakness, let's say, in Europe, you try and compensate for it in the U.S., obviously, within limitations of what you can do on pricing and cost. Does that explain probably a much stronger-than-expected U.S. margin in Q4? That's the first question. Secondly, Frans, it would be amazing if we could dive a little bit into where are in... Frans Muller: Sreedhar, could you speak up a little bit, Sreedhar? Could you speak a little bit louder? Because it's a little bit difficult to understand and... Jolanda Poots-Bijl: Sreedhar, my ears are less strong than Frans' ears, so I need... Frans Muller: Speak up a little bit. Sreedhar Mahamkali: Sorry, sorry. Yes. Of course, yes. I'll just repeat. Just a real question. First one on how you approach group margin because you consistently guide on a group margin. Internally, do you actually manage it as such as in when you see potential weakness in one part of the business, you try and lean into another to deliver the group margin consistently. So that's the first question. Second one is just in terms of where we are on the Stop & Shop reinvestment, price investment and how close to completion are we now given Stop & Shop seems to be progressing in terms of a recovery. So if you can just talk through a little bit more on the reshaping of Stop & Shop offer and where we are in the journey, that would be very helpful. Jolanda Poots-Bijl: Thank you, Sreedhar, and thank you for helping us out here. So your question, I'll take the first one on group margin, our business is local, and we optimize our businesses on that local opportunities and challenges that we have. So we're not balancing out in the portfolio as such. We're managing the optimum business by business and back end, and that's the strength of our model. We try to combine our scale to support those businesses locally. So I think that, in short, answers your question. Frans Muller: Yes. And I think also, Sreedhar, we would like to stay as competitive as we can be on brand level for the U.S., for example, on country level or brands in Europe or in the Benelux. I think that's our promise to customers, our commitments to make sure that we have the local proposition as strong as possible. And then, yes, in the mix, we see the results, of course. At the same time, to stay competitive, we invest a lot in prices. And of course, you know that we have a very strong cost saving program, which Jolanda already talked to. And that plan, we also manage very strictly, too. So I think that's where we get the funding to support locally. It's a local business, Sreedhar. It's -- you can't say, well, we take more money in one brand to subsidize another one. That's not how retail is working for us on Stop & Shop. Sreedhar Mahamkali: Maybe very briefly just on that point, U.S. margin was clearly stronger than most of us were expecting. Was it ahead of your expectation? Because you clearly guided to stable margin... Frans Muller: [indiscernible]. Jolanda Poots-Bijl: Yes. Sreedhar, to be totally transparent, it was above our original plans. And as it is in grocery, you know it as much as we do, it's lots of small things. And if they all come together a little bit more positive than you expect, then you can outperform. And let me mention just a few of them. If you look at our product mix, we sold more fresh than center store. Yes, that's a little support to that margin. We saw that vendor allowances were a little bit more positive. Our online profitability is improving. So it's many small elements all coming together, having small impact as such, but then together, you outperform. So yes. Frans Muller: And a strong holiday season. Jolanda Poots-Bijl: A strong ending of the year. So sales flow-through was -- it was all those elements. Yes. Frans Muller: Thanksgiving, great. Christmas, great. Diwali, also great, by the way. So we had a strong holiday season. And that -- and shrink numbers also went down because if we have high sales, then also shrink numbers come down as well. So a lot of things in the right direction. So, well, I'm not surprised because we have a strong team there, but I think it was stronger than we would initially have expected. Jolanda Poots-Bijl: Yes. Frans Muller: Finally, then we come to the -- before you mix in another question, Sreedhar, we now go to -- it's a good question. We now go to Stop & Shop. So Stop & Shop, we invested in prices as we promised ourselves and our customers. And in 2025, we were in 65% of our sales, 65% of our sales. We did -- we made our price investments. This will go in 2026 up to roughly 80%. So we make additional funding available for our price investments. At the same time, Roger and his team, first of all, a very dedicated, enthusiastic, energetic and a new -- and partly new team, they made quite some changes. They are now very focused on execution. Availability of product is much better. Labor costs are better under control, better service for customers in stores, better mentality. And we see also now that with the relief of the 32 stores we closed, we have now a much better store set for Stop & Shop as well. Also, Stop & Shop, as you might know, has a very high online penetration of around 11%. So also there, the omnichannel is very strong. We see NPS going up for Stop & Shop. We see price perception within the NPS also getting better. They enjoy the higher penetration of our private brand products as well for Stop & Shop. So a number of things are going in the right direction. And at the same time, we also remodeled 30 more stores for Stop & Shop with a different type of frame. So Stop & Shop also, there good momentum. And you have heard me and Jolanda earlier, a good momentum is great, but we will have to see this a few quarters more before we completely embark on this journey. But also there are compliments to Roger and his team, what happened is, yes, there's a new wind -- a positive wind blowing at Stop & Shop for not only the associates, but also for our customers. John-Paul O'Meara: Let's try to not Sreedhar's lead on that one, at least, that's 3 for the price of 2. Operator: We will now go to the next question. And your next question comes from the line of William Woods from Bernstein. William Woods: Obviously, there's been kind of clear debate over the U.S. margin trajectory over the last couple of years, and you showed good results today. When you look over the next year, how does your strategy change in the U.S. as you go into the second and the third year of the strategy? And do you think we're at the trough of the U.S. margin today? Jolanda Poots-Bijl: William, for that question, it might sound a bit boring, but I think I explained earlier, boring for me is a new exciting. We continue on the journey that we shared with the markets when we launched our Growing Together strategy. I think, in our business, it's important to get in a good rhythm in the cadence and then deliver on that cadence. So no big changes expected in the new year. It's fighting to support our customers every day with the best prices possible, continuing with those price investments that we announced, opening up more stores, doing the remodels, driving growth and sharpening our competitive position. So no spectacular changes. It's continuing what we embarked on. Frans Muller: Jolanda mentioned earlier, William, the EUR 2.7 billion CapEx in our total company. A growing part of this is going into technology, AI and these kind of elements. That is also counting for our U.S. business, of course. So with -- when we see digital AI, both in the efficiency part and the forecasting part, but also in the consumer-facing part, we do a better and better job, loyalty, personalization and these kind of things. So we should not forget that, that also that positive trend of growing more into technology investments is also still continuing as well. Jolanda Poots-Bijl: Maybe last, but not least, because we just delivered the EUR 1.3 billion on save for our customers. The next round is already, of course, heavily in because we have another target of EUR 1.25 billion also for this year. So it's also that relentless focus on, exactly what Frans says, using AI, automation, looking for ways to drive our cost down because year-on-year, of course, it's getting a little bit tougher to realize those targets. So we're obviously also heavily into making sure that we drive those cost savings because that's one of the pillars of our success going forward. Operator: Your next question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Apologies. Yes, maybe I was on mute. Sorry about that. And so the first one is just the investor event a couple of years ago, you talked about high single-digit percentage EPS growth as an algorithm. If we look at '26, I guess, ex the 53rd week, we're probably not quite getting there. Just wondering what the headwinds are you see in 2026 to that and whether that high single-digit percentage EPS growth is still the right growth rate to think about for the medium term? And second one, sort of follows on from that, I guess, is just if we look at the U.S., I mean, outside of potential consumer weakness, we've got SNAP cuts, GLP-1s more readily available, Walmart taking share, Amazon gaining more traction with its online grocery business. I mean, why would we not expect the U.S. to slow down on the top line meaningfully in 2026? Jolanda Poots-Bijl: Well, thank you, Rob, for that question. So first of all, our Growing Together commitments was high single-digit growth on EPS over the 4-year period, and we stick to that commitment. If you look at our 2026 guidance based on the 53 weeks that we have in that year, we guide on a mid- to high single-digit growth again. You are right, if you take out the impact of the 53rd week, of course, EPS is impacted. Two elements to keep in the back of your head. There is the Serbian impact. Serbia used to be a profitable business, guiding well in our European average margins. It's now a loss-making business. So that is included in our guidance, and we're also fighting to repair that issue, one could say. So Serbia has an impact. And also don't forget, the 53rd week, it is money that will be banked, and it is part of that 4-year trajectory of growing together. Frans Muller: On your second question, Rob, yes, it's pretty competitive out there in the U.S., and that's what this business also -- makes it also exciting. But we are used to this already for a longer time. This is not a new phenomenon in itself. The elements I just would like to stipulate here is that we have a business which is now better positioned than before for growth. We have a better supply chain. We have a stronger own brand offer. We are investing in pricing, and we will invest more in pricing, the EUR 1 billion in 4 years you have heard. We are growing our total Food Lion network, not only by stores, and we will open more stores for Food Lion, that is also a new trajectory, but we also keep remodeling our existing fleet. And where there are opportunities for Food Lion to dense up, let's say, the footprint by potential acquisitions, then we also will look at this. Technology and mechanization will help us to reducing cost or get a better customer journeys. So -- and we talked about it earlier when one of the largest competitors in the U.S. is gaining share in the Carolinas, that does not mean that we lose. We win share with Food Lion in the markets where we operate, those states in the southern part of the Eastern Seaboard. And that is because we are connected to our customers. We are very local. We have very good networks, and we have great people. And I think that is not changing. I also heard that a marketplace player is also closing a few stores in the fresh areas, which is also telling us this is competitive and food retail with the margins we make is not easy. And that's why I think also experience and good people kick in as well. So competitive, yes. Are we able to compete? Absolutely. We think that we also gained market share in the fourth quarter in the U.S. And with positive volumes, I think we have, yes, a good start for 2026 also when we look at the first period of the year. So competitive, but we're in a fighting spirit and the teams are really -- yes, very geared up for the journey. Robert Joyce: Okay. So you think you're well positioned to keep taking share, Frans, it sounds like. Frans Muller: We'll come back to you quarter-by-quarter. Rob, don't jinx it now, but that is a... Jolanda Poots-Bijl: It's our ambition... Frans Muller: No, we have a growth strategy, and you know that our growth strategy means 2 things, means volume growth and market share growth. And that is for every brand individually the task, and that's how we construe our plans. And then, we have to see how that works out and how strong we really are. Operator: Our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Two questions from my side. One is about actually on Europe. If you look at last year, '25, you had, of course, the dilution of the acquisition of Profi, you had Serbia, that's now most in the base. So what should probably a bit hold you from higher margins in Europe in '26? And then, the second one is on Albert Heijn. You are now at 38% market share. I think competitors are trying to move. How do you look at that going forward? Jolanda Poots-Bijl: Thank you for that question. I'll take the first one, and Frans will take the Albert Heijn question. We have the first year integration of Profi, and indeed, we are now positioned for growth in Profi. So we envision to open up more stores and drive growth there. And we will get some of those first synergies kicking in. We expect Profi will take around 2 to 3 years to land at the European average margin. So I would not say we're there yet. We are on a journey, and we look forward to that. Serbia, of course, is an impact that was only slightly in last year because it started -- the decrease started September 1. So that is, for sure, a difference versus last year. Frans Muller: And then Fernand, on Albert Heijn, yes, this is a very impressive market share. You round it down to 38%, but it's a very impressive market share. But this comes with 0 arrogance in the marketplace. So the teams have designed their commercial plans for 2026. We might see a few brands in the Dutch market, which have the intention to bounce back. We had an almost 12% growth of our online in Q4 for Albert Heijn. And we also would like to make sure that we stay growing online as well, double digit for Albert Heijn. We look at strengthening our journeys and our portfolios. We have 1,900 organic products, where we are absolutely the leader in differentiation, same for convenience, same for meal solutions. So the creativity is there with the team. Online will be an important component to grow, and I think that means also if you look at price investments, and we know the price favorites where we with 2,000 items have the best offer in the market that will also continue that focus that we make that promise work as well. So Albert Heijn, you talk about the Netherlands, but Albert Heijn is also doing a great job, by the way, in Belgium. Also there, we had a very strong result over the year and also big plans to grow our business there as well. So in short, keep very focused on the omnichannel proposition, 0 arrogance, use the innovation you have in your team to build better products, better private label, which is well over 50% share now at Albert Heijn and work strongly on your cost as well because also there, price investments have to be invested also through cost savings. And that is for Albert Heijn, not different than for anybody else. Fernand de Boer: Maybe one last question on working capital. How far further can you stretch your accounts payable? Jolanda Poots-Bijl: Sorry, the mic went off. I don't know what Frans was doing. A strong year-end sales, of course, means that your inventories are temporarily a bit lower and your accounts payable are a bit higher. So that's also a timing impact of one could say, backloaded sales or a good year ending. We're not expecting to stretch our accounts payable any further. We're just dealing with it as we should be as a good partner in crime also for our suppliers. Fernand de Boer: And the 53rd week, does it have impact on your working capital? Jolanda Poots-Bijl: It will have a bit of an impact, of course. But what we will do, as we will -- as we always do, we will disclose any impact of that last week in our communication to the market in a very transparent way. Frans Muller: Like you did already for sales effect and total net margin. Jolanda Poots-Bijl: Yes. And also in the reporting, we will make sure that the impacts are very clear. Operator: We will now go to the next question, and the next question comes from the line of Xavier Le Mene from Bank of America Securities. Xavier Le Mené: Two, if I may then. You mentioned that AI you do and other technology are reshaping the way you are operating. So you mentioned a few examples, but can you potentially elaborate a bit more and give us a bit of color about the type of productivity gains you can expect? And potentially, an indication of the scale, so magnitude of gain you can get there. So even what is the contribution to cost savings potentially? The second question would be on online. You mentioned it's profitable for the first time in 2025. Should we think about online being a potential driver for margin expansion going forward? And what are your expectation for 2026 and beyond? Frans Muller: Thank you, Xavier. On the question of AI, and AI is, of course, an interesting subject as if this is just new to us. I mean, we're working over many years on AI solutions, if it's robotization, if it's our financial processes, if it is making predictions for our demand, looking at our apps for consumer-facing. And we have now a lot of new features as well. So there will be a lot of AI and opportunities in mechanization. We do a lot of things on recipes and even more creative solutions for customers. You saw what we -- when we talked about Spot & Shop, make a picture of the lamp or the pair of shoes with your neighbors you like more, and you make a picture, load it in the app for bol and you get a suggestion where you can buy these kind of things. So we have a lot of back-end solutions, robotics, mechanization, forecasting, marking down to avoid food waste. We talked about it earlier. But more and more, we get even more consumer-facing opportunities with visual search and all these kind of things with AI is giving us. So a lot of things happening there. The other thing is that you might have noticed that we also got a new Chief Technology Officer on board with Jan Brecht. And Jan Brecht is working very closely, of course, with IT and digital and tech teams. And I just came in here, I just bumped in a room today in the meeting room, where they were talking about our group focus area, work group on AI, where we also bring Americans and Europeans and central people together to see, hey, what can we learn from each other, and we're going to learn a lot from the U.S. as well. What can we learn from each other to make even those propositions more standardized, in the end cheaper in serialization and to scale it up. So a lot more to come. And I think we will talk every quarter about the new features like we did today as well. Jolanda Poots-Bijl: On your second question, and thank you for that, online profitability margin going forward. We look at online in a holistic way. So we're not separating it anymore. Of course, we have those numbers, but we don't separate it in as, okay, it's margin dilutive, and how do we balance that out in the portfolio? We drive growth. Online is a core driver of that growth. And from a holistic and more strategic point of view, having those online customers, which creates indeed growth, it also gives us access into people's daily lives. We can design personal assistance that going forward will give us strategic opportunities, gives us data. We can do the personalization. So there are many elements for us that are so much more important than just an online business and the dilution. We indeed communicated half 2025 that we are now online profitable in the group. That profitability is increasing and improving. So going forward, we double down on online also, as Frans stated, for example, for Albert Heijn. We find ways to improve our profitability even further. And we're quite confident that as a part of our overall strategy, this will benefit our customers, our company and also providing the returns to our shareholders that you could expect to have from us from a holistic point of view. Operator: We will now take our final question for today. And the final question comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: Could you elaborate on the online sales growth in the U.S. in '25 and specifically in Q4? I would appreciate the deep dive if you could help us to understand the main drivers behind this performance. And how sustainable do you believe this growth is? Notably how -- I would be interested to know how you share the value with your Click & Collect partners in this business. Frans Muller: Thank you, Francois. [Foreign Language]. 23% growth in the fourth quarter is, of course, magnificent, 35% for Food Lion. And you could argue that it's a little bit from a lower base in itself, but it's still amazing. Penetration getting over 9% now. Stop & Shop historically already in very high participation, but also growing there to over 11%, so a very positive penetration growth in all the brands we operate. We operate very different than before. As you know, we are now having our Click & Collect options powered by PRISM, owned -- well -- own-developed software, which is giving us, yes, first of all, efficiency, picking efficiency, but also a much better customer connect and a much better customer journey in that online Click & Collect, let's say, part of our proposition. We also partner with DoorDash and Instacart. That is going very well. We might address that we might find another strong partnership, too, which is going to fuel extra growth, so we talk about online a lot. The teams are so convinced that omnichannel is the name of the game. Those customers are more loyal, store and online connected. Jolanda already mentioned that we also got a fully allocated profitable and even more profitable. That's also good news. And of course, online and these kind of things are more linked to AI efficiencies, but also more linked to retail media at the same time. And therefore, that online growth is also for us a very important element of having a better deal, having a better proposition for our customer base. Jolanda Poots-Bijl: Maybe adding to that, Frans, I mean, if you look at what is driving our growth next to all the points that you mentioned, if you compare it with some of the competitors in the market, you have access to a very large assortment on our PRISM portal. So that assortment and the breadth of it, I think, helps, and it's fast. So we have a delivery time of 3 hours, which compared to some of those other also huge players, that's high speed. So speed and assortment probably also helps to win customers over. Frans Muller: Yes. And if you're in Brooklyn with your Eastern European assortment, then you pick your online order in that store, your store and your assortment. So it's store-specific. It's a unique PRISM proposition. And I think that's also different than a few of those, let's say, more centralized online things. Also there, we are local. Also there, we give our customers their local store in the mobile phone. François Digard: And how sustainable you see these trends because 20% is just replenishing? Frans Muller: Yes. For the full year, it was 18%... Jolanda Poots-Bijl: Which is also quite high. Frans Muller: Which is also quite high. So double-digit growth is for us important. I think I would leave it there. I mean -- and as I mentioned, 35% for Food Lion, but they have to catch up a little bit because they were at a lower penetration. So they will grow faster, I think, but double-digit growth is our plan. John-Paul O'Meara: So thank you, Francois, and thank you, everyone, for joining us on the call today. Thank you, too, Sharon. We'll be out on the road as usual tomorrow and over the next 7 or 8 weeks. So happy to catch up with you. And if we didn't get your question today, we'll gladly give you a call now after the call. But thank you for your attendance. Jolanda Poots-Bijl: Thank you indeed, and see you next time. Frans Muller: See you next time. Thank you, JP, as well for the preparations.
Marie Dumas: Good morning, everyone. I'm Marie Dumas. I'm the new Investor Relations Director for Dassault Syst�mes. Some of you might recognize my voice from my previous role at the company, and I'm delighted to reconnect with many of you today. Joining from Dassault Syst�mes with me are Pascal Daloz, our Chief Executive Officer; and Rouven Bergmann, our Chief Financial Officer. On behalf of the team, I'd like to welcome you to Dassault Syst�mes Fourth Quarter and Full Year 2025 Earnings Presentation. Following the presentation, we will open the floor for questions. First, from the room, and then from participants joining us online. Later today, we will also host a conference call. Dassault Syst�mes results are prepared in accordance with IFRS. Most of the financial figures are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 document d'enregistrement universel published on March 18. With that, I will now hand over to Pascal Daloz. Pascal Daloz: Good morning, everyone. Thank you for joining us today to review the Dassault Syst�mes performance for the fourth quarter and the full year 2025. Let's start with an opening comment, which is at Dassault Syst�mes, we do not manage only for the quarter. We build platform that lasts for decades. I think 2025 was a year of transition. 2026 is a year of executions. And I think those 2 years are financial foundations because they are the year when we prepare the next cycle of growth, scale and long-term value creation. So let's start with the facts. 2025 was a disappointing year for you, but also for us. We finished at the low end of our objective with 4% growth, excluding foreign exchanges. I think this performance does not meet the standard we set to ourselves as part of the long-term plan. And we own that. That said, we moved the company for a while. And I think we made meaningful progress on the priorities that matter the most for the long-term success. What moves forward? First, the 3DEXPERIENCE and the Cloud. I think we deliver significant wins and competitive displacement. And in 2026, we will build on this momentum, turning headwinds into tailwinds and deepening our leadership in industrial AI. And I think our ambition is clear, it's to remain the partner of choice for all the industries. Second, MEDIDATA and Centric PLM, they faced challenges in 2025 and weighted our results. I think we are seeing the early sign of the recovery at Centric, and for MEDIDATA, we are investing for the long term. Keep in mind that Life Sciences is undergoing a fundamental transformation from inefficient document-based process to AI-powered Virtual Twins that redefine how pharma innovates, complies and operates. So this shift is really structural, and the structural changes usually take time. Third, in 2025, we introduced 3D UNIV+RSES, a new environment where virtual twin and AI converge, connecting the virtual and the real in a seamless dynamic loop. In 2026, we turn this vision into concrete value. Finally, we remain disciplined on costs while continuing to invest on our future growth. Execution matters and returns matter as well. Now as we enter in 2026, we are scaling our transformation plan, ensuring every step we take positions Dassault Syst�mes and our customers for sustainable successes. And our transformation is built around 3 strategic pillars. The first one, the product offering. We are reshaping our portfolio, accelerating towards 3D UNIV+RSES and investing where scale matters. Second, the go-to-market. We are strengthening the go-to-market execution with targeted end-to-end engagement, especially in Life Sciences for the top 50 large accounts and consumer industry for the formulated products. We are also transforming our partner ecosystem to generate demand, not just distribute licenses. And to support this, we have strengthened the leadership with the Transformation Officer and an Operating Officer focusing on the execution and performance. Third, the business model, and this is a very important part. As customers accelerated the adoption to subscription and cloud, we are introducing the annual run rate reporting in 2026. I think this will provide a clear visibility into the health and the momentum of our recurring revenue base. In parallel, we are also evolving beyond the seat-based pricing toward a value-based pricing model for AI-powered solutions. Because we don't just deliver the software, I think we are delivering outcomes and we will capture a fair share of the value we are creating. This transformation is not just about growth. It's about building a resilient customer-centric company ready for the generative economy. Now let's step back a little bit and look at the market realities. Every industry we serve, whether it's manufacturing, life sciences, infrastructure and cities is under an intense pressure. Supply chain volatility, rising regulation, aging infrastructure and an urgent need for breakthrough innovation in all the domains. These are not just constrained. In fact, they are catalysts, and this is exactly where Dassault Syst�mes step in, not only as a vendor but as a strategic partner for many of our customers. We are helping them to turn the complexity into a competitive advantage that last for decades. In manufacturing, we see 2 realities. The traditional sectors face margin pressure and demand uncertainty. At the same time, defense, high-tech are bold, they are making bold investments where the complexity and the collaboration are the new normal. And this is here where the 3DEXPERIENCE platform is becoming the de facto standard, enabling faster cycle, collaboration at scale and streamlined operations, reducing program time lines to under 18 months in Transportation & Mobilities, delivering between 25% to 40% efficiency gains in Aerospace & Defense, cutting error to 1/3 to almost half in high-tech through prebuilt simulations. That's what we do. In Life Sciences, the pressure is still intense, tighter regulations, rising R&D costs and a shift towards personalized therapeutics or precision medicines. And the incremental improvement is not longer enough. I mean, the customer, they need a new operating model. With our end-to-end lab to manufacturing solutions, we are already helping them to reduce their operating costs by over 30%, while turning the compliance into a competitive advantage. Now in Infrastructure & Cities, demands for autonomous and resilient system is accelerating. Data center demand will double by 2030. The nuclear infrastructure requires safe decommissioning in many countries, cities need to be resilient by design, and I think our AI-powered Virtual Twins reduce the project time line by over 25%, while ensuring safety and compliances. This is really how we are and we create new markets while addressing the most critical challenges of our time. Now across every sector, our customers, they prove one thing. We don't just talk about AI, we deliver it. In Transportation & Mobility, as I was saying, innovation pressure has never been higher. Products are more complex, time lines are shorter. Competition is global. And value is a good example of this. You know Valeo, it's a global leader in the automotive technology from ADAS to electrification systems. And I think together, we are pushing the boundaries of the generative experiences. Here, AI does not only assist, it co-creates. And how we do this? By training the virtual twin on our synthetic data, we generate thousands of design alternatives optimized for performances, cost, compliances before a single prototype is built. This is really the new way of working, turning complexity into opportunity. In Life Sciences, our partnership with Catalyst, I think, show how an industry can be reinvented. By moving from static document to data-driven Virtual Twins, Catalyst is really redefining the CRO model. The clinical trial become agile, patient-centric, continuously optimized. And this is not about fixing the old model, it's really about building a new one. In infrastructure, with Technique at Home, I think we are redefining how the next-generation nuclear systems are designed and operated. The Virtual Twins connect the entire ecosystem, ensuring the traceability, the compliance by designs and more importantly, closing the loop between the virtual and the real world. So that year, we did also something extremely important. A year ago, if you remember, we introduced 3D UNIV+RSES. But what does it mean in practice? 3D UNIV+RSES are not applications, they are knowledge factories where knowledge is enriched, know how is scaled and the results are trusted. And AI is the engine, not a generic AI, not a surface AI, an AI which is grounded in science, engineering and industry. This is not about large language models. I insist on this because with LLM, you will never be able to build drones. You will never be able to design humanoids. You will never be able to discover cell therapeutics. And this is what our customers do. And this is really what we do for them to help them to certify what they do. o we are building what we call industry world model, which is the next generation of AI after the large language model. And what is important is those models understand how the real world works and how to build it. That's something extremely important. Why so? Because those model, they are built on physics. They are trained on decades of industrial knowledge with a continuously validated Virtual Twins. It's explainable, it's certifiable and it's trusted. And there is one fundamental reasons because in the physical world, you cannot forgive the mistakes. This is the reason why our partnership with NVIDIA matters. I think together, we are combining the virtual twin with AI factories and accelerated computing. But maybe long -- more than the long explanations, launch the video, please. [Presentation] Pascal Daloz: So I hope you got it, and it's not me telling this. Jensen, the founder and the CEO of NVIDIA. And I think what we do together, we are building the foundation for industrial AI. And as you said, it enables 3 things: First, in research and innovations to develop the models that simulate the casualty, not only the correlation from a statistic standpoint. Second, the factory of the future, which are software-defined. And why they are software defined? Because autonomous factories continuously optimize through simulation is the reality. And third, the new way of working, which is how you can have skilled virtual companions, not a simple chatbot, but industry trained experts who could help teams to design, comply and optimize everything you do. So in 2026, now we turn this into reality with the 3 AI native solutions, the new categories. The first one, we call it the Virtual Companions. They are not assistants, they are experts. They scale the knowledge, they democratize the expertise. They turn the complexity into productivities. The second one, the Generative Experiences, AI that encodes the best practices, science and compliance by default, a faster innovation, lower risk, higher confidence. And third, the virtual twin as a service, we don't sell the software we deliver outcomes. That's why we are evolving our business model from seed-based licensing to value-based monetization for this new category of solutions because together, I think our AI-driven solutions unlock 3 powerful levers of value creation. The first one is expanding the adoption with the Virtual Companions with usage-based. Keep in mind that right now, the real limitation we face is the number of people being skilled to use our software. Now if we have Virtual Companions being trained by design, they will take the benefit of what we deliver to them. The second one is monetizing the know-how with Generative Experiences. For 40 years, we have invested in many, many industries, aerospace, auto, now life sciences, high tech. And we have accumulated a lot of industry know-how, how to design things, how to produce them. With this knowledge, we can automatize many things. And what the gain we have in front of us, it's a moon shot. It's 10x. It's not a 20% improvement. It's not 30% improvement. It's really a radical change. Last but not least, we can sell the outcome with the virtual twin as a service. Why so? Because right now, how does it work? We provide the software. You have a lot of services, which is needed to implement the software on-premise to train the people, to change the processes. Now with AI, we can -- rather than to sell the tool, we can automatically generate the end result, the virtual twin. It's a way to reintegrate part of the value in our software. So that's what we do, and this is how we are turning AI from a promise into a concrete sustainable value. And I think this is just at the beginning. Now that was the key question a week ago. I mean all of you, you were asking the question, which is AI is revolutionizing everything. But there are 2 kind of companies, the one that compounds and the one who could be commoditized. I think Dassault Syst�mes is built to compound. We are not just participating to the AI revolution. We are really shaping it for the industry. And this November, at our Capital Market Day, we will come back on this, how these visions could -- is translating into the financial impact. But before that, now it's time for me to hand over to Rouven. Rouven, you have the floor. Rouven Bergmann: Thank you, Pascal. And also a warm welcome from my side to all of you here in the room and joining us online for our Q4 2025 earnings conference call. Before reviewing the numbers, I would like to highlight 3 key themes that define 2025. First, to sustainable growth. Our core industrial business, I want to reemphasize that our core industrial business was resilient in 2025 with strategic client wins. However, we faced a backdrop of tough comps and complex macro, specifically in the fourth quarter. We are focused on further strengthening our growth model while we are looking at improving our operational excellence. We have identified the challenges, and we will now execute to deliver, as Pascal said. Second, AI at the core. The collaboration with NVIDIA reinforces our leadership position in industrial world models, and it supports the development of next-gen AI-driven solutions for engineering and manufacturing. And in 2026, our focus shifts from product launches to monetization. Third, business model evolution. The 3DEXPERIENCE platform continues to drive the transition towards cloud and subscription and our recurring revenue base. And as AI adoption accelerates, the business models are evolving beyond traditional seat-based pricing towards a usage and value-based model. And to better reflect this shift, we will begin to report an annual run rate or ARR, and I will talk about this in more detail later. So as Pascal said, 2026 will be a year of execution where we will strengthen our foundation and our full year guidance for the total -- so our full year guidance for the total revenue growth of 3% to 5%, which is important to highlight. It provides the room to navigate current challenges and to prepare the organization for the new era of growth. Now with this in mind, I will transition to the numbers in more detail. In Q4, total revenue rose 1% ex FX to EUR 1,682 million, with software revenues slightly up by 0.3%. We navigated a complex macro dynamics with weaknesses specifically in France and Germany, mainly in the auto sector. Plus, we also faced headwinds at MEDIDATA and Centric in the fourth quarter. Now we have taken the actions to address these issues, which I will discuss shortly. The recurring revenue rose 3% in Q4, with 4% subscription growth, while services was up 11%. The operating profit for the quarter was EUR 622 million with a healthy operating margin of 37%, it's up 90 basis points ex FX, thanks to the productivity gains that we leveraged across the group, and we had initiated those already entering into the year of 2025. EPS was EUR 0.40, up 9% ex FX. For full year 2025, we saw total revenue of EUR 6,240 million, along with software revenue growing at 4%. Recurring revenue grew 6%, and it's making -- it's creating an 82% recurring revenue base as a percent of software revenue, while subscription revenue grew 11%. We delivered good profitability in '25 with an operating profit of EUR 1,994 million and an operating margin of 32%, achieving 40 basis points of improvement versus last year with an EPS of EUR 1.31, up 7%. Now turning to the growth drivers. The 3DEXPERIENCE platform is at the core of our growth strategy and the foundation to review the power of AI for industry. 3DEXPERIENCE revenue grew 10% for the full year, and it's now 40% of software revenue. As expected, the fourth quarter was impacted by a strong comparison base year-over-year. And on top, we faced the weak auto sector in Europe. However, important to highlight, we signed several strategic 3DEXPERIENCE deals that have the potential to expand over the course of '26 and '27. This will generate future revenue and help build the momentum in ARR, which I will come back shortly. Cloud revenue at the group level grew 9% in Q4 and 8% for the full year with 3DEXPERIENCE Cloud growing 38% and 32%, respectively. This strong growth highlights the value of the platform for clients where the transformation is critical as is the need to leverage AI. Now looking at our geographies and product lines. The Americas rose 3% in Q4, with a good performance in high-tech and transportation mobility in the Americas. Full year '25 was up 5%, and we faced year headwinds in Life Sciences as well as in Home & Lifestyle. The core industries in the geo were strong and resilient with 10% growth. Europe declined minus 5% in Q4, but it was up 2% for the full year. The weakness in the quarter was against a strong base comparison, and it was also impacted by softness in France and Germany, and I mentioned that before, mainly driven by the challenges in the automotive sector in these countries. Meanwhile, Southern Europe was resilient and also Northern Europe gained momentum with a good performance in High Tech. Asia was robust. We grew 6% in the quarter. It was 5% for the year. Growth was driven by Transportation Mobility and High Tech. We had very good momentum in Korea as well as strong growth in India, while Japan delivered solid growth. China had a softer quarter on a backdrop of tough comparables in the quarter. Now to the product lines. So industrial innovation was up 1% in Q4 and 6% for the full year. As noted, the quarter was impacted by the lower growth in 3DEXPERIENCE and in particular, the challenges we faced in Europe. But overall, for the full year, we saw a very positive momentum, which was led by solid traction in SIMULIA and ENOVIA, and continued solid growth with CATIA. We are confident on the resilience of our core business, which is led by the cycle of 3DEXPERIENCE adoption, while preparing for the next wave of growth with AI-based Virtual Twins and companions. On the mainstream side, growth was 1% in Q4, 2% for the full year. Growth was again driven by strong momentum of SOLIDWORKS, which was up high single digits in the fourth quarter and in the full year. As expected, Centric was down double digits in the fourth quarter on a high comparison base. Two effects that played a role on Centric. First, we saw some renewals shifting and also we accelerate the move to cloud as we explained to you previously. And now we expect a marked recovery this year in '26 with a new management in place and a robust pipeline that's building going forward. Now to Life Sciences. Here, the growth was lower than expected. We were down minus 4% in Q4, while the full year was minus 2%, as we faced continued headwinds for MEDIDATA, which I will cover in more details shortly. Outside of this, MEDIDATA signed several strategic account win backs over the course of the year. This includes the likes of Novartis, Merck, AbbVie and Gilead. It highlights our competitive advantage as we build strong foundation and expand our footprint with the large pharma companies. Now as we look ahead, we are convinced that the time has come to transform the biopharma industry from a document-based approach to virtual twin-based operations, as Pascal highlighted. This has been our vision for Life Sciences for long term. Therefore, let's take a holistic view of our Life Sciences industry on software revenue that we are generating today. You see on this slide, this includes MEDIDATA as well as the 3D portfolio adopted by pharma and med tech. And in order to better highlight the growth dynamics, we are differentiating 2 elements, the direct business, the enterprise business as well as the indirect go-to-market model we have where we predominantly sell to our CRO partners. Now to the direct enterprise business. It accounts for 70% of the total revenue in this industry, and it grew 3% in total in 2025. Now within that, the MEDIDATA Enterprise business grew 1%. However, this growth was impacted by one client, Moderna, that adjusted its run rate to reflect lower study volumes. And excluding that, our MEDIDATA Enterprise business was, in fact, up 6%. Meanwhile, 3DEXPERIENCE grew 7%. And now to the indirect business. And here, important to understand, this business is mainly focused on the biotech sector on the small -- on the very small pharma companies. So selling -- and here, we are selling through CROs, and this accounts for 30% of the Life Sciences industry, and this is declining by minus 5% year-over-year. Our market saw lower study starts, which were down minus 7% compared to minus 5% revenue decline. So the study starts were lower by minus 7%. Importantly, we continue to expand our market share also here in Phase 2 and Phase 3 by about 1 point in 2025. And now also, we don't want to anticipate this too early. We did see some green shoots in Q4 as its large CROs are starting to increase the number of new studies on our platform. So what are the actions we are taking to reinvigorate growth? You see them here on the bottom of the slide. First, on the enterprise side. What we are doing is we are setting in motion a dedicated account teams to focus on overall pharma transformation with our platform and leveraging AI. These teams are formed and in action across all the geos. Now to the indirect business, the goal is to reduce our exposure to volatility in the volume business. And to this end, we are evolving our pricing model and terms and conditions to monetize continued data access, which will be critical in the times of AI because this is the way the models will evolve and will help and support our pharma customers to improve the efficiency of clinical trials. Now turning to the cash flow and balance sheet items. Let's start with the operating cash flow. We generated EUR 1,630 million in operating cash flow year-to-date, and this was up 1% compared to last year on a constant currency basis. Indeed, despite a challenging environment marked by FX headwinds and new tax regulations, we demonstrated resilience and cash generation. As previously discussed, we absorbed about a EUR 40 million hit in, which was driven equally by the hike in employer contributions on share-based compensation and new exceptional tax for large companies in France. Excluding this, operating cash flow grew 3% ex FX. In the first half of 2026, we expect the working capital to be positively impacted by the collection from large subscription deals we signed in 2025. Now to free cash flow. It was up 2%, also excluding currency. CapEx investments were lower approximately by EUR 30 million due to lower investments in leasehold improvements versus 2024, while investments in cloud and IT infrastructure were stable. The cash conversion remains a top priority. We reached 82% for 2025 versus 84% in 2024. And this is ahead of our previous estimates, mainly due to better collections. In 2026, we expect cash conversion rate to improve driven by cash collections and better alignment of billing to revenue. Now to complete the picture. Cash and cash equivalents totaled EUR 4,125 million at the end of 2025, and it compares to EUR 3,953 billion at the end of '24. This increase of EUR 173 million includes a negative full year currency impact of EUR 263 million, mainly to the weakening of the U.S. dollar over the period. The net cash position reached EUR 1,530 million at the end of Q4. Any additional information, you will find in the operating cash flow reconciliation in our presentation that we published this morning. Now I want to transition to a new topic. Pascal already introduced it the annual recurring revenue run rate, which we are introducing in 2026 for now. And it is already previewed that with you at our Capital Market Day in June last year. It's a key metric to reflect our continued transition towards a subscription and cloud-based business model. We believe that ARR provides a consistent view of the underlying run rate and the health of our recurring revenue base, while it's also eliminating the volatility from revenue recognition. As such, the ARR is a snapshot, which reflects the 12 months recurring value derived from all active contracts at period end. And it includes software subscriptions, cloud, SaaS hosting as well as support. It excludes future commitments. In the appendix, you will find a detailed definition of ARR on how the methodology is applied, and we also are giving you 3 illustrative examples. Now if you look at the numbers, growing at an average of 6% over the last 2 years, the ARR highlights the consistent execution in core and subscriptions and cloud and is driving the growth of our recurring business. It is also more closely tied to the invoicing and cash flows from those deals. In Q4 2025, the ARR reached almost EUR 4.5 billion with an increase of around EUR 100 million of net ARR in the quarter. This highlights the consistent performance in signing new cloud and subscription contracts, while revenue is highly dependent on the timing of revenue recognition. In 2026, we are establishing this new metric in our reporting, and the plan is to guide starting 2027. Now during the Capital Market Day in November, we will outline the steps in the context of our 2029 financial plan. Now as we look ahead, the trajectory to accelerate growth is, of course, linked to the shift in our business model. Now let me discuss very briefly the levels of ARR growth. First, the mix is driven by faster growth of subscription versus maintenance ARR. I think we see that already clearly in our numbers. It's happening. Second, the growth in 3DEXPERIENCE and cloud as AI-powered Virtual Twins and Virtual Companions boost our 3D UNIV+RSES portfolio. The third, within Life Sciences, we are expanding our footprint, and we are creating and preparing the next generation of growth with new clinical -- with a new clinical trial platform powered by AI. And finally, with Centric, the ARR growth has a long runway. Now with this, let me turn to our financial objectives for '26. We expect total revenue and software revenue growth of 3% to 5% ex FX for the full year of 2026. Importantly, this guidance marks a tipping point. In 2026, the share of subscription revenue will surpass the maintenance revenue, and that's also why we are providing an ARR to better reflect the growth dynamics, not yet as a guidance, but to show the momentum and the progress. The operating margin is expected to achieve 40 to 80 basis points improvement ex FX, which takes us to the range of 32.2% to 32.6%. As we continue to balance investments and margin expansion, leveraging our operating productivity gains. We see the EPS growing at 3% to 6% ex FX to EUR 1.30 to EUR 1.34. Now this is all based on our FX assumption and our full year average rate for the U.S. dollar to euro at 1.18 in yen to euro of 170. Now quickly to Q1, we expect 1% to 5% growth for both total revenue and software revenue. Operating margin is expected to be in the range of 29.2% and 30.7%, and EPS at EUR 0.28 to EUR 0.31. Finally, I would like to share some key assumptions underlying this guidance framework for 2026. So first, we expect 3DEXPERIENCE and Cloud momentum to remain broadly in line with last year. It's driven by continued expansion with our -- within our installed base and ongoing market share gains. We are focused on entering new markets and accelerating the monetization of our AI portfolio. Now from a geographical standpoNow from a geographical standpoint and industry standpoint, the demand in the Americas remains healthy, while Asia continues to show resilience. In Europe, we see solid pipeline development in Southern and Northern regions, which is partially offset by continued expected weakness in the automotive sector, mainly in Germany and France. Potentially, this is impacting the timing of decision-making within quarters. The defense sector represents a potential upside. Within our mainstream business, SOLIDWORKS continues to deliver mid- to high single-digit growth in both revenues and users. For Centric, we expect a return to low teens growth, supported by execution against a strong pipeline and a higher mix of cloud revenues. Now Life Sciences is facing a transition year with actions underway to position the business for a return to growth from 2027. On the margins, we expect continued improvement driven by productivity gains from AI initiatives and operational excellence. So these initiatives are focused on increasing our flexibility and reallocating investment towards top line growth. Now in conclusion, 2025 and 2026, we are laying the foundations for our next phase of growth. I want you to remember 3 things. First, the 3DEXPERIENCE platform is at the core of our industry transformation, and it's creating a long runway of growth. On AI, we are introducing new categories of solutions, those go beyond productivity gains, it's about creating new possibilities. And we are taking actions to scale our operations with one single goal in mind: to generate sustainable growth. Now with this, Pascal and I look forward to taking your questions. Marie Dumas: We will start taking questions from the room. Unknown Analyst: This is [indiscernible] from [ ING. ] So I allow myself to start with asking a question maybe with everybody's mind. Your guidance seems quite cautious for 2026, right? So I can understand there are headwinds. There are some things we are in the beginning of the long runway. But what could go wrong? I mean, what do you think will be the major headwinds in the year to come? Pascal Daloz: Rouven, I start, and then after you will add whatever you want. What's the difference between the 2026 guidance and the 2025 guidance? 2025, we were running quarter-after-quarter after the top line guidance. And you have seen, we have been able to deliver the EPS as initially planned, but we have to adjust in the middle of the year, the top line. So I do not want this for 2026. Let's be clear. So maybe you will see this as a very conservative guidance, and I accept the point. But from a dynamic standpoint, I really want to build on the good momentum and again, keep the company focused on what matters, which is in this AI stories. I mean, it's time for us to invest massively. It's time for us to take the positions. It's time for us to accelerate the transition to subscriptions, and this is the game plan we are doing. And that's the reason why, to be direct with you, I think we are relatively conservative in our guidance. Now what could be wrong? I think we have factored many, many things already. And I think you have seen in the -- Rouven's presentations, compared to 2025, there are certain things which are moving in a good direction. Centric is moving and back to growth. It was really a headwind last year. MEDIDATA, we are cautious, even if we have early signs of improvements, but we did not factor improvement in the guidance. And on the mainstream, you see H1 last year was growing mix single digit. H2 last year is growing high single digit, and we have a better perspective for year '26. And on Industrial Innovation, I think we are taking some cautiousness on the auto sector, especially for Europe, which was, in a way, the bad surprise of Q4 last year. That's what's in it. I don't know if you want to add a few things, Rouven? Rouven Bergmann: For the top line, that's the situation. I think for -- I think the other point that's really important to highlight is we are creating the room also to make investments to support our growth because it's very critical at this point in time. We are at an inflection point to accelerate growth. We're transitioning the business model. We are focused on accelerating our growth in subscriptions to build the ARR for acceleration. I think that's the upside we have. And that's how we constructed the 2026 outlook for growth acceleration to come. Derric Marcon: Derric Marcon, Bernstein. So one remark, Rouven. You told us in June 2025 that you will give us ARR or subscription annual recurring revenue without removing any guidance or projection, but we don't have -- we no longer have the split of your recurring revenue target between subscription and support, something you gave before. So maybe you will continue in that way. And so first question, can you help us to reconcile the guidance, plus 3% plus 5%, with the ARR growth that you project for 2026? And if you have an acceleration at the end of 2025 on ARR, why we don't see that on the revenue guidance for 2026? And the second question is about the remaining performance obligation that you gave at the end of the year. Can you help us to reconcile or bridge what is in the RPO next 12 months and ARR, please because the RPO was growing nicely at the end of 2024. We don't see that in the 2025 numbers. So I'm wondering if we will have the same picture at the end of 2025 when we try to extrapolate the RPO numbers for 2026 and reconcile that with the guidance. Sorry, it's pure figure, Pascal. Pascal Daloz: No problem. And I will start, by the way, and Rouven, feel free to add whatever you. So first of all, on the split between subscription license, if you go to the appendix, we are providing the details. So we did not change the way to guide the market, and we definitively do not want to hide something. Now as you know, the annual recurring run rate cannot be fully translated into the revenue the following year because you have the revenue recognitions mechanisms. And I will let Rouven to elaborate. Nevertheless, if you look at the last 2 years, it's a good proxy to approximate the recurring revenue anyway. Now how to bridge with the guidance, which is your questions because you have 6% on one hand and you have 3% to 5%, right? So remember, in the recurring part of the revenue, half is subscription, half is maintenance. The maintenance support is growing at 1%. So which basically means, the rest, the other 50% should, at minimum, grow to 11% to 12%. You do the math. That's point number one. Point number two, why 3% to 5%? Because if you are at 5%, it means the license are flat. If you are at 3%, it means the license are decreasing by 10%, as simple as that. This is how you will be able to reconciliate the guidance we are providing with the ARR. Maybe, Rouven, you could explain a little bit more some specificity? Rouven Bergmann: Yes. We gave the 3 examples that I think are illustrating the methodology. What you really need to keep in mind, what is really the challenge of Q4 also is a tough comparison of Q4 2024, where we had very high subscription growth in parts also because our on-premise subscription are also including some in-quarter revenue, which when you look at an ARR, it's all allocated over a 12 months period, right? We really only look at the run rate. We don't consider any revenue in point in time. It's really over time. And now as you straight line all of our bookings into this methodology, you will see the true growth of our business activity outside of the revenue recognition noise, so to say, that's in the numbers. So that, I think, creates a clear metric of year-over-year comparison. Now over the last 2.5 years, it grew consistently 6%. As Pascal said, you have to understand the underlying, I think, growth drivers and momentum because the subscription is growing 10-plus percent, also keep in mind, we are still facing inside that the MEDIDATA headwind, so the core business of Dassault Syst�mes, 3DEXPERIENCE is growing much, much faster in the subscription revenue, which is important to understand. And as the MEDIDATA business is expected to improve, we will see the upside of that as well in this number. One other comparison I would like to share with you is the recurring revenue growth was 6% over the last 2 years, and it's very consistent with the ARR. Now we're talking about an ARR of EUR 4.5 billion, growing at 6% with the potential to accelerate because of the mix effect as well as subscription becomes -- is getting to the threshold of 50% plus, and then you have a base effect where that growth is starting really to become meaningful. Maybe a last point on -- you mentioned the remaining performance obligation. And I think the coverage that we have in our visibility for the next 12-month subscription revenue growth, that is very comparable to 2020 when we enter 2025 as it is in 2026. We are forecasting 8% to 10% subscription revenue growth for which we have good visibility to achieve that. Pascal Daloz: Now maybe I should add one additional topic, which is an interesting one. If you look at the performance of Q4, 1% growth, flat for the software. If you look at the ARR, it's EUR 105 million incremental, overall EUR 1.5 billion software revenue, which is 7%. So again, I'm insisting on this because we are really transitioning to the subscriptions and to the cloud. Now if you look at the way many of our peers did it, they were decreasing for many years. We are not. We are slowing down the growth for sure, but we are really transitioning. And that's the reason why this metric is extremely important for you because it's a way to see the momentum we are building. It's a way to see the ramp-up we are creating with those long-term contracts. This is what is behind. I think there are another question related to -- Derric, you had the last question? Derric Marcon: Just on the remaining performance obligation. I think the next 12 months figure for remaining performance obligation last year. So at the end of 2024, if I remember well, was growing in the low 20s, so 23% or 24%. Why we don't see that appearing in the numbers of 2025? And when we will look at the figure at the end of 2025, how can we extrapolate that number and bridge that with your guidance for 2026? Rouven Bergmann: We are not -- Derric, we are not guiding in the remaining performance obligation because we -- the way the revenue recognition is, we're not fully ratable as it relates to that. The remaining performance obligation is a value aggregated for the next 12 months of bookings value, not revenue. So it's always depending on the timing of renewals, right? In a year where there is upcoming larger renewals, it is less because then it will be back to the growth after the renewal. So there can be time-to-time variances. I think what's important to understand for you is that the visibility we have into subscription growth is the same in '26 as it was entering '25. Derric Marcon: At the same time, if I compare the guidance for subscription in 2025 at the beginning of the year and the end results. Rouven Bergmann: I understand. I understand your point. Not -- you don't -- you never have 100% coverage, of course, right? The coverage is typically around 85%, 84% for subscription. So depending on the timing of signing and this can impact at the end of your achievement, and this is what happened. Laurent Daure: It's Laurent Daure from Kepler Cheuvreux. I also have three questions. The first is on the 3D UNIV+RSES and your plan for the next 2 or 3 years. I was wondering if you were planning to invest mostly organic adding staff or if you were considering partnership or even M&A, so the way you will build it. My second question is on Centric. You had a very strong decline in the fourth quarter. What can you give us to make us comfortable, the fact that you will renew with double-digit growth and probably, hopefully in the first part of the year, maybe the pipeline or whatever? And my last question, even if I don't want to preempt the Capital Market Day, from '26 to '27, what could be on top of maybe MEDIDATA, the additional growth? Is it AI related or any other things? Pascal Daloz: You start with the first. Rouven Bergmann: I can start with Centric. Yes. So you're right. Q4 was -- we faced the decline. The visibility for the first quarter is already there. What is also important to highlight is not only the SaaS transition, but also the diversification. So we are going really from the apparels, shoes, the traditional business, the apparels, the consumer-centric industries also to food and beverage and retail. So we are really expanding our scope. And the new leadership team is embracing that as well as the opportunity to expand really enterprise-wide from the front end also to the back end with 3DEXPERIENCE. So we have multiple growth levers on Centric that we are building and that are contributing to the business going forward, and that gives us confidence. And the last point I would say that when you look at it geographically for Centric, the Centric business has a strong momentum in Europe. Asia is building. And in Americas, we see a strong reinforcement. And that is, I think, another very important element that we really see that business on a global basis diversified, and that has strengthened as we enter in '26. We continue to invest. You remember, last year, we made the ContentServ acquisition. We are now through the full integration of that. And this really expands the domain and the platform for Centric to expand within the current customer base and brands, which is creating the next -- another potential points of growth. Pascal Daloz: And maybe above all of this, Laurent, the problem came from the management, the previous management, who did an acceleration of the revenue. And we are -- this is clean. I mean, now it's behind us. Coming back to 3D UNIV+RSES, I think the way you should look at it, it's not an extension of the current portfolio. I mean it's really a redefinition of our offerings, the same way we did when we came with 3DEXPERIENCE almost now 15 years ago. So why I'm saying this? It's because it's requesting a new ecosystem. So in a way, you have seen new partnership, and NVIDIA is a good example of this. You need a new computing -- accelerated computing capabilities. At the same time, NVIDIA, they need to -- I mean, computing without knowledge is blind. So we are the one providing the knowledge with our Industry World Model. So the combination is extremely meaningful. And we will continue to partner with basically people having or leading this game. The real question, I think, is the M&A behind your questions. Yes, if we look at the landscape, I think it's not a bad time to consider M&A. MEDIDATA reimbursement is behind us. The cash flow is relatively significant, even if you are challenging a little bit the cash conversion. But at the end, it's a lot of money every year we are generating. The exchange rate is helping us to consider certain acquisition in the U.S. And the software landscape is under pressure. So I remember having exactly the same question 2 years ago, and I was telling you, it's not the right time. I think now it's the time. I will not say more, but at least you understand the way we think. And the last part, which is related to the '26, '27 ARR, what are the growth drivers. I think maybe, Rouven, you just started to mention it in your presentation. Rouven Bergmann: Yes, yes, yes. I think 2026, we have the guidance, Laurent, right? So let's look at '27 and beyond. What are the potential upsides we have and how we can accelerate. First of all, keep in mind, our large, large client base and the long runway we have to penetrate that client base with 3DEXPERIENCE cloud and our AI portfolio. That's really the strongest engine we have and it's -- and the acceleration potential. Now this, together with the transition to the subscription and cloud, which creates the recurring revenue building on top of that and creating the base effect of the faster-growing subscription growth. That's to me the first thing that is important, and you see we are focused on that to build this to reach this inflection point where we will see the acceleration. You're right to mention Life Sciences. We are -- you see that we are taking the investments. We have a lot of good things going already. You see the enterprise business is growing when you exclude some special effects. So there is a lot of good things that are happening, and we will continue to double down to strengthen them. And as it relates to the volume business, once we retain that exposure to churn, we will also see the benefits here. The expansion on the 3DEXPERIENCE portfolio for the industry, Pascal highlighted that as a massive opportunity. Centric, we discussed, I outlined this before is another growth driver that is not -- that is material. So -- and then there is the last point, you mentioned it, which is potential M&A, which is not factored into this model, creating an upside that we have. So that's the situation as we are transitioning from '26 to '27, and this is what I will focus to explain and outline in the Capital Market Day in November this year, where it's about translating that into an ARR model to give you confidence and understanding of the path ahead. Marie Dumas: So we'll take one more question in the room and we'll go online. Gregory Ramirez: Yes. Gregory Ramirez, GR20 Research. I have one question on the Healthcare business for '26. Trying to do the math, it seems to imply something low to mid-single-digit decline. What is the implied impact of the Moderna contract? Does that mean that if the impact for '25 is just on 1 quarter, that will have some -- still some headwinds for the first 3 quarters of '26? And regarding the enterprise business excluding Moderna, does that mean that it will be growing? So when we exclude the Moderna effect, that means that maybe in Q4 '26, this will drive the growth for '27? Rouven Bergmann: Yes. Maybe first, I want to clarify that we are not expecting decline in the Life Sciences business overall in 2026. We're expecting flat in 2026. Pascal Daloz: With everything we do. Rouven Bergmann: With everything we do in Life Sciences, from an industry standpoint, we expect to be flat. As it relates to the impact of Moderna, this is a 2025 impact. It was not only related to Q4, but it's really for 2025. But the aggregate of this impact is now behind us. Moderna reduced their contract by more than half to reflect their new business level activity. We're still the prime partner for Moderna. We have not given that or losing that to anybody else. It's our client. But their business realities have changed, and we have adjusted to that, which was -- it had a big impact on the performance. So now with that behind, as we look at the enterprise business going forward with -- I gave you some names and large enterprise clients that we have signed, where we are expanding our footprint. And beyond that, we will do even more. By the way, in March, we have MEDIDATA NEXT, where we have many of those clients coming with us on stage to explain what they do with us to expand across our portfolio to transform what clinical development is today. And that will translate, and we're confident about that, that will translate into growth in the enterprise segment going forward. Where we have less control is on the part of the volume business with the CROs. And this is where we are, to some extent, exposed to funding environment on the biotech sector, which can be volatile, and we know it has not been great over the last 2 years. But also there, we see some green shoots coming. And if that materializes, it will stabilize the business. Pascal Daloz: Maybe one additional thing. So if you look at the enterprise segment, and Rouven showed the number to you. The structural growth of MEDIDATA, excluding Moderna, it's 6%. And the growth of the rest of what we do is 7%. So we have 2 legs, if you want, which are solid. And we do not see a reason why it will not continue to be the case in 2026, right? The part where we are extremely cautious because we have been burned last year with this. Rouven Bergmann: That's only last year. Pascal Daloz: We were getting a recovery of the CRO to be back to at least being flat, and we landed at minus 5%. So that's what is not factored in the guidance. We do not take any improvement in the guidance of the CRO business. Despite the fact that some of them, they have published a better result in Q4 compared to Q4 2024. Marie Dumas: Thank you. We will now take questions online, please? Operator, could you start the online Q&A? Operator: [Operator Instructions] And it comes from line of Moawalla from Goldman Sachs. Mohammed Moawalla: Yes. Great. My first question was just to sort of understand the 2026 outlook a bit better. Can you help us understand at both the low end and the high end of the range kind of the assumptions, particularly around what you're incorporating for some of the larger deals as well as the kind of mega deals, what's in there and what isn't? And then again, coming back to sort of bridging the kind of ARR to the revenue growth guidance you've given, you sort of mentioned that we're kind of getting close to parity between subscription and maintenance. But obviously, in there is the MEDIDATA and Life Sciences recurring revenue. So could you give us a better feel for what the underlying subscription growth rates in kind of the core or when the business ex MEDIDATA has given? We're doing a transition both in the enterprise business but also SOLIDWORKS and Centric. Just to sort of better understand the moving dynamics of growth. And then lastly, you sort of touched a bit on more consumption outcome-based revenue as you drive kind of the AI applications or use cases. How does this sort of change the kind of the visibility going forward? Because I think because of conventional business is there's going to be more variability. But when does this become kind of more meaningful to your midterm growth rate? And is that going to be -- and how is that going to be captured? Rouven Bergmann: Okay. Mo, thank you for your questions. I'll start with the first one on how to position the guidance of 3% to 5% revenue growth. As I said, at the beginning of my prepared remarks, I just want to reemphasize this point that this guidance provides us room to navigate. It's derisked. It's derisked for mega deals. We do not include any mega deals into that. Of course, we always have large and chunky deals that are important to happen, but not mega transactions. I think what we need to do to overperform this guidance is I mentioned that there are certain areas that are introducing upside into what we do. We have not included significant growth in the defense sector, for example, simply because we have not yet seen this sector to contribute incrementally strong to our demand. But there are opportunities, of course, in this market that we are very focused to tackle and to get involved and to take benefit of it. We are building a very powerful AI portfolio, transforming our industries and building that to expand what we do with our current clients. And Pascal gave the examples and discussed that. This has, of course, a huge potential for us to accelerate the growth in 3DEXPERIENCE and AI. For now, as you see in the guidance, we have taken a more prudent approach to -- and this was what I shared with you as well, we consider the momentum in 3DEXPERIENCE growth to be consistent with 2025 and 2026. So of course, now as we enter in 2026, we are a significant step further in making these use cases and scaling them and replicating them. So there is, from that perspective, clearly, an opportunity for us to improve and grow and accelerate from there. Now we have to keep in mind that we have to offset also some potential softness in the auto sector. Now there is 2 sites to look at, 2 ways to look at that. While there is maybe softness in the fourth quarter, but still it represents significant opportunities for us also in 2026 because we have -- I want to remind you, Mo, and everyone here that we have signed significant deals in this sector over the last 2 years that are building the foundation to bring these clients onto 3DEXPERIENCE now with the potential to expand, and we are expanding with them in AI, and we are changing the game with that and creating significant opportunities that we couldn't do years before because we simply weren't in this position to do it. So that is all in front of us. And now in this context, I think we wanted to position the guidance from 2026 that is consistent with 2025. We ended at 4%. The midpoint of this guidance is at 4% with the potential to do better than that, but also to have the room to make the right choices for the mid- to long term to accelerate growth. On the low side, what can happen on the low side more? We -- there are macro factors that can always impact us and make things even more difficult and the timing of decisions more difficult. That can be a factor that we need -- we took into account on our guidance to be at the low end of 3%, but that's not what we are targeting. So going to the ARR. You're asking for a lot of additional information, Mo. And for sure, I will be prepared to disclose some of that at the Capital Markets Day. So please bear with me that I will be a little bit more high level, but I will give you the directions on where the ARR, what are the elements of the ARR and the different growth dynamics inside the AR. You're right when you call out MEDIDATA as part of the ARR, of course, that has been a headwind on the 6%, very clear on our subscription ARR. I mentioned subscription ARR is growing more than 10%. And now when you exclude MEDIDATA on core industrials, subscription ARR is growing mid- to high teens. It's a strong resilient cost driver for a long time. And we have, as I said, we have some potential to further accelerate that as more and more of our business transitions to cloud and 3DEXPERIENCE. Now that also -- you know the size of MEDIDATA. MEDIDATA in total is about a EUR 1 billion business. Now we have been -- in the way we've defined the ARR, we have some business in MEDIDATA as it relates to the volume business where we have churn effect, that's not renewable. It's not included in our ARR. So we have not factored in the 100% of Medidata subscription business because not everything is renewable. But nevertheless, it's a very large number inside the subscription ARR that has been facing a lot of headwind. Once we are removing this headwind, and you see we are already doing it for the enterprise part. Now the CRO part is still what is the challenge. But as we are removing that and increase and essentially generate a net increase in ARR quarter-over-quarter for MEDIDATA, that will then contribute to also increase the subscription ARR from what today is plus 10% to the next level. And I would say to go from plus 10% to gradually up point by point to reach 15-plus percent in the subscription ARR in aggregate. So -- but again, I will be prepared to outline those components at the Capital Market Day in more detail. Here today for me is to introduce this concept to you, explain the growth drivers. And with that, build the foundation on the levers that we are focusing on for growth acceleration to come. Pascal Daloz: Now the last part of the question, Mo, is related to the new business model for the new AI solutions. If you look at the story of Dassault Syst�mes, we changed almost everything, except one, the business model because it has always been an equation of the number of users, the number of seats. Now what's the problem? With the AI, you have virtual users now. We call it virtual companion. Some of our peers, they call it agent. So the model cannot be anymore the same. That's point number one. Point number two, I think the software are really selling the capabilities. Now we have an ability by combining the capabilities with the knowledge to sell the end result. Whatever the virtual twins of the improvement. So that's the reason why we are coming with new units. And let me explain to you what the units are about. The first one, we have the unit of works. When a Virtual Companion is working, in a way, it's working like a human. And the same way you have a cost for a human, you should have a cost for the companion. So we are not inventing anything on this one because this is what ChatGPT, Entropy, this is exactly what they do. It's a fraction of the cost of the people. More importantly, when we have a Virtual Companion, it could be a mechanical engineer. This one could be a mechanical engineer and an electrical engineer. It could be also, in addition, a specialist to do the simulation. So we have what we call the unit of knowledge. And the more knowledge the companion they have, the more we price for this because it's a way to capture the value of what we bring, right? If you have to hire someone right now, who has graduated from the best mechanical school, graduated from the best IT or computing school, it will be difficult. With a companion, we have an ability to enable this. Last but not least, what -- there is a third unit, we call it the unit of knowledge. And again, I insist on this for 4 decades, we have accumulated a lot of industry knowledge. We know how to design a car. We know how to produce it. We know how to certify them. We know how to scale the production systems. And this is true in every industry we serve. Now what can we do with AI? We can automatize those processes. And I can tell you, this is a significant value we are creating. In many cases, it's a 10x. It's really a moonshot. So that's the reason why we need also to have dozen units if you want to price in order to capture this value. And last but not least, I make this in my comments. But the entire industry is pushing to do Software as a Service. I present, we should do Service as a Software because you have so much money being spent in services just to make the technology enable that there is a chance not to use artificial intelligence to produce automatically the end results. So -- and that's what's the virtual twin as a Service is about, it's how we can mix the capabilities with basically what used to be human driven, and now it could be a virtual companion in order to deliver the end results. That's the new lever we have in our hands to create additional value. It's tangible, it's concrete, it's not science fiction, it's fiction with science. And it works because it's a way -- I mean, I have enough experiences the last year with many engagement to tell you. We know how to objectivize the value discussion with many of our customers. Now this will come on top of what we do because, again, I repeat myself, if you have a Virtual Companion, you still need CATIA. The Virtual Companion is the one using CATIA. It's not substituting CATIA. You still need to use CATIA SIMULIA, DELMIA in order to produce the end result. So that's an additional lever we are creating. And if you remember what I say, with the companion, we are accelerating the adoption. It's taking too much time to train the people. It's taking too much time for many of our customers to hire people. Now we have the way we master in a much better way the cycle of adoption. We have a better way to monetize the knowledge and the know-how we have put in our software because usually, people, they are comparing the capabilities, but they forget that we have put a lot of industry knowledge in our software. And again, we have the way to monetize the end result of what we do. That's the entire purpose. Now given the visibility, it's a little bit early to speak about this. The only thing I can tell you is just last year, in 6 months because we released those products, the first initial drop was midyear last year. We have been able to build to basically create a EUR 50 million backlog, right? That's what we have been able to do. And this is growing extremely fast. But again, same story, we will come back with more insight at the Capital Market Day in November. Marie Dumas: We can take the next question online, please. Operator: And the question comes from the line of Adam Wood from Morgan Stanley. Adam Wood: I've got 2, please. Just first of all, thinking about more traditional kind of metrics of visibility in the business. Could you maybe help us with pipeline coverage as it stands today? And I guess, particularly given the comments around automotive and investor fears around that, have there been any notable shifts in terms of where the pipeline is by industry that might reassure? And then secondly, I think we've seen in software a lot where there's been deceleration in revenue growth and particularly where companies have a lot of things changing and opportunities. You've obviously mentioned AI, the subscription transition for you. Can you just help us understand the balance that you're trying to strike between making sure you're reinvesting at the right level in the company to drive that revenue acceleration and maybe protecting margins in the short term? And are you comfortable you're getting that kind of split rate? Pascal Daloz: Thank you, Adam. I will start with the first part of the question, and Rouven will take the second one. So related to the pipeline, the coverage right now is 2.5x. So if I look at it, we have the pipeline to cover 2.5x the sales plan for the full year, which is good, which is good. The idea is to create 0.5 more during the year because we are creating also the pipeline over the time. So as a starting point, it's a good ratio. What's the difference compared to last year is the mix. Last year, we were relatively overweight with a lot of opportunity in the auto sector. And if I remember well, the pipeline in the auto sector was around 35%, 37% last year, right, Rouven? Rouven Bergmann: Yes. Pascal Daloz: This year, we are below 30%, which is, I think, better given what is happening, I mean, the volatility we have, especially in Europe on this topic. Where we see a share, which is increasing is in the aerospace and defense, which is, I think, more than -- close to 17%, 18% for this year. It was a little bit, let's say, last year, it was around 12%, if I remember well. What's the difference? We still have the backlog because as you may know, this industry still have a lot of planes to produce, and they still struggle to deliver the backlog. And we have a lot of demands coming from the manufacturing part. You remember the large deal we signed with Lockheed Martin a year ago, it was on this topic. But also, we have new segments. Defense is one of them, but also you have the new space. New space is in this industry what the EV was, let's say, 10 years ago for the car industry. People developing drones, low orbit satellites, the new launcher, I mean, the new space station as well. And they are the one basically equipping themselves very rapidly, and they are raising and growing fast their engineering departments. So this is also something important. We'll see also more demand in the high-tech sector. It's something I did not mention, but we spoke a lot about NVIDIA as a partner. But NVIDIA is also a customer, right? And for the one we have, I mean, we look at what Jensen said last week on stage. NVIDIA is using our technology. In fact, we have built the virtual twin of their future AI factories. And if you look at this entire sector, this is where the money flow right now. I mean, every morning, you open the newspaper, you see all the hyperscalers, all nations committing themselves to invest billions to create these AI factories. It's a very complex object. I mean, you cannot imagine the complexity of it. It's much more complex than a nuclear plant. And by the way, as I comment, do not make the confusion between the data center and the AI factories. The data center is to make an analogy, the warehouse. This is where you store the data. The AI factory, it's a real factory. This is how you transform the data into insight, knowledge, value added. So the complexity and the requirements, it's -- I mean, there is nothing comparable to what we know currently with the data center. So where I want to go, they need a virtual twin. And that's what we do. We are building the virtual twin of the AI factories of the future. This is a tremendous opportunity where we're expanding a lot. And to come back to the initial questions, that's the reason why the share also in the high-tech sector is increasing significantly in the pipeline, and we are around 15%. So long story, a short one, good coverage, mix difference. I think the mix is probably more resilient compared to last year, less exposure to the auto sector, much more distributed. The rest, industrial equipment, the consumer goods and packaged goods is almost the same than what we had last year. Rouven Bergmann: Okay. And then to your second question on the investment policy, how is this reflected? And really, we are looking at the different parts of the organization, starting with R&D. And here, the focus is on allocating our resources to accelerate the AI portfolio and also help to prepare the go-to-market with our brands because the R&D and the go-to-market, as you can imagine, as we are now bringing these next-generation applications to our clients, where R&D brands and go-to-market are extremely connected with our industries. So when I look at the opportunities and where we are investing on the go-to-market side, Pascal mentioned high-tech data centers, that's a growth opportunity, but also related to that, the energy sector, the energy transition, which is a massive opportunity for us. And we have had already in '25 some great wins here. And -- but we know the energy shortage and the pressure on the energy market will further open opportunities for us to virtualize and to improve and help this industry. Aero and space is a very resilient industry for us, where we are doubling down our focus on the go-to-market as well. And of course, industrial equipment. We have seen very resilient results in SOLIDWORKS, and we expect that momentum to be also in 2026. And last but not least, I mentioned that before, Adam, but just to complete the list here, the auto sector remains a critical industry for us with a lot of opportunities. And we are focusing also our go-to-market on that because we have a large footprint and the opportunity to expand. Now we talked about the life sciences go-to-market where we are investing with dedicated integrated account teams. We are really reallocating our resources to address that industry more holistically and open up new pockets of growth and budgets that we didn't systematically addressed in the past, which we have an opportunity to do, and we will. And then the last part, I think Pascal mentioned that also before, we are focusing on scaling the indirect channel, where just through the value network, the suppliers serving the OEMs, we have a lot of opportunity in this market as well, where we are enabling our partners with our new AI solutions to transform these suppliers. Now on G&A, we have initiated a large transformation project here as well to leverage AI and cloud in our back office to streamline the operation. Marie Dumas: We will take one more question online. Operator: And it comes from the line of Michael Briest from UBS. Michael Briest: Just thinking about the CMD in November, are you currently reiterating your 2029 financial ambition? Should we expect that to be updated at that event? Because I'm looking at subscription and you're expecting it to be 55% of software by then, and it was 40% last year, maybe 42% this year. That looks like a steep ramp. And then I appreciate the comments on M&A opportunities. But given the share price, what is your view? Is there any shift in the view on potential buybacks given the valuation of the data? Rouven Bergmann: All right. Thank you, Michael. On the Capital Market Day, regarding the 2029 financial ambition, there's 2 things. First, the introduction of the ARR will allow to have a more focused discussion on the growth levers and our path to accelerate top line growth, which is really around subscription, recurring cloud. And now with AI, we are in a different point than compared to last year where we have very concrete monetization examples on how they will build on top of our existing model. The second point I would reemphasize is that our financial commitment is on the EPS to -- and that also has a lever of the operational efficiency that we are implementing. That's why we reemphasize that today that we are taking the actions to improve the EPS and margin, which then, of course, will have a stronger effect as the top line comes back. So we will discuss that at the Capital Market Day and how we are going to bridge to reach our financial ambition by 2029 as we outlined last year. Pascal Daloz: The second part of your question, Michael, is related to the capital allocation. So again, there is no -- I mean, I have nothing against the share buyback. But if you step back a little bit, let's assume I'm spending EUR 0.5 billion to do this. the levers on the EPS will be relatively limited. And the same EUR 0.5 billion invested to acquire new AI start-up will deliver a better level. So that's the reason why right now, I'm really directing the capital much more to the external growth than to the share buyback. The share buyback for us, you remember our policies is only to offset the dilution coming from the LTI. That's what we do. But again, I have no dogmatic positions. I'm not against. I'm with you on the value creation, but I think we have a better road to create value by investing on the new AI domain than rather than to buy the shares. I think it's time to conclude. Again, thank you, all of you for your engagement today. But I want to leave you with one clear message. I think Dassault Syst�mes is really undergoing a profound and deep transformation of its business model. It's obvious that we are transitioning decisively to subscription-driven future. And it's not only coming from the acceleration of the cloud platform strategy, but above all of this is the evolution of our offerings. AI is at the core of the platform. This will enable our customers to create, simulate, operate virtual twin at scale to bring the virtual in the real world together and to manage the -- for the entire industry. And I think this transformation is not incremental. It's really a fundamental transformation. So -- and we do all of this with a certain resilience. Whatever you say we continue to grow, maybe at a moderate pace, yes, I accept this. But we sustained the momentum when if you look at in our industry, many of our peers, they struggle when they did this transition. And they did the transition before the AI came. So I think I hope you get a better sense of what we do, how we are executing, how we are innovating and how we are advancing to deliver the next phase of growth. I think Rouven and the Investor Relations team are looking forward to seeing you in the coming weeks because they will do road shows and see you no later than next quarter for me. Thank you.
H. Foss: Hi, everybody. Welcome to Flex LNG's Fourth Quarter 2025 Result Presentation. My name is Marius Foss. I'm the CEO of Flex LNG. And today, I'm joined with our CFO, Knut Traaholt, who will make us through the financials later in our presentation. Today, we will cover the Q4 and full year 2025 results, provide an update on the LNG shipping market. As always, we will conclude this webcast with a Q&A session. Knut Traaholt: And before we start, we would like to highlight the following. We are using certain non-GAAP measures such as TCE, adjusted EBITDA and adjusted net income. These are supplements to the earnings report reported in accordance with U.S. GAAP. The reconciliation of these non-GAAP measures are available in the Q4 earnings report. There are also limitations to the completeness of our presentation. Therefore, we encourage you to read the quarterly report together with this presentation. And with that, let's begin and back to you, Marius. H. Foss: We sell in revenues of $87.5 million or $85 million, excluding the EUAs related to emission trading system. The fleet average TCE during the quarter ended up at $70,100 per day. Net income for the fourth quarter came in at $21.6 million, implying an earnings per share at $0.40. When adjusting for unrealized losses and interest rate swap and FX, ending up with adjusted net income of $23.3 million or adjusted earnings per share of $0.43. We completed the dry dock of Flex Volunteer in January. She is now trading in the spot market. We received a notice from one of our charters that they will not declare the 1-year options on the good vessel Flex Aurora, and we expect to have her back in our fleet in March. Our spot exposure in 2026 is limited to 3 vessels, Flex Volunteer, Flex Aurora and the Flex Artemis, and all 3 vessels are marked for long-term contracts. The remaining 10 vessels are on time charters. We are today presenting guidance for the full year and with 3 vessels in the spot market, we are presenting wide ranges, reflecting exposure to the volatile spot markets. We expect full year revenues to be between $310 million and $340 million, and the expected TCE per day around $65,000 to $75,000 per day. Adjusted EBITDA is expected to come in at around $225 million to $255 million for the full year. The Flex LNG has a very robust financial position. We are -- with a cash balance of $448 million at the year-end. No debt matures prior 2029, and we have a solid contract backlog. The Board has declared another $0.75 per share dividend. This is the 18th consecutive dividend of $0.75 per share, and we have distributed then around $770 million since 2021. Our last 12 months dividend is $3 per share, implying a dividend yield of approximately 11.5%. When looking at the 2025 figures, the short summary is that we delivered in line with our guidance. The full year TCE ended at $72,000 per day and with sell-in revenues of $340 million. Our adjusted EBITDA came in at $251 million. We traded 2 vessels in the spot market in 2025, the Flex Artemis and the Flex Constellation, and we completed 4 dry dockings in 2025, Flex Aurora and Flex Resolute in Q2, Flex Amber and Flex Artemis in Q3. With that, let's have a look at our contract backlog. In 2026, we have 78% of available days fixed on long-term charters. As you can see in the bottom of this slide, Flex Artemis and Flex Volunteer are now trading in the spot market, while Flex Aurora will be redelivered from her current charters in March. We are actively marketing all 3 vessels for both spot and long-term contracts. Further, in 2027, we have options for Flex Resolute, Flex Courageous and Flex Freedom. These options are due to be declared during this year. The spot market was a roller coaster last year with soft rates in the start of the year, while we saw a rally in Q4 with spot fixtures for modern 2 strokes reaching up to $175,000 per day. We expect 2026 to be equally volatile and active market with many fixtures. There is a lot of new LNG export volumes ramping up, continued geopolitical uncertainties, potential congestions, both at import and export terminals, but at the same time, there's also a lot of new buildings being delivered. Therefore, we have modest expectations for the earnings from our spot exposure -- exposed vessel this year. Flex Constellation is due to complete her final voyage in March before she will commence her 15-year time charter delivered in direct continuation. Looking at our total contract coverage, we have today 50 years of minimum firm backlog, which may grow up to 75 years if the charters declare all the options attached. We are optimistic about our open exposure later in this decade. We have greater open exposure during this period, which aligns well with our expectations of an attractive shipping market. Significant new supply volumes are set to come on stream, creating strong market fundamentals. Let's have a look at the guiding for 2026. We expect full year revenues to be between $310 million and $340 million, and correspondingly, we expect the TCE for 2026 to be around $65,000 to $75,000 per day. The range in revenues and TCE reflect our open position and exposure to the volatile spot markets. Adjusted EBITDA is expected to come in around $225 million to $255 million for the full year. In addition, we will complete 3 dry dockings in 2026. The docking of the Flex Volunteer was completed in January, while Flex Freedom, it will enter dry dock later in February. Flex Vigilant is expected to dry dock in Q2. We have budgeted around 20 days of fire on average and the average cost of $5.9 million per docking. Before handing over to Knut, I want to touch base on the key factors behind the dividend decision. Most of our decision indicators are dark green with a few exceptions. Earnings and cash flow, we have adjusted this to a lighter green, reflecting more open exposure. Market outlook. We maintain a range level. The supply of new LNG volumes is firm, but there are simply too many ships being delivered ahead of the new volumes. The long-term outlook is, however, very optimistic. Backlog and visibility. Even though we have a comfortable 50 years of minimum firm backlog, it is prudent to maintain light green. Based on these factors, the Board has declared another quarterly dividend of $0.75 per share. The dividend will be paid out on about 12th of March for shareholders on record 27th of February. And with that, I hand it back to you, Knut, for a walk through the financials. Knut Traaholt: Thank you, Marius. In 2025, we had strong operational performance with close to 100% technical uptime, net of the days for dry dockings of our 4 vessels. The dry dockings in 2025 was completed on 64 days in total, significantly below the budgeted 80 days and hence providing more available days for revenue generation. The TCE for the fourth quarter ended up at slightly above $70,000 per day, resulting in a TCE of $71,700 per day for the full year and then on par with our guidance. OpEx for the fourth quarter was $16,600 per day. And as you can see, higher than the previous quarters. This is due to planned and scheduled engine maintenance performed based on running hours. Hence, we performed more of this in the fourth quarter compared to previous quarter. For the full year, OpEx per day was $15,800 and slightly above our guided level of $15,500 per day. For 2026, we budget OpEx per day to be $16,000. The increase is primarily driven by technical expenses for scheduled maintenance and cost inflation, in particular, related to crew changes. In summary, the fourth quarter revenues, net of EUAs for EU emissions trading system was $85 million and $340 million for the full year. The $15 million reduction year-on-year is primarily explained by higher market exposure with Flex Constellation and Flex Artemis trading in a softer spot market. Adjusted EBITDA and adjusted net income for the full year ended up at $251 million and $101 million, respectively. This is fully in line with our guidance provided earlier last year. As a reminder, in our adjusted number, we adjust for unrealized gains and losses from the interest rate swap portfolio, FX and write-offs of debt issuance costs and access fees related to the 3 refinancings completed last year. We generated cash flow of $44 million from operations and net of working capital movements and dry docking expenditures, we generated approximately $36 million in net operating cash flow. We repaid $27 million in scheduled debt installments and distributed $41 million to our shareholders. In sum, our cash position was reduced with $31 million. This left us with a robust cash balance of $448 million at the end of the year. In addition to our cash position of $448 million, we maintain a book equity ratio of 27%. As noted before, our book values reflect the historical low acquisition cost and then adjusted with the regular depreciations. We have also an interest rate swap portfolio for interest rate hedging, which is valued at $17.5 million on the balance sheet. The average fixed rate of this interest rate swap portfolio is fixed at 2.5%, and we expect to maintain a hedge ratio of around 70% into mid-2027. And since January 2021, this swap portfolio has generated unrealized and realized gains of around $132 million. And with that, I hand it back to you, Marius, for the market section. H. Foss: Thank you, Knut. Well done, this robust financial position provide us highly commercial and financial flexibility going forward. Summarizing the export volumes for 2025, it was a year of growth for LNG with Europe clearly leading the demand. Global LNG export rose 4% on a year-to-year for around 429 million tonnes, driven by strong U.S. growth up to 25% versus '24. The rapid ramp-up from Plaquemine LNG, combined with new supply from Corpus Christi accounted to the majority net growth in the U.S. Outside North America, new volumes additional were limited, while Russia LNG exports declined 2 million tonnes, largely due to sanctions. Australia saw a large decline due to heavy maintenance. On the demand side, Europe absorbed the majority of the increased volumes with imports up to 24% year-to-year, reinforcing its role as a key balancing market. Asia, on the other hand, was more mixed. Fast-growing markets such as China and India saw reduced import year-to-year. In 2025, China reduced its imports with 15% from 2024 and relied more on domestic production, increased pipeline imports, especially from the Power of Siberia pipeline. This is also impacted by the geopolitical events and the trade war with the U.S. India is typically a price-sensitive LNG importer. And while JKM traded above the $10 mark, India tend to import more LPG. On the more mature LNG market, Japan, South Korea and Taiwan, LNG imports were in some unchanged from 2024. The U.S. supply most of the new volumes in Europe in 2025, and Europe has effect switched its reliance from Russian pipeline flows with the U.S. LNG. The explanation of the big jump in LNG imports in 2025 is clear on the right-hand side of this slide. European gas storage levels entered 2026, well below normal and are now said to be around 40% at the risk to fall to levels not seen since 2022. If Europe ends the winter with low storage levels, huge amount of gas will be needed to inject to return stock to minimum levels ahead of next winter. Most are used to meet daily demand, so Europe's total buying requirements in the coming months could be enormous. Hence, we expect strong demand pull from Europe. As long as Europe will maintain a high demand in 2026, there will be fewer intra-basin voyages, putting a lid on the spot market. This is also reflected in the expectation for 2026 spot rates. However, the third wave of LNG supply is underway, and we saw in Q2 last year, ramp-up of new export capacity can suddenly absorb a lot of tonnage in short time. This is very well illustrated in the ramp-up of LNG Canada, which moved a lot of tonnage away into the Pacific Basin. Total new building orders in 2025 was 35, down from 79 in 2024. Ordering momentum has carried out in 2026 with around 20 new building orders record as early in February. Vessels ordered in 2025, 2026 are scheduled for delivery late 2025 or 2029. A meaningful share of these orders remain without attached contracts. This signals growing confidence in a firm shipping market later in this decade, a period that aligns well with our open exposure. The new building prices remained fairly stable for $250 million for a standard 2-stroke vessel built in Korea. This is supportive for asset values for existing tonnage, including our fleet. We do not expect new building prices to fall materially anytime soon. 23 new buildings were delivered in the fourth quarter 2025, bringing the total deliveries up to 79, up from 60 in 2024. With 6 vessels already delivered this year, the remaining order book is estimated to around 290 vessels, equivalent to around 40% of the existing fleet. 90 to 95 vessels are expected to be delivered in 2026, including roughly 20 units that slipped from 2025. Of the total order book, approx 45 vessels are currently uncommitted. This profile means that while there will be a lot of new tonnage entering the market in 2026 and '27. With a lot of new modern tonnage entering the market, the steam vessels rolling off long-term contracts, we saw a record high 15 steam vessels scrapped in 2025. This is a strong signal. We expect recycling activity to continue. Spot rates for steam vessels are quoted currently under $5,000 per day, effectively pushing these vessels out of the market. The ship broker, SSY believes close to 100 steam vessels will roll off their long contracts over the coming years. And these vessels are expected to exit the active trade either scrapped or enter into regional trades. This slide shows the 3 waves of global LNG capacity and why the period we are now entering really matters. We are entering the third wave of LNG, and it's larger than ever seen before. Over 200 million tonnes of new export capacity is expected to come on stream or around 50% growth in the global liquefaction capacity. Most of this growth is concentrated in 2 places, the North America and Qatar. Qatar North Field East is expected to begin deliveries late this year with new trains coming online thereafter. In addition, LNG Canada will continue to ramp up towards full capacity in 2026, alongside increased output from Corpus Christi in the U.S. This widely anticipated start-up of Golden Pass LNG is expected later in 2026, providing a further boost of U.S. liquefaction capacity. With that, let's move on to the Q&A session. Knut Traaholt: Thank you, Marius. That hands us over to the Q&A sessions and questions that have been submitted. And thank you for all of those who have sent us questions for this quarterly presentation. There's a number of questions regarding the upcoming options that you walked through in the fleet overview. Can you give any more color around these options and the likelihood of being declared? H. Foss: Thank you. That's a good question. We are also waiting for that. I can't really comment on when these options are due, but the charters will do so during 2026 regardless if they are declared not these options have -- will not have an effect with our fleet portfolio of 75% in 2026. So we all have seen in our presentation, 2027 and 2028 is an interesting period with the increased volumes. So it's -- yes, we're also interesting to see if the charters are sharing the same as we have shared in this presentation today or not. So we will report back when these options are due and inform the market accordingly. Knut Traaholt: And now with Flex being redelivered and we have increased market exposure. There are also a number of questions on the decision factors and how this should be viewed regarding future dividend payments. I think we can start off by saying that each dividend payment is a decision made by the Board by each -- at each Board meeting ahead of the quarterly presentation. So there's difficult to say something about the future of dividends. But what we can say is on the decision factors, yes, we have adjusted some, but the majority of the decision factors are dark green or light green. In the decision, it's important here to view that we have a very solid financial position with a high cash balance to support the dividend. And we also have a large contract backlog, which are not subject to options being declared or not. One thing that we are monitoring and will be assisted into evaluating future decision factors will be the visibility, in particular, the trading of the spot vessels and also if any of these open ships will get another long-term contract. There are also a number of questions here on new buildings and the recent surge in new building orders, in particular in the start of the year and on flex and on fleet growth. Do you consider new buildings similar to these owners? H. Foss: Thank you. With what you have explained now with the position we are in, we are in a position to order ship if needed, but we are trying to be, say, disciplined and not to order if we don't have a contract attached. As explained in our presentation now is that the new building in modern 2-stroke today is about $250 million. and the benchmark for a 10-year contract is, say, $85,000, give and take. And in our calculations, that's not really a good investment for a shipowner. So we are trying to be patient, disciplined and also working with our charters that if new building should be needed, we are ready to go to the yard and discuss new contracts with our charters if somebody wants to support with us. But speculatively, we see others are ordering that, and that's a good sign of where we are heading. I think the exposure we have with the current open ships coming open later is -- will mean that we are in a very good position to get these ships extended or new contracts. Knut Traaholt: Yes, there is a follow-up comment to that to support to that. There is will we order ships newbuildings, while we have nearly half of the fleet exposed in the market for '28, '29. H. Foss: No, I think we should take the benefit of what we have on the water, which still is considered as new building. They have now -- basically the entire fleet has been through a 5-year service, and I believe all our ships leaving dry docks now are better than you. So I think we have a good quality tonnage, which the size is in line with the new orders. So we will focus on that first, stay disciplined. Knut Traaholt: And that covers the main topics of the questions we received today. So that concludes the Q&A session. H. Foss: Thank you, Knut. Thank you for all joining into our webcast today. We would like to welcome you all back to our Q1 2026 presentation, which will be back in May. Thank you.
Marie Dumas: Good morning, everyone. I'm Marie Dumas. I'm the new Investor Relations Director for Dassault Syst�mes. Some of you might recognize my voice from my previous role at the company, and I'm delighted to reconnect with many of you today. Joining from Dassault Syst�mes with me are Pascal Daloz, our Chief Executive Officer; and Rouven Bergmann, our Chief Financial Officer. On behalf of the team, I'd like to welcome you to Dassault Syst�mes Fourth Quarter and Full Year 2025 Earnings Presentation. Following the presentation, we will open the floor for questions. First, from the room, and then from participants joining us online. Later today, we will also host a conference call. Dassault Syst�mes results are prepared in accordance with IFRS. Most of the financial figures are presented on a non-IFRS basis, with revenue growth rates in constant currencies, unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentation will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 document d'enregistrement universel published on March 18. With that, I will now hand over to Pascal Daloz. Pascal Daloz: Good morning, everyone. Thank you for joining us today to review the Dassault Syst�mes performance for the fourth quarter and the full year 2025. Let's start with an opening comment, which is at Dassault Syst�mes, we do not manage only for the quarter. We build platform that lasts for decades. I think 2025 was a year of transition. 2026 is a year of executions. And I think those 2 years are financial foundations because they are the year when we prepare the next cycle of growth, scale and long-term value creation. So let's start with the facts. 2025 was a disappointing year for you, but also for us. We finished at the low end of our objective with 4% growth, excluding foreign exchanges. I think this performance does not meet the standard we set to ourselves as part of the long-term plan. And we own that. That said, we moved the company for a while. And I think we made meaningful progress on the priorities that matter the most for the long-term success. What moves forward? First, the 3DEXPERIENCE and the Cloud. I think we deliver significant wins and competitive displacement. And in 2026, we will build on this momentum, turning headwinds into tailwinds and deepening our leadership in industrial AI. And I think our ambition is clear, it's to remain the partner of choice for all the industries. Second, MEDIDATA and Centric PLM, they faced challenges in 2025 and weighted our results. I think we are seeing the early sign of the recovery at Centric, and for MEDIDATA, we are investing for the long term. Keep in mind that Life Sciences is undergoing a fundamental transformation from inefficient document-based process to AI-powered Virtual Twins that redefine how pharma innovates, complies and operates. So this shift is really structural, and the structural changes usually take time. Third, in 2025, we introduced 3D UNIV+RSES, a new environment where virtual twin and AI converge, connecting the virtual and the real in a seamless dynamic loop. In 2026, we turn this vision into concrete value. Finally, we remain disciplined on costs while continuing to invest on our future growth. Execution matters and returns matter as well. Now as we enter in 2026, we are scaling our transformation plan, ensuring every step we take positions Dassault Syst�mes and our customers for sustainable successes. And our transformation is built around 3 strategic pillars. The first one, the product offering. We are reshaping our portfolio, accelerating towards 3D UNIV+RSES and investing where scale matters. Second, the go-to-market. We are strengthening the go-to-market execution with targeted end-to-end engagement, especially in Life Sciences for the top 50 large accounts and consumer industry for the formulated products. We are also transforming our partner ecosystem to generate demand, not just distribute licenses. And to support this, we have strengthened the leadership with the Transformation Officer and an Operating Officer focusing on the execution and performance. Third, the business model, and this is a very important part. As customers accelerated the adoption to subscription and cloud, we are introducing the annual run rate reporting in 2026. I think this will provide a clear visibility into the health and the momentum of our recurring revenue base. In parallel, we are also evolving beyond the seat-based pricing toward a value-based pricing model for AI-powered solutions. Because we don't just deliver the software, I think we are delivering outcomes and we will capture a fair share of the value we are creating. This transformation is not just about growth. It's about building a resilient customer-centric company ready for the generative economy. Now let's step back a little bit and look at the market realities. Every industry we serve, whether it's manufacturing, life sciences, infrastructure and cities is under an intense pressure. Supply chain volatility, rising regulation, aging infrastructure and an urgent need for breakthrough innovation in all the domains. These are not just constrained. In fact, they are catalysts, and this is exactly where Dassault Syst�mes step in, not only as a vendor but as a strategic partner for many of our customers. We are helping them to turn the complexity into a competitive advantage that last for decades. In manufacturing, we see 2 realities. The traditional sectors face margin pressure and demand uncertainty. At the same time, defense, high-tech are bold, they are making bold investments where the complexity and the collaboration are the new normal. And this is here where the 3DEXPERIENCE platform is becoming the de facto standard, enabling faster cycle, collaboration at scale and streamlined operations, reducing program time lines to under 18 months in Transportation & Mobilities, delivering between 25% to 40% efficiency gains in Aerospace & Defense, cutting error to 1/3 to almost half in high-tech through prebuilt simulations. That's what we do. In Life Sciences, the pressure is still intense, tighter regulations, rising R&D costs and a shift towards personalized therapeutics or precision medicines. And the incremental improvement is not longer enough. I mean, the customer, they need a new operating model. With our end-to-end lab to manufacturing solutions, we are already helping them to reduce their operating costs by over 30%, while turning the compliance into a competitive advantage. Now in Infrastructure & Cities, demands for autonomous and resilient system is accelerating. Data center demand will double by 2030. The nuclear infrastructure requires safe decommissioning in many countries, cities need to be resilient by design, and I think our AI-powered Virtual Twins reduce the project time line by over 25%, while ensuring safety and compliances. This is really how we are and we create new markets while addressing the most critical challenges of our time. Now across every sector, our customers, they prove one thing. We don't just talk about AI, we deliver it. In Transportation & Mobility, as I was saying, innovation pressure has never been higher. Products are more complex, time lines are shorter. Competition is global. And value is a good example of this. You know Valeo, it's a global leader in the automotive technology from ADAS to electrification systems. And I think together, we are pushing the boundaries of the generative experiences. Here, AI does not only assist, it co-creates. And how we do this? By training the virtual twin on our synthetic data, we generate thousands of design alternatives optimized for performances, cost, compliances before a single prototype is built. This is really the new way of working, turning complexity into opportunity. In Life Sciences, our partnership with Catalyst, I think, show how an industry can be reinvented. By moving from static document to data-driven Virtual Twins, Catalyst is really redefining the CRO model. The clinical trial become agile, patient-centric, continuously optimized. And this is not about fixing the old model, it's really about building a new one. In infrastructure, with Technique at Home, I think we are redefining how the next-generation nuclear systems are designed and operated. The Virtual Twins connect the entire ecosystem, ensuring the traceability, the compliance by designs and more importantly, closing the loop between the virtual and the real world. So that year, we did also something extremely important. A year ago, if you remember, we introduced 3D UNIV+RSES. But what does it mean in practice? 3D UNIV+RSES are not applications, they are knowledge factories where knowledge is enriched, know how is scaled and the results are trusted. And AI is the engine, not a generic AI, not a surface AI, an AI which is grounded in science, engineering and industry. This is not about large language models. I insist on this because with LLM, you will never be able to build drones. You will never be able to design humanoids. You will never be able to discover cell therapeutics. And this is what our customers do. And this is really what we do for them to help them to certify what they do. o we are building what we call industry world model, which is the next generation of AI after the large language model. And what is important is those models understand how the real world works and how to build it. That's something extremely important. Why so? Because those model, they are built on physics. They are trained on decades of industrial knowledge with a continuously validated Virtual Twins. It's explainable, it's certifiable and it's trusted. And there is one fundamental reasons because in the physical world, you cannot forgive the mistakes. This is the reason why our partnership with NVIDIA matters. I think together, we are combining the virtual twin with AI factories and accelerated computing. But maybe long -- more than the long explanations, launch the video, please. [Presentation] Pascal Daloz: So I hope you got it, and it's not me telling this. Jensen, the founder and the CEO of NVIDIA. And I think what we do together, we are building the foundation for industrial AI. And as you said, it enables 3 things: First, in research and innovations to develop the models that simulate the casualty, not only the correlation from a statistic standpoint. Second, the factory of the future, which are software-defined. And why they are software defined? Because autonomous factories continuously optimize through simulation is the reality. And third, the new way of working, which is how you can have skilled virtual companions, not a simple chatbot, but industry trained experts who could help teams to design, comply and optimize everything you do. So in 2026, now we turn this into reality with the 3 AI native solutions, the new categories. The first one, we call it the Virtual Companions. They are not assistants, they are experts. They scale the knowledge, they democratize the expertise. They turn the complexity into productivities. The second one, the Generative Experiences, AI that encodes the best practices, science and compliance by default, a faster innovation, lower risk, higher confidence. And third, the virtual twin as a service, we don't sell the software we deliver outcomes. That's why we are evolving our business model from seed-based licensing to value-based monetization for this new category of solutions because together, I think our AI-driven solutions unlock 3 powerful levers of value creation. The first one is expanding the adoption with the Virtual Companions with usage-based. Keep in mind that right now, the real limitation we face is the number of people being skilled to use our software. Now if we have Virtual Companions being trained by design, they will take the benefit of what we deliver to them. The second one is monetizing the know-how with Generative Experiences. For 40 years, we have invested in many, many industries, aerospace, auto, now life sciences, high tech. And we have accumulated a lot of industry know-how, how to design things, how to produce them. With this knowledge, we can automatize many things. And what the gain we have in front of us, it's a moon shot. It's 10x. It's not a 20% improvement. It's not 30% improvement. It's really a radical change. Last but not least, we can sell the outcome with the virtual twin as a service. Why so? Because right now, how does it work? We provide the software. You have a lot of services, which is needed to implement the software on-premise to train the people, to change the processes. Now with AI, we can -- rather than to sell the tool, we can automatically generate the end result, the virtual twin. It's a way to reintegrate part of the value in our software. So that's what we do, and this is how we are turning AI from a promise into a concrete sustainable value. And I think this is just at the beginning. Now that was the key question a week ago. I mean all of you, you were asking the question, which is AI is revolutionizing everything. But there are 2 kind of companies, the one that compounds and the one who could be commoditized. I think Dassault Syst�mes is built to compound. We are not just participating to the AI revolution. We are really shaping it for the industry. And this November, at our Capital Market Day, we will come back on this, how these visions could -- is translating into the financial impact. But before that, now it's time for me to hand over to Rouven. Rouven, you have the floor. Rouven Bergmann: Thank you, Pascal. And also a warm welcome from my side to all of you here in the room and joining us online for our Q4 2025 earnings conference call. Before reviewing the numbers, I would like to highlight 3 key themes that define 2025. First, to sustainable growth. Our core industrial business, I want to reemphasize that our core industrial business was resilient in 2025 with strategic client wins. However, we faced a backdrop of tough comps and complex macro, specifically in the fourth quarter. We are focused on further strengthening our growth model while we are looking at improving our operational excellence. We have identified the challenges, and we will now execute to deliver, as Pascal said. Second, AI at the core. The collaboration with NVIDIA reinforces our leadership position in industrial world models, and it supports the development of next-gen AI-driven solutions for engineering and manufacturing. And in 2026, our focus shifts from product launches to monetization. Third, business model evolution. The 3DEXPERIENCE platform continues to drive the transition towards cloud and subscription and our recurring revenue base. And as AI adoption accelerates, the business models are evolving beyond traditional seat-based pricing towards a usage and value-based model. And to better reflect this shift, we will begin to report an annual run rate or ARR, and I will talk about this in more detail later. So as Pascal said, 2026 will be a year of execution where we will strengthen our foundation and our full year guidance for the total -- so our full year guidance for the total revenue growth of 3% to 5%, which is important to highlight. It provides the room to navigate current challenges and to prepare the organization for the new era of growth. Now with this in mind, I will transition to the numbers in more detail. In Q4, total revenue rose 1% ex FX to EUR 1,682 million, with software revenues slightly up by 0.3%. We navigated a complex macro dynamics with weaknesses specifically in France and Germany, mainly in the auto sector. Plus, we also faced headwinds at MEDIDATA and Centric in the fourth quarter. Now we have taken the actions to address these issues, which I will discuss shortly. The recurring revenue rose 3% in Q4, with 4% subscription growth, while services was up 11%. The operating profit for the quarter was EUR 622 million with a healthy operating margin of 37%, it's up 90 basis points ex FX, thanks to the productivity gains that we leveraged across the group, and we had initiated those already entering into the year of 2025. EPS was EUR 0.40, up 9% ex FX. For full year 2025, we saw total revenue of EUR 6,240 million, along with software revenue growing at 4%. Recurring revenue grew 6%, and it's making -- it's creating an 82% recurring revenue base as a percent of software revenue, while subscription revenue grew 11%. We delivered good profitability in '25 with an operating profit of EUR 1,994 million and an operating margin of 32%, achieving 40 basis points of improvement versus last year with an EPS of EUR 1.31, up 7%. Now turning to the growth drivers. The 3DEXPERIENCE platform is at the core of our growth strategy and the foundation to review the power of AI for industry. 3DEXPERIENCE revenue grew 10% for the full year, and it's now 40% of software revenue. As expected, the fourth quarter was impacted by a strong comparison base year-over-year. And on top, we faced the weak auto sector in Europe. However, important to highlight, we signed several strategic 3DEXPERIENCE deals that have the potential to expand over the course of '26 and '27. This will generate future revenue and help build the momentum in ARR, which I will come back shortly. Cloud revenue at the group level grew 9% in Q4 and 8% for the full year with 3DEXPERIENCE Cloud growing 38% and 32%, respectively. This strong growth highlights the value of the platform for clients where the transformation is critical as is the need to leverage AI. Now looking at our geographies and product lines. The Americas rose 3% in Q4, with a good performance in high-tech and transportation mobility in the Americas. Full year '25 was up 5%, and we faced year headwinds in Life Sciences as well as in Home & Lifestyle. The core industries in the geo were strong and resilient with 10% growth. Europe declined minus 5% in Q4, but it was up 2% for the full year. The weakness in the quarter was against a strong base comparison, and it was also impacted by softness in France and Germany, and I mentioned that before, mainly driven by the challenges in the automotive sector in these countries. Meanwhile, Southern Europe was resilient and also Northern Europe gained momentum with a good performance in High Tech. Asia was robust. We grew 6% in the quarter. It was 5% for the year. Growth was driven by Transportation Mobility and High Tech. We had very good momentum in Korea as well as strong growth in India, while Japan delivered solid growth. China had a softer quarter on a backdrop of tough comparables in the quarter. Now to the product lines. So industrial innovation was up 1% in Q4 and 6% for the full year. As noted, the quarter was impacted by the lower growth in 3DEXPERIENCE and in particular, the challenges we faced in Europe. But overall, for the full year, we saw a very positive momentum, which was led by solid traction in SIMULIA and ENOVIA, and continued solid growth with CATIA. We are confident on the resilience of our core business, which is led by the cycle of 3DEXPERIENCE adoption, while preparing for the next wave of growth with AI-based Virtual Twins and companions. On the mainstream side, growth was 1% in Q4, 2% for the full year. Growth was again driven by strong momentum of SOLIDWORKS, which was up high single digits in the fourth quarter and in the full year. As expected, Centric was down double digits in the fourth quarter on a high comparison base. Two effects that played a role on Centric. First, we saw some renewals shifting and also we accelerate the move to cloud as we explained to you previously. And now we expect a marked recovery this year in '26 with a new management in place and a robust pipeline that's building going forward. Now to Life Sciences. Here, the growth was lower than expected. We were down minus 4% in Q4, while the full year was minus 2%, as we faced continued headwinds for MEDIDATA, which I will cover in more details shortly. Outside of this, MEDIDATA signed several strategic account win backs over the course of the year. This includes the likes of Novartis, Merck, AbbVie and Gilead. It highlights our competitive advantage as we build strong foundation and expand our footprint with the large pharma companies. Now as we look ahead, we are convinced that the time has come to transform the biopharma industry from a document-based approach to virtual twin-based operations, as Pascal highlighted. This has been our vision for Life Sciences for long term. Therefore, let's take a holistic view of our Life Sciences industry on software revenue that we are generating today. You see on this slide, this includes MEDIDATA as well as the 3D portfolio adopted by pharma and med tech. And in order to better highlight the growth dynamics, we are differentiating 2 elements, the direct business, the enterprise business as well as the indirect go-to-market model we have where we predominantly sell to our CRO partners. Now to the direct enterprise business. It accounts for 70% of the total revenue in this industry, and it grew 3% in total in 2025. Now within that, the MEDIDATA Enterprise business grew 1%. However, this growth was impacted by one client, Moderna, that adjusted its run rate to reflect lower study volumes. And excluding that, our MEDIDATA Enterprise business was, in fact, up 6%. Meanwhile, 3DEXPERIENCE grew 7%. And now to the indirect business. And here, important to understand, this business is mainly focused on the biotech sector on the small -- on the very small pharma companies. So selling -- and here, we are selling through CROs, and this accounts for 30% of the Life Sciences industry, and this is declining by minus 5% year-over-year. Our market saw lower study starts, which were down minus 7% compared to minus 5% revenue decline. So the study starts were lower by minus 7%. Importantly, we continue to expand our market share also here in Phase 2 and Phase 3 by about 1 point in 2025. And now also, we don't want to anticipate this too early. We did see some green shoots in Q4 as its large CROs are starting to increase the number of new studies on our platform. So what are the actions we are taking to reinvigorate growth? You see them here on the bottom of the slide. First, on the enterprise side. What we are doing is we are setting in motion a dedicated account teams to focus on overall pharma transformation with our platform and leveraging AI. These teams are formed and in action across all the geos. Now to the indirect business, the goal is to reduce our exposure to volatility in the volume business. And to this end, we are evolving our pricing model and terms and conditions to monetize continued data access, which will be critical in the times of AI because this is the way the models will evolve and will help and support our pharma customers to improve the efficiency of clinical trials. Now turning to the cash flow and balance sheet items. Let's start with the operating cash flow. We generated EUR 1,630 million in operating cash flow year-to-date, and this was up 1% compared to last year on a constant currency basis. Indeed, despite a challenging environment marked by FX headwinds and new tax regulations, we demonstrated resilience and cash generation. As previously discussed, we absorbed about a EUR 40 million hit in, which was driven equally by the hike in employer contributions on share-based compensation and new exceptional tax for large companies in France. Excluding this, operating cash flow grew 3% ex FX. In the first half of 2026, we expect the working capital to be positively impacted by the collection from large subscription deals we signed in 2025. Now to free cash flow. It was up 2%, also excluding currency. CapEx investments were lower approximately by EUR 30 million due to lower investments in leasehold improvements versus 2024, while investments in cloud and IT infrastructure were stable. The cash conversion remains a top priority. We reached 82% for 2025 versus 84% in 2024. And this is ahead of our previous estimates, mainly due to better collections. In 2026, we expect cash conversion rate to improve driven by cash collections and better alignment of billing to revenue. Now to complete the picture. Cash and cash equivalents totaled EUR 4,125 million at the end of 2025, and it compares to EUR 3,953 billion at the end of '24. This increase of EUR 173 million includes a negative full year currency impact of EUR 263 million, mainly to the weakening of the U.S. dollar over the period. The net cash position reached EUR 1,530 million at the end of Q4. Any additional information, you will find in the operating cash flow reconciliation in our presentation that we published this morning. Now I want to transition to a new topic. Pascal already introduced it the annual recurring revenue run rate, which we are introducing in 2026 for now. And it is already previewed that with you at our Capital Market Day in June last year. It's a key metric to reflect our continued transition towards a subscription and cloud-based business model. We believe that ARR provides a consistent view of the underlying run rate and the health of our recurring revenue base, while it's also eliminating the volatility from revenue recognition. As such, the ARR is a snapshot, which reflects the 12 months recurring value derived from all active contracts at period end. And it includes software subscriptions, cloud, SaaS hosting as well as support. It excludes future commitments. In the appendix, you will find a detailed definition of ARR on how the methodology is applied, and we also are giving you 3 illustrative examples. Now if you look at the numbers, growing at an average of 6% over the last 2 years, the ARR highlights the consistent execution in core and subscriptions and cloud and is driving the growth of our recurring business. It is also more closely tied to the invoicing and cash flows from those deals. In Q4 2025, the ARR reached almost EUR 4.5 billion with an increase of around EUR 100 million of net ARR in the quarter. This highlights the consistent performance in signing new cloud and subscription contracts, while revenue is highly dependent on the timing of revenue recognition. In 2026, we are establishing this new metric in our reporting, and the plan is to guide starting 2027. Now during the Capital Market Day in November, we will outline the steps in the context of our 2029 financial plan. Now as we look ahead, the trajectory to accelerate growth is, of course, linked to the shift in our business model. Now let me discuss very briefly the levels of ARR growth. First, the mix is driven by faster growth of subscription versus maintenance ARR. I think we see that already clearly in our numbers. It's happening. Second, the growth in 3DEXPERIENCE and cloud as AI-powered Virtual Twins and Virtual Companions boost our 3D UNIV+RSES portfolio. The third, within Life Sciences, we are expanding our footprint, and we are creating and preparing the next generation of growth with new clinical -- with a new clinical trial platform powered by AI. And finally, with Centric, the ARR growth has a long runway. Now with this, let me turn to our financial objectives for '26. We expect total revenue and software revenue growth of 3% to 5% ex FX for the full year of 2026. Importantly, this guidance marks a tipping point. In 2026, the share of subscription revenue will surpass the maintenance revenue, and that's also why we are providing an ARR to better reflect the growth dynamics, not yet as a guidance, but to show the momentum and the progress. The operating margin is expected to achieve 40 to 80 basis points improvement ex FX, which takes us to the range of 32.2% to 32.6%. As we continue to balance investments and margin expansion, leveraging our operating productivity gains. We see the EPS growing at 3% to 6% ex FX to EUR 1.30 to EUR 1.34. Now this is all based on our FX assumption and our full year average rate for the U.S. dollar to euro at 1.18 in yen to euro of 170. Now quickly to Q1, we expect 1% to 5% growth for both total revenue and software revenue. Operating margin is expected to be in the range of 29.2% and 30.7%, and EPS at EUR 0.28 to EUR 0.31. Finally, I would like to share some key assumptions underlying this guidance framework for 2026. So first, we expect 3DEXPERIENCE and Cloud momentum to remain broadly in line with last year. It's driven by continued expansion with our -- within our installed base and ongoing market share gains. We are focused on entering new markets and accelerating the monetization of our AI portfolio. Now from a geographical standpoNow from a geographical standpoint and industry standpoint, the demand in the Americas remains healthy, while Asia continues to show resilience. In Europe, we see solid pipeline development in Southern and Northern regions, which is partially offset by continued expected weakness in the automotive sector, mainly in Germany and France. Potentially, this is impacting the timing of decision-making within quarters. The defense sector represents a potential upside. Within our mainstream business, SOLIDWORKS continues to deliver mid- to high single-digit growth in both revenues and users. For Centric, we expect a return to low teens growth, supported by execution against a strong pipeline and a higher mix of cloud revenues. Now Life Sciences is facing a transition year with actions underway to position the business for a return to growth from 2027. On the margins, we expect continued improvement driven by productivity gains from AI initiatives and operational excellence. So these initiatives are focused on increasing our flexibility and reallocating investment towards top line growth. Now in conclusion, 2025 and 2026, we are laying the foundations for our next phase of growth. I want you to remember 3 things. First, the 3DEXPERIENCE platform is at the core of our industry transformation, and it's creating a long runway of growth. On AI, we are introducing new categories of solutions, those go beyond productivity gains, it's about creating new possibilities. And we are taking actions to scale our operations with one single goal in mind: to generate sustainable growth. Now with this, Pascal and I look forward to taking your questions. Marie Dumas: We will start taking questions from the room. Unknown Analyst: This is [indiscernible] from [ ING. ] So I allow myself to start with asking a question maybe with everybody's mind. Your guidance seems quite cautious for 2026, right? So I can understand there are headwinds. There are some things we are in the beginning of the long runway. But what could go wrong? I mean, what do you think will be the major headwinds in the year to come? Pascal Daloz: Rouven, I start, and then after you will add whatever you want. What's the difference between the 2026 guidance and the 2025 guidance? 2025, we were running quarter-after-quarter after the top line guidance. And you have seen, we have been able to deliver the EPS as initially planned, but we have to adjust in the middle of the year, the top line. So I do not want this for 2026. Let's be clear. So maybe you will see this as a very conservative guidance, and I accept the point. But from a dynamic standpoint, I really want to build on the good momentum and again, keep the company focused on what matters, which is in this AI stories. I mean, it's time for us to invest massively. It's time for us to take the positions. It's time for us to accelerate the transition to subscriptions, and this is the game plan we are doing. And that's the reason why, to be direct with you, I think we are relatively conservative in our guidance. Now what could be wrong? I think we have factored many, many things already. And I think you have seen in the -- Rouven's presentations, compared to 2025, there are certain things which are moving in a good direction. Centric is moving and back to growth. It was really a headwind last year. MEDIDATA, we are cautious, even if we have early signs of improvements, but we did not factor improvement in the guidance. And on the mainstream, you see H1 last year was growing mix single digit. H2 last year is growing high single digit, and we have a better perspective for year '26. And on Industrial Innovation, I think we are taking some cautiousness on the auto sector, especially for Europe, which was, in a way, the bad surprise of Q4 last year. That's what's in it. I don't know if you want to add a few things, Rouven? Rouven Bergmann: For the top line, that's the situation. I think for -- I think the other point that's really important to highlight is we are creating the room also to make investments to support our growth because it's very critical at this point in time. We are at an inflection point to accelerate growth. We're transitioning the business model. We are focused on accelerating our growth in subscriptions to build the ARR for acceleration. I think that's the upside we have. And that's how we constructed the 2026 outlook for growth acceleration to come. Derric Marcon: Derric Marcon, Bernstein. So one remark, Rouven. You told us in June 2025 that you will give us ARR or subscription annual recurring revenue without removing any guidance or projection, but we don't have -- we no longer have the split of your recurring revenue target between subscription and support, something you gave before. So maybe you will continue in that way. And so first question, can you help us to reconcile the guidance, plus 3% plus 5%, with the ARR growth that you project for 2026? And if you have an acceleration at the end of 2025 on ARR, why we don't see that on the revenue guidance for 2026? And the second question is about the remaining performance obligation that you gave at the end of the year. Can you help us to reconcile or bridge what is in the RPO next 12 months and ARR, please because the RPO was growing nicely at the end of 2024. We don't see that in the 2025 numbers. So I'm wondering if we will have the same picture at the end of 2025 when we try to extrapolate the RPO numbers for 2026 and reconcile that with the guidance. Sorry, it's pure figure, Pascal. Pascal Daloz: No problem. And I will start, by the way, and Rouven, feel free to add whatever you. So first of all, on the split between subscription license, if you go to the appendix, we are providing the details. So we did not change the way to guide the market, and we definitively do not want to hide something. Now as you know, the annual recurring run rate cannot be fully translated into the revenue the following year because you have the revenue recognitions mechanisms. And I will let Rouven to elaborate. Nevertheless, if you look at the last 2 years, it's a good proxy to approximate the recurring revenue anyway. Now how to bridge with the guidance, which is your questions because you have 6% on one hand and you have 3% to 5%, right? So remember, in the recurring part of the revenue, half is subscription, half is maintenance. The maintenance support is growing at 1%. So which basically means, the rest, the other 50% should, at minimum, grow to 11% to 12%. You do the math. That's point number one. Point number two, why 3% to 5%? Because if you are at 5%, it means the license are flat. If you are at 3%, it means the license are decreasing by 10%, as simple as that. This is how you will be able to reconciliate the guidance we are providing with the ARR. Maybe, Rouven, you could explain a little bit more some specificity? Rouven Bergmann: Yes. We gave the 3 examples that I think are illustrating the methodology. What you really need to keep in mind, what is really the challenge of Q4 also is a tough comparison of Q4 2024, where we had very high subscription growth in parts also because our on-premise subscription are also including some in-quarter revenue, which when you look at an ARR, it's all allocated over a 12 months period, right? We really only look at the run rate. We don't consider any revenue in point in time. It's really over time. And now as you straight line all of our bookings into this methodology, you will see the true growth of our business activity outside of the revenue recognition noise, so to say, that's in the numbers. So that, I think, creates a clear metric of year-over-year comparison. Now over the last 2.5 years, it grew consistently 6%. As Pascal said, you have to understand the underlying, I think, growth drivers and momentum because the subscription is growing 10-plus percent, also keep in mind, we are still facing inside that the MEDIDATA headwind, so the core business of Dassault Syst�mes, 3DEXPERIENCE is growing much, much faster in the subscription revenue, which is important to understand. And as the MEDIDATA business is expected to improve, we will see the upside of that as well in this number. One other comparison I would like to share with you is the recurring revenue growth was 6% over the last 2 years, and it's very consistent with the ARR. Now we're talking about an ARR of EUR 4.5 billion, growing at 6% with the potential to accelerate because of the mix effect as well as subscription becomes -- is getting to the threshold of 50% plus, and then you have a base effect where that growth is starting really to become meaningful. Maybe a last point on -- you mentioned the remaining performance obligation. And I think the coverage that we have in our visibility for the next 12-month subscription revenue growth, that is very comparable to 2020 when we enter 2025 as it is in 2026. We are forecasting 8% to 10% subscription revenue growth for which we have good visibility to achieve that. Pascal Daloz: Now maybe I should add one additional topic, which is an interesting one. If you look at the performance of Q4, 1% growth, flat for the software. If you look at the ARR, it's EUR 105 million incremental, overall EUR 1.5 billion software revenue, which is 7%. So again, I'm insisting on this because we are really transitioning to the subscriptions and to the cloud. Now if you look at the way many of our peers did it, they were decreasing for many years. We are not. We are slowing down the growth for sure, but we are really transitioning. And that's the reason why this metric is extremely important for you because it's a way to see the momentum we are building. It's a way to see the ramp-up we are creating with those long-term contracts. This is what is behind. I think there are another question related to -- Derric, you had the last question? Derric Marcon: Just on the remaining performance obligation. I think the next 12 months figure for remaining performance obligation last year. So at the end of 2024, if I remember well, was growing in the low 20s, so 23% or 24%. Why we don't see that appearing in the numbers of 2025? And when we will look at the figure at the end of 2025, how can we extrapolate that number and bridge that with your guidance for 2026? Rouven Bergmann: We are not -- Derric, we are not guiding in the remaining performance obligation because we -- the way the revenue recognition is, we're not fully ratable as it relates to that. The remaining performance obligation is a value aggregated for the next 12 months of bookings value, not revenue. So it's always depending on the timing of renewals, right? In a year where there is upcoming larger renewals, it is less because then it will be back to the growth after the renewal. So there can be time-to-time variances. I think what's important to understand for you is that the visibility we have into subscription growth is the same in '26 as it was entering '25. Derric Marcon: At the same time, if I compare the guidance for subscription in 2025 at the beginning of the year and the end results. Rouven Bergmann: I understand. I understand your point. Not -- you don't -- you never have 100% coverage, of course, right? The coverage is typically around 85%, 84% for subscription. So depending on the timing of signing and this can impact at the end of your achievement, and this is what happened. Laurent Daure: It's Laurent Daure from Kepler Cheuvreux. I also have three questions. The first is on the 3D UNIV+RSES and your plan for the next 2 or 3 years. I was wondering if you were planning to invest mostly organic adding staff or if you were considering partnership or even M&A, so the way you will build it. My second question is on Centric. You had a very strong decline in the fourth quarter. What can you give us to make us comfortable, the fact that you will renew with double-digit growth and probably, hopefully in the first part of the year, maybe the pipeline or whatever? And my last question, even if I don't want to preempt the Capital Market Day, from '26 to '27, what could be on top of maybe MEDIDATA, the additional growth? Is it AI related or any other things? Pascal Daloz: You start with the first. Rouven Bergmann: I can start with Centric. Yes. So you're right. Q4 was -- we faced the decline. The visibility for the first quarter is already there. What is also important to highlight is not only the SaaS transition, but also the diversification. So we are going really from the apparels, shoes, the traditional business, the apparels, the consumer-centric industries also to food and beverage and retail. So we are really expanding our scope. And the new leadership team is embracing that as well as the opportunity to expand really enterprise-wide from the front end also to the back end with 3DEXPERIENCE. So we have multiple growth levers on Centric that we are building and that are contributing to the business going forward, and that gives us confidence. And the last point I would say that when you look at it geographically for Centric, the Centric business has a strong momentum in Europe. Asia is building. And in Americas, we see a strong reinforcement. And that is, I think, another very important element that we really see that business on a global basis diversified, and that has strengthened as we enter in '26. We continue to invest. You remember, last year, we made the ContentServ acquisition. We are now through the full integration of that. And this really expands the domain and the platform for Centric to expand within the current customer base and brands, which is creating the next -- another potential points of growth. Pascal Daloz: And maybe above all of this, Laurent, the problem came from the management, the previous management, who did an acceleration of the revenue. And we are -- this is clean. I mean, now it's behind us. Coming back to 3D UNIV+RSES, I think the way you should look at it, it's not an extension of the current portfolio. I mean it's really a redefinition of our offerings, the same way we did when we came with 3DEXPERIENCE almost now 15 years ago. So why I'm saying this? It's because it's requesting a new ecosystem. So in a way, you have seen new partnership, and NVIDIA is a good example of this. You need a new computing -- accelerated computing capabilities. At the same time, NVIDIA, they need to -- I mean, computing without knowledge is blind. So we are the one providing the knowledge with our Industry World Model. So the combination is extremely meaningful. And we will continue to partner with basically people having or leading this game. The real question, I think, is the M&A behind your questions. Yes, if we look at the landscape, I think it's not a bad time to consider M&A. MEDIDATA reimbursement is behind us. The cash flow is relatively significant, even if you are challenging a little bit the cash conversion. But at the end, it's a lot of money every year we are generating. The exchange rate is helping us to consider certain acquisition in the U.S. And the software landscape is under pressure. So I remember having exactly the same question 2 years ago, and I was telling you, it's not the right time. I think now it's the time. I will not say more, but at least you understand the way we think. And the last part, which is related to the '26, '27 ARR, what are the growth drivers. I think maybe, Rouven, you just started to mention it in your presentation. Rouven Bergmann: Yes, yes, yes. I think 2026, we have the guidance, Laurent, right? So let's look at '27 and beyond. What are the potential upsides we have and how we can accelerate. First of all, keep in mind, our large, large client base and the long runway we have to penetrate that client base with 3DEXPERIENCE cloud and our AI portfolio. That's really the strongest engine we have and it's -- and the acceleration potential. Now this, together with the transition to the subscription and cloud, which creates the recurring revenue building on top of that and creating the base effect of the faster-growing subscription growth. That's to me the first thing that is important, and you see we are focused on that to build this to reach this inflection point where we will see the acceleration. You're right to mention Life Sciences. We are -- you see that we are taking the investments. We have a lot of good things going already. You see the enterprise business is growing when you exclude some special effects. So there is a lot of good things that are happening, and we will continue to double down to strengthen them. And as it relates to the volume business, once we retain that exposure to churn, we will also see the benefits here. The expansion on the 3DEXPERIENCE portfolio for the industry, Pascal highlighted that as a massive opportunity. Centric, we discussed, I outlined this before is another growth driver that is not -- that is material. So -- and then there is the last point, you mentioned it, which is potential M&A, which is not factored into this model, creating an upside that we have. So that's the situation as we are transitioning from '26 to '27, and this is what I will focus to explain and outline in the Capital Market Day in November this year, where it's about translating that into an ARR model to give you confidence and understanding of the path ahead. Marie Dumas: So we'll take one more question in the room and we'll go online. Gregory Ramirez: Yes. Gregory Ramirez, GR20 Research. I have one question on the Healthcare business for '26. Trying to do the math, it seems to imply something low to mid-single-digit decline. What is the implied impact of the Moderna contract? Does that mean that if the impact for '25 is just on 1 quarter, that will have some -- still some headwinds for the first 3 quarters of '26? And regarding the enterprise business excluding Moderna, does that mean that it will be growing? So when we exclude the Moderna effect, that means that maybe in Q4 '26, this will drive the growth for '27? Rouven Bergmann: Yes. Maybe first, I want to clarify that we are not expecting decline in the Life Sciences business overall in 2026. We're expecting flat in 2026. Pascal Daloz: With everything we do. Rouven Bergmann: With everything we do in Life Sciences, from an industry standpoint, we expect to be flat. As it relates to the impact of Moderna, this is a 2025 impact. It was not only related to Q4, but it's really for 2025. But the aggregate of this impact is now behind us. Moderna reduced their contract by more than half to reflect their new business level activity. We're still the prime partner for Moderna. We have not given that or losing that to anybody else. It's our client. But their business realities have changed, and we have adjusted to that, which was -- it had a big impact on the performance. So now with that behind, as we look at the enterprise business going forward with -- I gave you some names and large enterprise clients that we have signed, where we are expanding our footprint. And beyond that, we will do even more. By the way, in March, we have MEDIDATA NEXT, where we have many of those clients coming with us on stage to explain what they do with us to expand across our portfolio to transform what clinical development is today. And that will translate, and we're confident about that, that will translate into growth in the enterprise segment going forward. Where we have less control is on the part of the volume business with the CROs. And this is where we are, to some extent, exposed to funding environment on the biotech sector, which can be volatile, and we know it has not been great over the last 2 years. But also there, we see some green shoots coming. And if that materializes, it will stabilize the business. Pascal Daloz: Maybe one additional thing. So if you look at the enterprise segment, and Rouven showed the number to you. The structural growth of MEDIDATA, excluding Moderna, it's 6%. And the growth of the rest of what we do is 7%. So we have 2 legs, if you want, which are solid. And we do not see a reason why it will not continue to be the case in 2026, right? The part where we are extremely cautious because we have been burned last year with this. Rouven Bergmann: That's only last year. Pascal Daloz: We were getting a recovery of the CRO to be back to at least being flat, and we landed at minus 5%. So that's what is not factored in the guidance. We do not take any improvement in the guidance of the CRO business. Despite the fact that some of them, they have published a better result in Q4 compared to Q4 2024. Marie Dumas: Thank you. We will now take questions online, please? Operator, could you start the online Q&A? Operator: [Operator Instructions] And it comes from line of Moawalla from Goldman Sachs. Mohammed Moawalla: Yes. Great. My first question was just to sort of understand the 2026 outlook a bit better. Can you help us understand at both the low end and the high end of the range kind of the assumptions, particularly around what you're incorporating for some of the larger deals as well as the kind of mega deals, what's in there and what isn't? And then again, coming back to sort of bridging the kind of ARR to the revenue growth guidance you've given, you sort of mentioned that we're kind of getting close to parity between subscription and maintenance. But obviously, in there is the MEDIDATA and Life Sciences recurring revenue. So could you give us a better feel for what the underlying subscription growth rates in kind of the core or when the business ex MEDIDATA has given? We're doing a transition both in the enterprise business but also SOLIDWORKS and Centric. Just to sort of better understand the moving dynamics of growth. And then lastly, you sort of touched a bit on more consumption outcome-based revenue as you drive kind of the AI applications or use cases. How does this sort of change the kind of the visibility going forward? Because I think because of conventional business is there's going to be more variability. But when does this become kind of more meaningful to your midterm growth rate? And is that going to be -- and how is that going to be captured? Rouven Bergmann: Okay. Mo, thank you for your questions. I'll start with the first one on how to position the guidance of 3% to 5% revenue growth. As I said, at the beginning of my prepared remarks, I just want to reemphasize this point that this guidance provides us room to navigate. It's derisked. It's derisked for mega deals. We do not include any mega deals into that. Of course, we always have large and chunky deals that are important to happen, but not mega transactions. I think what we need to do to overperform this guidance is I mentioned that there are certain areas that are introducing upside into what we do. We have not included significant growth in the defense sector, for example, simply because we have not yet seen this sector to contribute incrementally strong to our demand. But there are opportunities, of course, in this market that we are very focused to tackle and to get involved and to take benefit of it. We are building a very powerful AI portfolio, transforming our industries and building that to expand what we do with our current clients. And Pascal gave the examples and discussed that. This has, of course, a huge potential for us to accelerate the growth in 3DEXPERIENCE and AI. For now, as you see in the guidance, we have taken a more prudent approach to -- and this was what I shared with you as well, we consider the momentum in 3DEXPERIENCE growth to be consistent with 2025 and 2026. So of course, now as we enter in 2026, we are a significant step further in making these use cases and scaling them and replicating them. So there is, from that perspective, clearly, an opportunity for us to improve and grow and accelerate from there. Now we have to keep in mind that we have to offset also some potential softness in the auto sector. Now there is 2 sites to look at, 2 ways to look at that. While there is maybe softness in the fourth quarter, but still it represents significant opportunities for us also in 2026 because we have -- I want to remind you, Mo, and everyone here that we have signed significant deals in this sector over the last 2 years that are building the foundation to bring these clients onto 3DEXPERIENCE now with the potential to expand, and we are expanding with them in AI, and we are changing the game with that and creating significant opportunities that we couldn't do years before because we simply weren't in this position to do it. So that is all in front of us. And now in this context, I think we wanted to position the guidance from 2026 that is consistent with 2025. We ended at 4%. The midpoint of this guidance is at 4% with the potential to do better than that, but also to have the room to make the right choices for the mid- to long term to accelerate growth. On the low side, what can happen on the low side more? We -- there are macro factors that can always impact us and make things even more difficult and the timing of decisions more difficult. That can be a factor that we need -- we took into account on our guidance to be at the low end of 3%, but that's not what we are targeting. So going to the ARR. You're asking for a lot of additional information, Mo. And for sure, I will be prepared to disclose some of that at the Capital Markets Day. So please bear with me that I will be a little bit more high level, but I will give you the directions on where the ARR, what are the elements of the ARR and the different growth dynamics inside the AR. You're right when you call out MEDIDATA as part of the ARR, of course, that has been a headwind on the 6%, very clear on our subscription ARR. I mentioned subscription ARR is growing more than 10%. And now when you exclude MEDIDATA on core industrials, subscription ARR is growing mid- to high teens. It's a strong resilient cost driver for a long time. And we have, as I said, we have some potential to further accelerate that as more and more of our business transitions to cloud and 3DEXPERIENCE. Now that also -- you know the size of MEDIDATA. MEDIDATA in total is about a EUR 1 billion business. Now we have been -- in the way we've defined the ARR, we have some business in MEDIDATA as it relates to the volume business where we have churn effect, that's not renewable. It's not included in our ARR. So we have not factored in the 100% of Medidata subscription business because not everything is renewable. But nevertheless, it's a very large number inside the subscription ARR that has been facing a lot of headwind. Once we are removing this headwind, and you see we are already doing it for the enterprise part. Now the CRO part is still what is the challenge. But as we are removing that and increase and essentially generate a net increase in ARR quarter-over-quarter for MEDIDATA, that will then contribute to also increase the subscription ARR from what today is plus 10% to the next level. And I would say to go from plus 10% to gradually up point by point to reach 15-plus percent in the subscription ARR in aggregate. So -- but again, I will be prepared to outline those components at the Capital Market Day in more detail. Here today for me is to introduce this concept to you, explain the growth drivers. And with that, build the foundation on the levers that we are focusing on for growth acceleration to come. Pascal Daloz: Now the last part of the question, Mo, is related to the new business model for the new AI solutions. If you look at the story of Dassault Syst�mes, we changed almost everything, except one, the business model because it has always been an equation of the number of users, the number of seats. Now what's the problem? With the AI, you have virtual users now. We call it virtual companion. Some of our peers, they call it agent. So the model cannot be anymore the same. That's point number one. Point number two, I think the software are really selling the capabilities. Now we have an ability by combining the capabilities with the knowledge to sell the end result. Whatever the virtual twins of the improvement. So that's the reason why we are coming with new units. And let me explain to you what the units are about. The first one, we have the unit of works. When a Virtual Companion is working, in a way, it's working like a human. And the same way you have a cost for a human, you should have a cost for the companion. So we are not inventing anything on this one because this is what ChatGPT, Entropy, this is exactly what they do. It's a fraction of the cost of the people. More importantly, when we have a Virtual Companion, it could be a mechanical engineer. This one could be a mechanical engineer and an electrical engineer. It could be also, in addition, a specialist to do the simulation. So we have what we call the unit of knowledge. And the more knowledge the companion they have, the more we price for this because it's a way to capture the value of what we bring, right? If you have to hire someone right now, who has graduated from the best mechanical school, graduated from the best IT or computing school, it will be difficult. With a companion, we have an ability to enable this. Last but not least, what -- there is a third unit, we call it the unit of knowledge. And again, I insist on this for 4 decades, we have accumulated a lot of industry knowledge. We know how to design a car. We know how to produce it. We know how to certify them. We know how to scale the production systems. And this is true in every industry we serve. Now what can we do with AI? We can automatize those processes. And I can tell you, this is a significant value we are creating. In many cases, it's a 10x. It's really a moonshot. So that's the reason why we need also to have dozen units if you want to price in order to capture this value. And last but not least, I make this in my comments. But the entire industry is pushing to do Software as a Service. I present, we should do Service as a Software because you have so much money being spent in services just to make the technology enable that there is a chance not to use artificial intelligence to produce automatically the end results. So -- and that's what's the virtual twin as a Service is about, it's how we can mix the capabilities with basically what used to be human driven, and now it could be a virtual companion in order to deliver the end results. That's the new lever we have in our hands to create additional value. It's tangible, it's concrete, it's not science fiction, it's fiction with science. And it works because it's a way -- I mean, I have enough experiences the last year with many engagement to tell you. We know how to objectivize the value discussion with many of our customers. Now this will come on top of what we do because, again, I repeat myself, if you have a Virtual Companion, you still need CATIA. The Virtual Companion is the one using CATIA. It's not substituting CATIA. You still need to use CATIA SIMULIA, DELMIA in order to produce the end result. So that's an additional lever we are creating. And if you remember what I say, with the companion, we are accelerating the adoption. It's taking too much time to train the people. It's taking too much time for many of our customers to hire people. Now we have the way we master in a much better way the cycle of adoption. We have a better way to monetize the knowledge and the know-how we have put in our software because usually, people, they are comparing the capabilities, but they forget that we have put a lot of industry knowledge in our software. And again, we have the way to monetize the end result of what we do. That's the entire purpose. Now given the visibility, it's a little bit early to speak about this. The only thing I can tell you is just last year, in 6 months because we released those products, the first initial drop was midyear last year. We have been able to build to basically create a EUR 50 million backlog, right? That's what we have been able to do. And this is growing extremely fast. But again, same story, we will come back with more insight at the Capital Market Day in November. Marie Dumas: We can take the next question online, please. Operator: And the question comes from the line of Adam Wood from Morgan Stanley. Adam Wood: I've got 2, please. Just first of all, thinking about more traditional kind of metrics of visibility in the business. Could you maybe help us with pipeline coverage as it stands today? And I guess, particularly given the comments around automotive and investor fears around that, have there been any notable shifts in terms of where the pipeline is by industry that might reassure? And then secondly, I think we've seen in software a lot where there's been deceleration in revenue growth and particularly where companies have a lot of things changing and opportunities. You've obviously mentioned AI, the subscription transition for you. Can you just help us understand the balance that you're trying to strike between making sure you're reinvesting at the right level in the company to drive that revenue acceleration and maybe protecting margins in the short term? And are you comfortable you're getting that kind of split rate? Pascal Daloz: Thank you, Adam. I will start with the first part of the question, and Rouven will take the second one. So related to the pipeline, the coverage right now is 2.5x. So if I look at it, we have the pipeline to cover 2.5x the sales plan for the full year, which is good, which is good. The idea is to create 0.5 more during the year because we are creating also the pipeline over the time. So as a starting point, it's a good ratio. What's the difference compared to last year is the mix. Last year, we were relatively overweight with a lot of opportunity in the auto sector. And if I remember well, the pipeline in the auto sector was around 35%, 37% last year, right, Rouven? Rouven Bergmann: Yes. Pascal Daloz: This year, we are below 30%, which is, I think, better given what is happening, I mean, the volatility we have, especially in Europe on this topic. Where we see a share, which is increasing is in the aerospace and defense, which is, I think, more than -- close to 17%, 18% for this year. It was a little bit, let's say, last year, it was around 12%, if I remember well. What's the difference? We still have the backlog because as you may know, this industry still have a lot of planes to produce, and they still struggle to deliver the backlog. And we have a lot of demands coming from the manufacturing part. You remember the large deal we signed with Lockheed Martin a year ago, it was on this topic. But also, we have new segments. Defense is one of them, but also you have the new space. New space is in this industry what the EV was, let's say, 10 years ago for the car industry. People developing drones, low orbit satellites, the new launcher, I mean, the new space station as well. And they are the one basically equipping themselves very rapidly, and they are raising and growing fast their engineering departments. So this is also something important. We'll see also more demand in the high-tech sector. It's something I did not mention, but we spoke a lot about NVIDIA as a partner. But NVIDIA is also a customer, right? And for the one we have, I mean, we look at what Jensen said last week on stage. NVIDIA is using our technology. In fact, we have built the virtual twin of their future AI factories. And if you look at this entire sector, this is where the money flow right now. I mean, every morning, you open the newspaper, you see all the hyperscalers, all nations committing themselves to invest billions to create these AI factories. It's a very complex object. I mean, you cannot imagine the complexity of it. It's much more complex than a nuclear plant. And by the way, as I comment, do not make the confusion between the data center and the AI factories. The data center is to make an analogy, the warehouse. This is where you store the data. The AI factory, it's a real factory. This is how you transform the data into insight, knowledge, value added. So the complexity and the requirements, it's -- I mean, there is nothing comparable to what we know currently with the data center. So where I want to go, they need a virtual twin. And that's what we do. We are building the virtual twin of the AI factories of the future. This is a tremendous opportunity where we're expanding a lot. And to come back to the initial questions, that's the reason why the share also in the high-tech sector is increasing significantly in the pipeline, and we are around 15%. So long story, a short one, good coverage, mix difference. I think the mix is probably more resilient compared to last year, less exposure to the auto sector, much more distributed. The rest, industrial equipment, the consumer goods and packaged goods is almost the same than what we had last year. Rouven Bergmann: Okay. And then to your second question on the investment policy, how is this reflected? And really, we are looking at the different parts of the organization, starting with R&D. And here, the focus is on allocating our resources to accelerate the AI portfolio and also help to prepare the go-to-market with our brands because the R&D and the go-to-market, as you can imagine, as we are now bringing these next-generation applications to our clients, where R&D brands and go-to-market are extremely connected with our industries. So when I look at the opportunities and where we are investing on the go-to-market side, Pascal mentioned high-tech data centers, that's a growth opportunity, but also related to that, the energy sector, the energy transition, which is a massive opportunity for us. And we have had already in '25 some great wins here. And -- but we know the energy shortage and the pressure on the energy market will further open opportunities for us to virtualize and to improve and help this industry. Aero and space is a very resilient industry for us, where we are doubling down our focus on the go-to-market as well. And of course, industrial equipment. We have seen very resilient results in SOLIDWORKS, and we expect that momentum to be also in 2026. And last but not least, I mentioned that before, Adam, but just to complete the list here, the auto sector remains a critical industry for us with a lot of opportunities. And we are focusing also our go-to-market on that because we have a large footprint and the opportunity to expand. Now we talked about the life sciences go-to-market where we are investing with dedicated integrated account teams. We are really reallocating our resources to address that industry more holistically and open up new pockets of growth and budgets that we didn't systematically addressed in the past, which we have an opportunity to do, and we will. And then the last part, I think Pascal mentioned that also before, we are focusing on scaling the indirect channel, where just through the value network, the suppliers serving the OEMs, we have a lot of opportunity in this market as well, where we are enabling our partners with our new AI solutions to transform these suppliers. Now on G&A, we have initiated a large transformation project here as well to leverage AI and cloud in our back office to streamline the operation. Marie Dumas: We will take one more question online. Operator: And it comes from the line of Michael Briest from UBS. Michael Briest: Just thinking about the CMD in November, are you currently reiterating your 2029 financial ambition? Should we expect that to be updated at that event? Because I'm looking at subscription and you're expecting it to be 55% of software by then, and it was 40% last year, maybe 42% this year. That looks like a steep ramp. And then I appreciate the comments on M&A opportunities. But given the share price, what is your view? Is there any shift in the view on potential buybacks given the valuation of the data? Rouven Bergmann: All right. Thank you, Michael. On the Capital Market Day, regarding the 2029 financial ambition, there's 2 things. First, the introduction of the ARR will allow to have a more focused discussion on the growth levers and our path to accelerate top line growth, which is really around subscription, recurring cloud. And now with AI, we are in a different point than compared to last year where we have very concrete monetization examples on how they will build on top of our existing model. The second point I would reemphasize is that our financial commitment is on the EPS to -- and that also has a lever of the operational efficiency that we are implementing. That's why we reemphasize that today that we are taking the actions to improve the EPS and margin, which then, of course, will have a stronger effect as the top line comes back. So we will discuss that at the Capital Market Day and how we are going to bridge to reach our financial ambition by 2029 as we outlined last year. Pascal Daloz: The second part of your question, Michael, is related to the capital allocation. So again, there is no -- I mean, I have nothing against the share buyback. But if you step back a little bit, let's assume I'm spending EUR 0.5 billion to do this. the levers on the EPS will be relatively limited. And the same EUR 0.5 billion invested to acquire new AI start-up will deliver a better level. So that's the reason why right now, I'm really directing the capital much more to the external growth than to the share buyback. The share buyback for us, you remember our policies is only to offset the dilution coming from the LTI. That's what we do. But again, I have no dogmatic positions. I'm not against. I'm with you on the value creation, but I think we have a better road to create value by investing on the new AI domain than rather than to buy the shares. I think it's time to conclude. Again, thank you, all of you for your engagement today. But I want to leave you with one clear message. I think Dassault Syst�mes is really undergoing a profound and deep transformation of its business model. It's obvious that we are transitioning decisively to subscription-driven future. And it's not only coming from the acceleration of the cloud platform strategy, but above all of this is the evolution of our offerings. AI is at the core of the platform. This will enable our customers to create, simulate, operate virtual twin at scale to bring the virtual in the real world together and to manage the -- for the entire industry. And I think this transformation is not incremental. It's really a fundamental transformation. So -- and we do all of this with a certain resilience. Whatever you say we continue to grow, maybe at a moderate pace, yes, I accept this. But we sustained the momentum when if you look at in our industry, many of our peers, they struggle when they did this transition. And they did the transition before the AI came. So I think I hope you get a better sense of what we do, how we are executing, how we are innovating and how we are advancing to deliver the next phase of growth. I think Rouven and the Investor Relations team are looking forward to seeing you in the coming weeks because they will do road shows and see you no later than next quarter for me. Thank you.
Operator: Welcome to 2020 Bulkers Q4 2025 Financial Presentation. [Operator Instructions] This call is being recorded. I'll now turn the call over to CEO, Lars-Christian Svensen. Please begin. Lars-Christian Svensen: Thank you, operator. Welcome to the Q4 2025 Conference Call for 2020 Bulkers. My name is Lars-Christian Svensen, and I will be joined here today by our Chairman, Magnus Halvorsen; and our CFO, Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking. These assumptions reflect the company's current views regarding future events and are subject to risks and uncertainties. Actual results may differ materially from those anticipated. I will now continue with the highlights of the quarter. We reported a net profit of $13.8 million and an EBITDA of $16.5 million for the fourth quarter of 2025. We achieved an average time charter rate of about $39,300 per day in the same period. Our total dividends amounted to $0.63 for the months of October, November and December 2025. In October 2025, we signed an agreement to sell the Bulk Sao Paulo for a total of $72.75 million with Q1 2026 delivery. In November 2025, we signed further agreements to sell the Bulk Sydney and the Bulk Santos for a total of $145.5 million. These 2 vessels will also be delivered to new owners within Q1 2026. In subsequent events, we reported an average net TCE earnings of about $30,800 per day for the month of January 2026. And this morning, we also announced a dividend of $0.15 for the same month. And with that, I will now pass the word to Vidar. Vidar Hasund: Thank you, Lars-Christian. 2020 Bulkers reports a net profit of $13.8 million and earnings per share of $0.60 for the fourth quarter of 2025. Operating profit was $15.8 million and EBITDA was $16.5 million for the quarter. Operating revenues and other income were $21.4 million for the fourth quarter. The average time charter equivalent rate was approximately $39,300 per day gross. Vessel operating expenses were $3.5 million, and the average operating expenses per ship per day were approximately $6,300 in the fourth quarter. G&A for the fourth quarter was $1.1 million. 2020 Bulkers recognized approximately $0.5 million in management fee as other income in the financial statements. Interest expense were $1.9 million for the quarter. Shareholders' equity was $148.4 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is nonamortizing until maturity in April 2029. Cash flow from operations was $15.5 million for the quarter. Cash and cash equivalents were $22.1 million at the end of the quarter. The company declared total dividends to shareholders of $0.63 per share for the months of October, November and December 2025. That completes the financial section. And now over to you, Magnus. Lars Halvorsen: Thank you, Vidar. As our remaining ships will now soon be delivered to their new owners, I just wanted to reflect and summarize a little bit the 2020 Bulkers history and the financial returns we've generated for our loyal shareholders. We started out in 2017 by ordering 8 scrubber-fitted Newcastlemax vessels at New Times Shipyard paying at the time, all-inclusive $47.6 million. And we believe at the time, there was a very interesting risk reward given the attractive newbuilding prices and falling order book. As we became an operating company, we remained profitable every single quarter from the delivery of our last vessels. And looking at what this has meant in terms of returns, the company was initially financed by $142 million in equity through a number of share issues. As of and including the declaration we made today, we have declared a total of $251 million in dividends and distributions to other shareholders. And as we've reported today and Vidar went through, we expect to have net proceeds from the sale of the last vessels amounting to around $311 million after all debt has been repaid. Additionally, we have around $50 million on cash on the balance sheet as of today. What this means for the investors who supported us throughout the whole story, participating prorate in every equity offering since November 2017, we've generated an IRR of 28% per annum measured in dollars. For those and perhaps more relevant who came in on the IPO on then Oslo Axess in June 2019, the annual return, including dividends, has been 31% measured in U.S. dollars. This compares to 17% for the S&P 500 and just under 16% for the Oslo Stock Exchange measured in dollars for apples-to-apples comparison. As we stated in the release today, our intention is to, as soon as possible, return all the proceeds from the sales to shareholders as well as the majority of cash on hand. We will retain a small amount in the company to support G&A, which will enable us to stay listed while we can evaluate potential strategic or other opportunities. Before I go to the Q&A, I'd like to thank everyone who's been part of the story so far. We obviously wouldn't have been able to do this without the investors. And I think particularly the ones that supported us in a very challenging share offering in May 2019. At the time, dry bulk was not exactly in fashion. It was very tough to get it done. And also a big thanks to the employees, the Board, the banks, brokers, New Times Shipyard and of course, very importantly, our very good charters, so -- which we have remained very loyal to. And with that, I'll leave it over to the operator for questions. Operator: [Operator Instructions] As there appears to be no questions in the queue, I'll hand it back to the speakers for any closing remarks. Lars Halvorsen: Okay. I think we've said what we want to do. So thank you, everyone, for dialing in. And if you have any questions that you didn't ask, feel free to reach out to us. Thank you very much.
Operator: Welcome to the GXO Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. My name is Daryl, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If anyone should require operator assistance during the conference, please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures, and the company's guidance. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities law which, by their nature, involve a number of risks, uncertainties, and other factors that can cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that can cause actual results to differ materially is contained in the company's SEC filings. Forward-looking statements in the company's earnings release or made on this call are made only as of today. And the company has no obligation to update any of these forward-looking statements except to the extent required by law. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions, and consumer demand, and spending, labor market, and global supply chain constraints. Inflationary pressures, and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore, actual results could differ materially from guidance. You can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to GXO's Chief Executive Officer, Patrick Kelleher. Mister Kelleher? You may begin. Patrick Kelleher: Good morning, and thank you for joining our fourth quarter and full year 2025 results call. Joining me today are Baris Oran, Chief Financial Officer, and Kristine Kubacki, Chief Strategy Officer. GXO delivered a strong finish to 2025, setting a solid foundation to accelerate organic growth and profitability in 2026 and beyond. When we spoke last quarter, I shared some of my early observations about GXO, where I see opportunities to improve the business to accelerate organic growth, and sharpen operational execution. I'd like to spend most of my time today discussing the recent leadership actions that position us well to grow and expand margins. First, let me share the highlights from our record quarterly and full year performance. For the fourth quarter, we delivered record revenue of $3.5 billion and record adjusted EBITDA of $255 million. We did the same for the full year. Total revenue was a record of $13.2 billion with every region delivering organic growth. And full year adjusted EBITDA was a record at $881 million. Even against a dynamic macro backdrop, the strong results we delivered clearly demonstrate the value we create for our customers and the resilience and predictability of our business model. New business wins were $1.1 billion in 2025, providing good visibility to accelerating growth in 2026. During the fourth quarter, we won significant business in both strategic and established verticals, including notable contract wins in the life sciences sector, several aerospace and defense sector wins, as well as a notable win with a global apparel brand. We have $774 million of expected incremental new business revenue already secured for 2026. This is an increase of over 20% compared to this time last year. I'll let Baris and Kristine discuss our financial outlook and new business wins in more detail in a few minutes. But I'm pleased to announce that we've released our 2026 financial guidance today, which at the midpoint shows accelerating organic growth, adjusted EBITDA margin expansion, and an increase of 20% adjusted diluted EPS growth at the midpoint. I want to recognize and thank my GXO teammates for these results. Together, we are building a culture anchored in speed, accountability, and customer intensity. And that culture is directly fueling our performance. As I shared last quarter, GXO has very strong fundamentals. We are the industry leader in tech-enabled fulfillment. We have strong regional businesses, deep operational expertise, and a compelling commercial engine. Our scale, global footprint, and expertise set us apart in both execution and capability breadth. And we are well-positioned to lead what's next in the deployment of automation, robotics, and AI versus peers. My focus right now is to bring our strengths together to operate as one global organization. Deliver faster growth, higher margins, and sharper execution. Over the past five months, we've announced new leadership in three key areas: commercial, operations, and our Americas and Asia Pacific region. These changes are primary accelerators designed to, number one, scale consistent operating standards across the organization to sharpen execution and drive margin expansion. Number two, to sharpen growth priorities and go-to-market disciplines to accelerate organic growth and three, grow our market share in the US. I see opportunity to strengthen our operating model by moving from regional strength to global leverage. Our regions are strong. And there's clear upside from better connecting what already works across the network. Operating in a higher gear will come from deploying consistent operating standards, sharing best practices, and standardizing what is best in class. To be clear, it is not about one standard for customers. We will continue to deliver the customized solutions that set us apart. It is about establishing one way of working as a global team. The new chief operating officer role is a critical step in enhancing our operating model. Bart Beeks joined us in January after more than two decades at CEVA Logistics, most recently as COO. He brings decades of industry experience and proven expertise in driving increased productivity, efficiency, and greater value for our customers. Bart's mandate is to scale a single operating methodology across our global network, creating a flywheel effect spanning solutions, and seamless implementations. To service delivery, continuous improvement, and renewals. Productivity gains will come from better labor planning, network-wide best practice replication, and operational visibility. All key levers behind margin expansion. Bart will also lead the operationalization of our automation and technology strategy, as we accelerate our leadership in this area. We are already at the leading edge of AI in our industry and we plan to move even faster in AI and robotics this year, particularly with humanoid robots. A key focus will be the continued rollout of GXO IQ, our AI-powered warehouse operating system. GXO IQ's AI capabilities are already improving labor planning, inventory distribution and movement, forecasting, and workflow management across several of our largest sites. We see the technology amplifying our competitive differentiation as supply chains become more complex and data-intensive. This has the potential to be a real game-changer for us. As we move through the year and into 2027, we expect to drive clear productivity benefits, as we increase proprietary AI applications across our footprint. I'm also very excited about our progress with physical AI and humanoids. I believe humanoid technology will be a game-changer for our industry and we have the pole position. GXO was the first to deploy this tech in a live operating facility. As we've collaborated with top robotics developers, we are driving significant improvements in the sophistication of warehousing tasks that can be undertaken. Commercially, I also see significant opportunities to operate in a higher gear. Not all growth is equal. And we will be very deliberate about where we lean in. It is about building a clear unified global approach to customer relationships, and pricing with an initial focus on accelerating sales in select B2B verticals and longer-term identifying geographies for expansion. Karen Baumer joined us two weeks ago as chief commercial officer from ABB Industries. She brings expertise in commercial strategy, and driving growth across the energy, industrial automation, and retail technology sectors. Her mandate is to tighten execution through more consistent global engagement, sharpen go-to-market execution and strategy, ensure pricing reflects the value that we deliver, and improve the speed and consistency of our commercial processes. As we discussed last quarter, the growth opportunity in the contract logistics industry is huge. With a total addressable market exceeding $500 billion, we see meaningful opportunity to increase market share, by expanding the pipeline and improving our conversion rates. The good news is that we're already accelerating our momentum in priority B2B growth verticals, aerospace and defense, life sciences, industrial, and technology, specifically data centers. We achieved another sizable win in life sciences in the fourth quarter, and won several aerospace and defense contracts with Boeing and BAE Systems among others. While continuing to see strong demand in omnichannel retail, a core strength. Bridging both elements of growth and operational execution is our North America Division. We have a great platform in North America, with leading positions across the consumer, technology, aerospace, and industrial verticals. The US is our largest and most immediate growth lever to accelerate organic growth given market demand, vertical mix, and the scale advantages that we can unlock. Also expect this market to be the epicenter of technological innovation as we look to capitalize on opportunities with AI, and humanoids to drive greater warehouse productivity. Michael Jacobs, who I've known for more than twenty years, took the helm of our North America business three months ago. He is intensifying focus on operational performance, increasing labor productivity, and winning new business by reallocating investment to solutioning, sales, and digital marketing to realize the opportunity that we see. These three leadership changes are strategic accelerators. It's about running the playbook with greater alignment, scale, and pace. In closing, in 2026 and beyond, we have a solid foundation to build on, and I'm very excited for the future. Profitable growth is the priority. And over the past five months, we've moved with speed. Strengthening the leadership team that will execute on the opportunity ahead, simplifying our structure, accelerating expansion in priority B2B verticals, and coming together as one team to define the ambition of the company for the future. With that, I will hand the call over to Baris. Baris Oran: Thanks, Patrick. GXO has built momentum through 2025, with the fourth quarter performance reflecting the power of our resilient business model. With record revenue, adjusted EBITDA ahead of our original full-year guidance, and robust free cash flow, we are delivering on our commitment to drive profitable growth. For the full year of 2025, we generated record revenue of $13.2 billion, growing 12.5%, of which 3.9% was organic. We delivered adjusted EBITDA of $881 million, growing 8%. Our adjusted diluted earnings per share was $2.51, and we delivered adjusted net income of $292 million. In 2025, GXO delivered record revenue of $3.5 billion, up 7.9% year over year, of which 3.5% was organic. Every region delivered organic revenue growth, highlighting the value of our contractual business model, throughout a dynamic trade and macro environment. We delivered record adjusted EBITDA in the fourth quarter of $255 million, ahead of the implied midpoint of our guidance at $249 million. We delivered net income in the fourth quarter of $43 million and adjusted net income of $101 million. Our diluted earnings per share was $0.37 and our adjusted diluted earnings per share was $0.87. Our free cash flow in the fourth quarter was $163 million and we delivered our target adjusted EBITDA to free cash flow conversion for the full year. We remain disciplined in our capital expenditure and working capital management, which allows us to continue to invest in our business with high returns. Our record operating return on capital remained consistently strong, driven by solid operating performance. Our leverage levels improved to 2.5 times net debt to adjusted EBITDA, even after executing $200 million in share buybacks in 2025, at an average price of $37.34. We also successfully completed our first European bond offering, securing EUR500 million on competitive terms, and using the proceeds to refinance upcoming maturities. Our balance sheet is strong and positions GXO for long-term growth. The integration of Wincanton is moving at pace, and we are on track to deliver the run-rate cost synergies of $60 million by 2026. We also expect to gain significant revenue synergies over the coming years. Given our excellent operating performance in 2025, I'm pleased to share our 2026 guidance, where we expect to deliver organic revenue growth of 4% to 5%, adjusted EBITDA of $930 million to $970 million, an increase of 8% at the midpoint, adjusted diluted earnings per share of $2.85 to $3.15, an increase of 20% at the midpoint, and adjusted EBITDA to free cash flow conversion of 30% to 40%. With strong operating performance, a solid financial foundation, and a robust sales pipeline, GXO's resilient and predictable business model continues to deliver exceptional value to both our customers and shareholders. With that, over to you, Kristine. Kristine Kubacki: Thanks, Baris. Morning, everyone. With the fourth quarter and full-year results demonstrating the strength and resilience of our business model, I want to provide more context on the drivers of growth, the durability we see across our business, and how we're positioning GXO for the next phase of value creation. Patrick has been clear about our priorities of that strategic roadmap: accelerate organic growth and expand margins. And from where we sit, two aspects of GXO's story continue to gain traction: the resiliency of our contractual, highly diversified business model and the durability of our organic growth across cycles. These pillars enabled us to deliver another record year of performance in a dynamic macro environment. And more importantly, they give us confidence about the future. On growth, we are making significant progress building our global relationships with blue-chip customers and expanding across geographies and into high-growth verticals. During the fourth quarter, we won $248 million in new contracts, bringing full-year 2025 wins to $1.1 billion. Critical to growth are significant opportunities in fast-growing, high-value verticals such as life sciences, aerospace and defense, and industrial, specifically data center infrastructure. These areas remain a strategic focus for us, and I'm excited to share the meaningful progress we've made this quarter. First, in life sciences, we're gaining good momentum in the $34 billion life sciences vertical. Even with the largest win in the quarter, with another notable win in Q4, our life sciences pipeline continued to grow quarter over quarter, with several new strategic opportunities. Second, we're seeing increased activity in aerospace and defense, and industrial across all our regions. During the quarter, we further expanded our partnership with Boeing, won new business including BAE Systems and Thales, the direct result of the Wincanton acquisition. We also established a defense advisory board in the US comprised of defense industry experts. This board will provide market insight and strategic guidance on business development. Third, we continue to build momentum in the fast-growing data center market, a critical part of the rapidly expanding AI and cloud infrastructure ecosystem. As a key logistics partner, the complex supply chain, we are well-positioned to capture share in the $28 billion technology vertical. During the quarter, we secured five new contracts, including for the first time wins across multiple regions with a leading hyperscaler, demonstrating our ability to scale globally with high-growth customers. Looking to the growth outlook for 2026, our $2.3 billion sales pipeline is robust and well-diversified across regions and verticals. Altogether, our recent wins translate to $774 million in incremental revenue already for 2026, up over 20% from where we were at this point last year. This gives us confidence in our 2026 full-year guidance and provides visibility into our long-term growth trajectory. The second priority Patrick outlined was strengthening our operating model to drive even better profitability. Core to driving operational excellence is our leadership in automation, technology, and AI. GXO IQ accelerates this differentiation, bringing best-in-class consistency and security while driving clear productivity benefits for our customers. We began successful pilots of GXO IQ in the second half of last year and are excited by the early results, especially in the areas of proactive replenishment and slotting. GXO IQ is expected to go from pilot to scaling across more than 50 existing sites this year. And in automation, by 2026, we expect to have nearly 20,000 robots in operation, plus several humanoid pilots launched across all three regions. We have a strong foundation and are poised to scale these market-leading capabilities further. This will serve as a powerful lever for long-term profitable growth. And we look forward to sharing more about our roadmap at our Investor Day later this year. And with that, I'll pass the mic back to the operator to begin Q&A. Operator: Thank you. We will now be conducting a question and answer session. You may press star 2 to remove your question from the queue. Patrick Kelleher: One moment please while we poll for your question. Our first questions come from the line of Stephanie Moore with Jefferies. Please proceed with your question. Stephanie Moore: Great. Good morning. Thank you. You know, for Patrick and you know, maybe this would be one that Karen would be able to answer as well when she's had a little more time in the role. But as you think about your market-leading position and industry vertical strategy, can you speak to your just overall philosophy on making sure GXO's value is appropriately recognized by your customers and ultimately, what that can mean for pricing, churn, and, you know, really organic growth in the future? Thanks. Patrick Kelleher: Yes, Stephanie. Good morning, and thank you for the question. Our vertical focus is absolutely critical, I think, to the organic growth agenda. In that, we want to make sure that we have in the market verticals, client-aligned solutions that are really addressing specific challenges that our customers face in the verticals that they're competing in. Client-aligned solutions will deliver the most value for the customer, and we think that will come with pricing power in terms of being able to commercialize the value that we're creating for customers in the right way. And that is why I think the specialized agenda around those industry verticals, particularly as we're stepping into the strategic industry verticals of aerospace, defense, industrial technology, and life sciences, we can bring significant value for customers and we want to commercialize that the best way. Stephanie Moore: Understood. Thank you. And then, actually, just a follow-up to the guidance commentary. Baris, can you walk through how we should think about the cadence through 2026? You've announced some pretty big wins to start the year and the like. So maybe just how we should think about how growth and EBITDA flows through as the year progresses. Thanks. Baris Oran: Sure. On the EBITDA phasing, the phasing we expect this year reflects the timing of specific project start-ups and exits. These quarterly swings tend to be immaterial on a full-year basis. These have been reflected in the percentages we provided in our presentation. We have high visibility due to new businesses we have already won. And we expect to have new wins more business, throughout the year. Stephanie Moore: Alright. Thanks, everybody. Thank you. Operator: Our next question has come from the line of Chris Wetherbee with Wells Fargo. Please proceed with your questions. Ryan: This is Ryan on for Chris. Just to follow-up on that last one. The second half run rate looks to be a little bit more elevated, I guess. What does how should we think about that? You know, as we exit 2026 into 2027 from a fairly strong base? Patrick Kelleher: Yeah. This is Patrick. Maybe I can take that to start. And then Baris can close out with a few comments. When you look at the contract logistics industry in our business, the typical sales cycle is six to nine months with a ramp-up period to start up new operations, which could take up to six months. We exited 2025 with a great book of new business wins, $775 million already identified to implement this year. And we are selling opportunities and closing opportunities right now that we expect to start in the second half of the year. Our pipeline exited 2025 at $2.3 billion. Pipeline as we stand today is $2.5 billion and growing, especially in the strategic industry verticals that we're participating in. And so we think we're going to see the benefit of new business wins from that pipeline accelerating in the fourth quarter. And then especially into 2027. Baris, anything to add there? Baris Oran: Yes. On the EBITDA side, remember, we have an integration that we kicked off late 2025. And you will see the benefits of that even more visible in our numbers in the second half of this. Kristine Kubacki: Hi. This is Kristine. I just thought I'd add a little bit to double click about why we are so excited about where and the momentum that we're seeing in the business. As you know, we have a huge addressable market, and, you know, it's over $500 billion. Our core markets, you know, around consumer-facing, we're seeing good momentum there in terms of pipeline wins. But in the new verticals that Patrick just spoke of, we're really unlocking and seeing some very good trends, you know, in aerospace and defense, I mean, that's a and industrial, it represents hundreds of billions of dollars of TAM. In fact, we have over $200 million in the pipeline, and that's even after notable wins with BAE, with Boeing, with Thales, and even BMW. So we're very excited about the strategic initiative that we have in aerospace and defense. And then in life sciences, you know, $34 billion TAM for us. That pipeline has more than tripled in the last twelve months, and that's even having our largest win in the fourth quarter come from the life sciences. And, of course, I talked about the tech side. We're seeing, of course, very strong momentum there. And even as we enter January, more opportunities are popping up for us, and we're very excited about how that plays out and more wins coming as we move through 2026. Ryan: Thank you. Appreciate the color. Then I guess just on the fourth quarter, organic growth came in a little bit light, you know, versus our expectations. You maybe walk us through what happened in the quarter? Maybe you could touch on peak season dynamics and how volumes shook out by vertical and geography? And then on the cost side, you know, seems like there was solid productivity that beat our expectations. Can you help us frame why that doesn't carry fully through to, like, 1Q and 2Q EBITDA? Thanks. Baris Oran: Let me take that. Our growth was very strong in Q4 with the net new business wins and milder volume trend, especially in Continental Europe and UK. The delta between Q3 and Q4 is primarily driven by the volumes. And if you look into 2026 onwards, our guidance implies in 2026 an EBITDA margin expansion around 20 basis points. At the same time, we are making targeted investments to drive our productivity faster and accelerate our organic growth. Absent these factors, margin would have expanded faster this year. But we are taking a multiyear strategy which we will outline at an Investor Day at a later phase. And you will see a clear margin opportunity when we benchmark ourselves in the market against GXO's own history. Ryan: Thank you. Appreciate the color. Operator: Thank you. Our next question is come from the line of Ravi Shanker with Morgan Stanley. Madison: Hi. Sorry, this is Madison on for Ravi. Thanks for taking my question. I was just wondering what you guys are thinking about in terms of timing for Investor Day if we should be expecting that sometime this year. Patrick Kelleher: Yes. That's definitely 2026. And we'll be out with the date for that shortly. Madison: Got it. Okay. And then I was wondering if you could talk about your macro assumptions that you have baked into the low end and high end of the guidance range. And kind of what you're also assuming at the midpoint, if it's just a continuation of what we're currently seeing right now. Baris Oran: Let me go over some of the numbers. We do expect an acceleration in organic growth in 2026. We already have $774 million of incremental revenue secured, or roughly 6% gross growth. This will continue to grow, and we expect our new business wins to provide the growth uplift. The inflation pass-through and retention rates seem to be roughly the same 2025 to 2026. We are assuming flat volumes in our operations, which we believe is prudent. Patrick Kelleher: Yes. And I think that's very important to highlight. So guidance for this year is assumed on flat volume as we consider the overall macroeconomic situation and really anticipating how that is going to materialize and taking a very conservative view there. As a respect with respect to current customer volumes. So the lever for this year is really about organic growth driving top line. Madison: Got it. Thanks for the color. Operator: Thank you. Our next questions come from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions. Scott Schneeberger: Thanks very much. Good morning. I guess I'd like to follow-up on that guidance question and ask at the low end of the range and at the high end of the range, what are some items that you all are considering most of what could what could put you at the high end and the low end? What are you worried about, and what are you most excited about heading into the year? Thanks. Patrick Kelleher: Sure. I can take that. In terms of our guidance on revenue, we feel very good about the revenue that was won in 2025 carrying into 2026. $775 million as mentioned. Feel very good about the current pipeline growing from $2.3 billion to $2.5 billion from the beginning of the year to now, and that continues to accelerate. The sensitivity around the top line will come with speed in which those new business wins can be implemented, and how quickly we're realizing profitability from that. And that really underpins the low end of the range. In terms of the high end of the range, it really is about bringing to life new business wins from the current pipeline and the timing of the implementation of those new business wins this year. Baris Oran: To move on to EBITDA, and the guidance there, that is about not only driving organic growth, which contributes to EBITDA but also progressing our agenda of productivity and cost improvement in the business. Of which we have a number of areas of focus. Talked about Bart Beeks coming on as COO. He is driving already. Productivity improvement initiatives centered around especially labor planning. Where we think we have a big opportunity. Michael Jacobs is really amplifying that in our business in North America. That coupled with our agenda on robotics automation and AI, and driving those technologies into our business for productivity improvement, cost improvement, and finally, a focus on our overall SG&A and operating costs, making sure that we're responsibly spending those dollars getting the best leverage out of SG&A as we move through 2026. Will all be the levers that we're focused on to deliver within EBITDA range that we put forth. Scott Schneeberger: Great. Thanks. And following up, it sounds like, Patrick, you alluded to earlier, we probably have to wait to Investor Day to get a taste of how you're thinking about margin long term, and we look forward to hearing about that. Any color on that now would be great. But, a more specific question in the near term, just with regard to investments, you're clearly making them here, as Baris mentioned, you know, we would see a higher margin if not for these investments. What is the strategy with balancing investments at this juncture in the business, and what type of are you making right now in 2026? Thanks. Patrick Kelleher: Sure. Maybe with respect to the margin improvement opportunity, yes. We will be providing details associated with that in the Investor Day 2026, but I can confidently say right now we are aiming to deliver at margin levels at or better than our peer group. I am very confident from my experience that GXO is well-positioned as a foundation to achieve that. In the Investor Day 2026, we will put definition to the plans associated with getting there and the timeline in which we think we can achieve that. But I feel that is well within reach. Baris, second. Hand it over to you for the second question. Baris Oran: Sure. You look into the type of investments we are making in 2026, which are included in our guidance, by the way, there are primarily two buckets. One is improving our growth and capabilities in the new strategic verticals, such as digital marketing, defense advisory board, and aligning our systems to capture more aerospace and defense business. Number two is structurally increasing our cost efficiency by investing further in labor management systems, GXO IQ, AI, and simplifying our ERPs. That is all included in our EBITDA bridge. Scott Schneeberger: Excellent. Thank you. Operator: Thank you. Our next questions come from the line of Richard Harnett with Deutsche Bank. Please proceed with your questions. Richard Harnett: So just a quick follow-up on that last question. I know it's a heavy investment year for all good things, but in light of the question around or, Patrick, your answer just around, like, you know, all these productivity enhancements that are being put in place today. Is there upside risk to the margin outlook for 2026 if things go right? 20 bps of margin expansion, can it be better? Or is this really just going to be more longer-tail projects and it's going to be maybe more of a 2027 plus type development. And then just I wanted to hear more, you know, data centers. You guys spoke about them a couple of times on that plan that you we had someone in the US data center play report very strong orders this morning, so timely. Like you mentioned, the vertical is a key pillar in your growth strategy. Christine, you've talked about how you service this market, but maybe it'll be helpful to get, like, an update there and how your automation plan sort of play into serving the vertical. In a more differentiated way, if at all. Patrick Kelleher: Yeah. Sure. So on the margin point, I'm very excited to share the detailed plans margin opportunity that we have in the 2026 Investor Day. We feel very good about the range that we're providing in terms of EBITDA and revenue performance this year, the resulting margins associated with that. We're very focused on growing in the high-margin verticals, and we talked about those in the B2B verticals. Very focused on pricing and making sure that we're getting paid the value that we're delivering. And that is really important this year to make sure that that is set in motion. We're driving for site-level productivity. We've got a number of initiatives underway being led by Bart. And that really is about driving towards even more global operating standards driving to a higher level of maturity on our labor planning, and then especially leveraging AI. I think our guidance contemplates the results that we can deliver from the initiatives that we have in place today. And finally, leveraging SG&A more effectively as we accelerate growth. We have a $2.5 billion pipeline today. It's working that pipeline higher, certainly, that can only lead to a good performance. So we're very focused on organic growth as well as the performance levers that we talked about. Kristine Kubacki: Yeah. Richard, this is Kristine. Just to give you a little bit more about on the tech side. As I mentioned, we're very excited about this. It represents a $28 billion TAM. And as you mentioned, it's only just expanding from here and expected to grow over the next several years at a very high pace. You know, for us, it fits right into our wheelhouse because it is a very complicated and complex supply chain that we're supporting everything not only from the start-up and the of the data center, but also the life and logistical support. It's really just one of the core competencies that we have from a very complex set, you know, operation that we're supporting there. It is a high-value vertical for us. So we're very excited in terms of the opportunities. Just alone in the last six months, as I mentioned, we've seen the pipeline more than double and that's on that's even with the five contracts that we signed in alone in the fourth quarter. And, again, that was the first time also we've seen that in multiple regions. So our business is expanding from a geography standpoint. So we're very excited about the opportunity set ahead, and we have a huge vertical to go unlock for us. Richard Harnett: Okay. Thank you. Operator: Thank you. Our next questions come from the line of Patrick Creuset with Goldman Sachs. Please proceed with your questions. Patrick Creuset: Hi, Patrick, Baris, and Kristine. First of all, what timeline would you set yourself to start to see some meaningful commercial traction? And therefore, organic growth lift off in your US business? And sounded perhaps from your previous guidance comments that we could see something maybe towards the latter part of this year already, but rough timeline there to see that accelerate. Second question on margins, same one really. I mean, when would you think we start to see some progress there in terms of converging towards the margin levels we see at your larger European peers? And the rollout of best practice and AI tools you mentioned I mean, is that something that already drives much stronger guided second half EBITDA performance? Thank you. Patrick Kelleher: Yes, sure. Let me take those and then, Baris, maybe you want to comment. From a North American market perspective, I think we are already seeing traction in terms of an accelerated growth agenda there. We've got a fantastic opportunity, great foundation, particularly in the strategic verticals that we see as very contributing to our growth going forward. There's a total market opportunity in North America, $250 billion. Michael Jacobs, who I said I've known for twenty years, he's been in the seat now for three months. And already intensified focus on operational performance. Increased labor productivity, which only makes us more competitive in the market, and he's really driving towards winning new business and allocating resources to solutioning sales and digital marketing, and I think that's critical to converting the pipeline that we have there. I think it's important to remind that the sales cycle for this business is six to nine months. Within a period of about six months to start up new business to realize full profitability of opportunities that are won. And so I think our guidance for 2026 accurately reflects stepping into that growth based on sales and start-up cycle. And that has us very excited for 2027 as well. It's a key focus of mine to reenergize our customer relationships in the region, and that's going to be a key focus of mine in this new era of growth and stronger execution that we've talked about. With respect to your question on margin expansion and margin opportunities, I believe firmly now six months in that there is a structural margin opportunity for GXO. In the near term, Baris can comment, our margins have been diluted by the delays to the Wincanton integration process, that begins to correct itself in 2026 as we deliver the $60 million run-rate synergies, which will be in place full run-rate by the end of the year. But, again, given my experience, I see no reason why GXO can't be performing at or better than our industry peers. We're definitely going to outline how that happens in the Investor Day 2026. Baris Oran: If I may add a couple of things on the Wincanton integration. Wincanton has traded solidly and is a contributor to our incremental year-over-year EBITDA results. We began the integration in the third quarter. We realigned the organization structure. And we are beginning to combine support functions, procurement benefits, become more obvious in '26 and beyond. Total to date integration benefits were around $15 million by 2025, including some in 2024. By 2026, as Patrick highlighted, we expect both businesses to be fully integrated, cost savings program to be implemented, and meaning we will enter 2027 with a full run-rate of $60 million. Which should provide us another $20 million year-over-year benefit is included in our guidance for 2026. In addition to cost synergies, the combined GXO, Wincanton teams are already contributing on new opportunities for new customer tenders which will accelerate GXO's growth protein to our target verticals. Patrick Kelleher: To the last question on productivity improvement, I would highlight especially our initiatives around rolling out GXO IQ. We are really excited about the opportunities AI presents for our business. GXO IQ is the path to implement AI across our 1,200 operations and how we're bringing AI to life. Kristine, maybe you can comment on our progress there. Kristine Kubacki: Hi, Patrick. Just to give you a little bit of background, I mean, we've been deploying proprietary AI modules across our sites for about eighteen months now, and it's in a number of sites. We got our actually, our first nonpilot savings just last year in 2025, so we're seeing very good things. We have gone from the pilot stage of GXO IQ in the second half of last year, and we're going to begin scaling that to more than 50 sites as we go through 2026. And then, you know, most of our new start-ups from here, so that will be existing sites, some existing sites, and then most new startups will be launched on the GXO IQ platform. So we're very excited about the things that we're already seeing, the opportunities in the pilots that we did in 2025. We will provide more details of how this rolls into the margin opportunity over the long term at our Investor Day later this year. Patrick Creuset: Thanks. Can I ask a follow-up just on that AI point? Just in terms of conceptually, what are the exact cost buckets that GXO IQ tackles? Is it sort of site-level SG&A more group functions, or something else? Patrick Kelleher: We have two dimensions that we're chasing in terms of our AI strategy. The one is, as you referenced on SG&A, improving overhead efficiency, refocus on our own operations. That's our functional activities. We'd look to leverage our corporate functions like HR, IT, finance more effectively. And AI plays a big role in that. We see ourselves leveraging market-available AI to drive those improvements. The second dimension is driving innovation within customer warehouse and transport operations. So some examples of that, we have AI modules deployed for dynamic route planning, proactive replenishment, slotting, forecasting, those will all drive to impact the cost basis for how we execute in our operations sharing that value with our customers, as we drive to lower cost, better service, the solutions that we provide. So we expect great results from those two areas of focus. Got a number of deployments already underway. And seeing good results of the work that we're doing. Patrick Creuset: Very clear. Thank you. Operator: Thank you. Our next questions come from the line of Jason Seidl with TD Cowen. Please proceed with your questions. Uday Khanapurkar: This is Uday Khanapurkar for Jason Seidl. Thanks for the question. Maybe a couple for Baris. On the organic growth guide, I think based on 26 locked-in wins. Appears to imply, like, a mid-single-digit churn rate. So maybe if you could confirm the algo there. Just curious if that implied churn is an estimate based on typical churn at this point in the cycle, or have those conversations with customers concluded? And then maybe if you see some support from the broad market, could you see, you know, outperformance on that this year? Baris Oran: Yes. On the retention rates, we assume steady retention for 2026 similar to 2025. And the inflation pass-through is also specifically valid for this business model. That's what makes us resilient. And as Patrick highlighted, we are assuming flat volumes in our existing operations, which we believe is prudent for 2026. We won already 6% of our gross growth and there will be more wins coming up this year, which is going to uplift our growth numbers. Uday Khanapurkar: Right. That makes sense. And maybe just to follow-up on the so you said the flat volume expectations for '26 embedded in the guide. On the US side, there's a few signals pointing to inventories being drawn down quite low and an impending restock. So, you know, maybe potentially better volume throughput in warehouses in the US. Is that something that you're seeing? And is the offset in the guide maybe implying a softer UK and Europe, or are your US trends maybe more discrete from the market? Baris Oran: In Q4, our trends in North America and the US were stronger than Continental Europe and UK. For 2026, it's early to call for the entire year. We just take a flat number for prudence. Just take it as prudence. Nothing more than that. Uday Khanapurkar: Alright. Fair enough. Very helpful. Thank you very much, guys. Operator: Thank you. Our next questions come from the line of Jeff Kaufman with Vertical Research Partners. Please proceed with your questions. Jeff Kaufman: Thank you very much, and congratulations with all the levers moving around and the changes going on. I just wanted to on the question on the operating environment I hear everything you're saying in terms of the new verticals and where we're on growing, but I want to see what the aggregate market is doing. I mean, it did look like US growth slowed a little bit. France and Italy slowed a little bit on the continent based on your numbers. Can you just tell us on the macro side, where you're seeing changes incrementally positive and negative either on a geographic or an industry vertical basis? Patrick Kelleher: Sure. I think the most important thing to call out there is that contract logistics outsourcing as an industry is increasing. Customers are increasingly looking at outsourcing as a very viable alternative to in-source execution of supply chain. I think the challenging macroeconomic environment only intensifies the value proposition that we have for our customers. We are able to invest in robotics automation AI, humanoids in a way that our customers cannot do for themselves. We have the people and the expertise to solve complex supply chain challenges. So as customers and potential customers are under challenging situations on a global basis across multiple geographies, the value proposition of contract businesses, our business, only strengthened. So we are not pinning our forward growth trajectory based on just the performance of the overall broad economy. We want to be a part of solving customer problems and opportunities in the challenges that they face in good times and bad. And I think for the thirty-two years that I've been in the supply chain, industry, contract logistics, specifically, the industry has continued to grow regardless of those macros. We'll be very responsible in terms of how we are guiding on our performance within the year, as it relates to how volumes are going to materialize for customers in the year. But as we look to the long term, we're really confident that we're playing in the right industry. It's a growing industry. We are a market leader in the industry, and we've got a great opportunity to capitalize on that industry growth. Jeff Kaufman: And just to follow-up on that, and I think in Kristine's presentation, she was talking about humanoids and how tech is changing. But and I know you'll hit this on the Investor Day, but can you talk a little bit about AI and how that's changing where automation versus, say, the warehouse automation concept that you were selling twelve or even twenty-four months ago? Patrick Kelleher: Yeah. Sure. You know, a simple example, I think, is there's an opportunity to use AI to solve for the completion of repetitive tasks that our team members don't want to do. There's efficiency in getting those repetitive tasks done either more quickly or more cost-effectively. But the bigger benefit that we're seeing as AI is becoming more sophisticated is the upstream and downstream impacts that AI focused on a process can have on other connected processes. So when we look at AI that we have deployed in one of our large e-commerce warehouses, today for forecasting where we're able to use AI to forecast demand in the e-commerce environment, which is inherently unpredictable, we are able to do Monte Carlo analysis around how a forecast may come in based on weather, promotional, and so forth. And create models for labor planning to be able to respond quickly to what actually happens in reality. So AI, in that case, didn't necessarily make the picking and processing activity more cost-effective, but it made the labor planning more cost-effective allowing us to put labor in the operation when it's needed, when it could be most productive, eliminating a team member downtime, people who are there without work to process, and we are really focused at not only leveraging AI for discrete activity, which is where I think we were a couple of years ago as an industry, but how do we look at the connected benefits of various AI tools, improving processes, and how do we improve overall execution and as a result of that. And I think that for me, paints a very exciting landscape for where AI and then humanoids and robotics and automation play driving cost reduction service improvement for our customers. Jeff Kaufman: Thank you very much. Operator: Thank you. Our next questions come from the line of David Zazula with Barclays. Please proceed with your questions. David Zazula: Wondering if I could ask on how the rollout with NHS is going. I think you'd previously talked about some opportunities to expand that relationship. Have those talks progressed at all, and any outlook on the NHS side? Thank you. Patrick Kelleher: Sure. So the NHS business implemented late third quarter and all the way through the fourth quarter of last year, that is continuing on plan and our team members in the UK are doing a fantastic job of providing amazing service to the NHS. And we're very pleased with how that is progressing. We have built up a pipeline with the NHS. We're progressing on that. We're confident that there's a great opportunity to grow our relationship there as well as that being a great foundation for continued growth in life sciences and the relationships that we're building. Through that execution for NHS and the capabilities that we're able to bring to market as a result of work that we're doing, especially from the Wincanton acquisition and our team members who came from Wincanton are just amazingly talented in this area. We're already seeing the benefits of that in the pipeline. And as mentioned, some of the new business wins that we had in the fourth quarter. David Zazula: So if I'm hearing you right, it sounds like having NHS as an anchor customer gets you into ecosystems that you didn't have access before. And that's creating some incremental commercial opportunities? Patrick Kelleher: I think that is absolutely correct. And we see ourselves in that growing with not only the NHS, but that is the foundation for growth in the space. And that is very similar to the approach that we're taking in aerospace and defense, by the way. We have a great foundation of business in aerospace and defense, only enhanced by the acquisition of Wincanton capabilities they brought there. And we're seeing similar momentum in terms of building on that foundation. And, Kristine, maybe. Kristine Kubacki: Yeah. David, just to add color a little bit there. I think as we announced the NHS deal back in the fourth quarter of last year, that is really the landmark deal that's got us in the marketplace and really got noticed. We added, you know, great names like Siemens Healthineers and Fresenius. And as I mentioned, that in the last twelve months, the pipeline in life sciences alone has more than tripled. So, really, that's a result of the importance of the NHS win. And now with the start-up, going very successfully, we think that momentum only continues. David Zazula: Great. Thanks for the color. Operator: Thank you. Our next questions come from the line of Kevin Gainey with Thompson Davis. Please proceed with your questions. Kevin Gainey: Patrick, Baris, Kristine. Maybe if you could touch on the North American expansion. How you're thinking about it as an opportunity for organic growth. Or maybe you would want to visit that via acquisition and then does the North American market represent maybe the most outsized organic growth opportunity for GXO? Patrick Kelleher: Sure. I can answer that very quickly. North America is a priority for organic growth. And it will be the primary driver. Organic growth will be the primary driver of growth in North America. See a great opportunity there. We've got a great foundation of the business. We are underrepresented in North America. In contrast to our participation in the UK and Europe. And so we are very confident that we have upside there. We're executing that to that end. Pulling in the question on M&A, our M&A strategy is to invest in areas where we can accelerate our growth. We want to be very selective around M&A. Our M&A priorities really center on North America, and the strategic verticals that we're focused on, aerospace, defense, industrial technology, life sciences as I've mentioned. Don't have M&A in our short-term agenda. That'd be in the next couple of months. From a capital allocation perspective, we're very focused on investing in organic growth. We want to continue to deleverage the balance sheet which will get us greater flexibility as we move through 2026. Baris, how many? Two and a half times right now? Baris Oran: Yeah. And moving towards two. At the 2026. And then beyond that, from a capital allocation perspective, we'll take a very balanced approach as it relates to M&A opportunities and share buyback. But to round out your question, North America is a big focus for organic growth. Kevin Gainey: Appreciate all the color there, Patrick. And maybe for Baris, just one last one on cash flow conversion. Talk maybe if you could talk about the confidence in raising the guide there and what drove that. Baris Oran: Yep. We have lower M&A transaction costs in 2026. And we do have an opportunity to improve our working capital management throughout the year. Our CapEx has been as a percentage of revenue will be roughly the same. The delta will come from less transaction costs and better working capital management. Kevin Gainey: Perfect. I appreciate this. Taking my questions. Operator: Thank you. Ladies and gentlemen, that is all the time we have for questions today. I'd like to hand the call back over to management for any closing remarks. Patrick Kelleher: Thank you, operator. Before we close, for me, the message is really clear. I want to leave this with you and a straightforward message that GXO is accelerating. Deliberately and from a position of strength. Our fundamentals are very strong, the team is aligned, and GXO is poised to perform in a higher gear. We see clear opportunity to unlock organic growth and margin expansion through sharper commercial focus, greater operational consistency at scale, disciplined execution of our US growth opportunity. While several leaders have joined only recently, the increased alignment across our leadership team is already proving to be an accelerant. Strength is further reflected in GXO's recent recognition as one of Fortune's most admired companies. This recognition would not have been possible without the dedication and performance of the entire GXO team. And the vision of our founder, Brad Jacobs, who stepped down as chairman at the end of last year. Our future path will always be rooted in the foundations of culture, and performance that Brad espoused. I heard him say recently, move boldly and with speed and I think that personifies our path at GXO. On behalf of our employees, I want to thank Brad for his leadership in building a truly category-defining company and we wish him continued success. With that, thank you for your questions and your continued interest in GXO. Look forward to speaking with you again soon. Thank you so much. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good morning, everyone, and welcome to the Westinghouse Air Brake Technologies Corporation Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please say no conference specialist by pressing the star. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Kyra Yates, Vice President of Investor Relations. Please go ahead. Kyra Yates: Thank you, operator. Good morning, everyone, and welcome to Westinghouse Air Brake Technologies Corporation's fourth quarter 2025 earnings call. With us today are President and CEO, Rafael Ottoni Santana, CFO, John A. Olin, and Senior Vice President of Finance, John Mastlers. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, Kyra, and good morning, everyone. Before John and I get into the details of the fourth quarter, I'd like to take a moment to reflect on our performance over the past year and share my thoughts on the year ahead. 2025 was another outstanding year reflecting the strength and resilience of our business model and our ability to execute in dynamic markets. We delivered top-line growth of 7.5% and grew adjusted EPS by nearly 19%. We accomplished all of that while converting a record orders pipeline into a very strong multiyear backlog. As we move into 2026, our orders backlog and pipeline momentum remain very strong, supported by growing demand. We also advanced our strategic priorities through acquisitions and integration initiatives, unlocking synergies and driving operational efficiencies. To these ends, we're very pleased with the businesses that we acquired in 2025, the teams that came with these businesses, and the strong financial results that we have seen from day one of our ownership. Additionally, our efforts on integration, cost management, and simplification continue to exceed our expectations. As we exit 2025, the underlying momentum of our business gives us the confidence in delivering another strong cycle. We expect 2026 to mark our sixth consecutive year of mid to high teen adjusted EPS growth, positioning us to drive very significant long-term value creation. Finally, our financial position remains strong. We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning value to our shareholders. As a result of our performance in 2025 and our confidence in the future, our Board of Directors has increased our dividend by 24% and has increased our share buyback authorization to $1.2 billion. This is the strongest position our company has been in, and we're both confident and determined about the years ahead. Let's move to Slide five to discuss our fourth quarter results. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials. We delivered another strong quarter. Sales were $3 billion, which was up 15%, and adjusted EPS was up 25% from the year-ago quarter. Total cash flow from operations for the quarter was $992 million, representing a very strong cash conversion. The twelve-month backlog closed the year at $8.2 billion, up 7% from the prior year, while the multiyear backlog surpassed $27 billion, up 23%. These backlog results will drive our continued revenue and earnings momentum and provide us strong visibility and revenue coverage in 2026. Shifting our focus to Slide six, let's talk about 2025 end market expectations in more detail. While key metrics across our freight markets remain mixed, we are very encouraged by the overall strength of our business, the momentum we're seeing in international markets, and the continuing pipeline of opportunities across geographies. In North America, carload traffic was flat in the quarter, which resulted in fewer active locomotives. However, the locomotives that were in service operated at a higher intensity compared to last year, demonstrating the critical role our technology and solutions play in driving efficiency for our customers. Internationally, carloads continue to grow at a robust pace across core markets such as Latin America, Africa, India, and Asia. Significant investments to expand and upgrade infrastructure are supporting our international orders pipeline. Looking at the North America railcar build, as discussed last quarter, demand for new railcars was down compared to the prior year and landed at approximately 31,000 cars for 2025. The industry outlook for 2026 is expected to be 24,000 cars, down another 22% versus 2025. Finally, moving to the transit sector, we continue to see underlying indicators for growth. Ridership levels are rising in key markets such as Europe and India, and we are seeing high backlogs at car builders alongside increased public investment for fleet expansion and renewals. Next, let's turn to Slide seven to discuss a few business highlights. This quarter, we converted more than $2 billion of pipeline into new locomotive and modernization orders for North American customers. An important milestone that reflects our customers' long-term commitment to invest in their fleets and further strengthen what is now our largest multiyear backlog for North America. We are seeing some customers capitalize on strong fleet investment returns. This is not just about upgrading assets. It is about improving service levels for their customers, lowering total cost of ownership, reducing obsolescence, and positioning fleets for the next generation of technology-enabled operations focused on safety, reliability, and availability. We expect orders to follow this trend, reinforcing the long-term demand for Westinghouse Air Brake Technologies Corporation's innovative solutions. Moving to digital, we secured $75 million in orders for PTC and Kinetics in key international markets such as Brazil and Kazakhstan. Also in the quarter, we delivered the first battery-electric heavy haul locomotives to BHP. An important milestone for Westinghouse Air Brake Technologies Corporation and the industry. These locomotives are engineered to perform in one of the world's most demanding environments, leveraging advanced energy management technology, including regenerative braking, to maximize efficiency and significantly reduce emissions. Together with BHP, we are demonstrating how cutting-edge solutions can help meet operational needs while advancing sustainability efforts. Finally, I'm excited to bring Frauzer Sensor Technologies into Westinghouse Air Brake Technologies Corporation following the closing of that acquisition in December. This business is a market leader in train detection, wayside object control solutions, and axle counting systems. In addition, we are pleased to share that we closed on the acquisition of Downer Couplers yesterday. This acquisition will further strengthen our position in critical rail technologies. With that, I'd like to welcome both the Frauzer and Delner employees to Westinghouse Air Brake Technologies Corporation. All of this demonstrates the underlying strength across our businesses and the strong pipeline of opportunities which we continue to execute on. Moving to Slide eight, I want to briefly discuss how we are positioned to deliver strong and sustainable results. Over the past five years, Westinghouse Air Brake Technologies Corporation has built a track record of navigating challenging markets, geopolitical uncertainty, hyperinflation, tariffs, and other significant disruptions, and 2025 was no exception. Our success is driven by a highly committed management team and industry-leading technologies, allowing us to remain resilient and relevant to our customers and our stakeholders. Our twelve-month backlog of $8.2 billion provides visibility and support for growth. This backlog has consistently grown over the past five years, even amid a relatively flat North American rail market and a volatile macro economy, thanks to the innovation and the high level of recurring revenues that our products generate. Our ability to expand operating margins across the business reflects disciplined execution by driving continued productivity, simplifying the organization, managing costs, and pricing for the value we deliver. Finally, we have also demonstrated our ability to consistently generate strong cash flows, with cash conversion averaging 99% over the last six years. Looking ahead, we are confident that our execution, combined with the strength of our business and leading technologies, will result in Westinghouse Air Brake Technologies Corporation being resilient through the economic cycles, delivering profitable growth, and driving superior shareholder returns. Turning to slide nine, before turning it over to John, I want to highlight the significant fleet renewal opportunity that remains in North America. Fleet renewal is not discretionary. It is a critical lever our customers have to improve operating ratios, enhance service for their customers, and strengthen their overall competitiveness. As I mentioned last quarter, North America railroads are still operating an aged fleet. Today, more than 25% of active locomotives are over 20 years old, and 25% still run on DC technology. This aging fleet creates a compelling case for continued modernization. As locomotives age, failure rates and maintenance costs rise, making modernizations a highly attractive return on our customers' investment. We have also noted the operational advantages of AC technology. For every three DC locomotives, customers can replace them with approximately two AC units, enabling Class 1s to reduce fleet sizes while improving productivity and reliability. This helps address obsolescence, reduces maintenance costs, and enhances service levels, all while providing our customers with impactful returns on their investments for modernizing their fleets. To help our customers capture these benefits on additional fleets, we're excited to launch our first-ever EVO modernization program in 2026. The Evolution Series locomotives, first introduced in 2005, are now reaching an age where modernization becomes increasingly compelling. Our new EVO modernization builds upon our proven EVO engine platform and is designed to deliver meaningful operational impacts to optimize performance, reduce costs, and advance their long-term strategic objectives. Key new technologies, such as an upgraded control system and EVO Advantage, will be available as part of this EVO Mod. This product is expected to deliver greater than 20% improvement in reliability and tractive effort by replacing DC traction motors and replacing aged electronics and control systems. In addition, the new mods with EVO Advantage are expected to drive up to 7% improvement in fuel savings. Overall, we're excited about the significant value modernizations will unlock for our customers and for our business. We remain confident in the long-term opportunities ahead. With that, I'll turn the call over to John to review the quarter segment results and our overall financial performance. John? John A. Olin: Thanks, Rafael, and hello everyone. Turning to slide 10, I'll review our fourth quarter results in more detail. Overall, the quarter came in slightly ahead of our expectations for both revenue and EPS. Cash from operations significantly exceeded expectations, while operating margins were lower than planned. Operating margins were adversely impacted by higher compensation expense driven by our outstanding operating cash flow and cash conversion performance during the quarter. Sales for the quarter were $2.97 billion, which reflects a 14.8% increase versus the prior year, with strong contributions from both the freight and transit segments. As expected, Q4 sales benefited from very strong organic growth behind strong orders and sales momentum, along with catch-up on locomotive deliveries that shifted from the second quarter due to a supply part issue. We also delivered strong inorganic growth led by Inspection Technologies, which outperformed our acquisition plan. Excluding the impact of currency, Q4 sales were up 13.2%. For the quarter, GAAP operating income was $356 million. The increase was driven by higher sales and improved gross margin as we continue to focus on productivity and simplification. GAAP operating margin fell in the quarter due to higher restructuring and transaction costs. Adjusted operating margin for the quarter was 17.7%, up 0.8 percentage points versus the prior year. This increase was driven by improved gross margins of 2.1 percentage points, which was partially offset by operating expenses, which grew at a higher rate than revenue. GAAP earnings per diluted share was $1.18, which was down 4.1% versus the year-ago quarter. During the quarter, we had net pretax charges of $55 million for restructuring, which were primarily non-cash and related to our integration and portfolio optimization initiatives, to further integrate and streamline Westinghouse Air Brake Technologies Corporation's operations, as well as transaction costs related to most recent acquisitions. In the quarter, adjusted earnings per diluted share was $2.10, up 25% versus the prior year. Overall, Westinghouse Air Brake Technologies Corporation delivered a very strong quarter, demonstrating the underlying strength and momentum of the business. Now turning to slide 11, let's review our product lines in more detail. Fourth quarter consolidated sales were up 14.8%. Equipment sales were up 33.5% from last year's fourth quarter. For the year, equipment sales were up a strong 12.2%. Our services sales were down 5% as expected, and as we discussed in our third quarter call. This was driven by the timing of modernization deliveries. Component sales were up 11.1% versus last year. For the full year, services had revenue growth of 1.2% despite mod deliveries being significantly down year over year, which demonstrates the strength of the core services business. Due to growth seen in industrial products offsetting the impact from the significantly lower North America railcar build. For the year, component sales were up 2% despite North American railcar build being down 27%. Digital intelligence sales were up 74.4% from last year. This was driven by the Inspection Technologies and Fraucher Sensor Technology acquisitions. When excluding acquisitions, digital was down 1%. For the year, digital sales were up 31% driven by acquisitions. In our 6.7% driven by our products and services businesses. For the year, Transit was up 7.3%. Foreign currency exchange had a favorable impact on sales of 4.7 and 2.2 percentage points for the quarter and total year. Moving to slide 12. GAAP gross margin was 32.6%, which was up 1.7 percentage points from the fourth quarter last year. Adjusted gross margin was up 2.1 percentage points during the quarter. Our team continues to execute well by driving operational productivity and lean initiatives in an effort to offset higher material costs, primarily a result of incremental tariffs. GAAP operating margin was 12%, which was down 0.9 percentage points versus last year. Adjusted operating margin improved 0.8 percentage points to 17.7%. Operating margin was positively impacted by cost recovery from escalation, increased productivity, integration savings, partially offset by unfavorable mix and higher tariff costs. Adjusted SG&A expenses were higher year over year due largely to SG&A expense associated with our acquisitions and higher compensation expense for our employees tied to our very favorable cash performance in the quarter and for the year. GAAP SG&A was up an additional amount over adjusted SG&A due to restructuring expense associated with our integration two point zero and three point zero and portfolio optimization costs associated with divestitures. Engineering expense was $68 million, $17 million higher than Q4 last year, primarily due to acquisitions. Now let's take a look at the segment results on slide 13. Starting with the Freight segment. As I already discussed, Freight segment sales were up a very strong 18.3%. GAAP segment operating income was $318 million, driving an operating margin of 15%, down 0.2 percentage points versus last year. GAAP operating income included $50 million of restructuring costs, portfolio optimization charges, and was adversely impacted by purchase accounting charges resulting from our acquisitions. Adjusted operating income for the Freight segment was $470 million, up 35.1% versus the prior year. Adjusted operating margin in the Freight segment was 22.1%, up 2.7 percentage points from the prior year. The increase was driven by improved gross margin, even despite mix headwinds and tariff impacts. The increase in gross margin was partially offset by an increase in our operating expenses expressed as a percentage of revenue. Finally, segment twelve-month backlog was $6.02 billion. Our twelve-month backlog was up 8%, while the multiyear backlog of $22.49 billion was up 25.1%. Turning to Slide 14. Transit segment sales were up 6.7% at $842 million. When adjusting for foreign currency, transit sales were up 2%. GAAP operating income was $108 million. Restructuring costs related to Integration two point zero and three point zero and portfolio optimization were $4 million in Q4. Adjusted segment operating income was $118 million. Adjusted operating income as a percent of revenue was 14%, down 2.4 percentage points from the prior year, driven by higher operating expenses as a percent of revenue. Finally, Transit segment twelve-month backlog for the quarter was $2.21 billion. Our twelve-month backlog was up 5.1%, while the multiyear backlog was up 14.7%. Now let's turn to our financial position on Slide 15. Fourth quarter cash flow generation was very strong at $992 million, resulting in total year cash from operations of $1.76 billion and cash conversion of 104%. During the year, flow benefited from significantly higher net income and higher year-over-year down payments, partially offset by tariff headwinds. Our balance sheet and financial position continue to be very strong, as evidenced by first, our liquidity position, which ended the quarter at $3.21 billion, and our net debt leverage ratio, which ended the fourth quarter at 1.9 times after funding the purchase of Browser Sensor Technology for approximately $765 million. Our leverage ratio remained in our stated range of two to 2.5 times after closing on the acquisition of Delner. During the year, we repurchased nearly $223 million of our shares and paid $173 million in dividends. As a result of our performance in 2025 and our confidence in the future, our Board of Directors approved a 24% increase in the quarterly dividend. Our Board also increased our existing share repurchase authorization to $1.2 billion. We continue to allocate capital in a very disciplined way to maximize returns for our shareholders. Moving to Slide 16, I'd like to provide an update on the progress that we've made on our integration portfolio optimization initiatives. Starting with Integration two point zero, when we originally announced, we indicated that the initiative would deliver an incremental $75 million to $90 million of run rate cost savings by 2025. With program-to-date restructuring expenses of $149 million, we exited 2025 having achieved $103 million of run rate savings. With the program largely complete and ahead of original expectations, Integration two point zero was a clear success. And importantly, we have carried that momentum forward as we execute our Integration three point zero initiative, which we announced in early 2025. When we introduced Integration three point zero, we outlined an incremental $100 million to $125 million of run cost savings by 2028. I'm pleased to report that our team has delivered strong early performance. In the first year alone, we generated $49 million of run rate savings at a cost of approximately $50 million. Given this performance, we are raising our guidance. We now anticipate $115 million to $140 million of run rate savings by 2028, with anticipated expenses of $125 to $155 million. Turning to our portfolio optimization initiative, we have continued to execute against all planned dispositions of non-strategic product lines, actions designed to strengthen our focus, improve profitability, and reduce manufacturing complexity. During 2025, we exited $72 million of low-margin non-strategic revenue and expect to exit an additional $60 million in 2026. Overall, we remain very encouraged by the team's execution and the value these initiatives continue to unlock across the company. Now moving to slide 17, let me quickly recap the year. Overall, the team delivered a great year for all our stakeholders. We generated 7.5% revenue growth, expanded adjusted operating margins by 1.4 percentage points, and increased adjusted EPS by 18.7% while delivering very strong cash flow. The resiliency of the business combined with disciplined execution positions us for a solid foundation for continued profitable growth as we enter 2026. With that, I'd like to turn the call back over to Rafael Ottoni Santana. Rafael Ottoni Santana: Thanks, John. Now let's turn to Slide 18 to discuss our 2026 outlook and guidance. We continue to see underlying demand for our products and solutions across the business. Our pipeline is very strong, and both our twelve-month and multi-year backlogs provide clear visibility to profitable growth ahead. Our team is fully committed to driving top-line growth and margin expansion in 2026. With these factors in mind, we expect 2026 sales of between $12.2 billion to $12.5 billion, up 10.5% at the midpoint, and adjusted EPS to be between $10.05 and $10.45, which represents 14% growth at the midpoint. It is important to note that this guidance incorporates the expected impact from the Delner acquisition. As we discussed earlier, our cash conversion performance has been very strong, and we expect that to continue. Over the past two years, we have delivered an average of over 110% cash conversion, which is a testament to the strength of our operating discipline. Best-in-class cash conversion has been and is expected to remain a hallmark of investing in our company. While we will continue to provide long-term cash guidance, beginning 2026, we'll no longer be providing annual cash conversion guidance. I remain confident that Westinghouse Air Brake Technologies Corporation is well-positioned to drive profitable growth and maximize shareholder returns in 2026 and beyond. Now, let's wrap up on Slide 19. As you heard today, our team continues to execute against our value creation framework and our five-year outlook, driven by the strength of our resilient installed base, world-class team, innovative technologists, and our customer-focused approach. With solid underlying demand for our products and technologies, and a rigorous focus on continuous improvement and cost management, we feel strong about the company's future and our ability to maximize shareholder returns. With that, I'd like to thank our team for their great work this year and their continued commitment to drive top quartile performance. I'll now turn the call over to Kyra Yates to begin the Q&A portion of our discussion. Kyra? Kyra Yates: Thank you, Rafael. We will now move on to questions. But before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question. Operator: One. If you are using a speakerphone, we do ask you please pick up your handset prior to pressing the keys to ensure the best sound quality. If at any time your question has been addressed or you'd like to withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. Our first question today comes from Angel Castillo from Morgan. Please go ahead with your question. Oliver Z Jiang: Hi. It's Oliver on for Angel. Thanks for taking our questions. We just wanted to talk about the recent flurry of orders that you guys had announced. You know, with those signed, does your pipeline of opportunities, you know, potentially narrow a little bit? And if not, could you talk about how that's grown across different regions and different end markets? Any color there would be super helpful. Rafael Ottoni Santana: So now we continue to have a very strong pipeline of opportunities, and internationally it's very, very strong. Our teams are continuing to work very hard to convert that pipeline into orders. And it speaks to really some markets where we have a strong presence. Places like Australia, Brazil, East Asia, we continue to have opportunities in Africa and parts of the CIS region. Of course, we are encouraged by the momentum we saw here in North America. I think this reflects ultimately strong customer commitment to win and grow the business through improved reliability, lower operating costs, better fuel efficiency, and reduced fleet obsolescence. So as we look at aging fleets out there, I think that's much more pronounced in North America. And that continues to be probably the single biggest powerful tailwind we have in the company. Oliver Z Jiang: Got it. Thanks, Raj. So that's super helpful. And then just on your components business, I know your railcar deliveries are to be down 20%, 25% again this year. Can you talk about potential offsets there, whether it's in the industrial business or the heat transfer piece? Potentially, do you see that growing to offset some of that decline? Rafael Ottoni Santana: Thank you. So as we look into 2026, every single one of our businesses, we see them driving profitable growth. With regards to the components business, I think we're very pleased with the progress there despite the softer freight car builds. I think those teams have continued to take decisive action to adjust the cost structure to new volume levels. And what I like about what I'm seeing there, and it's across the company, is really the portfolio is working. Right? I mean, we've made investments, but if you think about the organic plays or inorganic plays in the case of Freight Components, some of the investments we've made in the heat exchanger business in industrials is really paying off, and that's where you see some of those offsets taking place along those businesses. To continue to perform. Operator: Our next question comes from Scott Group from Wolfe Research. Please go ahead with your question. Scott Group: Hey, thanks. Rafael, can you just kind of go through that bit about the cash conversion and the guidance change and just the rationale there? Rafael Ottoni Santana: Yes. Hey, Scott. Number one, very strong cash conversion for the business as we expected. We're continuing to operate and reward our stakeholders in the business based on cash performance. So that continues to be paramount for the company. We continue to have very strong variation. As you see it not just quarter to quarter, year to year, it's certainly more pronounced as you go into some of the international deals and you collect cash earlier, we expect to continue to improve. Cash performance in the company. Yes, Scott. With regards to the overall guidance, we continue to shoot for above 90% in our long-term guidance. As we look at what we've done over the last six years, we've averaged 99% on a business that is growing its working capital quite substantially as our revenues and profits have grown very much since then. And actually, Scott, if you look at the last two years, we've been up 110%. Average cash conversion. So with that, we'll continue to stay focused. Our comp plans are all very much tied into cash, both short-term and long-term. And it has become a hallmark of an investment in Westinghouse Air Brake Technologies Corporation. But with that, we'll continue to shoot for the 90%. But in terms of an annual guide, we're pulling the 90% this year. Scott Group: Okay. I think I understand. This transition we're starting to see with fewer mods and more new, I guess, should we think about the net impact here? Maybe just a couple of things to just do you think our sales with the class one rails growing this year and then sort of this shift to more new, how do we think about the net impact to margins for that business and I guess bottom line? With this shift? Rafael Ottoni Santana: Let me start here, Scott, first with regards to new units and mods. We continue to see the combination of that at a global level growing. Well, while I say that's true for the globe, it's not true for North America. And especially driven this year again by mods. Last year, the modernizations, we had a pronounced decline. It was double digits. It's more pronounced this year. And we have seen a shift towards some of the tier four units. With that being said, I think we continue to see a modernization of the aged fleet in North America, one of the most powerful tailwinds we have as we continue to really invest in solutions. We just announced the Evo Advantage, and that opens up a fleet that's growing to really 10,000 units here. It's a global fleet with, I'll call, very compelling elements of payback tied to fuel efficiency, tied again to reliability. So, I think we're continuing to invest in that, and that's going to be a very compelling piece of it. But new locomotives are certainly making more and more headlines there in terms of investment. Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question. Ken Hoexter: Hey, great. Good morning. Hey, I'm on a plane, so I'll be quick. So just given the orders, what was in the backlog and what is new when you think about those recent announcements? And then thanks for the update on the backlog, but in your outlook for EPS, can you talk about what the upside downside to the target is? Rafael Ottoni Santana: With regards to what's in the backlog, Ken, it's everything that was done in the fourth quarter is certainly in the backlog. So when we talk about the $2.2 billion on our key wins sheet, that's all in backlog. Ken Hoexter: Right? Rafael Ottoni Santana: And when we talk about things in the pipeline, which Rafael did, they're not in the backlog yet, but as they convert, they will certainly be put in the backlog. Now when we look at overall guidance, Ken, we feel real good about where we're at. And the range that we have there. We've got a fair amount, we got a lot of good things happening within our business. We have some headwinds. We just talked about mods but also on the railcar build. But with that, we've also got a fair amount of headwinds with regards to tariffs coming at us. Right? We've seen in the third quarter to fourth quarter, a significant increase in the cost of tariffs as things come out of inventory in through the P&L, we would expect that to see the same type of dynamic in 2026 and in particular the first half while we are running all our mitigants against that. So we believe we've got a very balanced plan and a good guide as we go into 2026 to manage any eventualities that come at us. Ken Hoexter: Thanks, John. I guess my question was of all the Class one rails that have just put out orders, were half of those already in the backlog as of last quarter? Is it all new? And then follow on would be just thoughts on the first new build order from Progress Rail in a long time. Is that likely to see something you're seeing increasing competitive step back in? Thanks. Rafael Ottoni Santana: For clarity, Ken, everything that we've announced on the Class 1s, some of those have been announced this quarter, they are in last quarter's backlog. We signed those agreements in 2025. And so there's nothing that we've done that is not in the backlog at this point. With regards to your second part of your question, I'm not going to comment on the specifics of a competitor order. What I'll tell you is very confident about the portfolio of solutions we have. In the case of Tier four in specific, this is about really proven reliability, availability of over 1,000 units that we got running out there. Those are units that we've continued to really invest and to continue to further create advantages versus competitive products that are out there. So we're very confident about that portfolio. When it comes to Tier four and when it comes to modernizations as well. So you'll see us keep being advancing that and coupling that with really a lot of the elements of software and the digital electronics, digital intelligence business. So we're not sitting on our laurels. We've got the best products that are out there. And we're certainly investing to make them better. Operator: Our next question comes from Jerry Revich from Wells Fargo. Please go ahead with your question. Jerry Revich: Yes, hi. Good morning, everyone. Jerry. Hi. Rafael, so really nice to hear the Evo Class locomotives are entering the commercial phase of the rebuild cycle. Can you talk about based on customer interest and the pipeline, when do you expect to see those locomotives enter the rebuild pipeline and separately what are lead times like today for North America? I know combine mods plus new. Can you just talk about the overall lead times in the facilities, if you don't mind as well? Rafael Ottoni Santana: They are entering that phase. So some of the first evals delivered back in 2005. So that makes it again a compelling case here. On that. I think that's a positive for the overall business. In terms of lead times, it will depend very specifically on the fleets that you're looking at it. But I'd say at this point, when we look especially at 2026, we've got the coverage we need. Regards to both mods and new units. So discussions with regards to new programs would really for most of it sit towards 2027 and beyond. Which is, by the way, where most of really the orders that have been announced, it really sits on '27 and beyond. From that perspective, Jerry. Jerry Revich: Super. Thank you. And then obviously very active M&A environment for you folks over the past couple of years and know it's early on Delaware in particular, but I'm wondering if we could just talk about how your expectations for the performance of the business have evolved since you've announced the acquisition acquisitions and anything interesting in terms of opportunities that you're seeing as you're integrating the assets? Rafael Ottoni Santana: Gerry, a couple of comments. We just had our Board meeting last week and we actually reviewed the acquisition since 2019. And we're ahead of pro forma great IRRs on those. With regards to specifically the three announced last year ahead of pro forma really strong performance from that perspective. I think some of my comments I mean, it's good to see, let me take just the case of Avnet. We've got three new product introductions happening on that business on each one of their product lines. And that coupled with I'll call it just a global reach we have, we're seeing strong interest on that. We've got one of the products, it's on the RVI on the remote visual inspection. The other one is on the MDT side with ultrasonic and the other one on the ANI piece of that. Strong demand, we're having to really make sure we continue to invest in the supply chain to support that. So positive dynamics, it's great to see the teams we brought on board and good progress. Early days, first six months here for Avnet and FrauShare we just announced, but good momentum. Operator: Our next question comes from Steve Barger from KeyBanc. Please go ahead with your question. Christian Zyla: Good morning. This is Christian Zyla on for Steve Barger. Thanks for taking my questions. Hi, Christian. With orders and backlog so strong, can you just talk about how that impacts your near-term and long-term visibility? Your twelve-month backlog is nearing annual levels, and your total backlog is about two years' worth of sales now. So do you guys just have better than usual visibility into 2027? And are customers giving you longer road maps or more information about the modernization efforts long term? Rafael Ottoni Santana: So near term, I'd say if you look at the coverage we have for '26, it's really consistent with the coverage we had a year ago. And of course, that's not including the acquisitions that we did, those have shorter lead times. So the coverage there is a last, but very consistent. From that perspective. When you look at '27 beyond, it's stronger. Debt coverage. And with that, I mean, we have also a very strong pipeline. So that gives us really think a good opportunity here. To convert more orders and really add into that coverage for 2027 and beyond. Christian Zyla: Got it. And then there just seems to be a pickup in new builds for locomotives and mod activity along with maybe an inflection in over road freight? Like do you see those as indicators to overall freight improvement? Just what are your thoughts on kind of how that inflection is playing out? Thank you. Rafael Ottoni Santana: I think you're to separate a little bit here. North America from international in some of that regard. We're continuing to see strong demand internationally. I think we've been quite specific about fleets growing at a base of 5%. So that continues to be very robust. Megawatt hours, which is really fleets are running harder as well. So that's quite a positive. When you look at North America, the dynamic short term '26 we're actually going down when you look at the elements of both modernizations and new units. I think it's very important to keep that in mind. By the way, when you think about our service business, overall, while the core of service is really strong, numbers are coming down. And it's a function of really modernizations. Driving that. The core service business continues to be very strong. It's one that it's expected to continue to outperform the growth average of the company over time. The fleets are running harder in North America. So the megawatt hours are tracking in the right direction. But we've got lower dynamics going to the modernization, which is alcohol pulling some of those numbers down. But I think it's very important to emphasize that underlying trajectory of the core growth of service remains solid, strong, and above mid-single digits as we look into 2026 and beyond. Operator: Our next question comes from Brady Steven Lierz from Stephens. Please go ahead with your question. Brady Steven Lierz: Yes, great. Thanks. Morning, everyone. Rafael, I just wanted to follow-up on some of the EVO mod commentary from earlier. Is there any way you can help us think about the size of the EVO mod opportunity compared to the over 2,500 mods you've already completed? And just do any of your recently announced mod orders with the class ones include this new EVO modernization product, or are they all still FDL? Rafael Ottoni Santana: So we would expect first programs on EVO to start this year, Meninck, to progress with customers there. I think that opens a significant opportunity. That fleet's growing to be close to 10,000 units globally. That's an important installed base. That we have with really very strong track record on that product. I think the biggest opportunity really immediately continues to be this aging fleet. We talk about when you think about the active fleet, over 25% of units are still DC traction. Just an enormous opportunity here for significant payback for customers. And as I mentioned before, we see that as one of the most powerful tailwinds for the company in that regard. And those units are also over 25% over 20 years of age. So at that point in cycle, so we continue to see opportunities for that to continue to happen, and it's more pronounced in North America. Brady Steven Lierz: Great. Thanks. That's helpful color. Maybe just as a quick follow-up, John, SG&A was up a pretty meaningful amount sequentially and year over year. Could you just help us understand what drove the increase? I know in your remarks you mentioned higher incentive comp. Was that really the majority of the driver? Just any color there would be helpful. John A. Olin: Yes. So there's two things, Brady, that drove it. One is just the acquisitions. Now we've got the SG&A for Evident and Fraucher in those numbers. But in addition to that, is the comp accrual that we had in the fourth quarter was much higher than what we had anticipated. So as we talked about cash a little bit earlier, right, cash is a hallmark of our investment in our company, and we take it very seriously. And we do have it in our comp program, both our bonus and our long-term. As we got to the through third quarter, we're about 57% cash conversion. We were expecting more in the 90% range on the year. But the team knows how important it is, and they did a fantastic job of bringing in working capital. And we finished the year with an incredible cash conversion in the fourth quarter, almost 300 percent and $992 million of absolute cash. So with that, it comes with a compensation accrual. And it doesn't come with additional earnings on that, right. So that pushed our SG&A up as a percent of revenue. But we feel really good about the overall dynamics of our margin in the fourth quarter. When you look at the driver of margin, our gross margin was really strong, up 2.1 percentage points, and that includes a fair amount of headwinds with regards to mix. Remember, you saw that evident, I'm sorry, equipment at a lower margin is growing at 33.5% versus services, a higher margin being down that 5%, and that's that flip flop between new and mods we've been talking about. And then in addition, tariffs grew quite a bit from third quarter to fourth quarter. Remember, we've talked about it takes two to four quarters to get through our inventory. And we're at that spot, we're about a year into tariffs, and we're starting to really see it come out of inventory. Inventory onto our P&L, and we'll see that as we move into 2026 as well, Brady. Operator: Our next question comes from Harrison Bauer from Susquehanna. Please go ahead with your question. Harrison Bauer: Hey, thanks for taking my question. You guys mentioned the largest multiyear North American backlog, which is great. Do you see or the need to make any investments in your North American capacity to ramp total new locomotive and mod productions? As you look further out or maybe just add production lines? And then do you expect relatively stable, modest, you know, new locomotive and mods over time from North America or really just an extended visibility? So just curious on ramps investment in your capacity you might have to make in North America. Thank you. Rafael Ottoni Santana: We have the capacity in North America, and we continue to invest in the quality of that capacity. So, we continue to improve productivity and so forth. So, feel very positive from that perspective. I think with regards to the dynamics of North America, I mean, CapEx is actually down if you think about a Class 1s into 2026, which reflects a bit some of the dynamics I just described on the combination of mods and new units big down. For this year versus last year. With that being said, we're sitting on a very significant opportunity here that really provides very significant payback for our customers. So they can win with their customers, they can grow volumes and on very proven programs that will ultimately reduce the total cost of ownership, it will improve fuel efficiency, it will drive reliability and service levels. So, I think that continues to be a significant opportunity that customers are going to be evaluating. In North America. Harrison Bauer: Thanks. And maybe just as a follow-up on tariffs. I know that the guidance assumes tariffs ineffective the latest. But could you maybe provide what you saw as maybe the realized tariff impact in 2025? And then maybe bridge to what your guidance implies for 2026 and what that incremental year-over-year tariff impact might be? Thank you. Rafael Ottoni Santana: Yes. If you're referring to an absolute number, we're not providing an absolute number. We want our stakeholders to focus on the actions that were taken to mitigate and certainly on the growth trajectory of our overall business. What I can say is that just as we had expected, the financial impact of tariffs is growing. It's growing exponentially as we come out of the third quarter into the fourth quarter. And we'll expect that growth as we move into the first half of the year. Right now, it's a significant number, but also we've been at this for a year in terms of our mitigates and how we're going to minimize those tariffs. And we've talked about in the past, a four-pronged approach which we continue to employ. Which is one, getting all the exemptions that we're entitled to. The second is on the supply chain. Right, is are we sourcing these parts and products from the right places today given the new landscape? Now that takes more time. Those things sometimes can take up to a couple of years to requalify suppliers and those types of things. But that is in the mix. And the third one certainly is sharing the cost with our customers. And when we take those three, those are not enough to mitigate. All the tariffs that we have coming at us in particular in 2026. And that kind of leaves us with that fourth lever, right, which is an overall proactive approach to how we're managing our company's cost. But in aggregate, we feel that we'll mitigate those costs. And quarter to quarter, we're going to feel more headwinds in the '26 than in the back half with regards to tariffs, and that's where we expect them to peak. Operator: Our next question comes from Ben Moore from Citigroup. Please go ahead with your question. Ben Moore: Hi, morning. Thanks for taking my question. Rafael, John, John, and Kyra. So trying to understand the lower sales on for your service on significantly lower North American mods? And maybe if I can ask it this way, last year, you gave your cadence of services versus equipment revenue on the lumpiness first half versus second half. Can you give a similar kind of view on the cadence of that 2026? And then also kind of driving impact on freight operating first half versus second half? John A. Olin: Yes. Absolutely. What we're seeing in the fourth quarter with equipment up 33.5% and services down five is what we had been talking about most of last year. In the first half of last year, we saw services growing at a faster rate, and actually equipment was down. We knew that was going to flip in the back half. And it's just a matter of timing of our runs between mods and new locos. But it played out exact the quarter, and with that, we had a mix headwind. But let's turn our attention to next year. And broaden the question out a little bit from just services, but let's talk about the overall cadence of our earnings. When we look at the midpoint of our guidance that we just came out with, we're at ten point five percent year-over-year growth on volumes. Think the way to think about that is that about half of that is driven by inorganic growth. Right. That's the three acquisitions that are coming at us. And partially offset by portfolio optimization, which continues to serve the company very well. And then to think about the other part of it about mid-single-digit organic growth. So on an absolute basis, we're looking at more revenue in the second half than the first half, not a lot, but certainly it will be bigger in the second half. And when we turn and look at the growth of our revenues first half to second half, we would expect our growth in the first half to be significantly higher than the second half. And that's going to be driven by two things. The first thing is number one, is the acquisitions. Right. In 2026, we will have revenue from our three acquisitions, EVID, Inspection Technologies, Frauchers, and Delner across most all of the first half and has got nothing to compare against in the year-ago half. As we get into the back half, we are going to have a comparable, and that will be with Evident. The second thing that's going to affect the timing of our growth between halves is we would expect to do more combined mods and locos in the first half than the second half. Okay? As we move on and we look at the second part of our guidance, which is EPS is up 14.5%. While we do not give operating margin as guidance, we do expect it to be up in 2026, and that's you'll find when you do the math. As we talk about that operating margin and we look at the first half, we would expect the first half to have modest growth in overall operating margin. And we would expect the second half to have more significant growth in operating margin. And there's three reasons for this. Number one, as we look at the first half being just modestly higher, it's going to be affected by the year-over-year comps. In 2025, our first half was up 1.8 percentage points of operating margin, and the back half was up one. So that dynamic is going to play out as we move through 2026. The second area is again going back to what we talked about on tariffs, right? Tariffs are going to peak in 2025 in the I'm sorry, in 2026 in the first half. And it will virtually have nothing to compare to on the year-ago basis. While tariffs were there, it was mainly going into inventory. And, so we're going to have some headwinds on the first half. Our mitigants will come in more equally over the year. In that respect. And then the third thing is, our incredible focus on managing our costs through Integration two point zero, product three point zero, regular productivity, and portfolio optimization. Those will build over the year and will deliver more benefit in the second half than the first half. Ben Moore: Amazing. Thank you so much, John. Maybe for Rafael, switching to sort of more of a longer-term outlook. Your freight backlog has been averaged at about $18 billion for several years now, and it's been great to see the jump $21 billion from the Kazakh order last quarter and then to $23 billion today, which is fantastic. How is your view for the outlook given all the puts and takes from international and U.S. opportunities in the pipeline? Should we see that step back down to $18 billion for the longer term going back to the last several years average? Can we see incremental step up and staying, above the 21% or even the 23 going beyond? Rafael Ottoni Santana: We are very pleased with the progress, especially with regards to the pipeline. I mean, despite of record order intake, that pipeline continues to be very strong, and it's international, it's really a very significant part of it. It's driven by international. But there's some other parts of the business that are doing very well. You think about mining, in specific, we're continuing to see a strong demand for ultra-class trucks, which we happen to be very well positioned to work on that as well. And I think we're very happy to see how the portfolio is working. I made some earlier comments on areas that we're seeing soft demand. But the investments we've made, and I mentioned on both fronts on organic, some of the investments we made on PTC2.0, that's allowing a lot of the international orders for our digital intelligence business. So that's a very important part of it. But also in areas like inorganic, we talked about the drop in the freight car manufacturing side of it. And we're seeing the opportunity for parts of the business like in the heat exchanger, in the industrials to really offset some of those pressures. So I think we're going moving forward towards with that portfolio. With that, some parts of that portfolio might not have necessarily the same dynamics if you think about the elements of especially backlog. But it's a stronger portfolio. So the progress with acquisitions is clear. We're moving in the right direction here. Ahead of pro forma. And I think most important here is the quality of the backlog. The margins as you look at individual products and individual elements of that we have higher margins. The other piece which we can't underscore enough is the amount of really activity the team's got going on right now in terms of simplifying, taking cost out. It's really an element of record cost out those teams are going to be driving. And it's encouraging to see that momentum. Across the portfolio. With that, I think we're very confident in committed to deliver on what I guess we've highlighted here as another cycle of meaningful profitable growth. Operator: Our next question comes from Tami Zakaria from JPMorgan. Please go ahead with your question. Tami Zakaria: Hi, good morning. Thank you so much. And thanks for all the color on the margin cadence. We would think the Transit segment probably doesn't have a lot of tariff impact. So if you could provide some color on how to think about seasonality for that segment as it relates to last year? Rafael Ottoni Santana: Let me just start here. We remain very much on track to expand full-year margins again, and that's supported by a lot of the elements of Integration three point zero, the portfolio optimization we continue to do, and the fact that team continues to be very selective on the order intake. And over our strategic plan, we expect transit margins to move into the high teens. I think that's very much the direction. We're very pleased with the overall progress we're continuing to make. But John, And specific seasonality, Tammy, we talked a little bit earlier this year in the second quarter and third quarter that the team in transit was trying to better level load some of their production. And what they did was they brought forward some of the volumes. So we saw a greater organic growth in the second and the third quarter than the fourth. And we garnered some of those manufacturing efficiencies in Q2 and Q3, a little bit to the detriment of the fourth quarter. And having said that, as we look into 2026, we would expect a pretty balanced view of volume growth and margin growth over that year. Now there's always variations quarter to quarter. We saw a variation certainly in our fourth quarter for both Transit and the full company adherent '25 with regards to the extraordinary cash performance that we had. We'll always see those things, but I think we'll see a more balanced delivery out of transit in 2026. Tami Zakaria: That's very helpful. And quickly on the incremental $50 million savings that you've talked about, is it mostly according to the transit segment or freight or pretty much split between the two? John A. Olin: Yeah. When we look at the integration at March, as we did two point zero, transit's a little bit overshared. So yes, I think, Tammy, we're closer to the kind of the fifty-fifty between the two segments, even though the Transit segment's a smaller part of overall revenue. Tami Zakaria: Understood. Thank you. Operator: And ladies and gentlemen, that will conclude today's question and answer session. At this time, I'd like to turn the conference call back over to Kyra Yates for any closing remarks. Kyra Yates: Thank you, Jamie, and thank you everyone for your participation today. We look forward to speaking with you again next quarter. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, good morning, and welcome to the analyst conference call on the Fourth Quarter and Full Year 2025 results of Ahold Delhaize. Please note that this call is being webcast and recorded. During this call, Ahold Delhaize anticipates making projections and forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements are subject to risks and uncertainties, other factors that are difficult to predict and that may cause our actual results to differ materially from future results expressed or implied by such forward-looking statements. Therefore, you should not place undue reliance on any of these forward-looking statements. The introduction will be followed by a Q&A session. Any views expressed by those asking questions are not necessarily the views of Ahold Delhaize. At this time, I would like to hand the call over to JP O'Meara, Senior Vice President, Head of Investor Relations. Please go ahead, JP. John-Paul O'Meara: Thank you, Sharon, and good morning, everybody. I'm delighted to welcome you today to our Q4 and full year 2025 results conference call. On today's call are Frans Muller, our President and CEO; and Jolanda Poots-Bijl, our CFO. After a brief presentation, we will open the call for questions. In case you haven't seen it, the earnings release and the accompanying presentation slides can be accessed through the Investors section of our website, aholddelhaize.com. There, we provide extra disclosures and details for your convenience. To ensure everyone has the opportunity to get their questions answered today, I ask that you initially limit yourself to 2 questions. If you have further questions, then feel free to re-enter the queue. To ensure ease of speaking, all growth rates mentioned in today's prepared remarks will be at constant exchange rates unless otherwise stated. So with that, Frans, over to you. Frans Muller: Yes. Thank you very much, JP, and good morning, everyone. In 2025, we operated in a rapidly shifting environment, frequent and unpredictable government policies, pockets of inflation and volatility and rapid advances in AI and technology. In that context, being a consistent and trusted partner for customers, associates and all other stakeholders matters more than ever. As you will have seen in our release this morning, I'm proud to say we are delivering on our Growing Together commitments and are well positioned for what lies ahead. Our execution through the holiday season is a great example of how our growth model is coming together, allowing us to finish the year on a high. And for the full year, net sales increased 5.9%, while comparable sales, excluding gas, increased 3.2%. We delivered a healthy underlying operating margin of 4%, diluted underlying EPS growth of 7.8% as well as strong free cash flow, allowing us to increase shareholder returns. In Grocery, success is never driven by only one thing. It's a result of many details coming together and that on an everyday space. As our capabilities mature and integrate, our execution in turn is becoming more connected. The backbone of this is that the flexibility we have created in our ecosystem to deploy scaled and yet tailored solutions, the resilience of our local value propositions and brand personalities and the disciplined execution driven by aligned teams with a strong culture of ownership and accountability that underpins the Growing Together strategy. So let me unpack this a little bit more in detail with some practical examples. First, starting with the customer. Let's talk about strengthening customer value through trusted products. Across our markets, our local brands invested in price and value by lowering prices and broadening own brand assortments in key daily needs. In the U.S., we had our first full year investing towards a total of $1 billion in price investments over those 4 years. And at the same time, we strengthened our own brand assortments, adding 1,100 new products in the U.S. and 1,450 in Europe. In Europe, where own brand penetration is close to 50%, our assortments are a clear competitive advantage. Over the past year, we expanded collaboration through our AMS buying alliance, and this delivered quality improvements while also generating cost savings with a further expansion planned into 2026. These efforts are truly resonating with customers. Own brand growth continued to outperform the rest of the store with group level penetration reaching 39.8%, reflecting strong appreciation for quality, health, value and innovation. The next core block is vibrant customers experience, covering every interaction between our brands and customers in stores, online and through services. Customers increasingly expect convenience, personalization and a seamless integration across channels. In the U.S., we completed the rollout of PRISM, creating a unified digital backbone for personalization at scale, as it enhances opportunities in advertising and retail media. This enabled us to reach around 32 million customers and deliver 14 billion personalized offers in 2025. Customers are also responding positively to our shift forward towards the same-day delivery and partnerships with DoorDash and Instacart with additional partnerships planned. Together, these initiatives strengthen relevance, convenience and loyalty across channels. In addition, in 2025, we opened 220 new stores and remodeled more than 450 locations, maintaining a modern, healthy and attractive store fleet. As a result, we have strengthened our #1 or #2 positions in most of the markets where we operate. Another factor, which is unlocking compounding opportunities for us, is driving customer and business innovation, where digital, data and AI are increasingly powering both customer value and performance. Technology and AI represent a growing share of our EUR 2.7 billion in annual CapEx. We are applying these capabilities across our ecosystem, improving availability and forecasting, enabling AI-assisted customer journeys and scaling predictive and visual intelligence solutions. These investments, combined with our focus on local store-first fulfillment and a more asset-light operating model, are yielding good results. Online sales grew 12.9%, led by 22.8% growth in the U.S. Food Lion had a standout quarter with over 35% e-commerce growth and a 2% point increase in penetration. With the recent closure of 6 e-commerce fulfillment facilities, we have now completed the shift to our store-first operating model. In the Netherlands, the Albert Heijn app plays an essential role in daily lives for millions of consumers. Supported by generative AI, the app is becoming more personalized, multilingual and intuitive, making it easier for customers to plan meals, manage rewards and discover inspiration and new recipes. At bol, we continue to innovate across the end of the journey -- the end-to-end journey. AI-powered features such as Gift Finder and Spot & Shop are increasing engagement and reach. By combining rich shopper insights with impactful campaigns, bol was named the #1 retail media publisher for the second year in a row in the Netherlands. Retail media, as you know, is an increasingly important growth machine for the company. The key strength is our ability to build once and scale across brands. With one global retail media platform, we can deploy new solutions quickly across markets while tailoring execution locally. So with strong capabilities in place, growth now is more about culture rather than capability, which you can see in our people decisions. Good examples here are Margaret's move from bol to Albert Heijn or Keith brought a remit in the U.S. as a Chief Commercial and Digital Officer. Both Margaret and Keith bring deep retail media and technology expertise into grocery, also understanding the importance of developing best-in-class digital offerings and boosting capabilities across the commercial value chain through the power of AI. This reflects our belief that a win at one brand is a win for all brands and that scaling talent and capabilities is just as important as scaling technology. So let me now turn to shaping our portfolio to drive growth and excellence, where disciplined portfolio decisions and operational execution work hand-in-hand. In Europe, we welcomed Profi at the beginning of 2025, establishing a strong platform in Romania for future growth. Throughout last year, Profi opened 70 new stores, marking the start of a promising growth trajectory. At Albert Heijn, we opened 19 new stores and launched a major refresh of the Fresh Square concept in more than 500 locations, responding to growing demand for convenient, nutritious food solutions. In Belgium, we now recently completed the acquisition of Louis Delhaize, adding 303 stores and expanding our presence in convenience in 2026. As the largest food retail group on the U.S. Eastern Seaboard, we see meaningful runway in a still fragmented market. In a region where supermarket volumes declined in 2025, we delivered positive volumes by leading into price, own brands and omnichannel convenience. In the U.S., Food Lion launched 153 remodels and started construction on 93 remodels in the Greensboro market, which will be launched later this year. Stop & Shop remodeled over 30 stores, deploying an efficient use of capital, progressing on their revitalization plan. As part of this plan, Stop & Shop improved store standards, service and value perception. Price investments now cover more than 65% of the fleet, supported by stronger own brands, new marketing and in-store signage, upgraded stores and improved execution. Through the combination of these efforts, we have seen steadily improving trends in comparable sales growth, including volume growth, by the way, and in our Net Promoter Score, or NPS. Especially encouraging are the year-to-date improvements in value for money and ease of shopping, showing the holistic nature of Roger and his team revitalization efforts. Finally, let me spend a moment on healthy communities and planet because we believe the everyday choices we all make do matter. As a family of great local brands, we are ambitious about the measurable impact we can have, striving to make healthier options more accessible and affordable, supporting the natural systems that make food possible and reducing waste across our value chain. An important part of this, something we don't often talk about, is our U.S. pharmacy business, which plays a growing role in customer trust, health access and loyalty. Millions of customers use our pharmacy services, placing them amongst our most engaged shoppers with the majority of them paying primary -- with the majority of them being primary customers. With ongoing drug store closures, our pharmacies also provide an important access point for health services in their local communities. Under the Inflation Reduction Act, Medicare prices will come down for 10 high-cost drugs. From a financial perspective, Jolanda will share additional figures as part of the 2026 outlook, which for all intents and purposes is a technical change for us. More importantly, for many customers, this provides meaningful financial relief, potentially freeing up spending for other everyday needs. As we leave 2025 behind, we can be proud of the progress achieved and the strong foundation built in the first year of Growing Together. Our strategy has been pressure-tested, our capabilities are evolving and our teams are operating in a strong rhythm, which is delivering compounding results. We are carrying this momentum into 2026 with confidence in our execution, our portfolio and our ability to continue to create value for customers, associates, communities, and of course, shareholders. With that, I will now hand over to Jolanda for more detail on our financial performance and outlook. Jolanda Poots-Bijl: Well, thank you, Frans, and good morning to everyone. Our performance underlines the resilience and flexibility of our brands to deliver also in dynamic market conditions. It's a good reflection of how we're balancing our growth investments and cost-saving strategies in the U.S. and in Europe, whilst remaining laser-focused on creating the best customer value proposition for every wallet. Our growth model is built on a simple and repeatable cycle. That cycle is anchored in the strength of our local brands, our leading omnichannel capabilities and the customer value proposition that resonates. By combining sales-led growth with disciplined cost control and thoughtful capital allocation, we can invest in price, convenience and digital while maintaining strong free cash flows and returns. So let's dive deeper into the numbers. Net sales grew 6.1% to EUR 23.5 billion in Q4 and 5.9% to EUR 92.4 billion for the full year, driven by strong comparable sales, both in the U.S. and in Europe, portfolio expansion, including Profi and continued growth in omnichannel. Q4 comparable sales were 2.5%, which includes a negative impact of 0.1 percentage points from weather and calendar shifts and a negative impact of 0.2 percentage points from the end of tobacco sales in Belgium. Online sales grew 12.9% in Q4 and 13.3% for the full year, reflecting strong momentum in online grocery across both regions. Underlying operating margin was 4.2% in Q4 and 4% for the full year. Strong U.S. performance more than offset headwinds from Serbia pricing regulation and first-time integration of Profi. Diluted underlying earnings per share was EUR 0.73 in Q4, up 11.9% and EUR 2.67 for the full year. Q4 IFRS operating income was EUR 899 million, corresponding to a 3.8% margin. IFRS results were EUR 96 million lower than underlying, mainly due to the impairment charges related to the strategic shift to a local store-first omnichannel fulfillment model in the U.S. For the full year, IFRS operating income was EUR 3.5 billion, representing a 3.8% margin. The EUR 192 million difference versus underlying was largely driven by portfolio optimization actions, including the shift to a store-first model in the U.S. and the acquisition and integration costs related to Profi. These actions reflect disciplined portfolio management aligned with our strategy. Operational excellence remains a core enabler of our Growing Together strategy. Through our family of great local brands, we leverage scale to combine sourcing power and scale tech to deliver local impact in a simpler, smarter and more seamless manner, unlocking new efficiencies through automation and innovation. In 2025, we delivered nearly EUR 1.3 billion in save for our customer savings, in line with our ambition for the year. These savings are reinvested with discipline into price, technology, store upgrades and sustainability initiatives, increasing value for customers, creating free cash flow and returns. This also includes investments in growing complementary income streams such as enhanced personalization and support services for brand partners, creating a capital-light revenue stream. With double-digit growth in 2025, we are making good progress towards complementary income of around EUR 3 billion by 2028. Let's now take a closer look at our regional performance. On Slide 21, for your convenience, we present the impacts of weather and calendar over the last quarters by region. U.S. net sales were EUR 13 billion. Comparable sales, excluding gas, increased 2.7%, driven by continued growth in online and pharmacy sales. The cycling of Hurricane Helene had a negative impact of approximately 20 basis points. Online sales growth reached an excellent 22.8% for Q4 versus last year, driven by strong performance across all our brands. The combination of our delivery speed, customer reach and extensive assortment, enabled by our strategic shift to same-day delivery and ongoing partnerships with DoorDash and Instacart, is what wins over customers. Underlying operating margin in the U.S. was 4.7%. The margin outperformance was driven by higher sales leverage, improvements to our online margins, the positive impact from a shift in category mix and lower shrink levels, which more than offset price investments and the dilutive impact from ongoing growth in pharmacy sales. Last October, we announced plans to develop a state-of-the-art DC in North Carolina. This investment adds capacity and automation in a key growth region. It improves efficiency and service levels and supports the long-term needs of our local brands, including Food Lion. And as you all know, Food Lion has been on an impressive trajectory of growth with Q4 marking the 53rd consecutive quarter of growth. In Europe, Q4 trends were in line with the prior quarter. Net sales were EUR 10.5 billion, up 11.2%, partly due to the Profi acquisition, an increase in comparable sales of 2.4% and new store openings. Comparable sales had a negative impact of 50 basis points from the cessation of tobacco sales in Belgium and calendar shifts. In Q4, online sales increased by 6.6%, driven by double-digit growth at Albert Heijn. The strength of our European brands, their ability to adapt in complex conditions and their relentless focus on cost savings allowed us to deliver an underlying operating margin of 4.1%. This was slightly better than anticipated, considering the headwinds from the sudden government decree and intervention on the limitation of prices in Serbia. Some of the brand highlights in the quarter include Albert Heijn reaching a record market share of 38.2% for the year, Delhaize Belgium completing its transformation and expanding in convenience and the CSE brands, particularly Romania, demonstrating resilience and readiness for renewed growth. At bol, Q4 capped a strong year with high single-digit growth, record Black Friday sales and 70 basis points of market share gains as the brand successfully countered increased competition from Amazon and Chinese players. Full year underlying EBITDA increased to EUR 207 million, driven by advertising growth and cost discipline. Moving now to cash flow. Free cash flow was EUR 1.5 billion in Q4 and EUR 2.6 billion for the full year. This exceeded our guidance for the year and is in part a reflection of the strong holiday period and solid Q4 performance. Additionally, our gross CapEx spend was lower than our original guidance for the year due to the timing of new store openings as well as the finalization of our project plans around the construction of the new Food Lion distribution center. Given the overall performance, I'm pleased to announce our proposal to increase the dividend for 2025 by 6% to EUR 1.24 per share. This reflects our stated ambition to sustainably grow dividend per share and generate strong shareholder returns. To that end, we also initiated a EUR 1 billion share buyback program for 2026 earlier this year. Finally, let me add some insights to Frans's comments on our healthy community and planet priorities. Through our trusted products, we are making healthier and more sustainable choices easier and more affordable. We do this by improving nutritional value, increasing transparency and using data and insights to guide customer choices. In 2025, the percentage of own brand healthy food sales was 52.1%. Like-for-like, we improved with 40 basis points compared to 2024 as our CSE region implemented the Nutri-Score methodology changes in 2025. Our total tons of food waste per food sales decreased 39.1% versus the 2016 baseline. This is a 4.4 percentage point improvement versus 2024, driven by smart sourcing, better inventory management and more donations. CO2 emissions in our own operations decreased 39.1% versus our 2018 baseline, which is an improvement of 3.4% versus last year, mainly driven by the installation of more sustainable refrigeration systems. Virgin plastic in our own brand packaging decreased 10.9% versus 2021, which is an improvement of 0.8 percentage points versus last year as our brands were able to increase the percentage of recycled content in our own brand product packaging. This progress reflects a true company-wide effort and something that deeply matters to our people. It is embedded in how we operate and is why healthy communities and planet remains a key priority for us. Now, turning to our guidance for 2026. First, a few specific items to reflect in your 2026 models. The Inflation Reduction Act will reduce U.S. pharmacy sales by approximately $350 million with no impact on underlying profit. The Delfood acquisition is adding over $200 million in European sales. And 2026 includes a 53rd week, which is expected to add 1.5% to 2% to net sales and 2% to 3% to underlying net income from continuing operations with no significant impact on operating margin. Our outlook reflects a disciplined approach to maximizing returns while maintaining flexibility. We expect an underlying operating margin of around 4% with limited downside expected given our strong operating momentum and the good start of the year. Mid- to high single-digit EPS growth at constant rates, a free cash flow of at least EUR 2.3 billion and a gross CapEx of approximately EUR 2.7 billion. While we do not provide quarterly guidance, some phasing effects should be expected during the year, as we flow investments in line with real-time trading conditions, allowing us to stay sharp, calibrate actions iteratively as new learnings emerge and remain flexible to market developments, including macroeconomic and geopolitical uncertainties such as Serbia. For 2026, you can, therefore, expect a persistent focus on value for customers, continued growth of our brands, disciplined investment in stores, logistics and digital and a relentless focus on cost and cash flow. This is how we operate, consistent, disciplined and delivering compounding results. And with that, I will hand back to Frans for closing remarks. Frans Muller: Thank you very much, Jolanda. As you have heard, and as you have seen, our Growing Together strategy is now fully in motion. The focus ahead is simple, doing more, even better. We have spoken today about many of our capabilities, but in an industry like ours, one of the most powerful and often underestimated is thriving people being connected to their communities. The partnerships between our brands and the communities they serve is as important an asset as scale or technology or algorithms. This proximity to our customers, listening carefully, learning continuously and adapting quickly to what matters most in their daily lives is, therefore, the real oil that makes the ecosystem run smoothly. Therefore, also a big compliment to our teams for a remarkable result in 2025. Behind that, everything we do is within the framework of a clear operating reality. We remain laser-focused on cost, disciplined in how we allocate capital and deliberate in sequencing investment so that growth is funded, repeatable and resilient. This is how we create value every day for customers, associates, communities and shareholders and why we enter 2026 with confidence. With that, thank you for your attention. And Sharon, please open the lines for questions. Operator: [Operator Instructions] And our first question today comes from the line of Frederick Wild from Jefferies. Frederick Wild: So the first one is, would you be able to help us understand the competitive and consumer environment at the moment in the U.S. and your outlook there for 2026, including things like food inflation? And how you expect volumes to develop? Secondly, you mentioned, Jolanda, a cadence throughout the year. Given what's happening in Serbia, given maybe some of the U.S. pressures we're seeing at the moment, can we take those comments to mean that you're expecting a -- the year to sort of sequentially improve as we go through it? Frans Muller: Thank you, Frederick, for your questions. On the consumer sentiment in the U.S., if you read the newspapers that people think, hey, it is a weaker sentiment than we had seen before. We also saw here and there reports of negative volumes in the U.S. in the market in itself. If you look at our numbers, we came out the 2025 year with positive volumes in the U.S. with flat volumes in 2025, the fourth quarter. And I think this is also caused by the fact that we have very strong market positions, #1 and 2 positions in the U.S. that we are very connected to our communities, that we have a very good proposition, that we invested online technology and in our stores. So I think we are competing quite strongly. On inflation, we see in food at home Northeast inflation of 2.2% at the moment. And if you ask my prediction, which is not so easy, then I think we see a flat inflation, 2.2%, going forward in the 2026 year. That's how we calculate this. So that's a little bit on inflation. That is on consumer sentiment. And when people talk about consumer sentiment, sometimes we forget 2 things that we are in a food business. So we are not in a discretionary type of business, that we have a very strong brands, #1 and #2 position, 90% of our sales and that we -- and I tried to convey this in my note that we have very strong community connections. And the element of trust is super important, and that's what we earned over the years, and that's only strengthened during COVID. And that's, I think, what we also benefit from now, plus our price investments, a EUR 1 billion price investment over 4 years in the U.S., our strengthening and growing own brand share. So I think we have a good proposition here to support the customer journeys, not only physically, but also online and also through AI and technology. Jolanda? Jolanda Poots-Bijl: Yes. And thank you for your question. Yes, the cadence, as we guided in our storyline just now, we are confident. We started the year well, and we have given a guidance of around 4%. That cadence is something that we don't want to dive into. Europe and U.S. might have different cadences for us started. And we want to allow ourselves the flexibility to invest where we see an opportunity and do that in the perfect cadence to create value for our customers, but also for our shareholders, of course. Frans Muller: And we are in a growth strategy together? Jolanda Poots-Bijl: Yes, that's why we're heading forward fast. Frans Muller: We are going to grow the business. Jolanda Poots-Bijl: And that's what we're investing in. Operator: We will now go to the next question, and your next question comes from the line of Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a big picture one. Just trying to understand how you approach margins on a group level because you consistently talk and communicate and guide on a group margin level. Is that how you run internally as well as in -- if you expect some weakness, let's say, in Europe, you try and compensate for it in the U.S., obviously, within limitations of what you can do on pricing and cost. Does that explain probably a much stronger-than-expected U.S. margin in Q4? That's the first question. Secondly, Frans, it would be amazing if we could dive a little bit into where are in... Frans Muller: Sreedhar, could you speak up a little bit, Sreedhar? Could you speak a little bit louder? Because it's a little bit difficult to understand and... Jolanda Poots-Bijl: Sreedhar, my ears are less strong than Frans' ears, so I need... Frans Muller: Speak up a little bit. Sreedhar Mahamkali: Sorry, sorry. Yes. Of course, yes. I'll just repeat. Just a real question. First one on how you approach group margin because you consistently guide on a group margin. Internally, do you actually manage it as such as in when you see potential weakness in one part of the business, you try and lean into another to deliver the group margin consistently. So that's the first question. Second one is just in terms of where we are on the Stop & Shop reinvestment, price investment and how close to completion are we now given Stop & Shop seems to be progressing in terms of a recovery. So if you can just talk through a little bit more on the reshaping of Stop & Shop offer and where we are in the journey, that would be very helpful. Jolanda Poots-Bijl: Thank you, Sreedhar, and thank you for helping us out here. So your question, I'll take the first one on group margin, our business is local, and we optimize our businesses on that local opportunities and challenges that we have. So we're not balancing out in the portfolio as such. We're managing the optimum business by business and back end, and that's the strength of our model. We try to combine our scale to support those businesses locally. So I think that, in short, answers your question. Frans Muller: Yes. And I think also, Sreedhar, we would like to stay as competitive as we can be on brand level for the U.S., for example, on country level or brands in Europe or in the Benelux. I think that's our promise to customers, our commitments to make sure that we have the local proposition as strong as possible. And then, yes, in the mix, we see the results, of course. At the same time, to stay competitive, we invest a lot in prices. And of course, you know that we have a very strong cost saving program, which Jolanda already talked to. And that plan, we also manage very strictly, too. So I think that's where we get the funding to support locally. It's a local business, Sreedhar. It's -- you can't say, well, we take more money in one brand to subsidize another one. That's not how retail is working for us on Stop & Shop. Sreedhar Mahamkali: Maybe very briefly just on that point, U.S. margin was clearly stronger than most of us were expecting. Was it ahead of your expectation? Because you clearly guided to stable margin... Frans Muller: [indiscernible]. Jolanda Poots-Bijl: Yes. Sreedhar, to be totally transparent, it was above our original plans. And as it is in grocery, you know it as much as we do, it's lots of small things. And if they all come together a little bit more positive than you expect, then you can outperform. And let me mention just a few of them. If you look at our product mix, we sold more fresh than center store. Yes, that's a little support to that margin. We saw that vendor allowances were a little bit more positive. Our online profitability is improving. So it's many small elements all coming together, having small impact as such, but then together, you outperform. So yes. Frans Muller: And a strong holiday season. Jolanda Poots-Bijl: A strong ending of the year. So sales flow-through was -- it was all those elements. Yes. Frans Muller: Thanksgiving, great. Christmas, great. Diwali, also great, by the way. So we had a strong holiday season. And that -- and shrink numbers also went down because if we have high sales, then also shrink numbers come down as well. So a lot of things in the right direction. So, well, I'm not surprised because we have a strong team there, but I think it was stronger than we would initially have expected. Jolanda Poots-Bijl: Yes. Frans Muller: Finally, then we come to the -- before you mix in another question, Sreedhar, we now go to -- it's a good question. We now go to Stop & Shop. So Stop & Shop, we invested in prices as we promised ourselves and our customers. And in 2025, we were in 65% of our sales, 65% of our sales. We did -- we made our price investments. This will go in 2026 up to roughly 80%. So we make additional funding available for our price investments. At the same time, Roger and his team, first of all, a very dedicated, enthusiastic, energetic and a new -- and partly new team, they made quite some changes. They are now very focused on execution. Availability of product is much better. Labor costs are better under control, better service for customers in stores, better mentality. And we see also now that with the relief of the 32 stores we closed, we have now a much better store set for Stop & Shop as well. Also, Stop & Shop, as you might know, has a very high online penetration of around 11%. So also there, the omnichannel is very strong. We see NPS going up for Stop & Shop. We see price perception within the NPS also getting better. They enjoy the higher penetration of our private brand products as well for Stop & Shop. So a number of things are going in the right direction. And at the same time, we also remodeled 30 more stores for Stop & Shop with a different type of frame. So Stop & Shop also, there good momentum. And you have heard me and Jolanda earlier, a good momentum is great, but we will have to see this a few quarters more before we completely embark on this journey. But also there are compliments to Roger and his team, what happened is, yes, there's a new wind -- a positive wind blowing at Stop & Shop for not only the associates, but also for our customers. John-Paul O'Meara: Let's try to not Sreedhar's lead on that one, at least, that's 3 for the price of 2. Operator: We will now go to the next question. And your next question comes from the line of William Woods from Bernstein. William Woods: Obviously, there's been kind of clear debate over the U.S. margin trajectory over the last couple of years, and you showed good results today. When you look over the next year, how does your strategy change in the U.S. as you go into the second and the third year of the strategy? And do you think we're at the trough of the U.S. margin today? Jolanda Poots-Bijl: William, for that question, it might sound a bit boring, but I think I explained earlier, boring for me is a new exciting. We continue on the journey that we shared with the markets when we launched our Growing Together strategy. I think, in our business, it's important to get in a good rhythm in the cadence and then deliver on that cadence. So no big changes expected in the new year. It's fighting to support our customers every day with the best prices possible, continuing with those price investments that we announced, opening up more stores, doing the remodels, driving growth and sharpening our competitive position. So no spectacular changes. It's continuing what we embarked on. Frans Muller: Jolanda mentioned earlier, William, the EUR 2.7 billion CapEx in our total company. A growing part of this is going into technology, AI and these kind of elements. That is also counting for our U.S. business, of course. So with -- when we see digital AI, both in the efficiency part and the forecasting part, but also in the consumer-facing part, we do a better and better job, loyalty, personalization and these kind of things. So we should not forget that, that also that positive trend of growing more into technology investments is also still continuing as well. Jolanda Poots-Bijl: Maybe last, but not least, because we just delivered the EUR 1.3 billion on save for our customers. The next round is already, of course, heavily in because we have another target of EUR 1.25 billion also for this year. So it's also that relentless focus on, exactly what Frans says, using AI, automation, looking for ways to drive our cost down because year-on-year, of course, it's getting a little bit tougher to realize those targets. So we're obviously also heavily into making sure that we drive those cost savings because that's one of the pillars of our success going forward. Operator: Your next question today comes from the line of Rob Joyce from BNP Paribas. Robert Joyce: Apologies. Yes, maybe I was on mute. Sorry about that. And so the first one is just the investor event a couple of years ago, you talked about high single-digit percentage EPS growth as an algorithm. If we look at '26, I guess, ex the 53rd week, we're probably not quite getting there. Just wondering what the headwinds are you see in 2026 to that and whether that high single-digit percentage EPS growth is still the right growth rate to think about for the medium term? And second one, sort of follows on from that, I guess, is just if we look at the U.S., I mean, outside of potential consumer weakness, we've got SNAP cuts, GLP-1s more readily available, Walmart taking share, Amazon gaining more traction with its online grocery business. I mean, why would we not expect the U.S. to slow down on the top line meaningfully in 2026? Jolanda Poots-Bijl: Well, thank you, Rob, for that question. So first of all, our Growing Together commitments was high single-digit growth on EPS over the 4-year period, and we stick to that commitment. If you look at our 2026 guidance based on the 53 weeks that we have in that year, we guide on a mid- to high single-digit growth again. You are right, if you take out the impact of the 53rd week, of course, EPS is impacted. Two elements to keep in the back of your head. There is the Serbian impact. Serbia used to be a profitable business, guiding well in our European average margins. It's now a loss-making business. So that is included in our guidance, and we're also fighting to repair that issue, one could say. So Serbia has an impact. And also don't forget, the 53rd week, it is money that will be banked, and it is part of that 4-year trajectory of growing together. Frans Muller: On your second question, Rob, yes, it's pretty competitive out there in the U.S., and that's what this business also -- makes it also exciting. But we are used to this already for a longer time. This is not a new phenomenon in itself. The elements I just would like to stipulate here is that we have a business which is now better positioned than before for growth. We have a better supply chain. We have a stronger own brand offer. We are investing in pricing, and we will invest more in pricing, the EUR 1 billion in 4 years you have heard. We are growing our total Food Lion network, not only by stores, and we will open more stores for Food Lion, that is also a new trajectory, but we also keep remodeling our existing fleet. And where there are opportunities for Food Lion to dense up, let's say, the footprint by potential acquisitions, then we also will look at this. Technology and mechanization will help us to reducing cost or get a better customer journeys. So -- and we talked about it earlier when one of the largest competitors in the U.S. is gaining share in the Carolinas, that does not mean that we lose. We win share with Food Lion in the markets where we operate, those states in the southern part of the Eastern Seaboard. And that is because we are connected to our customers. We are very local. We have very good networks, and we have great people. And I think that is not changing. I also heard that a marketplace player is also closing a few stores in the fresh areas, which is also telling us this is competitive and food retail with the margins we make is not easy. And that's why I think also experience and good people kick in as well. So competitive, yes. Are we able to compete? Absolutely. We think that we also gained market share in the fourth quarter in the U.S. And with positive volumes, I think we have, yes, a good start for 2026 also when we look at the first period of the year. So competitive, but we're in a fighting spirit and the teams are really -- yes, very geared up for the journey. Robert Joyce: Okay. So you think you're well positioned to keep taking share, Frans, it sounds like. Frans Muller: We'll come back to you quarter-by-quarter. Rob, don't jinx it now, but that is a... Jolanda Poots-Bijl: It's our ambition... Frans Muller: No, we have a growth strategy, and you know that our growth strategy means 2 things, means volume growth and market share growth. And that is for every brand individually the task, and that's how we construe our plans. And then, we have to see how that works out and how strong we really are. Operator: Our next question today comes from the line of Fernand de Boer from Degroof Petercam. Fernand de Boer: Two questions from my side. One is about actually on Europe. If you look at last year, '25, you had, of course, the dilution of the acquisition of Profi, you had Serbia, that's now most in the base. So what should probably a bit hold you from higher margins in Europe in '26? And then, the second one is on Albert Heijn. You are now at 38% market share. I think competitors are trying to move. How do you look at that going forward? Jolanda Poots-Bijl: Thank you for that question. I'll take the first one, and Frans will take the Albert Heijn question. We have the first year integration of Profi, and indeed, we are now positioned for growth in Profi. So we envision to open up more stores and drive growth there. And we will get some of those first synergies kicking in. We expect Profi will take around 2 to 3 years to land at the European average margin. So I would not say we're there yet. We are on a journey, and we look forward to that. Serbia, of course, is an impact that was only slightly in last year because it started -- the decrease started September 1. So that is, for sure, a difference versus last year. Frans Muller: And then Fernand, on Albert Heijn, yes, this is a very impressive market share. You round it down to 38%, but it's a very impressive market share. But this comes with 0 arrogance in the marketplace. So the teams have designed their commercial plans for 2026. We might see a few brands in the Dutch market, which have the intention to bounce back. We had an almost 12% growth of our online in Q4 for Albert Heijn. And we also would like to make sure that we stay growing online as well, double digit for Albert Heijn. We look at strengthening our journeys and our portfolios. We have 1,900 organic products, where we are absolutely the leader in differentiation, same for convenience, same for meal solutions. So the creativity is there with the team. Online will be an important component to grow, and I think that means also if you look at price investments, and we know the price favorites where we with 2,000 items have the best offer in the market that will also continue that focus that we make that promise work as well. So Albert Heijn, you talk about the Netherlands, but Albert Heijn is also doing a great job, by the way, in Belgium. Also there, we had a very strong result over the year and also big plans to grow our business there as well. So in short, keep very focused on the omnichannel proposition, 0 arrogance, use the innovation you have in your team to build better products, better private label, which is well over 50% share now at Albert Heijn and work strongly on your cost as well because also there, price investments have to be invested also through cost savings. And that is for Albert Heijn, not different than for anybody else. Fernand de Boer: Maybe one last question on working capital. How far further can you stretch your accounts payable? Jolanda Poots-Bijl: Sorry, the mic went off. I don't know what Frans was doing. A strong year-end sales, of course, means that your inventories are temporarily a bit lower and your accounts payable are a bit higher. So that's also a timing impact of one could say, backloaded sales or a good year ending. We're not expecting to stretch our accounts payable any further. We're just dealing with it as we should be as a good partner in crime also for our suppliers. Fernand de Boer: And the 53rd week, does it have impact on your working capital? Jolanda Poots-Bijl: It will have a bit of an impact, of course. But what we will do, as we will -- as we always do, we will disclose any impact of that last week in our communication to the market in a very transparent way. Frans Muller: Like you did already for sales effect and total net margin. Jolanda Poots-Bijl: Yes. And also in the reporting, we will make sure that the impacts are very clear. Operator: We will now go to the next question, and the next question comes from the line of Xavier Le Mene from Bank of America Securities. Xavier Le Mené: Two, if I may then. You mentioned that AI you do and other technology are reshaping the way you are operating. So you mentioned a few examples, but can you potentially elaborate a bit more and give us a bit of color about the type of productivity gains you can expect? And potentially, an indication of the scale, so magnitude of gain you can get there. So even what is the contribution to cost savings potentially? The second question would be on online. You mentioned it's profitable for the first time in 2025. Should we think about online being a potential driver for margin expansion going forward? And what are your expectation for 2026 and beyond? Frans Muller: Thank you, Xavier. On the question of AI, and AI is, of course, an interesting subject as if this is just new to us. I mean, we're working over many years on AI solutions, if it's robotization, if it's our financial processes, if it is making predictions for our demand, looking at our apps for consumer-facing. And we have now a lot of new features as well. So there will be a lot of AI and opportunities in mechanization. We do a lot of things on recipes and even more creative solutions for customers. You saw what we -- when we talked about Spot & Shop, make a picture of the lamp or the pair of shoes with your neighbors you like more, and you make a picture, load it in the app for bol and you get a suggestion where you can buy these kind of things. So we have a lot of back-end solutions, robotics, mechanization, forecasting, marking down to avoid food waste. We talked about it earlier. But more and more, we get even more consumer-facing opportunities with visual search and all these kind of things with AI is giving us. So a lot of things happening there. The other thing is that you might have noticed that we also got a new Chief Technology Officer on board with Jan Brecht. And Jan Brecht is working very closely, of course, with IT and digital and tech teams. And I just came in here, I just bumped in a room today in the meeting room, where they were talking about our group focus area, work group on AI, where we also bring Americans and Europeans and central people together to see, hey, what can we learn from each other, and we're going to learn a lot from the U.S. as well. What can we learn from each other to make even those propositions more standardized, in the end cheaper in serialization and to scale it up. So a lot more to come. And I think we will talk every quarter about the new features like we did today as well. Jolanda Poots-Bijl: On your second question, and thank you for that, online profitability margin going forward. We look at online in a holistic way. So we're not separating it anymore. Of course, we have those numbers, but we don't separate it in as, okay, it's margin dilutive, and how do we balance that out in the portfolio? We drive growth. Online is a core driver of that growth. And from a holistic and more strategic point of view, having those online customers, which creates indeed growth, it also gives us access into people's daily lives. We can design personal assistance that going forward will give us strategic opportunities, gives us data. We can do the personalization. So there are many elements for us that are so much more important than just an online business and the dilution. We indeed communicated half 2025 that we are now online profitable in the group. That profitability is increasing and improving. So going forward, we double down on online also, as Frans stated, for example, for Albert Heijn. We find ways to improve our profitability even further. And we're quite confident that as a part of our overall strategy, this will benefit our customers, our company and also providing the returns to our shareholders that you could expect to have from us from a holistic point of view. Operator: We will now take our final question for today. And the final question comes from the line of Francois Digard from Kepler Cheuvreux. François Digard: Could you elaborate on the online sales growth in the U.S. in '25 and specifically in Q4? I would appreciate the deep dive if you could help us to understand the main drivers behind this performance. And how sustainable do you believe this growth is? Notably how -- I would be interested to know how you share the value with your Click & Collect partners in this business. Frans Muller: Thank you, Francois. [Foreign Language]. 23% growth in the fourth quarter is, of course, magnificent, 35% for Food Lion. And you could argue that it's a little bit from a lower base in itself, but it's still amazing. Penetration getting over 9% now. Stop & Shop historically already in very high participation, but also growing there to over 11%, so a very positive penetration growth in all the brands we operate. We operate very different than before. As you know, we are now having our Click & Collect options powered by PRISM, owned -- well -- own-developed software, which is giving us, yes, first of all, efficiency, picking efficiency, but also a much better customer connect and a much better customer journey in that online Click & Collect, let's say, part of our proposition. We also partner with DoorDash and Instacart. That is going very well. We might address that we might find another strong partnership, too, which is going to fuel extra growth, so we talk about online a lot. The teams are so convinced that omnichannel is the name of the game. Those customers are more loyal, store and online connected. Jolanda already mentioned that we also got a fully allocated profitable and even more profitable. That's also good news. And of course, online and these kind of things are more linked to AI efficiencies, but also more linked to retail media at the same time. And therefore, that online growth is also for us a very important element of having a better deal, having a better proposition for our customer base. Jolanda Poots-Bijl: Maybe adding to that, Frans, I mean, if you look at what is driving our growth next to all the points that you mentioned, if you compare it with some of the competitors in the market, you have access to a very large assortment on our PRISM portal. So that assortment and the breadth of it, I think, helps, and it's fast. So we have a delivery time of 3 hours, which compared to some of those other also huge players, that's high speed. So speed and assortment probably also helps to win customers over. Frans Muller: Yes. And if you're in Brooklyn with your Eastern European assortment, then you pick your online order in that store, your store and your assortment. So it's store-specific. It's a unique PRISM proposition. And I think that's also different than a few of those, let's say, more centralized online things. Also there, we are local. Also there, we give our customers their local store in the mobile phone. François Digard: And how sustainable you see these trends because 20% is just replenishing? Frans Muller: Yes. For the full year, it was 18%... Jolanda Poots-Bijl: Which is also quite high. Frans Muller: Which is also quite high. So double-digit growth is for us important. I think I would leave it there. I mean -- and as I mentioned, 35% for Food Lion, but they have to catch up a little bit because they were at a lower penetration. So they will grow faster, I think, but double-digit growth is our plan. John-Paul O'Meara: So thank you, Francois, and thank you, everyone, for joining us on the call today. Thank you, too, Sharon. We'll be out on the road as usual tomorrow and over the next 7 or 8 weeks. So happy to catch up with you. And if we didn't get your question today, we'll gladly give you a call now after the call. But thank you for your attendance. Jolanda Poots-Bijl: Thank you indeed, and see you next time. Frans Muller: See you next time. Thank you, JP, as well for the preparations.
Operator: Greetings, and welcome to the Lithia Motors, Inc. 2025 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jardon Jaramillo, Senior Director of Finance. Thank you. You may begin. Jardon Jaramillo: Good morning. Thank you for joining us for our fourth quarter earnings call. With me today are Bryan B. DeBoer, President and CEO, Tina H. Miller, Senior Vice President and CFO, and Chuck Lietz, Senior Vice President of Driveway Finance. Today’s discussion may include statements about future events, financial projections, and expectations about the company’s products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. We undertake no duty to update any forward-looking statements that are made as of the date of this release. Our results discussed today include references to non-GAAP financial measures. Please refer to the text of today’s press release for a reconciliation to comparable GAAP measures. We have also posted an updated investor presentation on our website investors.lithiadriveway.com, highlighting our fourth quarter results. With that, I would like to turn the call over to Bryan B. DeBoer, President and CEO. Bryan B. DeBoer: Thank you, Jardon. Good morning, and welcome to our fourth quarter earnings call. In the fourth quarter, we achieved record revenues driven by impressive used vehicle sales that greatly outpaced the market. Quarterly revenue was $9,200,000,000 setting a new record for full-year revenue of $37,600,000,000, up 4% from 2024. Adjusted diluted EPS was $6.74 for the quarter, with full-year adjusted EPS of $33.46, up 16% from 2024. Our operational leaders leaned into growing our top line and flexing their muscles across all aspects of our ecosystem including DFC, which saw a $19,000,000 year-over-year increase in pretax income and delivered a 16.7% penetration rate in December, exemplifying auto done easy. I would like to commend our ops leaders for leaning into used cars, especially value autos, focusing on the customer experience, and earning considerably more share in positioning us again at the top of our peer group. Together, we are challenging our store and sales department leaders to reinvent their profit equation through more dynamic pricing and reducing SG&A while outperforming in volume. Growing our market share and increasing volume is a turbo boost to our ecosystem’s future profitability as we increase DFC penetration, aftersales retention, and benefit from the waterfall of used vehicle trade-ins. During the quarter, our same-store revenues were essentially flat, and gross profit was down 1.2%, reflecting strong execution relative to the market. Total vehicle GPU was $3,946, down $258 year over year, in line with industry-wide compression in both new and used vehicle margins. Despite these headwinds, our diversified earnings mix and focus on market share delivered double-digit growth in aftersales and stable F&I performance to help offset front-end pressures. Note that all vehicle operation results will be on a same-store basis from this point forward. New vehicle revenue declined 6.6% on an 8.3% unit decline as industry demand softened and supply normalized. New vehicle GPU was $2,760, down $300 over last year. Performance varied by brand with luxury brand revenue down 12.7% year over year, partially due to the difficult prior-year comp. Domestic and import brands were also soft, particularly late in the quarter when sales promotions did not materialize. Our used retail performance has returned to our historical industry-leading mid-single-digit growth levels, with used revenue up 6.1% driven by 4.7% unit growth. Our value auto platform continued its strong momentum with 10.9% unit growth, demonstrating our growth at the most affordable price points. Used GPU was $1,575, down $151 year over year as we increased market share considerably, while now turning to the opportunity to improve unit profitability as well. Our focus on this high ROI area provides a stable anchor to new vehicle cycles and allows us to increase the number of customers in our ecosystem while growing our F&I and aftersales profitability. F&I per unit was $1,874, up $10, demonstrating the resilience of this high-margin business. This steady growth came despite a record DFC penetration, where we intentionally shift finance gross profit from F&I to our captive finance platform. Adjusting for these mix shifts, underlying F&I product attachments and pricing was healthy, reflecting strong execution across our network. Inventory levels remain consistent with new vehicle day supply at 54 days, essentially flat from 52 days last quarter. Flat inventory plus lower interest costs drove $6,500,000 in year-over-year floor plan interest. And used inventory at 40 days compared to 46 days in Q3. Aftersales was also up nicely with 10.9% growth in revenue and 9.8% growth in gross profit, delivering 57.3% gross margin. We saw consistent growth across all categories, with customer pay gross profit up 10.9% and warranty gross profit up 10.1%. This stable broad-based growth demonstrates the underlying strength of our aftersales business model and its power to create customer loyalty. Our sales departments have been challenged and are responding to improved SG&A leverage and ensuring more of our gross profit is realized on the bottom line. This quarter, GPU compression outpaced our cost reduction efforts Tina will talk to in just a moment. As we look ahead into 2026, we have flattened the organization, continue to focus on efficient customer experiences, and are making technology investments that will drive efficiency. In the UK, our teams delivered a 10% increase in same-store gross profit while navigating challenging market conditions as well as regulatory labor cost increases. We are capturing market share in our high-margin aftersales business across the UK network while focusing on sales throughput, particularly in used vehicles. Adjusted pretax income for the UK increased 53% for the full year compared to 2024, and we see continued opportunities to strengthen our results in 2026. Well done, Neil, and well done, UK team. Our digital platforms continue increasing our reach and enhancing the customer experiences to make shopping, financing, and servicing simpler and faster. Our partnership with Pinewood AI has delivered exceptional returns, and we are excited to pilot the Pinewood dealer management system in our first North American store soon, creating a single modern platform and reducing complexity, accelerating workflows, and placing our team members in the same systems as our customers to deliver faster, more seamless customer experiences. Together, these technology investments deepen customer retention, support operational efficiency, and reinforce the power of our integrated ecosystem. Driveway Finance Corporation continues to scale profitably with record income, healthy net interest margins, and disciplined credit quality. Our expanding market share creates a larger origination funnel and a path to our long-term 20% penetration target that will convert more sales into reoccurring countercyclical income. As DFC continues to scale, this platform will differentiate our customer offerings while driving higher-quality, more diversified earnings streams. Now on to capital allocation where we remain focused on maximizing shareholder return through disciplined deployment. With our shares trading at a deeply discounted valuation, we accelerated repurchases this year, retiring 3.8% of our shares in the quarter and 11.4% of our shares in 2025 at prices that we should drive meaningful accretion with. We also strengthened our balance sheet through opportunistic refinancing while preserving capacity for our growth investments. Going forward, we will maintain this balanced capital strategy between buybacks, selective M&A, organic investments, and balance sheet strength. Our integrated ecosystem continues to strengthen. Growing aftersales profitability, accelerating used vehicle growth, expanding DFC penetration, and ongoing operational improvements in our sales departments will create a stronger earnings base. With improving operational efficiency, robust free cash flow generation, and disciplined capital deployment, we are well positioned to deliver compounding earnings growth in 2026 as industry conditions normalize by doing what we do best: growing through the power of our people. Strategic acquisitions remain a core pillar and key differentiator, and in the past six years, more than tripled our revenue while pairing scale with consistent EPS growth. This growth was accomplished while also building a more diversified and profitable business model. Today, our cash engine and unique ecosystem give us the flexibility to both accelerate buybacks and continue to grow through high-return acquisitions. We remain disciplined and strategically focused on prioritizing stores that strengthen our network density and elevate our brand mix in high opportunity markets. In the fourth quarter, we added iconic luxury stores, improved our import mix, and expanded a little bit with our Canadian footprint. For the full year, we acquired $2,400,000,000 in expected annualized revenues, diversifying our portfolio and expanding our reach. Our results over the past decade have yielded high rates of return. We achieved nearly double our 15% after-tax hurdle rate through consistent and disciplined acquisitions, targeting purchase prices of 15% to 30% of revenue, or three to six times normalized EBITDA. Looking ahead in 2026 and over the long term, we continue to target $2,000,000,000 to $4,000,000,000 of acquired revenue annually, balancing our share valuation and acquisition prices to strategically accelerate shareholder return. With a half a decade of tremendous results behind us, we are looking ahead to 2026. Our strategic design is showing durable results as the industry normalizes. The elements that support our long-term $2 of EPS per $1,000,000,000 of revenue targets continue to build momentum as we lift store-level productivity and throughput, expand our footprint and digital reach to grow US and global share, increase DFC penetration, reduce costs through scale efficiencies, optimize our capital structure, and finally, capture rising contributions from omnichannel adjacencies. The continued development of these levers will convert momentum into durable EPS and cash flow growth. Our network and digital platform create engagement across the entire ownership life cycle, while strengthening used vehicle, aftersales, and DFC businesses deepen customer relationships throughout economic cycles. Leaders across our organization are unlocking store potential, integrating adjacencies, and enhancing customer experiences. These capabilities demonstrate resilience, operational flexibility, and the compounding momentum that will drive sustained shareholder value creation. With that, I will turn the call over to Tina. Tina H. Miller: Thank you, Bryan. Our fourth quarter results reflect the more challenging environment with year-over-year earnings pressure driven by margin compression and SG&A deleverage. At the same time, our results in financing operations continue to demonstrate the strength of our diversified model, and our solid free cash flow generation supported meaningful share repurchases while maintaining balance sheet discipline. Our leverage remained comfortably below target levels with ample liquidity to opportunistically fund acquisitions and return capital to shareholders. It is important to note that prior-quarter results included the benefit of a large insurance recovery related to the CDK outage. Adjusting for the $0.53 prior-year impact provides better year-over-year comparison. Our year-over-year results reflect class-leading top line and gross profit trends, and as we have historically seen, responding to quickly declining vehicle margins occurs on a lag as our sales departments work to rebalance their cost structures. The benefit of the design of our business and disciplined approach is the optionality provided by our resilient cash engine and the long-run operational efficiency generated by our size and scale that will compound value over time. Adjusted SG&A as a percentage of gross profit was 71.4% versus 66.3% a year ago, with top quartile SG&A performance of 67.9% in North America. These increases reflect the pressure of normalizing GPUs on our sales departments. Our teams continue to focus on managing costs through growing market share and gross profit. More specifically, our sales departments are navigating volume, gross profit pressures, and productivity to meet market conditions and manage efficiency while effectively serving our customers. Beyond near-term cost management, we are executing structural improvements across our network that will compound over time: raising productivity through performance management and technology solutions, including early investments in AI-powered chatbots and customer service automation; simplifying the tech stack and retiring redundant systems; renegotiating vendor contracts at scale; and automating back-office workflows. These efforts are building momentum quarter by quarter with benefits from our Pinewood AI investments expected to materialize over time as we scale deployment and realize efficiency gains. As Bryan mentioned, the most effective strategy to improve future SG&A leverage is to improve market share and volume. Combined with our unique ecosystem, we accelerate profitability as we build customer loyalty and increase the value of our adjacencies. Driveway Finance Corporation delivered strong profitable growth in Q4 with financing operations income of $23,000,000, bringing full-year 2025 income to $75,000,000, an increase of $67,000,000 from the prior year. Our managed receivables portfolio grew to $4,800,000,000, up 23% year over year, while net interest margin expanded to 4.8%, up 55 basis points. North American penetration reached 15% for the quarter, up 650 basis points. Credit performance remains exceptionally strong with an annualized provision rate of 3%, supported by an average origination FICO score of 751 and 95% LTV in the fourth quarter. Our ability to originate loans at the top of the demand funnel creates a fundamental advantage in credit selection and keeps capital requirements efficient. With a steadily growing portfolio approaching $5,000,000,000, increasingly efficient securitizations, steadily improving margins, and clear runway for penetration growth, DFC is delivering on a significant promise as we scale toward our long-term profitability targets. Now moving on to cash flow and balance sheet health. We reported adjusted EBITDA of $364,100,000 in the fourth quarter, an 8.9% decrease year over year, primarily driven by lower net income. We generated $97,000,000 of free cash flow during the quarter, and our strong balance sheet allows us the ability to repurchase shares and acquire stores in strategic markets while diversifying our brand mix. We are committed to maintaining investment-grade discipline with our leverage ratio targeted to remain below three times. Our regenerative cash engine positions us to continue deployment of capital to maximize shareholder returns. This quarter, we continued our commitment to focus on share buybacks while balancing accretive acquisitions. Our shares continue to trade significantly below intrinsic value, and we allocated approximately 40% of capital deployed to share repurchases, buying back 3.8% of outstanding shares at an average price of $314. In 2025, we repurchased 11.4% of our float at an average price of $314. We remain committed to allocating capital to opportunistic share repurchases as our shares trade at a discount to intrinsic value. Approximately 40% of capital was deployed to high-quality acquisitions and the remainder to store capital expenditures, customer experience, and efficiency initiatives. As we look ahead to 2026, our capital allocation philosophy will remain disciplined and opportunistic. With leverage below our three times target, regenerative cash flows, and ample liquidity available, we will maintain our balanced approach, allocating free cash flows to repurchases when relative valuations are attractive and investing in accretive acquisitions at the right price. This balanced deployment allows us to compound returns for shareholders through buybacks while simultaneously expanding our footprint through strategic acquisitions that strengthen our competitive position and diversify our brand portfolio. Our resilient model generates differentiated earnings and cash flows from an omnichannel platform that serves the full ownership life cycle. With talented teams, class-leading digital and financing capabilities, and a strong balance sheet, we are executing with the same discipline that powered the growth of our business over the last ten years. Our diversified model responds with agility as macroeconomic conditions evolve while preserving capital flexibility to deploy where returns are highest. As we move into 2026, we will continue focusing on increasing profitability, scaling high-margin adjacencies like DFC, and translating share gains into cash flows and compounding value per share. This concludes our prepared remarks. With that, I will turn the call over to the operator for questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Michael Patrick Ward with Citi. Please proceed with your question. Michael Patrick Ward: Thanks. Good morning, everyone. On Page 19 of your slide deck, you have an interesting chart that shows the retention levels on the aftersales business. And it seems like you have had some pretty big increases, particularly with some of the older vehicles. That is just from last year. How much of that growth is tied into the extended service contracts that you are dealing with F&I? I do not know if you can share with us any details on what the take rate is for the extended service contracts. Bryan B. DeBoer: Hi, Mike. This is Bryan. Thanks for joining us today. When we think about retention, we are up slightly as a percentage relative to a state average over last year, where you sit typically around eight or nine better than average, and it is up slightly year over year. When we think about the take rates and how much of our business is driven off of aftersales and customer pay, it is less than 25% of our business in customer pay. Now when people buy cars from us, I think we were sitting at 37% penetration on service contracts. Tina H. Miller: And then somewhere just under 20% penetration in lifetime oil, and that obviously still includes, you know, the denominator of that still includes full electrified vehicles that we do not sell lifetime oil on. So Michael Patrick Ward: Okay. The second thing, it looks like with the shifting priorities, you are really generating a lot of cash and returning it to shareholders. Any reason that is going to shift in any direction over the next couple of years? Bryan B. DeBoer: There is one big reason. If our stock price increased in value relative to acquisitions, then it may make sense. But we really believe that at these prices, it is quite a value. And Tina, myself, and the rest of our capital allocations team are quite focused on it. And imagine we will continue to back up the truck and buy shares because that is an easy return to each of you, as well as ourselves. So Michael Patrick Ward: And there is less cash needed to grow Driveway Finance, and so that is freeing up more capital to do this. Bryan B. DeBoer: Great point. I mean, we hit max cash outlay a couple of quarters ago, which was just under $1,000,000,000, around $900,000,000. And because our overcollateralizations are now so efficient, we are only at overcollateralizing, you know, mid-single digits typically. When we started, we were overcollateralizing upwards of 25%. That obviously is where the capital comes back in. And as those loans begin to age, the 25% turns into 3% or 4%, and we get 22% back. So we really believe that the $15,000,000,000 to $17,000,000,000 mature portfolio at a 20% penetration rate really takes about 3% to 5% to be able to manage that, which means we could probably continue to grow and still recapture a couple hundred million dollars over the next four, five years. Michael Patrick Ward: That is great news. Thank you, Bryan. Thank you, everyone. Bryan B. DeBoer: Thank you, Mike. Operator: Our next question comes from the line of John Murphy with Evercore ISI. Proceed with your question. John Murphy: Hey, guys. Thanks for taking my call. In Q4, SG&A as a percentage of GP came in a bit higher than we were expecting. So I wonder if there is anything specific that drove that number during the quarter, and maybe could you explain how much of Q4 SG&A dilution from the M&A activity? Bryan B. DeBoer: Sure, John. This is Bryan. Maybe I will take a shot at the first part of the question. I will let Tina deal with the dilution. We would classify the quarter as such: it continually weakened. Typically, in the fourth quarter, you get a good close at the November, at the December. And we saw a mediocre close at the November, but we did not see sales materialize like we typically do in the last ten days of December. And we were pushing marketing budgets and so on to be able to drive volume. And when those materialize or GPUs do not materialize, the two combined created a bit of an uptick in SG&A. The neat part is our stores are trying to find that nice balance between volume and net because what we do know is that volume is what drives the future of our entire ecosystem, specifically referring to that waterfall effect of used car trade-in. Big part of that. That drives the reconditioning of service and parts. And all of those drive sales, which generates aftersales business and DFC business. So we believe it is the right model to go after volume. I think we just got, I think the market was a little softer than our teams expected. Tina H. Miller: Yeah. This is Tina. When we look at the same-store SG&A as a percentage of gross profit, it is relatively similar to our total company at 71.2%. You know, the big differentiator really is the UK versus North America. And as talked about in the prepared remarks, you know, our North America SG&A as a percentage of gross profit continues to be in the top-performing quartile when you look at us versus our peers. So good strength there. As Bryan mentioned, a lot of that driven by that top line movement that we are seeing. John Murphy: Okay. Thanks. And then taking a broader view, but staying focused on that SG&A as percent of GP. You ended up the year at 68.8%, up, I think, 130 bps versus 2024. Would you be willing to stake a claim for where SG&A can get to in 2026 en route to your longer-term targets of 60% to 65% overall? Bryan B. DeBoer: John, we can take that question offline, too. But I think most importantly, SG&A is primarily a function of what your GPUs look like and what your volume looks like, and then the response that you take off that. So it is difficult, especially when we are starting to feel some pressures in terms of volumes, and I think you saw that across the entire sector. We were very fortunate that we looked top of the heap in terms of revenue growth. Obviously, looked real good in used car growth and aftersales growth. But generally speaking, everyone is softening on new cars, and that has major implications of SG&A. But one thing I know is that our team has the ability to adjust their cost structures, and we are out there challenging them. And I know my operational presidents and vice presidents are actively working on that to be able to do the best that we possibly can. John Murphy: Okay. Thanks, guys. Bryan B. DeBoer: Thanks, John. Operator: Our next question comes from the line of Ryan Ronald Sigdahl with Craig-Hallum. Please proceed with your question. Ryan Ronald Sigdahl: Hey, good morning, Bryan, Tina. I want to stay a little bit on those topics, but you mentioned kind of weakening sequential trends in Q4, a little bit of a lagged marketing strategy change, I guess, to align. But Q1, thus far, any demand trends that you are willing to call out? And then we have heard of some weather impact in January. March has an impossibly high comp. But I guess, have those trends continued into Q1 is ultimately my question? And then what are you doing from a spend standpoint to align to that? Bryan B. DeBoer: Sure, Ryan. And you are correct. I mean, we do have some Northeast business that is affected a little bit by weather. But, overall, the trends are very similar to what we saw in the latter two months of Q4. We are hoping that once the thaw happens that March sales return. And I think when you think about Lithia and Driveway, we do look at Q4 as our softest quarter, and a lot of that is because the United Kingdom does not have that big month like a September and March in it. So the variation now between Q4 and Q1 can be quite large, which is a nice wind at our tail. And as we mentioned, I mean, the UK was up 50-some percent year over year in net profit, so that is a nice number. So we have got that advantage coming in the month of March, and they had a decent January. So we always have that little benefit now where Q1 and Q4 used to be relatively both our softest quarter. So nice little boost there, hopefully. Ryan Ronald Sigdahl: Yeah. Nice to see the UK turning to a nice tailwind, given the challenges in the market. DFC for my second question, if I look at Slide 12, $62,000,000, nice 2025 finish for the year. Medium term, $150,000,000 to $200,000,000, given you are getting closer to that 16% penetration, kind of all the assumptions and everything is normalizing. I guess, is that medium term kind of within the next couple years or any time frame to get there? And then any commentary to kind of bridge 2026 into that medium term? Chuck Lietz: Yes. Great. Ryan, this is Chuck. Thanks for your question. In terms of kind of last year, we were pretty pleased that we were sort of guiding that, you know, kind of $50,000,000 to $60,000,000 for our total financing income and delivering $75,000,000, which is a great result for last year. But kind of looking forward, we would certainly expect that to be consistent and repeatable in terms of our growth. And so we see kind of a 20% plus kind of growth rate of our financing income operation, and that kind of does align pretty well with your within a year or two, or a couple years, I should say, of hitting sort of that midterm kind of growth targets that we are showing there. Bryan B. DeBoer: Chuck, do not be shy. Talk to him about our penetration rate in January. Chuck Lietz: Great. Thanks, Bryan. You know, January penetration rates were record for DFC at about 17.5%. And we really see clear line of sight to getting to that 20% pen rate a little faster. Now that is going to put pressure on financing income projections as we continue to accelerate the growth due to the CECL reserves. But we think that is the right strategy to continue to make those investments in DFC and continue to partner with our stores and deliver better outcomes for our investors. Ryan Ronald Sigdahl: Thanks, Chuck. If I may, just a quick follow-up there. You mentioned kind of the 20% plus CAGR on the financing income, but also higher penetration kind of as a near-term negative. So I guess, is that 20% a longer term, or can we assume that for 2026 when things kind of normalize from a penetration standpoint throughout the year? Chuck Lietz: Just a slight correction. I said 20% plus CAGR. So 25% is obviously the goal, but I think to your point of the question, yes, you know, as we continue to accelerate growth, that could be a headwind. But we think 20% would be on the low side of that range. And if for some reason our growth rates were to slide, that would obviously put pressure on the top end of that range, which is why it is at 20% plus. But we are still very confident that, you know, we can hit long term that $500,000,000 of pretax income for our financing operations within, you know, a very achievable time frame. Bryan B. DeBoer: Ryan. Operator: Our next question comes from the line of Rajat Gupta with JPMorgan. Please proceed with your question. Rajat Gupta: Great. Thanks for taking the question. I had a quick question on the used GPUs. It has been under pressure for quite a few quarters now. I mean, obviously, nice performance on the unit side. I am curious, like, are we at a new run rate on used car GPUs? Anything you would call out that is causing some pressure there would be helpful, and I have a follow-up. Bryan B. DeBoer: Sure, Rajat. This is Bryan. This is the fun part of the business for me. And I think there is a stage and an evolution that occurs in selling used cars that I think we have got the right formula now that our stores are keeping the older cars. What we are also starting to realize is two of my operations vice presidents have been doing some heavy lifting on what do our pricing models look like. And they did uncover some pretty healthy pricing gains primarily in two areas, and we basically do these studies that is price to market of what we believe cars sell for and then what we sell those cars for. And the biggest single delta was in our value auto cars, which is over nine-year-old cars, that we had a 12% to 13% delta between what the marketplace was selling the cars for. So even though I am motivated by the fact that we are up low double digits in value auto, we are still having tendencies to give them away or think that there is a more sensitive pricing on those scarce older cars, and there is not. So what we are trying to do is reeducate store leaders to inflate the pricing on those cars and understand that it is not necessary that the velocity of that car turns within four days. It is okay if it turns in 24 days, because that scarce car will bring in additional traffic. And then, ultimately, if our average value auto car is around $16,170, an extra 12% is an extra $2,000 a deal. So that is a big number. The other soft spot that we have in pricing is what we would call scarcer late-model used cars, which is basically lower mileage cars than what their model year is, meaning they are driving 4,000 or 5,000 miles a year instead of 10,000 to 12,000 miles a year. We are underpricing those cars by almost 8%. And those cars are a $30,000 average. So, again, it is a pretty darn big number that we have just got to get better at pricing. And this is where some of our data is starting to be used, but it is finally getting disseminated into the field. So we hope in 2026 that we see some of the lift on pricing. And that is what I would say is most of the GPU dilemma is that sacrifice of volume and then not understanding what the pricing is because a lot of those stores, they are still afraid and thinking that an old car they do not have customers for they should not maybe be selling quite yet because we have never done it in the past, and then they cheap sell it. And that is something that will help guide them, and they will mature as they do it more often. Rajat Gupta: Got it. That sounds helpful color. And just follow-up on aftersales parts and service. Pretty remarkable growth there in the fourth quarter. I know it looks like some of the initiatives are coming through, but would you be able to double click on maybe one or two areas that are driving that kind of growth, and what is a good ballpark assumption that we should bake in, you know, for 2026 in that segment? Thanks. Bryan B. DeBoer: Sure, Rajat. I think when we think about what drives same-store sales growth in our aftersales department, it is all about relationships with customers. And I think many of our stores now are understanding that the relationship is built by doing things their way other than our way. And I think that has been a lot of our opportunity is coming from we have processes. We want customers to fall within those processes. But the My Driveway portal of what we do today allows customers to schedule their own appointments, which makes it easier and makes it more collaborative. Then when they come in, we know who they are a little bit better, and hopefully we can focus our attentions on opening our ears and having our heads up rather than texting or thinking about our processes and really delighting and creating memorable experiences. So I would say that if we look forward at aftersales growth, I believe that a mid-single-digit number is a realistic number for the near term. We do have some harder comps coming up because of some big recalls. But those, as we all know, do not just end. They kind of have tails to them, and there are always laggards of people that have not done those recalls that you will get. And then the next recall comes in, and in fact, I was mentioning to Tina and Jardon that I have three cars in service right now that all have recalls, and it is like, oh, my God. One of them had three. So anyway, lots of opportunities in aftersales, but I think for our team, it is about focusing on the individual needs of each and every customer. Operator: Our next question comes from the line of Jeff Licht with Stephens. Please proceed with your question. Jeff Licht: Good morning. Thanks for taking my question. Bryan, you know, you have normally had some pretty in-depth points of view on, you know, the path travel with new GPUs. You finished at $2,781. No, $2,958 for the year, which was at the high end of your guys’ kind of guidance of $2,800 to $3,000. Just curious as we go into next year, I mean, you know, some of your peers have said, hey, look, it feels like things are bottoming. Maybe a couple others have thought, hey, you know, there is maybe some giveback with some of the brands that have not given back such as Toyota. Just curious your thoughts on where you see GPUs going in 2026? Bryan B. DeBoer: Yeah. Sure, Jeff. I think the neat part is I think our manufacturer partners have figured out how to throttle up and down inventory a little more effectively than they have done in the past, whether it is true production capacity issues or whether it is just, hey, we are going to control our inventory so both our gross profit and our dealers’ gross profits are stabilized. And we are quite proud of our Toyota partners and our other for trying to control inventory, because it does matter. It does feel, and I would probably agree with the rest of our peers, that it feels like it is bottoming out, which is nice. We are still seeing some weakness when it comes to BEVs. But, again, I think that is just the backlash of the incentives being gone and us needing to continue to push volume for the lessened CAFE standards and those types of things. But all in all, we, things look pretty good. And I think most importantly, our focus is a lot on used cars and hopefully getting the GPUs out of that in the event that the GPUs on new that are kind of dictated by the marketplace and supply, that maybe we are not able to control those quite as much as we can on used. We will just make sure that we figure out how to balance that. Jeff Licht: And then just a quick follow-up on, you know, just doubling back on the SG&A. And I was wondering, like, back in the day, one of the big talking points for the dealers was always, you know, a very variable cost expense structure. Just curious just more on an in-the-weeds level. When volume does not pan out, I get advertising is what it is. So if you advertise thinking, hey, we are going to do 100 units per month at a store and end up doing 80 and advertising is what it is. What are some of the other expenses that you get caught with when volume drops? Bryan B. DeBoer: The biggest typically is personnel costs. And you would think that they would be volume-based. But unfortunately, there are still guarantees, and there are other factors at play. We are being pretty diligent on modifying compensation plans with what is something that we call XY pay plans. It is basically a grid type of pay plan that is really trying to motivate both volume and ecosystem effectiveness, we call it, as well as net profit. And some of our leaders have really asked for those type of pay plans to drive their performance. And Jeff, I would say this. We as an industry do spend a lot of money on personnel and marketing to drive things that we probably would be able to sell without a lot of that marketing or personnel. So I think as we think about our future, we think about leveraging our best people to be able to do more with less. And as we think about the future and we think about Pinewood AI and the ideas of placing our customers and our team members into the same IT ecosystem, there are massive amounts of savings that should be able to be realized over time, and we are really in the infancy of putting our numbers on that, and the UK’s teams are a little bit further ahead than us. But we still see a nice pathway to that mid to high 50% range, despite being a little higher this quarter in our weakest typical quarter of the year. So nice improvements, but we have got our pulse on this and know that that is where the money can be made in the industry. And ultimately, that is where the relationships with the customers can be leveraged to create more wallet share, you know, more of us getting their wallet shares out. Alright, Jeff. Thanks. Jeff Licht: Just last real quick. Can you define what you meant by medium term in the SG&A slide? In terms of time? Bryan B. DeBoer: That is typically three to four years. Jeff Licht: Awesome. Thank you very much. Bryan B. DeBoer: Thanks, Jeff. Operator: Our next question comes from the line of John Babcock with Barclays. Please proceed with your question. John Babcock: Just firstly, I think you mentioned earlier, and obviously, correct me if I am wrong, but I think you were saying that you were seeing trends similar to the last two months. So currently, it is similar to the last two months of the fourth quarter. Out of curiosity, does that apply to the used market? And also just broadly, it does seem like the used vehicle market is at least showing some decently positive indicators. I mean, it seemed like pricing was up pretty decently in January and, you know, everything we are hearing on the wholesale side sounds like that is pretty strong. So I guess just overall, if you could talk about the used market and what you are seeing there, that would be helpful. Bryan B. DeBoer: That is accurate. The trends that I mentioned are similar in used, new, and aftersales. So we are real pleased with that. We do have two less days in aftersales in January, so it is a little bit hard to extrapolate, which implies that there is 8% less days to be able to turn wrenches. But that usually will get made up in February and March. In any given quarter, it usually does not have that big a difference. When we think about the used car market, this is the typical time that it does begin to strengthen. We are a little surprised that it showed the strength that it did, and to be fair, that is not really how we think about our used car business. I mean, we typically look at our inventories and then look at our turn rates and see which segments are moving quickly, and then go target our buying habits on those areas and elaborate and buy in the areas that things are turning quickly. And I mentioned that idea of how do we make sure our used cars are turning, how do we capture all parts of the marketplace. That is how we think about the used car business. It is about affordability. As long as I have a broad range of one- to ten-year-old cars, whatever happens with pricing, we clear it out in less than two months anyway. So it does not affect us as retailers as much, other than we do think about affordability and making sure that we touch every possible affordability level in used cars. John Babcock: Okay. Thanks for that. And then just my last question. On the affordability point, there was some discussion at NADA about offering Chinese brands in the US. I am just kind of curious. I mean, have you been approached by Chinese brands to offer their products? And then also, what is your interest level in doing that? Bryan B. DeBoer: Sure. Good question, John. I think let me start with we have growing relationships with three Chinese manufacturers in the United Kingdom. We now have a double-digit store count, and they are taking some market share there. I think it is important to remember that with our Chinese partners, the market share gains that they are making in Western Europe is not coming from electrification. Their initial flurries into the Western European markets came on the back of electrified vehicles. It did not go very well. There was not very much traction. And it was not until they brought in ICE engines until they basically 10x’ed their sales. So we are quite excited that we have got that in the United Kingdom, but there is a big fundamental difference. In the United Kingdom, we are allowed to do what is called dueling of franchises, meaning that if I have a certain brand and that brand is not performing as well as another brand, meaning that if the Chinese brand, let us use Chery, for example, is conquesting market share from Stellantis, it is typical that Stellantis will allow us to put Chery brand right next to them in the same showroom with somewhere less than $100,000 in capital expenditure to do it. Why is that important? Because it gives us additional new cars and maybe used car sales. Here is the problem. There are no units in operation when you are opening these Chinese brands. So I think we would probably not be early adopters when it comes to the United States or possibly even Canada, primarily because we are usually not in a dual franchise situation, meaning that I can have my Stellantis brand that has this great units-in-operation even though their new car volumes are dropping. That offsets the fact that the Chinese brands are now selling cars, new cars, maybe a few used cars. Are you following me? And no service and parts business. So it is a balancing act. And I think when we extrapolate that over the North American footprint, I think it would have to be a broader relationship than a dealer, where we would have more influence over the aftersales and the life cycle experiences that you would have with that, possibly even more control over pricing, which would mean we would need, you know, market control to some extent to be able to make it make sense that you are going to be opening points without a service and parts base to start. And remember, we do get 50% to 60% of our profits from service and parts. So it is quite a difficult venture, but we will approach that. We do have building relationships with a number of different Chinese brands and have a pretty good Chinese contingency operationally with Brian Lam, who has done some work with that. And we will keep our minds open and look at what the opportunities that present us in the future. Hopefully, that answered your question, John. John Babcock: Yeah. That is perfect. Thanks for all the detail. Bryan B. DeBoer: You bet, John. Operator: Our next question comes from the line of Bret Jordan with Jefferies. Please proceed with your question. Bret Jordan: Hey, guys. Could you give us a little more color on luxury? I guess, you mentioned that there was some timing issue as, but I think on the third quarter call, you talked about seeing some softening amongst that high-end consumer. How much is product versus pull-forward versus, you know, more of a macro consumer sentiment issue? Bryan B. DeBoer: It is a little of both, Bret. Our luxury was down somewhere in the 11% range. But what we are feeling is that we are fortunate that their service and parts business is still fairly strong, which helps balance some of those things out. I do have some specific numbers. It looks like BMW and Porsche were probably the hardest hit, you know, but they are all within four or five percentage points of each other in terms of same-store sales. And when you start to get down into net profit, there are some more punitive numbers if you get into some of the lesser German brands. So, you know, but we are working on that, and we still got, we announced, what, last week we had our LPG, our Lithia and Driveway Partners Group announcements. Our number one store in the company, and this will tell you the power of people. Our number one store that won our Founders’ Cup is an Infiniti store. So if you get, if that is about as hard a brand as you could have last year, and somehow that person managed to turn lemons into lemonade. And we are quite proud of the accomplishment of all our LPG winners, including some of those sales departments and service departments that really found ways to buck the trends with certain manufacturers. So Bret Jordan: Okay. And then one follow-up question on used. Obviously, the margin rate on used is well below where it was sort of pre-pandemic. And when you think about that, you know, between mix of value versus core and all, but where do you see the margin rate coming back to? Are we structurally less because you have got better internet price transparency? Or is it a supply issue? And if off-lease cars come back, you can see real margin recovery in that category. Bryan B. DeBoer: Bret, I want to believe this is just a maturity thing. We have added two-thirds of our business that have not really ever got into these businesses. So I think that we will get that knowledge into those stores and they will start to understand and be more dynamic in their pricing. That if they do have scarce cars, they have got to price those differently than less scarce cars. And, you know, we have got certain tools that the stores use at times that are there for reference rather than as a bible. And they have tendencies to look at it all as a bible, and those tools do not always delineate between a low-mileage car and an average-mile car, and they do not delineate between a nine-year-old car versus a nine-month-old car. And there are massive differences. And that is where we are relying on our general managers, our general sales managers, and used car managers to watch what is happening on their lots and be sensitive to that and establish pricing that is appropriate for the marketplace and not give the cars away because they happen to be able to steal a trade-in. And that is really the underpinnings of this, is they are able to negotiate trade-ins at a one-to-one negotiation that are less than market conditions, and we still are able to buy our cars, you know, 5% to 7% below what our competitors typically do that are not new car dealers. Why? Because of that one-to-one negotiation. And then, sadly, we pass it along to the next customer rather than sit and wait for the right customer and spread the visibility of that car through driveway.com or GreenCars where you get enough eyes on it that you finally find a customer that will pay you the true market value of that car. So I believe, Bret, that this is all about maturity, and you are starting to see the, I mean, I think last year this time, we were minus 6% or 7% used car same-store sales, and we are the exact inverse of that this year. So that is the sign we want to see first. Now we are going to start constructively working on pricing and maturity and finding these cars and being able to turn them. Bret Jordan: Great. Thank you. Bryan B. DeBoer: You bet, Bret. Operator: Our next question comes from the line of Daniela Marina Haigian with Morgan Stanley. Please proceed with your question. Daniela Marina Haigian: Thanks. Just switching gears a little bit to a more strategic question. We are seeing this big inflection point this year and next few years in autonomous driving. And as legacy OEMs are also emphasizing their push into these passenger vehicles, L2 and L3 ADAS, they are embedding more advanced sensor suites, radars, LIDARs. Essentially, what I want to understand is what is Lithia Motors, Inc.’s capabilities in servicing these advanced sensor suites and EVs with sensor telemetry for autonomy. Bryan B. DeBoer: So this is great, Daniela. Nice to hear from you. It is pretty cool to be able to see these cars have these types of skills, but with that comes massive amounts of technology and massive cost to that technology. I think average aftermarket LIDAR is around $45,000 and has so many different parts. And I imagine as our cars become more so that way, what you find is that proprietary technology that we need to fix those things brings customers back into our dealerships, which is beneficial. So we are down to ultimately all of this. So whatever our manufacturers decide to upfit the cars with and whatever consumers are really demanding, we get the benefits of it. So this technology creates a lot higher breakage rates. And I think that is why it is fairly easy to contend that mid-single-digit same-store sales growth rate for the next five to ten years is probably a pretty nice number. In terms of what can Lithia do differently, I think the single biggest thing that we can do is create optionality and go into people’s homes to make a difference. Make it convenient. Make it simple. Make it transparent. And that is how we try to differentiate ourselves alongside the brand names that are on our buildings. Daniela Marina Haigian: Thank you. And then shifting to auto credit, we have gotten a lot of questions. We have seen rising delinquencies in both prime and subprime in January. Obviously, DFC is skewed much higher on the credit quality curve. But any color you can share on how you have adjusted underwriting standards, if at all, to address the risk there? Have you seen any change in consumer behavior starting in 2026? Chuck Lietz: Yeah. Daniela, this is Chuck. You know, first, I would just like to say that every year for the last four years at DFC, we have improved our credit quality in our three key metrics. Our average FICO has increased, our payment-to-income percentage has declined, and our front-end LTV percentage has declined. That speaks to the consistency of our underwriting standards. And while we tightened up, you know, kind of our credit standards in that 2021 kind of time period where we could see a lot of choppiness in the market, we have been incredibly disciplined, incredibly focused on maintaining our credit discipline, and that really is bearing fruit today. And when we look at our year-over-year delinquency trends, we are down 36 basis points in the 31-plus bucket. That is bucking the trends of the market right now, and that again really just proves out the overall DFC hypothesis of being top of funnel. That really gives us a leg up in terms of our credit quality, and we see those trends continuing as we go forward. Bryan B. DeBoer: Thanks for your questions, Daniela. Daniela Marina Haigian: Great. Thank you both. Operator: Our next question comes from the line of Mark David Jordan with Goldman Sachs. Please proceed with your question. Mark David Jordan: Just one quick one for me on M&A. It picked up here in 4Q, and I understand the capital allocation going forward will be more opportunistic with respect to share repurchases. But, you know, can we expect this year to be kind of a normal year in the $2,000,000,000 to $4,000,000,000 of acquired revenue? Bryan B. DeBoer: Mark, this is Bryan. That is definitely what we are seeing today. And obviously, we are starting to drop off some pretty good profitability years, which helps pricing on M&A. But right now, the market is kind of static. I mean, we are definitely finding some deals. We announced those nice deals in Beverly Hills. We found a small little deal up in Canada, a few others under contract. So I think that that is a pretty good pace for us, and again, depending on what our stock price is versus what those acquisitions are out there for helps dictate how much we will end up doing. Mark David Jordan: Perfect. Thank you very much. Bryan B. DeBoer: Thanks, Mark. Operator: We have reached the end of the question and answer session. Bryan B. DeBoer, I would like to turn the floor back over to you for closing comments. Bryan B. DeBoer: Thank you, Christine, and thank you, everyone, for joining us today. We look forward to talking to everyone again on our call in April. All the best. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.