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Operator: Good morning, and welcome to the Hasbro, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the call over to Frederick Wightman, Vice President, Hasbro Investor Relations. Please go ahead. Frederick Wightman: Thank you, and good morning, everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer, and Gina Goetter, Hasbro's Chief Financial Officer and Chief Operating Officer. We will begin today's call with Chris and Gina providing commentary on the company's performance, before taking your questions. Our earnings release and the presentation slides for today's call are posted on our investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share. Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives, and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-Ks, our most recent 10-Q, today's press release, and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. I would like to turn the call over to Chris Cocks. Chris? Chris Cocks: Thanks, Fred, and good morning. Last year, we introduced Playing to Win, our strategic roadmap to guide Hasbro from turnaround into a new era of growth and profitability. At its core are two pillars: Play and Partnership. Those pillars define Hasbro. Our brands have been delighting fans since 1860 when Milton Bradley introduced his first board game. Partnership has been equally foundational. We have worked with premier partners for more than seventy years, beginning with The Walt Disney Company in 1954. Today, we work with over 1,000 partners across more than 5,000 collaborations. Play and partnership anchor everything we do. They power our mission to bring joy and community to fans of all ages through the magic of play. And our KPI for that mission is simple: Delight. So how many kids, families, and fans did we delight over the past year? When we announced Playing to Win, we used objective measures like YouTube views, Circana point of sale, box office receipts, and Sensor Tower data to estimate our annual reach. Our initial estimate was 585 million people. It turns out that was conservative. Since then, we have continued to refine our understanding of brand reach. In late 2025, we conducted a large-scale survey across eight major markets, reaching tens of thousands of consumers, and combined those results with third-party data to better understand the reach of our brands. The result was clear: Hasbro now reaches more than 1 billion people every year. From Transformers movies to families visiting Peppa Pig theme parks, to Magic played in hobby shops around the world, Hasbro has positively impacted nearly one in eight consumers globally. I'm incredibly proud of that. It puts into perspective why we do what we do and why we're pushing so hard to position this company for its next century. Our brands and partnerships create joy for an enormous audience through the simple, powerful magic of play. That delight is not abstract. It is showing up directly in our results. Inspiring a lifetime of play is what animates our teams. And in 2025, they translated that passion into outstanding performance. In the fourth quarter, Hasbro grew revenues by more than 30%. Adjusted operating profit grew nearly 180%. Our consumer products business returned to growth, up over 7%, with MONOPOLY, Peppa Pig, and Marvel all growing. Wizards of the Coast capped off a remarkable year with 86% sales growth in the quarter, driven by the combined strength of Magic and Digital. For the full year, Hasbro grew revenue 14%. Adjusted operating profit margin reached a record level above 24%. Adjusted operating profit exceeded $1.1 billion, also a record. That momentum is being reinforced by partnerships across the company. In toys, we added K-Pop Demon Hunters, the global phenomenon and Netflix's most popular film, as a co-master toy licensee. That partnership is already underway with a MONOPOLY deal crossover and many more exciting new role play, interactive plush, and games coming over the next few months. This morning, we also announced the primary toy license for the world of Harry Potter and the upcoming HBO original Harry Potter series with Warner Brothers Discovery. Joining new recently announced partnerships for Voltron with Amazon MGM Studios, and Streetfighter with Legendary Pictures. These collaborations will begin in the back half of 2026 and build into 2027. These are iconic franchises with global reach, and we are honored to partner with such world-class IP owners. Shifting to Wizards of the Coast, Magic delivered a record fourth quarter and grew sales nearly 60% for the full year. We have a powerful lineup in 2026. It includes original IP like Lorwyn Eclipse and Secrets of Strixhaven, alongside a blockbuster slate of Universes Beyond collaborations, including Teenage Mutant Ninja Turtles, Marvel Superheroes, The Hobbit, and Star Trek. Avatar the Last Airbender, which launched in late November, is now the third highest selling set in Magic's history, trailing only Lord of the Rings and Final Fantasy. At the same time, Secret Lair delivered its largest quarter ever, and backlist sales once again set a record. This balance of tentpole releases, premium offerings, and evergreen play reflects how the Magic system is designed to perform. That momentum has carried into the new year. Lorwyn Eclipse has already become the fastest selling Magic IP premier set ever, surpassing Tarkir. Player growth continues to underpin these results. Through the end of 2025, more than 1 million unique players participated in organized play, representing a 22% increase year over year. That growth is supported by a global play network. We now have more than 10,000 active Wizards Play Network stores worldwide, up over 20% year over year, with expanded reach across traditional retail partners. Taken together, this reinforces our confidence in Magic's long-term growth. We are building a system of play with multiple entry points, product types, and engagement paths. And that system is positioned to continue driving growth into 2026 and beyond. In the fourth quarter, we also shared more about our self-published video game strategy, including a new gameplay trailer for our science fiction RPG, Exodus, and the first reveal of our D&D action-adventure game, Warlock. Both titles have been in development since 2019 and are led by some of the most experienced, creative, development talent in the industry. The response has validated our confidence. Since debuting at the Game Awards, trailers for these titles have been viewed more than 100 million times across social, gaming, and owned channels. We expect both games to launch in 2027, beginning with Exodus in the first part of the year. We will share much more later this year, including extended gameplay walkthroughs that allow fans to fully step into the world Archetype Entertainment and Invoke have built. All of this reflects meaningful change. New partnerships, new distribution, new digital capabilities, and it represents only part of what we have in motion. In 2026, we expect our largest year ever with our longest-standing partner, The Walt Disney Company. We are launching products tied to four major films: Disney and Pixar's Toy Story 5, Star Wars, The Mandalorian and Grogu, Spider-Man: Brand New Day, and Marvel Studios' Avengers Doomsday. Alongside an all-new Magic collaboration with Marvel Superheroes. We also have a strong lineup of collectibles and exclusives, including standout Pulse drops later this year. We're introducing creative new ways to experience Play-Doh that age up the brand later this year. Peppa Pig's baby sister, Evie, will celebrate a year of firsts as she approaches her first birthday. And we recently announced that Peppa's younger brother George is moderately deaf, as we continue to champion stories that reflect real children and families around the world. Transformers will begin celebrating the 1986 animated film with a new product line, surprises throughout the year. D&D has major category expansions coming later this year, alongside continued growth on D&D Beyond. We also announced a partnership with HBO and Craig Mazin on a Baldur's Gate series. Coming off the success of The Last of Us, Craig demonstrated what is possible when games serve as premium source material. That success reinforces our strategy to unlock long-term value by bringing our worlds to life with top-tier creative partners across more than 60 active entertainment projects. Before I close, I want to address AI and how we're using it at Hasbro. We're taking a human-centric, creator-led approach. AI is a tool that helps our teams move faster and focus on higher-value work. But people make the decisions, and people own the creative outcomes. Teams also have choice in how they use it, including not to use it at all when it doesn't fit the work or the brand. We're beyond experimentation. We're deploying AI across financial planning, forecasting, order management, supply chain operations, training, and everyday productivity. Under enterprise controls and clear guidelines around responsible use and IP protection. Anyone who knows me knows I'm an enthusiastic AI user. And that mindset extends across the enterprise. We're partnering with best-in-class platforms, including Google Gemini, OpenAI, and Eleven Labs, to embed AI into workflows where it adds real value. The impact is tangible. Over the next year, we anticipate these workflows will free up more than one million hours of lower-value work. And we're reinvesting that capacity into innovation, creativity, and serving fans. Our portfolio of IP and the creators and talent behind it are the foundation of this strategy. Great IP plus great storytelling is durable as technology evolves. And it positions us to benefit from disruption rather than being displaced by it. In toys, AI-assisted design paired with 3D printing has fundamentally improved our process. We've reduced time from concept to physical prototype by roughly 80%, enabling faster iteration and more experimentation. With human judgment, human craft determining what ultimately gets selected and turned into a final product. We believe the winners in AI will be companies that combine deep IP, creative talent, and disciplined deployment. That's exactly where Hasbro sits. As we enter 2026, we view Playing to Win and more importantly, the execution behind it by our Hasbro, Wizards of the Coast, and digital studio teams as a clear success. Despite market volatility and a shifting consumer environment, we returned this company to growth in a meaningful way. We delighted more than 1 billion kids, families, and fans, secured partnerships that further underwrite future growth, advanced our evolution to a digital-first play and IP company, and delivered record profits for our shareholders. In 2026, we expect that momentum to continue. Hasbro is firmly back on a growth trajectory, powered by play, partnership, new digital capabilities, and most importantly, our extraordinary brands. With that, I will turn it over to Gina to walk through the financial details and our outlook for 2026. Gina? Gina Goetter: Thanks, Chris, and good morning, everyone. We closed 2025 with good momentum in the fourth quarter and clear evidence that our Playing to Win strategy is working. While the year included meaningful transformation actions and macro volatility, performance reflects the advantage of our diverse portfolio, the durability of our gaming-led growth model, and disciplined execution. We delivered double-digit revenue growth, expanded adjusted operating margins, generated substantial cash flow, and exited the year with increased financial flexibility. Looking at the fourth quarter, net revenue was $1.5 billion, up 31% year over year with growth coming from both of our main segments. Adjusted operating profit was $315 million, up 180% versus prior year, resulting in a 21.8% operating margin. Adjusted earnings per diluted share were $1.51, capping a year of accelerating momentum. For the full year, net revenue grew 14% to $4.7 billion, driven by exceptional performance in Wizards and continued progress across the rest of the portfolio. Adjusted operating profit increased 36% to $1.1 billion with an adjusted operating margin of 24.2%, up nearly 400 basis points versus last year, driven by favorable mix and cost productivity. Adjusted earnings per diluted share were $5.54. In terms of segment performance, in Q4, Wizards' revenue grew 86% to $630 million, driven by Magic, which was up 141% versus last year behind the strength of Avatar the Last Airbender and Final Fantasy's holiday release. Operating profit in the quarter was $284 million, resulting in a 45% operating margin. For the full year, Wizards' revenue increased 45% to $2.2 billion with operating profit of just over $1 billion and an operating margin of 46%. Magic revenue grew nearly 60%, reinforcing its position as one of the strongest gaming franchises in the industry. Core Magic KPIs remain healthy with growth in distribution and a record year for Secret Lair and backlist. MONOPOLY GO continued to be a steady revenue and profit stream, contributing $168 million with the monthly revenue pool remaining largely consistent as we move through the year. The overall mix of business resulted in a 420 basis point improvement in margin and a solid foundation heading into 2026. Consumer products executed well in the fourth quarter, delivering $800 million of revenue, up 7% behind the strength of Hasbro Gaming and Marvel. Adjusted operating profit was $54 million, reflecting improved product mix and promotional discipline while supply chain productivity nearly offset the cost of tariffs. For the full year, consumer products revenue declined 4% to $2.4 billion and delivered an adjusted operating profit of $113 million, demonstrating resilience and an improved cost structure even after absorbing nearly $70 million of tariff impact. Owned and retail inventory positions remain healthy, and we exited the year with owned inventory at a record low of seventy-five days. Entertainment performed in line with expectations for the quarter and the year, delivering stable revenue and adjusted margins consistent with our asset-light strategy. Our cost transformation efforts contributed over $175 million in gross savings across supply chain, product development, and operating expenses, driving margin expansion and helping to offset the impact from tariffs. Through 2025, we have delivered almost $800 million of gross cost savings and are well on our path to the $1 billion commitment. From a cash and balance sheet perspective, 2025 was a strong year. We generated $893 million of operating cash flow and ended the year with $777 million of cash on the balance sheet. We returned $393 million to shareholders through dividends while continuing to reduce debt and invest behind growth. We reached our gross leverage target, finishing the year at 2.3 times behind increased earnings and a reduced debt load. Looking ahead to 2026, we are entering the year with momentum, clarity, and a durable foundation. Wizards remains our primary growth engine, supported by a robust pipeline and sustained engagement across tabletop, digital, and licensed gaming. And we expect consumer products will benefit from a healthy entertainment pipeline, which will enable improved consistency and margin performance. Turning now to guidance. We expect Hasbro consolidated revenue to grow between 3% to 5% year over year on a constant currency basis, with growth across each of our segments. We expect operating margins to be between 24% to 25% for the year, reflecting continued operating leverage and disciplined execution. And we expect adjusted EBITDA to be in the range of $1.4 to $1.45 billion. At the segment level, Wizards is expected to deliver mid-single-digit revenue growth, supported by a healthy release cadence and continued engagement across the Magic ecosystem. Operating margins are expected to remain in the low 40% range, reflecting the underlying strength of the business while absorbing higher royalty expense and incremental costs associated with our planned 2027 video game releases, Exodus and Warlock. In consumer products, we expect revenue to grow low single digits year over year with operating profit margins in the 6% to 8% range. Revenue growth is buoyed by the strong entertainment slate from our partners at The Walt Disney Company, creating leverage through to the cost structure. Entertainment revenue is expected to be slightly positive year over year with operating margins of approximately 50%, reflecting the asset-light nature of the business and continued discipline around investment. The 2026 outlook assumes approximately $150 million of gross cost savings from initiatives across supply chain, including the manufacturing diversification efforts, as well as a continuation of our transformation in several areas impacting operating expense. In terms of phasing, we expect stronger revenue growth in the first half driven by the timing of entertainment-related releases within consumer products, normalized retail order patterns, and year-over-year shifts in the cadence of Magic set releases. The stronger revenue growth in the first half will have a negative impact on margin, as the growth in both segments carries a higher royalty expense. Margin expansion will come in the second half, driven by favorable business mix within consumer products, a step-up in productivity across supply chain, and leverage within operating expenses. Tariff costs will be relatively flat year over year in the back half, with much of the incremental costs landing in the front half of the year. Capital allocation priorities are largely unchanged from last year. We will continue to invest in the business, specifically behind our highest return growth opportunities led by Wizards and Digital Gaming. Second, we are focused on paying down debt and maintaining a healthy balance sheet, and we remain firmly committed to returning cash to shareholders through our dividend. The Board has authorized the first quarter dividend, reinforcing our confidence in the durability of our cash flows. Finally, we are restarting share repurchases, and the board has authorized a new $1 billion share repurchase program, providing additional flexibility to return excess capital to shareholders over time. While we do not provide EPS guidance, there are a few important items below the operating line to highlight for modeling purposes. First, interest expense is expected to be higher year over year, primarily related to planned refinancing activity. And second, we expect lower non-operating income driven by translational foreign exchange impacts and the absence of prior year benefits related to the Swiss deferred tax asset. Taken together, these items represent approximately $40 million year-over-year headwind to EPS even as operating income continues to grow. In summary, the 2026 outlook reflects the progress we've made as we executed the first year of our Playing to Win strategy and the durability of the business we're building. We are growing from a stronger earnings base, operating with greater discipline, and allocating capital with intention. As we move through 2026, we believe the cadence of profitability becomes increasingly favorable, keeping us on track to our medium-term financial commitments. And with that, I'll turn it back to the operator for questions. Operator: Thank you. We'll now be conducting a question and answer session. I ask you please limit yourself to one question and one follow-up so that other callers have a chance to participate. If you would like to ask a question at this time, you may press star 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, please wait for questions. Thank you. The first question comes from the line of Megan Clapp with Morgan Stanley. Please proceed with your questions. Megan Clapp: Hi. Good morning, Christina. Thanks for taking our questions. I wanted to start with Magic. Obviously, really impressive growth in the fourth quarter and the year, and really nice to hear the momentum has continued with Lorwyn into the start of the year. You know, I think a key investor focus and question we still get a lot is how do you lap what you just delivered as we look into fiscal 2026? You talked about kind of mid-single-digit top-line growth for Wizards. I think most of that's probably driven by Magic. So can you just kind of take a step back and unpack some of the assumptions that are underlying your Magic guide for the year? You've got the extra half set, the backlist, obviously, momentum remains strong there. You talked about Secret Lair record in the fourth quarter as well. And then the player growth up 20% year over year, can you talk about just how what you're seeing from some of these newer players plays into it as well? Thank you. Chris Cocks: Yeah. Good morning, Megan. I'll start, and then Gina can correct everything I say. I think it really comes down to several growth vectors. The first one is distribution growth. We're seeing meaningful growth in our Wizards Play Network. That was up 20% last year. We think it's going to be up double digits this year again. We're seeing incremental distribution as the brand expands and player base expands. So I think mass market and non-WPN based distribution growth exceeded last year WPN growth and will exceed it again this year. Player growth has been robust. I think the organized play metrics we're giving you are just kind of hardcore or core player growth, the people who play in stores. Our metrics for non-hardcore players are a little more loose. But we think that those are growing well in excess of that 20%. And importantly, as we're bringing on new kind of casual fans or new to Magic fans and collectors, they are sticking around. And you're seeing that evidence in robust backlist and higher organized play participation. So what we're seeing going on with Magic is a virtuous cycle of there's more places to buy. There's more people playing. They're engaging longer and sticking around. And, you know, that just leads to increased set over set performance like we're seeing with Lorwyn. And we see that continuing into 2026. Not to mention, we've got a stacked lineup of partners. You've got Teenage Mutant Ninja Turtles, The Hobbit, Marvel Superheroes, and Star Trek. Plus some real fan favorite sets like Lorwyn and Strixhaven on top for this year. Gina Goetter: Yeah. I guess, Megan, good morning. My add would be as we think about the phasing for the year, there's a front half and a back half. And when you split it, really, most of the growth for the business is going to come in the front half of the year. Just surely because of what we're comping in Q4. And if you look kind of quarter by quarter basis, you know, all three first three quarters are going to continue to grow. For Magic, it's really about that fourth quarter. So expect really strong performance in the front half of the year, really good performance in the back half of the year as well. It's just we have a massive comp in Q4. Megan Clapp: Right. Okay. Super helpful. And then maybe just a follow-up on partnerships. Chris, you talked a lot about Playing to Win and the growing role partnerships are playing in your prepared remarks. We've obviously seen a step of an announcement over the last week, including Harry Potter this morning. So can you just talk a little bit about what's driving the momentum in this expanded partnership slate and specifically, how the business's transformation, what you can maybe now offer the partners has changed the conversations and maybe made you more of a partner of choice and then for Gina, like, does this change how you think about the medium-term top-line growth for CP just as we you know, you'll have a strong year this year, but a lot of this will layer into '27? Chris Cocks: Yeah. So I read a lot of business books. I geek out about them. I bore the management team with them. And Jim Collins is one of my favorite. He has this kind of concept called a hedgehog concept. Which is what's the thing that you're uniquely the best at in the world as a company or could be the best at in the world. We call it our superpower. And we believe Hasbro's superpower is inspiring a lifetime of play. We are a company that uniquely can engage a consumer as young as two or three and extend that play relationship well into throughout their entire lives from two to 99 and beyond. And I think, you know, the partners that we're working with they have brands that are multi that have been around for a long time, that appeal to preschoolers, but also appeal to collectors. And I think when a partner chooses Hasbro, they choose us because we can uniquely do that among, you know, most toy and collectible companies out there. And so, you know, whether it's K-Pop Demon Hunters, which is Netflix's biggest film ever and really kind of appealing to kind of that tween and teen crowd, or 52-year-old CEOs like myself. Harry Potter, which, you know, is celebrating what it's thirtieth, twenty-fifth anniversary. Best selling book series, hundreds of millions of fans, people flocking to theme parks. Voltron, which is like a seminal kinda collector brand from, like, the nineteen seventies and eighties. I remember having my breakfast cereal watching Voltron as a kid. Or, you know, iconic video game series like the Street Fighter. It just works hand in glove with what Hasbro is great at. And so I think if you see us announce these partnerships, really gonna lean into gamified product opportunities, entertainment, and event-driven kind of brands that like, supercharge inside of our distribution system. They're multipurchase and highly collectible. And they're multigenerational. And I think that's true for the toy side of the business as well as the game side of the business. So you're seeing us execute this playbook on Magic, going to see us execute it on Dungeons and Dragons. And you're seeing us execute it across our toys and collectibles. Gina Goetter: Yeah. Megan, my add would be, you know, first, I want to give a huge shout out to Tim Kilpin and his team for securing so many valuable partnerships for us on the toy and game side. You know, we've been talking for years of the couple of things that are gonna continue to move us up the margin scale on CP, and scale is one of them. And so these licenses help to build that scale in a very productive way for Hasbro. And so as we think about our midterm outlook, and really that top-line number for CP, we see this year as the inflection point. You know, we are we're back to growth. We're guiding to growth for CP. And when we look out into '27 and '28, we see that continue. So we do think that these licenses serve a really valuable purpose in just bringing our entire kind of fleet of brands and capabilities to life. Megan Clapp: Great. Thanks so much. Operator: The next question is from the line of James Hardiman with Citigroup. Please proceed with your question. James Hardiman: Hey, good morning. Wanted to sort of follow along that path of, you know, obviously, Wizards' top line was better certainly than any of us would have expected. Even the most bullish expectations coming into the year. I wanted to unpack the margin a little bit because that also blew away expectations. Right? I think you were assuming that margins would contract this year or last year, I guess, should say. Given the mix of the business, and I think it expanded 420 basis points. Right? And so as we think about 2026, you know, clearly part of the reason we're again expecting contraction is the video games and their dilution to margin. But maybe help us unpack sort of the structural margins of Wizards versus sort of the or at least the tabletop business versus, you know, some of these other offsets that may for a period of time compress that a little bit because it feels like this isn't just sort of a temporary like, things got better in '25, and then they'll contract back to where we thought they would be. It seems like this is maybe more of a permanent benefit. Gina Goetter: Yeah. Morning, James. Good question. You know, we've always said that the Wizards segment margins are going to play and dance within that high 30s. Low forties. To your point, we ended the year '25 quite a bit more favorable than that, really driven by mix and leverage that kind of flew through the P&L. As well as we had some nice pickups in cost productivity through the fourth quarter within the supply chain that benefited us. As we look into 2026 and the overall margin profile, we do expect to give back a little bit of that, mainly because royalty expense is going to continue to increase. Plus, as we move through the back half of the year, we will be stepping into some additional expenses related to the launch of the two games in 2027. So to your point, the overall margin foundation is quite solid. You know, being in that high thirties, low forties is the right range for us. Now video games, when we get to that point in '27, you know, that will be, as we've talked about in the last call, it will take a bit away from margin in that sense. But gonna still be within that high thirties, low forties business. James Hardiman: Got it. That makes sense. And then maybe switching to CP guidance. Low single-digit revenues, operating profit six to 8%. Maybe help us unpack that. I mean, what are you assuming from a point of sale perspective? And are there any sort of tailwinds as we think about whether it's inventories being a little depleted heading into the year? Or I think you made the comment that retail ordering patterns were ultimately negative to the top line for twenty-five, just based on the tariffs and the DI to DOM shift. Does that become a tailwind at all to 2026? Or is CP revenues being up low single digits pretty consistent with how you're thinking about retail? Gina Goetter: Okay. So let's start with where we landed on the year on inventory. So coming out of the third quarter, if you go back to our comments there, our retail inventory was, call it, down mid-teens. We ended the year probably down high single digits at retail. So we probably, yeah, filled a little bit of pipeline in through the fourth quarter. And I would call that the right resting spot for retail inventory just given the macro environment and what is still happening with tariffs. So I don't expect as we move into 2026 any sort of in retail inventory as being a big positive or negative for the year. It's just kind of whole serve as we move throughout the year. The big tailwinds that I see for us in '26 really come on the back of a stronger entertainment slate. So, I mean, four movie releases from our partners at Disney usually lead to nice top-line growth for us. And we have when you look at kind of front half, back half for CP, pretty balanced. So we're expecting kind of low single-digit growth throughout the balance of the year. The one point that we call out when we think about the second quarter, just keep in mind, that was where we had all of the tariff-related noise in 2025. So our second quarter is going to be pretty big. You know, the cadence for CP will be the first quarter will be down, and that's largely driven by some one-time comps that we have within licensing. Q2 will be up pretty strong just given this comp that we have from the tariff event in '25. Then the back half of the year, I believe we've got Q3 is up, and Q4 is up slightly. So it's a really balanced delivery for the business over the course of the year. James Hardiman: That's great color. Thanks, Gina. Gina Goetter: Thank you. Operator: Our next question is from the line of Gerrick Johnson with Seaport Research. Please proceed with your questions. Gerrick Johnson: Great. Thank you. Good morning, everybody. Chris Cocks: Hey, Chris. Morning. Good to hear your voice, Eric. Gerrick Johnson: Good to hear your voice. Welcome back. Chris Cocks: Great to be back. Thank you. So I want to ask on Magic. You know, what do you think the ratio or the proportion of tabletop sales go to players or go to games being played, and what proportion go to collectors and collections? Chris Cocks: Oh, gosh. Well, hey, Gerrick. First off, welcome back. It's great to have you back on the calls. I would say Magic is overwhelmingly player-based or player-collector. And that's unique among a lot of trading card games. I think some of our competitors are much more heavily collector-based. So, you know, what's good about that is it gives us kind of this stable base of play and community that I think can last if there's any kind of wobbles in kind of collector sentiment or overall kind of, like, value pool available to collectors. You know, if you ask me to kind of pin me down to a number, I think we're probably 80 to 90% players or player-collectors, relatively small portion of collector-only. Gerrick Johnson: Okay. Fantastic. Thank you. And in toys, you know, your licensing revenue was down, and I thought that was a major plank in the strategy. So has that outlicensing program stalled, or what's going on there, and why did that not grow? Gina Goetter: Yeah. Good question. That is so, no, it has not stalled. That is really our My Little Pony trading cards comp that we had coming out of '24. So there's that one. Our partner, Caillou, had a huge year in '24, and I think it was the first part of 2025, but then we started comping that as we move through the year. But all of the other kind of underpinnings of the business are quite healthy. Chris Cocks: Yeah. Our point of sale for out-licensed toys was up mid-teens. Location-based entertainment was up, you know, like, probably 20 or 30 locations year over year off of a base of around 200. Now, like, around two twenty-five. Music and entertainment were both pretty solid. A little bit of that is also you have some MGs, and you have some revenue recognition, which moves out over time. But, really, the wobble last year was My Little Pony trading card specifically in China. Gerrick Johnson: Okay. Great. Thanks for the detail. Appreciate it. Gina Goetter: Thank you. Operator: Our next question is from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your questions. Stephen Laszczyk: Hey, good morning and thanks for taking the questions. Chris, on the theme of AI, I would be curious to get your latest views on how AI impacts the video game industry, whether that's on the cost curve, barriers to entry into the industry itself, or the type of gameplay that consumers will come to expect. Then within that, would curious if you could just detail how Hasbro is positioning itself against maybe AI as an emerging factor here as a relative newcomer to the video game industry? Chris Cocks: Well, I'll break it down short term, midterm, long term. Short term, I think AI is just a productivity boom. And that'll affect every industry. You know, whether it's finance, operations, how you think about inventory management, forecast planning, it's just a significant time saver. You know, we conservatively think it's going to save us about a million people hours worth of work this year, a lot of which we already kind of harvest that into savings and reinvest into the business. And, you know, so instead of having to, like, you know, manage touch a bunch of orders, we can spend that time and innovate or deliver for our customers or our partners. And I think that'll be true inside of video games as well. Midterm, you know, I obviously think AI kind of how you think about concepting, how you think about idea generation. Even how you think about asset creation. I think, though, that that's gonna be executed on a game by game and brand by brand basis. Based on what the consumer wants and what your partners want you to do. And I think that's gonna take a couple years to kind of play out, but you're already seeing AI embedded in creative workflows like the Adobe Creative Suite. It's just gonna be something that will make things faster. We're seeing tangible benefits from that, particularly in toys where our ability to concept and make an early kind of prototype real has, you know, 10x in terms of speed. And so we're instead of, like, instead of saving and just doing one toy concept, we do 10 toy concepts in the same amount of time at the same amount of cost. And it just allows us to be able to bring an idea to life better and choose a higher hit rate. And then long term, you know, I really think you have to not think about, hey. How can I make a current game cheaper or current toy cheaper? Or better? I think it's gonna open up all new categories of play. All new opportunities that we can barely imagine today. I think you're gonna see some of those products from Hasbro. I think they're gonna be physical as well as digital. And, you know, I think our focus is gonna be on the collector market and adults initially. I think over time that that's gonna spread, as the technology matures and as consumers kind of become more comfortable with it, and it's gonna open up all new engagement opportunities and all new revenue opportunities. Stephen Laszczyk: Great. Thanks for that. And then maybe secondly on MONOPOLY GO, it's held in much better than most of us had been expecting coming into the year. Just be curious if you'd unpack some of the key drivers there as we went into year-end and then your expectations as we look ahead into 2026 on what the top-line contributions from the game could be this year? Thank you. Gina Goetter: Yeah. Yeah. Good morning. You know, really looking into '26, we see it staying pretty stable. So call it that 12 to $14 million run rate per month is what we're planning for. We're seeing the decay rates in line with expectations and where we've been able to pick up is just the UA expense itself. Has gone down. So we see that our overall revenue pool is staying pretty consistent. I'd say Scopely has been pretty adept at value capture as well. In terms of like, ways in which people can buy product. Buy dice or by product inside of the experience. That's also helped. Stephen Laszczyk: Great. Thank you both. Operator: The next questions are from the line of Arpine Kocharyan with UBS. Please proceed with your questions. Arpine Kocharyan: Hi, good morning. Thanks for taking my questions. Great quarter. Congratulations. All the detail you provided for segment outlook was very helpful. I was wondering when I look at your overall revenue guidance of 3% to 5%, I was wondering if you could talk a little bit about overall top-line growth puts and takes and specifically what will result in the lower end of that range and what needs to happen for upper end of that range or better. I'm mostly trying to understand whether the lower end of that range is more driven by consumer product business. And then just really for my second question, you had talked about two digital game releases a year. It seems like MONOPOLY GO is still going pretty strong, which is incredible. But could you maybe talk about the pipeline of IP that you are looking at that you think sort of lend itself well into digital gaming and what those opportunities could mean for Hasbro for 2026 and 2027. Thank you. Chris Cocks: Hey, Arpine. Good morning. Couple things on the range and what dictates it. I think there are probably three factors that probably play into it the most. The first is our ability to provide supply and chase product. You know, actually, Magic was rate constrained last year based on our ability to just produce and drive reprints. And, you know, you typically have a little bit of wobble inside of supply chain in terms of availability and timing. And so I think that'll play in both in Magic as well as toys. I think we have a heck of an entertainment slate on top for this year. From Disney, from Amazon, from Legendary Pictures. And, you know, depending on how those go, that could be quite a big over under for us. And then I think the last thing, which is always kind of omnipresent, is just what's the strength of the consumer. You know, right now, we continue to see kind of a tale of two cities. You know, the top 20% of households in terms of wealth are really driving a lot of demand and are staying pretty resilient. You know, the lower quintiles of kind of wealth and income, their pennies are pinched. And so we're trying to appeal to both. If the economy proves better, if, like, some of the tax refunds that are untapped, in, like, the US market proves to be kind of shared out versus, like, going into the bank account. That could be a boon for us as well. Gina Goetter: That's super helpful. Thank you. My only add opinion would be by the middle of the year, we will have a better sense for how some of these things are shaking out. And how strong the movie releases are, how strong kind of the UV sets are. But there's you know, we feel good about the guidance range that we went out with. Chris Cocks: So I'm sorry. You had a part two, Arpine, and I want to make sure we hit it. Arpine Kocharyan: Yeah. About digital gaming and the pipeline of what that looks like. Chris Cocks: Yeah. So we continue to have a really strong digital licensing business, which continues to grow. You know, last year, we had Sorry World from GameBerry Labs that did pretty well. We have MONOPOLY GO, which continues to do really well. It's probably one of the most successful mobile game launches in history. And Scopely have been fantastic partners. From our self-published side, we feel pretty good about the early demand indicators and interest indicators for both Exodus and Warlock. You know, those will be two pretty big tests for us next year. And we continue to invest in digital games. You know, as we're thinking about the portfolio moving forward, you know, I think the good thing about digital games is we're getting past kind of, like, the start-up phase. You typically have a lot of costs associated with starting studios and building up publishing capacity. I think that will help with profitability as we get past 2027. We're also doing a lot of new partnerships. Last year, we announced a joint venture with Sabre on a game. We're gonna have several more that we're gonna announce, and that will with the risk defraumen. And then we're investing more heavily in new talent markets for games. So Montreal is about half the cost of what, you know, like, the West Coast or Texas is in the US. Leaning in there. And, likewise, we're leaning into a lot of Eastern European and offshore-based talent. Which, again, I think could even be half the cost of what even Canada is. And so that'll allow us to make better games. That'll allow us to be able to put more man-years into the games and have more content. And hopefully also allow them to be even more profitable over time as we scale the franchises. Arpine Kocharyan: Very helpful. Thank you, Chris. Operator: The next question is from the line of Eric Handler with SMKM. Please proceed with your questions. Eric Handler: Thank you very much. Good morning. I wonder if you could just discuss your thoughts on toy industry POS outlook for 2026. Chris Cocks: Sure. I might have a bit of a cheeky response to this. So, hey. I'll start, and Gina can, can let Didn't know what's so funny. Eric Handler: No. No. No. No. No. I Chris Cocks: You know, for us, I almost think it's the wrong question. You know, we segment the market in our own unique way. We call it GEM Squared. It's an acronym which stands for gamified entertainment-driven multipurchase, and multigenerational. Those categories, you know, 70, 80% of Hasbro's existing point of sale is focused on those categories. And probably 90 to 95% of our investment is going to those categories for the future. We think those categories have a mid to high single-digit CAGR and, they are just structurally advantaged. You know, peers who operate in those categories, they typically have a forward multiple of a 20x, maybe a 25x. You know, those are companies like a Pop Mart or a Lego or a Bandai Namco, and we would put Hasbro squarely inside of those that peer set. The other side of the toy market, the more traditional kind of kids-oriented one-off purchase toy market, you know, I think there's opportunities to grow there. There's certainly a lot of innovation there. But, you know, I think that's in a structural set of decline, and it's probably going to continue to decline over the next several years and has been. And, the reality there is there's just less babies being born and there's more substitution happening at earlier ages. So, you know, if you ask me kind of what the overall toy industry is gonna do, I'd probably give you an I don't know. If you ask me what the side of the industry that Hasbro is investing in is gonna do, I think it's pretty robust growth. Eric Handler: Okay. That's helpful. And I know a lot of this stuff goes hand in hand. You know, you're spending a lot of time talking about, you know, entertainment-driven properties for your consumer products. Wondered if you could talk about the outlook in 2026 for sort of like your first-party types of products? Chris Cocks: Yeah. Well, certainly, I think Magic is gonna do pretty well. I think D&D is going to do pretty well as well and Peppa Pig has some significant room to grow. I think our board games and Play-Doh also look pretty good. Some of our more entertainment-driven properties like Transformers are probably gonna have a down year, but, you know, that's held up remarkably well. You know, we grew Transformers last year despite not having any entertainment. And so, you know, I think for our first party, we see upside. We would like to grow that as a percentage of our business while still working with partners and growing them. Because, you know, obviously, it's margin accretive. And we feel pretty good about the hand that we have. I don't know. Gina, do you have anything to add? I mean, for me, it's Gina Goetter: will be down here, I'm just trying to think of another one that Furby's kinda getting near the end of its life cycle. Datahead is gonna have a good year just given the Toy Story release. So Chris Cocks: For sure. Okay. Click and talk. Thanks. Alright. Thanks. Operator: Next question is from the line of Christopher Horvers with JPMorgan. Please proceed with your questions. Christopher Horvers: Thank you, and thanks for taking my question. So maybe, Gina, if you could simplify the operating margin outlook you have a range of about 30 basis points expansion at the midpoint versus the 50 to a 100 algo. Could you bucket the headwinds that bring you down from that between royalties digital gaming costs and tariffs? Given access in D&D, digital game launch until '27, wouldn't have expected that to be a headwind because the amortization comes in '27. Thank you. Gina Goetter: Got it. Good morning. The couple of things that are well, I'll start with the good guys. First. So obviously, volume and mix and pricing, that is a good positive margin contributor for us in 2026. Royalties is gonna be a headwind, so we have increased royalties across both of our businesses now just again, the entertainment slate on CP coupled with the Universe's Beyond set. So that's call it a point, a point and a half of margin drag that we'll have coming into 2026. The other thing is tariffs. So we'll have a full year of tariff cost. In '25, we had roughly $40 million tariff cost hitting the supply chain. Right now, we're modeling that out to be about $60 million of cost. So an incremental, you know, million dollars. And even though we have, you know, cost productivity within the supply chain that's able to offset, typically, you know, our normal model is that that cost productivity is adding to our margin. This year, it's just kind of that cost productivity is just helping to offset that tariff impact that's coming at us. And then I would say the last thing that I call it as a headwind is just the investments that will have towards the end of the year. And I shouldn't say really the end of the year, but marketing step up as we move through the year, especially in advance of these video game releases. As well as just broad increases in product development as we move through 2026. Christopher Horvers: That's very helpful. And then, just to follow-up on CP margins. You know, we see the presentation, how you lay out the margin change year over year, but could you help us and narrate that because you did have strong sales growth, and margins were down year over year. So understand the tariff impact, but if you could just narrate the puts and takes between sales allowances versus cost savings versus tariffs? Gina Goetter: Yeah. So, I mean, in the fourth quarter, to your point, we had nice volume growth, and our team did a really nice job working with our retail partners getting a good mix of business in and not going way beyond on promotional spending, a really nice positive kind of volume and mix impact from the fourth quarter. The pieces that came against us were tariff. Largely speaking, fourth quarter was all about tariffs. So again, of that $40 million of cost that we had in '25, about 60%, 65% of it hit in the fourth quarter. So that's what really weighed on margin profile as we move through the year. So as we go into 2026, while volume and mix for CP is going to be a positive for us, we're continuing to have the tariff headwind, plus we'll have a step up in royalty expense as well. That kind of keeps that in that 6 to 8% range. Christopher Horvers: Thanks so much. Gina Goetter: Thank you. Thank you. Operator: Our final question is from the line of Kylie Cohu with Jefferies. Please proceed with your question. Kylie Cohu: Great. Thank you for taking my question, and congratulations on a strong quarter. Just kind of a small one from me. How would you describe sell-through or like the POS cadence throughout the quarter? Anything unusual to call out or was it kind of as usual? Chris Cocks: I would say for toys, we felt pretty good just given that the SNAP benefits were kind of taken away just given the government shutdown. Other than that wobble, we felt pretty good about the direction of toy point of sale. I think from September through end of this December, we gained share in our key categories in 16, 17, maybe even 18 out of twenty weeks. That's pretty good. And we think that momentum continues into this year and augurs well for kind of our outlook for 'twenty-six. Kylie Cohu: Great. That's all I had. Thank you. Chris Cocks: Alright. Thanks, Kylie. Operator: Thank you. At this time, this will conclude today's question and answer session and will also conclude today's conference. Thank you for your participation. You may now disconnect your lines, have a wonderful day.
Operator: Please stand by. Good morning, and welcome to the PennantPark Floating Rate Capital's First Fiscal Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speakers' remarks. Press star one on your telephone keypad. If you would like to withdraw your question, press star two on your telephone keypad. It is now my pleasure to turn the call over to Mr. Arthur Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference. Arthur Penn: Thank you, and good morning, everyone. Welcome to PennantPark Floating Rate Capital's First Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Richard Allorto, our Chief Financial Officer. Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements. Thank you, Art. I'd like to remind everyone that today's call is being recorded. Richard Allorto: And is the property of PennantPark Floating Rate Capital. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may also include forward-looking statements and projections. Please refer to our most recent SEC filings for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at pennantpark.com or call us at (212) 905-1000. At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Arthur Penn. Arthur Penn: Thanks, Rick. I'll begin with an overview of our first quarter results and recent strategic initiative. The launch of our new joint venture, PSSL2, which commenced investment activities during the quarter. I will then share our perspective on the current market environment and how PFLT is positioned for continued growth. Rick will follow-up with a detailed review of the financials and then we will open up the call for questions. For the quarter ended December 31, core net investment income for the quarter was $0.27 per share. During the quarter, we began investing in our new joint venture PSSL2. PSSL2 invested $197 million during the quarter, and an additional $133 million after quarter end. Its total portfolio is currently $326 million. PSSL2 recently closed on an additional $100 million commitment to the credit facility, bringing the total to $250 million, and the credit facility has an accordion feature to increase commitments to $350 million. Our objective is to scale PSSL2 to over $1 billion in assets consistent with our existing joint ventures. Our run rate NII is projected to cover our current dividend as we ramp that portfolio. Turning to the market environment, we are seeing an increase in M&A transactions activity across the private middle market. This trend is expanding our pipeline of new investment opportunities. We also expect that this increase in M&A activity will drive repayments of our existing portfolio investments, including opportunities to exit some of our equity co-investments and rotate that capital into new current income-producing investments. We continue to believe that the current environment favors lenders with strong private equity sponsor relationships and disciplined underwriting. Areas where we have a clear competitive advantage. In the core middle market, the pricing on high-quality first lien term loans remains attractive. Typically ranging from SOFR plus 475 to 525 basis points with leverage of approximately 4.5x EBITDA. Importantly, we continue to get meaningful covenant protections in contrast to the covenant light structures prevalent in the upper middle market. Our portfolio remains conservatively structured. As of December 31, PIK interest represented just 2.5% of total interest income among the lowest levels in the industry. Median leverage across the portfolio is 4.5 times with median interest coverage of 2.1 times. During the quarter, we originated four new platform investments with a median debt to EBITDA ratio of four times, interest coverage of 2.9 times, and the loan to value ratio of 43%. With regard to the software risk that has been a recent market focus, we have stuck to our knitting. Only 4.4% of the overall portfolio is software, and that 4.4% is structured consistently with how we invest in the core middle market. Primarily, all cash pay loans with covenants with leverage of 5.3 times and matures in only 3.4 years on average. It's enterprise software that is integral to the customer's businesses, the vast majority of which is focused on heavily regulated industries such as defense, healthcare, and financial institutions where safety, security, and data are paramount, and where change will be slower. Peers typically invested much larger percentage of their portfolios in software, 20 to 30% and much higher leverage seven times plus or loans against revenue, not EBITDA, with substantial PIK covenant light and long maturities. This story is a significant differentiator from our peers. We ended the quarter with four non-accrual investments representing only 0.5% of the portfolio at cost, and 0.1% at market value. These results reflect the rigor of our underwriting process and the discipline of our investment approach. We continue to believe that our focus on core middle market provides us with attractive investment opportunities, we provide important strategic capital to our borrowers. Core middle market companies, typically those with $10 to $50 million of EBITDA, operate below the threshold of the broadly syndicated loan or high yield markets. In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence. We thoughtfully structure transactions with sensible leverage, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, equity co-investment. Additionally, from a monitoring perspective, receive monthly financial statements to help us stay informed on the performance of our portfolio companies. Regarding covenant protections, while the upper market has seen significant erosion, our originated first lien loans consistently include meaningful covenants that safeguard our capital. Our credit quality since inception over fourteen years ago has been excellent. PFLT has invested $8.7 billion in 545 companies and we have experienced only 26 non-accruals. Since inception, our loss ratio on invested capital is only 13 basis points annually. As a provider of strategic capital, we fuel the growth of our portfolio companies. In many cases, we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall, part for our platform from inception through December 31, we've invested over $615 million in equity co-investments, and have generated an IRR of 25% and a multiple on invested capital of 1.9 times. During the quarter, we continued to originate attractive investment opportunities and invested $301 million at a weighted average yield of 10%. $95 million was invested in new portfolio companies and $206 million was invested in existing portfolio companies. From an outlook perspective, our experienced and talented team and our wide origination funnel are well positioned to generate strong deal flow. Our mission and goal are a steady, stable, and protected dividend stream coupled with the preservation of capital. Everything we do is aligned to that goal. We seek to find investment opportunities in growing middle market companies that have high free cash flow conversion. We capture that free cash flow primarily in first lien senior secured instruments and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I'll turn it over to Rick for a more detailed review of our financial results. Richard Allorto: Thank you, Art. For the quarter ended December 31, GAAP net investment income and core net investment income were both $0.27 per share. Our operating expenses for the quarter were as follows: interest and expenses on debt were $27.2 million, base management and performance-based incentive fees were $13.5 million, general and administrative expenses were $2.1 million, provision for taxes was $200,000, and credit facility amendment costs were $500,000. For the quarter ended December 31, net realized and unrealized change on investments including provision for taxes, was a loss of $30 million. As of December 31, NAV was $10.49 per share, which is down 3.1% from $10.83 per share last quarter. As of December 31, our debt to equity ratio was 1.57 times and our capital structure is diversified across multiple funding sources including both secured and unsecured debt. Subsequent to quarter end, we sold $27 million of assets to the PSSL1 joint venture and $133 million of assets to the PSSL2 joint venture. We used the net proceeds from these sales to pay down our revolving credit facility and reduce our debt to equity ratio to 1.5 times, which is within our target range of 1.4 to 1.6 times. As of December 31, our key portfolio statistics were as follows: The portfolio remains well diversified comprising 160 companies across 50 industries. The weighted average yield on our debt investments was 9.9% and approximately 99% of the debt portfolio is floating rate. PIK income equaled only 2.5% of total interest income. The portfolio is comprised of 89% first lien senior secured debt, less than 1% in second lien and subordinated debt, 4% in equity of PSSL1 and PSSL2, and 7% in equity co-investments. The debt to EBITDA on the portfolio is 4.5x, and interest coverage was 2.1 times. With that, I'll turn the call back to Art for closing remarks. Arthur Penn: Thanks, Rick. In conclusion, I'd like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings, preserving capital, and creating long-term value for our stakeholders. That concludes our remarks. At this time, I would like to open up the call to questions. Thank you. Operator: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to assemble the queue. We will take our first question from Paul Johnson with KBW. Paul Johnson: Yes, good morning. Thanks for taking my questions. Interesting to hear that you guys have what I would consider an underweight software exposure in the portfolio. I know you've mentioned software as a defensive sector in the past. You've obviously done loans there in the past. I'm just curious why is software such a low exposure within the portfolio? Was that a strategic investment decision you guys have made? Or is there anything else driving that? Arthur Penn: Thanks, Paul. It's a good question. We basically just kind of stick to our knitting, which is cash flow loans at a reasonable multiple. Where we think there's great defensibility, where we can get covenants, where we can get cash interest. And, you know, we saw obviously, we saw this massive parade of software loans come by, and much of them were marching at seven times leverage, eight times leverage, leverage against revenues, ARR loans. We saw many of them, covenant light. Or PIK. And for us, that was not those were not comfortable loans for us to make. So we have done some software, about 4% of the portfolio where you know, with their reasonable multiples of cash flow, where we get our maintenance tests, where they're you know, we feel safe as enterprise software that's integral to their customers' lives and in industries that are heavily regulated. Where data privacy, safety, and security mean that any change that may happen will be yeah. It will take some time. So that's kinda military. That's healthcare. That's financial services. And, you know, we have maturities today at about three years, an average maturity of about about three years on you know, that 4% of the of the portfolio that's software related. So we feel very safe and comfortable. And so we basically just stuck to our knitting and didn't didn't, you know, chase, the supply that was coming through. Paul Johnson: Got it. Very helpful. Then last question I would just have is just on the NII this quarter. Mostly in relation to the to the new JV. You guys have that you expect to cover the dividend and I believe most of the plug there was from ramping the second JV. So I'm curious when you're when you when you say that you expect to ultimately cover the distribution with NII, does that assume essentially the JV at you know, the $1 billion asset target and, you know, generating sort of a run rate earnings from the JV. So essentially full optimization there or does it not necessarily assume, you know, full deployment within the JV as well as, I would ask assume Fed rate cuts in the meantime? About, the Fed cut, the Fed rate cut. Does that Arthur Penn: Yeah. No. That's a it's a great question. So look and and you can look at it, it's all public information. We have JV1 and PFLT, PSSL1 with Kemper. We have a a JV over PNNT with Pantheon. And so this is our third. You can look at those two as models in terms of ramp, in terms of income generation, you know, and percentages of of the vehicle that each BDC owns. You know? So, basically, when the way the way we look at it is once you get up to about a billion dollars you know, with our 75% ownership, you know, we should be we should be covering should be covering that dividend. When is that gonna happen? It's not gonna be next quarter. But we're we're off to a good start. We're over you know, we're at about $330 million now from a standing start last quarter. A lot of it will depend on M&A, and M&A is obviously the feedstock that will populate this JV. But we feel pretty good about it. You know, helping us cover that dividend. That does not include any equity rotation. We do expect if M&A happens, which we think it will, will not only populate the JV, it will also imply some equity rotation. On the existing portfolio, which will be helpful. And then you model in whatever base rate, you know, decrease you'd like 50 basis points, a 100 basis points. You know, we can go you know, Rick Rick can go through the model with you at some other time or a model with you. But, you know, there's a bunch of offsets, but we feel we feel like we're we're well set up to have a pathway to cover that dividend. Paul Johnson: Got it. Appreciate it, Art. That's all the questions for me. Thank you very much. Arthur Penn: Thank you. Operator: We will take our next question from Robert Dodd with Raymond James. Robert Dodd: Hi, guys. On the software question, right? I mean, your your portfolio is just a fraction over 4% in terms of software where I understand right, that's where software is the product of the business. Can you give us any thought? I mean, how much of the portfolio is is kind of software exposed. I mean, where it's not producing software, but it might be in the business of implementing software. For the government or or anybody else or or where software is a core part of the business but the business is not producing software itself. Arthur Penn: Yeah. It's a great question, which is, you know, kinda how you define it and where you draw the line. And assuming out to the bigger picture, the bigger picture question is, is how does AI impact you know, every company and every and and every portfolio. Right? So it's that's a we we that's above our pay grade for sure. You know, what the the difference the difference here is software is the main product. That's how we define it. You know? And I think that's it's pretty, you know, kind of including where software is a a is a is a big, big element of of of the company. A lot of our almost all of our companies use software in some way, shape, or form. AI can be a a help or it could be a a a hindrance. But we tried to really hone in on where where, you know, it was the product itself. Where where there's a human being attached to it where we feel very good that AI is not going to impact the human nature of the job anytime soon. You know, that did not that that did not you know, we have we have a bunch of do have service businesses, you know, We have we have a bunch of home service businesses where you're it's you know, HVAC repair and plumbing and okay. That's probably not that impacted by AI. AI could be a be a help. So that's one that's one end of the spectrum. And then you have, you know, kind of you know, we do have a lot of military defense, government services exposure you know, a, that's less likely for safety security, and privacy reasons to move to to AI quickly, it could adopt AI but, you know, requires human analysis. Like, there's a lot of government services that ultimately human being needs to be needs to analyze needs to synthesize AI could very well help those companies. So I don't know. I mean, it's all it's we're all grappling with, you know, how you define it and what is in the bucket and what isn't. And where where AI you know, kind of impacts portfolios. So we tried to be with this 4.4% or whatever, we tried to be, you know, really pure as to what our software really was know, the product. And I know I'm rambling, but I don't know if I gave you any color there, Robert. Robert Dodd: No. No. No. That was really that was really helpful. Thank you. So, yeah, I mean, it's it's it's a difficult topic. Just the next one, can on kinda copy and pull. On the JV, you know, like you said, I mean, you've gotten up to to north of $300 million already from kind of a a standing start. Now some of that, I do think you've kind of had in a sense, pre-stocked the on-balance sheet portfolio that so that you could you could drop things down. And, obviously, you've you've done it post quarter end as well. So, you know, that that the the the initial ramp was was possibly faster than than we should expect on on, you know, a quarterly basis. Would be my guess. I mean, if if the market is normal, good luck defining that, how long you know, what's what's plausible to get to a billion? Is it another is it three or four quarters, or is it eight to twelve? Arthur Penn: I I would just just to throw it out there because it gives me a lot of range, because this is going be largely driven by M&A, right? Yep. Right? Which you know, last year, meteor struck in the M&A market called Liberation Day. M&A was, you know, spiked for most of the rest of the year. It feels like it's coming back here. You know, we we had the JNF and and PNNT. That was an ex that's a an an early indication that maybe you know, maybe this time this time, it it it happens. We are feeling it. We're seeing it in our backlog of deals that we're looking at. So I'll throw out eighteen months just as a big broad, you know, kind of numbered, which gives me a lot of wiggle room on on either side of the know, twelve to twenty-four months. You wanna do a range. You wanna do, you know, twenty-four months out outside case. You can model that in. But quite frankly, it's gonna be driven by M&A. Robert Dodd: Got it. Thank you. Operator: We will take our next question from Brian McKenna with Citizens. Brian McKenna: Thanks. Good morning, everyone. Sorry if I missed this, but can you walk through the drivers of the unrealized marks in the quarter? And then when you look across the portfolio and the watch list today, are there any additional markdowns coming over the next quarter or two? I'm just trying to think through some of the puts and takes and what that means for the trajectory of NAV moving forward. Arthur Penn: Yeah. Yeah. Most of the markdowns I'll I'll call are and good question, Brian. Most of the markdowns I'll call are and we have a little bit of this, we'll call 2021 vintage, which was the post-COVID vintage where, you know, people thought, you know, that consumers were not going into stores again. Where, you know, logistics and supply chain stuff was was really doing very well. So we have a little bit of that. Thankfully, it's not that large, and that is kinda what is working its way through the the pipeline here of of markdowns. I'll point out a company called PL Acquisition. It stands for Pink Lily, which is a direct-to-consumer women's apparel business. I'll point out Research Now or Dynata is a marketing services business, which which has been softer. And I'll point out in the JV, a company called Wash and Wax which is a car wash company known as Zips, C-I-P-S. People were were doing a lot of car washing post-COVID. So think they're washing their cars again with with all the bad weather in the in the North in the last couple weeks. So seeing a little bit of bounce in in car washing, but, you know, I'd say that's generally the theme you've seen much bigger movements with with some other BDCs that have reported you know, NAV diminution due to, you know, Amazon relationships and home furnishing stuff. So we've got a little bit of that here. It's kinda working its way through. We don't really see much more, quite frankly, in that. It's kind of here we are five years later. And and I think with M&A starting to to move hopefully, we're going to start to see some upside in equity and some equity rotation to offset what I'll call a little bit of this 2021 vintage. Brian McKenna: Got it. That's helpful. And then just to follow-up there, you know, if you look at your portfolio today, what's the mix of loans just by the vintage year? And I'm curious how much of your portfolio has turned over since 2021? Arthur Penn: Know, I we don't have that handy right now. Let us do some work and and we can chat at a convenient time. And then, look, presumably, the data is in there. You know, anyone we we and you could sit there and look at the the origination date of of these of the portfolio. But I think it might might be some good work for a research analyst to to do. Just just an idea. Brian McKenna: Sounds great. I'll leave it there. Thanks, guys. Operator: We will take our next question from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Hey guys. Rick, a $3.6 million charge related to the credit amendment and debt issuance cost. I presume that's nonrecurring. And is that related to the $75 million debt issuance in January. Richard Allorto: Sure. The first part, for PFLT, it was about $500,000 not 3.6 And yes, that is a one-time item. And and, no, it was not related to Again, the $75 million that was raised was, was at PNNT. Christopher Nolan: Thank you. Okay. My press release is and, also, just as a follow-up, on the M&A comments, what is the is there a there a lot of activity around the software sector? I'm just kinda curious. Given everything going on with AI. Whether or not software is is is Arthur Penn: Yeah. You know, we we have we you know, we're as you could tell, we're not one of the big software lenders. So we're probably not the the best party to ask around M&A and the software sector. My my presumption would be you know, when you have times of of kind of like this where the market's trying to figure things out in the sector, my assumption would be M&A would be lower for a while as things settle down and people revalue both equity and debt in in the space. But, again, we're we're probably not the best people to ask. Christopher Nolan: Great. That's it for me, and apologies for confusing companies there. Richard Allorto: Thanks. Arthur Penn: No no problem. We the good news is, in noon, you have an opportunity to ask the same questions again. Yeah. That's right. Thanks. Operator: And gentlemen, there are no further questions at this time. I will now turn the conference back over to Mr. Penn for any additional or closing remarks. Arthur Penn: Thanks, everybody, for your participation this morning. We look forward to speaking with you next in early May. Have a great day. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to Xylem's Fourth Quarter 2025 Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Keith Buettner, Vice President, Investor Relations and FP&A. Please go ahead. Keith Buettner: Thank you, operator. Good morning, everyone, and welcome to Xylem's fourth quarter 2025 earnings call. With me today are Chief Executive Officer, Matthew Pine, and Chief Financial Officer, Bill Grogan. They will provide their perspective on Xylem's fourth quarter and full year 2025 results and discuss the first quarter and full year 2026 outlook. Following our prepared remarks, we will address questions related to the information covered on the call. I'll ask that you please keep to one question and a follow-up and then return to the queue. As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investor section of our website. A replay of today's call will be available until midnight, February 24, and will be available for playback via the Investors section of our website under the heading Investor Events. Please turn to Slide two. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will, or may occur in the future. These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent annual report on Form 10-Ks and in subsequent reports filed with the SEC. Please note that the company undertakes no obligation to update any forward-looking statements publicly to reflect subsequent events or circumstances. And actual events or results could differ materially from those anticipated. Please turn to slide three. We have provided you with a summary of our key performance metrics, including both GAAP and non-GAAP metrics. For the purposes of today's call, unless otherwise indicated, all references will be on an organic and/or adjusted basis. And non-GAAP financials have been reconciled for you and are included in the appendix section of the presentation. Now, please turn to slide four, and I will turn the call over to our CEO, Matthew Pine. Matthew Pine: Thank you, Keith. Good morning, everyone, and thank you for joining us. The team delivered an outstanding fourth quarter to close a record year for Xylem. We delivered strong Q4 performance across all major metrics. The team executed with discipline across the portfolio both in the quarter and full year. The record results demonstrate the impact of our operating model transformation, which represents phase one of our plan to deliver Xylem's long-term framework. That first phase has been about transforming Xylem's operating model, our high-impact culture, a simpler, scalable structure, and improvements in our business processes and cornerstone systems. We simplified Xylem, increasing speed and accountability. The numbers we posted this morning reflect the ground we've already taken. And there's more to come in 2026. In parallel, we're entering phase two, strengthening our growth engine by leveraging improvements in our operating model. Focusing on Salesforce effectiveness, product management, and innovation. Phase three will invest further in long-term competitiveness, building on our core franchises, expanding breakthrough innovation, and deepening exposure to the most attractive future water markets. We're tracking to the framework we laid out almost two years ago, and we have plenty of runway ahead. As we sharpen our customer focus and simplify our product offerings, 2026 will be the peak of purposeful walkaways from lower quality revenue. That creates a short-term top-line headwind, as we've communicated previously. But it drives higher quality earnings. Looking ahead to 2026, we see resilient demand in our largest end markets. Strong backlog conversion, and continued traction from our transformation efforts. I'll leave the detailed guidance to Bill, but at a high level, we will build on our commercial and operational momentum. Growing the top line and expanding margins again in 2026. With that, Bill will take you through the quarter and full year and also our 2026 outlook in more detail. Bill? Bill Grogan: Matthew. Please turn to slide five. We are very pleased with the strong finish to 2025. The team stayed focused and delivered consistently throughout the year. Delivering record revenue, EBITDA, and earnings per share for the fourth quarter and the full year. Demand remains positive. With our backlog finishing at $4.6 billion. Our book to bill was near one, both in the quarter and for the full year. Orders were healthy, up 7% in the quarter. Driven by over 20% growth in MCS. And for the year, orders were up 2%. Revenue grew 4% in the quarter, despite a challenging comparison of 7% growth in the same period last year. Full year revenue growth was solid at 5%. Full year EBITDA margin expanded 160 basis points to 22.2% driven by the same factors. The team's operational discipline delivered quarterly EBITDA margin of 23.2%. Up 220 basis points versus the prior year. The improvement was driven by productivity and price, more than offsetting inflation. Full year EBITDA margin expanded 160 basis points to 22.2% driven by the same factors. We also achieved a record quarterly EPS of $1.42, a 20% increase over the prior year. Our balance sheet remains in great shape. With net debt to adjusted EBITDA of 0.2 times. Year-to-date free cash flow decreased by 2% from the prior year, in line with expectations driven by outsourced water projects, system investments, and restructuring costs offset by higher net income. Let's turn to slide six. In measurement and control solutions, we can to convert the backlog with MCS' backlog finishing the year roughly $1.4 billion. Orders were up a robust 22% driven by smart metering demand across water and energy. However, this was below our expectations with several projects pushing out into 2026. Revenue was up 10%. Driven by energy metering demand, but supported by high single-digit gains in water as well. Which offset softness in analytics, related to timing effects caused by the government shutdown. EBITDA margin of 20.2% was 310 basis points higher than prior year. Driven by productivity, price, and volume more than offsetting mix and inflation. In water infrastructure, orders were down 1% in the quarter, with softness in treatment primarily in China mostly offset by strong demand in transport. Revenue was flat, with strong double-digit growth in The US, offset by an almost 30% decline in China. EBITDA margin for water infrastructure was up a remarkable 510 basis points driven by productivity, price, and mix, offset by inflation, volume, and investments. In applied water, orders were up 5% and book to bill was roughly one. Lifted by large projects and data center wins in The US. Revenues were up 3% versus the prior year. Primarily driven by strength in US commercial buildings. Segment EBITDA margin increased 60 basis points year over year. Driven by productivity and price, offset by inflation, volume, and mix. With some of these items being nonrecurring in nature, we expect Applied Water to be back in the 20% EBITDA range in the first quarter. Finally, water solutions and services saw robust demand orders increasing 7% driven by strength in services. Revenue growth was strong, up 4% against a tough comp. With strength in capital and services. Segment EBITDA margin was 23.9%, up 110 basis points versus the prior year driven by price, volume, and productivity, offset by inflation and mix. Now let's turn to slide seven for our 2026 segment outlook. Heading into 2026, our markets remain positive, and our teams are delivering on our commitment to simplify Xylem. Focus on our customers, and drive profitable growth. We are providing full year organic revenue outlook for the segments. And want to highlight that we are accelerating our 8020 efforts around product and customer simplification. As a result, we will have an outsized headwind to our top line for the year of roughly 2% doubling the impact we experienced in 2025. We expect this as a one-year elevation we are still committed to delivering on our long-term framework. In MCS, we expect growth in the mid-single digits. Overall demand is positive, and our pipeline remains strong. But project timing has been more variable and less predictable than we have experienced over the last few years. Our expectation is energy meters will drive a majority of the growth in 2026. And water meters will grow low single digits as expected orders from the fourth quarter pushed out into the '26. We will also have an impact from our eighty twenty actions. Primarily in analytics, impacting overall segment growth for the year. The first quarter will be challenged, down low single digits. We expect to see sequential revenue improvement throughout the year. As project kickoffs accelerate in the back half of the year. Also, as a reminder, we expect to close on the divestiture of the international metering business at the end of the first quarter. In water infrastructure, we expect low single-digit growth. We anticipate resilient OpEx and CapEx demand due to the mission-critical nature of our applications. With healthy utility end markets across most regions. However, will see headwinds from eighty twenty actions as we accelerate the simplification of our offerings and expect continued weakness in China's utility market. Primarily impacting the first half of the year. In applied water, we expect growth in the low single digits. We see growth across developed markets, particularly in The US, with large projects coming online and strong growth in data centers. Similar to the story in water infrastructure, growth will be offset in applied water by eighty twenty actions, exiting unprofitable business, and a weak China market impacting the first half of the year. WSS will deliver mid-single-digit growth driven by strength in outsourced water project, and solid demand in dewatering. Though we expect this will continue to be a more variable segment quarter to quarter, due to the project nature of our capital offerings. The segment is supported by a $1.4 billion backlog in strong funnel across all businesses. Now let's turn to slide eight for our full year and Q1 guidance for 2026. The growth outlook by segment translates into 2026 full year revenue of $9.1 billion to $9.2 billion resulting in revenue growth of one to 3% organic revenue growth of two to 4%. Again, this is on the low end of our long-term framework, through the eighty twenty actions we are taking across our segments. By continuing to increase the quality of our earnings and simplifying our business, to outperform our markets for the long term. 23.3%. EBITDA margin is expected to be 22.9 to This represents 70 to 110 basis points of expansion versus the prior year driven by productivity, volume, and price offsetting inflation. With productivity continuing to benefit from our simplification efforts, This yields an EPS range of $5.35 to $5.60. Up 8% at the midpoint over the prior year. As a reminder, we are committed to low double-digit free cash flow margin in our long-term financial framework. And we'll make additional progress in 2026. Drilling down on the first quarter, we anticipate reported revenue growth will be in the 1% to 2% range on a reported basis and flat organically. We expect first quarter EBITDA margin to be approximately 20.5% to 21%. Up 25 basis points at the midpoint. Driven by productivity gains and impacts from our simplification efforts offset by mix. This yields first quarter EPS of $1.06 to $1.11. We are entering the year with momentum and in a position of strength. Our balanced outlook reflects strong commercial positioning, the durability of our portfolio, and further benefits from simplification. Though we are monitoring broader market conditions and volatility, including tariffs, Overall, our expectations for the year remain positive as we build on our strong results. With that, please turn to slide nine, and I'll turn the call back over to Matthew for closing comments. Matthew Pine: Thanks, Bill. Before we open for questions, let me close with a broader lens. Xylem participated in the World Economic Forum annual meeting at Davos for the first time this year. The headlines were all about AI and geopolitics. But water emerged as a significant underlying theme. More than a dozen sessions frame water is foundational to economic growth, energy systems, and geopolitical stability. That aligns directly with the research we released last month watering the new economy. Which makes a simple point. As AI accelerates growth in power generation, data centers, and microelectronics, water strategy becomes business strategy. These sectors are wrestling with availability, reliability, and efficiency. They need reuse at scale, dramatic reductions in network leaks, and adaptive infrastructure that automatically optimizes performance. And that's where Xylem is uniquely positioned, covering the full water value chain with practical solutions. That breadth differentiates us at a time when customers are looking for credible, scalable partners. As we pivot further into growth, we'll keep building capability where we have structural advantage. Mission-critical utility and industrial applications where reliability, compliance, and life cycle costs matter most. Digital platforms that help customers optimize network performance, and make resilience affordable. Advance treatment and reuse that support economic growth without increasing freshwater withdrawals or compromising communities. In services that turn our technology and installed base into dependable high-value outcomes for customers and durable revenues for Xylem. We're already doing this work at scale. Helping cities and industries recover water they already have reuse what they once discarded, and run their assets more efficiently. We're helping Los Angeles produce 508 million gallons of recycled water per day with plans to deliver 260 million gallons more. Smaller communities like Hot Springs, Arkansas are reducing water losses by 50% or more with far less digging costs. On the industrial side, Silphex, a man a microelectronics manufacturer, is reusing 80% of its processed water with a Xylem Ultrapure water system. One of our aerospace customers is now avoiding more than $30 million in wastewater disposal costs with zero liquid discharge technology. We're using more than 66 million gallons of water annually. All of these examples are responses to intensifying water trends. Driving sustained demand for the solutions we provide across the water value chain. We are confident in the strength of our team, and our platform to capitalize on that demand. And to deliver sustainable high-quality growth over the long term. With that, open the call for your questions. Operator: Ladies and gentlemen, we'll now begin that If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Withdraw your questions, you may press star and 2. Again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Deane Dray from RBC Capital Markets. Please go ahead with your question. Deane Dray: Thank you. Good morning, everyone. Matthew Pine: Hey. Good morning, Dean. Deane Dray: Hey, Matthew. As we do the calendar flip and as you start the phase two, maybe you can give us a two-year progress report if you could Just kinda reflect on the initiatives regarding margin improvement, portfolio optimization and how you are also trying to keep your eye on growth opportunities too? Matthew Pine: Yeah. So first, we've got a lot of work to do in front of us, so I'll start there. But if we look back over the past few years, the results have really exceeded expectations from my perspective. Maybe just even start starting firstly with not long ago, we were talking about the integration of Evoqua and Xylem. And we built a great deal of muscle in terms of M&A and integration, and we really enhanced our combined culture along the way. And we delivered synergies eighteen months early. So I give the team a lot credit there starting with that integration. And, you know, at the same time, we've made significant progress in our operational model transformation, which is really about you know, really our culture, our high-impact culture, improving our processes and systems and our structure. And maybe I'll just maybe point to a few proof points on the progress that we've made. You know, the first in in significant amount of change that we've been going through the past couple of years, I looked at our engagement rating the other day. In an essence, an engagement rating in your in your employee survey is would you recommend Xylem as a great place to work? Almost 90% of our top one fifty leaders said they would, and overall company was 74. When you're going through a significant transformation, I think that's a really good outstanding result. And the industrial sector average is around 37%. And so if they could just speaks to the resilience of our team and the culture that we're creating. You know, another good measure that I talk about a lot is on-time performance in terms of how we're you know, really moving our operating model forward. We've gained 500 basis points of on-time performance you know, delivering products to customers more effectively over the past couple of years. And structurally, we've really improved moving from a highly matrix structure a more four segments, 16 divisions, a single axis. Reducing our spans and layers. And we reduced our we had several micro teams. I think 1,500 micro teams We reduced that by 40%. So that's folks that have four or less direct reports. So we've really improved our our structure our culture, processes, and our systems along the way. You know, maybe I would just you know, like I said in the prepared remarks, we've taken a lot of ground on what I would call phase one. It's not over. We have more work to do, but we're we're starting to transition into what I would call phase two, which is really about leveraging that simplicity that we've created, the focus, the speed, and accountability to really build a growth engine in the company. And that's you know, focused on a few areas I would highlight at a high level. One is our Salesforce effectiveness. We need our sales teams, you know, 75, 80% of the time facing the customer versus 40 or 50 or 60 doing back office work. We need to improve our our product life cycle management and innovation, really speed to customer value. So those are areas that we're, as we pivot, we're gonna be keenly focused on this year in building capability. We can leverage the simplicity and get back to growth. But I'm just I'm very proud of the team. I appreciate the question, and really the resilience they've shown, not only with all the change that we had to deal with, but also, you know, the change that's been external to the company as we've we've dealt with over the past couple of years. So maybe I'll end it there. Thanks for the question. Deane Dray: That's really helpful. And then as a follow-up for Bill, maybe you can have expand on the point of increasing the $80.20 walk away revenues in the second year Maybe it's a surprise to me, I think, because I would have thought in the first year, there'd be more opportunities for less identifying less profitable businesses. Not having it accelerate into the second year. So maybe just kind of help Yes. Put that into context. Appreciate it. Bill Grogan: Yep. No. Sure. But let me let me step back first and just talk about you know, how 8020 is really taking hold in the organization two years into the transformation that Matthew highlighted. Each quarter, we take another step in simplifying Xylem. You know, shifting from just leveraging 8020 as a tool set being a critical piece of how we run the company. With a a real focus on resource allocation, putting our best people investments around our largest value-creating opportunities. We've got about 80% of the business in some phase of implementation right now with the capital and services piece of WSS. The only part of the company not fully launched, and and they'll start at the end of this year after they get through their ERP upgrade. And the team continues to make solid progress leveraging the tool set. Right? We started this year, with redesigning the organization and putting P&L leaders in charge of the divisions. They could have a good perspective and drive a lot of this change. They looked at the cost that they needed to support the business and optimize that overhead. To get our foundation as lean as possible. To make sure that we're focused on on simplifying this that organizational construct. You know, as for the 2% headwind, right, a lot of that comes with you know, an evaluation of the the product and customer portfolio. Really understanding, you know, the geographies where you might be underperforming, putting in a commercial filter, getting a sales and engineer engineering teams developed and and and leveraging that filter to make sure that we're not taking business that we shouldn't We're looking at parts of the business where we have significant pass-through revenue that doesn't have significant margin. And all of those decisions take take a little bit of time because wanna make sure you bleed the inventory so you don't have an excess issue. You wanna partner with your customers to make sure they're supported through the transition. So there's know, the cultural and adoption part of it that extends it. And then there's just the customer coordination, which really pushes it into into 2026. So excited about the teams taking, these actions and ultimately, I think it's going to free up our organizational and economical capacity to better, support and facilitate our longer-term growth trajectory. Deane Dray: Thank you. Operator: Our next question comes from Scott Davis from Melius Research. Please go ahead with your question. Scott Davis: Hi. Good morning, guys. Matthew and Bill. Matthew Pine: Hey. Good morning, Scott. Scott Davis: Wanted to follow-up on that question because there's a there's a certain point where eighty-twenty goes from being a headwind to a tailwind, meaning that you're doing better with the customers that matter the most and perhaps gaining share and and such. But when is that point? You know, it it do you start to see some impacts? Like, 2027, 2028? Is it is it is it or is it just too hard to say at this point now that you're kind of in the middle of it? Matthew Pine: I would say that really 2026 is kind of inflection point Scott for us. You know, the operational transformation never ends, as you know. But we've taken enough ground where we started in the back half of 2025, and it will coming into '26 with a bit more momentum around, I would say, building the growth engine and focusing on eight customers what we call raving fans, and actually building out our enterprise selling organization. So all that is in flight. I think the big thing this year is about building Salesforce effectiveness and helping our sales organization get more oriented toward the customer majority of the time, meaning, you know, today, a lot of our sales teams are doing a lot of admin work, and they don't get in front the customer maybe 30, 40% of the time. And the goal over the first half of this year is to change that to, say, 75, 80%. So I think we're building momentum, and I'd say we exit 2026 with a lot of, again, momentum around building the growth engine and starting to move towards growth and leveraging this simplicity that we've created. Scott Davis: Okay. Yeah. That that makes sense. And guys, I I have to ask. Your balance sheet is starting to look a little bit too good. And, you know, it looks like your stock might open up a little bit light today. I mean, what are you guys thinking as far as this buyback and you know or or or do we wanna keep the dry powder for for for M and A? Matthew Pine: Yeah. Maybe just, you know, just to highlight that our priorities continue to be investing in our core business, followed by M and A, dividends and then lastly share buybacks. So I've said this on some other calls that our acquisition process that we put in place a couple of years ago is really maturing nicely. It's much more bottoms up. We've got a a very strong actionable funnel you know, as an outcome of this process. And we deployed about $250 million of capital last year towards M and A in the second half of the year, and we have much more than that that's already in process for the '26. So seeing good momentum there. And we'll continue to target around $1 billion a year of capital deployment towards M and A You know, we won't not entertain a transformational deal, but it's not something we're we're focused on right now. It's more medium small to medium bolt ons. You know, with regard to your your thoughts on share buybacks, you know, we'll continue to be opportunistic, but you know, again, we're gonna be more forward leaning towards investing in the core and M and A. However, you know, at low leverage levels, know, like we're seeing now, we're gonna be much more active in buying back shares. Scott Davis: Gotcha. Thank you, guys. Best of luck. I'll I'll pass it on. Matthew Pine: Thank you. Operator: Our next question comes from Mike Halloran from Baird. Please go ahead with your question. Mike Halloran: Hey. Morning, everyone. Matthew Pine: Morning. Mike Halloran: So can you put the backlog exiting the year in context, what it means for this year? And and and and the phasing for the year. Is where the backlog exit rate was? Is that part of the 1Q softness? How do those sequentials work to the year? And then related, maybe just a little bit about the hesitancy on the project side. And and and compare that to what the customers are saying, the pipeline, you know, verbal orders, however you wanna put it. Bill Grogan: Yeah. May maybe I'll touch first just on on the the the backlog positioning. And Matt, you can comment on the project side. So first off, right, obviously, we've led backlog as we've progressed through this year and the lower backlog directly impacts the 2026 cadence and revenue guide. First on MCS, we talked about them working down their backlog throughout the year. Getting to a more normalized level. You know, we highlighted really strong orders in the fourth quarter, we actually had anticipated a few larger projects to book to book that pushed out in the first half. Which puts a little bit pressure on ending backlog and then pressure on kind of our first and second quarter revenue. And we've talked China has been really weak, especially in treatment, which is a bigger backlog business for us. That probably put us at a a lower backlog position. Then we talked about the the walk away, revenue. Obviously, that's impacted orders, you know, first before it impacts revenue. So we've seen just a lower backlog associated with some of those actions. You know, as as we progress to the back half of the last year. So I think we're we're in good shape to start the year. Know, we've talked about healthy commercial funnels for both MCS and and WSS our largest backlog businesses, You know, what we have line of sight to relative to commercial funnel, I think reasonable confidence in line of sight to the improve progression as we go through the year. Mike Halloran: And then maybe some thoughts on China. You know, I know you've done a lot of work already because of the environment. But what are the steps you're taking from here given the softness and and and how do you see that shaking out over the next couple years in terms of the commitment to the market, ability to manage that market given the local headwinds, both, you know, by local as well as softer end markets. And and kinda what changes are you making? Bill Grogan: Yeah. No. I so so I think consistent with the commentary provided for the last couple quarters, China remains a challenging market for us, both on the orders and revenue side. It did accelerate that decline as we progress through the back half. Q4 orders were down almost 70%. Sales declined almost 30%. Part of that's just the reflecting of the economic headwinds impacting utility and commercial building and industrial end markets and primarily impacting us within water infrastructure and applied water. My local competition continues to drive intense price competition. Due to the capacity that they've built. But our teams are applying an eighty twenty lens to focus on higher quality more profitable opportunities, which is creating some of the top line pressure. Right? I mean, we're we're calling that within the China bucket, but you could probably put a little bit of that in in the walk away just as we're deliberately exiting some of that low margin, negative margin, business within China. As we talked about last quarter, China restructured its operations. You know, we reduced our headcount by over 40%. Just to better align with that volume contraction. But, right, we're looking to reallocate the resources that are on the ground just around targeted opportunities where we think we have a technological advantage, and we could price some differentiation in certain applications where we can win and deliver stronger margin performance. Because of that differentiation. Ultimately, right, China is a very large economy. You know? We don't think there's be a material improvement here over the next year or two. But, longer term, it's a place that we think that that Xylem will be able to grow get back to growth at a at a much higher margin profile. Mike Halloran: Thanks. Appreciate it. Operator: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead with your question. Andy Kaplowitz: Good morning, everyone. Matthew Pine: Hey. Good morning, Andy. Andy Kaplowitz: Bill. So just maybe a little more color on going on in smart meters. You did have solid orders, but, Bill, you mentioned orders were still below what you expect, and I think peers have had even a harder time than you in water smart meters. So what are you seeing in the market between water and energy Is your mid-single-digit revenue growth forecast for '26 contingent on converting some of these delayed projects to backlog in the first half? And does availability of memory chips impact the outlook at all? Matthew Pine: Yes. Maybe I'll just maybe start at a high level, Andy, then I'll let Bill get into a little bit of color. But I just wanted to tell everyone on the call, we remain very confident in M MNCS to achieve high single digits long term. As segment. The near-term outlook really reflects project timing and some of the backlog normalization coming out COVID and walk away revenue. So it's not a change so much in underlying demand. The biggest area of walk away in this segment is in analytics. It's the one of the last divisions to go into the 8020 tool. And, they're in the process of of shedding you know, organic business right now. Although we do have a little bit of walk away in smart metering as well, in 2026, and we've exited mechanical meters. And we've made a decision to be a bit more selective when we do the meter installation A lot of times that comes at low margin or no margin pass through. And is a drag on on on earnings and margin. So we've been a bit you know, forward leaning into that. You know, bidding remains strong, and customers are still, you know, ordering and and our win rate's higher than it has been in the past. So I think in general, things are healthy, but you know, maybe one other comment I would make is, again, going back to this post COVID, the backlog helped to smooth and some of the unevenness that we typically get in this segment. And that can have. So I do I think, you know, we do expect a bit more variability in quarter to quarter going forward. So maybe they'll maybe one other point I would make is, you know, I would highlight that Xylem the Xylem View business which doubled in in 2025, we're expecting that digital business grow 30 plus in 2026. So we exit this year, that'll continue momentum. And help drive the top line of this segment as well. Bill Grogan: Yeah. And then, Andy, I I think your your question on on the memory piece, we don't see that as a material impact either from an availability or significant increase in inflation for us to have to pass on the customers. Andy Kaplowitz: Helpful, guys. And then, Bill, maybe a follow-up for you. You're you're to 70 to 110 basis points of margin improvement in twenty six. As you know, it basically takes you past your 23% and change adjusted EBITDA margin goal for 27% in 26%. So where do you go from here? Are you gonna have an investor day? Maybe just set new targets, and maybe the entitlement of the business from when you started here. Is it mid-twenties or higher? How do you think about that? Matthew Pine: Yeah. I'll I'll take it, Andy. I think from my perspective, we're already outlining an Investor Day for 2027. We'll update strategy and targets at that point. It's probably sometime in the spring of of next year. You know, we have some work ahead of us to deliver this year. And we don't wanna get too far out over our skis. But you know, as a reminder, we laid out, you know, the LR the long-range plan at our last Day in May '24. That we to to your point that we would move from 20%, which is the forecast of 2024 margins to 23 by the '27. So we're guiding you know, this year, just over 23% at the midpoint So we're tracking ahead and there's likely upside to our long-term targets as we exit '27. You know, we've we've made a lot of great progress and, you know, give the team a tremendous amount of credit. As I said, with Dean's question at the beginning, a lot of a lot of change, and we've been able to execute. So I think you know, Andy, about just over a year from now, we'll be in a better position to to update the framework and and talk about margins. Andy Kaplowitz: Appreciate that. Thank you. Operator: Our next question comes from Nathan Jones from Stifel. Please go ahead with your question. Nathan Jones: Good morning, everyone. Matthew Pine: Hey. Good morning, Nathan. Nathan Jones: I'll I'll start with, a follow-up on the the MTS orders. And the smart smart native projects that are pushed out. Maybe a little bit more color on what the cause of those pushing out are, if you have any insights there. Degree of confidence that those things kind of come through in the first half in order to support the outlook for improved growth in the second half? Bill Grogan: Yeah. And I think there's there's several projects, and all of it they're have a little bit different reasons for pushing out. There's not a common thread around it. Some of them are just relative to where they're at with several other projects going on. So I wanna push out a couple months. Some of them have reshaped the scope of the project relative to just increased, inflation they've seen from tariffs and another inflation creeping up over time. So it's it's you know, for us, it's a handful of things that we're intimately involved with the customers. We understand kind of their project plans and some of the the hesitancy, and we're working with them to shape an implementation that works with them economically and then still you know, has an ability for us to, drive kind of incremental revenue this year. So I think we have reasonable visibility. You know, again, this isn't 50 different projects. It's you know, kind of five to 10 that we're working with the end customer. That we have confidence in based upon our our guide and our revenue progression for MCS through the year, that we'll be able to deliver on. Nathan Jones: Okay. Thanks for that. I guess, about next question on divestitures. You guys have talked you know, up to 10% of revenue being you know, a candidate potential candidate for divestiture. Anything we should you know, expect action on that in 2026? And if you could provide the EPS impact from the divestiture of, the automated business, that would be helpful as well. Thanks. Bill Grogan: Yep. Yeah. I think we talked about, Nate, we were evaluating about 10% of the pull portfolio Last year, we exited a business in the first quarter that was about 1%. You know, international metrology is about about another, percent. There's probably two or three assets that, you know, maybe another couple percent. So don't think we're gonna hit the the 10% number. You know, that that we we were looking at. But, obviously, portfolio evaluation, you know, something that we do on a recurring basis. You know, as businesses shift strategy or they wanna double down in certain parts, of the business, maybe an area becomes less important. So I think it's an ongoing activity with I don't think anything significant outside of metrology for this year And then the EPS impact for international metrology is is is fairly small. For for the year. We talked about, you know, it's a $250 million business that less than 10% EBITDA margin. We'll close it at the end of the third quarter. Or, excuse me, at the end of the first quarter, so you kinda get three quarters. So it's you know, $2.03 pennies. Nathan Jones: Thanks for that taking the questions. Matthew Pine: Thank you. Operator: Our next question comes from Joseph Giordano from TD Cowen. Please go ahead with your question. Michael Halloran: Good morning, guys. This is Michael on for Joe. Matthew Pine: Hey, Michael. Michael Halloran: So yeah, on the last call, you mentioned there was a path to higher margins for the energy meter side. At MC and S. And since it's mixed negative versus water meters, can you just unpack that glide path higher And, you know, what's the status of the transformation? Thank you. Bill Grogan: And and your your question is specifically was around just the improvement on the energy meter margin? Michael Halloran: Yes. I believe on the last call, you mentioned there was a path higher for energy meters on the margin side. So we just love to better understand where we are in that cycle. Thank you. Bill Grogan: Oh, yes. I think there's a couple of things. One, there's some structural changes on the energy side from an engineering and a technology perspective that are gonna level up, you know, value add value engineering projects that will lift the margin profile. And we did highlight there's a couple projects that are legacy within energy that they're working through their backlog that you know, put pressure, on margins in in 2025. That'll continue into the 2026. So you'll see a margin progression with MCS, you know, down slightly overall in the in the first quarter and then sequentially build. It's a pretty robust margin as it exits the fourth quarter with water balance, the the water meter balance being back to more legacy rates and then some of the progress on the energy margin improvement taking hold. Michael Halloran: Great. Thanks for that color. And then orders for the year ended pretty strongly The organic kind of implies a ramp to the back half. Can you just unpack organic expectations mean, you kind of mentioned this a little bit in the beginning of the call, but by segment for Q1, just want to understand it came in a little bit lighter probably most were expecting. Yep. Would appreciate the color. Thank you. Bill Grogan: Yeah. I I I think the the biggest variable is probably MCS They'll be down kind of a point or two in the first quarter relative to probably the external expectations. WSS, we talked about just the lumpiness of that business. They'll be, kind of flattish, with water infrastructure and applied water a a little bit below their full full year guide. Just with some of the first half pressure that they have from China. Michael Halloran: Thanks, guys. Matthew Pine: Thank you. Operator: And our next question comes from William Griffin from Barclays. Please go ahead with your question. William Griffin: Good morning. Thanks very much. Just the first one here, I did want to ask about the four operating margin step down across Applied Water, MCS and WSS. Is there seasonality inherent in this business? And then maybe how should we think about that, I guess, in relation to, you know, the ongoing tailwinds of of eighty twenty execution? Bill Grogan: Yes. And I would say, really, WSS, it's more of mix of business between quarters. So nothing structural there. Within applied water, obviously, Q4 was a bit of a blip relative to the performance that they experienced through the first half of the year. It really reflected just some negative project mix, a little bit of execution timing, and some onetime items. Yeah. These are our transitional factors, and we expect EBITDA margins to be back up in the 20% range in the first quarter and then sequentially improve. Throughout the year with volume increases and their their productivity initiatives. Ramping up. So yeah, that that it's more of a short term than anything structural. Applied water, I think. Gets back to some pretty robust margin expansion in 2026. William Griffin: Got it. And then wanted to ask also about the recent report you folks published in partnership with GWI on water demand management for data centers. I would just be curious to hear of your thoughts on what surprised you from that report and perhaps where you think the biggest opportunities for Xylem are to accelerate its growth might come from? Matthew Pine: Yes. Thanks for the question. When I was at Davos, '26 was deemed kind of the year of artificial intelligence. There were a lot of talk of pilot projects now scaling into productivity solutions and you know, that's why a lot of the AI, build out is racing ahead Actually, Gartner had a a recent prediction that 2026 hyperscalers would invest over $2 trillion in new data centers. But, you know, I think one big, thing from the report that point was pointed out that there's two big constraints to that $2 trillion of investment, and that's energy and water. Up until now, energy's gotten the the majority of the of the attention, and I think water's starting to finally be brought up in the discussion. So know, the reason we commissioned the report is we have a pretty good view of the whole value chain, and we were trying to figure it out ourselves. What is the impact of this new economy and the broader AI ecosystem on the water sector? So we couldn't really find any good data, so we partnered with Global Water Intelligence and commissioned a report, and we we kicked it off at Davos. But maybe the first eye-opening stat I would point to is the demand is soaring, and it's really not so much that that, this new economy is more water incentives just to say some of the first or second industrial revolutions around textiles or steel mills or pulp and paper. It's really more about where where the data centers and and chip fabs are located is the is the biggest issue. But the AI ecosystem, which is data centers, it it excludes mining, but data centers power and semiconductors. Will need about 30 trillion liters of water each year by 2050. That's a 130% increase in water demand. And kind of frame it for everybody on the call, that's one late need a year. In the Western Part Of The US, so it's 12,000,000 Olympic swimming pools. So it's a significant amount of water The interesting finding was the data centers, the the actual direct use is not really the culprit. It's only 4% of the water that's needed. The other 96% is power and chip fabrication, which is probably actually power driven. But chip fab is set to grow by, you know, roughly 600%. So that was probably one of the biggest takeaways. I think the second and I I don't like to be chicken little. I wanna the second point is we can solve the problem. And we have the technology and solutions to to manage the demand today in quite frankly offset the 30 trillion extra liters that we need and that's largely through water reuse, And I talked about in my opening remarks what we're doing in Los Angeles. With reuse water there to help char recharge their aquifers And, also, leak mitigation. These are not hard things to do. I mean, they're hard to implement. They're not hard things to do, though. And, you know, over almost 30% of water that's generated today freshwater to send out to businesses, industry, and residences, what gets leaked into the ground. And we have, you know, solutions to solve those problems like the project we talked about in the last call with Amazon. But maybe one example I'll leave you with as I wrap this up is in Arizona, we were out there a few years ago, Intel in the city of Chandler have have partnered together. So we need much more private public private partnerships. 90% of the reject water that they generate so when you when you have to provide ultra pure water in chip fabric, your reject water is very high to get to that purity. So all that reject water Intel invested capital and OpEx to build a recycling plant that they handed over to the city to run and manage, and 96% of that water is being reused So we need more of that. At scale. To solve the problem. So, again, the solution's there. It's just about getting the stakeholders at the table early in the data center planning where we talk mostly about energy. We've gotta talk about So thanks for the question. And maybe I think the second part of your question I'll answer, For us, it really inside the four walls of the data center, yes, we do some business, but it's really outside the four walls and it's largely in our WSS segment around mining, around power generation, and around chip fabrication is where you're gonna see the growth within Xylem. William Griffin: Appreciate it. Thanks very much. Matthew Pine: Thank you. Operator: And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Matthew Pine for any closing remarks. Matthew Pine: Thanks for your questions. We'll wrap it up there. And thank everyone who joined today. And as always, we appreciate your interest in Xylem. All the very best. Operator: And with that, we'll conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: Thank you for standing by. And welcome to the Harley-Davidson, Inc. 2025 Fourth Quarter Investor and Analyst Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Shawn Collins. Thank you. Please go ahead. Shawn Collins: Thank you. Good morning. This is Shawn Collins, the director of investor relations at Harley-Davidson, Inc. You can access the slides supporting today's call on the Internet at the Harley-Davidson, Inc. Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley-Davidson, Inc. Chief Executive Officer, Arthur Starrs, and Chief Financial and Commercial Officer, Jonathan Root. With that, let me turn it over to Harley-Davidson, Inc. CEO, Arthur Starrs. Arthur Starrs: Good morning, everyone, and thank you for joining us today for our Q4 and full year 2025 results. Before we get into it, I'd like to thank our Harley-Davidson, Inc. employees, the HD dealer network, and our riders that are listening in this morning. Thank you for all you do every day for the company, living and leading our brand and culture. This marks my first full quarter as CEO. I've spent this time focused on understanding the core of our business, our people, our dealers, our riders, and the realities of the marketplace. Through extensive time on the ground, I've confirmed many of the early observations I shared last quarter. I'm confident there's a clear path to put Harley-Davidson, Inc. back on the right trajectory. And I now have a sharper view of what it will take to reset the business and get to a more stable operating and financial future in '26 and beyond. This morning, we will provide more detail on the themes you heard from us on our last call, as we work towards our expected strategic plan announcement in May. Turning to our fourth quarter results, which we do not believe reflect the full potential of this company. 2025 was a challenging year. And while some of the pressures we are facing are macro-driven, others are firmly within our control. And we are moving with urgency, focus, and discipline to address them. Wholesale shipments and associated margins were negatively impacted by intentional actions to address elevated dealer inventory, particularly touring inventory in North America. Through interventions on both the supply and demand sides, during the quarter, we reduced wholesale shipments and implemented targeted promotions to accelerate the return to balanced retail inventory levels. These actions are beginning to deliver results. Rider response has been positive, with North American retail sales growth in the quarter accelerating into December, yielding early indications of improving dealer profitability. We plan to continue these interventions with discipline, as we work to optimize retail inventory, positioning the business and our dealer network for more sustainable performance going forward. That said, we're encouraged by the early green shoots we're seeing. Our immediate priorities are both straightforward and deliberate. First, we believe we are stabilizing the business by restoring dealer confidence and aligning wholesale activity with retail demand. Second, we are finalizing a strategy that we believe builds a durable platform that leans into our core and positions Harley-Davidson, Inc. to return to sustainable growth. Early in my tenure, I committed to three immediate priorities: improving dealer profitability, reigniting brand momentum, and reducing costs. These commitments have not changed. Today, I'll walk you through the immediate actions already underway to advance these priorities. These actions are in the following areas: restoring our relationship with dealers, improving inventory management, sharpening our customer focus with the right portfolio, leaning further into the strengths of our branded community, and enhancing financial flexibility. Let me start with our dealer network. Harley-Davidson, Inc.'s dealer network is best in class, distinguished by unmatched enthusiasm, reach, and strength. While the network remains a competitive advantage, dealer health today is uneven, with some dealers facing challenges. Dealer health is not optional. It is a critical foundation for our long-term growth and earnings power. We're resetting the relationship between the motor company and our dealers. That relationship must be built on mutual trust and respect, shared objectives, shared accountability, and shared success. Healthy inventory levels and a healthy dealer network are nonnegotiable. Over the last couple of months, I continued a series of roundtable discussions with our North American and European dealers. Most recently, I spent time at our European markets, including attending the Verona Bike Expo and a Hog Chapter morning meeting. The insights from these engagements were consistent with my US visits: extraordinary passion for the Harley-Davidson, Inc. brand and strong commitment to the business. Importantly, there's broad alignment around the changes required to drive sustainable growth going forward. These include healthier inventory levels, improved product mix, simpler and more effective rider engagement programs, and greater flexibility to reflect local market conditions. Drawing on my experience in franchise-based models, I know that sustained success depends on alignment, transparency, and disciplined execution. We're committed to reestablishing that foundation, beginning with immediate interventions that we expect to improve our dealers' retail performance and financial trajectory while accelerating trust across the network. As we mentioned in Q3, we've begun to act with two quick and meaningful changes to support our dealers. First, we reviewed our fuel facility model guidelines, adjusting the scope to better balance global brand identity with celebrating local communities. Second, we made a commitment to reevaluate e-commerce. The company's e-commerce strategy has not historically delivered the intended results. It has created customer confusion and driven excessive discounting, placing unnecessary pressure on dealer economics. We've taken corrective action in North America by shifting to a model that is intended to drive incremental dealership traffic to support motorcycle sales. In the near term, our focus is clear: support our dealers, drive traffic to dealerships, and execute against our core business of selling motorcycles. While retail sales are still meaningfully below what we would consider a healthy run rate, the early progress is encouraging. We believe these actions are improving predictability and positioning the business for more consistent execution. Turning to inventory, on our Q3 earnings call, I was clear that inventory discipline and adapting to the realities of the current retail environment would be central to our focus. As we've dug deeper than initially anticipated, it's become evident that the challenges are more significant, and we're addressing them head-on. We are aggressively addressing inventory through targeted promotional support for touring models and disciplined quarterly planning by model, region, and dealership. We believe this approach allows us to align inventory with sales trajectories, account for regional needs, and proactively manage production and shipments, accounting for seasonality. The touring overhang remains pronounced and is being actively worked down through disciplined interventions designed to move the product efficiently without undermining long-term brand value. In North America, dealer inventory declined 16% relative to year-end 2024 levels. Globally, dealer inventory was down 17% over the same period, meaningfully exceeding our 10% global reduction target. This represents solid progress against our priorities, and I'm pleased with the team's execution and delivery. Overall, retail performance through the quarter was broadly in line with internal expectations. North American retail was up year over year, while international retail, particularly in EMEA, was softer than we expected. We expect the actions we are taking to assist dealers in moving through inventory to restore dealer health to have a near-term impact on our financial results. With that in mind, we view 2026 as a transition year as we reset the business and finalize our new strategy. I see a path to return to long-term earnings and free cash flow power of the business to the levels we know are possible. I can tell you we expect margins to be under pressure in the near term as production runs below wholesale, creating operating deleverage. These are deliberate actions that we believe are necessary to support both dealer and company profitability and ultimately rebuild the long-term earnings power of the business. As I've discussed, we are in the early stages of a reset. We've made decisive changes, and the work underway across the organization is designed to rebuild momentum in the right way and for the long term. Turning to the brand and our customer, our leadership team is reorienting the organization around a clear priority: our dealers are customer number one. When we enable our dealers to sell, customize, and service the motorcycles our riders want, everyone wins. I continue to spend significant time with dealers and riders, including attending a Hog Chapter gathering in Milan as part of my visit to Europe. The pride those members took in showing me their Harley-Davidson, Inc. motorcycles was contagious. It's clear our riders view their Harley as their individual motorcycle. Individual expression matters, and customization is central to that experience. We have been too lax on our parts and accessories business in recent years, and that will change. This is what our riders want. It's a critical business for our dealers. It creates more opportunities for our world-class service technicians. And it is core to what Harley-Davidson, Inc. has always stood for. Going forward, our focus in this area will have two parts: designing and building motorcycles that invite Harley-Davidson, Inc. customization, and ensuring our supply chain can support that demand quickly and reliably. Brand storytelling has always been essential to what makes Harley-Davidson, Inc. Harley-Davidson, Inc. At its core, our brand celebrates riders and the communities they create. In recent years, our work has been too serious and at times too dark. That's not who our riders are. When they ride and gather, our riders are joyful, passionate, and community creators. I saw this firsthand at an 80th Anniversary Celebration for a dealership outside Paris, France just a few weeks ago. Riders shared stories of journeys they'd taken together, including one who proudly told me he had ridden all the way to our factory in York, Pennsylvania, and was wearing his York PA Harley-Davidson, Inc. gear while standing in Paris. You'll soon see more optimistic, joyful brand work from us. Advertising that celebrates our community in a uniquely Harley-Davidson, Inc. way. Turning to product, to better align aspiration with accessibility, we are actioning more breadth and flexibility in our portfolio. That means being honest about where pricing and portfolio choices have limited our reach and making deliberate choices to widen the funnel in our core. My own interactions with dealers and riders over the past four months, in addition to customer research and recent retail trends, validate what our riders want: the look, sound, and feel of a Harley-Davidson, Inc. motorcycle coupled with the ability to customize their Harley to make it their own. The used market continues to reinforce the power of the brand and a strong desire for customers to purchase our products, but at a price that is more aligned with today's economic realities. In fact, as we look at used auction activity, we feel enthused about recent demand trends and the positive impact they're having on used values, especially in Harley-Davidson, Inc. core Softail models. What's clear is that the portfolio actions taken over recent years have put the brand out of reach for some existing and potential riders. To win, it's clear we need to sharpen our product focus, not only creating the highest quality motorcycles that our riders want to ride, but doing so with a price in mind. We need to ensure that these are products that our dealers are excited about and able to sell at a profit level that works for them and for us. Onto the team and our org structure. Execution requires the right team and structure. We've made targeted leadership team and organizational changes to strengthen our capabilities across product, supply chain, marketing, technology, and brand. We've added back new perspectives and welcomed back proven leaders with deep knowledge of Harley-Davidson, Inc.'s rider culture and community. Importantly, Harley-Davidson, Inc. should be a great place to work as well as a great business. Strong corporate culture isn't just good for employee morale. It's good for business. Rebuilding our culture and identity as a Milwaukee icon truly matters. My direct reports are all working from Milwaukee at our Juneau Avenue headquarters, and we will be formally reopening the office later this quarter. By going back to the bricks at our Juneau Avenue headquarters, we are not only reigniting the cultural beat that has defined this company for over a hundred and twenty years, but with these changes, are improving decision-making speed, cross-functional collaboration, and, critically, accountability. I'm particularly pleased with how much more agile, nimble, and speedy our leadership team is becoming working shoulder to shoulder in Milwaukee. It's an inspiring place to work. I'm excited to get our teams back to Juneau in the coming months. Lastly, I'll touch on the financial actions we are taking to reposition the business for success. We are conducting a rigorous end-to-end review of our cost base and operating expenses supported by third-party specialists. Our current corporate overhead, manufacturing capacity, and overall operating expenses are built for materially higher volumes than today's demand. And we will be addressing this mismatch head-on. We'll share more details in May. However, on top of previously announced targets, we anticipate at least $150 million of annual run rate savings that will impact 2027 and beyond. In Q4 2025, we renegotiated and funded the term loan with LiveWire, reducing the principal to $75 million. LiveWire is now working diligently to attract its own sources of capital to continue to finance its operations and future plans. We remain excited about LiveWire's newest motorcycle, the Honcho, soon to be in market later this year. Well aligned with the evolution of the EV motorcycle category toward smaller mini motors. Turning to HDFS, the recent transaction has delivered meaningful capital benefits. We now expect to be able to run the HDFS business with less capital than has been tied to this business historically. With these changes, we plan to take HDFS class-leading returns and deliver an even higher ROE than we did historically. And as HDFS' asset base rebuilds over the coming years, we expect to get back to earnings levels that run below historical levels. Going forward, HDFS will operate with significantly lower capital commitments and with funding support from two trusted partners. HDFS continues to be a strategic asset for Harley-Davidson, Inc. and a critical enabler for our dealer network. And we will talk more about HDFS strategically during our Q1 earnings call in May. While a key priority remains returning excess capital to shareholders, we are currently evaluating the timing of our share buyback initiatives. In the near term, we expect to be measured in our approach to share repurchases while we finalize our strategic plan that we expect to announce in May. Before I hand it over to Jonathan, I want to reiterate that Harley-Davidson, Inc. has an iconic brand, a loyal community, a dealer network unlike any other. We're taking the hard necessary steps to stabilize the business and rebuild trust, which we believe will restore our long-term earnings power. The work is underway, execution is improving, and we are committed to delivering results. Thank you. And now I'll hand it over to Jonathan. Jonathan Root: Thank you, Arthur, and good morning to all. I plan to start on page four and five of the presentation where I will briefly summarize the financial results for the fourth quarter and full year of 2025. Subsequently, I will go into further detail on each business segment. As a reminder, we closed what we call the HDFS transaction in Q4 at the October. The HDFS transaction is a strategic partnership with KKR and PIMCO, that we expect will transform Harley-Davidson Financial Services into a capital-light derisked business model. It also changes the financial profile of HDFS starting in '25 and affords a high degree of optionality in how we fund and run that business. As already cited earlier, the financial results in 2025 have come under pressure in the current challenging operating environment. We have moved immediately to make inventory management and discipline a central focus to resetting the business. This is evident in Q4 results and will continue to be a central priority as we move forward. Let me start with consolidated financial results for 2025. Consolidated revenue in the fourth quarter was down 28% driven by both HDMC revenue being down 10% and by HDFS revenue being down 59%. Consolidated operating income in the fourth quarter came in at a loss of $361 million compared to an operating loss of $193 million in 2024. This was driven by an operating loss of $260 million at HDMC and an operating loss of $82 million at HDFS. The loss at HDFS was driven by costs associated with liability management activities related to the HDFS transaction where we retired a significant portion of HDFS debt in Q4 2025. The operating loss at LiveWire was $18 million, which was in line with our expectations and $8 million favorable to a year ago. In Q4, earnings per share was a loss of $2.44, which compares to a loss of $0.93 in 2024. Turning to full year 2025, consolidated financial results on page five. Consolidated revenue of $4.5 billion was 14% lower compared to last year, while consolidated operating income of $387 million compares to $417 million in full year 2024. For the full year 2025, earnings per share were $2.78, and compares to $3.44 in full year 2024. Now turning to page six and HDMC retail performance. As Arthur already mentioned, in Q4, North American retail sales of new motorcycles were up 5% with 15,847 motorcycles versus prior year. In Q4, international retail sales of new motorcycles were down 10%, with 9,440 motorcycles versus prior year, resulting in Q4 global retail sales of new motorcycles being down 1% at 25,287 motorcycles versus the prior year. The choppiness and volatility in global retail results is a continuation of what we have observed since mid-2024 with a difficult global backdrop in big-ticket discretionary sectors. Pricing continues to be on the top of customers' minds given the current global setup that includes inflationary pressures and interest rates that continue to run above recent historical lows. In North America, Q4 retail sales were up 5%, where US retail sales were up 6% and Canada retail sales down 7%. For the full year 2025, North America retail sales were down 13%. In the quarter, we experienced strength in our Grand American touring product, up 6%, driven by the promotional support in the marketplace. We also saw strength in lower-priced sport motorcycle models, up 33%, as the updated pricing and marketing resonated with our dealers and customers. Within Grand American Touring, Trike was down 24% on very tight inventory availability in advance of the January 2026 new Trike launch. In EMEA, Q4 retail sales declined by 24% driven by weakness across the region and different bike families. EMEA continued to be adversely impacted by overall macroeconomic conditions. For the full year 2025, EMEA retail sales were down 11%. In the quarter, we experienced the most weakness in the touring and Softail categories. In Asia Pacific, Q4 retail sales declined by 1%, which was a significant improvement from the 2025 and mostly attributed to a continued challenging environment in China, which was down meaningfully. The Q4 retail sales included positive results in Japan and the Asia Emerging Markets. For the full year 2025, Asia Pacific retail sales were down 15%, and the softness was most acute in China for the full year and Japan for 2025. In the quarter, we saw retail strength across all families except for sport and lightweight motorcycles, which still had a combined inventory down nearly 30%. In Latin America, Q4 retail sales increased by 10% where both Brazil, our largest Latin American market, and Mexico were up, while other Latin American countries were down modestly year over year. For the full year 2025, Latin American retail sales were up 2% where both Brazil and Mexico were up. For the full year 2025, global retail sales of new motorcycles were down 12% versus the prior year where both North America and international markets turned in a similar performance. As already mentioned earlier, dealer inventory at the end of Q4 was down 17% versus the end of Q4 in the prior year. This compares to our stated goal at the beginning of 2025 of reducing dealer inventory by 10%. North America dealer inventory ended down 16% and international dealer inventory ended down 20%, with the regions coming in between down 19% to down 23%. This allows Harley-Davidson, Inc. dealers to start the 2026 riding season much cleaner and with an appropriate setup as we look at the coming quarters. As discussed, we specifically focused on assisting dealers to reduce touring motorcycle inventory in North America as the market displayed its price and value sensitivity. Let me briefly touch on incentive and promotional spend within the current environment. In Q4, we selectively provided incentive and promotional support to Harley-Davidson, Inc. dealers in the form of interest rate assistance, low APR, customer cash, and dealer cash credit. As I covered last quarter and Arthur mentioned earlier, dealers have more touring inventory in the channel than is desired. And while we have made progress in Q4, we still have more work to do. Based upon discussions with our dealers in December 2025, we determined to continue with consumer promotion into 2026 in order to work through these units and, therefore, we have taken accrual in our Q4 2025 financials. Again, we expect this will help us get out of the gate stronger in 2026 to help drive retail performance. Now turning to page seven and HDMC revenue performance. In Q4, HDMC revenue decreased by 10% coming in at $379 million, where the biggest drivers of the decline included net pricing and incentive spend and decreased wholesale volume. For the full year 2025, HDMC revenue decreased by 13% coming in at $3.6 billion, where the biggest driver of the decline was decreased wholesale volumes where we shipped around 125,000 motorcycles, down 16% from the prior year while net pricing was largely flat on the year. Now turning to page eight and HDMC margin performance. In Q4, HDMC gross profit came in at a loss of $30 million, which compares to a loss of $3 million in the prior year. Q4 is typically our lowest gross margin quarter due to seasonality and model year changeover. The year-over-year decrease was driven by the negative impacts from increased tariff costs and net pricing and incentive spend, while partially offset by the positive impacts from manufacturing costs, including leverage, and favorable foreign exchange. In Q4, operating expenses totaled $230 million, which was $19 million higher compared to the prior year or 9%, due to greater marketing spend with the introduction of the North America-focused marketing development fund for our dealers. In Q4, HDMC had an operating loss of $260 million, which compares to an operating loss of $214 million in the prior year period. Turning our attention to full year 2025 margins. For the full year 2025, HDMC gross margin was 24.2%, which compares to 28% in the prior year. A decrease of 380 basis points was driven by the negative impacts from incremental tariffs in calendar year 2025, which we will cover on the next slide, negative operating leverage, and lower volumes. These impacts were partially offset by the positive performance from lower supply management and logistics costs, favorable mix, foreign exchange, and net pricing was largely flat for the full year. Lastly, for the full year of 2025, operating expenses came in at $895 million, which were higher by $18 million due primarily to the marketing development fund mentioned previously. For the full year 2025, HDMC operating income was a loss of $29 million, which compares to operating income of $278 million for the full year 2024. Turning to Slide 12. In 2025, the global tariff environment was more volatile and uncertain than we had expected at the beginning of the year. In 2025, the cost of new or increased tariffs was $22 million, and for the full year of 2025, the cost of new or increased tariffs was $67 million. This included direct tariff exposure, Harley-Davidson, Inc. importing and exporting product, as well as indirect tariff exposure from suppliers. This excluded pricing mitigation actions as well as operational costs relating to new or increased tariffs. Harley-Davidson, Inc. is a business very centered in and around the United States. Three of our four manufacturing centers are US-based, and 100% of our US core products is manufactured in the US. We also have a US-centric approach to sourcing, with approximately 75% of component purchasing coming from the US. We have a number of actions underway to mitigate the impact, and we expect this situation will remain fluid given the uncertainty that still exists. As mentioned earlier, we closed the HDFS transaction in Q4 at the October. Just to restate or recap what we talked about in greater detail on the last earnings call, the HDFS transaction includes three key components: back book sale, sale of approximately $6 billion of existing HDFS loan receivables, forward flow agreements, the sale of future HDFS loan originations, and the sale of equity interest, sale of a 9.8% common equity interest in HDFS to KKR and PIMCO. In the fourth quarter, we retired a significant portion of HDFS debt, which resulted in some discrete costs. These discrete liability management costs were $73 million in Q4. While the full year results were record high earnings for HDFS, '5 resulted in an operating loss of $82 million for HDFS. Let me provide some greater detail. At Harley-Davidson Financial Services, Q4 revenue came in at $106 million versus $257 million in the prior year. The Q4 decrease was driven by lower retail and wholesale finance receivables at lower yields. The decline in retail receivables was due to the sale of the retail back book in the HDFS transaction. Interest income decreased in Q4 from $224 million in '24 to $46 million in '5, while other income increased to $60 million due to new servicing fee streams. On the expense side, Q4 interest expense increased $130 million from $95 million a year ago. This line item included the $73 million of discrete liability management costs to retire HDFS indebtedness. The provision for credit losses decreased to $7 million in Q4 from $72 million a year ago on lower retail finance receivables. Last, operating expenses came in at $51 million in Q4 versus $43 million a year ago, primarily driven by increased hedging costs and employee costs. In Q4, HDFS operating income came in at a loss of $82 million. For the full year 2025, HDFS revenue was $809 million, down 16% from the prior year primarily due to lower retail receivables and lower wholesale receivables due to the transaction. For the full year 2025, interest income decreased from $891 million to $668 million. For the full year 2025, other income increased $148 million to $201 million in the prior year, primarily driven by a discrete gain on the sale of residual interest in securitizations, a component of the HDFS transaction, and by servicing fee income. For the full year 2025, HDFS operating income was $490 million, record high earnings for HDFS, up from $248 million in full year 2024. The increase was primarily driven by favorable provision for credit loss expense due to the HDFS transaction impact and higher other income, partially offset by lower net interest income and higher operating expenses. With the sale of $6 billion of retail finance receivables, the provision for credit loss line item became favorable rather than a cost, reflecting the release of CECL allowance associated with the sold loans. Turning to HDFS loan origination activities. Total retail loan originations in Q4 were up 2%, coming in at $487 million in Q4. Commercial receivables came in at $949 million at the end of the year, relative to the prior year level of $1 billion, down 6%, reflecting overall lower dealer inventory levels in the channel. Total gross financing receivables were $2 billion at the end of 2025, where retail receivables were $1 billion and commercial receivables were $949 million. This is a significant change relative to a year ago, resulting from the sale of around $6 billion of HDFS retail loan receivables as part of the HDFS transaction. For comparison purposes, gross financing receivables were $7.7 billion at the end of 2024, which includes both retail loans and commercial financing. Total HDFS loan assets fell 74% year over year as we shift to a capital-light business model that carried less risk. Now turning to slide 13. For the LiveWire segment, on a full-year basis, electric motorcycle units increased by 7% and Stasic units increased by 15%, while consolidated revenue decreased by 3% due to increased incentives associated with the Twist and Go promotion. LiveWire maintained its position as number one retailer in the US 50-plus horsepower on-road EV segment and had its second consecutive record-setting quarter for retail sales. Consolidated operating loss decreased by 32%, driving a 45% decrease in net cash used during the year, excluding the $75 million of proceeds from the term loan with HD. During 2025, LiveWire consolidated revenue increased by 9%, driven by a 61% increase in electric motorcycle units and a 7% increase in Stasic units. Consolidated operating loss decreased by 30%. For 2026, LiveWire's focus is on the launch of its S4 Honcho products, with production targeted to begin in 2026, continued network expansion, cost savings and improvement, and product innovation and development focused on profitable products. Now turning to slide 14. Wrapping up with consolidated Harley-Davidson, Inc. financial results. We delivered $569 million of operating cash flow in full year 2025, which was down from $1.064 billion in full year 2024. The decrease in operating cash flow was driven by lower motorcycle shipment volumes and unfavorable manufacturing and tariff costs, as well as originations of retail finance receivables classified as held for sale, which are classified as operating cash outflows. There were no originations of retail finance receivables held for sale in 2024, so the net outflows related to this activity contributed to the decrease in operating cash flows. Total cash and cash equivalents ended at $3.1 billion, which was $1.5 billion higher than a year ago. The HDFS transaction facilitated a dividend of $1 billion from HDFS to HDI in Q4, which together with a further dividend expected to be paid in Q1 results in a total dividend that will be consistent with our original expectation. In addition, HDFS debt will be further reduced by the maturity of a €700 million medium-term note in Q2. As part of our capital allocation strategy, in Q4, we entered into an accelerated share repurchase agreement with Goldman Sachs to repurchase $200 million of shares of the company's common stock. We entered into the $200 million ASR, $160 million was delivered before 12/31, with the remainder early 2026. For the full year 2025, we repurchased a total value of $347 million or 13.1 million shares in total, which represents around 11% of 12/31/2024 shares outstanding. This amount includes the aforementioned ASR agreement. Now turning to slide 16. While 2025 was a more volatile and challenging year than we had anticipated, we look to 2026 where we start the year at more appropriate dealer inventory levels and look to reset the business toward a more stable operating and financial future. As we look to our financial outlook for 2026, we remain pleased with our leading market share position in the US, new model year '26 motorcycle launch, including the all-new redesigned trike models, as well as the long-haul touring and the introduction of a more affordable lineup of motorcycles with a focus on critical price point motorcycles to help stoke demand. At HDMC, we expect retail units of 130,000 to 135,000. We expect wholesale units of 130,000 to 135,000. As you can see, we believe that global dealer inventory levels are at appropriate total levels with some need to balance by model and family. Therefore, we expect retail and wholesale to have a largely one-to-one relationship in 2026. At the same time, we expect production units at HDFC to be lower than wholesale units shipped in 2026 as we work to prudently manage overall company inventory levels. For 2026, we expect this will have a deleverage impact, which will pressure operating leverage when it comes to operating margins. In addition, we expect to face a greater overall cost for incremental tariffs in 2026, which are likely to be applied more uniformly over the entire calendar year, whereas 2025 experienced partial application during the year and was backloaded. As a reminder, in full year 2025, we incurred a cost of $67 million in new or increased tariffs. And in 2026, we forecast the cost of between $75 million to $105 million of new or increased tariffs based on current tariff levels and versus the 2024 baseline. At HDMC, we expect operating income of positive $10 million to a loss of $40 million. At HDFS, we expect operating income of $45 million to $60 million. The forecast is based on the new business model at HDFS given the HDFS transaction where Harley-Davidson Financial Services now employs a capital-light derisked business model and has significantly changed financial earnings profile relative to before the transaction was done, particularly in the near term. Additionally, both retail and wholesale asset levels are lower than we previously believed, and non-servicing fee income is also being viewed more cautiously. At LiveWire, LiveWire is forecasting an operating loss in the range of $70 million to $80 million. These guidance elements exclude impacts from our updated strategic plan, which we are looking forward to announcing in May along with Q1 earnings. And with that, we'll open it up to Q&A. Operator: Star one on your telephone keypad. Withdraw your question, press star one again. We also ask you to limit yourself to one question and return to the queue for additional questions. Thank you. Your first question comes from Craig Kennison with Baird. Craig Kennison: Hey, good morning. Thank you for taking my question on HDFS. Just, you know, based on the message that came out of the HDFS transaction last year, I think the expectation was that HDFS operating income could be maybe half of what it used to be, so at least $100 million. Granted, that was just an expectation that came out of the presentation materials, but you're looking to be about half of that. Maybe help us unpack what's going on with the math behind HDFS and what the long-term profitability of that business should look like? Jonathan Root: Alright. Craig. How are you doing? Thank you for your question today. So obviously, from an HDFS standpoint, as we take a look at what we're guiding to, as you say, for 2026, we have a guide for the HDFS business to come in between $45 and $60 million. As we flow forward and look to kind of a standard run rate for this business, which will probably take us, you know, two and a half, three years to get to that point, we would view kind of at the midpoint that HDFS would be, on a standardized basis, making approximately triple the midpoint. So that's where we think the business goes long term. As we think about some of the short-term related impacts and where is there a difference versus what we envision? We obviously have a cautious outlook relative to what we're looking at from the overall volume standpoint. And so we're being careful and considered there. And then in addition, with what you saw with our Q4 year-end results, with dealer inventory down significantly and more than what we envisioned, obviously, we have lower wholesale assets too, so that pressures earnings power of that. Hopefully, that explains what you're looking for and provides the perspective. Craig Kennison: Do you need more retail and more wholesale stock units in order to triple that income, or are there other adjustments? Jonathan Root: Yeah. No. Just time for those time for the retail assets to kind of flow their way in. So, obviously, we need multiple years of building, kind of rebuilding the balance sheet in order to drive what we need for an income statement standpoint in that business. And then as we talk wholesale, wholesale levels are lower than what we envisioned. Arthur's focus on how we really maintain tight and disciplined inventory with our dealers. Craig Kennison: That makes sense. Thank you. Operator: Your next question comes from Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: Hi. Thanks for taking my question. I guess just on kind of the wholesale guidance, you know, you kind of talked about a one-for-one dynamic. Obviously, the implication is, you know, shipment growth in '26. So I guess in terms of cadence, how should we think about that building through the year? And then on inventory levels, like, I guess, is the implication that you're kind of more comfortable now with where you're sitting at the end of the year? Thanks. Jonathan Root: Sure. So why don't I start a little bit with cadence, and then maybe we'll have Arthur talk through total inventory levels and provide a little bit of commentary around that. So from a cadence standpoint, as we think about wholesale shipments and the way that will look on a year-over-year basis, again, we're being what I would define as, you know, careful and considered in what we're sending into the dealer network. So Q1 of 2026 will probably be down from a wholesale shipment perspective, down a little bit versus where we were in Q1 of the prior year. We think that we'll end up kind of popping up a little bit higher in early Q2, so making sure that we have dealers who are well-positioned for when the season is starting. So we're not asking them to carry that inventory in the January recovery time frame. But we do want them to be appropriately positioned from an inventory standpoint. So Q2 wholesale shipments will be a little bit higher than the prior year. Then as we take a look at how we walk into Q3, Q3, again, probably just a little bit lower as we work through some timing elements within the portfolio and some things that occur from that standpoint. And then as we end up, obviously, we were pretty measured in what we shipped into the ending Q4 dealer network in '25. So there's room for a pretty material change in what we're sending in in 2026. So, certainly, if you kind of take all of those different factors, a little bit more back-loaded from a shipment cadence in the second half of the year versus the first half. And even with that, sort of a little bit more towards Q4. Yeah. And then, Arthur, you can talk. Arthur Starrs: Yeah. No. Just broadly on inventory, you know, the focus is on supporting our dealers and selling through the touring inventory. We remain pleased with the progress there. There's still support there, and we'll continue to be. And we're also pleased with the '26 model year launch. A lot of enthusiasm in the market. So, you know, we'll be monitoring that closely. But you know? And in my script and in these comments, just want to be abundantly clear we're hyperfocused on healthy inventory levels, and the focus is on the model year '25 touring right now. Operator: Your next question comes from Robin Farley with UBS. Robin Farley: Great. Thank you. I wanted to ask a little bit about the expectation for retail to be flat globally. Just wondering what that counts on for U.S. retail. And then also just kind of, you know, what's behind the expectation of flat, you know, just how you're thinking that how you're coming to that expectation. Then if I could just also, by the way, just squeeze in a quick clarifying point on LiveWire. I think previously, the expectation had been that you were limiting the kind of losses you would underwrite, and is it fair to say based on the guidance you're giving for '26 that you are willing to continue to invest or see LiveWire maybe lose more than, you kind of the commentary last year? Thank you. Arthur Starrs: Hey, Robin. It's Arthur. Thank you for the question. I'll take the LiveWire one, and then Jonathan will walk through the retail forecast. Yeah. On LiveWire, we, you know, we extended the $75 million loan, which is originally $100 million. So we worked through that with them, and they're actioning, you know, other sources of capital at this point in time. Funding the operating losses or so on, we've extended our commitment on the loan, and that's it. So, Jonathan, you can walk through the retail piece. Jonathan Root: Okay. Sounds good. Thanks, Arthur. Hi, Robin. So on the, I think you asked about US specifically from a retail standpoint. So as we flow through and take a look at it, we're obviously really, really excited about what's happening with the introduction of the new limited. So as we take a look at where we are from an overall retail sales perspective, we do envision that we have a little bit of upside in terms of '26 versus '25 from a touring standpoint for a couple of reasons. You heard Arthur talk about our focus on '25 model year sell-down and how that was focused around touring. So at retail, that actually really helps us in terms of moving through the '25 touring bikes and what we have. Stacked on top of that is the new limited, and the new limited has been a hit, and we're really excited about those and the initial reception to that. So a lot of enthusiasm from our dealer network around sold orders and what they're seeing on that front. As we move along the retail side, we also have the introduction of the new trikes. Again, as we look at dealer enthusiasm, customer feedback around what those look like, we're really proud of what our engineering team has done from a suspension perspective. So if you think through handling and the way that that motorcycle performs, some real positives, I think, in terms of how customers will feel and enjoy that motorcycle. So a little bit of enthusiasm in terms of where we sit from a trike perspective. And then just a couple more pieces that I'll touch on quickly. As we take a look, we are being careful and considered in what CVO retail and CVO wholesale shipment looks like. We do want to make sure that those bikes really are put up on a pedestal and we're being thoughtful about what we're shipping in, which obviously will challenge retail a little bit within that particular family. And then overall, we have the full year of Softails. So really, really excited that we have dealers who are well-positioned. We kind of moved some price points in a way that are pretty customer-friendly. And so, overall, feeling good about where that is. So those are many of the puts and takes for 2020. Operator: Great. Your next question comes from Tristan Thomas with BMO Capital Markets. Tristan Thomas: Hey, good morning. Can you give the $150 million of annual run rate savings in 2027 and beyond that you guys called out? Is that spread among all three segments? And then also, is there any way to anything you can provide us kind of with cadence of that next year specifically would be very helpful as we build out our models? Thanks. Arthur Starrs: Yeah. Hey, Tristan. I'll take that. The $150 million would not incorporate anything at LiveWire. That would just be the motor company and HDFS. And in terms of cadence, you know, we would expect to realize some of those savings, you know, beginning in the back half of this year. We've not incorporated any restructuring charge in the guidance. So that would, you know, complement that. But we've been clear in saying we expect those savings to be realized on an annual basis starting in 2027. Tristan Thomas: Great. Thank you. Operator: Your next question comes from James Hardiman with Citi. James Hardiman: So, any help you could give us sort of bridging what I think is about 4% to 8% wholesale growth if I sort of use the wholesale guide to where you ultimately land in terms of operating income still being, you know, a modest loss on the HDMC side. Obviously, there's some tariffs in there. Sounds like there's some deleverage as we think about sort production versus wholesale. And then I guess I'm also curious on the ASP side or the mix side. I think what I'm hearing is that even though inventories for the year will be flat, touring will be down. So you're gonna be undershipping touring. Just curious what impact that might have on ASP and or mix. Jonathan Root: Thanks. Okay. Yeah. Great question. Thank you, James. Hope you're doing well. As we take a look at where we are, we certainly have a number of factors that come into play as we look at motor company operating income in '26 versus '25. So you're right. If you kind of look at where we land from a midpoint perspective, really, really close to flat. We have a number of factors that come into play. So we have a full year of tariff exposure. So that adds about a $25 million headwind year over year. Again, going back to the tariff update page that we included within the deck, you can see some of the details there. Obviously, as we complete our final year of getting disciplined back into the operating environment in terms of balancing out wholesale and production, that poses a little bit of a deleverage challenge. And then we certainly have some associated supply chain impacts that we're contemplating. As you talked about, we do have a broadly one-to-one relationship between retail and wholesale, which does have an offsetting positive. And then as we look, there's some non-motorcycle implications around P&A and A&L. So all in, as we look at where we are, if you do a midpoint comparison, just effectively sitting right on top and, obviously, an improved setup for out-year performance as we work through our final issues in '20. James Hardiman: Got it. Operator: Your next question comes from Brandon Rollé with Loop Capital. Brandon Rollé: Good morning. Thank you for taking my question. I just had a question around the used versus new pricing spread. How do you feel about where that spread is right now? And obviously, with all this promotional activity, do you see that spread tightening as you kind of pull away the promotional activity, or is this something that the spread gonna keep expanding as maybe prices go higher? And it seems like people are digging in lower and lower, you know, into the used value. So for a deal. Just any comments there on the spread? Thank you. Jonathan Root: Okay. Thanks, Brandon. I'll start with a couple of numbers, and then maybe Arthur can provide some perspective in addition. So I think from a couple of different factors that you speak about. So as we think about where we're sitting today from a Q1 standpoint, we were forthcoming in terms of the charge that we took in '25 in order to make sure that we were positioned to clear through touring in the way that Arthur has talked about. So relative to the factor on the new side, as we think about affordability, monthly payments, and impacts for consumers, we recognize that we're doing, we're putting some programs in market at the moment that are helping drive a reduction in the gap between new and used motorcycles. So we have some stimulus that we think is helping drive a really nice value equation for our customers. I think what's really exciting is that in addition to that, as we take a look at what we're seeing on used values, we have seen sort of stabilization of some nice improvement in used values and what we're seeing come through at both auction and retail on the used side. So I think that that dynamic is also helping us from an overall consumer standpoint. So a couple of nice factors that bring that together. Arthur Starrs: And I think one of the insights we're seeing is that some of the parts of our portfolio that we've walked away from in recent years, the used values have jumped. So it's informing some of our product development work. So it's encouraging to see core equities that we've been known for a long time really responding quite well in the used market. And it's informing some of the innovation that you're gonna be seeing from us. Brandon Rollé: Great. Thank you. Operator: Your next question comes from Jaime Katz with Morningstar. Jaime, your line is open. Jaime Katz: Hi. Sorry. I'm hoping that you guys can talk about maybe what you envision as the potential for the motor company operating margin beyond '26. Like, do we go back to a high single-digit rate? Do you guys see more opportunity to expand margin, if maybe we can get some volume improvement to take hold and just sort of what you see as the potential for that segment over time? Arthur Starrs: Yeah. Jaime, that's a great question and something we're gonna clearly call out in our May, you know, investor meeting and strategy discussion and earnings. So if you, you know, tune in then, I'll give you more detail. Obviously, we don't think the current results reflect the full potential of the company. So a lot of upside and look forward to updating you in May. Jaime Katz: Okay. And then do you have a target for leverage metrics at the 2026 given that you're still paying down some debt? Jonathan Root: Yeah. I think, you know, everything from an overall capital perspective, as Arthur talked about in our Q1 earnings call that we do in May, we'll make sure that we walk through strategy, overall capital allocation, our approach to the way that we're running the business on leverage for HDMC as well as HDFS, and then what we look at on a go-forward basis. We will be sure that we cover all of that then. Jaime Katz: Yes. So no target yet. But you. Arthur Starrs: No target. The one thing I'd just remind is the €700 million note that we're gonna be, you know, paying off. That's the one thing that we've called out. Jonathan Root: Thank you. Operator: There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. And welcome to the Harley Davidson 2025 Fourth Quarter Investor and Analyst Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Shawn Collins. Thank you. Please go ahead. Shawn Collins: Thank you. Good morning. This is Shawn Collins, the Director of Investor Relations at Harley Davidson. You can access the slides supporting today's call on the Internet at the Harley Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley Davidson, Chief Executive Officer, Arty Scars, and Chief Financial and Commercial Officer, Jonathan Root. With that, let me turn it over to Harley Davidson CEO, Arty Stars. Arty Scars: Good morning, everyone, and thank you for joining us today for our Q4 and full year 2025 results. Before we get into it, I'd like to thank our Harley Davidson employees, the HD dealer network, and our riders that are listening in this morning. Thank you for all you do every day for the company, living and leading our brand and culture. This marks my first full quarter as CEO. I've spent this time focused on understanding the core of our business, our people, our dealers, our riders, and the realities of the marketplace. Through extensive time on the ground, I've confirmed many of the early observations I shared last quarter. I'm confident there's a clear path to put Harley Davidson back on the right trajectory. I now have a sharper view of what it will take to reset the business and get to a more stable operating and financial future in '26 and beyond. This morning, we will provide more detail on the themes you heard from us on our last call, as we work towards our expected strategic plan announcement in May. Turning to our fourth quarter results, which we do not believe reflect the full potential of this company. 2025 was a challenging year. And while some of the pressures we are facing are macro-driven, others are firmly within our control. And we are moving with urgency, focus, and discipline to address them. Wholesale shipments and associated margins were negatively impacted by intentional actions to address elevated dealer inventory, particularly touring inventory in North America, through interventions on both the supply and demand sides. During the quarter, we reduced wholesale shipments and implemented targeted promotion to accelerate the return to balanced retail inventory levels. These actions are beginning to deliver results. Rider response has been positive, with North American retail sales growth in the quarter accelerating into December, yielding early indications of improving dealer profitability. We plan to continue these interventions with discipline, as we work to optimize retail inventory positioning the business and our dealer network for more sustainable performance going forward. That said, we're encouraged by the early green shoots we're seeing. Our immediate priorities are both straightforward and deliberate. First, we believe we are stabilizing the business by restoring dealer confidence and aligning wholesale activity with retail demand. Second, we are finalizing a strategy that we believe builds a durable platform that leans into our core and positions Harley Davidson to return to sustainable growth. Early in my tenure, I committed to three immediate priorities: improving dealer profitability, reigniting brand momentum, and reducing costs. These commitments have not changed. Today, I'll walk you through the immediate actions already underway to advance these priorities. These actions are in the following areas: restoring our relationship with dealers, improving inventory management, sharpening our customer focus with the right portfolio, leaning further into the strengths of our branded community, and enhancing financial flexibility. Let me start with our dealer network. Harley Davidson's dealer network is best in class, distinguished by unmatched enthusiasm, reach, and strength. While the network remains a competitive advantage, dealer health today is uneven, with some dealers facing challenges. Dealer health is not optional. It is a critical foundation for our long-term growth and earnings power. We're resetting the relationship between the motor company and our dealers. That relationship must be built on mutual trust and respect, shared objectives, shared accountability, and shared success. Healthy inventory levels and a healthy dealer network are nonnegotiable. Over the last couple of months, I continued a series of roundtable discussions with our North American and European dealers. Most recently, I spent time in our European markets, including attending the Verona Bike Expo and a Hog Chapter morning meeting. The insights from these engagements were consistent with my US visits: extraordinary passion for the Harley Davidson brand and strong commitment to the business. Importantly, there is broad alignment around the changes required to drive sustainable growth going forward. These include healthier inventory levels, improved product mix, simpler and more effective rider engagement programs, and greater flexibility to reflect local market conditions. Drawing on my experience in franchise-based models, I know that sustained success depends on alignment, transparency, and disciplined execution. We're committed to reestablishing that foundation, beginning with immediate interventions that we expect to improve our dealers' retail performance and financial trajectory while accelerating trust across the network. As we mentioned in Q3, we've begun to act with two quick and meaningful changes to support our dealers. First, we reviewed our fuel facility model guidelines, adjusting the scope to better balance global brand identity with celebrating local communities. Second, we made a commitment to reevaluate e-commerce. The company's e-commerce strategy has not historically delivered the intended results. It has created customer confusion and driven excessive discounting, placing unnecessary pressure on dealer economics. We've taken corrective action in North America by shifting to a model that is intended to drive incremental dealership traffic to support motorcycle sales. In the near term, our focus is clear: support our dealers, drive traffic to dealerships, and execute against our core business, selling motorcycles. While retail sales are still meaningfully below what we would consider a healthy run rate, the early progress is encouraging. We believe these actions are improving predictability and positioning the business for more consistent execution. Turning to inventory. On our Q3 earnings call, I was clear that inventory discipline and adapting to the realities of the current retail environment would be central to our focus. As we've dug deeper, it's become evident that the challenges are more significant than initially anticipated. And we're addressing them head-on. We are aggressively addressing inventory through targeted promotional support for touring models and disciplined quarterly planning by model, region, and dealership. We believe this approach allows us to align inventory with sales trajectories, account for regional needs, and proactively manage production and shipments, accounting for seasonality. The touring overhang remains pronounced, is being actively worked down through disciplined interventions designed to move the product efficiently without undermining long-term brand value. In North America, dealer inventory declined 16% relative to year-end 2024 levels. Globally, dealer inventory was down 17% over the same period, meaningfully exceeding our 10% global reduction target. This represents solid progress against our priorities, and I'm pleased with the team's execution and delivery. Overall, retail performance through the quarter was broadly in line with internal expectations. North American retail was up year over year, while international retail, particularly in EMEA, was softer than we expected. Expect the actions we are taking to assist dealers in moving through inventory to restore dealer health to have a near-term impact on our financial results. With that in mind, view 2026 as a transition year as we reset the business and finalize our new strategy. I see a path to return to long-term earnings in free cash flow power of the business to the levels we know are possible. I can tell you we expect margins to be under pressure in the near term as production runs below wholesale, creating operating deleverage. These are deliberate actions that we believe are necessary to support both dealer and company profitability and ultimately rebuild the long-term earnings power of the business. As I've discussed, we are in the early stages of a reset. We've made decisive changes in the work underway across the organization is designed to rebuild momentum in the right way for the long term. Turning to the brand and our customer. Our leadership team is reorienting the organization around a clear priority. Our dealers are customer number one. When we enable our dealers to sell, customize, and service the motorcycles our riders want, everyone wins. I continue to spend significant time with dealers and riders, including attending a hog chapter gathering in Milan as part of my visit to Europe. The pride those members took in showing me their Harley Davidson motorcycles was contagious. It's clear our riders view their Harley as their individual motorcycle. Individual expression matters, and customization is central to that experience. We have been too lax on our parts and accessories business in recent years, and that will change. This is what our riders want. It's a critical business for our dealers. It creates more opportunities for our world-class service technicians. And it is core to what Harley Davidson has always stood for. Going forward, our focus in this area will have two parts: designing and building motorcycles that invite Harley Davidson customization and ensuring our supply chain can support that demand quickly and reliably. Brand storytelling has always been essential to what makes Harley Davidson Harley Davidson. At its core, our brand celebrates riders and the communities they create. In recent years, our work has been too serious and at times too dark. That's not who our riders are. When they ride and gather, our riders are joyful, passionate, and community creators. I saw this firsthand at an 80th Anniversary Celebration for a dealership outside Paris, France, just a few weeks ago. Riders shared stories of journeys they've taken together, including one who proudly told me he had ridden all the way to our factory in York, Pennsylvania, and was wearing his York PA Harley Davidson gear while standing in Paris. You'll soon see more optimistic, joyful brand work from us. Advertising that celebrates our community in a uniquely Harley Davidson way. Turning to product, to better align aspiration with accessibility, we are actioning more breadth and flexibility in our portfolio. That means being honest about where pricing and portfolio choices have limited our reach and making deliberate choices to widen the funnel in our core. My own interactions with dealers and riders over the past four months, in addition to customer research and recent retail trends, validate what our riders want: the look, sound, and feel of a Harley Davidson motorcycle coupled with the ability to customize their Harley to make it their own. The used market continues to reinforce the power of the brand and a strong desire for customers to purchase our products, but at a price that is more aligned with today's economic realities. In fact, as we look at used auction activity, we feel enthused about recent demand trends and the positive impact they're having on used values, especially in Harley Davidson core Softail models. What's clear is that the portfolio actions taken over recent years have put the brand out of reach for some existing and potential riders. To win, it's clear we need to sharpen our product focus, not only creating the highest quality motorcycles that our riders want to ride, but doing so with a price in mind. Need to ensure that these are products that our dealers are excited about and able to sell at a profit level that works for them and for us. Onto the team and our org structure. Execution requires the right team and structure. We've made targeted leadership team and organizational changes to strengthen our capabilities across product, supply chain, marketing, technology, and brand. We've added back new perspectives and welcomed back proven leaders with deep knowledge of Harley Davidson's rider culture and community. Importantly, Harley Davidson should be a great place to work as well as a great business. Strong corporate culture isn't just good for employee morale. It's good for business. Rebuilding our culture and identity as a Milwaukee icon truly matters. My direct reports are all working from Milwaukee at our Juneau Avenue headquarters, and we will be formally reopening the office later this quarter. By going back to the bricks at our Juneau Avenue headquarters, we are not only reigniting the cultural beat that has defined this company for over a hundred and twenty years, but with these changes, are improving decision-making speed, cross-functional collaboration, and critically, accountability. I'm particularly pleased with how much more agile, nimble, and speedy our leadership team is becoming working shoulder to shoulder in Milwaukee. I'm excited to get our teams back to Juneau in the coming months. It's an inspiring place to work. Lastly, I'll touch on the financial actions we are taking to reposition the business for success. We are conducting a rigorous end-to-end review of our cost base and operating expenses supported by third-party specialists. Our current corporate overhead, manufacturing capacity, and overall operating expenses are built for materially higher volumes than today's demand. And we will be addressing this mismatch head-on. We will share more details in May. However, on top of previously announced targets, we anticipate at least a $150 million of annual run rate savings that will impact 2027 and beyond. In Q4 2025, we renegotiated and funded the term loan with LiveWire, reducing the principal to $75 million. LiveWire is now working diligently to attract its own sources of capital to continue to finance its operations and future plans. We remain excited about LiveWire's newest motorcycle, the Honcho, soon to be in market later this year, well aligned with the evolution of the EV motorcycle category toward smaller mini motors. Turning to HDFS, the recent transaction has delivered meaningful capital benefits. We now expect to be able to run the HDFS business with less capital than has been tied to this business historically. With these changes, we plan to take HDFS class-leading returns and deliver an even higher ROE than we did historically. And as HDFS' asset base rebuilds over the coming years, we expect to get back to earnings levels that run below historical levels. Going forward, HDFS will operate with significantly lower capital commitments and with funding support from two trusted partners. HDFS continues to be a strategic asset for Harley Davidson and a critical enabler for our dealer network. And we will talk more about HDFS strategically during our Q1 earnings call in May. While a key priority remains returning excess capital to shareholders, we are currently evaluating the timing of our share buyback initiatives. In the near term, we expect to be measured in our approach to share repurchases while we finalize our strategic plan that we expect to announce in May. Before I hand it over to Jonathan, I want to reiterate that Harley Davidson has an iconic brand, a loyal community, a dealer network unlike any other. We are taking the hard necessary steps to stabilize the business and rebuild trust, which we believe will restore our long-term earnings power. The work is underway, execution is improving, and we are committed to delivering results. Thank you. And now I'll hand it over to Jonathan. Jonathan Root: Thank you, Arty, and good morning to all. I plan to start on page four and five of the presentation where I will briefly summarize the financial results for the fourth quarter and full year of 2025. Subsequently, I will go into further detail on each business segment. As a reminder, we closed what we call the HDFS transaction in Q4 at the October. The HDFS transaction is a strategic partnership with KKR and TIMCO, that we expect will transform Harley Davidson Financial Services into a capital light derisked business model. It also changes the financial profile of HDFS starting in '25. And affords a high degree of optionality in how we fund and run that business. As already cited earlier, the financial results in 2025 have come under pressure in the current challenging operating environment. We have moved immediately to make inventory management and discipline central focus to resetting the business. This is evident in Q4 results and will continue to be a central priority we move forward. Let me start with consolidated financial results for the 2025. Consolidated revenue in the fourth quarter was down 28% driven by both HDMC revenue being down 10% and by HDFS revenue being down 59%. Consolidated operating income in the fourth quarter came in at a loss of $361 million compared to an operating loss of $193 million in 2024. This was driven by an operating loss of $260 million at HDMC and an operating loss of $82 million at HDFS. The loss at HDFS was driven by cost associated with liability management activities related to the HDFS transaction where we retired a significant portion of HDFS debt in '25. The operating loss at LiveWire was $18 million which was in line with our expectations and $8 million favorable to a year ago. In Q4, earnings per share was a loss of $2.44 which compares to a loss of $0.93 in 2024. Turning to full year 2025. Consolidated financial results on page five. Consolidated revenue of $4.5 billion was 14% lower compared to last year while consolidated operating income of $387 million compares to $417 million in full year 2024. For the full year 2025, earnings per share was $2.78, and compares to $3.44 in full year 2024. Now turning to page six in HTMC retail performance. As Ari already mentioned, in Q4, North American retail sales of new motorcycles were up 5% with 15,847 motorcycles versus prior year. In Q4, international retail sales of new motorcycles were down 10% with 9,440 motorcycles versus prior year, resulting in Q4 global retail sales of new motorcycles being down 1% at 25,287 motorcycles versus the prior year. The choppiness and volatility in global retail results is a continuation of what we have observed since mid-2024 with a difficult global backdrop in big-ticket discretionary sectors. Pricing continues to be on the top of customers' minds given the current global setup that includes inflationary pressures and interest rates that continue to run above recent historical lows. In North America, Q4 retail sales were up 5%, where US retail sales were up 6% and Canada retail sales were down 7%. For the full year 2025, North America retail sales were down 13%. In the quarter, we experienced strength in our Grand American touring product, up 6%, driven by the promotional support in the marketplace. We also saw strength in lower-priced sport motorcycle models up 33% as the updated pricing and marketing resonated with our dealers and customers. Within Grand American Touring, Trike was down 24% on very tight inventory availability in advance of the January 2026 new Trig launch. In EMEA, Q4 retail sales declined by 24% driven by weakness across the region and different bike families. EMEA continued to be adversely impacted by overall macroeconomic conditions. For the full year 2025, EMEA retail sales were down 11%. In the quarter, we experienced the most weakness in the touring and soft sale categories. In Asia Pacific, Q4 retail sales declined by 1% which was a significant improvement from the 2025 and mostly attributed to a continued challenging environment in China which was down meaningfully. The Q4 retail sales included positive results in Japan, and the Asia Emerging Markets. For the full year 2025, Asia Pacific retail sales were down 15% and the softness was most acute in China for the full year and Japan for the 2025. In the quarter, we saw retail strength across all families except for sport and lightweight motorcycles, which still had a combined inventory down nearly 30%. In Latin America, Q4 retail sales increased by 10% where both Brazil, our largest Latin American market, and Mexico were up, while other Latin American countries were down modestly year over year, 2%. For the full year 2025, Latin American retail sales were up where both Brazil and Mexico were up. For the full year 2025, global retail sales of new motorcycles were down 12% versus the prior year, where both North America and international markets turned in a similar performance. As already mentioned earlier, dealer inventory at the end of Q4 was down 17%, versus the end of Q4 in the prior year. This compares to our stated goal at the beginning of 2025 of reducing dealer inventory by 10%. North America dealer inventory ended down 16% and international dealer inventory ended down 20%, with the regions coming in between down 19 to down 23%. This allows Harley Davidson dealers to start the 2026 riding season much cleaner and with an appropriate setup as we look at the coming quarters. As discussed, we specifically focused on assisting dealers to reduce touring motorcycle inventory in North America as the market displayed its price and value sensitivity. Let me briefly touch on incentives and promotional spend within the current environment. In Q4, we selectively provided incentive and promotional support to Harley Davidson dealers in the form of interest rate assistance, low APR, customer cash, and dealer cash credit. As I covered last quarter and already mentioned earlier, dealers have more touring inventory in the channel than is desired. And while we have made progress in Q4, we still have more work to do. Based upon discussions with our dealers in December 2025, we determined to continue with consumer promotion into 2026 in order to work through these units and, therefore, we have taken accrual in our Q4 2025 financials. Again, we expect this will help us get out of the gate stronger in 2026 to help drive retail performance. Now turning to page seven and HDMC revenue performance. In Q4, HDMC revenue decreased by 10% coming in at $379 million where the biggest drivers of the decline included net pricing and incentive spend and decreased wholesale volume. For the full year 2025, HDMC revenue decreased by 13% coming in at $3.6 billion. Where the biggest driver of the decline was decreased wholesale volumes where we shipped around 125,000 motorcycles, down 16% from prior year while net pricing was largely flat on the year. Now turning to page eight in HCMC margin performance. In Q4, HDMC gross profit came in at a loss of $30 million which compares to a loss of $3 million in the prior year. Q4 is typically our lowest gross margin quarter due to seasonality and model year changeover. The year-over-year decrease was driven by the negative impacts from increased tariff costs and net pricing and incentive spend, while partially offset by the positive impacts from manufacturing costs, including leverage, and favorable foreign exchange. In Q4, operating expenses totaled $230 million which was $19 million higher compared to prior year or 9% due to greater marketing spend with the introduction of the North America focused marketing development fund for our dealers. In Q4, HDMC had an operating loss of $260 million, which compares to an operating loss of $214 million in the prior year period. Turning our attention to full year 2025 margins. For the full year 2025, HDMC gross margin was 24.2% which compares to 28% in the prior year. A decrease of three eighty basis points was driven by the negative impacts from incremental tariffs in calendar year 2025 which we will cover on the next slide, negative operating leverage, and lower volumes. These impacts were partially offset by the positive performance from lower supply management and logistics costs. Favorable mix, foreign exchange, and net pricing was largely flat for the full year. Lastly, for the full year of 2025, operating expenses came in at $895 million which were higher by $18 million due primarily to the marketing fund mentioned previously. For the full year, 2025, HTMC operating income was a loss of $29 million, which compares to operating income of $278 million for the full year 2024. Turning to Slide 12. In 2025, the global tariff environment was more volatile and uncertain than we had expected at the beginning of the year. In 2025, the cost of new or increased tariffs was $22 million and for the full year of 2025, the cost of new or increased tariffs was $67 million. This included direct tariff exposure Harley Davidson importing and exporting product, as well as indirect tariff exposure from suppliers. This excluded pricing mitigation actions as well as operational costs relating to new or increased tariffs. Harley Davidson is a business very centered in and around The United States. Three of our four manufacturing centers are US-based and 100% of our US core product is manufactured in The US. We also have a US-centric approach to sourcing. Approximately 75% of component purchasing coming from The US. We have a number of actions underway to mitigate the impact and we expect this situation will remain fluid given the uncertainty that still exists. As mentioned earlier, we closed the HDFS transaction in Q4 at the October. Just to restate or recap what we talked about in greater detail, on the last earnings call, the HDFS transaction includes three key components: back book sale, sale of approximately $6 billion of existing HDFS loan receivables, forward flow agreement, the sale of future HDFS loan originations, and the sale of equity interest. Sale of a 9.8% common equity interest in HDFS to KKR and PIMCO. In the fourth quarter, we retired a significant portion of HDFS debt, which resulted in some discrete costs. These discrete liability management costs were $73 million in Q4. While the full year results were record high earnings for HDFS, '25 resulted in an operating loss of $82 million for HDFS. Let me provide some greater detail. At Harley Davidson Financial Services, Q4 revenue came in at $106 million versus $257 million in the prior year. The Q4 decrease was driven by lower retail and wholesale finance receivables at lower yields. The decline in retail receivables was due to the sale of the retail back book in the HDFS transaction. In Q4, interest income decreased from $224 million in '24 to $46 million in '5 while other income increased to $60 million due to new servicing fee streams. On the expense side, Q4 interest expense increased $130 million from $95 million a year ago. This line item included the $73 million of discrete liability management costs to retire HDFS indebtedness. The provision for credit losses decreased to $7 million in Q4 from $72 million a year ago, on lower retail finance receivables. Last, operating expenses came in at $51 million in Q4 versus $43 million a year ago, primarily driven by increased hedging costs and employee costs. In Q4, HDFS operating income came in at a loss of $82 million. For the full year 2025, HDFS revenue was $869 million, down 16% from prior year primarily due to lower retail receivables and lower wholesale receivables due to the transaction. For the full year 2025, interest income decreased from $891 million to $668 million. For the full year 2025, other income increased from $148 million to $201 million in the prior year, primarily driven by a discrete gain on the sale of residual interest in securitizations, a component of the HDFS transaction, and by servicing fee income. For the full year 2025, HDFS operating income was $490 million, record high earnings for HDFS, up from $248 million in full year 2024. The increase was primarily driven by favorable provision for loss expense due to the HDFS transaction impact and higher other income, partially offset by lower net interest income and higher operating expenses. With the sale of $6 billion of retail finance receivables, the provision for credit loss line item became favorable rather than a cost, reflecting the release of CECL allowance associated with the sold loans. Turning to HDFS loan origination activities. Total retail loan originations in Q4 were up 2%, coming in at $487 million in Q4. Commercial receivables came in at $949 million at the end of the year, relative to the prior year level of $1 billion, down 6%, reflecting overall lower dealer inventory levels in the channel. Total gross financing receivables were $2 billion at the 2025, where retail receivables were $1 billion and commercial receivables were $949 million. This is a significant change relative to a year ago resulting from the sale of around $6 billion of HDFS retail loan receivables as part of the HDFS transaction. For comparison purposes, gross financing receivables were $7.7 billion at the 2024, which includes both retail loans and commercial financing. Total HDFS loan assets fell 74% year over year as we shift to a capital light business model that carried less risk. Now turning to slide 13. For the LiveWire segment. On a full year basis, electric motorcycle units increased by 7% and Stasic units increased by 15%, while consolidated revenue decreased by 3% due to increased incentives associated with the Twist and Go promotion. LiveWire maintained its position as number one retailer in The US plus horsepower on road EV segment and had its second consecutive record-setting quarter for retail sales. Consolidated operating loss decreased by 32%, driving a 45% decrease in net cash used during the year excluding the $75 million of proceeds from the term loan with HD. During 2025, LiveWire consolidated revenue increased by 9%, driven by a 61% increase in electric motorcycle units and a 7% increase in Stasic units. Consolidated operating loss decreased by 30%. For 2026, LiveWire's focus is on the launch of its s four Honcho products, with production targeted to begin in the 2026 continued network expansion, cost savings and improvement, and product innovation and development focused on profitable products. Now turning to slide 14. Wrapping up with consolidated Harley Davidson Inc. Financial results. We delivered $569 million of operating cash flow in full year 2025 which was down from $1.064 billion in full year 2024. The decrease in operating cash flow was driven by lower motorcycle shipment volumes and unfavorable manufacturing and tariff costs, as well as originations of retail finance receivables classified as held for sale which are classified as operating cash outflows. There were no originations of retail finance receivables held for sale in 2024, for the net outflows related to this activity contributed to the decrease in operating cash flows. Total cash and cash equivalents ended at $3.1 billion, which was $1.5 billion higher than a year ago. The HDFS transaction facilitated a dividend of $1 billion from HDFS to HDI in Q4, which together with a further dividend expected to be paid in Q1 results in a total dividend that will be consistent with our original expectation. In addition, HDFS debt will be further reduced by the maturity of a euro $700 million medium-term note as part of our capital allocation strategy in Q2. In Q4, we entered into an accelerated share repurchase agreement with Goldman Sachs to repurchase $200 million of shares of the company's common stock. We entered into the $200 million ASR $160 million was delivered before 12/31 with the remainder early 2026. For the full year 2025, we repurchased the total value of $347 million or 13.1 million shares in total which represents around 11% of 12/31/2024 shares outstanding. This amount includes the aforementioned ASR agreement. Now turning to slide 16. While 2025 was a more volatile and challenging year than we had anticipated, we look to 2026 where we start the year at more appropriate dealer inventory levels and look to reset the business toward a more stable operating and financial future. As we look to our financial outlook for 2026, we remain pleased with our leading market share position in The US, new model year '26 motorcycle launch, including the all-new redesigned trike models, as well as the long haul touring, and the introduction of a more affordable lineup of motorcycles with a focus on critical price point motorcycles to help stoke demand. At HTMC, we expect retail units 130,000 to 135,000. We expect wholesale units of 130,000 to 135,000. As you can see, we believe that global dealer inventory levels are at appropriate total levels with some need to balance by model and family. Therefore, we expect retail and wholesale to have a largely one-to-one relationship in 2026. At the same time, we expect production units at HDFC to be lower than wholesale unit shipped in 2026 as we work to prudently manage overall company inventory levels. For 2026, we expect this will have a deleverage impact which will pressure operating leverage when it comes to operating margins. In addition, we expect to face a greater overall cost for incremental tariffs in 2026 which are likely to be applied more uniformly over the entire calendar year whereas 2025 experienced partial application during the year and was backloaded. As a reminder, in full year 2025, we incurred a cost of $67 million in new or increased tariffs. And in 2026, we forecast the cost of between $75 million to $105 million of new or increased tariffs based on current tariff levels and versus the 2024 baseline. At HTMC, we expect operating income of positive $10 million to a loss of $40 million. At HDFS, we expect operating income of $45 million to $60 million. The forecast is based on the new business model at HDFS given the HDFS transaction. Where Harley Davidson Financial Services now employs a capital light derisked business model and has significantly changed financial earnings profile relative to before the transaction was done particularly in the near term. Additionally, both retail and wholesale asset levels are lower than we previously believed and non-servicing fee income is also being viewed more cautiously. At LiveWire, LiveWire is forecasting an operating loss in the range of $70 million to $80 million. These guidance elements exclude impacts from our updated strategic plan, which we are looking forward to announcing in May. Along with Q1 earnings. And with that, we'll open it up to Q and A. Operator: Please press 1 on your telephone keypad. To withdraw your question, press 1 again. We also ask you to limit yourself to one question and return to the queue for additional questions. Thank you. Your first question comes from Craig Kennison with Baird. Craig Kennison: Hey, good morning. Thank you for taking my question on HDFS. Just, you know, based on the message that came out of the HDFS transaction last year, I think the expectation was that HDFS operating income could be maybe half of what it used to be, so at least a $100 million. Granted, that was just an expectation that came out of the presentation materials, but you're looking to be about half of that. Maybe help us unpack what's going on with the math behind HDFS and what the long-term profitability of that business should look like? Jonathan Root: Alright. Greg. How are you doing? Thank you for your question today. So obviously, from an HDFS standpoint, as we take a look at what we're guiding to, as you say, for 2026, we have a guide for the HDFS business to come in between $45 and $60 million as we flow forward and look to kind of a standard run rate for this business, which will probably take a, you know, two and a half, three years to get to that point. We would view kind of at the midpoint that HDFS would be would be on a standardized basis, making approximately triple the midpoint. So that's where we think the business goes long term. As we think about some of the short-term related impacts and where is there a difference versus what we envision? We obviously have a cautious outlook relative to what we're looking at overall volume standpoint. And so we're being careful and considered there. And then in addition with what you saw with our Q4 year-end result, with dealer inventory down significantly. And more than what we envisioned. Obviously, we have lower wholesale assets too, so that pressures earnings power of that. Hopefully, that explains what you're looking for and provides the perspective. Craig Kennison: Do you need more retail and more wholesale stock units in order to triple that income, or are there other adjustments? Kind of thing? Jonathan Root: Yeah. No. Just time for those time for the retail assets to kind of flow their way in. So, obviously, we need multiple years of building, kind of rebuilding the balance sheet in order to drive what we need for an income statement standpoint in that business. And then as we got wholesale, wholesale levels are lower than what we envisioned with our focus on how we really maintain tight and disciplined inventory with our dealers. Craig Kennison: That makes sense. Thank you. Operator: Your next question comes from Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: Hi. Thanks for taking my question. I guess just on kind of the wholesale guidance, you know, you kind of talked about a one-for-one dynamic. Obviously, the implication is, you know, shipment growth in '26. So I guess in terms of cadence, how should we think about that building through the year? And then on inventory levels, like, I guess, is the implication that you're kind of more comfortable now with where you're sitting at the end of the year? Thanks. Jonathan Root: Sure. So why don't I start a little bit with cadence, and then maybe we'll have Arty talk through total inventory levels and provide a little bit of commentary around that. So from a cadence standpoint, as we think about wholesale shipments and the way that will look on a year-over-year basis, again, we're being, what I would define as, you know, careful and considered in what we're sending into the dealer network. So Q1 of 2026 will probably be down from a wholesale shipment perspective, down a little bit versus where we were in Q1 of prior year. We think that we'll end up kind of popping up a little bit higher in early Q2. So making sure that we have dealers who are well-positioned for when the season is starting. So we're not asking them to carry that inventory in the January, February time frame. But we do want them to be appropriately positioned from an inventory standpoint. So Q2 wholesale shipments will be a little bit higher than prior year. Then as we take a look at how we walk into Q3, Q3, again, probably just a little bit lower as we work through some timing elements within the portfolio and some things that occur from that standpoint. And then as we end up ending Q4, obviously, we were pretty measured in what we shipped into the dealer network in '25. So there's room for a pretty material change in what we're sending in in 2026. So, certainly, if you kind of take all of those different factors, a little bit more back-loaded from a shipment cadence in the second half of the year, versus the first half. And even with that, sort of a little bit more towards Q4. Yeah. And then, Arty, you can talk. Arty Scars: Yeah. No. Just broadly on inventory, you know, the focus is on supporting our dealers and selling through the touring inventory. We remain pleased with the progress there. There's still support there and will continue to be. And we're also pleased with the '26 model year launch. A lot of enthusiasm in the market. So, you know, we'll be monitoring that closely, but you know? And in my script and in these comments, just want to be abundantly clear. We're hyperfocused on healthy inventory levels, and the focus is on the model year '25 touring right now. Operator: Your next question comes from Robin Farley with UBS. Robin Farley: Great. Thank you. I wanted to ask a little bit about your expectation for retail to be flat globally. Just wondering what that counts on for U.S. retail. And then also just kind of, you know, what's behind the expectation of flat, you know, just how you're thinking that how you're coming to that expectation. Then if I could just also, by the way, just squeeze in a quick clarifying point on LiveWire. I think previously, expectation had been that you were limiting the kind of losses you would underwrite and is it fair to say based on the guidance you're giving for '26 that you are willing to continue to invest or see LiveWire maybe lose more than kind of the commentary last year? Thank you. Arty Scars: Hey, Robin. It's Arty. Thank you for the question. I'll take the LiveWire one, and then Jonathan will walk through the retail forecast. Yeah. On LiveWire, we, you know, we extended the $75 million loan, which is originally $100 million. So we worked through that with them, and they're actioning, you know, other sources of capital at this point in time. So in terms of funding the operating losses or so on, we've extended our commitment on the loan and that's it. So, Jonathan, you can walk through the retail piece. Jonathan Root: Okay. Sounds good. Thanks, Arty. Hi, Robin. So on the, I think you asked about US specifically from a retail standpoint. So as we flow through and take a look at it, we're obviously really, really excited about what's happening with the introduction of the new limit. So as we take a look at where we are from an overall retail sales perspective, we do envision that we have a little bit of upside in terms of 26 versus 25. From a touring standpoint for a couple of reasons. You heard Arty talk about our focus on '25 model year sell down and how that was focused around touring. So at retail, that actually really helps us in terms of moving through the 25 touring bikes and what we have. Stacked on top of that is the new limited, and the new limited has been hit. And we're really excited about those and the initial reception to that. So a lot of enthusiasm from our dealer network around sold orders and what they're seeing on that front. As we move along the retail side, we also have the introduction of the new trike. Again, as we look at dealer enthusiasm, customer feedback around what those look like, we're really proud of what our engineering team has done from a suspension. So if you think through handling and the way that that motorcycle performs, some real positives, I think, in terms of how customers will feel and enjoy that motorcycle. So a little bit of enthusiasm in terms of where we sit from a trike perspective. And then just a couple more pieces that I'll touch on quickly. As we take a look, we are being careful and considered in what CDO retail and CDO wholesale shipment looks like. We do want to make sure that those bikes really are put up on a pedestal and we're being thoughtful about what we're shipping in, which obviously will challenge retail a little bit within that particular family. And then overall, we have the full year of soft sales. So really, really excited that we have dealers who are well-positioned. We kind of moved some price points in a way that are pretty customer-friendly. And so, overall, feeling good about where that is. So those are many of the puts and takes for 2020. Operator: Great. Your next question comes from Tristan Thomas with BMO Capital Markets. Tristan Thomas: Hey, good morning. Can you give the $150 million of annual run rate savings in 2027 and beyond that you guys called out? Is that spread among all three segments? And then also, is there any way to anything you can provide us kind of with cadence of that? Thanks. Next year specifically would be very helpful as we build out our models. Arty Scars: Yeah. Hey, Tristan. I'll take that. The $150 million would not incorporate anything at LiveWire. That would just be the motor company and HDFS. And in terms of cadence, you know, we would expect to realize some of those savings, you know, beginning in the back half of this year. We've not incorporated any restructuring charge in the guidance. So that would, you know, complement that. But we've been clear in saying we expect those savings to be realized on an annual basis starting in 2027. Tristan Thomas: Great. Thank you. Operator: Your next question comes from James Hardiman with Citi. James Hardiman: So, any help you could give us sort of bridging what I think is about 4% to 8% wholesale growth if I sort of use the wholesale guide to where you ultimately land in terms of operating income still being, you know, a modest loss on the ACMC side. Obviously, there's some tariffs in there. Sounds like there's some deleverage as we think about sort production versus wholesale. And then I guess I'm also curious on the ASP side or the mix side. I think what I'm hearing is that even though inventories for the year will be flat, touring will be down. So you're gonna be undershipping touring. Just curious what impact that might have on ASP and or Bix. Jonathan Root: Thanks. Okay. Yeah. Great question. Thank you, James. Hope you're doing well. As we take a look at where we are, we certainly have a number of factors that come into play as we look at motor company operating income in 26 versus 25. So you're right. If you kind of look at where we land from a midpoint perspective, really, really close to flat. We have a number of factors that come into play. So we have full year of tariff exposure. So that adds about a $25 million headwind year over year again, going back to the tariff update page that we included within the deck, you can see some of the details there. Obviously, as we complete our final year of getting this back into the operating environment in terms of balancing out wholesale and production, that poses a little bit of a deleverage challenge. And then we certainly have some associated buy chain impact. We're contemplating. As you talked about, we do have a broadly one-to-one relationship between retail and wholesale, which does have an offsetting positive. And then as we look, there's some non-motorcycle implications around P&A and A&L. So all in, as we look at where we are, if you do a midpoint comparison, just effectively sitting right on top, obviously, an improved setup for out-year performance as we work through our final issues in '20. James Hardiman: Got it. Operator: Your next question comes from Brandon Rolle with Loop Capital. Brandon Rolle: Good morning. Thank you for taking my question. I just had a question around the used versus new pricing spread. How do you feel about where that spread is right now? And, you know, obviously, with all this promotional activity, do you see that spread tightening as you kind of pull away the promotional activity, or is this something that the spread gonna keep expanding as maybe prices go higher? And it seems like people are digging in lower and lower, you know, into the used value. So for a deal. Just any comments there on the spread? Thank you. Jonathan Root: Okay. Thanks, Brandon. I'll start with a couple of numbers, and then maybe Arty provide some perspective in addition. So I think from a couple of different factors that you speak about. So as we think about where we're sitting today from a Q1 standpoint, we were, you know, forthcoming in terms of the charge that we took in Q4 of twenty-five in order to make sure that we were positioned to clear through touring in the way that Arty has talked about. So relative to the factor on the new as we think about affordability, monthly payments, and impacts for consumers. We recognize that we're doing we're putting some programs in market at the moment that are helping drive a reduction in the gap between new and used motorcycles. So we have some stimulus that we think is helping drive a really nice value equation for our customers. I think what's really exciting is that in addition to that, as we take a look at what we're seeing on used values, we have seen sort of stabilization of some nice improvement in used values and what we're seeing come through at both auction and retail on the used side. So I think that that dynamic is also helping us from an overall consumer standpoint. So a couple of nice factors to bring that together. Arty Scars: And I think one of the insights we're seeing is that some of the parts of our portfolio that we walked away from in recent years, the used values have jumped. So it's informing some of our product development work. So it's encouraging to see core equities that we've been known for a long time really responding quite well in the used market. And it's informing some of the innovation that you're gonna be seeing from us. Brandon Rolle: Great. Thank you. Operator: Your next question comes from Jamie Katz with Morningstar. Jamie, your line is open. Jamie Katz: Hi. Sorry. I'm hoping that you guys can talk about maybe what you envision as the potential for the motor company operating margin beyond 26. Like, do we go back to a high single-digit rate? Do you guys see more to expand margin, if maybe we can get some volume improvement to take hold and just sort of what you see as the potential for that segment over time. Arty Scars: Yeah. Jamie, that's a great question and something we're gonna clearly call out in our May, you know, investor meeting and strategy discussion and earnings. So if you, you know, tune in then, I'll give you more detail. Obviously, we don't think the current results reflect the full potential of the company. So a lot of upside and look forward to updating you in May. Jamie Katz: Okay. And then do you have a target for leverage metrics at the 2026 given that you're still paying down some debt? Jonathan Root: Yeah. I think, you know, everything from an overall capital perspective is already talked about in our Q1 earnings call that we do in May, we'll make sure that we walk through strategy, overall capital allocation, our approach to the way that we're running the business on leverage for HDFC as well as HDFS, and then what we look at on a go-forward basis. We will be sure that we cover all of that then. Jamie Katz: K. So no big target yet. But thanks. Jonathan Root: So target the one thing I'd just remind is the, the €700 million note we're going to be, you know, paying off. That's the one thing that we we've called out. Operator: Thank you. There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Please stand by. Good morning, ladies and gentlemen, and welcome to the Zimmer Biomet Fourth Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded today, February 10, 2026. Following today's presentation, there will be a question and answer session. At this time, all participants are in a listen-only mode. If you have a question, please press the star followed by the one on your push-button phone. I would now like to turn the conference over to David DeMartino, Senior Vice President, Investor Relations. Please go ahead. David DeMartino: Thank you, operator, and good morning, everyone. Welcome to Zimmer Biomet's Fourth Quarter 2025 Earnings Conference Call. Joining me on today's call are Ivan Tornos, our Chairman, President and CEO, and Suketu Upadhyay, our CFO and EVP, Finance, Operations and Supply Chain. Ivan Tornos: Before we get started, I'd like to remind you our comments during this call will include forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. For a detailed discussion of all these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements, please refer to our SEC filings. Please note, we assume no obligation to update these forward-looking statements even if actual results or future expectations change materially. Additionally, the discussions on this call will include certain non-GAAP financial measures, some of which are forward-looking non-GAAP financial measures. Reconciliation on these measures to the most directly comparable GAAP financial measures and an explanation of our basis for calculating these measures is included within our fourth quarter earnings release, which can be found on our website zimmerbiomet.com. With that, I'll turn the call over to Ivan. Ivan Tornos: Good morning, everyone, and thank you for joining today's call. I would like to start the way that I always do, by sharing my gratitude to our Zimmer Biomet team members around the world who move our business and mission forward each and every day. Thank you for your tireless work. Thank you for your dedication to solving the most pressing challenges in health care. And thank you for your relentless commitment to serving our customers and their patients. Today, Zimmer Biomet is a totally different company than it was just a few short years ago, and this is no doubt due to your efforts. During my prepared remarks this morning, I'll cover four key areas. I'll start by summarizing our fourth quarter results and the results for the fiscal year 2025. Second, I'll provide an update on the plan which we are executing upon to evolve our U.S. Commercial organization. Thirdly, I'll introduce our 2026 guidance. Lastly, I'll briefly cover the progress that we have made across our key strategic priorities, those being people and culture, operational excellence, and thirdly, innovation and diversification. Starting with the year and the fourth quarter, I'm proud of how the team ended the year 2025, delivering on our commitments on sales growth, EPS, and free cash flow while navigating quite a complex challenge in the year. Tariff headwinds, and integrating three acquisitions within one year. From a constant currency organic revenue standpoint, we ended 2025 right at the middle of our initial yearly guidance, marking the fifth consecutive year for Zimmer Biomet growing mid-single digit or above. Looking at the fourth quarter results, we grew sales on an organic constant currency basis by 5.4% against a mid-single digit growth comparable with our critical U.S. Business increasing 5.7% and international growing 5%. Healthy end markets, new product momentum, the ongoing evolution of our U.S. Sales channel, and the recent leadership additions continue to drive an acceleration in our critical U.S. Business. U.S. Knee growth of 6% in the quarter was driven by increased penetration of Persona OsteoTide orthogoxalamus knee, which ended the year roughly around 35% penetration. Our Oxford partial cementless knee continues to deliver above expectations with adoption rates post-training continued to be very high with great conversions from competitive accounts. Notably, our DTP, Direct to Patient Awareness Campaign, in partnership with Arnold Schwarzenegger, drove accelerated momentum in the second half of the year with a personalized knee campaign yielding very meaningful results. Turning to our huge franchise, Z1 or triple taper stem penetration fueled US hip growth of nearly 8% in the quarter, with the implant C1 now representing over 35% of our US hip stems and gaining meaningful competitive conversions. Next, our robotics and navigation strategy of offering a comprehensive suite of customer-centric technology solutions continues to pay strong dividends. US technology and data, bone cement and surgical cells increased over 10% in the quarter, driven by the strongest robotic capital sales quarter in over two years. Finally, in SCT, or USCMFT, cranio maxillofacial thoracic business, continues to perform strongly growing mid-teens in the quarter led by a continuous shift in external fixation from wires to plating. Upper extremities had another great quarter, of high single-digit growth in The U.S, where our identity shoulder and OsteoFit Stemless Shoulder continue to convert competitive accounts. Looking now at 2026, we're accelerating the transition to a dedicated and specialized US sales channel. In order to drive more durable and consistent growth. By 2027, we expect the vast majority of the conversion to dedicated CVH Zimmer Biomet employees, to be complete and also expect a substantial increase in the number of reps specialized in the higher growth areas, such as SCT, robotics, and in our ASC channel. Ambulatory surgical center channel. We have already addressed one-third of these organizational changes, and have best-in-class plans and project management capabilities with third-party help to ensure a smooth transition for the last two-thirds of this evolution. With a robust innovation cycle in place, we feel it is the opportune time to move faster and we will. With that context, we now expect full-year organic constant currency revenue growth for 2026 in the low single-digit range or 1% to 3% growth, with an adjusted EPS earnings per share of $8.30 to $8.45. Which includes the contribution from Paragon 28 beginning April 21, the one-year anniversary of the deal closing. Suki will provide further details during his remarks. The evolution of the US Salesforce represents the final core initiative in a transformation of our organization, and while it might create some short-term disruption across pockets, it is by far the most crucial step in order to convert Zimmer Biomet into a durable mid-single-digit plus growth company for the long term. Turning now to our three key strategic priorities, Zimmer Biomet, starting with number one, people and culture, we remain committed to having the right people in the right roles to maintain our leading position in the key areas where we compete. Having a dedicated and specialized US sales channel, we will now enhance our ability to consistently with no surprises, execute our strategy. This will drive increased productivity while enabling us to be more competitive in high growth segments, as mentioned before, such as robotics, ASCs, and the growth drivers within SCD, we have tremendous opportunity ahead we are still underpenetrated. Secondly, on the second priority of operational excellence, we believe our disciplined cost management and robust capital allocation strategy will enable EPS growth while allowing us to invest in the business for the long term. Further, given our operating rigor, we expect to continue to grow free cash flow in the upper single-digit to double-digit range in 2026 marking the fourth consecutive year delivering meaningful free cash flow growth. Against that backdrop, we plan to prioritize meaningful return of capital to shareholders over M&A. Lastly, on our third priority of innovation and diversification, we're making significant advancements. Over the past two years, we have closed all core portfolio gaps, with the introduction of the magnificent seven platform, we now have the potential to change the standard of care with solutions such as the Oxford Partial Cementless Knee, iodine core devices recently launched in Japan, or second largest market globally, Rosa Solder, and the MBOS semi and fully autonomous AI-driven orthopedic robotic system that we acquired via the Monogram acquisition. In addition to this, we continue to invest internally and partner externally to strengthen our pipeline of new product launches, which is today 3x what it was just a few short years ago. Given the strength of our innovation cycle, we feel once again that this is the right time to accelerate the evolution of our U.S. Channel. So we can fully capitalize on a dedicated and specialized sales force. I tell you, having traveled to all key sales meetings across The US, the month of January, the excitement behind our innovation story is very high, and so is the engagement. It is now up to us to execute on the plans via this transformation. In conclusion, we are very proud of the progress in our organization, we are far from being satisfied with where we are at today. In 2026, to close our core turnaround efforts we are going to be laser-focused on The US go-to-market commercial transformation while we continue to showcase the strength of our robust innovation cycle across the globe. As we then enter 2027, we'll be ready to transform the musculoskeletal space with the launch of ENBOS, and other disruptive technology platforms, while responsibly accelerating our diversification strategy getting access to a higher growth market environment. And with this behind, in 2028 and beyond, Zimmer Biomet will look and act like a totally different company. With that, I'll now turn the call over to Suki. Thank you. Suketu Upadhyay: Thanks, and good morning, everyone. In the fourth quarter, we grew sales 5.4% on an organic constant currency basis, and delivered adjusted earnings per share of $2.42 which was up 4.8% year over year despite dilution from the 28 transaction, the impact of tariffs, and continued investments in our commercial organization. On a full-year basis, we grew organic constant currency sales 3.9% and generated $8.20 in adjusted EPS. And $1.172 billion in free cash flow. As we get into the details of these results, unless otherwise noted, my statements will be about the 2025 and how it compares to the same period in 2024. And my commentary will be on a constant currency and adjusted operating basis. 2025 organic constant currency commentary excludes the impact from Paragon 28 acquisition that closed in April 2025. Net sales were $2.244 billion, an increase of 10.9% on a reported basis and 5.4% excluding the impact of foreign currency and the Paragon 28 acquisition. Consolidated pricing was 50 basis points negative in the quarter. Our U.S. Business grew 5.7% on an organic constant currency basis. Which, as Ivan mentioned, reflects continued momentum for our recently launched products strong robotic sales, and end-of-year customer purchases and capital sales above historic levels. Internationally, we grew revenue by 5% on an organic constant currency basis, driven by continued new product momentum and strong robotic sales. Turning to our P&L. We reported GAAP diluted earnings per share of $0.70 compared to GAAP diluted earnings per share of $1.20 in the prior year quarter. Higher revenue and a lower share count were more than offset by a one-time charge related to a brand rationalization initiative and restructuring charges related to a reduction in workforce. As well as higher interest expense associated with the Paragon 28 transaction. On an adjusted basis, we delivered diluted earnings share of $2.42 compared to $2.31 in the prior year quarter. This increase was driven by higher revenue higher adjusted gross margin and a lower share count. Partially offset by an increase in SG&A and a step up in interest expense tied to Paragon 28. Adjusted gross margin was 72.4% higher than the 2024, due to lower manufacturing costs and favorable mix. Adjusted operating margin was 29.1%, lower than the prior year quarter as a result of increased commercial investments and the addition of Paragon 28. Adjusted net interest and nonoperating expenses were $71 million above the prior year driven by higher debt related to Paragon 28 and higher interest rates on refinance debt that matured in 2024. Our adjusted effective tax rate was 17.9% and fully diluted shares outstanding were 198.1 million. Down year over year due to share repurchases in 2025, including $250 million during the fourth quarter. Now turning to cash and liquidity. Had another strong quarter of cash generation with operating cash flows of $517 million and free cash flow of $368 million. We ended the year generating $1.172 billion of free cash flow, growing over 11% year over year, marking the third consecutive year of at least high single-digit free cash flow growth. We ended with approximately $592 million in cash and cash equivalents. Now regarding our outlook for full year 2026. Unless otherwise noted, my commentary will be on a constant currency and adjusted operating basis. And will include the contribution from Paragon 28 in organic growth beginning in April 2026. Marking the one-year anniversary of the deal closing. We expect organic constant currency revenue growth of 1% to 3%, with growth roughly consistent throughout the year. In addition, we expect adjusted EPS of $8.30 to $8.45 with free cash flow growth of 8% to 10%. Which would mark the fourth consecutive year of high single-digit or greater free cash flow growth. Quickly approaching 80% free cash flow conversion. This guidance contemplates end market growth in line with 2025, the risk of disruption from the U.S. Sales force transition, continued evolution of our international go-to-market models, up to 100 basis points of pricing erosion and a stable tariff and policy environment. Let's walk through the moving parts that impact our reported revenue guidance. At current rates, we expect FX to be approximately a 50 basis point tailwind to full-year revenue growth, which includes approximately 250 basis points of tailwind in the first quarter. We expect Paragon 28 to contribute around 100 basis points to reported sales growth in 2026, before being reflected in organic growth in April. As we have discussed previously, we expect our operating margins to be down about 50 basis points from 2025, which contemplates lower gross margins, dilutions from the Paragon 28 acquisition and increased investments in our U.S. Commercial channel. Operating margins in the first quarter are expected to be down about 100 basis points from the 2025, before increasing sequentially by about 100 basis points into the second quarter. For the full year, we expect adjusted net interest and other non-operating expenses to be approximately $295 million, our adjusted effective tax rate to be about 18% and to end the year with about 194 million to 195 million shares outstanding. This share count reflects a share buyback program in 2026 of up to $750 million. I'd like to close by thanking the entire ZB team for their hard work and dedication. We continue to make meaningful positive changes across the business, while investing to accelerate long-term growth. And with that, I'll turn the call back over to David. David DeMartino: Thank you, Suki. Operator, let's open up for questions. Operator: In order for us to take as many questions as possible, please limit yourself to one question. Operator, please go ahead. Operator: Thank you. Star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up. Again, please press 1 to ask a question. We'll go first to Matthew Blackman with TD Cowen. Matthew Blackman: Hello? Operator: Mister Blackman, you are the Good morning. Matthew Blackman: Yes. You can okay. Good. You can hear me okay. I appreciate you taking my question. Ivan, we're obviously all focused on the near-term impact of the Salesforce optimization initiatives. But maybe take a step back, and you did touch on this a bit in the script, but tell us why now how heavy the lift ahead is, and perhaps most important, what could the business look like if is executed well? And where and when across the franchises could we see visible returns? Is it exiting it this year? Is it '27? Just any color would be helpful. Appreciate it. Ivan Tornos: Absolutely, Matt. So what what I'll do here, maybe I'll provide a longer answer than usual, and then maybe this says, some time in future questions, this morning. But maybe start with what it is that we're doing because I think, some people are confusing the what. We'll talk about the why we're doing it. I'll directly answer your question of why we're doing it right now. I'll talk about how we're doing it to reassure everyone that, we're taking a very prudent approach that is very state centric. And then when do we see the benefits? So I'll I'll break my answer in those four to five key areas. So what it is that we're doing? We're moving from being a company or rather a channel here in The US that has a lot of nondedicated employees, By nondedicated, this is not a legal ten ninety nine, WHO, two committed, not committed. We got people that have, you know, two, three jobs. Working at Zimmer Biomet. It's part of the nature of the ten ninety nine model here in The US, and that's not something that, we wanna we wanna keep wanna have 100% of our US Salesforce being dedicated. Again, not to be confused, w two ten eighty nine. Fully dedicated. So that's number one. We believe in specialization. Just like, best in class companies believe in specialization. You can have, sales rep selling hips, knees, components of technology, shoulders, etcetera, etcetera. Today, our current specialization rate is around 25%. I won't quote what is the end number, we're gonna make sure that we specialize the Salesforce so that we can compete at the level that we can compete in the higher growth segments. To that end, we add in something like 200 plus sales reps in robotics. Countless reps in SAT, ASC, etcetera, etcetera. So that is the what? Moving from nondedicated to dedicated. Why we're doing this now? Well, look. We got no gaps in the portfolio. We've done significant work when it comes to, technology in data robotics, and whatnot. We've added a ton of new products when it comes to SCT. We just gotta have dedicated people to leverage that great new product cycle. We couldn't do this three, five, ten years ago because, candidly, we didn't have the products. Not to mention we're dealing with, with other challenges. So now that we have the products, we have to leverage the channel to sell those products at a at a higher rate. Productivity rates in The US, we do a lot of third party benchmarking. Are, you know, roughly half. Of what some of our direct competitors have. So in plain English, we don't have as many cases as some of our direct competitors. That's something we're gonna be addressing. So that's the why. We're doing it because of new products. We're doing it because of timing. We're doing it because we got a pretty significant productivity gap here in The US. Not to mention our penetration in ASC and SCT, still is, still is, very high. So low penetration. How we're gonna do it? We got third party resources. We got a dedicated team. We have hired people that have done this in the previous life. I'm personally involved, in, in the project. I'm gonna continue to remain involved. So we're gonna take a stage approach to getting it done. We've done one third of this transformation already. We have locked in a significant percentage of the organization. So I feel that, we've been very prudent when it comes to we're doing it. We learn a lot from the ones that we've done. It's actually gone better than expected. We did five conversions already, late twenty twenty five, early twenty twenty six. Those are going as expected, if not better. And then just to close this summary, Matt, when are we gonna get this done by? We expect the entire transformation to be done as we exit 2027. So that is the what, the why, the how, and the when. And it is the final step in the in the transformation of Zimmer Biomet. We address the operational challenges in the past. We have addressed the leadership gaps that we had. We have built a best in class portfolio. Remediating all the gaps, and now with significant product launches, to change the standard of care, If we don't modify or use US go to market structure, we're never gonna have the durability and sustainable growth that I referenced in my prepared remarks. Thank you for your question, Matt. Matthew Blackman: Appreciate it. Thank you. Operator: We'll go next to Rick Wise with Stifel. Good morning, Yvonne. Rick Wise: You for all the comments. You highlighted in your comments, Yvonne, that the obviously the reality that Zimmer has grown mid single digits for four consecutive years Now you're offering tempered guidance and guiding to low single digit growth. Help us better understand what's embedded at a high level in that thinking. I mean, clearly, you're trying to be respectful of the uncertainties about the transition sales transition process. Ivan Tornos: But that seems to be going well. Rick Wise: So what have you baked in? And maybe help us think about the year ahead in terms of is the disruption greater in the first half and therefore the second half could be better? Just maybe help us think through those factors. Thank you. Ivan Tornos: Thank you, Rick. Actually, is five years. Of mid single digit revenue growth, not four. And we are very excited with how we exited 2025 growing in the second half five plus. But we gotta keep it or we gotta make it durable. So to your question on what's embedded in the guidance, really, we're looking at three things. Number one, obviously, is the US Salesforce transition. That that is deep priority in 2026. If it goes better than expected, obviously, your number exiting 2026 will be higher. If we don't do the job that I expect we're gonna do, then we may move towards the lower range of that guidance. So that's item number one. Number two, we pay in close at attention to the new pro new program, cycle. The adoption of these new products, namely the magnificent seven. If you look at the performance in Q4, very solid across hips and knees. Similar performance in the years in Q3. So now we need to make sure that we're gonna be able to same or better as we enter 2026. So that's the second item we're paying attention to. And and the number three, international. You know, as we've been discussing, it has been a fragile business. Now for a couple of quarters. You know? Since that one quarter, we do really well. The next quarter, something happens. Again, we gotta pay attention in making sure that we do have the right go to market models We are focusing the right growth areas in the right So those are the three things we're paying attention to. The US Salesforce transition, the new product adoption cycle, and the international international performance in key geographies. Thank you, Rick. Thank you. Thank you. Operator: We'll go next to Patrick Wood with Morgan Stanley. Patrick Wood: Beautiful. Thank you so much for taking the question. I'd love to just ask a slightly boring one, on pricing, moving to a negative 100 basis points erosion in the 26 guide, inflation is kind of at the same spot, that it was before, and I'm guessing your customers are in a pretty healthy spot from procedure volumes. Just curious why you're thinking pricing, you know, stays in the negative territory. I know that's where it was historically, but any outlook on how you think about price mix would be super helpful. Thanks. Suketu Upadhyay: Yeah. Patrick, this is Suki. Thanks for the question. So overall for the year 2025, we ended ended on flat pricing at a consolidated level, so taking all the regions into account. The fourth quarter, as I said in my prepared remarks, was down about 50 basis points. For 2026, you're right. We're saying up to a 100 basis points of erosion, which is consistent with our Analyst Day commentary almost two years ago. And as you noted, it is a significant improvement to sort of pre pandemic price price profile. The the reason you're you know, we expect to see some level of step down for between '25 and 2026 and we can talk about this a a bit over the over the last few quarters, is, we expect to see a moderation in some of the price increases we've been able to take across EMEA. We do expect Asia Pacific to be down year over year primarily because of the Japan biannual price decrease which happens. It's a normal part of our business. Also, we expect to be slightly down in China as we continue to reconfigure our go to market strategies. And The Americas are expected to be down sort of similar profile to what we saw in 2025. So when you put all those together, we do expect to see a modest step down into to twenty twenty twenty six, but, again, well within our overall guidance that we provided at our Analyst Day. Patrick Wood: Appreciate the color. Thanks, guys. Suketu Upadhyay: Thank you. Thank you. Operator: We'll go next to Vijay Kumar with Evercore ISI. Vijay Kumar: Hey, guys. Congrats on a on a nice execution Q4 on free cash, and thank you for taking my question. Suki, or Ivan, can you can you, give us a bridge from back half, right, when you did mid singles to 2% guidance at the midpoint for fiscal twenty six, how much of this is Salesforce reorg impact And and, Ivan, you mentioned that you already completed one third of this transition what's been your prior experience? Right? Like, when you look at the pacing of disruption, was it front loaded? Ivan Tornos: And when does pro productivity increase to offset this? Thank you. Thank you for the question. Look, for 2026, it is all about the Salesforce transformation. So, yes, we exited, 2025, growing strong in the mid single digit. As we provide guidance for 2026, we just wanna be responsible, in realizing that this is a significant transformation we've undertaken. I've made public commentary around the fact that in The US, we got roughly 2,500 reps across 34 territories. It's a lot of legacy issues in the channel that we're addressing, and we're gonna be responsible. We're gonna do it over two years, and we we believe there'll be some disruption. So that's why we're giving the guidance that we're giving today. So that's the answer on, you know, why we're going from call it, you know, five plus in the '25 to a midpoint of, two here as we enter 2026. What we have learned as we go through these transitions is that, disruption happens, sometimes you know, in the early stages. Know? You go and negotiate your contracts with your distributors, and, they say no. We're not interested in in the new model, and rarely have you know, towards the end. You know? Once they sign up, they sign up and they stay. And, again, many lessons learned from the work we've done already, one third behind. As a reference in my previous, answer, to to Matt, I believe it was, We already have done five additional distributor changes in the last four, five months, and they're going really, really well. And we have active negotiations going on with roughly 40% of the channel as we speak, and those are going better than expected. In terms of the would we see the outcomes? You know? Towards the '27 is when you start to see increases in productivity. Thank you. Operator: We'll go next to Robbie Marcus from JPMorgan. Robbie Marcus: Great. I know it's one, but I have two quick clarifications. Questions I have a lot of investors asking. So figure I'd get it out in the call here. First, really strong fourth quarter. Performance, particularly in The U. S. Across large joints. Just wanna make sure there was no, onetime items or or above, normal sales there. And then Suki, as you think about first quarter and first half, getting the cadence right has been really important, particularly over the past few years. And I I know you've mentioned it, in the script even. So just how do you want people to think about first quarter and first half top and bottom line you know, the guide is one to 3% on the top and bottom line. You exit it at five. So help us bridge expectations, how much disruption is built in, and and, you know, help us get the numbers set. For the beginning of the year. Thanks lot. Ivan Tornos: Thank you, Robbie. I'll I'll start, and then I'll let Suki comment on the phasing for for the year. In terms of our performance in Q4, the main driver behind the solid growth, in The U. S, and I'm frankly very pleased with where we landed, OUS. Is new product acceleration. We did benefit from, some additional capital sales in the quarter. We had, some modest uptick when it comes to, some of the sales that we do towards ASCs. But, I will say the lion's share of the performance is better execution. We did Rovi benefit internationally in knees. If you look at the knee number, we grew 8.2%. That is some of the, some of the revenue in Q3. You may recall that Q3 would be an end where we expected. Some Middle East revenue that got in Q4. But very, very pleased with the execution when it comes to new products. Both in The US and international. So do you want that about phasing? Suketu Upadhyay: Yeah. So thanks, Ravi, for the question. So on phasing, you know, it's very consistent with what I said in my prepared remarks. Which we expect on the top line for growth to be roughly consistent, plus or minus from quarter to quarter throughout the year. And that takes into account what Yvonne's talked about relative to the the sort of US phenomenon on Salesforce and and and optimization there, as well as, some of the elements that he's been teeing up for some time around international and go to market changes. So both of those have been reflected and sort of contribute to sort of that first last or sorry. 2025 into 2026, step down. Relative to P and L, from an operating margin standpoint, you know, Some of the building blocks there are we do expect gross margin to be down for the full year. We've talked about that for quite some time. We're gonna make a lot of that up. Through SG and A efficiency inside of operating margins, but we do expect that to be down 50 basis points as I talked about in my prepared remarks. Overall earnings, we expect to grow in line with constant currency organic growth. That's gonna be assisted by some of the share buyback that we plan to do this year. Now taking those building blocks into phasing, operating margins, do expect to be down in the first quarter year over year. By about 100 basis points. That's largely driven by Paragon twenty eight, which was not yet anniversaried because we we did the deal in the '25. We're gonna have higher commercial investments as part of this overall optimization in The US as as Ivan's talked about, yes, it is specialization, but it's also augmentation where we're adding reps in a couple of key areas. And then as I said, gross margin will be down in the first quarter. So, again, operating margin's down. Year over year in the first quarter, about 100 basis points from there. We expect to see a sequential step up in the second quarter as we anniversary out of 28. That'll be an increase sequentially in the second quarter of about 100 basis points. And then as we move into the back end of the year, we expect operating margins to be roughly in line with 2025. So hopefully, that gives you a bit, again, top line. Roughly consistent. Growth rate throughout the quarters plus or minus, and then the operating margins as I talked about. Ivan Tornos: Very helpful. Appreciate it. Thank you. Suketu Upadhyay: Thank you, Rob. Thank you. Operator: We'll go next to Travis Steed with Bank of America. Travis Steed: Hey. Just wanted to, of follow-up on Ravi's question in terms of on the margins, how you're thinking about the cost of the Salesforce transition? Is there what you kind of baked in on margins from from that? And then a question in terms of you've already done onethree of this transition already. So one question I get often is, like, why does it actually take two years to do all this? And when do you start to see some some green shoots here? Suketu Upadhyay: Yes. So thanks. For the call or sorry, for the question, Travis. Overall, you know, the the impact of this Salesforce transition there's a modest impact to overall operating margins inside of s g and a. I think start to see that in the fourth quarter or really the back half of last year, you're going to see that continue into into 2026. That near term headwind has been accounted for in our guidance for for 2026. But the opportunity I think, is more attractive as you think mid to longer term. One, it does give us the opportunity to to do some restructuring and and offset some of that headwind. Through, more productivity. As Yvonne talked about, we're at about half of some of our peers. And secondly, the whole idea behind this is that it generates, better revenue growth, more durable better than market growth rates. And at those levels, provides significant amount of leverage into our p and l. So near term, yes. Headwind, modest headwind, incorporated into the guide. Mid to long term, we do see being a benefit. Ivan Tornos: Then, Travis, relative to your question on why two years, no more complex that we're gonna be responsible. As I mentioned, we don't want third, so 2,500 reps. Done a third. That's what? 1,600 reps. That we gotta get through across, multiple states. So we're gonna take our time and understand it was the right sequence, looking in the contracts, We have, segmented areas by contract status, by market status, So it's a project that that we're not gonna take lightly. So that's why it takes two years. And, we're gonna go slowly to then go fast later on. Thanks. Travis Steed: Great. Thank you. Operator: We'll go next to Matt Taylor with Jefferies. Matt Taylor: Hi. Thanks for taking the the question. I wanted to just follow-up on gross margins. I know you said down for the year and we touched on pricing, but was hoping that you could go through all the the puts and takes on gross margin this year and also maybe just talk at a high level about the trajectory beyond '26 for gross profit. Or Suketu Upadhyay: Thanks for the question, Matt. Yeah. So we we expect gross margins for '26 to be in the range of 70% to 71%. It is a step down. From a pretty good year in 2025. We've been we've been sort of telegraphing that. The key drivers are really, the biggest one is around, you know, the lower growth profile as you see in the revenue We get a lot of leverage in our p and l when when when, the revenue growth rate's at a higher level. And, of course, the opposite works at a lower growth level. So, volumes are are the biggest contributor to that step down. Secondly, we've talked a bit about the FX hedge gains that we've seen in 2025. Tapering off in 2026 as we've seen a weakening of the dollar through 2025, The next big area, is is around price and geographic mix. Which we expect to be a headwind compared to 2025. And then the last piece is really on tariffs. Which on a net basis year over year is not a significant increase. But it will be choppy through the quarters primarily because of certain credits from 2025 that we expect to to realize in into 2026. So those are your moving parts. That really step you down from '25 into '26. But I would say we're making up a very large percentage of that through our SG and A restructuring that I talked about in my prepared remarks. And so while, while gross margins will be down a 100 basis points or more, we're we're we're making more than half of that up. Through SG and A efficiencies even while we're incrementally investing in some portions of our commercial business. It's too early to tell on gross margin outlook. Beyond 2026, and I think the largest component which is driving this year, will drive future gross margin, which is really around volumes and and and sales levels. But beyond that, I can tell you we continue to to emphasize efficiency continue to make great progress, in the areas of sourcing improvements, We continue to build out low cost manufacturing. I think you'll see that in the stepped up p, p, and e in 2025. And then lastly, I talked about a a pretty large scale portfolio rationalization charge we took in the fourth quarter we believe that that's going to have significant meaningful midterm and long term or benefits, I should say, into cost of goods. So So so longer term, a little bit too early to tell, Again, it will depend on on revenue growth, but but we continue to push very hard. On a number of efficiency gains and are making good progress. Thanks for the question, Matt. Matt Taylor: Thanks, Steve. Operator: Our next question comes from the line of Ryan Zimmerman with BTIG. Ryan Zimmerman: Good morning. Thanks for taking the question. I'm going to turn to Paragon actually because a lot of questions have been asked on guidance. And just ask, I mean, the contribution this quarter was lower than we expected. And if I look at the outlook, for '26, I I think it's about a 100 basis points which, again, is is a little lower, excuse me, than we expected. And so Ivan, can you just talk about kind of what you're seeing there? I mean, we have heard, obviously, you know, chatter about kind of the health of the foot and ankle market. Know, particularly in '25 being softer and and kind of what you expect and where you're seeing you know, specific parts of weakness versus maybe parts that are offsetting that. Ivan Tornos: Yes. Thanks thanks for the question, Ryan. So we we've been at it for two quarters. Right? So we've we've done two quarters as a consolidated company. They both came in at in the upper single digit range. Recall that for the year 2025, we said we'll get around 270 basis points of revenue accretion, thanks to, or due to Paragon 28. We came in roughly 20 basis points behind that. So not a not a huge gap. We have made a commitment that we're gonna grow this business double digit in 2026. Early in 2026, but we like what we see. I will say mostly everything is going in line. Our revenue, again, is slightly behind what we anticipated, but, again, only two quarters. In terms of the EPS dilution, everything is on track, if not better than expected. Committed to a 3% dilution in year one. Came in slightly better, around 1% in the second year. We expect to deliver on that. And then the integration cost and everything associated with, with Paragon is also better than expected. We're not seeing any dramatic changes when it comes to market growth. We continue to monitor that. If anything, we've seen that that the shift today is continues to move in the right, in the right direction. So we're very excited about the business. Again, two quarters behind. Just left them sales meeting in San Diego. A couple of weeks ago. I'll tell you, Ryan, that, with eight new products being launched in 2026, with, virtually the same legacy Paragon 28 employees being now, with Zimmer Biomet. Excitement is high, and we expect to deliver double digit growth in, 2026. Thank you, Ryan. Ryan Zimmerman: Thank you. Operator: We'll go next to Danielle Antalffy with UBS. Danielle Antalffy: Good morning, guys. Thanks so much for taking the question. Just on this Salesforce transition, I'm just curious sort of what gives you the confidence. Appreciate a third has been done so far. But just coming to the decision to to make this move, was it best practices that competitors, market research, physician feedback? And then I'm I appreciate you probably can't comment on 2027 right now, but, should 2027 be growth acceleration versus '26 wherever you end up, just given you'll be further along in the Salesforce transition or are there other factors we should be considering as we put a finer point on '27 on our models today? Thanks so much. Ivan Tornos: Thank you, Danielle. So let let let's start with the issue one. We're not gonna talk about 2027. That's something we'll do, later on in the year. But, right now, we're gonna focus on 2026. What gives us the confidence that this is the right time and the right project is data. No more complex than that. We look at productivity rates for Zimmer Biomet versus direct competitors that are fully dedicated, fully specialized again, I mentioned when it comes to, caseload, when it comes to overall productivity, we'd be high. And given the strength of the new product portfolio, the time to do it is now. We do a lot of benchmarking in terms of those territories that are fully dedicated and specialized versus those territories that are nondedicated. And they're nonspecialized, and it's literally night and day. We we see a much greater productivity. No surprise there, Danielle. In those dedicated and specialized territories. If we don't get The US right, and by that I mean, if we don't get The US to bid consistently, mid single digit at some point, upper single digit, this company will never realize the aspirations that we have for this company. The US is 62%, 63% of the revenue. It's north of or half of the profit of the company. We gotta get it right. So we got the leadership in place. We made a lot of changes. We got the new product, cycle in full motion. We're about to enter a new stage when it comes to innovation in 2027 with monogram. We just have to do it. So it will create some short term disruption, but it's gonna set a the company very nicely as we enter '27 and beyond. Thank you so much for your question, Danielle. Operator: Our next question comes from the line of Larry Biegelsen with Wells Fargo. Larry Biegelsen: Good morning. Thanks for taking the question. So Ivan, I wanted to ask about capital allocation. It feels like, the change in terms of prioritizing returning free cash flow to shareholders. Over m and a. So my question is, you know, why why the change? I think there was a time not too long ago when you talked about you know, diversification. And any color on what percent of free cash flow you'll return to shareholders through buybacks each year? And what can we expect you know, on m and a going forward? Thank you. Ivan Tornos: Thank you, Larry, and great to hear from you. I wouldn't say it's a change. I would say that it's a pause. Recall that we've done three acquisitions between Orthogrid late twenty four Paragon twenty eight, April '25, and then a few months after that, monogram. I mean, are pretty significant projects. And then add on top of that, this transformation of The US channel This is not the time to add, you know, more complexity. This is not the time to run, you know, more projects. This is the time to be nimble and laser focused on getting those three integrations right and, ensure minimal disruption out of this, US transformation. So that is no more complex than that. At the right time, we'll continue to diversify diversify responsibly. So, no, we're not throwing in the white towel. We aspire to have a higher weighted average market growth rate. As we continue to evolve the company. But right now, it's all about focus on these three integrations and and this project. As you might have read, we got approval yesterday from the board, to do up to $1.5 billion in buybacks. We like, where the stock of Zimmer Biomet is today. We acquired a quarter billion dollars, of shares in the 2025. We're going to continue to continue to acquire shares of consumer bond even the current valuation. Love the free cash flow generation of this business. You heard Suk in his prepared remarks. You know, upper single digit to double digit in 2026. This company generates tremendous cash flow. We got very solid firepower. I like our debt profile. So at the right time, we'll get back doing the things that we need to do. But in 2026, those are the priorities. Thank you so much. Larry Biegelsen: Thank you. Operator: We'll go next to Chris Pasquale with Nephron. Chris Pasquale: Thanks. Yvonne, you highlighted strong performances from CMFT upper extremities. But organic growth for SCT still did step down a bit. Can you talk a little bit about the other SCT segments, how they performed in quarter? And then how you're thinking about that business once Paragon becomes sort part of the organic, piece going forward? Thank you. Ivan Tornos: Sure. Thanks, thanks for the question. So net net, in the year, SCT delivered mid single digit growth again. So now there has been a cadence of quarters and years in what we've seen this business perform. To your point, CMFT mid teens growth, shoulders upper single digit, if not double digit. Sports, in and out of the upper single digit territory. Obviously, foot and ankle is double digit given para Paragon. But, we do have, two, problem children. Or trauma business and or restarted therapies, business, injections here in The US. So those are the two, those are the two headwinds that we got. And we spoke about that openly in the Q3 call that our business in The U. S. Has been struggling. We exited the year more or less in line with our expectations, but those expectations were very low. So as we enter 2026, we're gonna continue to invest in the four key growth drivers. We are in a ton of reps in shoulder, with expanding or CMFT, cranio maxillofacial thoracic salesforce, And, we put in, new processes, new people. To make sure that the true problem children from restorative therapies don't become the headwind in '26 that became in 2025. Thank you. Thanks. Operator: We'll take our next question, excuse me, from Caitlin Roberts with Canaccord. Hi. Thanks for taking the questions. So how do you see ASCs as a part of your revantular strategy? And where did you end the year with ASC penetration in hips, knees, and shoulder? Ivan Tornos: Thank you, Caitlin. So we, we ended '25, on knees and hips I do not know, to be honest with you, the final number for shoulder. But we are actually 2025 in the 20, 22% range. So 20 to 22% of all the hips and knees that were within The US were done in ASC. And I speculate the shoulder number is higher than that, right now, I don't recall the number, so I don't wanna mislead you. In this or or or strategy, we've spoken about the fact we need to have dedicated people. We need to have the portfolio. I want it to have the partnerships. And, speaking of people, really excited about the additions that we brought to the team in 2025. New president for ASCs who's a superstar, Greg Sealer, He's brought in great people across the entire US with actively hiring people, into the, into the ASC channel. Suki mentioned, it's not just specialization. It's also augmentation. So I think we are rapidly getting the right amount of people and the right type of people to win in ASCs. As far as the portfolio, there are no gaps whatsoever. We're really excited about the opportunity that monogram will bring to an ASC environment where speed, efficiency, and accuracy matters most. But addition to that, we got another, you know, seven to 10 products that make a lot of sense in the ASC. In the partnerships, we continue to see great momentum with our partnership with Geringa. We are doing new contracts We got a couple of, large groups that we are actively involved in final negotiations. We're very bullish when it comes to our ASE strategy. I will follow-up with you on the on the number for penetration for shoulder. Thank you. Operator: Awesome. Thank you. We'll go next to Joanne Wuensch with Citibank. Good morning and thank you for taking the question. Joanne Wuensch: I'll put two right up front. I'm sorry. I'm only allowed to ask one. One, AAOS, what should we be expecting there? And I suspect this is where you'll be showcasing the embossed system. How do you anticipate folding that into your robotics portfolio? And platform. Thank you. Ivan Tornos: Thank you, Joanne. As far as I'm concerned, you can ask 50 questions if you want. So but, anyway, what should you expect, at the academy meeting in New Orleans? We're gonna have a lot of new products there. We're gonna showcase again the max seven. We're gonna show next generation SCT, products But to your point, the the main event is gonna be mBOS. The fully autonomous and semi autonomous, robot. That, robotic platform that we acquired from monogram. This is technology that we strongly believe that will change the standard of care. It's definitely the step of moving from guided robotics to smart robotics. It has best in class ease of use, the speed that we've seen in the clinical trials is better than anything that is in the market today. You can literally do the cases I hope you come to the booth in a hands free approach. The workflow is as streamlined as it gets. And again, it's highly accurate, extremely reproducible. And it's got all the right, guardrails to make it the safest robot out there. So we'll be talking about all of that. We debuted, emboss at the Hippany Society Meeting In Dallas. And since then, we've gotten just tremendous feedback We expect to have a large group of surgeons, when it comes to, New Orleans. So looking forward to, sharing this excitement with you and the, the other investors. But beyond that, we'll have, you know, our entire suite of technology. And we'll we'll be describing why it makes sense to have this, category depth. Second part of your question, how you expect to integrate it? Look. We got the optionality of integrating all things into one platform if we choose to do that. But but so far, the data and the feedback validates that since not all customers are created equal, not all technologies will be created equal. We believe in optionality. We believe in large footprint robotics, small footprint robotics. Sounds like our competitors do as well now. We believe in CT scan for some customers that wanna have a CT scan. We also have a large, percentage of customers namely outside The US that want to use Imageless, which got some surgeons that wanna be more in control of the surgery. And you got some that are okay with semi and fully autonomy. So we have the optionality to to integrate at at the right time. But right now, we'd like to have the category breadth that we have and so far, as you saw in the results in Q4, it seems to be working out. Thank you so much, John. Operator: We'll go next to Matt Miksic with Barclays. Matt Miksic: Hey. Thanks so much for taking the question. Just maybe looking at some of the strength in knees and the core geographically, And maybe talk a little bit about about pockets of strength, where you're seeing success, you know, the the sort of cadence of the of the iodine coated launch in in Japan. So that the geographic could break down in any color you can provide me be great. Thanks so much. Ivan Tornos: Thanks, Matt. Look, great quarter. Q4 was a great quarter. So we delivered 6% growth in U. S. Needs and 8.2% for international. In The US, it's the combination of all the things that I mentioned in my prepared remarks. Oxford Parseus MLS continues to do better than expected and is really early in the journey. Recall is the only FDA approved partial cementless knee, which is gaining tremendous adoption in an ASC setting. Or Persona Osteo Tie or cementless platform, exited twenty twenty five, so at around 35% penetration, again, with very rapid adoption in an ASC setting as well. And, internationally, we saw great momentum with persona revision, in Europe. Exiting 2025. Recall that this is only two, three quarters into the launch. So we think that the ramp up can be very compelling as it has been here, in the, in the in The US. In terms of iodine, we had minimal Sales of iodine in Q4. The real launch has happened here in, in Q1. This is a product that we've been working on for ten years. With robust data out of the University of Yokohama in Japan. We expect to have a very meaningful contribution out of this product in international in 2026. We do in cases pretty much every day now. We get a 40% price uplift when it comes to iodine versus non iodine. And, again, the data around prolonged elution, the fixation stability, how this product, reacts to, to bacteria is just very very, very compelling. So really excited about iodine, and we're forward to, bringing this product to other geographies down the road. Thank you. Operator: This concludes the question and answer portion of this call. I would like to turn the call over to Ivan Tornos for any closing remarks. Ivan Tornos: Thank you. I'll close the way that I started with gratitude. Thanks to all of you for being here today, and thank you to the Zimmer Biomed team. Great exit to 2025. We love the performance that we saw in Q3 and Q4. Really encouraged about the opportunities we have ahead. Excited about '26. Will there be some disruption associated with The US go to market market transformation, we strongly believe this is the right step to take at the right time so that we can, create a company that we all aspire to create. Thank you for your time this morning. Operator: You again for participating in today's conference call. You may now disconnect.
Operator: Good day, and welcome to the Danaos Corporation Conference Call to discuss the Financial Results for the three months ended December 31, 2025. As a reminder, today's call is being recorded. Hosting the call today is Dr. John Coustas, Chief Executive Officer of Danaos Corporation, and Mr. Evangelos Chatzis, Chief Financial Officer of Danaos Corporation. Dr. Coustas and Mr. Chatzis will be making some introductory comments, and then we will open the call to a question and answer session. Evangelos Chatzis: Thank you, Operator, and good morning to everyone, and thank you for joining us today. Before we begin, I quickly want to remind everyone that management's remarks this morning may contain certain forward-looking statements, and the actual results may differ materially from those projected today. These forward-looking statements are made as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, and we encourage you to review these detailed Safe Harbor and Risk Factor disclosures. Please also note that where we feel appropriate, we will continue to refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, time charter equivalent revenues, and time charter equivalent dollars per day to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and accompanying materials. With that, let me now turn the call over to Dr. John Coustas, who will provide the broad overview of the quarter. John? John Coustas: Thank you, Evangelos. Good morning, and thank you all for joining today's call to discuss our results for 2025. In this quarter, it became evident that the business community continues to adapt quickly to geopolitical disruptions. Despite concerns that tariff and geopolitical uncertainty would cause a slowdown, it has not materialized. At the same time, the hype around AI-related investments has increased optimism. China's exports continued to set new records, and consequently, container volumes have reached record highs, with the Suez Canal still largely avoided by major liners, and trade patterns increasingly transforming to multipolar demand for midsized vessels has remained very strong. Against this background, we continued our strategy of securing long-term employment for our existing vessels through forward fixtures by either extending existing charters or by new charters even for late 2027 deliveries. We also continue to invest in modular container vessels. We ordered six 1,800 TEU vessels, four 5,300 TEU vessels, and two 211,000 deadweight Newcastle MAX dry bulk vessels for deliveries in 2028 and 2029. We have secured ten-year charters for four of these vessels, and the company's total contract revenue increased to $4.3 billion as of the end of the quarter, giving us great earnings visibility into the future from which we derive our ability to manage any eventual future market development. On the financing front, we completed a seven-year €500 million unsecured bond offering at a 6.875% coupon, one of the most competitively priced deals ever achieved in the shipping industry for an unsecured bond of such tenor, further diversifying the capital structure and reaffirming our access to the deep and liquid international debt capital markets. Our liquidity at year-end reached $1.4 billion, backed by a strong financial profile. We have begun exploring selective investments in the energy sector to broaden revenue sources and expand the LNG business. In this context, Danaos became a strategic investor in the Alaska LNG project, providing access to LNG transportation opportunities associated with a facility planned to produce 20 million tons per annum. The company remained focused on positioning itself at the forefront of shipping and energy growth areas for the benefit of our shareholders. With that, I'll hand the call back over to Evangelos, who will take you through the financials for the quarter. Evangelos Chatzis: Thank you, John, and good morning again. I will briefly review the results for the quarter and then open up the call to Q&A. We are reporting adjusted EPS for 2025 of $7.14 per share or adjusted net income of $131.2 million compared to adjusted EPS of $6.93 per share or adjusted net income of $133.3 million for 2024. This $2.1 million decrease in adjusted net income between the two quarters is the combined result of a $6.6 million increase in total operating costs, mainly due to the increase in the average number of vessels in our fleet, a $2.1 million legacy claim receipt that was booked in the fourth quarter of last year with no such booking in the current quarter, a $1.8 million decrease in dividend income together with a $100,000 increase in equity loss on investments, all of those partially offset by an increase of $8.1 million in operating revenues and a $400,000 decrease in net finance expenses. The increase in our containership fleet produced $5.2 million of incremental operating revenues that were supplemented by an extra $10.5 million of incremental revenues as a result of higher fleet utilization between the two periods and $2.2 million in additional revenues as a result of higher charter income from our dry bulk fleet. Those were partially offset by a decrease of $7.8 million in revenues of our container segment as a result of lower contracted charter rates and $2 million lower non-cash U.S. GAAP revenue recognition. Vessel operating expenses increased by $2.8 million to $48.4 million in the current quarter from $54.6 million in the corresponding 2024, mainly as a result of the increase in the average number of vessels in our fleet, while our daily operating costs increased to $6,377 per vessel per day for the current quarter compared to $6,135 per vessel per day in 2024. Our operating costs continue to remain among the most competitive in the industry. G&A expenses increased by $6.7 million to $28.4 million in the current quarter compared to $21.7 million in 2024. This is mainly attributed to incremental stock and cash bonus awards of $6.6 million. Interest expense, excluding finance costs amortization, increased by $4.2 million to $13.4 million in the current quarter compared to $9.2 million in 2024. This increase is the combined result of a $5.8 million increase in interest expense due to an increase in our average indebtedness of around $400 million between the two periods, partially offset by a reduction in the cost of debt service by approximately 50 basis points, mainly as a result of a decrease in swap costs between the two periods. This was partially offset by a $1.6 million decrease in interest expense due to higher capitalized interest on vessels under construction between the two periods. At the same time, interest income came in at $8.5 million in the current quarter versus $3.9 million of interest income for 2024 due to the increased average cash balances, partially offset by lower interest rates. Adjusted EBITDA increased by 0.2% or $300,000 to $190 million in the current quarter from $189.7 million in 2024 for reasons that have already been outlined earlier on this call. We also encourage you to review our updated investor presentation that is posted on our website as well as subsequent events disclosures. Let me lay out a few of the highlights. Since the date of our last earnings release, we have added $428 million to our contracted revenue backlog. As a result, our contract backlog from containerships has considerably improved and now stands at $4.3 billion with a 4.3-year average charter duration. Contract coverage is already at 100% for 2026, stands at 87% for 2027, while even for 2028, we are already 64% contracted in terms of operating days. Our investor presentation has analytical disclosure on our contracted charter book. As of December 31, 2025, our net debt stood at $141 million, and this translates to a ratio of net debt to adjusted EBITDA of 0.2 times, while 61 out of our 85 vessel fleet are unencumbered and debt-free, with an extra 16 vessels that are encumbered as being secured into our revolving credit facility but are also debt-free since we have not made any drawdowns under this facility. We have declared a dividend of $90 per share for this quarter. We continue to execute under our share repurchase program, and we currently have $65 million remaining authority to repurchase stock under our $300 million share repurchase program. Finally, as of the end of 2025, cash stood at $1 billion, while total liquidity, and that includes availability under our revolving credit facility and marketable securities, stood at $1.4 billion, giving us ample flexibility to pursue accretive capital deployment opportunities. With that, I would like to thank you for listening. Operator, we are now ready to open the call to Q&A. Operator: We will now begin the question and answer session. The first question comes from Omar Nokta with Clarksons Platou Securities. Omar Nokta: John and Evangelos, another solid update. Backlog continues to grow. Thank you. Yes. Congratulations on the continuation of your career. Thank you very much. Appreciate it. Yes. I just wanted to ask about, you know, the business is obviously on solid footing. And with the backlog expanding, we are continuing to have plant-based flexibility. And just wanted to ask maybe if you could just touch a little bit more on the LNG project. As we understand it, Danaos will be the provider of choice for ships for the project. What do you expect in terms of project timing of when a decision is made, the number of ships that you would be able to bring to the project, and then maybe a sense of duration of the charters if those come about? John Coustas: Well, the current timeline is for completion of the projects in 2030. In terms of the number of ships, there are going to be between six and ten ships required for these volumes. It depends a bit also on the exact routing where these ships are going to be employed, but it is going to be definitely from Alaska to the Far East. But of course, it is different if it is, let us say, North in Korea or a bit more south towards the Thailand area. So all that will play out a bit later. And we will need to start really placing orders practically in about a couple of years' time. In terms of duration, this project is really a very long-term project. We are talking about employment and twenty years something like that. Omar Nokta: Okay. Thank you. That is helpful. So we will see how things develop on that front. And then just a second question, and I will pass it back. The Newcastle Max orders are interesting, and they come here two or three years after you have invested in the existing Cape fleet. How should we think about further orders from here? Should we expect a series to come? And then how are you thinking about those vessels as they join your fleet? Are they additive to what you have currently? Or are you kind of thinking about them being replacement? John Coustas: Well, replacement, the fleet that we have now is, let us say, average, whatever, 14 years old. So okay, these ships can trade easily until twenty years. And in some trades even longer. On the other hand, we wanted to expand in the segment, and secondhand prices have gone dramatically up. And we decided really to move into the new buildings because we believe it is a much better value proposition. Omar Nokta: That makes sense. Okay. Well, very good. Thanks, John. Thanks, Evangelos. I appreciate your comments. Great. I will turn it back. John Coustas: Thank you. Thank you, Omar. Operator: The next question comes from Clement Molins with Value Investor's Edge. Please go ahead. Clement Molins: Hi, good afternoon, and thank you for taking my questions. Wanted to start by following up on Omar's question on the Newcastle MAX orders. Delivery is still a few years away, but should we initially expect those vessels to trade on spot? Because there has reportedly been some interest in recent weeks for long-term contracts on the Newcastle Max side. Would there be any interest to fix these two vessels on those contracts? John Coustas: Well, for the time being, no. What I mean is these vessels will be chartered. I mean, there are plenty of takers, but mainly charter them on index. And because of their characteristics, they are going to have a pretty high kind of index, which makes this investment attractive. Clement Molins: Makes sense. And following up on this, regarding your underwater Capesizes, time charter rates have gone quite well in recent months. And I was wondering, is there any appetite to fix some vessels on medium-term contracts? Or do you prefer to continue employing them on spot? John Coustas: I think that we will employ them mainly spot. If we find, let us say, some kind of extraordinary spike that we believe it is worth securing that, we can always secure it through FFAs or the vessels that we have on index can convert them on the same kind of basis. But overall, we want really to ride the spot market on these ships. Clement Molins: Thanks for the color. Makes a lot of sense. I will pass it over. Thank you for taking my questions. John Coustas: Thank you. Operator: It appears we have no further questions at this time. I would like to turn the call back over to Dr. Coustas for any further comments or closing remarks. John Coustas: Thank you for joining this conference call and for your continued interest in our story. Look forward to hosting you on our next earnings call. Operator: Thank you. This concludes today's teleconference. We would like to thank everyone for their participation. Have a wonderful afternoon.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Gilat Satellite Networks Ltd.'s Fourth Quarter 2025 Results Conference Call. All participants are at present in listen-only mode. Following the management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press 0. As a reminder, this conference is being recorded on February 10, 2026. By now, you should have all received the company's press release. If you have not received it, please view it in the news section of the company's website, www.gilat.com. I would now like to hand over the call to Mr. Sanjay Harry of Alliance Advisors IR. Mr. Harry, would you like to begin, please? Sanjay Harry: Thank you, Hilla, and good morning, everyone. Thank you for joining us for Gilat Satellite Networks Ltd.'s earnings conference call for the fourth quarter and full year 2025. With us on today's call are Mr. Adi Sfadia, Gilat's CEO, and Mr. Gil Benyamini, Gilat's Chief Financial Officer. The earnings press release was issued earlier today, and if anyone has not yet received a copy, I invite you to visit the company's website, www.gilat.com, where you'll find the release in the Investor Relations section. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of the company's products on a global basis, and disruptions or delays in the company's supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under its control. The company cautions investors to not place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors and other factors that could affect Gilat's financial results is included in the company's filings with the Securities and Exchange Commission. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would like to turn the call over to Gilat CEO, Mr. Adi Sfadia. Please go ahead, Adi. Adi Sfadia: Thank you, Sanjay, and good day, everyone. Thank you for joining us today to discuss Gilat Satellite Networks Ltd.'s fourth quarter and full year 2025 results. I am pleased to report that we closed both the quarter and the year with strong performance. The fourth quarter capped a very solid 2025, reflecting consistent execution across our commercial, defense, and Peru businesses, as well as continued strategic progress. 2025 was a year of significant acceleration of our revenue growth. Fourth quarter revenue reached $137 million, up 75% year over year. Full year revenue rose to $451.7 million, up 48% with 6% year-over-year organic growth. Adjusted EBITDA also saw significant growth, with the fourth quarter reaching $18.2 million, 50% above the same quarter last year. The full year adjusted EBITDA hit $53.2 million, a 26% growth year over year. Overall, 2025 was a good and successful year for the company. Now on to the business review. I will start with the defense. Military forces are increasing their dependence on resilient satellite connectivity to support mobility, real-time intelligence, and operations in contested environments. This shift favors suppliers with proven scalable systems, strong track records, and the ability to leverage commercial technology to the defense market, all of which are attributes of Gilat Defense. Gilat Defense is gaining steady demand from long-term defense programs, ongoing upgrades, and consistent Satcom spending, giving the business clear visibility into future growth. This strengthens Gilat's border defense portfolio and supports the company's ability to capture a larger share of the growing market that values the capabilities we provide. In 2025, our defense business delivered strong year-over-year growth in new order bookings, expanding customer engagement, and our addressable market. We achieved a record year for Gilat Defense sales, driven by increased demand from U.S. and allied defense customers for transportable, high-performance SATCOM solutions. This system continued to gain traction as defense organizations prioritize flexibility, rapid deployment, and resilient connectivity across diverse operational environments. The fourth quarter marked two important milestones for the business. First, we expanded into a new market segment, Earth Observation, with an approximately $10 million order for a direct downlink solution system enabled rapid acquisition of satellite imagery and data directly from space to a transportable ground terminal supporting near real-time intelligence and situational awareness in remote or contested environments. Our transportable platform provides fast deployment, resilient, and reliable operation. Also in the fourth quarter, we saw continued traction in Israel, securing significant orders across our defense portfolio and expanding the deployment of our solutions in the region. Our decision to shift more resources into Gilat Defense, expand the sales team, and increase R&D investment are now clearly strengthening Gilat's position in the defense market. Our defense pipeline remains strong, supported by sustained global demand for secure, resilient Satcom solutions. Turning to our commercial business. Demand for advanced IFC continues to accelerate, fueled by free WiFi, growing passenger demand for high-bandwidth applications, and increasing adoption of NGSO and multi-orbit architectures across the aviation ecosystem. This trend aligns directly with Gilat's strength and long-term strategy. Our commercial business delivered a strong fourth quarter and solid 2025, reflecting continued wins, growing customer adoption, and consistent performance across our key programs. As satellite operators accelerate investment in next-generation networks, our platform continues to be selected for its scalability, flexibility, and ability to support multi-orbit mobility-driven services. SkyH4 remained the central growth driver throughout the year. During the fourth quarter, we received a $42 million order from a leading global satellite operator for our multi-orbit platform, primarily supporting IFC services. During the fourth quarter, we added two new SkyH4 customers in Asia Pacific. We continue to expand deployments with leading satellite operators as they invest in flexible, software-defined ground networks. These awards reinforce SkyH4's role as a core platform for large-scale next-generation satellite networks. We also strengthened our presence in Asia Pacific with a SkyEdge platform order for approximately $11 million from a leading regional satellite operator to provide services over VHDS satellites supporting multiple commercial applications. In addition, we received more than $16 million in orders for Gilat WaveStream Gateway solid-state power amplifiers to support LEO constellation, highlighting growing traction for our solutions as LEO networks move from deployment into operational phases. Airlines and system integrators expanded our adoption of our technology for next-generation aircraft connectivity. During the fourth quarter, we received a $7 million order for Gilat WaveStream Airstream Bucks units to be deployed as part of next-generation IFC solutions to be installed on commercial aircraft. Stellar Blue is now fully integrated into Gilat's operations, and we are benefiting from cross-company synergies. Gilat's Stellar Blue plays a key role in our IFC leadership position with enhanced offerings that drive further growth for ESA in the IFC sector. Production is ramping up, and during the quarter, we delivered approximately 190 terminals, and we expect increased deliveries with improved margins in the coming quarters. As of year-end, we have a significant backlog that will be delivered in 2026 and beyond, based mostly on orders received during 2025. To date, more than 420 aircraft are online with our ESA terminal, and cumulatively, over 1 million passengers are being served each week with our models and ESA solutions. Continuing this progress, we received a multimillion-dollar order for our Sidewinder ESA terminal from a large global avionics company, underscoring the advantage of our high-performance, lightweight, low-profile configuration that is compatible with both GEO and LEO satellite constellations. Overall, our commercial pipeline remains strong as operators transition to multi-orbit architectures to support additional services, positioning us well for continued growth into 2026. Moving to Peru. Gilat Peru delivered exceptional results during the year, closing more than $85 million in agreements from Ponatel for the upgrade of four regional networks. These awards clearly reinforce Gilat's role in Peru as a key technology and solution partner for large-scale national connectivity initiatives. These projects, which are progressing ahead of schedule, are advancing Peru's digital inclusion objectives by enabling public WiFi hotspots and high-speed connectivity to public institutions such as schools, health centers, and police stations. Looking ahead, we see this progress continuing. We expect additional large RFPs and follow-on orders during 2026, positioning Peru as an important contributor to Gilat's long-term growth in large national digital inclusion programs. Our backlog is growing, with a strong, healthy, and diverse pipeline of opportunities in each of our divisions. As such, we expect another year of top-line and profit growth. We expect 2026 revenues to be between $500 million and $520 million. We expect adjusted EBITDA to be between $61 million and $66 million. To summarize, 2025 was a strong year for Gilat, marked by a good fourth quarter, record performance in key segments, meaningful customer wins, and a significantly strengthened balance sheet. We are entering 2026 with strong momentum across the company. In Defense, we will focus on driving revenue growth through business development, R&D investment, and portfolio expansion, further strengthening our position. We intend to pursue opportunities in government and sovereign communication programs worldwide. In commercial, we will continue to drive adoption of our IFC product portfolio and expand our offering for next-generation aircraft connectivity, further strengthening our leadership position in IFC. We will also focus on expanding our SkyH4 customer base. In Peru, we plan to expand our footprint by participating in new digital inclusion initiatives and network expansion projects, building on our proven execution and local presence. Gilat is accelerating its competitive advantage through continued technology leadership in multi-orbit connectivity and the development of advanced 5G and TEN capabilities. Mergers and acquisitions will be a key strategic focus, with primary emphasis on defense-related capabilities that complement our existing strengths. Gilat entered 2026 with a strong balance sheet and with an additional $100 million equity placement in the fourth quarter, bringing total capital raised in 2025 to $166 million. This investment enhances our ability to pursue strategic opportunities and build on the milestones achieved this year. I would like to thank our employees for their commitment and performance and our customers and partners for their continued trust. And with that, I will hand over the call to Gil, our CFO. Gil, please go ahead. Gil Benyamini: Thank you, Adi. Good morning and good afternoon to everyone. Before I dive into the numbers, I would like to remind everyone our financial results are presented both on a GAAP and non-GAAP basis. I will now walk through our financial highlights for 2025. As Adi mentioned, we delivered a strong quarter and year, demonstrating continued execution across our strategic priorities and building momentum into 2026. In terms of our financial results, revenues for the fourth quarter were $137 million, representing a 75% growth compared with $78.1 million in Q4 2024. Importantly, our organic growth quarter over quarter was 28%. For the full year, revenues totaled $451.7 million, reflecting 48% growth from $305.4 million in 2024. The growth was primarily driven by the in-flight connectivity vertical. In terms of the revenue breakdown by segment, Q4 2025 revenues for the Commercial segment were $75.1 million compared with $37 million in the same quarter last year. 103% growth was primarily driven by the in-flight connectivity, mainly reflecting the contribution from Stellar Blue. Q4 2025 revenues for the Defense segment were $33.3 million, 14% higher than $29.4 million in the same quarter last year. Q4 2025 revenues for the Peru segment were $28.5 million compared with $11.8 million in Q4 2024. The increase was driven primarily by higher revenues related to new upgrade projects in four of the six regions in which we operate. Our GAAP gross margin in Q4 2025 was 28% compared with 40% in Q4 2024. The decrease is primarily attributable to lower margins at Stellar Blue as production ramps up, as well as an additional $2.9 million of amortization of purchased intangibles expenses related to the acquisition. GAAP operating expenses in Q4 2025 were $25.3 million compared with $18.3 million in Q4 2024. The increase was primarily driven by the consolidation of Stellar Blue expenses, amortization of acquired intangible assets, and stock-based compensation mainly related to acquisitions. As a result, GAAP operating income in Q4 2025 was $13 million compared with GAAP operating income of $12.8 million in Q4 2024. GAAP net income in Q4 2025 was $8.8 million or a diluted income per share of $0.13 compared with GAAP net income of $11.8 million or diluted income per share of $0.21 in Q4 2024. The decrease in net income mainly reflects higher financing costs associated with the loan taken to finance Stellar Blue acquisition, together with higher tax expenses during the quarter. Moving to non-GAAP results. Our non-GAAP gross margin in 2025 was 31% compared with 40% in Q4 2024. Non-GAAP operating expenses in Q4 2025 were $26.6 million compared with $21.9 million in Q4 2024. The increase was primarily driven by the consolidation of Stellar Blue operating expenses. Non-GAAP operating income in Q4 2025 was $15.2 million compared with $9.7 million in Q4 2024. And non-GAAP net income in Q4 2025 was $13.4 million or a diluted income per share of $0.20 compared with a net income of $8.5 million or income per share of $0.15 in Q4 2024. The adjusted EBITDA in Q4 2025 was $18.2 million, a 50% increase compared with an adjusted EBITDA of $12.1 million in Q4 2024. For the full year, adjusted EBITDA was $53.2 million, a 26% increase compared with an adjusted EBITDA of $42.2 million in 2024. Moving to the balance sheet and cash flow. Over the past several quarters, we significantly strengthened our balance sheet and liquidity position. In September and December 2025, the company completed capital raises totaling $166 million from leading institutional accredited investors in Israel. In December 2025, we also repaid an outstanding $60 million loan that had originally financed the acquisition of Stellar Blue. In 2025, we used about $6.3 million of cash on operating activities. And on a full-year basis, we generated approximately $21 million of operating cash flow in 2025. As a result, as of December 31, 2025, total cash, cash equivalents, restricted cash, and short-term deposits were $185.4 million or approximately $183.4 million net of loans, compared with $95.6 million as of September 30, 2025. DSOs, which exclude receivables and revenue of our terrestrial network construction projects in Peru, were eighty-eight days. Our shareholders' equity as of December 31, 2025, totaled $500 million compared with $391 million on September 30, 2025, resulting mainly from the capital raise and earnings. Looking ahead, reflecting our strong backlog and our visibility into 2026, we expect 2026 revenues of between $500 million and $520 million, representing 13% growth year over year at the midpoint. We expect an adjusted EBITDA of between $61 million and $66 million, a 19% growth at the midpoint. We expect 2026 commercial segment revenues of between $315 million to $335 million, a 16% growth at the midpoint. Defense segment revenues of between $115 million to $113 million, a 22% growth at the midpoint. And revenue of the Peru segment of between $60 million to $65 million, an 11% decrease at the midpoint due to lower construction revenue in 2026 and a shift to the operation phase compared to 2025. That concludes my financial review. I would now like to open the call for questions. Operator, please go ahead. Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you've connected via Zoom, please use the raise hand button located at the bottom of your screen. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Ryan Koontz of Needham and Company. Please go ahead. Ryan Koontz: Thanks. Appreciate the question. Nice quarter, guys. On the defense side, you know, given kind of some of the puts and takes been going on with the US budget process and how you're thinking about this year. Maybe can you update us on your visibility as it relates to the defense market both in the US and any international traction you might have? Thank you. Adi Sfadia: Hi, Ryan. On the visibility to defense, generally when we are entering a year, we have between 50% to 60% of the revenues already in backlog from the guidance. So we have relatively good visibility. We have some large projects that we are working on that can secure the year during the first half of the year. We don't see any effect of the recent shutdown in the US administration. We see increased budget and a lot of traction both in the US, in Israel, and in Europe when a defense organization requires satellite connectivity. Ryan Koontz: That's great. Thanks. And maybe shifting gears to IFC a bit. Can you update us on your roadmap there for line fit? I know you've been looking forward to that and maybe an update on the competitive landscape in IFC. Adi Sfadia: Sure. So on the line fit, as we said in the past calls, we are progressing with Boeing line fit. We expect to pass certification during the first half of the year and start delivering in the third quarter. So it seems promising and on track. With Airbus, we are in initial phases. So it takes some time and probably will drag us to next year. But this is based on initial expectations. So we didn't expect revenues from Airbus line fit in 2026. The competitive landscape stayed, give or take, the same. There is a lot of traction. Both SES and Panasonic have decent awards. Not everything is published yet. So we do see their forecast and we do expect some large orders coming in the first half of the year, hopefully, this quarter. As I said in my script, most of the guidance is already covered with the backlog that we have, that we received mostly in 2025. So all the orders that we expect to get during 2026 probably will be recognized in revenues in 2027. Ryan Koontz: That's terrific. Thanks. Maybe just touching on Peru. I know that business can be a bit lumpy. I know that they have an election plan coming up. Can you maybe talk to the kind of cadence how you expect the Peru business to unfold this year? Adi Sfadia: Sure. So in Peru, during 2025, we got an award for upgrading four regional networks that we maintain. We are in discussion with the government to upgrade the remaining two networks. We believe that we'd be able to close it before the election in the second quarter. In parallel, there are a lot of internal discussions in Peru of very large RFPs for Internet connectivity, both terrestrial and satellite in Peru. So we expect to participate in those RFPs. A lot of traction in Peru. We don't believe that the election will cancel any of those RFPs. Probably, we'll see most of the RFPs during the first quarter and during the fourth quarter of the year. Ryan Koontz: Really helpful. Thanks. I'll get back in the queue. Adi Sfadia: Thanks. Bye. Operator: The next question is from Sergey Glinyanov of Freedom Broker. Please go ahead. Sergey Glinyanov: Good morning, gentlemen. So you provided pretty positive guidance for defense, and you mentioned a new area of expanded operations in earth observation solutions. But could you put some colors on these contracts and its margin profile? Could it be a significant driver for defense revenue this year, and do you expect defense order acceleration in Q1 compared to Q4? Thank you. Adi Sfadia: Hi, Sergey. So I'll start with a general comment on the defense. We saw in revenues relatively small growth year over year. It's mainly due to the previous shutdown of the US administration that caused some delays in orders. We didn't lose any deal, but because some of the revenues are recognized based on project progress, and if the order arrives late, we are unable to recognize revenue. So we'll see it in 2026. We did see very nice more than 35% year-over-year growth in orders getting in. As for the earth observation, it typically has the same margin profile that we see on those kinds of deals, which is give or take the average of Gilat, between, I would say, 30% to 40%. Sergey Glinyanov: Great. Thank you. That's all from me. Operator: The next question is from Louie DiPalma of William Blair. Please go ahead. Louie DiPalma: Great. Adi and Gil, good afternoon. Hi, Louie. How are you? Adi Sfadia: Excellent. I'm following the private placement, what areas of M&A are you targeting? Adi Sfadia: That's a very good question. So first of all, we are open to we are not limiting ourselves to a specific segment, but our main focus is on the defense. On one hand, we want to increase our market presence both in the US, but we are also focusing on Europe. There is a lot of business in Europe, a lot of budget, especially because of the Russian Ukraine war and conflict between the Trump administration and the European countries. So they want to control their own destiny and increasing their investment in defense. And we see also a lot of traction in secure satellite communication. So we are targeting companies over there. Our main focus is to bring businesses, not to buy technology, and we'll continue to look for companies with great potential. It's something that can be significant to the company's revenues. So it could be with revenues of $50 million and above or maybe $100 million and above. And it should be accretive as soon as possible. It's not that we are not we will not buy a company that needs a turnaround, and we know how to do that. We did that in DataPath. We bought a company with less than $40 million in revenues, and close to breakeven, and now it's almost double their revenues. We're also looking to expand our addressable market in adjacent markets, for example, radar solutions, electronic warfare, and things like that. But it will be something that we are considering. We are doing internal work to define exactly where we want to focus. But also, we might be opportunistic here. In addition, we invested in the past in a startup with unique technology, a company called Crossroads, and we'll continue to look for unique technologies, either a minority investment or taking control. But it's not something that is going to change the overall financials of the company. Louie DiPalma: Great. And secondly, did Stellar Blue attain the second milestone related to the $120 million in new backlog by December? Adi Sfadia: So, no, they didn't attain the airline milestone. They achieved around slightly above half of it. A very large order that we are expecting to get slipped into 2026. We know that it's being processed. We expect to get it, if not by the end of this quarter, so early next quarter. It's not affecting our revenues for 2026 because revenues for 2026 are already in the backlog. There is a nine to twelve months lead time on the main components of the terminal. So we are pretty close for 2026. We can affect it here and there, but not materially. The order that we are expecting should be delivered mainly in 2027. And since we need to deliver it based on customer needs, if it will arrive today or within two months, it's not really a big issue from our perspective. I would like to emphasize that from our perspective, the risk of delivery and the risk of new business is mitigated. We see the very good acceptance of the antennas in the market, the very good quality, the availability of more than 95%. More than 420 aircraft are connected and more than 500 delivered in 2025. So we know for a fact that the risk that we wanted to mitigate are mitigated. We do expect to see future growth. Louie DiPalma: And what was Stellar Blue's revenue in 2025, and what is the general projection for growth in 2026? Adi Sfadia: So revenues for 2025 were about $127 million within the range that we gave between $120 million to $150 million. Today, Stellar Blue is, in 2026, closely integrated with Gilat's business. It's hard to break the P&L. We do expect from a revenue perspective to see a double-digit growth in unit deliveries. Louie DiPalma: And one final one. Did you previously indicate that you made progress with Airbus for the inclusion of Sidewinder into its line fit program? Adi Sfadia: So we do have an agreement together with SES to bring the Sidewinder to be line fit with Airbus. SES will be able to install the terminal within Airbus premises. It's not yet part of the official Airbus plan of the HBC plus. Louie DiPalma: Great. Now that is still seems fairly positive. Thanks. Adi Sfadia: I agree. Thank you, Louie. See you soon. Operator: The next question is from Chris Quilty of Quilty Space. Please go ahead. Chris Quilty: I just want to a little bit on Stellar Blue. I think the other the next set of milestones, say, for targeting those with the large strategic contracts. I think those are separate from the large order just mentioned. Which is more of a commercial customer. Can you give us an update on how they're progressing on some of those strategic orders? Adi Sfadia: Chris, you're a bit disconnected. Can you repeat the question, please? Chris Quilty: The question was whether you've made any progress with Stellar Blue on some of the strategic opportunities that they're pursuing. Adi Sfadia: Okay. So you are referring to the third earn-out. We are making some progress with one company that we cannot name yet. It's progressing well. I don't know if we'll be able to close everything by the end of the milestone, which is by June, but it seems promising. We are progressing. I want to remind you that it's not just signing the agreement. It has some technical conditions as well. It needs to come with a minimum order commitment of at least $35 million with a gross profit, which is significant, almost double the gross profit that the original units booked had. And come with a relatively significant down payment. The pause in the discussion with the customer seems like applying to those conditions, but it's still in early stages. I cannot comment if it will be closed or not. Chris Quilty: Understand. And would those products require significant changes in manufacturing or design? And where do you currently stand in the production rate? Adi Sfadia: So those future products might require significant design. A lot of our product and a lot of our design changes are approved relatively quickly because Stellar Blue's expertise is with those certifications, working based on qualification by similarity. But in some of the cases, we are offering a different variation of the terminal with a cheaper design. It really depends on the customer. In terms of production, we said at the beginning of the year that we expect to reach 60 to 70 units per month. So we reached this run rate. During the fourth quarter, we delivered 190 full terminals, including on top of it, we delivered some spare parts. We can increase this production rate with relatively small capital investment. But right now, this production rate is give or take in line with customer expectations for delivery. During the year, we delivered more than 500 units. In Q4, it was a record quarter in terms of deliveries. Chris Quilty: Understand. And should we expect the deliveries to be relatively even across the year or there's a seasonal pattern to that? Adi Sfadia: No. In 2026, we expect it to be linear across the year. Of course, it can be small changes between the quarters, but it's expected to be linear. Chris Quilty: Understand. And staying on IFC, do you have an update on, let's say, ESR 2030 terminal? I think that was supposed to be charging early this year for delivery. Is that still on track? And maybe more broadly, what are your evolving thoughts on what is the sweet spot of the flat panel antenna market both in terms of your, you know, fan or, you know, single beam, dual beam, where are you taking in the new product direction? Adi Sfadia: So in terms of the ESR 2030, we passed qualifications and we expect to start delivering production units probably in the second half of the year. It really depends when Gogo is ready to accept them. Know that Gogo is promoting the terminal and already have some small awards that they want to install those antennas. So I think it's on track for the year. As for the future roadmap, you know, the antenna currently doesn't support simultaneously dual beams. The plan is that the next generation of the product will support dual beam. But usually, it comes with customer demand. So it's really what matters to their customer. Fast time to market or he has the time to wait for a new version of the antenna with dual beam capabilities. Chris Quilty: Right. And I assume based on the earlier or the delay in the large order, the backlog probably dipped below $1,000. Where do you expect it to finish out, say, maybe by midyear and then from here? Adi Sfadia: It's a good question. We do not disclose the number of units that we have in backlog. I can say that at year-end, we are give or take at the same level that we are at the beginning of the year, maybe slightly below. We do expect to finish the year with a backlog that will cover us for at least 2027 and beyond. Chris Quilty: Great. Thanks for the update. Adi Sfadia: Thank you, Chris. Operator: The next question is from Gunther Karger of Discovery Group. Please go ahead. Gunther Karger: Yes. Thank you. Good morning. Excellent year, excellent quarter. Congratulations. My question is, we haven't heard in a long time about high-speed ground transport, like high-speed rail. There was a project on the way, I think, in China on that. Any updates on that in that area? Adi Sfadia: Indeed, I remember the project in China, I think it was ten years ago when I just arrived at Gilat, was promising back then. But since then, we didn't see a lot of traction. We do have here and there some terminals that we are selling for fast trains around the world, but it's in limited numbers. And right now, it's not our main focus. Thank you. Gunther Karger: Thank you, Gunther. Operator: If there are any additional questions, please press 1 or use the raise hand button. Please stand by when we pull for more questions. There are no further questions at this time. Mr. Benyamini, would you like to make a concluding statement? Gil Benyamini: Thank you. I want to thank you all for joining us on this call and for your time and attention. We hope to see you soon or speak with you in our next call. Thank you very much, and have a great day. Operator: Thank you. This concludes the Gilat Satellite Networks Ltd. 2025Q4 results conference call. Thank you for your participation. You may go ahead and disconnect.
Operator: Welcome to the Lee Enterprises 2026 First Quarter Webcast and Conference Call. Jared Marks: The call is being recorded and will be available for replay at investors.lee.net. At the close of the planned remarks, there will be an opportunity for questions. Participants accessing this call by webcast may submit written questions through the website and they will be answered during the call as time permits. Otherwise, you will receive a response letter. A link to the live webcast can be found at investors.lee.net. I would now like to turn the call over to your host, Jared Marks, Vice President, Finance. Please go ahead. Jared Marks: Thank you, and good morning, everyone. We appreciate you joining us today. With me on this morning's call are Nathan Becky, President and Interim Chief Executive Officer, and Josh Reinholz, Vice President, Interim Chief Financial Officer, and Treasurer. Earlier today, we issued a news release announcing preliminary results for our 2026. The release and the accompanying presentation are available at investors.lee.net. As a reminder, this morning's discussion will include forward-looking statements based on current expectations. These statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ. Such factors are described in this morning's news release and in our SEC filings. During the call, we refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the tables accompanying the release. With that, I'll turn the call over to Nathan Becky. Nathan Becky: Thank you, Jared. Good morning, everyone, and thank you for joining us. Lee Enterprises delivered a strong start to fiscal 2026, highlighted by significant first-quarter adjusted EBITDA growth and a transformational improvement to our capital structure. Adjusted EBITDA grew 61% year over year to $12 million, driven by consistent execution across the core business and disciplined cost management. Last week, we completed a $50 million equity investment that materially strengthens our balance sheet and significantly improves our liquidity. In this morning's call, we'll provide a closer look at the financial stability that the transaction provides and the transition following the closing of the deal. Before we dive into that, let me begin by reinforcing the fundamentals of our three-pillar digital growth strategy which has enabled Lee to rapidly transform over the last five years into a digital-first company. Our transformation into a strong and stable digital media company is not theoretical. It's measurable, repeatable, and scalable. Digital is no longer an emerging segment inside a legacy business but the primary economic engine of the company. The trajectory of Lee is increasingly governed by digital growth rates, digital markets, and digital unit economics. This shift represents disciplined execution, expanding our audience through rich local content, accelerating digital subscription growth, and building a digital advertising business that delivers results. With nearly $300 million in digital revenue over the last twelve months, we are well-positioned to reach our $450 million digital revenue target by 2030. Our investment thesis is centered on a strengthened balance sheet and continued debt reduction. The $50 million common stock private placement shores up our balance sheet in both the near and long term and will lead to future deleveraging. Furthermore, with the close of this deal, our already favorable credit agreement will see a significant boost. We'll touch on the details of this transaction and the amended credit agreement in just a moment. But for now, I'd just point out the transformational impact these will have on our future. By strengthening the balance sheet and improving the company's capital structure, we are putting the company in a much better position to execute our strategy and deliver long-term value to our shareholders. I'm excited to share the details of the strategic deal that closed this past week. We raised $50 million in gross proceeds through a private placement of common stock at $3.25 per share. The private placement was anchored and backstopped by David Hoffman, with additional existing investors also participating. This transaction followed a comprehensive review of the company's performance and capital structure, consideration of alternatives, and approval by both the Board and shareholders who recognize that by strengthening the balance sheet and reducing the interest rate under our credit agreement, the company would be in a better position to execute and create long-term shareholder value. As part of the closing of the transaction, we welcome Mr. Hoffman as Chairman of the Board of Directors. Concurrently, with this private placement, the credit agreement has been amended to reduce the interest rate on our outstanding debt to 5% from 9% for the next five years. On $455 million in debt, the interest rate is expected to generate approximately $18 million in annual interest savings or up to $90 million over the five-year period. That significant cash flow improvement over the five-year horizon will allow us the flexibility to invest in our core business and drive digital growth. The proceeds from the deal will be used primarily for working capital and to fund current and future digital transformation projects. This transaction accelerates our ability to strengthen our digital platforms, enhance the consumer's experience, and deliver measurable performance for our local advertising clients. In the near term, it improves operating efficiency while positioning us with a more flexible, scalable digital infrastructure designed to support sustainable long-term growth. Fiscal 2026 presents a tremendous opportunity for growth driven by the strength of our digital businesses and operational discipline. Particularly as we've already delivered strong first-quarter results. At a macro level, we are a leading provider of high-quality local news information, and advertising in 72 markets across the US. Our local journalism is what sets us apart. As a digital-first subscription platform, we provide breaking news and local content that commands a strong audience, and attracts advertisers within the local communities we serve. Over the last twelve months, sustained growth of 14% in our digital-only subscription revenue has further diversified our revenue mix and boosted our reliance on growing revenue streams. At the same time, we've maintained disciplined cost management across the organization, particularly in legacy costs and corporate overhead. These efforts are driving steady momentum in adjusted EBITDA which was $50 million over the last twelve months. Now I'll hand the call over to Josh to run through our first-quarter results. Thanks, Nathan. Josh Reinholz: Our strong first quarter was marked by meaningful year-over-year improvement in adjusted EBITDA driven by continued progress in our digital transformation and disciplined cost. Q1 adjusted EBITDA increased by a significant 61% or $5 million over the prior year reflecting improved operating efficiency and higher expense control. These results demonstrate the company's ability to expand profitability even as we navigate dynamic changes in the digital media landscape. On the digital subscription front, we finished the quarter with $23 million in revenue, from our 609,000 digital-only subscribers. 5% growth in digital-only subscription revenue was fueled by increased efforts to maximize engagement within our subscriber base as well as to optimize price within our highly engaged subscriber cohorts. Targeted investments in personalization content delivery, and life cycle marketing are increasing subscriber lifetime value and improving overall monetization. Q1 finished with over $70 million in total digital revenue. Which represented over 54% of our total rep. This progress builds on the continued evolution of our revenue with digital revenue mix improving 330 basis points year over year digital-only subscription revenue growing 5%, and digital sources representing 71% of total advertising revenue. Underscoring the transformational effect of our digital growth strategy. The strength of our first-quarter performance clearly demonstrates a strong foundation for Lee's future as a digital-first company. Lastly, and most significantly, Q1 saw substantial growth in adjusted EBITDA. Up $5 million or 61% over the prior year. Our first-quarter growth in adjusted EBITDA was driven by strong cost control. Particularly tied to our legacy revenue streams. With total cash costs declining $17 million over the prior year. The operational efficiency demonstrated this quarter was primarily driven by reduced headcount, and legacy print costs. This quarter represents our third consecutive quarter of adjusted EBITDA growth on a comparable basis. The year-over-year improvement in adjusted EBITDA margin was also quite substantial. With the 2026 representing 9.4% compared to 5.3% in the prior year. Another brief note on the quarter. Our results included $2 million in business interruption insurance proceeds tied to the cyber incident last year. Excluding these proceeds, Q1 adjusted EBITDA showed very strong 35% growth. We expect to receive further insurance proceeds as the fiscal year progresses. Overall, our first-quarter results highlight the strength of our digital strategy and our continued path towards transforming local media. Compared to our broader peer group, we have consistently outperformed across several key indicators of digital growth. Including digital subscription revenue, and digital agency rep. Over the past three years, digital subscription revenue has grown significantly. More than double that of our nearest competitor. Reflecting the consistent strength of our local journalism, effective subscription strategies for managing both volume and rate, and continual improvement in digital platforms. Over the past year, we have continued to modernize our technology and expand our product ecosystem using data-driven marketing, and audience insights to deepen engagement and enhance monetization. Post-transaction, we expect to further bolster our digital products and technology. Ultimately, our goal is improving the user's experience by delivering journalism that is credible, and timely as well as intuitive, accessible, and engaging across devices. Our roadmap will ensure our platforms evolve alongside audience expectations also supporting sustainable business outcomes. On the advertising side, revenue from our amplified digital agency has also outpaced peers. Growing at a 5% annual rate over the last three years. This performance underscores our ability to generate sustainable, digital advertising growth through scalable solutions, innovative services, and highly skilled digitally focused teams. Looking ahead, our trajectory toward 90% digital revenue by fiscal 2030 positions us to operate a sustainable business model that is no longer dependent on print products. As Nathan mentioned earlier, our focus remains on strengthening our digital products enhancing audience engagement, and building scalable capabilities that position the company for sustained performance in a digital media landscape. Just six years ago, our revenue was primarily print. Making up nearly 80% of our operating. As of 2026, 54% of our revenue is now digital. This transformational shift demonstrates that we're less reliant on legacy print than ever before. As we move forward, we will continue to build on this digital revenue growth momentum while also managing our declining legacy revenue streams all driving us towards a day when we are sustainable solely from our digital platforms. Our core digital business has grown 12% annually from fiscal 2021 to fiscal 2025. And that is translated to comparable annual growth in digital gross margin. Replacing our print revenue with growing and profitable digital revenue, sets us up to achieve long-term sustainability. By fiscal 2030, we will be sustainable from just our digital revenue and margin. Which is something we're more confident in now than ever as post-transaction, we begin to realize the impact of the transformational Vistas project we have underway and that are forthcoming. From a cost perspective, we have a consistent track record of disciplined cost management. While making strategic investments that support long-term growth. We remain steadfast in our commitment to long-term financial sustainability and the continued delivery of high-quality local journals. In fiscal 2026, reducing legacy costs and complexity throughout our business remains a top priority for us. By enhancing operational rigor this year, without compromising quality, we strengthened our long-term position and are poised to drive sustainable shareholder value over the long term. Lastly, before I pass it back to Nathan, I just like to reiterate how impactful the amended credit agreement is to our long-term financial. Since refinancing in March 2020, we have paid down $121 million of principal. With a strengthened balance sheet and a reduced interest rate, our path to debt reduction is stronger than ever. On $455 million in debt, the interest rate reduction of 5% is expected to generate approximately million dollars in annual interest savings or up to approximately $90 million over the five years. This savings is a boost that will generate long-term debt reduction and shareholder value creation. Another recent improvement to our balance sheet is the strategic termination of the company's fully funded defined benefit pension plan. Since the plan's assets were sufficient to cover all obligations, the company is free from any future cost uncertainty. Lastly, we have identified $26 million in non-core that we are actively working to monetize. These asset sales will contribute toward future debt reduction. I'll now pass the call over to Nathan for final remarks. Thanks, Josh. Nathan Becky: Looking ahead to the full year, we're reaffirming our outlook for fiscal 2026 of adjusted EBITDA growth in the mid-single digits. The strength of our first quarter positions us well to achieve our 2026 outlook. Josh Reinholz: The transaction and interest reduction give us increased confidence in not only fiscal 2026, but also the next five years. Nathan Becky: In other news, Josh Reinholz: recently announced a new strategic partnership with Huddl. A leader in sports technology video analysis, and data. Huddl works with thousands of high schools and local sports teams across the nation, providing video, data, and tools to support athletes, coaches, and communities. This partnership represents one of the largest collaborations in local sports media and aligns with our mission to serve our communities with high school sports coverage at the core. It also reinforces our commitment to journalism and storytelling that bring communities together. This partnership with Huddl will allow us to serve our communities even better by adding video content with free access and continue to tell the amazing local sports stories that reflect the pride, passion, and connection people feel for their schools and teams. Nathan Becky: What leaves deep roots in local communities Josh Reinholz: we create meaningful value for both our readers and advertisers positioning our digital platforms as the place to go for local sports consumption and advertising. While in the early stages, we're extremely excited to partner with the Huddl team and we'll share more as the relationship develops. Operator: With that, Josh Reinholz: open the call for questions. Nathan Becky: Lee? Operator: Thank you. At this time, we will be conducting a question and answer session. As a reminder, if you are accessing this call by webcast, you may submit typed questions on your screen. Those questions will be answered during the call as time permits. Nathan Becky: Questions. Josh Reinholz: We have no questions from our live participants. I'll now turn the call back to Nathan for closing remarks. Great. Thank you. I'll reiterate that we are a leader in local content and are well underway on a significant digital transformation. We have become a digital-first organization growing our digital revenue mix to 54% as of this past quarter. More than doubling over the past five years. With the $50 million private placement transaction supporting both deleveraging and continued digital investment, and up to $90 million in interest savings over the next five years we've meaningfully strengthened our balance sheet and increased our financial flexibility. With a clear strategy, strong foundation, and a compelling future, we are set up now more than ever for our next stage of evolution as a digital media company. I want to thank our employees for their dedication, and our shareholders for their continued support. Operator: Thank you. We have reached the end of our question and answer session. This concludes our call. You may now disconnect.
Lauren Morris: Good day, ladies and gentlemen. And welcome to the Medpace Holdings, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session. If your question has been answered or you would like to remove yourself from the queue, simply press star 11 again. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace Holdings, Inc.'s Director of Investor Relations. You may begin. Good morning. Lauren Morris: And thank you for joining Medpace Holdings, Inc.'s fourth quarter and full year 2025 earnings conference call. Also on the call today is our CEO, August Troendle, our President, Jesse Geiger, and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior or replacements for the comparable GAAP measure. But we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle. August Troendle: Good day, everyone. Cancellations were elevated again in Q4. Backlog cancellations in absolute and percent terms were the highest they have been in over a year. This resulted in a lower than anticipated net book-to-bill ratio of 1.04. The good news is that with a backlog conversion rate of 23.6%, our book-to-bill rate does not need to be very high to generate growth. I see no reason to expect the higher level of cancellations to continue but did not anticipate the spike in Q4. Only time will tell. Good opportunities continue to present themselves and I rate the overall business environment as adequate and headed in the right direction. Jesse will now make some comments on Q4 and the year. Jesse? Jesse Geiger: Thank you, August. Good morning, everyone. Revenue in 2025 was $708.5 million, which represents a year-over-year increase of 32%, and full year 2025 revenue was $2.53 billion, a 20% increase from 2024. Net new business awards and backlog in the fourth quarter increased 39.1% from the prior year to $736.6 million, resulting in a 1.04 net book-to-bill. For the full year 2025, net new business awards were $2.65 billion, an increase of 18.7%. Ending backlog as of December 31, 2025, was approximately $3 billion, an increase of 4.3% from the prior year. We project that approximately $1.9 billion of backlog will convert to revenue in the next twelve months. And our backlog conversion rate in the fourth quarter was 23.6% of beginning backlog. With that, I will turn the call over to Kevin to review our financial performance in more detail and discuss our 2026 guidance. Kevin? Kevin Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $708.5 million in 2025. This represented a year-over-year increase of 32%. Full year 2025 revenue was $2.53 billion and increased 20% from 2024. EBITDA of $160.2 million increased 20% compared to $133.5 million in 2024. Full year EBITDA was $557.7 million, an increase of 16.1% from the comparable prior year period. EBITDA margin for the fourth quarter was 22.6%, compared to 24.9% in the prior year period. Full year EBITDA margin was 22% compared to 22.8% in the prior year. EBITDA margins were impacted by higher reimbursable cost activity driven by therapeutic mix. In 2025, net income of $135.1 million increased 15.5% compared to net income of $117 million in the prior year period. For full year 2025, net income was $451.1 million compared to $404 million in 2024, which represents an 11.6% increase. Net income growth below EBITDA growth was primarily driven by lower interest income compared to the prior year period, as well as a slightly higher effective tax rate. Net income per diluted share for the quarter was $4.67, compared to $3.67 in the prior year period. For the full year 2025, net income per diluted share was $15.28 compared to net income per diluted share of $12.63 in 2024. Regarding customer concentration, our top five and top ten customers represent roughly 25% and 35%, respectively, of our full year 2025 revenue. In the fourth quarter, we generated $192.7 million in cash from operating activities, and our net days sales outstanding was negative 58.7 days. As of December 31, 2025, we had $497 million in cash. For full year 2025, we repurchased 2.96 million shares for $912.9 million. At the end of the year, we had $821.7 million remaining under our share repurchase authorization program. Moving now to our guidance for 2026. Full year 2026 total revenue is expected in the range of $2.755 billion to $2.855 billion, which represents growth of 8.9% to 12.8% over 2025 total revenue of $2.53 billion. Our 2026 EBITDA is expected in the range of $605 million to $635 million, representing growth of 8.5% to 13.9% compared to EBITDA of $557.7 million in 2025. We forecast 2026 net income in the range of $487 million to $511 million. This guidance assumes a full year 2026 effective tax rate of 18.5% to 19.5%, interest income of $24.3 million, and 29.2 million in diluted weighted average shares outstanding for 2026. There are no additional share repurchases in our guidance. Earnings per diluted share is expected to be in the range of $16.68 to $17.50. Guidance is based on foreign exchange rates as of December 31, 2025. With that, I will turn the call back over to the operator so we can take your questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. In fairness to all, we ask that you please limit yourselves to one question and one follow-up. One moment while we compile our Q&A roster. Our first question will come from the line of Max Smock with William Blair. Your line is open. Please go ahead. Christine Raines: Hi. Great. It's Christine Raines on for Max Smock. Thanks for taking our questions. So the first one is, what is embedded in your guidance for revenue growth excluding pass-throughs? Last quarter, I believe you alluded to high single-digit to low double-digit direct fee revenue growth in 2026. But wondering if your growth expectations for this component are now higher given your strong EBITDA guide and also what you expect the cadence of this revenue growth to look like? Kevin Brady: Yeah. Hi, Christine. This is Kevin. We do not provide guidance on direct service revenue. What I can tell you, though, is that from a reimbursable cost expectation, it's consistent with what we shared back in October and that we expect it to be in the 41% to 42% of revenue in 2026. So slightly higher than what we finished here this year. From a cadence standpoint, nothing I would call out in particular. I would say in terms of revenue, I do expect that reimbursable costs will start the year higher as a percentage of revenue than when we end the year. And so that being said, I do expect maybe some flatter top-line growth throughout the quarters than what we have experienced in past years. Christine Raines: Great. That was really helpful context. Then I noticed the acceleration in headcount growth in the quarter. What do you expect headcount growth to be in 2026? Should we expect this mid-single-digit growth cadence to continue, or will you need an acceleration in hiring to support your 2026 outlook? Thanks. Jesse Geiger: Hi. It's Jesse. We do expect accelerated growth. We anticipate hiring in 2026 to be above 2025 levels, somewhere in the mid to high single-digit growth area. Christine Raines: Great. Thank you so much. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Justin Bowers with Deutsche Bank. Your line is open. Please go ahead. Justin Bowers: Hi. Good morning, everyone. Just was hoping you could sort of unpack the business environment and the commentary in the prepared remarks. Like, are you quantifying RFP activity or win rates? And then also, there seemed to be a pretty good funding quarter in the funding environment in the quarter as well. So can you just help us understand that? August Troendle: The business environment was, as I said, reasonably good. RFPs, if they matter, were up a bit, both quarter over quarter and year over year. But I do not think there's anything really to call out beyond that. It was a higher cancellation rate that led us to miss. Our gross bookings have again been substantially better than last year, and I think doing fine overall. Justin Bowers: Okay. Is there any way to help us understand if the cancellations were normal, what the net bookings would be, and then with those cancellations, could you help characterize those a bit more? Was it in any therapeutic area, or customer area, vintage? August Troendle: No. Cancellations were a little bit skewed towards the metabolic area. It's been growing quite a bit, so there were a higher level of cancellations there. Overall, bookings have continued to be, you know, oncology is our strongest. Metabolic is still there, but there were some elevated cancellations. So it was kind of otherwise relatively normal. I do not have a, you know, we're not providing what the booking would have been. We do not give gross bookings. We're just netting them out, but the kind of directional magnitude of cancellations. But they would have been substantially higher if we had cancellations in a nice range. Justin Bowers: Okay. Thank you. I will jump back in the queue. Operator: Thank you. One moment for our next question. Our next question comes from the line of Ann Hynes with Mizuho Securities. Your line is open. Please go ahead. Ann Hynes: Thank you. I just want to ask some more questions on just the cancellations. Can you remind us what your historical range is and maybe what it was this quarter versus maybe the height that you saw in 2024 and early 2025? And again, I think the past few quarters, cancellations have been very stable. Is this driven by, like, maybe the competitive environment? M&A? Is it widespread, or is it just maybe one big client canceling something? So any more details would be great. August Troendle: Sure. No. It's widespread. There was no single or couple of very large projects that canceled. It was just a higher level of cancellations overall. Comparable to the past year, it was the highest level of cancellations out of backlog. If you combine backlog and kind of our entire portfolio, I think Q1 was a little bit worse because we had such a high cancellation among projects that had been awarded but were not yet recognized in backlog. But it was a high level overall, and again, pretty widespread. I do not know the, and I have no, there's no pattern to it. It was just kind of the usual random stuff that was very heavily concentrated. Ann Hynes: And then your revenue growth, maybe what are you assuming just cancellation trends for the remainder of the year? And I know burn rate was very strong. Maybe what's the driver of that? And what are you assuming in guidance for the rest of the year for burn rate? August Troendle: We do not guide the burn rate. Kevin Brady: Right. Kevin, you want to say something? Kevin Brady: Yeah. No. To August's point, we do not guide to a burn rate. It's just not something that we do. Ann Hynes: Alright. Thanks. Operator: Thank you. One moment for our next question. Our next question comes from the line of David Windley with Jefferies. Your line is open. Please go ahead. David Windley: Hi, good morning. Thanks for taking my questions. August, I wanted to kind of philosophically ask around therapeutic area concentration. You mentioned oncology being very strong and metabolic right behind it. And as people have seen and you've highlighted, metabolic has been on this very steep growth ramp. I guess, to me, the difference between those two areas is, like, oncology is spread across tens, if not hundreds, of different kind of micro indications, and metabolic seems to be very concentrated in diabetes and obesity. And so I wondered how you think about the concentration risk in metabolic and the crowding and the potential for cancellations like you apparently just saw because people say, you know, don't have enough differentiation. August Troendle: Yeah. And, you know, another big area is NASH. And there are a few others that, you know, for us are meaningful. But, yeah, it is, you know, of late heavily kind of toward the obesity, diabetes area specifically. I do not think we're at a level of overconcentration that, you know, that's a big worry. It will be decreasing as a percent of our revenue next year, I think. So I think it's going to kind of somewhat normalize, you know, head towards a more normal range, but I do not really see that as a big risk for us at this time. Does that answer your question, Dave? David Windley: I think it does. Yeah. I think it does. Thanks. I guess in exploring the pass-throughs, I think I understand that these metabolic trials carry relatively high pass-throughs. And so it seems to track that your rapid growth in metabolic has also then contributed to the rapid growth in pass-throughs as a percentage of revenue. And I think Kevin kind of referenced this. And maybe, you know, the cancellation in Metabolic is also what makes that moderate as you go through the year. Is that right? August Troendle: Yeah. Exactly. That's right. I mean, in terms of, you know, pass-throughs, have been driven largely by our metabolic programs. And, you know, we do expect them to, you know, start to normalize in this next year. And it does provide a headwind overall revenue growth, but it'll be more direct revenue, I guess. Which is fine. So, yeah, I think that's correct. David Windley: Got it. And if I could just sneak one clarification on this end. To what extent, you know, like, pass-throughs have outstripped your expectations in 2025. To what extent is that underlying, like, site level inflation and things like that that you're having to rebudget and add, and therefore, those adjustments are kind of going directly into backlog and right into revenue and kind of the pass-through outstripping is what's driving this higher burn rate. How much would you attribute to that? August Troendle: Almost none. You know, I think this is not an issue of, you know, sites changing, getting more, you know, these were known to be very high pass-through projects, you know, going in. You know, they're just the design of the project is just very heavy on investigator fees. And, you know, I think, you know, the characteristics of the, you know, stage of the project and, you know, what is burning overall in our backlog does cause our conversion rate to shift around quite a bit. As we get other projects that don't have as much, you know, relatively short duration, high, you know, burn that are being added, you know, have been awarded, you know, quarter to quarter. But it's not, I think, just the addition of pass-throughs. You know? It's the study itself. You know? Yeah. Has been opened up. You know? And there were some, you know, issues with, you know, recognizing it in backlog because of uncertainty of the program stuff. Those relatively short-term programs come on, okay, you got to get awards and they burn rather quickly. You know, I think that will normalize over time, and it is driven partly by the metabolic studies that we have. But not specifically because of a, you know, a change in the expectation, sites. David Windley: Okay. Thank you. Appreciate to ask your question. Thanks. Operator: Thank you. One moment for our next question. Our next question will come from the line of Charles Rhyee with TD Cowen. Your line is open. Please go ahead. Charles Rhyee: Yes. Thanks for taking the question. Maybe just two clarifications if I could. Kevin, you mentioned earlier that you expect pass-through revenues to be higher at the start of the year than at the end of the year. Does that suggest that you expect a lower metabolic mix as you exit '26? And then second question being, and maybe just a little bit of follow-up to David's question, the way I understand how you think about what goes into backlog versus when you talk about stuff getting canceled out of pre-backlog. So cancellations were broad-based but elevated. Were these cancellations less about funding and maybe more from either trials failing or decisions by sponsors to abandon programs? Kevin Brady: Maybe I'll take your first question, Charles, just in terms of, you know, reimbursables, and, you know, I do expect it to start the year higher. So, yeah, to August's comments, we do expect some of that metabolic shift to slow down a little bit. I wouldn't say it's materially so, but we do expect it to slow down a little bit. What was your second question, Charles? Charles Rhyee: Oh, yeah. It's just trying to understand, you know, you've talked about backlog versus pre-backlog. And my understanding was that pre-backlog cancellations is, you know, perhaps more of a funding issue. If something's canceling out of backlog itself, that's probably more of a, is that more of an issue that other trial may be, you know, wasn't successful or, you know, or sponsors actually decide to abandon a program. August Troendle: Yeah. I mean, that's the case. You know, things that, you know, start up, they restructure. They change. They decide to end study early. So there were a number of studies that ended early because of compound performance. So, yeah. I don't, but I don't think there was, there was no, like, pattern, and it wasn't just one or two very large projects. Charles Rhyee: Okay. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead. Sean Dodge: Maybe just on guidance. If you could help us with some of the margin puts and takes. At the midpoint, you have about 10 basis points of margin expansion for the year, and that's despite I know you all said accelerating hiring for the year, maybe a bit higher percentage. For the year of pass-throughs. How much pressure do you expect those to create? And then the offsets, is it just predominantly more productivity gains you can drive? And then where are those productivity gains expected to come from? Is technology, offshoring, something else? Kevin Brady: Yeah. Just and maybe just in terms of, you know, our guidance range, you know, kind of at the midpoint, it assumes kind of normal cancellation rates. As Jesse mentioned, from a hiring perspective, we expect to be in the mid to high single digits, which is lower than the expectation on revenue growth. And so what's driving that is just, you know, continued expectation that we continue to see good retention throughout 2026, which enables the productivity that we've seen, you know, throughout 2025 and exiting 2024. So it enables us to hire higher but at a slower rate. So it's not that I would say that we've got major cost savings initiatives that are out there or certainly not planning on restructuring. We always look for ways to operate in a more efficient way. And so that contributes to some of that margin improvement around the edges. But by and large, it's going to be driven by just slower hiring ability on good retention. August Troendle: And, you know, utilization overall. You know, we also have laboratory operations, which are not huge, but, you know, utilization lab is up. You know, test. So, you know, it's across the board. We've had good productivity. Sean Dodge: Okay. Thanks. And then maybe just one on AI since perceptions around that have had a pretty big impact on the space over the last week or so. Just maybe any thoughts you can share on, you know, how big of a technological step change you think this is for the space over the next few years? And then, you know, to what extent you think that's a longer-term net positive or negative for Medpace Holdings, Inc.? And, you know, how are you all positioning? Are you a little bit more insulated just given the, you know, the kind of the nature of your client base? How are you positioned for this? Are you investing around that? August Troendle: Yeah. I'll address it a little bit. Look, I think it's too early to know what kind of changes. You know, I do think that they will occur slowly. I would not anticipate really any productivity advantage, you know, overall net advantage to AI applications in 2026. And I think that's not because we're not rolling out and doing a lot of things in AI. It's that I think the investment is going to at least equal the, you know, the benefits seen in, you know, in this first year of kind of, you know, rolling out applications. You know, where this goes in terms of, you know, how much productivity enhancement there is, you know, in the long term and what that means to us. I mean, I do think that, you know, the productivity advances are, you know, going to be to the benefit, you know, part is to be rent to the providers of the models, etcetera. But are going to be benefits to clients. And what that means in terms of encouraging more development, etcetera. But, you know, overall, you think on the surface of it, it's a net negative to, you know, a service company that, you know, makes money by providing, you know, staff to, you know, to perform work that is now, you know, made more efficient. But I think that, you know, the timing of this, it's going to take years. You know, just what that means, what the opportunities for us are, you know, are difficult to see. I don't really think we have, you know, you take barriers to prevent, you know, I mean, we're to use AI in a lot of applications. We hope it does improve our productivity. And that means potentially, in the long run, fewer staff need otherwise have. And that means a little bit less revenue than you would have otherwise had at least net revenue. Sean Dodge: Okay. That's very helpful. Thanks again. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Jailendra Singh with Truist Securities. Your line is open. Please go ahead. Jailendra Singh: So outside of the cancellation spike you guys called out, did you also see any slowdown in decision making or business moving from pre-backlog to backlog or within pre-backlog? August Troendle: I'm sorry. Changes between pre-backlog and backlog? Yeah. Just in general in terms of decision making, like, are projects being getting delayed or, like, the way of moving from pre-backlog to backlog is that is the business still moving at the same pace outside of cancellation? August Troendle: Yeah. Look. I think things are moving along pretty well. There isn't at least an incremental, you know, sudden change in, you know, the progression of product. Nothing's seizing up or anything like that. So I think things are relatively normal. You always have cases where some things are held or slowed down for whatever reasons, drug availability, some they're waiting on results or something. There's always reasons why things can progress in the backlog slower than anticipated. They can change the design of the trial. You have to then rework things you get it launched. But I don't see any real trend there. In terms of in the past, sometimes we've seen because of funding a seize up in a lot of things that and prevents them from moving forward. We're not seeing that at this time. Jailendra Singh: Okay. And then my follow-up, just in general, about the competitive landscape as you guys have called out about, like, top three CROs kind of getting more aggressive in the market. Have you seen them kind of continuing to be aggressive in terms of broadening their focus within biotech or in terms of price? Has that had any impact on your win rate? Just give us a little bit more flavor about the landscape in general with these top players getting the space. August Troendle: Yeah. I don't think there's anything to say there. I mean, you know, I know they're more aggressively interested in the space because they say they are. But they've been involved in the space all along, and I don't really see a large change in the dynamic. So it's hard for me to know. I do not perceive a difference, see the same competitors in the space, and it seems to be the same as it was, you know, five years ago. Jailendra Singh: Got it. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Dan Leonard with UBS. Your line is open. Please go ahead. Dan Leonard: Thank you very much. My first question, it looked like from your disclosure that you had a pretty good quarter in large pharma revenue growth. Was there anything unusual to call out there? And would that be sustainable? Kevin Brady: Yes, Dan. Nothing to really call out. I think it might have changed the percentage point, but nothing to call out there. It's not a focus. Large pharma is not a focus for us. Dan Leonard: Thank you. And a follow-up on that AI topic. August, you mentioned that 2026 is the first year you're rolling out applications. Can you elaborate on that comment? What are you rolling out this year and what do you anticipate, you know, what are you trying to accomplish? August Troendle: Yeah. I don't think we're just gonna Jesse, do you want to comment on that? Jesse Geiger: Yeah. I just say, in general, mean, fall into two categories. You know, one, just a number of different initiatives that are targeted on improving efficiency. You know, and that, you know, the blurry line between, like, what do you call AI improvement that's really, you know, tech-enabled support for different things across the organization that are focused in that category. And then the other category would be, you know, assisting with data analytics for feasibility. On-site selection and helping the team there with, you know, with some AI-enabled tech. That's where we're starting. Dan Leonard: Thank you very much. Operator: And one moment for our next question. Our next question will come from the line of Luke Sergott with Barclays. Your line is open. Please go ahead. Luke Sergott: Great. Thanks for the question here. I just wanted to kind of follow-up on Dave and on the kind of the margin questions. So, you know, as we like, can you help us understand the near-term leverage that you have to pull as a project starts to ramp on? And what I really want to get at is, let's assume you get some type of booking, you know, a year ago, and your assumption is that, you know, these are the types of resources that you're going to need to execute this trial. And as that ramps, it starts to either come out that you can actually use less resources or more resources. I just want to understand, like, your flexibility to ramp here. And this is, I think, important as you think about the overall mix of the bookings and how this has changed from a burn rate and capacity needs as you go, you know, as metabolic and continue to gain share. Kevin Brady: Yeah. I mean, in terms of our, you just remember that in terms of our business model, we like to hire heads because we are a training shop. We like to train and develop our people. And when you've got larger attrition rates, you're having to replace those individuals that are leaving plus onboard new people. And so what we've seen over the last year or so is that with improved retention rates, you're having to do less of that training. You're only training the ones that are coming in. And because of that, you're seeing, you know, more improved productivity because you're spending less time on training and development, and you've got more experienced individuals and staff that are on-site. So continue to operate under that business model of hiring ahead. And we'll continue to do that. But it's at levels that are less than what we had to do, you know, two years ago. So what you're seeing is that productivity and that improved utilization continue to play through for us. Luke Sergott: Alright. Great. And then I guess from your performance obligations over the last, you know, that are over three years long have continued to kind of trend down here off of, like, your peaks of 2024. Obviously, there's most of this probably due to the faster burning business. But anything else going here is, like, is there a change in the duration of these trials or the type of work that's going on? August Troendle: It certainly was a, you know, average change in the duration of our trials because we had this, you know, substantial ramp in metabolic trials, and a number of trials overall that were, but that kind of changes over time. I don't think there's a change in a particular class of trial. I just think it's a change in the mix of trials that we've had, you know, in the last few years, last year particularly. But I don't think there's a long-term trend in terms of trial duration changing for a given indication and, you know, stage of a trial. Luke Sergott: Okay. Great. Thanks. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Michael Cherny with Leerink Partners. Your line is open. Please go ahead. Dan Clark: Great. Thank you. This is Dan Clark on for Michael Cherny. Just wanted to ask about pricing. How did that look in your new awards in 4Q? And how are you thinking about that for 2026? August Troendle: I don't think pricing is, you know, our pricing on net has changed materially over time. So I don't, you know, I don't think it should have an impact on margin. I think our margin is going to be maintained. I mean, given all the other factors, it's not going to be a driver of a margin change. Dan Clark: Okay. Got it. And then just one more on AI. When you're talking to customers or involved in RFPs, what are they kind of focused on, if anything, from an AI angle? Thank you. Justin Bowers: I think more, okay. Go ahead, Justin. Jesse Geiger: I was gonna say it's a balanced conversation. Because we do take a very measured approach to AI. You know, we want to balance the benefits with risk management and ensure that, a, we have quality adoption, and b, that we're not putting any of their information at risk. And so the conversations are kind of twofold. One, you know, what are we doing with AI to help with their studies? And at the same time, how are we being good stewards of data to make sure that we continue with high quality and confidentiality. Operator: Alright. Thank you. And one moment for our next question. Next question comes from the line of Jay Lewis with Baird. Your line is open. Please go ahead. Jay Lewis: Hey, thanks. Appreciate the question. I was wondering if you could give us any more color on the new signings in the fourth quarter, that tranche of business that would have largely moved into your pre-backlog? And could you give any quantification on that pre-backlog and maybe how much it's up year over year or quarter over quarter? August Troendle: Yes. We don't provide details on that. Q4 was a bit light on, as was the prior Q4, but we don't give, you know, exact magnitude on that. Jay Lewis: Okay. And then could you speak to the impacts that you've seen from this accelerating M&A environment with large pharma buying your clients and any impacts that may have had on your revenue, your bookings, or your future revenue projections? August Troendle: I'm sorry. What have a feedback? Jay Lewis: Yeah. Accelerating M&A environment. With large pharma buying some of your clients. August Troendle: Yes. It's obviously a potential. Our clients, a number of our clients have been purchased in the past year, they continue to be. But we have a pretty broad base of clients. So I don't anticipate that to be an issue. Generally, we don't lose the work that we're doing with the client. We generally lose the client long term, and we get incorporated into a large pharma. But generally not a short-term risk. But it happens not infrequently. Jay Lewis: Good. Thank you. Operator: Thank you. And I would now like to hand the conference back over to Lauren Morris for closing remarks. Lauren Morris: Thank you for joining us on today's call and for your interest in Medpace Holdings, Inc. We look forward to speaking with you again on our first quarter 2026 earnings call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Chris Potochar, Vice President of Treasury and Investor Relations. Chris Potochar: Good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our quarterly report on Form 10-Q for the period ended September 30, 2025, and filed with the Securities and Exchange Commission and other filings with the SEC, including our annual report on Form 10-K for the period ended December 31, 2025, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the fourth quarter and full year 2025 earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence. With that, I will turn the call over to our CEO, Mark Bertolini. Mark Bertolini: Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar announced fourth quarter and full year 2025 results and the 2026 outlook. We reported total revenue of $11.7 billion, a 28% increase year-over-year. Our SG&A expense ratio of 17.5% improved by approximately 160 basis points over the prior year, reflecting continued efficiency gains through growth, disciplined expense management and AI and technology advancements across the business. MLR increased 570 basis points year-over-year to 87.4% and our 2025 loss from operations was $396 million, primarily due to higher market morbidity resulting in a higher risk adjustment payable. Oscar is on track to return to profitability this year. We expect a significant year-over-year improvement of nearly $750 million in earnings from operations in 2026, representing the midpoint of our guidance. Scott will discuss our financials in more detail shortly. Before I get into our business highlights, I want to provide an update on the performance of the individual market. Overall, 2025 was a reset year for the industry. The industry-wide increase in market morbidity due to Medicaid lives entering the market and program integrity initiatives shifted market dynamics. Oscar embraced the change and positioned the company for strong top line growth and margin expansions in 2026. We took decisive actions with a disciplined pricing, distribution and product strategy to go after profitable growth as competitors pulled back or exited the market. Our pricing strategy always assume the expiration of enhanced premium tax credits. Our final 2026 rates also reflected higher market morbidity, elevated trend and the effects of program integrity initiatives. Early 2026 open enrollment results demonstrate the resilience of the individual market. The latest CMS data indicates overall market membership of 23 million lives representing a better-than-expected decline of 5% year-over-year. We expect many passively enrolled members facing higher premiums will exit the market when the grace periods expire. We will, therefore, have greater clarity on final paid membership and market contraction when CMS releases final enrollment data midyear. Current enrollment data indicates market contraction may track toward the lower end of our original projection of 20% to 30%. The individual market stability underscores the priority consumers place on maintaining health coverage, more small business owners, working Americans and gig workers are running the market as group insurance fails to meet their affordability needs. The individual markets fundamental characteristics, combined with a larger and growing addressable market can absorb morbidity changes without dramatic trend impacts Oscar is in a strong position to continue leading the individual market and defining the future of consumer-centered health care for all Americans. Now I will review our business highlights. The 2026 open enrollment period was a record for the company. Oscar delivered another year of above-market growth, and we are privileged to serve 3.4 million members as of February 1, 2026. We expect to start the second quarter with approximately 3 million paid members, a 58% increase year-over-year. Member retention remains solid across the book, driven by our suite of affordable products, agenetic AI features and a superior member experience. Oscar's market share across our footprint increased from 17% in 2025 to 30% in 2026. We continue to grow IFP and ICRA membership in prominent service areas, including new and existing markets in Arizona, Florida, New Jersey and Texas. The team created new cost-effective bronze and gold plans to support consumers losing enhanced premium tax credits and expanded broker partnerships by 60% to manage distribution across the overall market. Our integrated strategy, which we deployed well ahead of enhanced premium tax credit exploration, positioned us to profitably capture new membership in the active shopping season. Product innovation was a key growth driver of this open enrollment. We launched several new lifestyle offerings tailored to certain conditions at stages of life. These include Hello Menno, the first menopause plan in the ACA, when a Salud, our Spanish first experience for members with diabetes and Hive Health with Oscar, our landmark ECR plan. Our lifestyle products are attracting new consumer segments and creating a loyal customer base. Members enrolled in our lifestyle products have above-average retention rates and are 50% more likely to recommend Oscar to family and friends. They are also more likely to come in as direct enrollments, demonstrating the greater attachment to our brand. Our deep understanding of the consumer and the strength of our product experience continue to create powerful entry points for consumers, positioning us for long-term IFP and ICRA growth. Oscar investments in AI are creating efficiencies across the business as we grow. We lowered administrative costs by 160 basis points year-over-year while significantly increasing membership. AI is integrated across the Oscar platform, enabling teams to automate routine tasks, efficiently scale our service operations and improve decision support. For example, our Agentic AI bot for care guides reduced response times by 67% during peak and open enrollment period. AI is also central to our member experience. Oswell, our industry-first Health agent now completes 86% of questions received from members with high accuracy and quality. We continue to embed Oswell across our product portfolio to help members take control of their health. The impact of AI on our efficiency and the quality of the interactions for our members is unparalleled in this pace in my 40 years in this industry. In summary, Oscar's disciplined pricing, record high membership and top line growth lay a strong foundation for this year. We are well positioned to significantly expand margins and return to profitability in 2026. Our strategic priorities position Oscar to shape the next evolution of the individual market in the following ways. First, accelerate National IFP and Ecraexpansion. Second, create lifestyle products with an exceptional consumer experience; and third, drive operational excellence through AI and frictionless execution. The individual market is the engine of consumer-driven health care. When consumers choose how and where to spend their money, they exploit inefficiencies and improve the quality of the interaction. We see in our own growth, the power of designing products around consumer needs. That's the promise of the individual market. the promise of choice, the promise of long-term innovation, innovation our country needs to turn healthcare into a market that fits real lives and creates meaningful coverage for life. I want to thank our Oscar team for their dedication to our customers if we're delivering a successful open enrollment. Our 12 years of experience in the individual market will drive results for 2026 and beyond. I will now turn the call over to Scott. Scott? Richard Blackley: Thank you, Mark, and good morning, everyone. 2025 was a challenging year for ACA carriers as market morbidity stepped up across the industry. We experienced these industry-wide trends with higher-than-expected claims and lower-than-expected risk adjustment offset leading to a net loss of $443 million in 2025. Over the course of 2025, we took appropriate steps to position Oscar to deliver strong earnings in 2026 including disciplined pricing and cost management actions. I'll begin with a brief overview of fourth quarter results, review of our full year performance and then discuss our outlook for 2026. Starting with the fourth quarter. We ended the year with approximately 2 million members, an increase of 22% year-over-year. Membership growth was driven by solid retention, above-market growth during open enrollment and continued SEP member additions. The fourth quarter medical loss ratio was 95.4%, an increase of 730 basis points year-over-year. During the quarter, we received an updated risk adjustment report for claims through October. The report indicated that overall market morbidity remains stable from the third quarter to the fourth quarter. However, relative to our expectations, Oscar's membership skewed healthier than the broader market, which required an increase of our risk adjustment accrual of $275 million in the fourth quarter. The fourth quarter risk adjustment true-up was partially offset by $99 million of favorable in-year development and $36 million of favorable prior period development, primarily related to claims run out from the prior year. Overall utilization in the quarter was modestly above our expectations. Inpatient utilization continued to moderate while outpatient and professional increase, which we believe was associated with members accelerating care as the enhanced premium tax credits expired. Pharmacy utilization was largely in line with our expectations. Turning to the full year. Total revenue increased 28% year-over-year to $11.7 billion, driven by membership growth, partially offset by an increase in the net risk adjustment payable. The full year medical loss ratio was 87.4%, an increase of 570 basis points year-over-year. Risk adjustment was a headwind throughout 2025, driven by higher market morbidity which we primarily attribute to the full year impact of members entering the ACA market as a result of Medicaid redeterminations as well as program integrity efforts. Risk transfer as a percentage of direct premiums was approximately 18.5% for 2025, representing a 390 basis point increase year-over-year. Switching to administrative costs. We continue to drive improvements in our SG&A expense ratio. The full year SG&A expense ratio improved by approximately 160 basis points year-over-year to 17.5%. The year-over-year improvement was driven by fixed cost leverage, lower exchange fee rates and disciplined cost management, including an increased impact from technology and AI initiatives. The loss from operations for the full year was approximately $396 million, a change of $454 million year-over-year, driven primarily by the higher risk adjustment payable. The adjusted EBITDA loss for the full year was approximately $280 million, a change of $479 million year-over-year. Turning to 2026. We have been preparing for the expiration of the enhanced premium tax credits for some time and took deliberate actions in 2025 to position the business for profitable growth and improved financial performance. We introduced innovative and affordable plan designs aligned with member needs, optimized our distribution strategy and took a measured approach to geographic expansion. Our disciplined pricing assumed and expected market contraction at the high end of our previously communicated 20% to 30% range driven by the expiration of enhanced premium tax credits and CMS program integrity initiatives. We also refiled rates in states covering approximately 99% of our membership to reflect the higher market morbidity in 2025. Together, these actions position us to profitably drive share growth. For 2026, we expect total revenues to be in the range of $18.7 billion to $19 billion, an increase of 61% year-over-year at the midpoint, driven by another year of above-market growth during open enrollment, solid retention and rate increases. While our weighted average rate increase for 2026 was approximately 28%, the increase on a per member per month basis is lower, reflecting shifts in member age and metal mix. Our outlook also reflects elevated churn this year, driven primarily by passively enrolled members facing higher premiums following the sunset of the enhanced premium tax credit and ongoing CMS program integrity initiatives. From a member profile perspective, our average member is 38 years old, approximately 1 year younger year-over-year. As expected, we saw migration from silver plans to Bronson gold plants, reflecting plan designs intended to offer affordable options following the expiration of the enhanced premium tax credits. For 2026, we expect risk adjustment as a percentage of direct premiums to be approximately 20% based on our updated membership mix and 2025 risk adjustment experience. Turning to medical costs. We expect our medical loss ratio to be in the range of 82.4% to 83.4%, representing 450 basis points of year-over-year improvement at the midpoint. Our outlook reflects elevated market morbidity observed in 2025, an incremental increase in morbidity in 2026 and medical cost trends and utilization patterns largely consistent with our 2025 experience. We also incorporated additional third-party data to assess the risk profile of new members, which is tracking modestly better than our pricing expectations, while renewal risk scores are in line with our expectations. With respect to seasonality, we expect MLR to be lowest in the first quarter and highest in the fourth quarter as members meet their annual deductibles. On administrative expenses, we expect continued improvement in our SG&A expense ratio. We expect the SG&A expense ratio to be in the range of 15.8% to 16.3%, representing an approximately 140 basis point year-over-year improvement at the midpoint. We continue to see the benefits of scale as fixed cost leverage and variable expense efficiencies driven by technology and AI are expected to drive further improvement in our SG&A expense ratio. We expect our SG&A expense ratio to be fairly consistent in the first 3 quarters with an uptick in the fourth quarter. We expect to meaningfully improve financial performance and a return to profitability in 2026. We expect earnings from operations to be in the range of $250 million to $450 million, a significant improvement of nearly $750 million year-over-year implying an operating margin of approximately 1.9% at the midpoint. Adjusted EBITDA is expected to be approximately $115 million higher than earnings from operations. Shifting to the balance sheet. we have taken opportunistic steps to strengthen our capital position and optimize our capital structure. As a reminder, during the third quarter, we increased our capital in preparation for 2026 growth, completing a $410 million convertible notes offering due 2030, generating $360 million of net proceeds. Subsequent to that transaction, we entered into a new $475 million 3-year revolving credit facility. The transaction was well supported by a strong syndicate of top-tier banks and executed on favorable terms, further strengthening our balance sheet and providing additional flexibility as we execute on our strategic plans. We ended the year with approximately $5.5 billion of cash and investments, including $414 million at the parent. As of December 31, 2025, our insurance subsidiaries had approximately $1 billion of capital in surplus, including $315 million of excess capital. To help frame our capital position in the context of our growth outlook, I want to spend a moment on regulatory capital requirements. While individual states vary, a useful rule of thumb is that for every $1 billion of premiums, we are required to hold approximately $50 million of capital, which reflects roughly 55% quota share reinsurance ceding percentage for 2026. Overall, our capital position remains very strong. In closing, 2025 marked a shift in the individual market dynamics. Oscar has been in the ACA since its inception. And today, we are operating from a position of scale and experience. That perspective has informed the actions we've taken to position our business for profitable growth in a rational market and improved financial performance. We are well positioned to return to meaningful profitability this year. With that, I'll turn the call back over to Mark for his closing remarks.. Mark Bertolini: Oscar is stronger than ever. Our decisive actions in 2025 position us to take a significant leap forward on profitability in 2026. We primed Oscar for the market of the future. The team introduced new affordable consumer products. We increased broker distribution with new tools, data and training to efficiently move new and existing members to Oscar Plans. We drove strong retention, showcasing brand loyalty and followership. 2026 is the springboard for Oscar to accelerate financial performance toward our long-term targets. Our playbook drives repeatable value in the market with ongoing product innovation, geographic expansion and membership growth. We are not here by accident. Our growth is the culmination of years spent navigating the market and obsessing about the consumer experience. We proved consumers vote where they find value. Oscar's growth is not just about retaining our book of business. It's about staying ahead of the consumer, driving long-term individual market growth and setting a new standard for healthcare. Now I will turn the call over to the operator for the Q&A portion of our call. Operator: [Operator Instructions] Your first question comes from the line of Josh Raskin from Nephron Research. Joshua Raskin: I guess the obvious question is how you get comfort on this new membership coming in for 2026 and why you think the MLRs will be down so much? And then I guess, related to that, maybe, Scott, if you could provide a little bit more color on your assumptions around risk adjustment, I heard the 20% accrual. But as you become a larger part of the market, I think you said 30% market share overall. Does that actually help, does that reduce your overall accruals? So I know there's a bunch in there. Richard Blackley: Yes, Josh, can you just restate the second half of your question? I want to make sure I get that right. Joshua Raskin: Just more color on the assumptions around your risk adjustment in 2026. And my point being, if you're 30% of the market does that make your risk accruals more market rate, right? Meaning are you going to see less volatility as you become a larger part of the market? Richard Blackley: Yes, understood. All right. Well, let's start off with kind of the membership and our ability to project what we see there. So I would kind of bifurcate the membership between -- we've got a significant portion of our membership or renewing members we have a lot of information about those members and feel like we can project what their behaviors are going to look like. And then we also have a population that is new members for Oscar. We obviously picked up share. So we do have a lot of new members One of the things that we've increasingly done is to leverage third-party data to pull in clinical information about those members. That really is giving us a fairly rich amount of information about those members in terms of their historical utilization trends. It also helps us to target our outreach to help them manage their care journey. So we feel like we've got better insights into this oncoming membership and we've had really at any point in our history. So those are kind of the building blocks in terms of why we're comfortable with the MLR projections. On risk adjustment in '26, I would say that you can see from my talking points that we're actually expecting our risk adjustment as a percentage of direct revenues to increase year-over-year from 25% to 26% to about 20% in 2026. It's an interesting thing that we're starting to see a little bit of a barbell between the plans who really cater to the highest morbidity populations and the plans that have everyone else, we're picking up a very large share of young, healthy members. And so that's driving risk adjustment higher. We are continuing to look at ways to get more information about what is going on outside of our books because that's the hardest part of forecasting risk adjustment. We've been engaged with Wakeley on helping around this new reporting that they're proposing to bring forward in the first quarter. We're expecting that will give the entire market more visibility into what's going on with membership. That should help all of us in forecasting risk adjustment and so I don't know that it's going to decrease the challenges in making that estimate as accurate as it can be, but it certainly will give us a head start. Operator: Your next question comes from Jessica Tassan with Piper Sandler. Jessica Tassan: So I appreciate the color on membership. Can you elaborate maybe a little on the fourth quarter utilization pull forward you described. You guys spoke about higher retention. So should we think about the pull forward as being kind of silver members in '25 who are disinclined to utilize care in '26 due to higher deductibles? Just any color on 4Q utilization and how it relates to your 2026 utilization expectations? Richard Blackley: Yes. Thanks for the question, Jess. So I want to emphasize utilization was modestly higher than our expectation in the quarter. Really, when I look at the MLR performance in the quarter, I really would say that it is vastly driven by the risk adjustment true-up. In terms of the utilization pressure, we did see -- we had a modest expectation of an increase as we went into the end of the year. members losing their subsidies likely to go ahead and seek care. We saw that. We think that was a primary driver of some of the movement we saw in outpatient and professional. We also saw things like substance abuse disorders that ticked up, some mental health benefits that ticked up in labs types of things. So really things that would indicate to us these were members that we're just trying to make sure that they took advantage of the benefits why they have them don't give us a lot of concern about carryforward impact of those types of activities. Jessica Tassan: Got it. And then just -- I know you all mentioned that overall market-wide membership could come in a little bit better than the 20% to 30% disenrollment you had been forecasting last year. Can you just maybe offer any color on the overall size of the market post the fluctuation? And then secondarily, just any comments on kind of the adequacy of pricing market-wide. So how should we get comfortable with the fact that all of the peers have been also priced appropriately and that risk adjustment doesn't end up being a problem in '26 might was in '25. Mark Bertolini: From the standpoint of effectuation versus actual enrollment, we believe that the market -- the market currently has shrunk by 5%. However, a lot of people have changed their plan signs and it was purposeful on our part to give brokers specific transitions that they could do for their members to impact the loss of enhanced premium tax credits. And so as a result, in our book, we saw silver drop in half as a percentage of what it was before and bronze increase by almost 50% and gold almost quadruple. And that's the kind of shift we saw in our membership mix. That means people are carrying higher deductible plans. And this is the big open question mark for the rest of the year, 2 things. One, when we get closer to pages and our pads are on par with where they've been in the last couple of years anyway. The next question is how many people when they see their premium actually pay it. And that's the first piece that will get us to the end of the year, and that's where we go from 3.4 million lives as we currently stand in February, the 3 million lives by the time April 1 rolls around. The next big question is this is as big a political issue is any other thing around in premium enhanced premium tax credits is as people start to use their plans and realize the amount of out-of-pocket that they need to pay to use those plans, will they maintain coverage? Or will they drop out? And this is where the big paths of enrollment, you don't know how they're going to behave until they start using the plans. It's going to create a lot of financial hardship for most Americans who only have $400 in their bank account. And this is where we have an open question. And we think by the end of the year that, that number drops to the lower end of our range, which was 20% to 30% reduction in the overall market size. Operator: Your next question comes from Andrew Mok with Barclays. Unknown Analyst: This is Tiffany on for Andrew. Can you share where OEP membership landed for the book and give us a sense of where paid rates are tracking in January '26 versus January 2025. Mark Bertolini: Our OEP ended with 3.4 million lives enrolled. We have not seen all the page yet, but our current pads are sitting close to where they were last year. and a little lower than they were in '23 and '24 on the Oscar book. Richard Blackley: And as a reminder, we expect that as of the end of the first quarter, we'll have 3 million paid members. That's what our expectation is for that time period. . Unknown Analyst: Okay. Got it. That's helpful. Can you provide a bit more color around expected membership cadence following the 1Q grace period? And how we should think about that throughout the year? Richard Blackley: Sure. So in terms of churn expectations, through the first quarter, we're obviously going to see higher churn as we see the effects of the higher payment rates or premiums that Mark just talked about. And so we'll see a dip from 3.4 million down to $3 million by our estimate by the end of the first quarter. From there, we're expecting churn patterns to look more similar to what we saw pre-ARPA, so in the range of 1% to 2% a month in terms of kind of churn from the end of the first quarter through the end of the year. The other thing I'd just point out is the other factor impacting the churn rates is that we are expecting to see less SEP membership this year than what we've seen in recent years as some of the things like the continuous enrollment for people below the FPL 150 level now that, that's expired, we would expect to see less of that membership. So while in recent years, we've seen our overall membership trending up throughout the year, we would expect this year to kind of revert to more pre-ARPA trajectories where you see membership decrease throughout the year. Operator: Your next question comes from the line of Jonathan Yong with UBS. Jonathan Yong: Can you just talk about your mix of metal tiers. It sounds like Bronson Gold went up significantly and silver went down. And I assume you're skewing a little bit more towards bronze which typically has had more variability. How would you characterize your historical experience with bronze and how you're thinking about this time around? Richard Blackley: Yes. I would say it's going to be interesting, everything that you might think about metals, we should probably discard because we've seen a transition from people who've historically been in silver to other metal mixes. So I don't think you're going to be able to really proxy history. Bronze in general for us has always been a high-performing product. So the fact that we've seen more growth in bronze than in silver, and we've seen that transition is actually something that we are completely comfortable with. If I just kind of pull up for a second and talk about the metals. Overall, our general philosophy is that our plans need to have margins that are in a relatively tight band. We would expect that all of them generate strong contribution towards total company profitability. I do think that with the momentum -- with the movement from silver to bronze and gold, we will see those plans look and act actually more similar to each other. Obviously, bronze has higher deductibles. So we may see a bit higher churn in that population than we may see in other populations that don't have those higher deductibles. As Mark talked about, we think that may be a driver over time of more churn. Jonathan Yong: Great. And then just going back to the membership gains. If I think of that 400,000 that's going to roll off by 2Q, I assume those are the passive renewals. So that would imply a little less than half of your membership is "new" I guess are those new members coming in from new markets that you entered into? And I know you have data, you're using third-party data to get a better sense of the members. But I guess how much has things changed from last year to what it may look like this year where maybe that third-party data may not be as accurate. Mark Bertolini: I'll let Scott talk about the third-party data, but let me just sort of dimension this for your calculation is pretty close. That 400,000 is going to be passive that will roll off. We have grown a bit. And what we did early in the summer as we went out and enrolled 11,000 new brokers. We met with 17,000 brokers over the summer and gave them a list of members that they have with us. and showed them the members that were most affected by the lack of enhanced premium tax credit and what plans you could move them to based on their needs. They went and did that. And we gave them access through our broker portal to our campaign builder software, which we used to outreach to members to reach those people and give them the information before open enrollment. And that's why we got off to a fairly significant start early on because the brokers had it all stacked up, ready to go. Our view was the more we can help the brokers get people to the right place, the more they can be productive elsewhere, which is then what happened, is that they went to other plans who either were leaving the market or had not prepared the broker community or the membership with the right kind of product changes and move those members as well. So that's sort of the lay of the land on how our growth occurred. We weren't sure how it was going to roll out for new membership, but it obviously had a significant impact. Richard Blackley: Yes. And Jonathan, with respect to the third-party data, I would say that for new initiations, most of those people, we've got clinical information from third parties that gives us a good basis to have an expectation of how they're going to perform. And importantly, it gives us a lot of information about who we need to start to engage to help them manage their healthcare conditions. That's important both from the perspective of managing our costs as well as getting the member in as early as we can, which is a positive thing for risk adjustment as well. There are a portion of our new initiations who are new to the market, who we don't have great information about, but we do have a significant amount of data over time as to what those types of people might look like in terms of their acuity. And we've -- in looking at kind of the information that we do have about those members, we're not seeing anything in terms of the characteristics of them that costs us to think that there's something there that should be concerning for us. . Operator: Your next question comes from the line of John Ransom with Raymond James. John Ransom: So if we take 3 million as kind of the "real member number, approximately what percent of those do you think work with the broker and tried to tailor the coverage versus the remaining passive renewals. I think that would be helpful. Mark Bertolini: We generally see 90%, 95% of our members come through the brokers, although in some of our custom plans, like -- hello Meno, we saw a lot of direct enrollment, significant direct enrollment. People specifically wanting that product and came directly through us through the exchanges. So -- but generally, and we're looking at 90%, 95%. John Ransom: And then my -- I mean this is kind of a basic question. So you all can downgrade your opinion of my IQ. But what I don't understand is, I get the passive enrollment, but you've got to pay the first premium before you get covered. So what kind of member gets passively renewed pays the first premium and then decides to drop off? Mark Bertolini: Again, that's the big question this year versus prior years, usually when they start paying premium, they stay with us. unless there's some sort of event where they don't require our coverage anymore. However, in this case, when they start looking at the out-of-pocket costs associated with plans that they were moved to or stayed in. They're going to start to say, wait a minute, this is expensive, and I'm not going to be able to afford this. Now what we see, and this is an important aspect, it's far different than prior years in the marketplace is that most Americans now see health care is the single largest line item in their homes, in their family budget, more than their own mortgage. The result is that they are afraid of a lot of people who buy from us are afraid of losing the house or losing their family or having to go bankrupt if they don't get coverage. So then the real question, the pivot question that we have and I met with the AHA Board of Directors a couple of weeks ago, is what happens when they can't pay the deductible? And how do we handle that? And that's where we're sort of looking at this mill and saying, does it create this enrollment. Do people still hold on to it because they're afraid of losing their homes or going into bankruptcy. We're not sure. So we're not -- we're hedging our bets on the level of disenrollment that will occur as a result. Richard Blackley: John, just to add 1 more dimension there. When you look at our expectation and what we're seeing on payment rates, if you're going from having an out-of-pocket premium that you were paying in 2025 to having an out-of-pocket premium that you're paying to '26. And you have actively enrolled and even passively enrolled. We're seeing relatively strong payment rates in those categories. It's really the population where you're going from a $0 plan to something that you've got to pay out of pocket. So you've either lost your subsidy or you've transitioned from 1 plan to another. That's where we expect to see really high nonpayment rates. And the way the whole process works, you may not make your first payment in January, but you don't ultimately churn off until the end of the quarter because you are in a grace period until then. . John Ransom: I see. So passive going from 0 premium to some premium. And we know that like call centers, in some cases, we used to send these people up and never had a payment link. But our understanding was of care wasn't a big user of these legacy call centers. So you've got payment links. It's just that they go from, say, $0 to $100 a month, and they just -- that's just a bridge to part. Is that right? Richard Blackley: You are correct. We did not -- we are not a big user of call centers. . Operator: Your next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: I want to come back to some of the questions on mix. I appreciate you're saying that silver is lower in both gold and bronze are much higher. But is it possible to get maybe the percentages kind of before and after for each category? And basically, the crux of it is that, obviously, your membership, PMT seem like they're going to be up somewhere in the 50% range. So we're kind of comparing that to the overall revenue increase on the guidance line and it's a little bit hard for us to square quite why. There's not maybe more of a PMPM yield in there. So it'd be great to have some more quantification on that? And then I have a follow-up at this time. Mark Bertolini: Sure. So for Bronze for the prior 2 years, around 25% and '26 to 39%. Silver has been steady at 71% in the prior 2 years. This year, they're at 36%. In gold, which is in the low -single digits, 3%, 4% for the last 2 years is now 25%. So fairly significant changes. And the bronze and the gold plans we offered were $0 with fairly -- not very rich benefits. Richard Blackley: Stephen, the other thing I would just mention is that the characteristics of the membership are important to modeling your revenue. So the fact that we're seeing a year younger membership has an impact on PMPM revenue. So you need to factor that in. That's 1 of the reasons why I discussed that in the call is to help with your ability to project revenue with that information. Stephen Baxter: Got it. No, that's helpful. And then maybe just qualitatively, like is there any difference in terms of this MLR guide, how you're thinking about kind of what you're budgeting in for retain membership and sort of how you're thinking about this newer to the planned membership and how that might perform? I would love to understand is philosophically how you're thinking about that part of it? Richard Blackley: Yes. Well, we obviously modeled membership with a lot of our past history. So we will have experiences that are different for returning members versus new initiations. I would say that in the aggregate, given the amount of work we've been doing on this population going -- which is now over 2 years that we've been expecting that the subsidies are going to go away. And so starting with the whole, how do we design plans to capture people who had a price shock. We've really built in, I think, a deep level of expectation and understanding about how those different populations are going to perform. I talked about all the ways that we tried to triangulate and get data about those folks. But I think that in general, I would say we're using our historical experience with each of those populations to project the future, feel like that the estimates that we've made both in pricing. And now we've taken everything that we've heard to date and built that into our guidance. And I feel like we're being very balanced in our estimates. Mark Bertolini: And the increase in risk adjustment allowed also takes MLR up. Operator: Your next question comes from the line of Scott Fidel with Goldman Sachs. Unknown Analyst: This is Sam Becker on for Scott Fidel. Yes, I was just curious on what are your levers -- key levers to achieving EBITDA profitability without the extension of the enhanced subsidies? And what are those key headwinds or tailwinds when thinking about MLR and SG&A from 2025 to 2026. Mark Bertolini: Well, there are a number of them. First, it's growth. So it's growth drives a reduction in overall percentage of costs. AI, where we're able to create a better member experience and greater stickiness, and we're seeing that on a regular basis. We have a dozens of LLMs on the back end of the business. and now 2 agentic AIs are about to launch another here in the next few months. So we're now having a lot of impact where people can access us quicker with much more accuracy and without having to wait on phones, which would also again reduces our costs. And then on the MLR front, we are constantly working on our contracts and our utilization management, and we task the team to deliver so many hundred basis points every year and opportunities to keep our trend in line with where we think the market should be. And so all of those things together, and there are a lot of levers that we manage every day through the management process are the things that we track to make sure that we commit our targets. Richard Blackley: And Sam, I just want to make 1 point really clear. Our guidance is on EBIT. So it's not on adjusted EBITDA. I did talk about it in the call that we would expect adjusted EBITDA to be $115 million above our earnings from operations guidance that we put out. So I just want to make sure that we're talking about the same things. Thank you. . Operator: Your next question comes from the line of Michael Hall with Baird. Unknown Analyst: This is Olivia on for Michael. Because exchange marketplace risk adjustment is net neutral, creating a reliance on other plans in our markets the lack of visibility, any 1 plan has into the rest of the market makes risk adjustment mechanics difficult in our view. Looking to 2026 and beyond, you mentioned the potential Wakely industry report in 1Q, whether it's through this potential Wakely report or other efforts, can you share how you're getting more insight into the rest of the market as well as your thoughts on what can be done to make risk adjustment more transparent and less volatile in the future. Is there any potential reform you think could be done to improve risk adjustment? And I have a follow-up at this time. Richard Blackley: Olivia, thanks for the question. Look, I think that estimating risk adjustment, as you say, is the most difficult thing that we have to do each quarter because you're both trying to project your own performance inside your own book and also the market. It's -- I think we're quite good at projecting our own market -- our own book and what the performance is where we do get surprised by how the market moves in ways that we can't see. I'm optimistic that working with Wakeley, and it sounds like most of us in the industry are working with them as an important service provider to all of us. to help get more timely information about what's going on with the market because that's the most challenging part of our ability to project that. So I think we're taking steps in that direction. I'm not sure that we'll get all the way there in this first report, but I do think that with the support of many of the industry players that we can increase visibility into this estimate over time. . Unknown Analyst: And if I can squeeze in 1 more, please. When I think about healthcare innovation, 2 specific areas I see offer leading the way and becoming an agent of change are in ICRA that could disrupt an employer group market that is ripe for change and leading the charge in crafting condition and disease-specific plans, which appear to be the future of health insurance. Both are exciting, but both are early on. So as you look ahead, what do you think needs to happen to catalyze the rate of adoption. And as a first mover, what type of competitive advantages do you believe this will present us for longer term? Mark Bertolini: So from a micro standpoint, Olivia, we are not only concentrating on products to capture membership in the insurance company, but we've also built out the front end of the business where we can now work with employers to convert them. There's a lot of opportunity in revenue and actually in a higher margin, unregulated and not requiring any risk capital to work with employers to move employees into defined contribution and once in defined contribution, work with brokers to get them into whatever plan works for them, whether that is an Oscar plan or not? So you're going to start seeing us over time report 2 different kinds of revenue in the model. where we're going to have revenue coming out of the conversion of employers that have defined contribution, the whole brokerage work that's done there, and then also membership that we capture inside our own health plan. So the acre opportunity is much larger than just the membership, although our membership did double this year. And given what happened in the individual market relative to rates, there was some reluctance on employers to jump in now. We need to show that we can stabilize that marketplace and get more people in. So that's sort of the lay of the land on ICRA. On the disease or the lifestyle products, we truly believe and this is the proposal that we put in front of the administration and 1 they've talked about is to separate the investment decision from the financing decision. The investment being what I buy versus how I pay for it. And the opportunity to create HSA Roth IRA like funds, where people can take whatever funding mechanism they have, whether that's their employer, their own money, Medicare, Medicaid or other subsidies like from the ACA and put them into a bucket -- and by buying a qualified health plan manage the rest of their costs by themselves, and this is where our new Agentic AI tool is headed than having a marketplace where people can use the money that they receive for healthcare to buy what they want in their local market, a narrow network with a plan design that changes with their life, starts to create the opportunity for lifetime value of membership and change the investment thesis that insurance companies would have in managing that membership and how we would approach it, which leads to the lifestyle products. if we can move with a family or an individual through their lifetime, offering them new designs that allow them to stay with their network, be effective in managing their current health status and live as fully as they can until the last day, I think that's the ultimate culmination of an individual market where all Americans can get healthcare that they want their choice -- and where we have a market so large, the morbidity changes really have no impact on the overall underwriting cycle of the business. Operator: Your next question comes from the line of Raj Kumar with Stephens. Raj Kumar: Maybe just following up on the kind of ICAcommentary. Just curious on the membership associated with the IV arrangement and kind of what's the initial uptake from that employee base -- and then historically, have you seen kind of the ICRA population exhibit a more kind of stickier membership base? Or should we expect a similar level of churn relative to the kind of broader individual plan? Mark Bertolini: I think -- first of all, we're not giving out actual ICRA numbers by segment yet. It's not meaningful enough to move the dial, although we see all of these efforts being successful so far. The more important part is, again, back to this thesis of I have my money, I buy it the way I want. We think ICRA's stickier because as long as I have the funds to pay for it, I can keep what I bought. I don't have to change it. If my financial -- if my funding circumstances change, I just use the different funding to keep the same thing I had. So we view ICRA as a development moving beyond the ACA model. which is helping people when they can't afford health insurance to a model where I now buy my own insurance, my own network, the product design that fits me at this time, it allows me to stay with my product and my network for as long as I want. That's where the member experience and all these tools we're building comes in where people can actually use it the way they need to and have the information they need to use it most effectively. Raj Kumar: Got it. And then as a quick follow-up, just kind of curious on the new member engagement rates for 2026. And how is that comparing to what you're seeing or experiencing at this same point last year? Richard Blackley: Yes, I don't think that It's too early to tell -- after the first quarter, we'll have a better idea. . Operator: Your next question comes from the line of Craig Jones with Bank of America. Craig Jones: Right. I was wondering what you've assumed in your guidance, does the change in the percentage of 0 utilizers between 2025 and 2026. I think that will need to come down the exploration enhanced tax credits. I was just going to give us an exact percentage, maybe just how do you think it will compare to your 2019 percentage prior to when those were enacted? Richard Blackley: Yes, correct. Thanks for the question. In general, we don't comment on the portion of our book that's nonutilizers. It's a normal part of given that we have a very healthy membership, we would anticipate that not all of those members need care in any given year. So we do have a portion of the book that doesn't utilize. When I look at the -- how our book has evolved, there our book is younger than it was a year ago. So it isn't necessarily the case that you should assume that we'll see lower levels of nonutilization. We take all of those factors into account when we set our guidance for MLR. And as I talked about earlier, we've done a terrific amount of work to build up our estimates around those projections and we feel like we've -- we're as comfortable as we can be with them at this point in the year? . Craig Jones: Okay. Got it. And then maybe for those 400,000 number that you expect to roll off by the end of the quarter, what do you think their 2025 MLR was? And how would that compare to, say, historically what your members that rolled off would be. Richard Blackley: Yes. I'm not going to dimension the specifics of those members. When I look at the difference between 2025 MLR and 2026 MLR. It's really a story about the changes in market morbidity on a year-over-year basis. That's really the biggest driver. We've taken into our pricing for the upcoming year, all the changes that happened in market morbidity last year, our expected increases as people are leaving the ACA in '26. We've built all of those things in. We've included a trend that is higher than what we've seen in the historically but relatively consistent with last year. So we feel like we've taken all of those building blocks that's going to impact utilization next year into our pricing, which gives us confidence about our ability to return to profitability next year. . Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to The Manitowoc Company Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ion Warner, Senior Vice President, Marketing and Investor Relations. Please go ahead. Ion Warner: Good morning, everyone, and welcome to our earnings call to review the company's fourth quarter and full year 2025 financial performance and business update as outlined in last evening's press release. Joining me this morning with prepared remarks are Aaron Ravenscroft, our president and chief executive officer, and Brian Regan, our executive vice president and chief financial officer. Earlier this morning, we posted our slide presentation to the investor relations section on our website, www.manitowoc.com, which you can use to follow along with our prepared remarks. Please turn to Slide two. Before we start, please note our safe harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied or actual projections due to one or more of the factors among others described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement whether the result of new information, future events, or other circumstances. And with that, I'll now turn the call over to Aaron. Aaron Ravenscroft: Thank you, Ion, and good morning, everyone. Please turn to slide three. To start, I'd like to express my appreciation to our team for their hard work and never-ending passion for our company and for our customers. With their grit and determination, we delivered solid results in the fourth quarter. 2025 was a hard-fought year. Given the great trade reset in the U.S., the operating environment wasn't exactly as we anticipated. Even so, The Middle East remained strong, and we began to see green shoots in Europe and Asia Pacific. We also continue to make great progress on our Cranes Plus 50 strategy. Non-new machine sales grew 10% to $690 million, reaching another record. We continue to grow our aftermarket footprint, adding territory coverage in North Carolina, South Carolina, and Georgia in The United States, and several key provinces in France. In addition, we opened or upgraded new locations in Nashville, Phoenix, and Baton Rouge in The U.S., Sydney, Australia, and two locations in France. Lastly, we grew our field service technician population to over 500. Equally important to growing our aftermarket presence, new product development is the life of our company and critical to growing our population of cranes in the field. At the very end of 2024, we launched the MCT 2205, which is the largest topless tower crane we have ever produced. We sold 19 of these units last year, which was a great result. During 2025, we launched 11 new cranes, including the GRT 550 rough terrain, a five-axle hybrid all-terrain crane, and the MCR 815, which is the largest left-in tower crane that we've ever sold. In March, we will unveil two more special cranes at CONEXPO. We will launch an 80-ton boom truck, which is the largest boom truck that we've ever produced, and we will launch an eight-axle 700-ton all-terrain crane, which is also the largest all-terrain crane we've ever developed. A big thank you to our engineering teams. It's been a big lift to extend our product portfolio into these higher ranges. Please turn to Slide four. Turning our focus to the Manitowoc Way, I'm extremely pleased that we achieved an RIR of 0.94. For the first time in our company's history, we reduced our recordable injury rate below one. We also reduced our first aid incidents by 10% year over year. For some perspective, in 2015, we had 91 recordable injuries. In 2025, we had just 42. Our long-term goal remains zero injuries. Next, I would like to announce our CEO awards for the Manitowoc Way. Although our teams in the factories continue to do an awesome job, I was pleased that our winners were from the front end of our business. I'm happy to announce our MGX Brands in Chesapeake was recognized for the new blast hopper concept, which was built by one of our welders and increased operational efficiency by 70% and improved safety. Second, our sales team in Portugal was recognized for their work that they did on a large military contract in Spain. In addition to selling multiple cranes, the team helped the customer with all of their rigging hardware needs, offering a complete suite of lifting products. Lastly, I want to recognize three outstanding team members who received this year's CEO award for their exceptional service to our customers: Stephane Dumont, Vitaly Hartemef, and Nick Bird. Congratulations to each of them for their leadership and unwavering commitment to our customer success. Our entrepreneurial spirit inspires all of us to strive for excellence in serving our customers. Please move to slide five. Turning our attention to the market, we generated orders of $803 million during the fourth quarter, up 56% year over year. Backlog ended the year at $794 million, up 22% from a year ago. Regionally, The Americas remains pretty complicated. A year ago, U.S. elections fueled customer sentiment. However, that momentum was reversed by the tariff situation, which still remains fluid. Folks want and need new cranes, but they are waiting until the very last minute to place orders. Our fourth-quarter orders were highlighted by three large orders in December, which secured build slots for these dealers and customers throughout 2026. Rental rates have remained flat, which is my biggest concern. Regardless of the specific tariff, the cost of new cranes is going up, and rental rates need to follow for crane operators to justify the purchase of new cranes or fleet renewals. Overall, dealer inventory is okay. It's not desperately low nor is it concerningly high. In Europe, we continue to see improvement driven by several new economic programs across the continent. Without a doubt, the tire crane market has improved significantly. New machine orders were up 64% year over year during the fourth quarter. I was with a couple of our key dealers in early January, and their sentiment is a lot better than it was a year ago. Similarly, mobile crane orders in the quarter were up 39% year over year. Customers are beginning to feel better about the outlook on project work throughout the region. In The Middle East, I remain fairly optimistic, but the ride is definitely getting bumpier. In Saudi, while projects are moving forward, cash continues to tighten, which is making folks nervous. In Dubai, the large residential projects, which are skyscrapers by American standards, remain extremely hot. The Stargate Data Center Project, however, in Abu Dhabi is moving slower than I anticipated. The tower crane work on phase one has been completed; surprisingly, phase two has not yet started. Meanwhile, the new Dubai Airport has already let the first three construction packages, and the fourth is under review. So the groundwork is underway, and I would expect to see tower crane work sometime this year. The Asia Pacific market resembles Europe. Momentum and sentiment are improving, and South Korea's optimism has grown despite a still weak currency, bolstered primarily by the announcement of large Samsung and SK Hynix semiconductor projects. Australia reflects a similar positive trend. We are waiting for the green light on a major power transmission project, which will provide a meaningful boost in sentiment. With that, I'll pass it on to Brian to walk you through the financials before I close with an update on our strategy. Brian Regan: Thanks, Aaron, and good morning, everyone. Please turn to Slide six. Our fourth-quarter results were in line with our expectations and prior guidance, demonstrating solid performance and resilience despite ongoing volatility in global markets and the continued headwinds from tariffs. We delivered strong orders for the quarter and achieved trailing twelve-month non-new machine sales of $690 million. In addition, we made meaningful progress in reducing our working capital, generating $78 million of free cash flows during the quarter. Quarterly orders totaled $803 million, driven by whole goods stocking orders in The Americas after two quarters of lagging orders and the continued improvement in the European tower crane demand. We saw a 64% increase in new crane orders year over year. Year-end backlog was $794 million, up 22% versus the prior year. Net sales for the quarter were $677 million, up 14% year over year, supported by strong shipments in North America, European tower cranes, as well as continued growth from our non-new machine sales strategy, which reached $191 million. Adjusted EBITDA for the quarter was $40 million, and consistent with our expectations, we were able to mitigate approximately 85% of these headwinds through targeted pricing and sourcing actions. On a GAAP basis, our provision for income taxes was $5 million. GAAP diluted income per share was $0.20, and on an adjusted basis, $0.32, a decrease of $0.09 from the prior year. Net tariffs resulted in $0.13 of unfavorable impact to DEPS on a year-over-year basis. Cash flows from operations for the year were $22 million, which was negatively impacted by payments of approximately $45 million associated with the settlement of the EPA matter. Capital expenditures were $38 million, including $19 million for rental fleet investment. Free cash flow was a use of $15 million. We ended the year with a cash balance of $77 million. Excluding the EPA matter, free cash flow was $30 million. Our net leverage ended the year at 3.15 times, and total liquidity was a healthy $298 million. Please turn to Slide eight. We expect improved results in 2026 with net sales in the range of $2.25 billion to $2.35 billion and adjusted EBITDA between $125 million and $150 million. When looking at the midpoint of our guidance, expected improved results are driven by one, pricing to offset the incremental tariff headwind; two, the European tower crane market; and three, continued growth in our new non-new machine business. Additionally, we implemented a restructuring plan to streamline our organization with projected savings of roughly $10 million in 2026. These projected savings are expected to offset inflation and foreign currency headwinds. We project free cash flow to be $40 million to $65 million, which includes $45 million to $50 million in capital expenditures. We expect to improve our net leverage to below three times during the year, improving our liquidity and adding flexibility for strategic investments. With that, I'll turn the call back to Aaron for closing remarks. Aaron Ravenscroft: Thank you, Brian. Please turn to slide nine. Looking back, 2025 was not the year that we expected, but there's plenty of optimism as we move forward. Europe and Asia Pacific are moving in the right direction, the Middle East business remains positive. The American market appears poised for a rebound with interest rates trending down and the tariff environment stabilizing. Fundamentally, fleets continue to age, and at some point, a major refresh will be required. Strategically, we continue to execute our Cranes Plus 50 strategy. We have new locations planned in Portugal, Mexico, Chile, and France, and we continue to hire field service techs. Recently, we also announced a new distribution agreement with Hyub, where MGX will represent their products across 13 states. Really excited about this opportunity given the synergies between knuckle boom cranes and boom trucks. In line with our Cranes Plus 50 strategy, we continue to expand our portfolio of lifting solutions. In closing, our long-term aspirational goal is simple. We want to achieve a return on invested capital of 15%. While stronger end market demand will certainly help, the key lies in continuing to grow our non-new machine sales, which is far less cyclical and delivers gross margins around 35%. I am confident that we are making progress and moving in the right direction. As Warren Buffett wisely said, someone is sitting in the shade today because someone planted a tree a long time ago. We continue to grow our orchard at Manitowoc. With that, operator, please open the lines for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question today is from Jerry Revich with Wells Fargo. Please go ahead. Kevin Ujerik: Good morning, Jerry. This is sorry, not Jerry. It's Kevin Ujerik on for Jerry Revich. How are you guys? Aaron Ravenscroft: Good, Kevin. Thanks, Kevin. Yeah. So first question that I had was about the 2026 outlook. How should we think about the sales growth by region? Which regions are expected to show the highest growth and what products are contributing? Brian Regan: Yes. I think from a regional standpoint, our tower crane business continues to do strong, and the expectation will continue into 2026 to be a tailwind for us. That's the tower cranes. The U.S. is a bit of a mixed bag. While, you know, we did see some good orders and we got a good backlog, I think the tariffs still create some headwind for us. Hence why we're doing the restructuring action. Kevin Ujerik: Gotcha. And then for the Crane Plus 50 strategy, could we talk about how to think about it through 2026 and the cadence? Aaron Ravenscroft: Yeah. So, I mean, in terms of our cadence, I'd say it's pretty flat across it. The only thing that goes up and down is the used. So we look at non-new machine sales heading into the year. I think we're in a good position relative to the number of techs we've added, number of locations we've added. That being said, you know, we do have some headwind because we've had some good use sales the last couple of years, and tariffs have thrown a little bit of a wrench in there in terms of moving units from Europe to The United States. But, yeah, I mean, I think it's probably safe in terms of a modeling standpoint to just assume that it's roughly the same every quarter. Don't you think, Brian? Brian Regan: Yeah. Yeah. I think like you said, I think the used I think Q4, we had a good used quarter. So we saw a good revenue number. From a margin standpoint, the used is a little bit less than the normal margin in our non-new machine sales. So, you know, with expected lower revenue on the used next year, I think, you know, the margin should be a little bit better. Kevin Ujerik: Okay. Got it. That's all I have for questions. Thank you. Ion Warner: Thanks, Kevin. Operator: Showing no further questions, this concludes our question and answer session. Would like Ion Warner: Gary, got a couple of emails that have come my way with questions. So, I'll just ask the question and have management answer. The first question that came in was, what are your orders in January? Aaron Ravenscroft: I'll take that one. So in terms of our orders in January, very, I would say, good month, approximately $225 million. When I look at it in terms of the you know, where the good news came from. We've ended our winter campaign for tower cranes. That was a good program for us. So that's the first time in a few years we've had a good winter campaign, so that was good. In North America, of course, we had some large stocking orders during the fourth quarter. So it was down a little bit, but overall, I would say it was still a pretty good number. Demand for large RTs and crawler has been really good. So pleased to see the continued progress in January. So, yeah, good month. Ion Warner: Okay. We received another question by email and I'll read it. Can you give us an update on the Manitowoc Way and your implementation of Lean? At the company? Aaron Ravenscroft: Yeah. So, I mean, these days, I sort of look at the Manitowoc Way in three buckets. First, on the shop floor, I'm really, really proud of the things that we're doing. You know, a good example, I was in France a couple of weeks ago, and the team is really, I'd say, honed in on the details now where it's not just sort of talking about five minutes, but really diving into how do we apply SMED, changing out machine tools, how we're programming robots. So I feel like we're along our way, you know, well along our way, and the team doesn't need much help. I can be more of a cheerleader on that side of the business. In terms of the office, I'm still super excited to see what we can do with AI. I think that's gonna give us a lot of tools to crunch data that we really couldn't attack in the past. We've had a couple of smaller wins so far, but nothing to brag about, I would say, just yet. Then lastly, when I look at the company, you know, the more we continue to invest in the MGX, and the aftermarket, non-new machine sales, and all these new locations, we've got a lot of work to do on that in terms of sharing lessons learned. I find lots of creative solutions when I go visit the locations, but we're sharing them the way, I would say, that we do at the factory level. So I'd say that's really our focus in the next couple of years is how do we get better and really focus on the customer experience. So it's nice to see that what we're doing with Lean is starting to play in lots of different applications than just the shop floor. Ion Warner: Got it. Oh, got another one. About the seasonality. How do you see the first quarter looking? Brian Regan: Evan, I'll take that one. Okay. While we don't give quarterly guidance, I think we do expect 2026 to be similar in that Q2 and Q4 are generally our strongest quarters. Specifically related to Q1, I think we've got a few headwinds where Q1 will be impacted by one being tariffs, the big tariff hit came, really in the second part of the year. So we have that headwind. Also, FX will impact us negatively in the first quarter. And the restructuring actions that we took are going to be a positive impact later on in the year. So I think Q1 will be unfortunately a little bit low relative to the rest of the year. Aaron Ravenscroft: Anything else, Diane? Ion Warner: Nope. Those are the inbound questions that I got in my email. Brian Regan: Thank you. Operator: With no further questions, I would like to turn the conference back over to Ion Warner for any closing remarks. Ion Warner: Thanks, Gary. Please note a replay of our earnings call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continued interest in The Manitowoc Company. We look forward to speaking with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Quest Diagnostics Incorporated Fourth Quarter and Year End 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and the question-and-answer session that will follow, are the copyrighted property of Quest Diagnostics Incorporated with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics Incorporated is strictly prohibited. I would like to introduce Shawn Bevec, President of Investor Relations for Quest Diagnostics Incorporated. Please go ahead. Shawn Bevec: Thank you, and good morning. I am joined by Jim Davis, our Chairman, Chief Executive Officer and President, and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and we will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics Incorporated’s future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS, and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth, and adjusted earnings growth, are compound annual growth rates. Now here is Jim Davis. Jim Davis: Thanks, Shawn, and good morning, everyone. With diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we expanded our category-defining clinical innovation to meet robust demand, formed strategic collaborations with elite health care organizations, and further advanced our position as the premier lab engine powering the wellness industry. We also continue to improve quality, productivity, and the customer and patient experience with process enhancements, AI, and automation. As we look ahead to 2026, our guidance reflects our continued confidence in our business strengths and market fundamentals, which include favorable demographic trends, increasing use of blood-based lab diagnostics, and growing interest in preventative health and wellness. Now before I turn to this year’s highlights, I would like to take a moment to comment on PAMA. Last week, bipartisan legislation was enacted that delays the implementation of PAMA until 2026. This one-year delay in rate cuts was paired with an update to the data collection period to 2025 from 2019 based on the data to be supplied by applicable laboratories to CMS later this year. We greatly appreciate Congress for recognizing the need to reform PAMA and for providing this one-year delay of PAMA cuts, which provides meaningful short-term relief. However, these steps do not fix PAMA’s structural flaws, which include relying on an estimated 10,000 plus labs to self-report data to establish industry-representative data for payment rate setting. As a reminder, fewer than 1% of all the clinical laboratories reported commercial payer data to CMS in 2017, resulting in three rounds of excessive rate cuts based on data that did not reflect the market. A different approach is needed to prevent a repeat of excessive rate cuts. The RESULTS Act provides a common-sense long-term solution that corrects these deficiencies by, for example, eliminating the need for thousands of labs to self-report data and instead leveraging an independent third-party database that provides comprehensive and representative data to set accurate market-based rates. We will continue to work with our trade association, ACLA, to build on progress in securing the necessary support in Congress to pass RESULTS into law this year. Now I will provide more detail on how we executed our strategy across our key customer channels and operations during the quarter and the year. We are focused on delivering solutions that meet the evolving needs of our core clinical customers, physicians and hospitals, as well as customers in the higher growth areas of consumer, life sciences, and data analytics. In the physician channel, we delivered high single-digit organic revenue growth in the fourth quarter on broad-based demand for our clinical solutions, including several areas of advanced diagnostics, and from geographic expansion resulting from increased health plan access. We also grew revenues in enterprise accounts as we added new customers and extended business with existing customers. In addition, during the quarter, we scaled our lab testing to serve more than 200,000 patients at Fresenius Medical Care’s dialysis centers in the United States. We also added water purity testing capabilities to our menu to support dialysis customers nationwide. In the hospital channel, revenues grew low single digits with Collaborative Lab Solutions driving our growth in the quarter. Our CoLab Solutions harness our lab and process management expertise to optimize quality and drive cost efficiencies in areas ranging from hospital lab and supply chain management to analytics and blood utilization. At the start of 2026, we began to scale our CoLab Solutions across all 21 hospitals of Corewell Health, a leading health system in Michigan, and our largest implementation of these solutions to date. We expect CoLab Solutions to generate approximately $1 billion in annual revenue in 2026. Additionally, we recently finalized our laboratory joint venture with Corewell Health and are jointly constructing a state-of-the-art laboratory in Southeast Michigan from which we plan to serve the state in 2027. Hospitals value our flexible solutions for accessing expertise, innovation, and capital. We are pursuing several potential hospital outreach and independent lab acquisitions as well as CoLab opportunities while also continuing to integrate and generate value from our recent transactions. In the consumer channel, we are leveraging our diagnostics expertise and technology to drive growth through our consumer-initiated test platform, questhealth.com, as well as through collaborations with industry-leading wellness and wearables companies. In the fourth quarter, we expanded questhealth.com to offer more than 150 tests, including our new 85-biomarker Elite Health Profile. Our innovation, quality, and technology integrated into existing apps and experiences make us the clear choice for organizations seeking to add diagnostic insights to their offerings. And we added new consumer brands to our extensive roster of collaborations in the fourth quarter. At our Investor Day in March, we said that we would expect consumer-initiated testing to generate revenue growth in excess of 20%, and we exceeded that growth rate in 2025. Across the consumer channel, we delivered nearly $250 million in revenues for the full year. We enable growth across our customer channels through faster growing advanced diagnostics in five key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology, and women’s and reproductive health. During the quarter and full year, we delivered double-digit revenue growth across several clinical areas of our advanced portfolio. I would like to highlight a couple of these innovations today. Our Analyzer solution provides a comprehensive yet simple approach for aiding the diagnosis of the eight most common autoimmune disorders. About 24 million Americans suffer from at least one of over 100 autoimmune disorders. Because symptoms of these disorders often overlap, and a shortage of rheumatologists exists nationwide, patients may go for years before receiving the correct diagnosis. Analyzer helps primary care clinicians identify the likely category of disease affecting the patient, and thereby speeding referral to the right specialist for faster diagnosis and treatment. In brain health, our portfolio of Quest AD-Detect blood tests for Alzheimer’s disease extended its year-long double-digit growth momentum into the fourth quarter as providers increasingly adopted the high-quality blood-based biomarker tests for the most prevalent type of dementia. A recent study by our scientific team suggests that blood tests like our newest AD-Detect panel, which fulfills guideline criteria for confirmatory blood testing, could decrease cost to the health care system by reducing the use of higher-cost PET/CT imaging for diagnosis, improving access and affordability. In oncology, we continue to build our presence in blood-based minimal residual disease testing. New research presented at ASCO GI in early January highlighted the strong clinical value of our Haystack MRD test in monitoring for colorectal cancer. We further expanded in the MRD space with the launch last week of our cutting-edge flow MRD test for blood-based cancer myeloma. This test enables ultrasensitive detection of residual disease in a blood specimen, sparing patients the pain and complications of conventional testing of bone marrow biopsies. Along with driving top-line growth across our business, we are focused on delivering operational excellence with enhanced processes and strategic implementation of automation, AI, and other advanced technologies. Through our INFIGURATE program, we achieved our full-year target of 3% annual cost savings and productivity improvements in 2025. Inside our labs, we deployed automated sample processing across our network and collaborative accessioning at multiple sites to streamline and optimize our processes. We also implemented the Hologic Genius Digital Diagnostic System at two of our laboratories and look forward to scaling this solution for enhancing quality and productivity in cervical cancer screenings at several of our labs this year. Outside the lab, we are using AI to make the customer and employee experiences easier, faster, and more insightful. For example, our virtual AI agent has reduced routine logistics calls by up to 50%, and we expect a new AI logistics tool will help us reduce courier transportation times as we roll it out this year. I will now turn the call over to Sam Samad for the financial results. Sam Samad: Thanks, Jim. In the fourth quarter, consolidated revenues were $2.81 billion, up 7.1% versus the prior year. Consolidated organic revenues grew by 6.4%. Revenues for Diagnostic Information Services were up 7.3% compared to the prior year, reflecting organic growth in our physician, hospital, and consumer channels as well as recent acquisitions. Total volume, measured by the number of requisitions, increased 8.5% versus 2024, with organic volume up 7.9%. Total revenue per requisition was down 0.1% versus the prior year. As a reminder, Corewell Health and Fresenius Medical Care deliver significant volume growth at a lower revenue per requisition than our company average. Excluding these two relationships, our organic volume growth accelerated to 4.1% in the fourth quarter, while our revenue per requisition growth remained solid at approximately 3%. Unit price remained consistent with our expectations. Reported operating income in the fourth quarter was $386 million, or 13.8% of revenues, compared to $361 million, or 13.8% of revenues, last year. On an adjusted basis, operating income was $429 million, or 15.3% of revenues, compared to $409 million, or 15.6% of revenues, last year. The adjusted operating income dollar increase was due to organic revenue growth and revenue growth from recent acquisitions, partially offset by wage increases. Operating income percent was reduced in the quarter by startup expenses related to Fresenius Medical Care and Corewell Health, as well as Project Nova expenses. Reported EPS was $2.18 in the quarter, and adjusted EPS was $2.42, compared to $1.95 and $2.23 the prior year, respectively. Foreign exchange rates had no meaningful impact on our results. Cash from operations was $1.89 billion for the full year 2025 versus $1.33 billion in the prior year. This significant year-over-year increase was driven by higher operating income, favorable working capital due to timing of disbursements, a cash tax benefit related to recent tax legislation, and the one-time CARES Act tax credit. As Jim said, we successfully executed on our strategy in 2025 to deliver these results, and we will continue to build on this as we progress through 2026. Turning now to our full-year 2026 guidance. Revenues are expected to be between $11.7 billion and $11.82 billion, which represents a growth rate of 6% to 7.1%. Reported EPS is expected to be in a range of $9.45 to $9.65 and adjusted EPS in a range of $10.50 to $10.70. Cash from operations is expected to be approximately $1.75 billion. Capital expenditures are expected to be approximately $550 million. Our share count and interest expense are expected to be consistent with 2025. This guidance reflects the following considerations. We assume approximately 6% to 7.1% in revenue growth, and this does not include any contribution from prospective M&A. The severe weather impact experienced in January 2026 is creating a greater headwind than what we experienced during the same period a year ago. We have contemplated the impact to date in our full-year guidance. We expect the seasonality of our business to be generally in line with last year’s and pre-COVID seasonality. Based on the passage of federal funding legislation last week, there will be no impact from PAMA in 2026. For Project Nova, our multiyear initiative to modernize our order-to-cash process, we expect approximately $0.25 of EPS dilution related to increased investment spend versus 2025. Operating margin is expected to expand versus the prior year. The CoLab relationship with Corewell Health will add approximately $250 million in organic revenue at low single-digit margins in 2026. We continue to make progress with our launch of 100 basis points in 2026 versus 2025. Our lower operating cash flow guidance in 2026 compared to 2025 reflects several one-time benefits in the prior year, and one more payroll cycle in 2026 than 2025. The one-time benefits in 2025 were approximately $150 million, and the impact of the one additional payroll cycle in 2026 is approximately $120 million. With that, I will now turn it back to Jim. Jim Davis: Thanks, Sam. To summarize, with diligent execution of our strategy and a strong fourth quarter, we generated double-digit growth in revenues and earnings per share for the full year. In 2025, we delivered category-defining clinical innovations that fulfill customer needs, formed strategic collaborations to create new growth opportunities, and further advanced our position as the premier lab engine in consumer health. Our 2026 guidance reflects our continued confidence in our business strengths and market fundamentals supporting enduring interest in our diagnostic innovations. Looking ahead, I am excited about our path forward. We are focused on connecting everyone, from clinicians to consumers, to illuminate a path to better health, and are well positioned to serve growing interest in accessing the health insights that only laboratory diagnostics can deliver. Quest Diagnostics Incorporated sits at the center of health care as a trusted provider, and that is because of the dedication of our nearly 57,000 colleagues to living our purpose—working together to create a healthier world one life at a time. I would like to close by thanking each of my colleagues for what we accomplished together in 2025 and for their ongoing commitment to transforming lives for the better in the years ahead. Now we would be happy to take your questions. Operator: Thank you. We will now open for questions. At the request of the company, we ask that you please limit yourself to one question. If you have additional questions, we ask that you fall back in the queue. To be placed in the queue, please press 1 from your phone. To withdraw, press 2. Again, to ask a question, please press 1. Our first question comes from Luke Sergott with Barclays. Your line is open. You may ask your question. Luke Sergott: Great. Thanks for the questions, guys. I guess, as you are looking for 2026, can you just give a sense of what the underlying growth drivers are as you think about, or the assumptions on the growth drivers as you think about, like the consumer piece, new tests as you think of MRD coming on, potential reimbursement there, chronic disease management, etcetera, you know, just kind of break it out as to what you guys are thinking as we kind of bridge that build. Yeah. Jim Davis: Hey. Good morning, Luke. I think you touched on most of those. Look, we expect the organic growth to remain strong as Sam indicated. I think from a testing standpoint, we are seeing tremendous uplift in our Alzheimer’s portfolio of tests. Those include the Aβ42 and several p-tau markers, as well as our algorithms that assess the likelihood of disease. Our autoimmune testing, as I indicated in the script, is again very, very strong. The new diagnosis rate of autoimmune disorders continues to grow. Diabetes continues to grow. Cardiovascular testing—and not just the routine testing. The more advanced testing, what we call CardioIQ that includes Lp(a), ApoB, insulin resistance. All of those doing very, very well. Some of that being generated by the consumer segment. Our own questhealth.com just saw tremendous growth throughout last year. The partnerships that we developed with WHOOP, with Oura, with Function Health, with several other types of wellness companies. All of that helping. The last thing I would mention is, you know, we got back into network with Elevance in several key states last year, Nevada, Colorado, Georgia, and Virginia. And I would still say we are in the early innings of winning our fair share in those states. So all of that continues to just, you know, propel the organic growth as we enter this year. Luke Sergott: Great. And then a follow-up here. As you think about 1Q, you talked about the bigger weather impact, that headwind. You think about, like, consumer ramping and just from a pacing perspective, how are you guys thinking about 1Q and then how that ramps throughout the year? Jim Davis: Yes. Let me just comment on the weather impact. It was a tough January versus last January. But the good news is it was in January. So we have the rest of the quarter, the rest of the year to make it up. Now you know, we cannot predict the weather in the last six weeks of the quarter here. But what I will tell you is, you know, the first three, three and a half weeks of January were very strong, very strong growth. And so we are convinced that the majority, or some portion of it, comes back. You know, whether it is 30%, 40%, it is hard to predict. The general health and wellness types of work always come back to us. Some of the episodic work, if people were getting tests every two weeks for some chronic care condition, maybe they missed that appointment. But the other thing I would tell you is we have really good systems in place today to track the appointments that were canceled, to track the appointments that we canceled because we could not open our patient service centers, and we continue to remind patients that they missed their appointment, and we see nice uptick from those reminders in terms of patients rescheduling. In terms of the pacing of the quarter, I will let Sam comment on that. Sam Samad: Yes. So Luke, I would echo, first of all, the comment that Jim made around very strong utilization in January, and then we had some historically bad storms across the country that impacted the month. But we are still confident about the recovery in the quarter, and what we are seeing is also that strength coming back. But in terms of seasonality, you know, I think what you should expect is something similar to what we saw last year in terms of pacing across the quarters over the full year and something similar to what we saw pre-COVID seasonality. If you go back before 2020, specifically referring to the 2019 period, that type of seasonality is very, I would say, consistent in our business. It was during COVID. But if you compare it to 2025, I think the seasonality is very similar in terms of how you should think about the pacing. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Erin Wilson Wright with Morgan Stanley. Your line is open. You may ask your question. Erin, your line is open. Please check your mute feature. Hearing no line, this is the Operator, let us go to the next question. Yep. Thank you. Our next question then comes from Patrick Donnelly with Citi. Your line is open. You may ask your question. Patrick Donnelly: Hey, guys. Thank you for taking the questions. Sam, probably one for you. Just want to talk through the moving pieces on the margins. And it seems like a lot is going on in 2026 between Corewell, Project Nova, Haystack. An extra week of payroll, which you mentioned. It does sound like they will be slightly up year-over-year, so can you talk through the impact, a little bit of a bridge, if you are able to? And then the cadence, it sounds like typical seasonality. I know typically 2Q is the highest. It would be helpful just to talk to the cadence and then the moving pieces on the margin if you are able to quantify, that would be even better. Thank you, guys. Sam Samad: Yeah. Thanks, Patrick. So let me go through all the moving parts here, at least the moving parts that we have in 2026. First of all, let me just say operating margin is expected to increase in 2026 versus 2025. So that is the starting point here in terms of how you think about 2026. It is impacted somewhat negatively by the ramp of Corewell and Fresenius businesses, mostly Corewell actually, in terms of the roughly $250 million of Corewell revenue increasing in 2026, which comes at a lower margin. It is a CoLab business. It is low single-digit margin in 2026, improving to, you know, normal CoLab margins later in 2027 and beyond. But in 2026, it is impacting operating margin rate. It is very good business. It is $250 million in terms of additional revenues, but at low single-digit margins this year. So that is impacting the operating margin rate expansion, but even with that, operating margin rate is improving. Obviously, we have very strong organic volumes. The 6.6% at the midpoint guide that we have given is mostly organic growth. It is almost all organic growth. Actually, there is only about, you know, roughly 15 basis points of M&A carryover in that. So think about it as all organic growth and driving margin expansion. In terms of price impact, again, another piece of the story here. Price is relatively flat year-over-year, consistent with our expectations and consistent with what we have been seeing in practice over the last couple of years. So no negative impact from price, roughly flat within that plus or minus 30 basis points that we have talked about. In terms of Haystack, Haystack is less dilutive in 2026, so it is actually helping. You know, that is consistent with what we have shared in terms of 2026. So the test is ramping, good volume ramp that leads to less dilution on Haystack. And then, you know, you have, as an offset, Project Nova. We have quantified that in the guide that we provided. It is roughly $0.25 of incremental expenses in 2026 that is impacting our margins. So that is going to happen across 2026. It started to ramp more significantly in Q4 of 2025, and it is going to continue in 2026 as we stated prior, and we have quantified it now for 2026. In terms of seasonality, the last thing I think that you asked, Patrick, and then I will hand it over to Jim who wanted to add a couple of comments. But seasonality, consistent with what we saw last year. But if you think about it in terms of maybe more specific terms across the quarters, you know, Q1 is usually our weakest quarter, as we say, in terms of EPS contribution to the year. Q2 is the strongest quarter. Q3 is a step down from Q2, and Q4 is a step down from Q3. In terms of seasonality, first half, second half, I think you should expect somewhere just north of 49% in the first half and just north of 50% in the second half in terms of EPS contribution for the full year. That is just giving you more specifics. That is the seasonality pacing. Jim? Jim Davis: Yeah. Patrick, a couple of other things that are enhancing the margins, margin rate. One is our consumer business. We mentioned in the script, it is a $250-ish million book of business that continues to grow at 20%. Remember, with that business, there are no denials and there are no patient concessions or bad debt. It is definitely a help from a margin rate standpoint. We continue to grow that business north of 20% relative to the portfolio growing 6% to 7%. The other thing I would mention is LifeLabs in Canada. The margin rate continues to improve. We said by year three it would be at the company average, and it is definitely heading in that direction, very close to that. And as that margin rate of that business continues to improve, it will help our margin rate as well. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Michael Cherny with Leerink Partners. Your line is open. You may ask your question. Michael Cherny: Good morning, and thanks for taking the question. Maybe if we can talk about the competitive environment as you see it, and you talked obviously about above-expectations organic growth. Some of these are contract-oriented. As you think about the current health of the market, think about where you sit across the hospital labs and an environment where you continue to have different types of partnerships, where do you see your biggest competitive strengths as you kick off in 2026 and 2027? And how much of the expectations for organic growth are, for lack of a better term, share gain? Jim Davis: Yeah. Hey, Michael. Look. I think there is absolutely share gains in the organic growth that we saw in 2025, and I think it will continue into 2026. As I mentioned, getting back into network in those key states with Elevance, that is all share gain in those states. I did not mention Sentara, but Sentara is a big health system health plan in the Southeast along the Atlantic Coast. We are back in network with them, and that has been a tremendous help. Look. Our strengths are simply our national coverage. We have over 1,200 sales reps out there positioned with primary care, with all of the various channels. And that really helps when it comes to positioning our autoimmune testing, our brain health testing, our cardiometabolic testing. Having that broad national coverage really, really helps. Now in terms of, you know, everyone wants to make a lot about, you know, Quest and our nearest competitor. But I have to tell you what. Quest and our nearest competitor are probably less than 30% of the market. So I think we are making inroads versus hospital outreach. I think we are making inroads against physician office labs. And, you know, perhaps these big health systems are just, you know, not going after that business as strongly. They have other things to invest in. They have other priorities, other investments that generate higher returns than laboratory testing. So I think we are capitalizing on those trends. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Kevin Caliendo with UBS. Your line is open. You may ask your question. Kevin Caliendo: Hi. Thanks for taking my question. What are you guys seeing in terms of the HIX now that we have further visibility? Is that sort of in line with your original expectations around the potential impact? And just a clarifying question around volumes. I appreciate that you are now including Fresenius and Corewell in this, but if we were to take that out, what would your organic volumes have been in Q4? Sam Samad: Sure, Kevin. Let me comment on both, and Jim can add color as well. But first, on the health exchanges, I will remind you about what we modeled and what our expectations are. We modeled a 30 basis point impact on revenue growth from the exchanges. And that is factored into our guide for the year. So that was our modeling, and that is what our expectation is. Now in reality, what we have seen in terms of enrollments has actually been better than expected. It is early days to measure utilization as a result of that and what the loss of utilization is off of the enrollments. But I would say we are encouraged by what we saw so far in terms of by the end of the year and also what we saw in January in terms of enrollment. Now, again, we need to see the mix of those enrollments of potentially patients going to higher-deductible plans, bronze plans versus gold plans. I mean, there are a lot of moving parts there. And it is very early days to be able to say, you know, this is really encouraging. But so far, based on the enrollments, we have seen it better than expected. In terms of Fresenius and Corewell. Listen. Corewell is all organic growth. It is a CoLab relationship. It is all organic growth. Fresenius is mostly organic growth as well. In terms of Q4, where our DIS business grew by roughly close to 8% organically in terms of volumes, the volume growth ex-Fresenius and Corewell was just over 4%. So, basically, from a volume perspective, they had a sizable impact because the nature of the Fresenius business specifically, and to some extent Corewell, but more so Fresenius, is it is very routine business, very high-volume business that is done on a very regular basis. It is a lower rev-per-rec business, still very profitable, based on the fact that we do not do draws. We do not incur as much cost. It is a high-volume business. The impact on revenue in Q4 was much less. It was just less than a percent. So our organic revenue growth was 5.6%, excluding those two businesses, and it was 6.4% in total. Jim Davis: Kevin, the other thing I would point out is, in addition to the 4.1% organic growth when you strip out Fresenius and Corewell, we also had 3% organic rev-per-rec lift. And, again, that is coming from price being stable, number one. Number two, the continued test-per-rec increase we are seeing. Some of that coming from the mix of our consumer business, so all of that just continues to point to strong organic revenue growth that we are seeing. Operator, next question. Operator: Thank you. Our next question comes from Jack Meehan with Nephron Research. Your line is open. You may ask your question. Jack Meehan: Thank you. Good morning, guys. Jim, wanted to ask you about how you see PAMA playing out this year. So we do have the survey coming up from May through July. I assume, like, are you ready to participate in that? And do you think this data ultimately is read out later in the year and could inform rates in 2027? Jim Davis: Yeah. So first check, we are really thankful that we got a delay for the sixth year in a row. And I think that is reflective of the fact that Congress feels that the original methodology was flawed and it led to excessive cuts, and that is why we got the further delay. As you indicated, they moved the data collection from 2019 to 2025. And, yes, we are absolutely prepared to report. The problem, Jack, is I am not sure the other 10,000 labs—maybe there will be a few—are prepared to report. So if we end up with less than 1% of the labs reporting, like what happened before, it is just going to lead to inaccurate market-based pricing. So that is why we continue to push the RESULTS Act. And we remain optimistic that the Act will get, for lack of a better word, acted on this year. There was a hearing on January 8 with the Energy and Commerce Committee, the Health Subcommittee. Our ACLA president testified at that meeting. There are over 65 cosponsors of the bill. And as you know, under the RESULTS Act, that leads to a different type of data collection process, one that uses a third-party database. There are many third-party databases out there. The one we have recommended represents a sample of over 80% of the adjudicated laboratory reqs, and we think that is going to be a much better indicator of what the market price will be. And when you mix in, you know, the roughly 9,800 labs that failed to report the last time—and those are labs that are primarily hospital outreach labs, physician office labs, other smaller independent labs—when you mix all that data into the two largest national labs, we think it is good news for the calculations related to the absolute market rate of the testing that is out there today. So we are optimistic, but we are going to keep pushing it hard in the first, you know, six months of this year and hopefully get it done before the fall. Jim Davis: Great. Operator, next question. Operator: Thank you. Our next question comes from Erin Wilson Wright with Morgan Stanley. Erin Wilson Wright: Great. Sorry for the issue earlier. But can we dig into some of the consumer testing dynamics in the environment that you are seeing? You have launched several new partnerships, new initiatives, WHOOP, Oura, Function Health. Can you speak to some of the sustainability of growth across this segment, the margin profile? Are you seeing anything new or different in terms of consumer utilization trends across this segment? And how should we think about what is embedded in guidance in 2026 on this front? Thanks. Jim Davis: Yeah. So thanks, Erin. We remain very optimistic about this. This is all about consumers who are interested in their own health. They are interested in prevention. And as you know, prevention is not about waiting for symptoms. Prevention is doing some things before diagnosis, doing something before symptoms set in. Let me start with the wearable companies. I think this notion of linking your biometrics with your biomarkers so that you understand the influence of those biometrics—whether it is sleep, nutrition, movement, heart rate variability, pulse—you can create these correlations between those biometrics and your biomarkers, ultimately giving feedback to the consumer on what they need to do in order to improve their biomarkers. And I think these wearable companies are really on it, and we are seeing nice lift from, still very early with both those companies, but we are seeing nice lift. I think some of our value-added resellers that are providing, let us just say, other value-added medical guidance to the laboratory testing that we do for them, I think it is serving the need, honestly, that consumers cannot get or are not getting from their physicians. Many of the tests on these panels will not be covered by normal health plans under normal conditions, under normal general health and wellness testing. And yet these same tests are covered if the patient is sick. So again, people are worried about prevention, not waiting until they get sick to get these types of tests. So, you know, look. We are looking at the renewal rate of these companies. Many of these value-added resellers are subscription based, and we look at the renewal rates, and we are positive about what we are seeing. The last thing I would leave you with is our own questhealth.com channel is on a $100 million run-rate business right now. And we continue to see nice uptick there. And it is not just in the wellness panels that we offer on questhealth.com, but there is a lot of what I call episodic testing that occurs. This could be allergy testing, tick testing. This could be diabetics who just want to check their A1c. It is a lot of STD testing. So our own channel continues to grow very nicely, and we certainly look at the repeat business of our own consumers and are happy with it. Sam Samad: Maybe I will add a couple of comments, Erin, just on the financial side. So, you know, with regard to the direct-to-consumer that Jim just mentioned, the questhealth.com, we have talked about that business growing somewhere in the 35% range over the course of the year, and that is in fact where it ended. It is approximately 35% for the full year 2025. So that business is really doing very well. And then if I think about the direct-to-consumer, but also the partnerships that we have and the partnerships are wearables and other wellness companies, etcetera. We have a vibrant ecosystem there that we are supporting and that we are the engine for. You know, the margin rates on those businesses, both direct and the other collaborations that we have, is an attractive margin rate above our corporate average because basically, it is simple. It is all cash pay. We do not have patient concessions. We do not have denials. So that business has an attractive margin profile. You asked about guidance for 2026. I am not going to give you a specific number, but all I will say is that the greater than 20% growth, in terms of a CAGR over the long term, we still feel very confident about in terms of consumer and these other high-growth businesses that we called out during Investor Day. And the expectation this year is that we are going to continue to sign up new partners as well in collaborations because we are powering a whole ecosystem here. Operator: Our next question comes from Michael Ryskin with Bank of America. Your line is open. You may ask your question. Michael Ryskin: Hey, thanks for the question, guys. I want to go back to Corewell and Fresenius contribution in 2026. Just given that it is organic amounts of traditional M&A basket. But I also want to focus on margin opportunity and the ramp there over time. I know you talked about sort of dilutive to margins and price in 2026 and improving over time. Could you just walk us through the ramp and what gets you there? Just sort of give us a sense for the time frame for both of those businesses going beyond this year? Thanks. Jim Davis: Yes. I think it is pretty straightforward, Michael. On Corewell, we said it is a $250-ish million book of business for us in 2026. And we said that would start out at low single-digit margin rate. As we get into 2027, we expect that to be in the low teens. Fresenius, the margin rate will continue to improve through the end of the year. And by the end of the year, we expect that book of business to be at or slightly above the company operating margin rate average. Michael Ryskin: Great. Okay. Okay. And is that the— Operator: Next question. Michael Ryskin: Go ahead. Go ahead, Michael. Go ahead. Sorry. Just real quick. Is that, when we think about the moving pieces to the margins in 2026, you talked about margins will grow this year. But it sounds like it is a little bit less than we would have expected in prior. Is that the biggest swing factor? Is there something else that we are keeping in mind for margins this year? Sam Samad: I think the Corewell one is the biggest swing factor, given the fact that it is a $250 million incremental business at low single-digit margin. So that is definitely a swing factor. Fresenius, as Jim mentioned, I mean, think about it as kind of a somewhat similar profile to a physician outreach acquisition where it starts out below the margin average. You know, we have got integration costs. We have got some setup costs. And then over time, maybe it takes longer than a typical physician outreach acquisition. But over time, it improves. And by the end of the year, I think we will be at the average. The only other thing I would point to, which I mentioned earlier when I answered Patrick’s question, is Nova expenses and the fact that we have an incremental $0.25 of Nova expenses in 2026. But, you know, we still have a healthy operating margin rate expansion, impacted to some extent by the Corewell growth. But Corewell will ramp over time to improve to normal CoLab margin rates. Operator: Our next question comes from Tycho Peterson with Jefferies. Your line is open. You may ask your question. Tycho Peterson: Hey. Thanks. Couple on oncology. So, Haystack, you have got the PLA reimbursement. You have MolDX decision effective January 1. Maybe just touch on the path to getting commercial coverage, Medicare Advantage, some of the next steps we should be thinking about on the back of MolDX. And then on the flow cytometry-based MRD, I am just curious how you think about the value proposition there. Obviously, more of that market is moving towards sequencing-based tests. And then just lastly, are you baking anything in for your multicancer risk stratification test launching this year? And what about the partnerships with Guardant and GRAIL? Thanks. Jim Davis: Yeah. So there is a lot there, Tycho. Look. With respect to Haystack reimbursement, Novitas is the MAC that we submit to, and it did receive a PLA code. It received reimbursement. We continue to adjudicate through Novitas and are successful there. With respect to Medicare Advantage, we are still waiting on the MolDX tech assessment. Once that tech assessment is complete, we will be well positioned with the Medicare Advantage plans. And then, you know, look. We are having ongoing discussions with all the major payers in terms of commercial reimbursement. In some cases, we get paid. In other cases, we do not. In some, you know, we bill them all. We have doctors write letters around medical necessity. And we continue to make progress on that. The flow MRD is an ultrasensitive flow test that has incredibly good sensitivity and specificity, and we think it is very, very competitive with next-gen sequencing-based tests. We are very confident of that. We will continue to do studies to show that. The value proposition is really around speed. So as you know, patients with myeloma, you know, that disease moves very, very quickly. Speed is of the essence. And we can get an answer back within three days. It is also a significantly lower-cost test. So from a reimbursement standpoint, it will offer payers a choice. It will offer physicians and patients a choice to have a test that is highly comparable with the next-gen sequencing test at, again, a turnaround time that is very, very short—three days, not weeks—and with, again, ultra-good sensitivity and specificity. In terms of the multicancer early detection test, yes, we have a partnership with GRAIL. We will do the blood draws for GRAIL. We have listed it in our test compendium. And GRAIL obviously pays us to do those draws and handle the logistics for them. And then, we did announce a partnership to draw for the Guardant colon cancer-based blood screening test, and that will be underway later in the first quarter. Sam Samad: Yeah. And from a guidance perspective, Tycho, the partnerships with GRAIL and Guardant are reflected in our guide. They are a modest contribution in terms of the percentage of the total. The risk stratification test is, again, very modest. It does not launch until later in the year. So, we are excited about that launch. Operator: Our next question comes from Andrew Brackmann with William Blair. Your line is open. You may ask your question. Andrew Brackmann: Yeah. Hi, guys. Good morning. Thanks for taking the question here. So, Jim, maybe a big-picture question for you, sort of related to the opportunity for Quest Diagnostics Incorporated in monetizing the data that you generate. You know, you obviously generate quite a bit of it. So as you sort of think potentially about monetizing some of this longer term or maybe even partnering with some of these AI companies to further unlock that value, what are the things that you are putting in place today to maybe go after that opportunity? Thanks. Jim Davis: Yeah. The data business has been a nice business for Quest. It is growing double digits. It has been growing double digits for the last several years. There are multiple customers when we think about who are the customers for that data. Number one, the pharmaceutical industry, whether it is targeting clinical trials, targeting patients with certain conditions—you know, type 2 diabetes, you name the condition—pharma turns to us to look for patient cohorts. We give patients, when they are getting a blood draw, the option to make their names available for clinical trials, and that has been very successful as well. The payers tend to be a very good customer of this data. As an example, you know that people switch from Medicare Advantage Plan to Medicare Advantage Plan. If a patient switches from Plan A to Plan B, Plan B will come to us and ask us for previous lab data, lab history, of that patient so they can quickly understand what chronic conditions and other issues that that patient may be dealing with. Then I would say the public health agencies are also customers. You know, there are certain tests that we, certain results that we have to provide public health agencies, including the CDC. But very often, these public health agencies come to us and want to understand, you know, viral conditions, STD outbreaks, and things like that, and we highlight to that. I will say we have partnerships with several different AI-based companies that we are working with to better use the data to provide health insights and other population health insights to all the constituencies that I mentioned above. Operator: Thank you. And this question comes from Elizabeth Anderson with Evercore ISI. Your line is open. You may ask your question. Elizabeth Anderson: Hey, guys. Good morning. Thanks for the question. I just had two modeling questions. One, and I apologize if I missed it, but can you just highlight the Elevance and Sentara reinclusion in their networks and sort of the impacts you think that that will put through in 2026 volumes? And then in response to Luke’s question, I understand that core volumes are continuing to be strong. I just did not quite understand whether you were calling out that there was any weather impact from the cold weather and storms in January. So I just want to make sure I have that down exactly. Thank you. Jim Davis: Yeah. So, again, on Elevance, we mentioned in 2025 we got back in network in the states of Nevada, Colorado. We were partially in network in Georgia, but we were not in network with all of their plans. So back in Georgia and Virginia. And, you know, let us just say it is a three-year ramp from our current share position with other health plans to get to that same level with Elevance in those states. So we are now in year two. So we expect continued share gains with that. Sentara, as you know, is a health system in Virginia, and it has its own health plan. And we are the only one in their network on their health plan side, so we will continue to get share gains in Virginia, and the health plan actually goes even further south. So the health plan extends beyond just the Virginia border. So we are excited about that as well. Sam Samad: With regards to weather, Elizabeth, what we said is the weather impact was significant in January, but it is embedded in our guide for the year. So, as we think about the year itself and the seasonality, we expect the seasonality to be similar to what we saw last year, even with this weather impact that we saw in January, which was actually worse than January 2025, which in itself was pretty bad. But we had some pretty bad storms across the country in January. We do expect some recovery in the next two months or the next month and a half remaining in the quarter, and we have seen the underlying utilization has been very strong. So, we are encouraged by that. Operator: Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. You may ask your question. Benjamin Shaver: Hey, guys. You have got Benjamin Shaver on for Pito. Thanks for taking the question. Just a quick one on 2026 guidance. How should we think about the price-per-rec versus requisition growth assumptions as it pertains to that? And also within the pricing assumption, how does the test-per-rec versus unit pricing play out? Thanks. Sam Samad: Yeah. So we are not going to provide the specific guidance around revenue per requisition. We usually do not. We provide revenue assumptions in terms of the guide. On a qualitative basis, I will tell you the impact that we talked about with regards to the high-volume impact from Fresenius at a lower revenue per rec, still very profitable business, but that will impact revenue per rec as a total in 2026. If you look at it excluding those two businesses, Corewell and Fresenius, I think the rev per rec will be consistent with what we have been seeing. But those two businesses, Corewell and Fresenius—and mostly Fresenius—will impact rev per rec negatively, as we saw in Q4. In terms of the other factors within revenue per requisition, I think the key thing that you should factor in is the fact that we continue to see tests per rec improve. We saw that across all of 2025. And that improvement is driven by a number of factors, whether it is the advanced diagnostics, more options for early screening, both cancer and other disease states, guidelines evolving, and physicians really gravitating towards more testing. So all of those continue to play out, and we are still encouraged by, definitely based on what we saw in Q4, continued growth of tests per rec and what we expect to see in 2026. Operator: Thank you. And this question comes from Eugene Park with Baird. Your line is open. You may ask your question. Eugene Park: Hi. Can you hear me? Operator: Yes. Go ahead. Eugene Park: Hi. Thanks for taking my question. Can you quantify the impacts on setting up Fresenius and Corewell? And maybe break out the Project Nova cost in Q4? And if you can elaborate more on how much setup, if there is any left to do, and you can provide more color on Q1 2026 on potential impact. Sam Samad: Yeah. So I think I heard most of your question. If I did not catch all of it, please correct me. But in terms of Q4, without quantifying the exact impact, because I do not want to get into quantifying every single quarter the impact of Nova and also Fresenius, Corewell. All I would say is there was a significant impact from the setup expenses of Fresenius and Corewell because we are standing up these businesses. There are integration costs. You know, there is a lot of cost when you initially set up these new partnerships, both the CoLab partnership and, in the case of Fresenius, a new partnership across dialysis testing. And then Nova, we had also expenses in Q4. We had previously called out the fact that with the delayed signing of the contract with Epic, we had some expenses that got pushed out into Q4, and that is in fact what played out in the quarter. As you think about next year in terms of specifically Nova, we called out roughly $0.25 impact from Nova expenses in 2026. So when you think about 2026, the impact is roughly $0.25. The way I think about it is fairly even in terms of quarterly impact across the quarters. Maybe slightly more in the first half than the second half, but not materially. So, you know, I think you can model it fairly equally across the quarters. Operator: Okay. Thank you. And I would like to thank everyone again for joining the call today. Certainly appreciate your continued support. Have a great day, and stay healthy. Operator: Thank you for participating in the Quest Diagnostics Incorporated Fourth Quarter and Year End 2025 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics Incorporated’s website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 AM Eastern Time on 02/10/2026 until midnight Eastern Time, 02/24/2026. Goodbye.
Operator: Good morning, and welcome to First Quarter Fiscal 2026 Earnings Results Conference Call. My name is Kevin, I will be your operator for today's call. At this time, I would like to inform you this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Felise Glantz Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed. Felise Glantz Kissell: Thank you, and welcome to Aramark earnings conference call and webcast. This morning, we will be hearing from our CEO, John J. Zillmer, as well as our CFO, James J. Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the Risk Factors, MD&A, and other sections of our annual report on Form 10-Ks and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found in our press release and IR website. With that, I will now turn the call over to John. John J. Zillmer: Good morning, everyone, and welcome to our fiscal first quarter earnings call. Thank you for joining us. We are very pleased with the strong results delivered in the quarter. Even when considering the calendar shift referenced in the earnings release, the company has significant business momentum, which Jim and I will share in greater detail. We believe we are well positioned to record record-breaking financial performance driven by our growth mindset, operational discipline, and unwavering commitment to service. We are seeing multiple positive growth trends throughout the organization, including extraordinary client retention in both FSS US and International, levels we have never seen before achieved at this point in the fiscal calendar, combined with significant new client wins already awarded to us early in the fiscal year, particularly in healthcare, education, and corrections within the US, and in sports, mining, and energy within International. Substantial new business opportunities are immediately upon us, giving us great confidence in reaching our net new target of 4% to 5% in fiscal 2026. And lastly, adding new purchasing spend in our global supply chain GPO network within hospitality areas such as theme parks, hotels, and now cruise lines, in addition to benefiting from increased volume and scale occurring more broadly at the company. In the first quarter, organic revenue for Aramark grew 5% to $4.8 billion and would have increased approximately 8% if not for the calendar shift. Growth resulted from both strong base business and net new business. We expect performance acceleration to occur as we successfully onboard a record level of new account wins combined with maintaining the unprecedented retention levels I just mentioned. Notably, this does not factor in sizable new client wins which would drive our business momentum even further and we are expecting those to begin this fiscal year. Moving to the business segments, FSS US organic revenue increased to $3.4 billion, or 2%. It is worth highlighting that the segment would have grown approximately 5% if not for the calendar shift, which primarily affected education. Of course, this growth will simply be recaptured in the second quarter as part of our results, ultimately having no impact on the full year. Top-line revenue growth drivers in the quarter were led by workplace experience, which delivered a seventeenth consecutive quarter of double-digit growth from launching significant new business wins in addition to strong holiday catering activity. Refreshments mobilized new accounts at an accelerated rate, and identifying additional growth opportunities from an integrated enterprise-wide strategy. Healthcare experienced strong base business, specifically from vertical sales success and the expansion of multi-service offerings. Sports and Entertainment expanded our college football portfolio by providing a pro-level hospitality experience where alcohol unit sales are now becoming comparable to NFL stadiums. And Corrections continue to add statewide systems as our Into Work program is nationally recognized for the ability to provide pathways for education, career development, and rehabilitation. Just last week, we successfully launched operations at Penn Medicine, the largest contract win ever in the US, as you recall. As the fiscal year progresses, we will continue to roll out services across Penn Medicine's nearly 4,000-bed, seven-hospital system, including patient and retail food service, environmental services, patient transportation, and an integrated call center to support operations. I am extremely excited to announce that our success in demonstrating Aramark's enterprise-wide capabilities and collaboration resulted in our newest healthcare win, RWJBarnabas Health, the largest, most comprehensive academic health system in New Jersey, covering eight counties serving over 5 million people. RWJBarnabas Health has 18 primary locations with 5,700 beds. Anticipated to launch this summer, we will support their patients in retail dining, environmental services, and patient transport. This represents one of the largest contracts awarded in healthcare in recent history. Other clients added to the portfolio include the University at Albany, where we began operations this semester to redefine the student dining experience through innovation, inclusivity, and community engagement, as well as a new statewide relationship with the Alabama Department of Corrections to deliver food services, integrating our proprietary AI platforms for menu planning and operational efficiency across 27 facilities. As you can see, we are already off to a great start for the fiscal year in new account wins. We anticipate the US growth trajectory to benefit from strong new business, high retention rates, and increased volume growth. Once again, International delivered outstanding results with revenue reaching $1.5 billion in the first quarter, an increase of over 13% year over year on an organic revenue basis, with International revenue results largely unaffected by the calendar shift. International reported a nineteenth consecutive quarter of double-digit growth, maintained an exceptional client retention level, and every country contributed to revenue growth in the quarter with the UK, Spain, Germany, and Chile leading the way. New business in the first quarter within International included the Welsh Rugby Union, highlighted on the last earnings call. In just a few days, we will be serving 74,000 fans at Principality Stadium, the largest stadium in Wales and the fourth largest in the UK, and the location for the upcoming highly attended Six Nations Rugby Championships. We were also awarded copper mining and state-owned giant Codelco and other meaningful mining contracts in Latin America. The International team achieved well over 100 core account wins in the first quarter, providing us with the ability to establish additional business development and operational scale in the countries we serve. Now for an update on global supply chain. Performance was strong in the quarter as the team is focused on growing and optimizing spend and offering products, services, economics, analytical insights, and sourcing solutions for our clients. Inflation continues to actualize in the range we anticipated, with all global regions in line or favorable to our assumptions. We remain highly committed to GPO growth and are actively pursuing meaningful opportunities. Double-digit growth propelled well over $20 billion worth of contracted spend as we expand business in International regions, increase penetration in adjacent hospitality areas, and further scale through select strategic acquisitions. AI-driven technology continues to differentiate our supply chain and GPO capabilities, delivering back-end efficiencies and actionable business insights. Tools such as mobile AI chatbots and AI-enhanced analytics provide GPO clients real-time visibility into their business. Our own internal supply chain operations AI systems are accelerating back-end efficiency and productivity gains. Before handing over the call to Jim, I want to reiterate our confidence and realize the numerous growth opportunities ahead for the business this fiscal year, driven by the strategic and operational initiatives underway at the company. Our success comes from the teams throughout the organization and around the globe who show up every day with purpose, serving with integrity, solving problems with ingenuity, delivering consistent excellence. Jim? James J. Tarangelo: Thanks, John, and good morning, everyone. We are off to a great start to fiscal 2026. The unprecedented levels of success with our annualized gross new wins and client retention last year have built the foundation for our strong outlook, and we believe we are well on track to deliver on our financial targets for 2026. More importantly, this momentum in the business has continued; we are extremely excited about our growth prospects going forward. I will now provide some insights into our first quarter financial performance before reviewing our expectations for the second quarter as well as for the overall fiscal year. Just to level set regarding the calendar shift, as a reminder, our fourth quarter fiscal 2025 had a fifty-third or extra week. While this has no impact on our full year 2026 results, it does affect the cadence of quarterly comparisons. Due to the fifty-third week in 2025, each quarter in 2026 starts and ends a week later than the comparable quarter last year, shifting strong activity and low activity weeks between reporting periods. With that context, as John mentioned, organic revenue growth in the first quarter was up 5%, on track with what we anticipated. As we discussed on our previous earnings calls, we expected the calendar shift to have a 3% to 4% unfavorable impact on growth; in the first quarter that is exactly what occurred, as the estimated impact of this shift was approximately $125 million, or about 3% on revenue. Excluding the impact from the calendar shift, organic revenue growth in the quarter would have been up approximately 8%, at the high end of our long-term growth algorithm. Now for the second quarter, we have the opposite occurrence in that a low-activity week falls out of Q2 and is replaced with a strong-activity week. We estimate the positive effect of this shift to be a benefit in a similar contribution of about 3% on revenue. Turning to profitability in the quarter, operating income was $218 million, up slightly versus the prior year. Adjusted operating income was $263 million, up 1% on a constant currency basis compared to the same period last year. The calendar shift reduced AOI by an estimated $25 million. AOI growth would have been approximately 11% without the calendar shift. The quarter benefited from higher revenue levels, the leveraging of technology capabilities, particularly in supply chain, and disciplined organizational cost management. Now to the business segments, US had AOI at a 1% decline compared to the same period last year, with a calendar shift impacting growth by an estimated 10%. The US AOI growth would have been approximately 9% without the calendar shift. The workplace experience group, refreshments, and corrections had strong performance in the quarter, driven by revenue drop-through, enhanced technology driving efficiencies, and supply chain productivity and above-unit cost management. The International segment had year-over-year AOI growth of 12% on a constant currency basis. Profitability growth was led by strong results in the UK, Spain, and Chile, which is partially offset by some mobilization costs in a couple of countries from new business within Sports and Entertainment and Higher Ed as well as a slight impact from the calendar shift. Moving to the remainder of the income statement, interest expense was $81 million, and the adjusted tax rate was approximately 25%. Our quarterly performance resulted in GAAP EPS of $0.36 and adjusted EPS of $0.51, with a calendar shift impacting adjusted EPS growth by approximately 13%. Regarding cash flow, as expected and consistent with our typical first quarter cadence, we saw a cash outflow that reflects the natural seasonality of the business. This increased compared to the prior year due to greater working capital use driven by strong growth in the business. Capital expenditures were higher from the timing of commitments associated with sizable new business wins and certain client renewals. We continue to advance our capital allocation priorities by repurchasing another $30 million of Aramark shares as part of our share repurchase program. We also took steps to optimize our financial flexibility by proactively repricing $2.4 billion of 2030 term loans at lower interest rates. The repricing resulted in interest expense savings of 25 basis points. We will continue to pursue opportunities to further enhance our capital structure with a focus on shareholder value creation. At quarter end, the company had approximately $1.4 billion in cash availability. Turning to the outlook, our second quarter is progressing well and in line with our expectations. We believe revenue growth will continue to be strong as we onboard and roll out new business, including those recently commencing operations, DePaul University, the University at Albany in Collegiate Hospitality, and the University of Pennsylvania Health Care System, as John mentioned. Regarding profitability, we also expect AOI to benefit from our key operating levers driven by strong supply chain efficiencies, effective cost discipline, and, of course, higher revenue levels. With all that said, we anticipate performance in the second quarter to be right in line with current Wall Street expectations. We are also well on track and highly confident in achieving our full-year guidance, particularly given the phenomenal trends we are seeing in the business. As a reminder, our full-year outlook for fiscal 2026 is as follows: organic revenue growth of 7% to 9%, AOI increasing 12% to 17%, adjusted EPS growth of 20% to 25%, and a leverage ratio below three times. In summary, we are off to a strong start to the year as we continue to advance our growth strategies, fueled by extensive new business wins and outstanding client retention. We are energized about the opportunities ahead and remain highly focused on delivering exceptional top- and bottom-line performance. Thank you for your time this morning, John. John J. Zillmer: I want to personally thank our teams for maintaining virtually flawless client retention to date, while continuing to drive exciting new business opportunities. Our efforts are centered on our ability to create a consistently strong and sustainable business focused on providing valued hospitality services to our clients. We expect to build upon our growth momentum throughout this fiscal year and beyond. I am extremely excited about what is next to come. Operator, we will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch-tone phone. If you are using the speakerphone, you may need to pick up a handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. To remove yourself from the queue, please press star 11 again. Our first question comes from Ian Alton Zaffino with Oppenheimer. Your line is open. Hi. Great. Thank you very much. Ian Alton Zaffino: It seems like you guys are winning a lot of, call it, competitive business here, and some larger competitors are included in that mix. Is this a trend we should expect here, and then maybe what do you attribute the success to? Thanks. John J. Zillmer: I would say we have enjoyed significant success over the last, certainly over the course of the last year and going into 2026, in competitive new account wins. Some of those wins are very complex, large organizations that are part self-op and part served by our competitors, and we have been lucky enough to win two very large opportunities in Penn and RWJBarnabas that represent very significant both competitive wins and self-op conversions. So we see that trend continuing. We are positioned extraordinarily well to win these situations. The capabilities that our teams have built, the systems that we can bring to bear that serve our clients well and can demonstrate to them in these sales processes are significant. And so each of these decisions is independent; all of these clients make judgments based on what is best for their needs, and we have been able to demonstrate a very unique capability and have been lucky enough to be selected in those opportunities. So we are very pleased with the performance to date and lots of wind in our sails, if you will. Ian Alton Zaffino: Okay. Thanks. And then, just as a follow-up, kind of like a multiparter here. What I wanted to see is or find out, are there any other large bidding upcoming? Or also, rebidding that is happening, any larger ones that are coming in that would be dovetailing into, just retention in general. What are you guys doing here that you continue to improve retention and see it at these exceptional levels? Thanks. John J. Zillmer: Thank you. Good question. And absolutely, we are focused every day on retention, and it is the number one driver of our ultimate success when we can retain the clients that we serve. It is very important. And so the first part of the question with respect to new bidding opportunities, I am not going to comment on other large pursuits that we have ongoing at the present time, because they are competitive in nature, and I do not want to signal our strategy to our competitors. There are a number of large opportunities that we are pursuing. I would say for the bidding cycle this season, we have a kind of a normalized bidding cycle. As you know, it is the time of year where K-12 and higher ed are going through their bid processes. But we are achieving record-high retention at a time in the fiscal year when normally we would have lost a little bit of business by now. So we are very pleased with the results to date. We are hyper-focused on it. It is a very important part of our compensation systems. People are very aware of how seriously we all take this as an organization. So we are pleased. We are driving for success. We want to get better every day. Ian Alton Zaffino: Thank you very much. Great quarter. Operator: Next question comes from Neil Christopher Tyler with Redburn Atlantic. Your line is open. Yes, good morning. Thank you. Good morning, John, Jim. I just wanted to zoom in on a couple of the subsegments that you called out and ask for some help in framing their materiality. Specifically, within Sports and Leisure, the absolute relative scale of the college athletics revenues, where they have got to, if you can give us any help on how to think about those because that is something you have been talking very enthusiastically about for a little while now. And similarly, in Business and Industry, the refreshment component seems to be outpacing everything else. So are these stand-out sufficient to drive the levels of growth on their own, or is there a lot going on elsewhere presumably as well? I wonder if you could help us there. Then I have got a quick follow-up on margins, if that is okay. John J. Zillmer: Sure. The revenue growth is very broad-based and wide-ranging across the lines of business and geographies. So we are seeing very good strong net new business performance both in FSS US and in International, and it is not really driven by one group or another. When we highlight these, it is because they have had outstanding performance, but the other businesses are all performing well as well. So we feel very good about both the broad-based nature of it and the success of the entire organization as we pursue these growth opportunities. With respect to the Sports and Entertainment business, we have not really disclosed the breakdown between collegiate sports and our pro teams, and we do not intend to disclose that at this point. I will say that when you think about the scale and the size of opportunities in collegiate athletics, it is very significant. We are certainly the largest player in that segment to date and continue to pursue significant opportunities going forward. And we may, at some point in the future, make the decision to disclose that information separately, but at present, we have not. Yeah, and I will just add, you asked about refreshments. That is a significant piece of our Business and Industry segment, and as we mentioned, that segment has grown double-digit 17 quarters in a row. It is both our underlying B&I business and our Refreshment Services business that is benefiting from very high retention levels and really strong new business. So they both are growing double-digit and contributing to the success that we are seeing in that segment. Neil Christopher Tyler: Got it. Thank you. And then just if I can follow up on margins. Jim, I wonder if you could just remind us or help handhold a little bit on the puts and takes in the adjusted operating margin in this quarter compared to what we should expect over the year? Just to make the major items, if that is okay. Thank you. James J. Tarangelo: Sure. I think at the first call, as I mentioned in the script, we have about $25 million of cost associated with the fifty-third week in the first quarter that will unwind. So if you adjust for that impact, margins would be up about 20 basis points in Q1. Neil Christopher Tyler: We do have the last quarter lapping the impact. We mentioned the GLP-1s and elevated medical costs during the last earnings call. We revamped that program so that will no longer be a factor starting January. So those are just two of the items I would point to in Q1, but it is primarily the fifty-third week impact that will unwind in the second quarter. So when you look at the first half, it will be more normalized. And then for the full year, on track for the 30 to 40 basis points that we have consistently delivered and talked about and embedded in the guidance that we provided in the beginning of the year. So margins are falling in line with our expectations. Neil Christopher Tyler: That is perfect. Thank you very much. Very helpful. Operator: Our next question comes from Leo Carrington with Citi. Your line is open. Leo Carrington: Good morning. Thank you very much for taking my questions. If I could follow up perhaps on this net new growth you have been experiencing. What is your expectations in terms of the duration that this could persist, especially as it is driven more by very strong retention rather than acceleration in gross wins as I understand this? At what point in the year do you have the confidence to perhaps exceed the target? And then secondly, could I ask two questions on AI? Firstly, how do you perceive the risks or opportunities around your revenues, in the sense of what your blue-chip office clients are reporting in terms of the importance of catering in the context of hiring and investing in the office environment? Is there an opportunity in data centers for you? And then secondly, on the cost side, you referenced the back-end efficiencies and supply chain productivity. To what extent are your AI initiatives here paying off already? Thank you. John J. Zillmer: That is a lot, so let us break it down into chunks and talk about AI first. Let me break that into a couple different pieces. First, in terms of the back-office productivity and the impact on our cost, we are already seeing the impact of AI, particularly on supply chain as we use it to both accelerate the data capture process as well as the negotiating process, if you will, for the services and the product that we buy. So it has already had a significant impact. And it is important to note that our investment in AI is really relatively small. It is part of our normal IT operating budget. We do not have any significant program investment or a significant capital investment targeted towards AI implementation. We are able to do this as part of our ongoing IT spend and driving significant performance improvement already through it. So we feel very confident in the use of AI both as it relates to our organization as well as the improved profitability. With respect to the business opportunity, we see the evolution of jobs in the United States as one that will be productive for us. As you can tell from our revenue growth that is occurring in B&I and in Refreshment Services, we have lots of runway to grow the business. We serve customers in all kinds of locations, whether it is manufacturing, office, mining, remote camps, the national parks. The vast majority of our businesses will probably see an opportunity coming from the application of AI in their respective segments. And so we do not see it as a threat to the business. We see it as an opportunity—an opportunity for further growth. Obviously, data centers are under construction, we would certainly have an opportunity to pursue and to bid on those kinds of opportunities. It is very analogous to our remote camps mining businesses, if you will. So we see it as a long-term opportunity for the company, not a threat to our organization. And I am old enough to probably be able to say this. I remember the days when everybody thought robotics was going to replace everybody in an automotive plant. Workforces adjust, processes adjust, companies adjust. We see it as a long-term opportunity with a changing marketplace in that jobs may change, but people will still be employed. So we see it as a long-term opportunity. Jim, do you want to take the other half of the question? James J. Tarangelo: Yeah. The other, you talked about, you started with the run rate and opportunity in pipeline. So we are certainly running ahead of where we expected to be in terms of net new, well on track to deliver and perhaps exceed on the 4% to 5%. So we are in a really strong position in terms of retention. As John mentioned earlier, just not the size and scale of retention risk that we may have at this point in the year. That, coupled with a number of the large wins we talked about, and then on top of that, a very robust pipeline of opportunities, many active discussions, and many of those pretty close to finalizing. So we have kicked off the year in a very good spot, and we will keep you posted over the next couple months here. John J. Zillmer: And I will just add one last comment on that. We see the long-term growth algorithm in this company to improve as a result of our operational discipline. We are getting better and better every day with respect to both elements of the business, which is selling these new accounts and these new opportunities by applying great systems and processes to these client organizations, as well as continued operational improvement which leads to higher client retention. And so both elements are important. Our gross new wins last year were the highest we have ever had, and we continue to see very strong success in both new business wins and retention. Operator: Our next question comes from Jaafar Mestari with BNP Paribas. Your line is open. Jaafar Mestari: Hi. Good morning. First question, please, on just pricing and volumes. Curious if you could quantify the contribution to organic growth in the quarter, and maybe update your views for where like-for-like price and like-for-like volumes land for the full year, please? James J. Tarangelo: Sure. For Q1, pricing essentially about 3% in line with inflation, in line with our expectations. That is offset essentially by a 3% we talked about for the Q1. For the full year, I think we are still on track. We still anticipate pricing being in about 3%. Volumes are a half percent to 1%, and then at this point, just hit the middle of the range, and perhaps better for net new would be about 4.5%. That would put you right in the middle of the guidance. And as we talked about, on track. We are encouraged by the trends we are seeing in net new and opportunities to exceed that. Jaafar Mestari: Super. And just a follow-up on cash flow. It is a normal cash burn quarter, but that normal seasonal outflow was $200 million more than last year. Can you perhaps detail some of the moving parts there? It looks like CapEx in the narrow sense—you buying facilities and building stuff—was actually exactly in line, but then payments to clients were $40 million higher. And if that is correct, then is the balance of $160 million all working capital outflow? Does it stay there? Does it revert? James J. Tarangelo: If we view the payments to clients, we essentially view as capital investment in our clients. It is more of an accounting distinction. But for the first quarter, CapEx was about 4.5% of revenue. So that is elevated, and that is a result of the success we have seen with our new business and a little weighted toward sports and higher education, which, as you know, does require a higher percentage of capital. Some of the business higher proportion of business we rolled out in Q1 was from those sectors. We do expect that to normalize. Historically, if you look, we are running about 3.5% capital spending as a percentage of revenue. By the end of the year, we should be back in that range. So Q1 was a little skewed with the capital. And then in terms of working capital, as this business grows, we do have a use of working capital, seasonal use that was a little bit higher than the prior year. As growth accelerates, additional working capital goes in. So it is in line with our expectations and how we planned it out. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Your line is open. Andrew Steinerman: It is Andrew. I just wanted to make sure I heard you correctly about the assumption for client retention in the fiscal 2026 guide. I think you said you are counting on maintaining the same high client retention percentage that you experienced in fiscal 2025. I just wanted to make sure that I heard that correctly. And then also the second question is, is there anything else that you want to add directionally about trends in the start of this current second quarter outside of the calendar shift and the Penn Hospital start? James J. Tarangelo: In terms of retention, as we said, Andrew, we are actually at a better spot in terms of retention this year than prior year, and as you know, last year was a record retention for the organization. So it is in early days, but I think we are on track to be consistent or even better than what we delivered in fiscal 2025. Your question on trends? John J. Zillmer: Nothing other than what we have already modeled, I think, is probably fair, Andrew. Nothing different. We obviously have start-up of new accounts, but nothing that is really impacting the second quarter differently than we have already disclosed. Andrew Steinerman: Okay. Thank you. Operator: Next question comes from Andrew John Wittmann with Baird. Your line is open. Andrew John Wittmann: There was a comment in your prepared remarks about inflation. I think you guys said that it was running kind of in line or maybe slightly better than you had anticipated. Maybe I thought you could elaborate on that a little bit more, maybe decompose it into maybe food and supplies prices versus the labor that you are seeing out there? And if it is running better, was just wondering if it is just kind of immaterially better, or if there is an offset somewhere else in the P&L that keeps the profit guidance where it is. John J. Zillmer: Thanks, Andrew. I would say it is roughly 3% on a food basis, and that is across multiple geographies, a little higher in one, a little lower in another. So in the aggregate, it is right in that range of what we anticipated. We still see some elevated risk on certain commodities, but everything else kind of coming in line. Obviously, the big commodity in the US is beef, which continues to have demand outstrip supply, so pricing is fairly high. But we are able to mitigate that through the menu design and the like. So we think that that inflation number is very consistent with what we expected and what we are seeing unfold. From a labor cost perspective, I would say it is still probably in that range as well, different across geographies in various countries, but in the aggregate, again, in that range. So we expect the overall impact of inflation to be about 3% to offset it through appropriate pricing strategies in market and various other changes. So really nothing extraordinary in the inflation environment for us at this stage. Andrew John Wittmann: Okay. Cool. That is my only question. Thank you very much. Operator: Next question comes from Joshua K. Chan with UBS. Your line is open. Josh Chan: Hi. Good morning, John, Jim. I guess you mentioned the unprecedented retention trend. So I am just wondering what is changing or improving this year, and how does the retention pipeline, if you will, or the defense pipeline, look for the rest of the year? John J. Zillmer: I would say again that we are just extraordinarily focused on retention as being a key driver of our success, and so we continue to get better and better at it. We continue to have very high expectations for our teams, and frankly, their performance has been extraordinary. It is a combination of a lot of different things, but most it is about performance, and it is about delivering the services that our clients expect and meeting their expectations. So with respect to the pipeline, we have a fairly normalized year. Nothing very large on the horizon in terms of risks. It is just a fairly normal year. Josh Chan: Okay. Great. Thanks for the color there. And are you seeing any change in terms of customer spend, average spend per transaction? Is that trend continuing to move up, or what are you seeing there? John J. Zillmer: We continue to see broad consumer support, particularly if you break down the consumer transactions in Sports and Entertainment. We are seeing very good per capita spending, very good attendance levels in the various leagues, obviously somewhat driven by team performance, but overall attendance in the NBA and NHL at good levels. So we feel very good about the trends that exist within the business. We are not seeing any consumer pushback or any strong concern with respect to the economic environment. Overall, I would say it is steady as she goes. Josh Chan: Great. That is good to hear. Thanks for the color. John J. Zillmer: Thank you. Operator: Our next question comes from Toni Michele Kaplan with Morgan Stanley. Your line is open. Yehuda Selverman: Hi, good morning. This is Yehuda Selverman on for Toni. Just had a quick question or two on the sports segment. So we wanted to talk a little bit about the World Cup and if there is any update on how this contract might work. We have heard that it could be one contract for all the games spread across the country. We are wondering if there is an update in the selection process and how that has gone and, if it really is one contract across the many different stadiums, how that might play out in terms of the stadiums that are operated by different providers at the moment. John J. Zillmer: I am not sure where you are getting that. We have the contract to operate the games in the stadiums we operate, and that is true of our competitors as well. So we will have the games at Lincoln Financial Field, at NRG Stadium in Houston, and in Kansas City we will have the games there. So there is not one single contract. There is not one operator. The services are being provided by the company that is under contract to operate that stadium. We anticipate having positive revenue trends from the World Cup, but also keep in mind that those stadiums, while they are being used by the World Cup, cannot be used for concert activity and other events. So all in all, we see it as being relatively revenue and profit neutral to us, not a significant upside or downside to our projected financial results for the year. Yehuda Selverman: Got it. Thank you for clarifying. And then just one quick follow-up also on the sports segment. Similarly, coming up in Q2, there is potential tailwind from March Madness being held in a couple of stadiums that were not held previously. Curious if it is a similar scenario where it might be neutral as they cannot have other entertainment or sports events at the stadium at the same time. And, alternatively, is there an expected headwind from the NFL playoffs seeing less home games this year than last, or minor just like the MLB? John J. Zillmer: I would say, first of all, anything that is scheduled in our stadiums has been on the calendar for quite some time. So if the NCAA Final Four or Sweet 16 is in one of our stadiums, we will have the opportunity to serve those events, and that would have already been baked into our expectations and into our planning process because we know that those things are scheduled well in advance. So it does not represent a real change to us in terms of our overall planning process. We were lucky enough to have some teams in the NFL playoffs, and it was a good playoff season. We are very pleased to say that our clients in Seattle, the Seattle Seahawks, won the Super Bowl. We served their facilities needs there in the stadium in Seattle, and we are very proud to be of service to them. But I would say overall, our expectations for the sports year are pretty consistent with our plans, and really no expectation for either windfalls or downside. James J. Tarangelo: Yeah, I will just add in terms of Q1, we did have about nine or so fewer major league MLB games. We had the Phillies in the prior year. So that had some headwinds in Q1 as we return to a more normalized growth rate in Q2, as John just mentioned. Yehuda Selverman: Great. Thank you. Operator: Our next question comes from Jasper James Bibb with Truist Securities. Your line is open. Jasper James Bibb: Hey, good morning, everyone. A couple for me on the RWJBarnabas contract. Should we think about this as comparable in size to the Penn Medicine win? And I think I heard launching this summer. How should we think about the timeline for that hitting a mature run rate? Is that going to be more of a fiscal 2027 driver, or your contribution for 2026 going to be material too? John J. Zillmer: Yeah. I think it will be a staged opening that will begin this summer. I think we are still working to finalize the actual opening schedules, if you will. So there will be a significant impact in 2026. We anticipate beginning to serve them in June, and then throughout the balance of the summer, it should be transitioning. But that schedule is still yet to be determined. Yeah. We are very proud to have been selected to operate Robert Wood Johnson Barnabas Health System. It is a terrific win, and as you know, the system is actually larger than Penn Medicine's, and ultimately the potential revenues are likely to be as strong as Penn's. So we feel very good about it, and there will be impact in 2026, and we will know more here over the next few weeks as we develop the implementation schedule. Jasper James Bibb: Great. Thanks for that. And then the Europe group was really strong again this quarter. It has been a really nice couple of years for that business. Just hoping we could step back and talk about the drivers of your growth in Europe, where you see more opportunity there, and what the pipeline looks like for that business over the balance of the year. John J. Zillmer: I cannot say—I am sitting here looking for superlatives because they have just done an extraordinary job of building that business over the last several years. They have been hyper-focused on growth, and frankly, it has been a result of improving performance and demonstrating to our clients that we are the company that can deliver for them across a range of countries and a range of geographies. We have been committed to that growth. We have invested in sales resources and processes and systems and, frankly, in leadership. So we have great teams on the ground really focused on building their organizations and enterprises, and they have been able to demonstrate it here now over several years running, and we have very high expectations for them this year as well. I cannot say enough about them. I am really excited by the work that they have done and their performance to date, and we believe that that success will continue. Jasper James Bibb: Great. Thank you for taking the question. Operator: Our last question comes from Stephanie Benjamin Moore with Jefferies. Your line is open. Stephanie Benjamin Moore: Actually, my first question is just a follow-up to maybe the prior question and the prior discussion here. Could you talk a little bit about some of these larger platform wins? Is this a change in strategy, a change in go-to-market strategy, or is it just timing of some of these wins? But it does seem like you are seeing some larger wins unless I am missing something here. So just wanted to understand if there is a strategic shift happening behind the scenes, and I have a follow-up as well. John J. Zillmer: I would say, yes, there is a strategic shift, and it is really on the part of our clients as they begin to recognize the need to systemize their operations in order to take advantage of cost synergies and operating synergies. A great example of that is Penn Medicine. They had multiple service providers; they were also self-operating a lot of their business. Their CEO made a very strategic decision to go ahead and consolidate and systemize so that they could capture the cost savings and the synergies and ultimately reduce cost to patients and control expenses for the medical institution. You are seeing more and more of that in healthcare systems. We are very proud of the service we provide to Baylor Scott & White in Texas, who were really one of the first organizations to apply the system-wide approach to this. Very proud to be selected to serve Robert Wood Johnson Barnabas as they apply that same strategy. My belief is that more and more organizations, particularly in healthcare, will continue to pursue that as they recognize the need for cost containment and control in a world of declining reimbursements from the federal government. They need to operate more efficiently, and we have the tools and processes and systems in place to enable them to do that in a consolidated way. So there is a strategy shift really on the part of our clients and customers and their philosophical change. We have had great success, and we believe we will continue to enjoy outsized results as a result of our ability to go ahead and apply those systems and processes to that strategy. Stephanie Benjamin Moore: And then just as a follow-up, I wanted to touch on your timing to contract profitability or breakeven, however you want to speak to it. Has there been any change in terms of the timing that new contracts are able to start contributing at a faster pace, just based on some of the operational improvements and investments, as you just noted, specifically? Any changes, especially as we think about maybe some of these larger contracts as well? Thank you. James J. Tarangelo: Some of the larger contract wins this year, as John just mentioned, within healthcare, they are typically less capital. While they are large and complex, unlike a large Sports and Entertainment opening, there is less capital required, and contractual structure in healthcare is often significantly more geared toward cost-plus or cost-reimbursable, which helps mitigate some of the large start-up costs. So I think you are right. This year, with some of those large contracts rolling out, the start-up costs, the ramp up to profitability, is a little faster, and that was embedded in the plan and the guidance that we set out at the beginning of the year. Felise Glantz Kissell: Thank you, everyone. Operator: I will now turn the call back over to Mr. Zillmer for closing remarks. John J. Zillmer: Terrific. Thank you very much, and thank you, all of you, for your support of the company and your questions. Always happy to provide as much information as we possibly can. We like to be as transparent as possible and make this easy. I want to thank the Aramark team for their extraordinary devotion and commitment to customer service. These financial results that we are enjoying now and that we will enjoy in the future are a direct result of your efforts. So Aramark team, thank you, and we look forward to talking to you again soon. Take care. Operator: Thank you for participating. This concludes today's conference. You may now disconnect, and have a wonderful day.
Operator: Please standby. Good day. And welcome to the GCM Grosvenor Fourth Quarter and Full Year 2025 Results Webcast. Later, we will conduct a question and answer session. If you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call, and press star 1 on your keypad to join the queue. If anyone should require operator assistance, please press star then 0 on your telephone. As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Driebusch Selinger, Head of Investor Relations. You may begin. Thank you. Stacie Driebusch Selinger: Good morning, and welcome to GCM Grosvenor's Fourth Quarter and Full Year 2025 Earnings Call. Today, I'm joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Jay Sacks, President, Jonathan Reisin Levin, and Chief Financial Officer, Pamela Lyn Bentley. Before we discuss our results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance, and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-Ks, our other filings with the Securities and Exchange Commission, and our earnings release, all of which can be found on the public shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results. Michael Jay Sacks: Thank you, Stacie. 2025 was a great year for GCM Grosvenor. Most importantly, we drove value for clients as our investment results, the cornerstone of our value proposition, were strong across the board. Absolute Return Strategy's performance was excellent, with our multi-strategy composite generating a 15% gross rate of return in 2025. Infrastructure, our fastest-growing strategy of late, returned approximately 11% for the year. All of our other verticals in aggregate were positive and competitive as well. We think the investment opportunity set remains strong, and we're pleased to have approximately $12 billion of dry powder. From a capital formation perspective, 2025 was the best fundraising year in the history of the firm. We raised $10.7 billion of total capital, with approximately $3.5 billion of that coming in the fourth quarter. Both records. Jonathan will go into more detail, but our fundraising was broad-based, with all of our verticals, including ARS, having positive flows, and all investor channels and geographies contributed. Our pipeline of activity is very strong entering 2026, which bodes well for fundraising this year. 2025 financial results were similarly strong. Our fee-related earnings, adjusted EBITDA, and adjusted net income were up 11%, 15%, and 18%, respectively, when compared to 2024. Our fee-related earnings margin for the year was 44%, which is 200 basis points higher than our margin in 2024. We continue to enjoy significant margin improvement since coming public, and we believe we still have positive operating leverage. Our adjusted EBITDA and adjusted net income were aided by the $68 million of performance fees generated from our ARS business. In that regard, 2025 represented the fourth time in the last six years that we have generated more than $50 million in annual performance fees from ARS. While carried interest realizations were light for the fourth quarter, our earnings power from carried interest continued to increase at a rapid pace. Our gross unrealized carried interest balance stands at an all-time high of $949 million, up $113 million or 14% from 2024, with approximately 50% or $478 million of that belonging to the firm. Based on a number of real-time positive developments, we believe we will see another increase in this balance when we close our books at the end of Q1. We ended 2025 with $91 billion of assets under management, a 14% increase compared to 2024, and a new high watermark for the firm. Fee-paying AUM increased 12% year over year to $72 billion, and contracted not-yet-fee-paying AUM increased 27% year over year to $10 billion. Our contracted not-yet-fee-paying AUM is an important leading indicator of future revenue growth with real embedded FRR growth in that number. Finally, 2025 marked meaningful progress towards several of our key strategic objectives, particularly in regard to the individual investor channel, where AUM increased 18% year over year. In 2025, we launched Grove Lane Partners, our new wealth management distribution joint venture. We launched our infrastructure interval fund, which is now raising money every day. And we recently filed registration documents for a registered private equity fund, which Grove Lane will support. While we always caution that new distribution markets take time to ramp up, we remain enthusiastic about the future of the wealth channel for our business. Before turning the call over to Jonathan, I want to comment on the challenging market of the past couple of weeks. The consensus seems to be that the market stress has been driven by concerns of AI disruption and impact on equity and credit valuations with regard to SaaS businesses. While we probably prefer a somewhat less volatile environment, we are pretty sanguine with regard to recent developments. First, diversification is the defining characteristic of our investment and portfolio management process. In the private equity, private credit, and ARS space, all of our verticals, actually our typical portfolios, include exposures to several hundred companies or assets on a look-through basis. Those positions are diversified across markets, industries, different asset class types, and geographies. And we have always believed this diversification is a core tenet and a significant part of the value we deliver to clients. Second, with regard to our SaaS exposure, we believe we have less exposure than peers and very limited exposure generally. SaaS exposure represents only 4% of our total AUM, less than 6% of our credit AUM. Third, our view generally is that not all SaaS businesses are the same. That SaaS businesses are not going away, and they also will benefit from AI. With regard to SaaS-related credit specifically, existing credit attachment points are generally protective with regard to impairment. Fourth, we believe last week's significant pullback was without differentiation across companies, which always provides opportunity. Our absolute strategies portfolio had positive performance in January, and in general, this is the type of environment where ARS strategies often add value. Finally, we believe that across our platform, we have more exposure to the disruptors and the beneficiaries of disruption than we do to the businesses where disruption to business model or future prospects is of concern. Simply said, we have more net long opportunity from AI trends, including direct exposure to AI and to all the related AI beneficiaries, than we have exposure to loss from those disrupted. Of course, our stock has not been immune to the recent market dislocation. And we ourselves are a good example of a proverbial baby being thrown out with the bathwater. With our stock trading at a lower earnings multiple than the S&P 500, and that of our alternative investment peers, with solid growth prospects and with a current dividend yield of approximately 5%, we believe we represent good value today and that buying back stock represents an attractive use of capital. Consequently, we have increased our buyback authorization by $35 million, leaving us with $91 million to repurchase shares. Given our ample cash balance generated in part from strong cash flow generation and in part from the proceeds from warrants exercised in November, we can buy back stock, minimize dilution from stock-based compensation, and also repay $65 million of our term loan, which we are doing this week without prepayment penalty. In closing, 2025 was a very strong year, momentum remains strong, and we remain on track to achieve our goals to more than double our 2023 FRE to over $280 million and grow adjusted net income per share to more than $1.20 by 2028. And with that, I'll turn the call over to Jonathan. Thank you. As Michael noted, my remarks will focus on our strong fundraising results for the year 2025. Our $10.7 billion raised, in addition to being a firm record, is notable for its diversification across strategies, which is best illustrated on page 10 of our earnings presentation. Every investment strategy contributed meaningfully to our results this year, and all have sizable pipelines heading into 2026. The numbers only capture part of the story. So to bring our fundraising to life, I'm gonna take you through a few real examples of 2025 wins. First, as we've discussed in the past and at our Investor Day, evolving alongside our existing clients through cross-selling has been a key driver of our growth, generating approximately 20 to 25% of our fundraising in any given year. One such client is a large public pension that has partnered with us for years on a multi-asset private markets program focused on smaller cap opportunities in private equity and real estate. Through our ongoing dialogue, our client described that they had strong demand for what they called the missing middle of real estate, sitting between smaller and very large opportunities. We designed a new program specifically to address that gap. Importantly, the client also re-upped their original private equity and real estate programs, committing more than twice their initial allocation. It's a strong example of listening closely, adapting quickly, creating durable solutions, and growing alongside our clients. To that point, our AUM with this particular client is four times what it was when they launched their first program with our firm. A second example highlights similar expansion within the absolute return strategy space. In this case, we've worked with the client for almost twenty years, managing small, middle-market programs across private equity, infrastructure, and real estate. As a result of this evolution, our AUM with this particular client has many, many multiples of what it was when they launched their first program with us almost twenty years ago. The programs we manage serve as an alpha generator by attacking less trafficked areas of the market, incorporating significant fee efficiency due to meaningful exposure to co-investments and direct investments. In fact, in this particular relationship, we do everything from direct control investing to co-investing to fund investing across private equity, real estate, infrastructure, and absolute return strategies. Stacie Driebusch Selinger: The fund investing activity serves as a farm system of relationships. Jonathan Reisin Levin: That ultimately transition to the client directly. In 2025, we expanded that relationship by introducing ARS, making this one of the many programs that comprise the $1.9 billion of ARS fundraising in the year, the highest amount since 2021. Michael mentioned our growing success in the individual investor channel, and I'll highlight a key example of that momentum: strong demand for white-labeled solutions. We've long believed that the differentiation that's made us successful in the institutional market, serving as a customized separate account partner, would translate well in the individual investor channel. And we're seeing that thesis play out. Over the past two years, we've raised almost a billion dollars across 11 white-label solutions in the wealth channel. We believe these customized solutions will be a meaningful contributor to our growth in this channel going forward alongside everything we're doing from a product standpoint. The last example is an Asia-based institution for whom we've managed an ARS program for more than two decades, alongside providing broader advisory and value-added services. The client wanted to increase their exposure to Japan-focused ARS strategies. And despite having a large and sophisticated investment team, they sought our partnership to leverage our experience and capacity in that market. Leveraging the depth of our global ARS team and long-standing relationships with Japan-based managers, we designed a customized Japan-focused ARS program tailored specifically to the client's objectives. These examples represent only a snapshot of how we partnered with clients over the past year. Collectively, they reflect the power of our platform, the strength of long-term relationships, and our ability to tailor solutions across client types and channels. While each client relationship is unique, our success is driven by a common foundation: a broad, flexible platform that lets us adapt to market conditions, tailor creative solutions, and deliver across a wide spectrum of opportunities. With that, I'll turn it over to Pam. Pamela Lyn Bentley: Thanks, Jonathan. Both our fundraising and investment performance led to strong asset growth in the fourth quarter and the year. Private markets fee-paying AUM and management fees grew 106% year over year, respectively, from a combination of solid fundraising and conversion of contracted not-yet-fee-paying AUM. Growth in all of our various earnings drivers throughout the course of '25 sets us up well for continuing momentum and earnings expansion. As usual, let me touch on key figures for the upcoming quarter. For '26, we expect private markets management fees to be relatively consistent with the fourth quarter. It's also important to note that given the timing and fee structure of our specialized funds in the market, we expect limited catch-up fees this year. As noted, absolute return strategies had strong investment performance and capital formation, resulting in ARS fee-paying AUM and management fees growing 155% year over year, respectively. For 2026, as a result of positive net flows and terrific investment performance, we expect ARS management fees to increase by approximately 5% from the fourth quarter. Turning to expenses, our compensation philosophy is centered on attracting and retaining top talent by aligning their interests with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation, and equity awards. We remain disciplined in managing expenses, and our FRE compensation and benefits remain stable for the year at approximately $148 million or an average of $37 million per quarter. As a reminder, we typically see a seasonal uptick in compensation in the first quarter of the year, and we expect FRE compensation and benefits to be approximately $1 million higher in '26 versus Q1 of last year. Non-GAAP general, administrative, and other expenses were consistent in the fourth quarter at just over $20 million. We expect non-GAAP general, administrative, and other expenses in 2026 to be in line with or just slightly above 2025. Turning back to 2025, in addition to strong AUM metrics, it was a productive year on our financial drivers. I point you to Pages four and five in the earnings presentation for a summary of the key metrics. Total fee-related revenue for the year was $416 million, an increase of 6% year over year. Our fee-related earnings grew 11% year over year, and our fee-related earnings margin expanded to 44% for the year. Adding our strong incentive fees, adjusted net income grew 18% year over year. During the fourth quarter, our outstanding warrants expired, with a portion exercised resulting in the issuance of approximately 10 million shares at the strike price of $11.50 per share, generating just over $110 million in proceeds. We also repurchased 2.8 million shares during the fourth quarter at an average price of $11.11 per share, or a total of $31 million. As of year-end, $56 million remained under the existing share repurchase authorization. And today, we announced that our Board has approved an additional $35 million for share buybacks. Additionally, we are prepaying $65 million of our term loan, reducing our leverage and saving over $3 million per year in interest expense. While these actions enhance our financial flexibility and support shareholder returns, our primary focus remains on strategic investment for long-term growth. With strong fundraising, excellent ARS investment performance, steady FRR growth, margin expansion, and upside from incentive fees, we believe we have all the ingredients in place for a very strong 2026. Thank you again for joining us, and we're now happy to take your questions. Operator: Thank you. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. The first question will come from Jeffrey Paul Schmitt with William Blair. Hi, good morning. Could you discuss your capital allocation plans just with balance sheet cash up on the warrant exercise? And Pam had mentioned you paid down some debt over the last week or two. In up share buybacks. But what are your plans from here? Should we expect additional debt pay downs? Michael Jay Sacks: Thanks, Jeff. So it's Michael, and then Pam jump in if I leave anything out here. But, you know, we've always talked about the fact that we're a capital-light business. We've paid a healthy dividend and increased that dividend a number of times since going public. And we've said, you know, numerous times, and we intend to sort of stay a capital-light business. So we did, you'll you saw in the Q4, we bought back shares post-warrant exercise. And we are gonna pay some debt down now. And I think, you know, that with the current authorized exercise and the current and the debt pay down we announced this morning, that that kinda puts us back in a pretty, you know, comfortable range. Obviously, we have a quite healthy dividend yield, not getting a ton of appreciation for that. So while we probably, you know, do have cash flow to be able to increase that dividend, it doesn't seem to get me rewarded particularly, by shareholders sort of focused on increasing that buyback. Jeffrey Paul Schmitt: Okay. And then continue to see really good operating leverage in the business. I think the fee-related margin was 44% for the year. It's up a lot over the last five years. Can you continue to keep expense growth low as this business scales out through '28, which was sort of your medium-term outlook, can you continue to drive margin expansion over that period? Thanks. Michael Jay Sacks: We believe we can. And so, we do think I think I mentioned it in my comments, we believe we have continued operating leverage and we think that we can and will continue to drive FRE margin and overall margin through '28. Jeffrey Paul Schmitt: Okay. Thank you. Operator: Thank you. And the next question comes from Kenneth Brooks Worthington with JPMorgan. Hi, good morning and thanks for taking the question. Kenneth Brooks Worthington: The absolute return business had a great quarter, had a really solid year. You've been highlighting for some time the expectation of flat flows. How are you feeling about the business, and how do you feel about that business returning to organic growth as we look to the future? Given sort of the successes you've had in the past couple of years? Michael Jay Sacks: Well, Ken, we're gonna flash back to our Investor Day conversation, you know, when we were out in the hall. We're not changing our budgeting. And we're not changing and making any proclamations on a call like this. And as you know, anybody who was at the Investor Day or watched that Investor Day recording knows we definitely have people in the firm in that vertical that are more bullish on the vertical than we are budgeting. But we're not changing that budgeting at this time. And I could point out, Ken, that budgeting relates to flows, which obviously translates directly into management fees. But it also does, you know, relate to performance expectations and kinda what we sort of talk about as run rate performance fees at budget. And I did highlight that for the last six years, we've beaten the run rate at budget on the performance fee side as well. Kenneth Brooks Worthington: That was an elegant way of answering, so, appreciate it. As we think about I just wanna dig into it too. It's John. Sorry. Yeah. Jonathan Reisin Levin: Let me add one thing. I mean, I agree with everything Michael said. I do just make sure we make the important distinction because you framed the question in the context of where organic growth. If you if Pam gave, you know, guidance for the '26, and you might have been specifically referring flows as opposed to just FRR. But that guidance for the '26 does have embedded in it, obviously, FRR growth from that vertical in light of the success we've having. So I just want to make sure that you when you file back and look at those that script, you catch that piece. Kenneth Brooks Worthington: Cool. Thank you. And just on two funds, maybe first Advance, how much has been raised thus far in the strategy, and how much time is left until that fund closes? And then CIS is back in the market, just remind us how big the prior fund was. Operator: Sure. Let me Michael Jay Sacks: take John, let me take Advance, and you just give the specific number on CIS. So, Ken, we are in market with for Advance. We actually have the ability to extend the period to raise funds for Advance, and we have talked to our LPAQ about doing that. And so we'll be continuing to try to raise money for Advance, you know, going forward the next, you know, several, you know, next, you know, quarter or so. Advance is in my view, likely to come in smaller than the prior advance. It'll be one of the few funds we've, you know, ever had where a successor is smaller than the predecessor. And as you know, Advance focuses on emerging managers, which is emerging and diverse managers. And there's been a lot of conversation about diversity and diversity, equity, inclusion, over the course of the last year or so. And it's been a steeper slope for this fundraise this time around. And I think that's just a fact. That's a fact we've been living with. And when we have our final close, we don't announce the numbers along the way, but when we have our final close, it will be, I think, smaller than the prior fund. I would say that as given the size of the prior fund, you know, it's not gonna be all of our forecast and everything incorporate the idea that it's gonna be smaller. So we've understood that. We understand the landscape. We've been up that that fund has been operating in, for a while now. And that's baked into our guidance and our expectations. Kenneth Brooks Worthington: K. Thank you. And just CIS, the prior one? Jonathan Reisin Levin: Yeah. It did it's about between it's right roughly a billion dollars. We there were some sidecar vehicles that invest alongside that fund, but for the CIS three, plus or minus a billion dollars were, as you said, now in market critical infrastructure solutions for And you know that we've talked a lot about the success we're having generally in the infrastructure space. And so when you look at the total capital formation for infrastructure vertical across separate accounts and various products, this is just a piece of it, but we feel as good about this piece as we do about the broader infrastructure strategy, which is obviously going quite well. Kenneth Brooks Worthington: Great. You very much. Operator: And the next question will come from William Raymond Katz with TD Cowen. William Raymond Katz: Great. Thank you very much for taking the questions. So John, you spent a lot of time about the depth and breadth of the gross sale dynamic for 2025. And I think between you and Michael sort of hinted at a pretty good '26. Was wondering if you could maybe unpack the drivers for 2026 and maybe break that down between, specialized versus maybe the SMA side of the equation, retail or global wealth versus institutional, any other metric you think sort of sailing for us as we sort of work through our math. Thank you. Jonathan Reisin Levin: Sure. You know, I don't know, Bill. If I broke it down, I would break it down much differently from what the flows formation and the makeup of that formation has been over the past couple years with the relevant embedded trends in it. So when you think about it being broad-based globally, when you think about being broad-based across the channels, and when you think about it being highly diverse or broad across many of our verticals, The mix between separate accounts and specialized funds being roughly the same mix as that's represented in our AUM at seventy thirty. You know, with the underlying trends still being relevant to that. Infrastructure is strong, and we're in a market with a bunch of infrastructure stuff. And the individual investor market's growing faster than the We had individual investor AUM up close to 20%, which is larger than our what our overall AUM growth was. Continued growth from the capital from the insurance channel as compared to what it represents in AUM. So I don't think that I would call for something kinda markedly different in any period of you know, reasonably long period of time that you would capture capital formation over, I would say that our expectation would be a continuation of the trends we're seeing, which is a very healthy environment capital formation. And us benefiting from the diversification and breadth of the business and where we're making investments in particular to get behind the tailwinds that we're all collectively seeing in the market. Michael Jay Sacks: Bill and Michael, I don't think we said in the script which we often do. So glad that you asked and happy to say it now, our pipeline you know, we've talked in the past how we track pipeline, and we have near-term pipeline, a couple categories in near-term pipeline. Etcetera. After raising $10.5 billion through December 31, our pipeline today is larger than it was a year ago. So just and and to John's point, and it's completely you know, diverse on channel, on jurisdiction, on geography, etcetera. So, that's I think we normally mention that, and we didn't, this time, I don't believe. So thanks for asking. William Raymond Katz: Okay. Thank you. And maybe a follow-up for Pam. Maybe a two-part question. You've been able to really hold the line on expenses year on year even as the business continues to scale. What is it that's driving that, the ability to sort of tamp down particularly on the OpEx side and the comp side? And then as we look ahead, so so unrelatedly, how are you guys thinking about the realization opportunity on the carry side equation, and which bucket do you think it comes from? Thank you. Pamela Lyn Bentley: Appreciate the question, Bill. I think on the OpEx side, I would say, obviously, we're focused on continued expense management, but also just continued investment in scalability and technology. There's a lot of great efforts going on that are enabling us to achieve that scale and including AI and we spoke a little bit about that at Investor Day as well. And we are also, again, just disciplined in making sure we're still investing in the areas of the business where there's product growth such as in the individual investor space. So we're investing where it makes sense, and we're holding the line and reducing expenses where we can through really investments in technology. And I think, Bill, if you can remind me the second part of your question there. Michael Jay Sacks: Yes. Sure. Sure. I'll take it, Pam. It was the carry question. Where is it gonna come from? And how good do we feel about it, and what's our you know, how do we characterize it? And I think, Bill, that's where I would start that where I would start on that is the I think the most important piece, and I wanna begin a little, is it how we mostly think about it is it's not a it's not an if, it's a when. And so when matters, time value money matters, absolutely for sure. You know, sooner is better. That said, that asset is appreciating very rapidly. And I, you know, encourage everybody to listen to my comments in the script with regard to that asset, look at the appreciation, over the year, last year, quarter over quarter, that asset's appreciating rapidly. And what to me is very encouraging about that asset when you have a carry asset on your balance sheet, one of the things you worry about is sort of old carry. And is the old carry just kinda stale and sitting there and you're not gonna really collect it? If you look at our collections, our old carry has come way, way, way, way down. We've collected, you know, most of it. So it's live. It has been a when not an if question. And we have, you know, every confidence that that carry at $4.79 firm share now is a when, not an if, and that that number is gonna go up. Which we touched on. And there is a ton of carry at work behind that that doesn't really appear anywhere. Right? Because it's just carry that's not yet in the money to be counted and carried NAV, but it's working. We're deploying the capital. And we're creating the investment returns to turn that into carried NAV. And there's a ton of that that we've, you know, generated in the last six years or so. And so we're hopeful that the same experience you've seen with our carry asset over the time period that we've been public where we've, you know, we've tripled three and a half x, whatever it is, the size of the asset while collecting a lot of cash, that, you know, not saying specific dollars amounts, but that that same pattern is gonna occur again on top of the $4.79. We think that this we think this is not you know, like, if you look at our carry asset today, at $4.79, it's a big chunk of our total enterprise value. Relative to peers. It's worth noticing that. And then you think about the dry powder the carry that we have behind that, and it's a very significant asset for Grosvenor. That we sort of feel, you know, and it will start cash flowing to a higher degree. Just a question of when. And when we done, we when when it does, we think it will be, you know, significantly appreciated. William Raymond Katz: Okay. Thank you for taking all the questions. Operator: Press 1. Again, that's 1 if you would like to ask questions. And we'll take a question from Crispin Elliot Love with Piper Sandler. Crispin Elliot Love: Thank you. Good morning, everyone. First, on the fundraising outlook broadly, very strong in 2025. Just curious on how you're thinking about 2026 just given the momentum you have built up, least it compares to 2025. You said pipeline is stronger than a year ago. Does that mean that we should assume that you expect fundraising in '26 to exceed 2025? Or am I going a little bit too far there? Michael Jay Sacks: Our bottom-up granular build coming in from the business development team and the investment teams lands at a number that would exceed last year. Given how good last year's fundraising was, given it was a firm record, given the sort of massive increase over 2024, we're not budgeting any, you know, we're not standing on the call today saying, you know, that '26 fundraising will exceed '25. But, you know, we've certainly got the pipeline, you know, to give, you know, to have them give '25 a serious run for its money. And as I said, our teams, you know, think we should have a bigger year. But our base budget is, you know, is in line with last year, and we'll keep, you know, updating that as we get through the, you know, go through the year. And when we're confident that we're gonna exceed it, we'll announce that. Crispin Elliot Love: Perfect. That makes, that makes a ton of sense. And then just performance fees, very strong in the quarter, but my question is a follow-up on the carried interest side. Was the softest for carried in '25? First, was that a surprise for you? I know third quarters are typically the strongest, so not a major surprise to see a little bit lower in the fourth. But just curious on the absolute level for the fourth quarter. And I do appreciate the difficulty in forecasting these levels and how Operator: 's time to be a driver. It was it was lower than expected than we Pamela Lyn Bentley: expected. Michael Jay Sacks: That said, you know, carry is not the revenue the easiest revenue stream for anyone to. And so, particularly when your carry is a quite, you know, is a highly diversified carry with, you know, lots of different waterfalls. It's not like, you know, work on one deal and generate carries. So it's, it's the hardest revenue stream for us to predict. We would love it to, you know, the we would love love the realizations to increase. We've, you know, been looking for that to happen since kind of the slowdown in 2022-2023. We do see, you know, you know, interesting, you know, more activity teed up everywhere, public market, private market. And so you know, we are expecting, you know, some, you know, expecting increased revenues there. But that movement in the carry at NAV is super important. Because Pamela Lyn Bentley: you don't know when you're getting that Michael Jay Sacks: money, but you are gonna get it. And so tracking the asset matters a lot. And, you know, we that asset moved a bunch in Q4 even though we didn't collect a lot of cash. Crispin Elliot Love: Great. Thank you, Michael. I appreciate taking my questions. Operator: And at this time, there are no further questions. Stacie Driebusch Selinger: Thank you again to everyone for joining us today and taking the time. We appreciate the engagement in the questions. If there are follow-up questions, please feel free to reach out. If not, we look forward to speaking with you next quarter. And hope everybody has a wonderful day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Greetings, and welcome to the Brixmor Property Group Fourth Quarter 2025 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, Stacy Slater. Thank you. You may begin. Stacy Slater: Thank you, operator, and thank you all for joining Brixmor's fourth quarter conference call. With me on the call today are Brian Finnegan, CEO and President, and Steve Gallagher, Chief Financial Officer. Mark Horgan, Executive Vice President and Chief Investment Officer, will also be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update our forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one per person. If you have additional questions, please requeue. At this time, it's my pleasure to introduce Brian Finnegan. Brian Finnegan: Thank you, Stacy, and good morning, everyone. I am thrilled to join you today for my first call as permanent CEO of Brixmor, a company that has been my professional home for more than 21 years. Before touching on our results for the quarter and the year, I will share a few comments on our leadership succession and strategy going forward. First, a sincere thank you to Jim Taylor for his extraordinary leadership and mentorship. His impact on Brixmor and our industry is immense, and I was proud to be by his side for the last nine and a half years as we dramatically transformed this portfolio. We wish him the very best in his retirement. I also want to thank the Board for their confidence and the Brixmor team for their support. I'm grateful to step into this role at a moment of real strength for the company. Our portfolio transformation and disciplined execution position us exceptionally well to accelerate our growth going forward. The fundamentals for Open Air grocery-anchored retail remain favorable. Consumers have been resilient. Thriving tenants are expanding their physical store presence, and new retail supply remains at historic lows. Against this backdrop, the Brixmor operating platform stands out. As our low rent basis continues to provide industry-leading mark-to-market opportunity while our future reinvestment and signed but not commenced pipelines provide unmatched visibility on future growth and cash flows. We do not anticipate any changes to our operating model in the near term, outside of a few of our talented leaders taking on more responsibilities. Specifically, congratulations to Stacy Slater on her promotion to Executive Vice President Capital Markets, Corporate Strategy, and Investor Relations, and Matt Ryan, who will expand his role as South Region President to include national property operations. Both will join our executive committee. More broadly, the operational realignment we implemented 18 months ago consolidating from four to three regions continues to pay dividends through greater efficiency, stronger leasing execution, and disciplined capital allocation. We are also leaning in further to technology and analytics. Early initiatives in AI and automation are already yielding positive results in areas such as lease abstraction and summarization, tenant health analyses, and leasing prospecting tools. Externally, we are going to remain disciplined but opportunistic. Under Mark's leadership, we were net acquirers in four of the last five years, with 2025 being our most active year as a public company, approximately $420 million of asset value acquired in Houston, Southern California, and Denver. We expect to continue allocating capital towards opportunities where our platform can create outsized value without having to rely on acquisitions for growth, and we are mindful of our balance sheet in every capital allocation decision we make. Now let's turn to our results for the quarter and the year, which were exceptional. As Steve will touch on further, same property NOI grew by 4.2% for the year even as we recaptured 1.5 million square feet of anchor space. FFO for the year was at the high end of our guidance range at $2.25 per share and up 5.6% year over year. We delivered a record leasing year with $70 million of new rent executed, small shop occupancy increasing to a new high of 92.2%, and ended the year with the largest sequential overall occupancy gain in the company's history, up 100 basis points to 95.1%. Demand from high-quality tenants remains robust. As within the over 3 million square feet of new leases executed last year, we signed eight new grocer leases with strong operators such as Publix, Sprouts, and Big Y, and multiple leases with each of the leading retailers in the off-price segment. From a small shop standpoint, we continue to be impressed by the depth and credit quality of the operators in the health and wellness, quick service restaurant, and service segments. As we continue to attract a higher caliber tenant to this portfolio, the strength of our small shop tenancy is also evidenced by the fact that 70% of our small shop rent is derived from multi-unit operators. Our team also continued to capture the mark-to-market upside in the portfolio with new lease rent growth for the year at 39% and renewal rent growth for the year at 15%, resulting in our third consecutive year of mid-teens renewal growth. We also saw improvement in our retention rate, which at year-end was 87%, a 180 basis point improvement from last year. Switching to operations, we continue to deploy capital efficiently and leverage competition for space to reduce our deal costs, with overall CapEx spending down 14% year over year and the lowest since 2021, while maintenance CapEx spending was at our lowest level since 2016 outside of the pandemic year. In addition, disciplined operating expense spending resulted in a record expense recovery ratio at year-end of 92.3%. On the reinvestment front, we stabilized $183 million of projects in 2025 at an attractive 10% incremental yield. This included some of the most impactful projects in the company's history, such as the Davis Collection, where we tore down an obsolescent anchor adjacent to a high-performing Trader Joe's grocer and delivered a new Nordstrom Rack, Ulta, J. Crew Factory, Mendocino Farms, Urban Plates, and several other exciting tenants across the street from UC Davis. At year-end, we had $336 million in the active pipeline, including Rockland Plaza, which we added to the active pipeline this quarter as we kick off the redevelopment of this well-located center in the New York Metro Area with Nordstrom Rack, Raw Stress for Less, Burlington, and new outparcel buildings and several exciting shop tenants. Behind the active pipeline, our deep shadow pipeline of projects, including several more with Publix, provides us years of runway for value-creating redevelopment in what we already own and control. Moving to our transaction activity, we acquired two high-quality grocery-anchored centers in Denver and Southern California in the fourth quarter. Both have immediate leasing and mark-to-market upside, are accretive to our long-term growth profile, and are in markets that our West Region team has created significant value in. We also completed $170 million of dispositions during the quarter, where we saw limited ROI going forward, including our last asset in Alabama. In closing, to the Brixmor team's record performance, we entered 2026 with tremendous momentum in the business. Our properties hosted over 9 million visits last year, and our tenant lineup reflects the strongest underlying credit profile in our company's history. The portfolio looks the best it ever has. Our balance sheet is in the strongest position it has ever been, and our platform is positioned to drive consistent, durable growth. I am so energized for what lies ahead and grateful to lead this team as we accelerate our business plan. With that, I'll hand the call over to Steve for a deeper review of our financial results and 2026 outlook. Steve Gallagher: Thanks, Brian. The strength and resiliency of our business model were clearly evident in 2025. We executed consistently throughout the year, despite the significant amount of space we recaptured, delivered 5.6% FFO growth, achieved 4.2% same property NOI growth, and meaningfully improved our underlying tenant profile. As a result, our portfolio is in the strongest position it's ever been, and we are exceptionally well-positioned to capture the continued demand for well-located open-air retail centers. Fourth quarter same property NOI increased 6%, supported by a 360 basis point contribution from base rent growth due to stacking rent commencements from late 2024 and all of 2025. Ancillary and other income contributed an additional 200 basis points, reflecting our team's proactive asset management initiatives to drive revenue across the portfolio. NAREIT FFO was $0.58 per share in the fourth quarter, benefiting from strong same property NOI performance and elevated lease termination income. As we noted last quarter, we anticipated higher lease termination activity as we proactively recaptured space to unlock value creation opportunities across the portfolio, with the largest of these transactions in the Bay Area. Same property NOI increased 4.2% for the year despite over 200 basis points of tenant disruption headwinds. Base rent contributed 360 basis points, and ancillary and other income added 110 basis points, driven equally by the updated recurring parking agreement at Point Orlando discussed on our prior calls and asset management initiatives. NAREIT FFO per share was $2.25, up 5.6% from last year, supported by broad-based operational strength across the portfolio. We commenced a record $70 million of ABR in 2025, fully replenished that volume by executing another $70 million of net rent, a clear indication of the depth and durability of demand. Our signed but not yet commenced pipeline at year-end totaled $62 million at an average of $23 per square foot and includes $50 million of net new rent. The spread between lease and build occupancy ended the period at 350 basis points, and we anticipate approximately $43 million of that signed but not yet commenced pipelines to commence ratably throughout 2026. The tailwinds created by the stacking of 2025 rent commencements, contributions from redevelopment, embedded rent bumps, and combined with the signed but not yet commenced pipeline provides strong visibility into our 2026 outlook. We're guiding to 4.5% to 5.5% same property NOI growth driven by more than 450 basis points of expected base rent contribution. We also expect net expense reimbursements will contribute to growth as we expect average billed occupancy to increase over last year. Our continued transformation across the portfolio has meaningfully enhanced the credit quality of our tenant base. It is now the strongest we've seen. As a result, we expect revenues deemed uncollectible of 75 to 100 basis points of total revenues. In terms of cadence, we expect base rent growth to accelerate throughout the year as we commence the significant rent embedded in the snow pipeline. Our FFO guidance reflects the strength of our same property NOI trajectory. For 2026, we are introducing NAREIT FFO guidance of $2.33 to $2.37 per share, representing 4.4% growth at the midpoint, even while absorbing the recent headwind from lower lease termination income as we return to historical levels and a $0.03 headwind from higher interest expense. Capital deployment across the portfolio remains highly efficient, with leasing and maintenance capital expenditures down approximately $26 million year over year. Strong competition for space continues to push net effective rent to a record $23.66, our payback period now averages two years, the most attractive levels we've seen in nearly a decade. We have steadily reduced maintenance capital expenditures over several years while enhancing the overall quality and appearance of our centers, ending the period with $1.6 billion of available liquidity, including $360 million in cash raised in our September 2025 4.85% issuance, which pre-funded our June 2026 $600 million 4.125% maturity. Debt to EBITDA is 5.4 times, leaving our balance sheet well-positioned to support our business plan. Our performance continues to highlight the durability of our fundamentals and the attractiveness of our strategy, supported by FFO growth of 4% plus since 2022, a 4.4% dividend yield, and a dividend growing at a 6% CAGR over that same period. I want to thank our team for their ongoing dedication and execution, which remains a key driver of our performance. With that, I'll turn the call over to the operator for Q&A. Operator: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question. If you have additional questions, you may requeue, and those will be addressed time permitting. 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. Thank you. Our first 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. You're guiding for bad debt this year 75 to 100 basis points, I guess as you entered last year, guided to 75 to 110 basis points. I think you called out an upgraded portfolio quality or upgraded tenants. But I guess trying to can you provide a little bit more detail there? And how much does this new guidance range, like, reflect just line of sight into tenant bankruptcies? Thanks. Brian Finnegan: Yeah. Michael, thanks for the question. And I'll start and let Steve take it. As both of us touched on, we're really encouraged by the tenant health trends and portfolio. When we sat here a year ago, we said that on the other side of these recaptures, you would see improvement in what was already the strongest underlying tenancy that we had. So if you think about our low drugstore exposure, if you look at our low theater exposure, the quality and strengths of our small shop tenants, yeah, as I mentioned, 70% of our small shops are for multi-tenant operators. All the work that we've done to the portfolio has just allowed us to attract a much stronger tenancy. So that's reflected in terms of the guidance going forward and how we're thinking about our expectations for bad debt. Steve, you want to touch on more? Steve Gallagher: I mean, I think Brian hit on the macro trends. Just when you look at that guide rate, our previous historical run rate is 75 to 110. So it's really bringing in that top end down 10% or 10 basis points. And I think, importantly, as we went through the budgeting process, space by space as we always have done, there's not a lot of disruption in the future that we're seeing. So you know, we feel really comfortable where we are within our guidance range. Michael Goldsmith: Thank you very much. Good luck in 2026. Brian Finnegan: Thanks, Mike. We appreciate it. Operator: Our next question comes from the line of Todd Thomas with KeyBanc. Please proceed with your question. Todd Thomas: Hi, thanks. Good morning. I wanted to ask about the acquisition environment, and thoughts on investment investments and capital recycling activity going forward. Brian, you touched on this in your prepared remarks and maybe Mark can weigh in as well. But just wanted to get your on the pipeline heading into 2026 in terms of volume and pricing. And then second part, Steve, in the guidance reconciliation, it looks like there is $0.01 of growth related to transactions. Can you just speak to that, whether that's based on 2025 activity or if there's something implied in from the forecast, you know, as a result of that? Brian Finnegan: Thanks for the question, Todd. Maybe I'll touch briefly at the start. We just have been very encouraged by what we've been seeing on the transaction front. What's interesting is 40% of the volume that Mark has done he's been here has happened in the last five quarters. Because in a very competitive environment, we found opportunities to put the platform to work. And that's really what you'll we saw last year and what we expect see going forward. But, Mark, why don't you touch on more of the overall environment? Mark Horgan: Yeah, think you're right. As far as pipeline goes, it continues to grow and of the things that's really paying dividends for us is some of the direct marketing we're doing to some of the private ownership groups. Expect us, as we think about that pipeline, to remain opportunistic, as Brian highlighted in opening remarks. And we do think that strong growth today is a great lever for us drive additional value beyond the growth in our base portfolio. However, I would highlight that first dollar free cash flow is gonna go to redevelopment given the great returns and deals we see in that part of our business. From an overall market perspective, we're certainly seeing cap rate compression across basically all asset types in open-air retail today. And that's been driven by an increased an increasing amount of private capital, pension capital being directed towards our space given the great returns that Brixmor and the reporters have been delivering in the space. A lot of that capital that's coming in is directed towards smaller grocery anchor deals and on an strip, and that's driving cap rates in in that piece of the business down into the fives certain high demand markets like the Southeast in California. We continue to see smaller bid lists for larger deals, like a Chino we bought last year. That has some operating that really have an operating nature of the business, which fits well for the Brixmor platform. Steve Gallagher: Yeah. And and on the guidance front, mean, walk down is really sort of a grossed up approach just to help people understand the components. Not necessarily from a capital allocation. I think when you're just and Mark has touched on this in previous calls. Think you'd expect it to be sort of neutral in in the initial year. And then I think importantly, the growth profile of those assets we're acquiring are gonna grow more than those assets that we're selling. Todd Thomas: Okay. Thank you. Brian Finnegan: Thanks, Todd. Operator: Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question. Haendel St. Juste: Hey, guys. Thanks for taking the question. I wanted to go back to the guide for a bit. I was hoping you could expound on some of the assumptions, particularly as it relates to the upper end of the same store NOI guide. It seems a little conservative relative to what you put last year. You mentioned 450 basis points of base rent growth, I think. There's a lower tenant credit risk backdrop. You have lower occupancy. So just curious if you maybe give some more color on the on the pathway or what's embedded at the upper end. Thanks. Brian Finnegan: Yeah. I mean, to get to the upper end, really, I think if within the same property NOI, it's it's it's kind of the same as every year. Right? It's the team can continue, and you saw it in 2025. The team continue to execute on on getting that snow pipeline executed or, sorry, commenced as early as possible and then continue to backfill that pipeline as we move throughout the year. I mean, think as far as the guide, you just look at we talk a lot about the the compounding of those rent commencements, and you're seeing that come through. But there is a small portion of 2025 income associated with some of those names that we talked about. That that we did recognize income at '25 that you have to hurdle as you head into '26. in that walk down Steve Gallagher: Yeah. And I think Steve hit it, but you can really see the drivers and it's pretty much exactly those components in same property NOI. So it's hitting our dates. What can we pull in potentially from '27? How much we continuing to drive rent growth. So we feel really comfortable with the range and really pleased with how the the team's been executing and feel like we're in a good spot as we head into the year. Haendel St. Juste: Great. Thank you, and congrats, Brian. Brian Finnegan: Thanks, Randall. I appreciate it. Operator: Our next question comes from the line of Michael Griffin with Evercore. Please proceed with your question. Michael Griffin: Great, thanks. Brian, I know it's been a little over a month since you've been kind of in the permanent CEO role, and and I realized that, you know, Bricksmore has a a solid history of you know, blocking and tackling, executing on operations, you know, kinda making the main thing the main thing. But, you know, as you kinda get into the top job, are there any things, whether it's initiatives, how you're looking at the portfolio or platform maybe differently that you wanna kinda be able to, you know, put your mark on on the company as you kinda take over in the in the top role? Brian Finnegan: Michael, it's it's a great question. So I'd answer in a few ways. First, our strategy of reinvesting and aggressively operating our assets is not going to change. If anything, it's accelerating from here for all the work that we've done. Meaning that we still have occupancy upside, we still have the ability to drive rents, with the quality of tenants that we've attracted, we're gonna continue to improve our assets going forward. That's gonna continue to be the focus We touched on transactions a bit earlier. I'm very encouraged by what we're seeing there. We're gonna remain very disciplined. We don't need acquisitions to grow. But it has been an awesome opportunity for us with Mark partnering with our regional teams. And Mark had said, we know really well where we have an idea of how we can drive outsized value in a very competitive environment. I think the third thing is, and I and I touched on it, we've always been big on technology here and focused on how we can make more data-driven decisions and really focused on that across the organization. And we challenged leaders across the organization to really look at their business look at ways to improve that through technology. And and I mentioned a few of the early wins that were seeing in lease subtraction and leasing legal in terms of efficiency with our legal spend. We've been doing some work around tenant health analyses and the leasing team, particularly a lot of our junior members in terms of how they're deploying AI and automation, really more AI in terms of their leasing prospecting tool. So continue to lean in there. But overall, I mean, we're in a really good position as a team. I'm I feel really grateful for how the company has grown during the time that I and a number of us in this room have been here. And it's really kind of taking that and all the work that we've done to the portfolio and really turbocharging the business plan going forward. Michael Griffin: Great. Thanks so much. Brian Finnegan: Appreciate it, Michael. Operator: Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question. Craig Mailman: I kinda wanna hit on the the snow pipeline and try to frame this in a way that's that's not too confusing. But, you know, just as you guys have talked about being a little bit more aggressive, maybe taking back space, which is driving some lease term fees. Which would imply some opportunistic moves there that maybe are are more accretive than bad debt coming down. You know, the snow pipeline has continued to increase as as the lease rate has increased. I'm just kinda curious, though, the growth profile of the composition of the the snow pipeline. Like, with the ability to you know, intentionally kind of replace tenants, remerchandise, have lower tenant credit, Is is the next batch of kind of additions to this no pipeline just more accretive to FFO than AFFO as you guys can kind of throttle CapEx. Or is it am I reading too much into this? Like, I'm just trying to get a sense of the potential to kind of inflect higher here even on the growth particularly as FFO drops to the AFFO line? Brian Finnegan: Craig, it's a great question. I think think I understand what you're what you're asking. So basically, at this point, if you think about the nature of that snow pipeline, what I say is a few things. So the highest rents that we've ever had Right? They're some of the strongest tenants that we've ever had. And as Steve touched on, we're doing it more efficient efficiently with less CapEx because of the environment and the have taken on more for space, because of the fact that a lot of these retailers construction work themselves and have been much more accommodating in terms of accepting existing conditions. So, yes, those factors would lead us to, again, attracting stronger tenants at higher rents and doing it more efficiently going forward. What I would say is we've already been doing that, and you can you can expect us to continue to do that because of the position that we put the portfolio in and the environment that you're seeing our tenants are thriving in this environment. Our centers are driving a significant amount of traffic. So we feel really good about the nature of that pipeline going forward. Craig Mailman: Thanks, Greg. Operator: Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question. Juan Sanabria: Hi. Good morning. Just hoping to talk a little bit about the term fees in the fourth quarter and looks like there's kind of a change in the pace of noncash rents that were kinda noted in guidance or line item in guidance. So just hoping you can give a little bit more color on the driver of the term fees and the expectations into 2026 and and what impact, if at all, that had? On the non noncash revenues as we think about sharpening our model for '26? Thanks. Brian Finnegan: Yeah. Juan, I'll let's Steve hit on the non cash, but let me just touch on term fees. And if you take a step back, without term fees, the core business would have grown in line with where we grew same property NOI at over 4% despite the fact that we took back 1.5 million square feet of anchor space during the year. And it would grow even more in 2026. We had a very unique opportunity in the fourth quarter in a center that we owned in the East Bay Area where we control the whole site taking back the coals, and the Party City and we have tremendous optionality. We could do a retail plan today as we have LOIs for all that space. Or alternatively, there may be an opportunity for us to get the land rezoned for residential. Because of that timing, it was very opportunistic. For us to take what is an outsized term fee the amount of that probably wouldn't have been there if we had waited until we got the property rezoned. So the team did a fantastic job in terms of the timing of execution. In a normal course year, this portfolio has been generating, call it, 4 to $6 million of term fees. It's a mix from tenants that have left where we've done settlements, and others in an environment where there is a significant amount of demand that we can accretively backfill space. So expect us to continue to be opportunistic there. What you're seeing in that walk down is specific to that large term fee that we took in the fourth quarter, and it was a very, very unique situation Steve, why don't you hit on the noncash? Steve Gallagher: Yeah, the non cash, and we talked about it on previous calls, is really acceleration of 141 associated with some of the bankruptcies that we encountered throughout the year. So that was more focused on those tenants and not something that we expect to recur going forward. Operator: Our next question comes from the line of Greg McGinnis with Scotiabank. Please proceed with your question. Victor Fady: Hello. This is Victor Fady on with Greg McGinnis. Thanks for taking our question. On terms of external growth, so like Q4 acquisitions seem to feed that traditional grocery anchored mold. And are you seeing, like, better risk adjusted returns in this core grocery asset? Right now compared to the value add lifestyle opportunities you discussed earlier in 2025? Brian Finnegan: I'll let Mark take that. You know, I I think when you if if you look at what we've been buying over the years, we're our our focus is actually pretty simple. We're trying to find assets within our footprint. We can really drive outsized ROIC opportunities. If you think back to 2024, bought an asset in Tampa called Britton Plaza, which was a classic. Opportunistic deal where we purchased the land very attractively. We have a big redevelopment opportunity there that we're working on getting into the pipeline as quickly as we can. As we move into 2025, if if you look at the range of assets we bought, we did buy Lifestyle Center. Houston, we bought a traditional growth growth tracker deal. In Denver, and we bought Chino at the end of the year. Which is on the West Coast in LA. All those assets have great opportunities the Bridgeport platform to to apply our platform to drive higher yields going in, drive longer term growth. And that's what we're really focused on not necessarily the the asset type. We're looking for growth that occurs in our footprint and where we can apply our platform that may be in a lifestyle center with great with great growth opportunities like Los Centerra or it could be a great a great redevelopment opportunity like like Britain. Victor Fady: Thank you. Operator: Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi, everyone. Good morning. Maybe another question on the snow pipeline. So it's off its highs as economic occupancy has gone up, which is great. But I guess looking forward, when you consider leasing demand and the amount of vacancy that you do have, what is your view on the snow pipeline replenishing itself, kinda as we go forward? Brian Finnegan: Yeah. Caitlin, we we remain very encouraged with the demand environment. That snow pipeline has been fairly sticky at around million even though we've been commencing anywhere from 15,000,000 to $2,022,000,000 dollars a quarter because we've been replenishing it. So the conversations we're having with retailers, retailers that are thriving and continuing to drive traffic to their stores, they're looking to open store count in an environment where there's not a lot of space. So we feel pretty confident in terms of our ability to continue to replenish that I mentioned occupancy upside. We we're still 50 basis points below the prior peak from a leased occupancy perspective. And that was a note by no means a cap on the portfolio because the portfolio is in a much better position today. So, really, feel very encouraged about what we're seeing from an overall demand environment as we move into the year to replenish the pipeline. Operator: Our next question comes from the line of Samir Khanal with Bank of America. Please proceed with your question. Samir Khanal: Hey, good morning, everybody. I guess, Steve, just curious on the the other revenue ancillary income component. I guess what's assumed as part of guidance this year? I know know last quarter, talked about a parking agreement. That benefited some of this quarter. Like how should we think about that sort of line item of other revenue as we think about '26? Thanks. Steve Gallagher: Yeah. I I think when you know, the things we were trying to highlight in in this script is really the focus of the entire organization and maximizing revenue across our properties. We have a very, very strong ancillary team in house that this is their main focus of driving that type of income. So you know, one example of that was the Point Orlando garage, which is a recurring item. I tried to break that out a little separately so so you all could see that contribution from that. But in that other bucket, you still see even though some of those were some of that revenue was more focused on on the boxes we got back in the year, There are always those opportunities across the portfolio. So know, it's not a line I don't mean necessarily give guidance on, but I don't think it'll meaningfully move the range one way or the other as we continue to just find additional opportunities. Across the portfolio to to maximize income. Brian Finnegan: And, Samir, would just add, Steve hit on it, but this is this is a team of operators. And so as we look to create value in our assets and mine income opportunities to drive revenue, We're seeing higher rents in terms of electric car charging stations. We're seeing higher rents in terms of our solar. We're seeing very interesting uses in terms of that temp in line space. So from that perspective, the the specialty team's done a great job. And as part of the realignment, a few years ago, we partnered that more with the operating platform. So there's a lot of collaboration with our property management teams, with our leasing teams in the region they're working side by side and so you really saw that come through. Steve did point out some large one-time items not really one-time, but larger items that contributed but the nature of that is going to be recurring. So we feel really good about the trends in the specialty business going forward, but more importantly, how our team's working together to drive value. Operator: Our next question comes from the line of Cooper Clark with Wells Fargo. Please proceed with your question. Cooper Clark: Great. Thanks for taking the question. I know we touched on the acquisition side earlier. So curious if you could comment on the disposition pipeline as stands today in terms of volumes and how we should think about the disposition cadence throughout the year given some of the strength in market pricing and to reinvest accretively with your redevelopment pipeline? pursue deals? Also curious on the depth of bidder pools and what buyers you're seeing most aggressively Brian Finnegan: Yeah. Sure. For for the dispose, what what's really interesting about this about the dispo market is really the demand that we're seeing in the market today. So last year, the the dispose we sold were blending to a low seven cap rate. Market's really allowing us to exit assets at better than expected cap rates. Assets where we see lower growth and would really be the bottom of our portfolio terms of value creation from our perspective. And what's important from our perspective that we very confident in our ability to sell these lower growth assets and recycle that capital into higher growth opportunities like a Chino, like like a Broomfield, where we're we're really seeing dispose underwrite, and we think the buyers are underwriting IRRs on that. Mid seven to eight cap 8% range, and and we're really buying assets from perspective with IRRs are are generally blending in that. High nine to 10% range. So we we remain really convicted on that part of the trade we're making. As far as as bid list, it's really dependent on on size. So one of one of the things you've seen is a lot of money raised to try to buy open air grocery anchored centers. I think a lot of that capital was focused on one quality of asset they seen cap rate compressed. And they've had to go after a a slightly lower demographic and slightly lower gross performance. And that's really allowing to drive cap rate on what we're selling at the bottom part of our portfolio. From as terms of who those are, it's pension funds, it's high net worth, you're seeing low groups come back out of the woodwork. So it's a really healthy market today. As I mentioned earlier, the big the biggest difference is really size. So when you're selling a $5,000,000 asset, the the tool is very large. You get to a Chino, which was a $140,000,000 or $1.38, that that that bid list was actually quite small and really allowed us to find a great opportunity to drive higher higher higher IRR given the demand there. So we remain really convicted about our ability to sell again lower IRR and buy IRR. We're really excited about that opportunity. Operator: Our next question comes from the line Connor Mitchell with Piper Sandler. Please proceed with your question. Connor Mitchell: Hey, thanks for taking my question. Just going back to the the bad debt outlook for this year, just kind of thinking about the watch list. You mentioned that you had limited exposure to pharmacies or theaters. But just wondering if you could kinda put some context about around the the general watch list and and what you're seeing within your portfolio, whether that's maybe a majority of the the watch list or higher up on the watch list are kinda one off situations where there's upcoming debt maturities, and it's more of a balance sheet issue. It that's the worry. Or if if more of those those tenants retailers are kind of more within, like, a a theme or or a service type kinda group group together. Brian Finnegan: Yeah. Connor, it's a good question. And it's something that we are always watching this team historically has been very proactive in terms of addressing things ahead of potential credit events. Many of you on the call today have screen watch list across our peer set. And if you look at where ours is today, we screen very favorably. In terms of those categories that I mentioned. The other thing that we feel very confident about is a few years ago, we put very stringent underwriting standards in place stringent the company's ever had with our finance team and our leasing teams in terms of underwriting small shop tenancy. And what we saw there was who was taking space was multiunit operators established that had much stronger credit profiles than we had seen historically. It's why we have so many multiunit operators in that space. So we still have a tenant health call with our teams Steve and I review it on a monthly basis. Our teams are reviewing it daily. And the trends we see are very positive. We're not seeing an uptick in delinquencies. We're not seeing an uptick in move outs. Normal course move outs for the portfolio last year, if you take away the bankruptcies, were again historic lows for the portfolio retention rates up, renewal growth in the mid teens, So I think all those trends give you visibility into the health of the portfolio. There's always a handful of names that that we're watching. It just tends to be very low us at this point. Operator: Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question. Mike Mueller: Yes. Hi. Can you talk a little bit more about, I guess, use tech and AI to evaluate tenant health? And and has it changed your watch list in any material way as a result of the approach? Brian Finnegan: Yeah. One of the things we're looking at, Mike, it's a it's a great question, is not I mean, you all on the phone have the names you may be watching or the categories that I mentioned but it's really those can we start to get some early signals? Right? It's not just, hey. Well, the the tenant got a default this month, so the tenant was a little bit late. Can we start to see where that payment date goes from the third date to the fifth date? It's things like that relative that we started to roll out. We're seeing pretty interesting trends. We can at least start to have a conversation with people at a time. I think that's just one example of how we're using all the data that we have across the entire platform to just make more data informed, data driven decisions. So it's something that was a big focus of ours as part of the realignment to get consistency in the types of dashboards that we're using. To measure our tasks and to measure our improvement in certain operating metrics as we go throughout the year. So that's just one aspect of it. And I think as we continue to the deploy things throughout the year, we'll continue to share some of the benefits But I'm really pleased at how the team has adopted this mindset and how we're pushing things forward really across the platform. Operator: As a reminder, if you would like to ask a question, press 1 on your telephone keypad. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question. Linda Tsai: Thanks for taking my question. The improved retention rate of eighty seven percent, I guess that helps support the record low CapEx down 14% year over year. How sustainable do you view lower CapEx spend if you had to look out a few years? Brian Finnegan: We certainly see it at this run rate, Linda. It's a great question. In terms of where we are. So I kind of break it down a few ways. We still plan and we think it's a great use of capital for accretive reinvestment. I think where we have seen the declines is on the leasing side where competition for space and improvement in the portfolio has allowed us to reduce CapEx in those deals while growing rent significantly. I I also think, again, retailers, and you're seeing it, you saw it last year in the auctions, have been much more willing to take on existing space and much more flexible in terms of those build outs. So that's driving it as well. The deferred maintenance overhang of this portfolio is behind us. From a maintenance CapEx perspective. This is now three years running, of maintenance CapEx lowest for the portfolio, the lowest since 2016 outside of the pandemic year. And we have been very intentional. You're thinking now it's more roofs and parking lots, but even within that, the fact that we're doing portfolio wide roof beds, the fact that our property managers are are working with our redevelopment teams in terms of some of the things that we may need to improve in those reinvestments to avoid future CapEx going forward. And then you just look about it and then you look at on the expense side as well from a from a recovery rate. All the work that we've done in cleaning up our CAM clauses has allowed us to get paid back for the operating expense investment that we've in our assets. So you put that all together, in addition to the environment, it's leading to lower CapEx and we feel like we're in a good position right now as as we go forward. Linda Tsai: Thanks for the color, and good luck. Brian Finnegan: Thanks, Linda. Appreciate it. Operator: Our next question comes from the line of Paulina Rojas with Green Street. Please proceed with your question. Paulina Rojas: Good morning. My question is about dispositions. I I find interesting that some of the assets that you have sold had low occupancy, in Westchester Square, Springdale, and and a few others sold earlier in the year. Not too many, but some. And which would suggest that perhaps those assets had remaining upside. So my question is, did these centers have anything in common that made it more compelling to pursue a sale rather than driving additional occupancy internally. Particularly given the good leasing momentum. Brian Finnegan: Yeah. It's it's a great question. And I think you've seen a mix there, historically, Paulina, several centers too that we had during the year that were close to a percent occupied. I think we are focused on ROI. And so, yes, there was some vacancy, but just got we just answered a question about CapEx. Are we gonna put those dollars to work accretively? And you've seen us do that across the portfolio, but in areas where we don't see the ability to do that accretively. We say to ourselves, hey, what how does the whole decision compare to the sale decision? Are we better off recycling the capital somewhere else? And as Mark spent some time going through, we're seeing some great bids for assets. So we can take that capital and deploy it elsewhere where we can get a more accretive return. So that's really it. I mean, if you look at it, it occupancy impact from dispositions was a very, very small percentage during the year. That that wasn't the the the motivating factor there was, a, they were in markets where we don't have a huge presence in those two assets in particular, But more importantly, we just didn't see the ROI and the investment that we would have to make to drive that occupancy forward at those centers. Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your question. Omotayo Okusanya: Yes. Good morning, everyone. Again, congrats, Brian, Stacy. No one is more deserving. Congrats to you as well. Just a question around, again, fundamentals in the strip side just kinda seem very strong across the board. And I'm just curious as as you kind of think about the industry as a whole and, you know, yourself and all your peers, I mean, are we setting up for a year with kind of, you know, kind of rising tide lifts all boats Or fundamentally, do you think we're still gonna see differences across all the key platforms? And and in this kind of environment, you know, what really are the key things in your mind that would lead to greater success versus, you know, another operator in the space? Brian Finnegan: Yeah. I I it's it's a great question, and there's no doubt the environment is strong. I think we're as well positioned as anybody. Terms of all the things that we've been talking about on this call relative to the low rent basis, the occupancy upside, the visibility on the strength of the redevelopment pipeline. We haven't spent a ton of time on this today, but in what we already own and control, you think about the projects that we've got with Publix. The one that we just launched this quarter in Metro New York, the one that Mark bought last year, in South Tampa, Plano, Texas. We're gonna be opening up our first large format target in Dallas in a couple weeks. We're very excited about the nature of that pipeline going forward. And I think if you look at the ability to grow the ability to do that incrementally and accretively, I think we stand apart. So yes, the environment's strong. Our retailers are performing. But I think the position that we put the portfolio in really allows us to capitalize that capitalize on that going forward. Operator: Our next question is a follow-up from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi, again. You guys mentioned earlier how the balance sheet set net debt to EBITDA of 5.4 times. I guess, are you thinking of that And where you want to be is lower better? Or are you in the right range? Or would you be okay going higher? Steve Gallagher: Yeah. And and I think Brian mentioned it in his remarks. I mean, we can continue to be very disciplined with the balance sheet. I think where we are in the mid-5s based on the amount of growth that we see coming, we feel very well positioned here. But but, obviously, we'll keep an eye on it as we move through, you know, the year. But I I think we're we're pretty comfortable here in the mid fives. Operator: Our next question is a follow-up from Paulina Rojas with Green Street. Please proceed with your question. Paulina Rojas: Thank you. I I wanted to follow-up on your comments about the improved tenant quality. I think you mentioned that roughly 75, I think, you said of the small shop tenants or multiunit operators. Can you can you share some historical context on that metric? So we can better compare and contrast the improvements over time. Brian Finnegan: Yeah. I think it's it's certainly up from where it was. We can get you the the exact number. I think one of the things that we've seen there Paulina, because we've seen a a reduction just in kind of that true one off local tenancy. It's down to 17% of our ABR. One of the reasons that we wanted to highlight it, it's because as as we were digging through, and and this came up as, again, part of some of the data work that we've been doing across the portfolio, was we were really not not surprised by it because we're seeing it come through in our leasing committee, but it really kind of reassured the thoughts that we had about the trajectory of the portfolio and the fact that we did have more established small shop tenants in particular that were successful. Right? And it and it tied to everything else we've been talking about relative the strong payment trends, relative to the record small shop rents that we've been able to achieve. And then, if you just think of the overall quality of tenants that we're adding to the portfolio, you look at those higher quality QSRs. Right? There is a focus on health and wellness, and whether it's the strong regional operators like Naya and Honeygrow or the Cavas the Tate bakeries that we're attracting to the portfolio. Then you look at some higher end tenants like Sephora, Warby Parker, we just added our first locations to. We opened a Capital Grill last year and a grocery anchored shopping center in Suburban Philadelphia. So these are names that maybe seven, eight years ago would we would not have been attracting a portfolio, and I think it's speaks to all the work that the team has done on the reinvestment front. The fact that consumers in the markets in which we own shopping centers are just demanding more from those markets. In terms of the quality of restaurants and the quality of services. And so gives us the opportunity to provide that. So, overall, I think that you can see it come through in the types tenants that the names of the tenants who were signing and then just the strength of that tenancy coming through in the rest of the operating metrics. Paulina Rojas: Thank you. Brian Finnegan: Thanks, Paulina. Thank you. Operator: We have no further questions at this time. Miss Slater, I'd like to turn the call back over to you for closing comments. Stacy Slater: Great. Thank you all for joining us today. We look forward to seeing many of you over the next few weeks. 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.
Operator: Good morning, and welcome to S&P Global's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to investor.spglobal.com. [Operator Instructions] I would now like to introduce Mr. Mark Grant, Senior Vice President of Investor Relations and Treasurer for S&P Global. Sir, you may begin. Mark Grant: Good morning, and thank you for joining today's S&P Global Fourth Quarter and Full Year 2025 Earnings Call. Presenting on today's call are Martina Cheung, President and Chief Executive Officer; and Eric Aboaf, Chief Financial Officer. We issued a press release with our results earlier today, in addition, we have posted a supplemental slide deck with additional information on our results and guidance. If you need a copy of the release and financial schedules or the supplemental deck, they can be downloaded at investor.spglobal.com. The matters discussed in today's conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. In today's earnings release and during the conference call, we're providing non-GAAP adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the company's operating performance between periods and to view the company's business from the same perspective as management. The earnings release contains financial measures calculated in accordance with GAAP that corresponds to the non-GAAP measures we are providing, and the press release and the supplemental deck contain reconciliations of such GAAP and non-GAAP measures. The financial metrics we'll be discussing today refer to non-GAAP adjusted metrics unless explicitly noted otherwise. As noted in the press release and slides, financial guidance provided today assumes contributions from Mobility for the full year and excludes any impact from anticipated stranded costs. The company expects to update adjusted guidance to exclude Mobility and institute GAAP guidance upon completion of the spin. I would also like to call your attention to certain European regulations. Any investor who has or expects to obtain ownership of 5% or more of S&P Global should contact Investor Relations to better understand the potential impact of this legislation on the investor and the company. We are aware that we have some media representatives with us on the call. However, this call is intended for investors, and we would ask that questions from the media be directed to our media relations team whose contact information can be found in the press release. At this time, I would like to turn the call over to Martina Cheung. Martina? Martina Cheung: Thank you, Mark. We had an excellent year in 2025, and we're very pleased with the results we delivered. We saw strong revenue growth, meaningful expansion of our operating margins and 14% growth in EPS. We exceeded our initial guidance from last February on revenue growth, operating margin and EPS, while returning 113% of adjusted free cash flow to shareholders. We just announced the 53rd consecutive year of dividend increases, and we repurchased more than $5 billion in stock in 2025. Financial results like this are the evidence of a committed, tightly aligned and disciplined executive team and underscore the talent and dedication of our people. I'm exceptionally proud of what our people accomplished in my first full year as CEO. We launched our new strategic vision at our Investor Day in November, and we're delivering against that vision of advancing essential intelligence. As we'll discuss today, we continue to see real momentum in our strategic initiatives and across our enterprise capabilities. While a very dynamic macroeconomic and geopolitical backdrop persists, we believe we are entering 2026 with more tailwinds than headwinds and the strength to seize the opportunities ahead of us. Our financial guidance, which Eric will outline in a moment, calls for strong organic constant currency revenue growth, continued margin expansion and EPS growth. Our confidence in that outlook is bolstered by strong performance indicators for our subscription businesses. While we're taking a prudent approach to our outlook for the market-driven components of the business, we see encouraging leading indicators that could provide incremental tailwinds to the business. As always, we carefully monitor and assess the macroeconomic environment, geoeconomic and geopolitical dynamics and the health of our customer end markets. While it's difficult to predict many of the factors that could impact our business this early in the year, we believe there are more tailwinds and headwinds and expect to deliver real value to our customers and profitable growth for our shareholders. Now turning to our enterprise financial results. As I mentioned previously, the financial results show the strength of the business and demonstrate the discipline and execution of our people. When we compare the full year results to the original guidance that we had given for 2025 back in February, we are pleased to see that every division delivered revenue growth within or above those original guidance ranges, and every division delivered operating margins at or above the high end of those original guidance ranges. We also see the strength that comes from the diversification of our revenue in 2025. Through the year, we saw a disruption in the issuance markets impacting our Ratings business following Liberation Day in April. We saw incremental sanctions impacting our energy business midway through the year. And we saw volatility in the volume-driven products emerge in Market Intelligence. Despite these various challenges in 2025, we raised our enterprise guidance through the second half of the year, and we still delivered revenue growth at the high end with margins and EPS very near the high end of that elevated guidance. We were able to do this while still making incremental strategic investments to drive future growth. Now as we outlined for you back in November, our strategic vision for S&P Global is to advance essential intelligence. We've been providing essential intelligence to our customers for over 150 years. Over 95% of our revenue is tied to proprietary benchmarks, differentiated data and critical workflow tools, and we expect that percentage to increase over time. We have been a trusted partner for our customers for a very long time. And every day, our customers are telling us that they need our differentiated and proprietary data. They need transparency at opaque markets. They need trusted benchmarks and measures of risk and performance. The message from our customers is consistent and simple. What they need most is what we uniquely provide. Our mission is to advance essential intelligence and deliver that at scale better than anyone in the world. As I shared with you in November, we're going to achieve this through three strategic objectives. The first is advancing market leadership. We have some of the most trusted brands in our markets. We start from a position of great strength to continue to grow in our existing markets, identifying new use cases for our existing products and constantly innovating to develop new products in these foundational areas. The second is expanding into high-growth adjacencies. These are the initiatives you hear us talk about frequently, private markets, energy expansion, supply chain, decentralized finance, and other rapidly evolving areas of the market. The third objective is amplifying our enterprise capabilities. We've made great progress with our enterprise data office and our Chief Client Office in 2025. And we're scaling out additional enterprise capabilities through process engineering, upskilling and training our people on new technologies and leveraging leading AI solutions, including those we built ourselves. These advancements generate value for our customers and our people at scale. In 2025, we made great strides in several of our key strategic focus areas. We delivered exceptional results in private markets. We expanded in private credit ratings, we significantly enhanced our private market tools like iLEVEL with new AI functionality and launched private equity benchmarks and indices. We announced and completed the acquisition of With Intelligence and our partnership with Cambridge Associates at Mercer. We are well on our way to building the most comprehensive solution set in the world for the private markets. In energy expansion, we launched AI capabilities, making much of our research and insights available through Microsoft Copilot. We launched enhanced gas, power and commodity flow intelligence and introduce new integrated energy scenarios to help market participants make sense of a challenging global energy environment. And we integrated the 451 team with our Power team to connect the most sought-after themes from our customers and unlock new insights on data centers and power. We also continue to see capital flowing into the energy ecosystem, which benefits multiple divisions, including Ratings. 2025 was truly a leap forward for S&P Global in AI. We launched new AI products and features in every division, many of which were on display at our Investor Day. Using a platform-agnostic approach to GenAI solutions, we have announced collaborations with several major technology partners. We are also moving quickly in decentralized finance. We'll have more to share in this exciting area in the quarters to come, but we were thrilled to launch the world's most well-known index, the S&P 500 on chain in collaboration with Centrifuge in 2025, in addition to other exciting innovations. Now turning to our enterprise capabilities. Two of the most impactful accomplishments of 2025 are the establishment and development of our Chief Client Office and our enterprise data office. As you know, the Chief Client Office was established to deepen engagement with our large strategic customers at the most senior levels. In 2025, the CCO enabled S&P Global to bring the full enterprise value proposition to our clients. We have elevated engagement not just with our clients' business leaders, but also with their heads of technology, AI and data science. Not only does that give us commercial advantages but also gives us early insight into our customers' needs and challenges. In addition to the strategic meetings with the C-Suite, our technologists are meeting with data scientists, AI experts and developers that work in customer organizations to co-develop solutions that we can leverage across our customer base. We are finding time and time again that the challenges impacting our largest customers are mirrored in many ways among our other customers, and the solutions that we bring to CCO clients can be sold at scale. While still very early, we believe that the CCO in collaboration with division teams and with Kensho Labs will be a meaningful driver of both revenue growth and product innovation going forward. Our enterprise data office also made meaningful headway in 2025. We are finding more ways to bring our data together faster methods to ingest, integrate and distribute data and are communicating more effectively across the technology teams to drive efficiencies. One of our goals with the EDO is to reduce run rate expenses by more than 20% by the end of 2027. And we are well ahead of pace to achieve that goal. In 2025 alone, we reduced manual data processing meaningfully with more than half of our total data workflows now processed via automation tools. We also eliminated more than 10% of applications in use and simplified the EDO technology stack to standardize on the best applications and reduce costs. One of the areas where we quickly saw the impact of our enterprise progress is in the integration of With Intelligence. Through our collaboration across teams, including strategy, corporate development, finance, technology, legal and others, we were able to shorten the close process to less than 6 weeks. That was an incredible accomplishment for an acquisition of this size and was much faster than our original assumed time line. What our data and technology teams were able to accomplish after the close was no less impressive. We linked more than 75% of the fund manager and investor data sets in less than a month through the application of Kensho Link. We enabled single sign-on or SSO, through Capital IQ Pro in January, which immediately helped us identify cross-sell opportunities. In collaboration with our Chief Client Office and Market Intelligence, we held 20 regional training sessions for commercial teams and generated more than 200 new sales leads and cross-sell opportunities within the first 60 days. We've also already realized millions in cost synergies since the deal closed at the end of November. It's been truly exciting to see our people embrace the enterprise mindset and come together to create value. 2025 was an incredible year of progress and results. Now I'd like to turn to 2026. We're entering 2026 with a strong backdrop for Billed Issuance, but we're lapping another record year. In 2025, Billed Issuance increased 11% and and surpassed $4.3 trillion. This creates a challenging compare for 2026, but there are several drivers that give us confidence in the potential for continued positive growth. Our base case assumption, therefore, starts with Billed Issuance up low to mid-single digits in 2026. We continue to see favorable market conditions with spreads remaining low and our expectation for 2 rate cuts from the U.S. Fed in the back half of the year. We also see encouraging maturity walls as I'll discuss in a moment. M&A tends to be more challenging to predict, but we saw a strong pipeline of deals announced in the back half of 2025 and continue to see pent-up demand given the dry powder in the markets. We also saw significant debt issuance from hyperscaler investments in AI infrastructure in the second half of 2025, and we expect that to continue in 2026, albeit spread more throughout the year. Given the phasing of issuance in 2025 and the expectations for 2026, we would expect growth rates to fluctuate from quarter-to-quarter. We expect Billed Issuance growth year-over-year in the first quarter with acceleration in the second quarter as we lapped the disruption from last April. Given the difficult compare, we would then expect deceleration in the third quarter before Billed Issuance growth turns negative in the fourth quarter. In the event of macroeconomic distress, elevated market volatility or uncertainty or a slowdown in economic growth, we would expect Billed Issuance to be lower than our forecast. We could see potential upside if we see elevated M&A, additional pull forward from out year maturity walls or greater-than-expected debt for technology and infrastructure projects. Given that refinancing activity tends to be the most predictable issuance in a given year, I wanted to spend an extra moment to discuss what we're seeing for 2026. When comparing the 2026 maturity wall now to the 2025 maturity wall a year ago, we see 12% higher maturities and a stable mix of high yield versus investment grade. The 2-year and 3-year cumulative maturity walls are also up from last year. While our base case assumption is that we do not see dramatic pull forward from the '27 and '28 walls into 2026, we note that if credit conditions remain highly favorable and we see additional reductions in interest rates, we may start to see more of that debt coming to market early. Now let me turn to the market factors and commercial conditions we're focused on in 2026. The list of factors on the slide illustrates the market dynamics that could influence our business either positively or negatively in 2026. Importantly, some of these factors can impact different parts of our business in different ways. Market volatility, for example, made temper issuance volumes and create temporary headwinds for Ratings, while at the same time driving revenue in the exchange-traded derivatives of our indices business. Generally speaking, S&P Global and our customers tend to do better in relatively stable market conditions with strong economic growth. As we look to our customer end markets, we see a reasonably healthy environment for financial services customers and our commercial engagements have been strong. The energy space continues to evolve in the changing geopolitical landscape. We expect oil prices to remain fairly stable, but lower in 2026 than we saw on average over the last few years. We continue to see great engagement from our customers, strong demand for our differentiated offerings and excitement as we push forward on product innovation and growth. Before I turn it over to Eric, I want to pause and reflect on everything we accomplished in 2025 and what gives me so much confidence in the long-term success of S&P Global. We have a clearly defined and well-articulated strategy. We have assembled an incredible team of leaders, and we are all aligned behind the mission of advancing essential intelligence. When I speak to our large strategic customers, I routinely get the sense that we have deeper and more constructive relationships there than we have ever had before. We see both cyclical and secular tailwinds driving our business in the coming years. We've executed very well in our subscription business to create great momentum into 2026, and we continue to find new avenues to leverage processes and technologies to improve our productivity and free up capital to invest in future growth and steadily improve margins. I'm very proud of what we've delivered in 2025, and we're excited about our opportunity to drive value in 2026. Eric, over to you. Eric Aboaf: Thank you, Martina, and good morning, everyone. Starting with Slide 16. Our financial results underscore our market leadership and the strength of our execution in the fourth quarter. We finished 2025 with strong momentum in our subscription businesses and encouraging signs in the market backdrop for 2026. All of this reinforces our confidence in the medium-term financial targets we laid out at our recent Investor Day. Ratings and Indices each posted double-digit growth during the quarter, driven by robust debt issuance and equity market appreciation inflows enabling us to make strategic incremental investments in key growth areas across the enterprise. We're also pleased with our strong subscription growth in both Market Intelligence and Energy. Reported revenue grew 9% and our organic constant currency revenue rose 8%. Continued expense discipline allowed us to make important strategic investments in the fourth quarter while still expanding margins. Adjusted expenses increased 8% resulting in 60 basis points of year-on-year margin expansion to 47.3%. As you'll recall, we divested the OSTTRA joint venture in early October. And if we exclude the contribution from OSTTRA in 2024 as well, margin expansion would have been 130 basis points year-over-year. We delivered 14% growth in adjusted diluted EPS in the quarter, resulting in full year EPS at the higher end of our most recent guidance range and well above the initial guidance range we provided last February. While our tax rate for the full year was within our guidance range, it did come in a bit above our internal expectations and near the high end of guidance. Had our tax rate come in at the midpoint of guidance, EPS would have been approximately $0.08 higher. Now turning to our key strategic investment areas on Slide 17. Private Markets revenue grew 16% year-over-year driven primarily by the Ratings and Market Intelligence divisions. Ratings was the largest contributor to that growth, underscoring continued strong demand for debt Ratings, private credit analysis and credit estimates in the private credit market. Energy Transition and Sustainability revenue decreased 3% to $101 million in the quarter. This decline was not entirely unexpected and reflects the ongoing uncertainties that have led many customers to slow spending in this area, particularly in consulting engagements and onetime transaction spend in certain geographies. While we remain confident in the long-term growth of this important initiative, our outlook for 2026 does not depend on a meaningful recovery in the near term. Turning to Vitality. As we build on the new products, features and enhancements that were highlighted earlier, I'm pleased to report we generated $470 million in Vitality revenue in the fourth quarter and continue to deliver a Vitality Index of 12%. Going forward, while we do not intend to provide explicit disclosures on these metrics in this particular format. We will continue to provide investors with timely updates on the progress we make both qualitatively and quantitatively. Turning to our divisions on Slide 18. Market Intelligence reported revenue grew 7%, and organic constant currency revenue grew 5% in the fourth quarter. Subscription revenue, which constitutes roughly 85% of Market Intelligence grew approximately 7%, both organically and as reported. Onetime revenue and volume-driven revenue were flattish in aggregate in the quarter. Subscription revenue growth remains the single most important indicator of the health and execution of Market Intelligence, and we are very pleased with the results the team delivered. Data Analytics and Insights reported revenue growth of 7%, which included a $9 million revenue contribution from the With Intelligence acquisition. The performance was anchored by robust subscription sales of Capital IQ Pro and Visible Alpha. Credit & Risk Solutions revenue growth was 10%, driven by strong subscription sales of Ratings Express. We also benefited from some upfront revenue recognition tied to a major renewal in the Financial Risk Analytics product group, which lifted growth above what we had seen in the first 3 quarters. Enterprise Solutions posted 4% revenue growth, which includes a 2 percentage point headwind from EDM and thinkFolio, both of which saw declines year-over-year in the fourth quarter. Wall Street Office, its manager and corporate actions all supported the underlying revenue growth across this part of our MI franchise. However, we did see a slowdown in our volume-driven products in the quarter that are tied to capital markets activity. This activity provided a tailwind to recurring variable revenue growth in the first 3 quarters of the year, but in this quarter. Adjusted expenses increased 7% year-over-year driven by higher compensation expense, additional long-term strategic investments and higher-than-expected expenses from With Intelligence given the accelerated close, partially offset by ongoing productivity initiatives. This resulted in a 32.2% operating margins in Market Intelligence for the quarter. Given the sales outperformance we experienced in our market-driven businesses, both Ratings and Indices, we chose to pull forward some of our 2026 investments in Market Intelligence beyond what was contemplated in our latest 2025 guidance. Without the incremental investments in the quarter and earlier than expected close of the With Intelligence acquisition, MI's margin would have been approximately 80 basis points higher in the fourth quarter and 20 basis points higher for the full year. Now turning to Ratings on Slide 19. We Ratings revenue increased 12% year-over-year or 10% on an organic constant currency basis. The increase was balanced across both transaction and non-transaction revenue streams, underscoring the breadth of our market coverage. Transaction revenue grew 12% in the fourth quarter, driven primarily by strong issuance volumes and investment grade. While we also saw a healthy growth across high yield, structured finance and governance, we did see a low double-digit decline in Billed Issuance from bank loans. That mix shift out of high-yield and bank loans and into investment grade created an unusually large gap between Billed Issuance growth of 28% and transaction revenue growth of 12%. Nontransaction revenue increased 11%, driven primarily by higher annual fee revenue from Surveillance. We also saw a very strong growth in CRISIL, and we nearly tied last quarter's record in Ratings Evaluation Services revenue. Adjusted expenses increased 6% reflecting higher compensation costs and continued strategic investments in our people, technology and product development. This contributed to the division's 210 basis points of margin expansion to 61.8%. Now turning to S&P Global Energy on Slide 20. Energy revenue grew 6% in the fourth quarter, driven by continued strength in energy resources, data and insights and price assessments. We continue to see very strong demand for our subscription offerings, including Platts benchmarks and our differentiated data, research and thought leadership. Sanctions announced in the second half created a $3 million headwind on fourth quarter revenue, which negatively impacted Energy Resources Data and Insights and Upstream Data and Insights revenue. We expect to lap those sanctions by the end of Q3 2026. Energy Resources Data & Insights and Price Assessments grew 9% and 8%, respectively, driven by strength in petroleum gas, power and renewables. Advisory and transactional services revenue decreased by 5% as we continue to see some softness in consulting and events revenue. This was partially offset by double-digit growth in Global Trading Services or higher trading volumes in petroleum, gas and LNG offset the declines in onetime revenues. Upstream Data and Insights revenue increased slightly in the quarter, driven by upfront revenue recognition of certain software renewals. We're continuing to lay the groundwork for our Upstream transformation strategy and see a path towards stabilization in 2026 through a combination of client platform upgrades, expanded distribution partnerships and dedicated specialists in our go-to-market team. However, given the backdrop of lower oil prices and ongoing market uncertainty, it will take several quarters before these management actions will drive growth in Upstream. Adjusted expenses rose 5%, driven by higher compensation costs and ongoing investments in growth initiatives, partially offset by productivity initiatives. Operating profit for the Energy division increased 7% and operating margin expanded by 50 basis points to 45.5%. Now turning to S&P Dow Jones Indices on Slide 21. Revenue grew by 14%, with double-digit growth across all business lines, including asset-linked fees, which benefited from both higher AUM and net inflows. Revenue associated with asset-linked fees grew 13% in the fourth quarter. This was driven by equity market appreciation and strong net inflows into products based on S&P Dow Jones Indices. Exchange-traded derivative revenue was up 20%, driven by strength in SPX ETD volumes. Data and custom subscriptions increased 13% year-over-year, driven by new business growth in contracts and included a roughly 2 percentage point contribution from revenue related to the ARC Research acquisition. Adjusted expenses were up 11% year-over-year, driven by higher compensation costs and investments in growth initiatives. Indices operating profit grew 16% and operating margin expanded 90 basis points to 68.8%. Now turning to Mobility on Slide 22. Revenue grew 8% year-over-year with double-digit growth in dealer and financials and other. Customers continue to rely on the unique data and solutions from CARFAX, driving strong subscription growth despite a complicated environment for automotive OEMs. Dealer revenue increased 10% year-over-year owing to the healthy new customer growth in both CARFAX and automotiveMastermind. Manufacturing revenue grew 1% year-over-year as tariffs and regulatory uncertainty weighed on demand for consulting and lower recalls. Financials and other increased 11% as the business line continues to benefit from strong underwriting volumes and commercial momentum. Adjusted expenses grew 7%, driven by continued advertising and promotional investment, partially offset by the lapping of elevated incentive compensation last year. Mobility's operating margin expanded 70 basis points year-over-year to 35.4%. Before I move on to our guidance for 2026, I'd like to provide you with an update on our planned spin of the Mobility business on Slide 23. We have made significant progress against our separation plan, and we are excited to announce at the NADA conference last week that we've chosen Mobility Global as the name of the new soon-to-be independent company. Since our last earnings call, we have also confidentially filed the Form 10 with the SEC completed the senior leadership appointments, including naming Matt Calderone as CFO designate. Looking ahead, our next major milestones are well defined. We will continue to make progress in the separation process for the first quarter. In the second quarter, we expect to file our Form 10 publicly and the Mobility global team expects to host an Investor Day and launch its equity roadshow. We also expect to launch a public debt offering for Mobility at some point in the second quarter, targeting an investment-grade rating. From a financial reporting and guidance perspective, S&P Global will continue to fully consolidate Mobility Global in our financial statements and 2026 guidance until the separation is complete. We also want to ensure investors have clear comparability in a transparent view of S&P Global's post-separation financial profile. Upon completion of the spin, we intend to provide recast financials for the 4 quarters of 2025 and any 2026 periods reported, adjusted to exclude Mobility's contribution along with other relevant adjustments as outlined at our Investor Day. We also expect to issue updated 2026 financial guidance at that time, excluding Mobility. Now turning to guidance on Slide 24. I'd like to start by framing the key assumptions that underpin our guidance so that you can see what's driving the outlook, particularly around margin expansion and certain inputs for our market-driven businesses. Our guidance rests on a simple premise. We plan to operate more efficiently while continuing to reinvest to drive organic growth. On investment priorities, we're focused on a few clear themes. First is product innovation and continuing to enhance our benchmarks proprietary data and workflow tools to support organic growth. Second is investment in strategic growth areas like private markets and energy expansion where we see durable long-term demand and opportunities to leverage synergies across multiple divisions. Third is our investment in AI for both our products and for our internal productivity. And finally, we're extending our geographic reach and client segment coverage so that we can bring our strongest offerings to more customers and capture new opportunities over time. On productivity initiatives, we're driving efficiencies through several work streams, including enhancements and data operations, software engineering and research. We'll also continue scaling internal GenAI initiatives, which are improving throughput and speed in a meaningful way. And we're pairing these tools with end-to-end process reengineering, so the productivity gains are sustainable, long-term value generators that scale, not just isolated use cases. Turning to our market assumptions. In Ratings, our outlook assumes Billed Issuance will be up low to mid-single digits in 2026, reflecting what we can see today in the maturity wall and underlying market conditions while recognizing that M&A, infrastructure and other opportunistic issuance remains unpredictable. In Indices, we assume market appreciation of 5% to 7% from January 1 to December 31, consistent of the assumptions underpinning the medium-term targets from our Investor Day. Our exchange-traded derivatives business remains an important driver for indices and our guidance assumes low single-digit growth in ETD volumes. In Market Intelligence, we expect continued momentum and healthy growth from our subscription-based offerings. We are taking a prudent approach to 2026 guidance for Market Intelligence reflecting the unpredictability of some of our volume-driven products. Our guidance today assumes fairly modest growth in one-time sales as well as those volume-driven products. Our outlook for energy reflects the market environment and sanctions as discussed previously. This sanctions assumption remains unchanged based on the current environment and the expectation that the duration and scope of the sanctions will not materially change. This leads us to our guidance for the enterprise on Slide 25. On an organic constant currency basis, we expect revenue growth of 6% to 8%. On a reported basis, growth is expected to be approximately 60 basis points higher, reflecting the impact from acquisitions, divestitures and currency movements. Excluding the contributions from OSTTRA in 2025, we expect to expand margins in 2026 by 50 to 75 basis points. Including the impact of OSTTRA, we would expect adjusted operating margins to expand by 10 to 35 basis points. Finally, adjusted diluted EPS is expected to be in the range of $19.40 to $19.65, representing growth of 9% to 10% year-over-year driven by operating income growth and share count reduction, partially offset by a higher tax rate. We're not providing 2026 GAAP guidance at this time other than for reported revenue and capital expenditures. Because the timing of the Mobility spin remains uncertain, we cannot reliably predict all the GAAP components. Upon completion of the spin, our plan is to initiate GAAP guidance for 2026. Let us now turn to our division revenue outlook for 2026 on Slide 26. For Market Intelligence, we expect to sustain solid organic constant currency growth in 2026 in the range of 5.5% to 7%, supported by continued strength in subscription revenue which we would expect to grow closer to the top half of the range, partially offset by the assumption of slower growth and onetime sales and volume-driven products. In Ratings, we expect to see organic constant currency growth in the range of 4% to 7% in 2026. That outlook assumes Billed Issuance growth in the low to mid-single-digit range, as highlighted earlier. Our guidance assumes transaction revenue and nontransaction revenue grow at similar rates in 2026. While we expect strong refinancing activity, M&A activity is inherently difficult to predict as is the potential spend on technology infrastructure. We have also seen softness in bank loan volumes in January and we are reflecting modest expectations for those volumes in our guidance as a result. As always, we expect to refine our issuance forecast as we progress through the year. For energy, we expect organic constant currency revenue growth of 5.5% to 7% in 2026. We'll continue to manage through known headwinds, including sanctions-related impacts and the work we're doing to stabilize and reposition parts of the Upstream portfolio. Our guidance assumes approximately 60 basis points of headwind from the customer sanctions I discussed previously. For Mobility, we expect organic constant currency growth of 7.5% to 9%, reflecting continued strength in the subscription base and the mission-critical nature of the products. We remain confident in the long-term growth for manufacturing, our guidance for 2026 assumes only modest growth until we see more concrete signs of acceleration. And for Indices, we expect organic constant currency revenue growth of 10% to 12%. After two consecutive years of strong equity market performance, we're assuming a more normalized equity backdrop. Our exchange-traded derivatives remain an important contributor, particularly in volatile periods, and we continue to invest in innovation across new products, asset classes and distribution channels to support growth. With that, let me turn the call back over to Mark for your questions. Mark Grant: Thank you, Eric. [Operator Instructions] Operator, we will now take the first question. Operator: Our first question will come from the line of Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: I just wanted to drill down on Market Intelligence, some of the softness that we saw on the volume-driven products. I was wondering if you could provide any incremental color. And as we think about 2026, some of the unpredictability that you mentioned on the volume driven, if you could also provide some color on that front? . Eric Aboaf: Ashish, it's Eric. Thanks very much for the question. As you know, Market Intelligence is comprised of a number of different revenue areas, subscription revenue growth, about 85% of the revenues. And it was up nicely in the quarter at 6.6%. So a nice step off as we go into 2026 as well and built up nicely from the first half of the year. At the same time, we do have volume-driven revenue growth in Market Intelligence. And that's really driven by a series of different products. And what we find is that in some quarters, it's higher and some quarters a little lower. It's been running a little higher for the first 3 quarters of the year, a little lower in the fourth quarter, and we expect it to bounce around from time to time. On the positive side, we've had some really nice volumetric revenue growth in WSO, Notice Manager, some of the corporate actions and then some of the primary book building, in particular, munis, where we saw some nice underlying muni issuances in the marketplace, and that reverberated back into us as revenue growth. At the same time, we've had other products that have gone the other way, which will happen from time to time. So in primary market book building, some of the investment-grade in fixed income products came in a little lighter, equity issuances came in a little lighter. And that's a mix of what's happening in the marketplace, which clients our lead book runners versus co-book runners and so forth and has -- and also has an effect. We also have a very attractive product in ClearPar which continues to do very well. It's driven by other factors like the number of loans traded. And that, as you know, was lower this quarter, and you saw that in the Ratings business. You saw that in this business. And so also had some lower volume driven revenues. So it's a mix. We operate probably -- I've given you examples of 6 or 7 products or 20 to 25 products that have volume-driven drivers. And these will just move around with market dynamics that are generally things that we can monitor and measure and so forth. Going forward, as you asked, we're optimistic about the market environment. Capital markets activity has been steady issuances and so forth. But we need to see how that plays out. And that's why as part of our 2026 guidance, we guided to Market Intelligence in the 5.5% to 7%. We guided to Subscription revenue growth in the top half of that range. And we said we'll be a little conservative or careful I'd say, on the volumetric revenue growth because we think it will bounce back, but it's just hard to tell exactly when and how and when, and we just want to work through quarter-by-quarter. Operator: Our next question comes from George Tong with Goldman Sachs. . Keen Fai Tong: Anthropic recently announced a suite of 11 open source plug-ins for Claude cohort. Can you talk a bit about how you expect this competitive development to impact S&P's business? . Martina Cheung: George, it's Martina. Thanks so much for the question. Look, we think these kinds of announcements are really exciting. And we're actively involved in advancing this technology and actually helping to establish these ecosystem ourselves. As you know, we've worked with pretty much every major player in the AI space for some time. And we see AI really is a net tailwind for the business. You'll remember that last year, Claude for financial services launched and S&P Global is now one of the leading providers of financial data to our customers through Claude for financial services. And we have a very good relationship with Anthropic. You've also seen in December, we announced a partnership with Google that gives us access to Gemini Enterprise. And of course, yesterday, we also announced our MCP connector for OpenAI. And if I go back to Investor Day, it's important to remember what we laid out for you. So first, we're embedding leading AI tech in our products, and that's really to make sure our customers have access to that great AI functionality without needing to leave our platforms. And of course, for customers who want to use third-party platforms with our flexible distribution philosophy, they can get access to the data they're licensing wherever they want to use it. And we've been doing this for years. We have hundreds of distribution partners and adding the LLM players to this as another group of distribution partners. And with that, of course, we maintain control of the commercial relationship directly with those customers and we don't allow the LLM providers to train on S&P Global data. And then secondly, we have accelerated the deployment of AI internally, and that's really enabling us to accelerate our time to market for product innovation. We've scaled our productivity initiatives, and we're improving the timings and quality of our benchmarks as a result. I'd say ultimately, the best barometer for the long-term potential of our business is what we hear from our customers. And they are consistently telling us that they want more from us, more data, like more AI functionality, more features and integrations. And we're going to continue to solve for that. We'll continue to deliver strong growth and profitability. We saw that in 2025, and we've guided to that in 2026. Thanks for the question. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. . Toni Kaplan: I wanted to ask about Ratings. I know your guide is below the long-term framework despite there being some positive tailwinds from the factors you spoke about, the refi wall, M&A, having closed a lot of it in the second half of last -- or announced in the second half of last year that will close this year, AI infrastructure financing. I guess, why should this be a below normal year for Ratings? Martina Cheung: Toni, thanks for the question. So with Ratings and the Billed Issuance guide of low to mid-single digits, let me talk to you a little bit about some of the underlying assumptions there. So in the first case, I would say that we obviously have the maturity wall, an important assumption here for us starting the year is that we would see the majority of the '26 refinancing coming to market this year and not massive amounts of pull forward from 2027 and 2028. And some of that just has to do with the timing of when those issuances were done, they were done, for instance, many of them were done at very low interest rates. And so that's one key assumption. The second one would be modest M&A growth year-over-year. Yes, we certainly have seen all the announcements in the back half of 2025, the timing of those, the materialization of those is important, and I think we'll be able to gauge more of that as we go throughout the year. And maybe a third point that I would make here is that we saw quite a bit of issuance in the back half of the year from the hyperscale players. We know that creates a very difficult compare in the back half of the year, this year. And on the hyperscale players, we've assumed continued growth, but modest growth. Now look, there are lots of big numbers being thrown around out there. A total of about $650 billion in announced CapEx from the hyperscale players. I would say the way to think about how we've looked at that is, first, we need to see how much of that actually materializes within the current year. And secondly, how much of that would be debt funded. And so we take one haircut on our assumption for how much we think will materialize and then another haircut on how we think -- how much we think would be debt funded. Now with all of that, it's early in the year. You know we'll update you as we go throughout the year. If we saw, for example, higher levels of hyperscale issuance throughout the course of the year than we saw in 2025, we think that could possibly add a few percentage points to Billed Issuance. But it's too early to really make aggressive assumptions around this. And so we're guiding to prudent levels, and we'll keep you up-to-date throughout the course of the year. Thanks so much, Toni. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: So I wanted to follow up on George's question, just given the panic and confusion that the market is experiencing as it relates to AI. I know you've talked previously about revenues driven by benchmarks and proprietary data. And I think you've said you're fairly agnostic around the channel that data consumption occurs in. So I was hoping you could put a finer point on that and talk specifically about your workflow products and the mood there. And to the extent there is a shift in channel, sort of how do you overcome that? Is it potentially like higher pricing on the same data? Or just any more clarity you can provide on that, I think, would be helpful. Martina Cheung: Thanks so much for the question. So of course, as you pointed out, we did illustrate during Investor Day that the vast majority of our revenues come from our unique and differentiated benchmark data and insights as well as our critical workflows. Now I know that with everything that's happened in the last week or so that there is a lot of attention and a number of questions around workflows. And so let me talk about that for a little bit. But the workflow tools that S&P Global has developed are critical systems of record for our customers. So products like iLEVEL, ClearPar Cap IQ Pro, Platts Connect and others, they're not simple apps that were developed rapidly. And in fact, they get smarter as we embed AI technology in them. So we think of these as enterprise-grade solutions that involve sophisticated integration. So many of them, for example, provide connectivity across industry networks of clients, and they enable capital flows, trading, reporting and other mission-critical functions. And think about the regulated environment in which we operate. So we and many of our customers and the workflow tools we provide need to actually operate in very sophisticated ecosystems. And so our workflow tools embed functionality for compliance, risk management, data integration and segregation and integrations with other tools that our customers use daily. And for our financial services clients, we need to, as a provider to them comply with and attest to our compliance with complex digital regulations like Dora, for example. So our solutions have been developed and refined over many years to enable these mission-critical workflows, and we deploy them globally at scale. Another point I'd make here really is that our workflow tools have S&P Global data embedded in them to drive functionality. So the true value of many of our solutions like WSO can't be realized without S&P Global's world-class data sets like loan reference data. And our customers are consistently telling us they don't want to have to expand their list of vendors to get access to leading-edge technology. They want us to embed that technology in our products, and we've been rapidly doing that now for several years. And the message is consistent to what we've been saying to you over the last year, our customers want fewer vendors and more strategic partnerships with comprehensive partners like ourselves. They see the expertise we have with Kensho and they recognize that we have very unique and massively scaled data that we bring to the table. So we're confident that our unique position as the world's leading provider of benchmarks and our combination of AI expertise, our differentiated data and our enterprise-grade workflow tools enable us to continue advancing that essential intelligence for our customers around the world. Thanks for the question. Operator: Our next question comes from Surinder Thind with Jefferies. Surinder Thind: Martina just following up on some of the earlier questions. At a high level, can you maybe talk about your assessment and experience with the AI technology in your attempts to deploy it internally versus maybe the hype that's coming out of Silicon Valley? And maybe what does this mean structurally for S&P in the sense that when we look at some of the newer firms that are coming out. They're coming up with a much smaller employee footprint, these AI native companies versus maybe some of the prior generation. Martina Cheung: Yes. Surinder, thanks for the question. And as you rightly said, we've been investing in this area for many years since we acquired Kensho in 2018. We've deployed about $1 billion against this, and that's really put us in a great position as we think about deploying these capabilities, both within our products and in our internal processes. And so I would say early days, but we are seeing traction in the momentum that we see with our customers, for instance, on the product side of this. So I'll give you some examples. We deployed the automated data ingestion tool on iLEVEL in 2025. And with the 6 months, we had nearly 20% of the iLEVEL customers opting for that add in, which is not part of the standard subscription. We also have seen very good demand in our energy clients for adding on the ability to pull energy research into Copilot and Copilot Studio that's seen quite a robust pipeline over the course of last year, and we'd expect more of that in 2026. And so earlier opportunities here that we've seen lots of good momentum. And again, it comes back to what are our clients saying to us. We have one CCO client that was working with the CCO team recently and essentially said, look, we've seen some of the bigger tech firms. We're also looking at some of these niche providers that have AI native shells, if you like, without the data. And frankly, we prefer to work with you guys, you want to see you guys put the functionality into your tools, and we want to use single pipe to get our data through. And so as I said earlier, the best barometer really of our long-term success here is what our customers are telling us, and we're moving faster and doing more with our customers. Maybe the other point that I would make, and then I do want to hand over to Eric on the productivity side of this and to your points around smaller teams, et cetera. We would certainly expect over the next several years that revenue growth will outstrip headcount growth. And in many ways, we're seeing places where we've reached peak headcount growth, and we'll see that continue to decline in certain areas over time where we've accelerated the application of these functions. Maybe Eric, over to you. Eric Aboaf: Thanks, Martina. Surinder, let me add that on the internal usage of AI, we're really accelerating a number of use cases and not just I'd call proof of concept, but actually changing the way we do work, changing the way our processes are developed and simplifying. I think if you remember back to Investor Day, we talked about some of the deep pools of opportunity we named for the enterprise data office, the software development process, the researcher activity that we have and then the analysts. And we described those as pools of human resources that comprise about 1/3 of our total 40,000-plus headcount. And each one of those has an industrious effort now underway to actually bring in and leverage a number of the new tools, some of them that we've developed internally, a number of which are available externally. You're all well familiar with some of the software development tools that are having a very significant productivity impact for the developers and in those environments, researchers in an area where we've already been able to simplify, streamline and save $10 million plus over the last year as we provide them the tools and the functionality and the capabilities that they need to provide more research faster and more efficiently than before. And then the effort that's probably the furthest ahead is the enterprise data office where over time, over the next 2 years, we see about a 20% reduction in that cost base in that area. It's nearly a $0.5 billion expense base out of $7.5 billion. And it's the kind of change that we see coming now because we have these AI tools, we know how to implement them, we know how to simplify what we have. We know how to lighten the set of internal processes streamlined. And I think over time, it's going to transform how we operate this company and create the productivity and our ability to reinvest in the top line as we've been doing over the last few years, but also deliver margin year after year after year in a way that will drive both margin expansion, top line growth and EPS growth for our shareholders. Operator: Our next question comes from Manav Patnaik with Barclays. Manav Patnaik: Martina, you talked about how you thought AI was net tailwind for your business. And I was hoping you could just elaborate on that more on the top line basis. So do you think all these enhancements that you're talking about will help you accelerate revenue growth? And also, how do you think that changes your pricing strategy going forward? Martina Cheung: Manav, thanks for the question. We do think this is a great opportunity, and we're excited by the announcements. A number of these we've been anticipating because we've been engaging very closely with the various players in the markets. Maybe let me start with how we see this delivering additional value for our customers as we accelerate not just the integration of AI into our own tools, but also leaning into partnerships with a number of these players. First, I'd say that our clients are getting additional value by being able to use the data, our data in more ways. And the more ways to use it, the more value it creates and the better opportunity for value-based conversation at renewal when we talk to those customers. We've also seen really nice uptick in demand for add-ons. And that's helped us obviously with net new revenue. Examples of that, that we mentioned were the automated data ingestion as well as in iLEVEL as well as Microsoft Copilot add-on for our energy customers. And then I would say that we also have seen our clients just this really, really steep increase in interest in new data. And so this is quite interesting. And we're seeing a lot of that in the conversations that the CCO and the Kensho Labs teams are having with our CCO clients. So we'd expect to see maybe new data set sales opportunities there as we're having those conversations as well. And ultimately, the way that we're tracking this, and Eric and team are really doing quite a bit around this to make sure that we can see that adoption and track it. We're looking at retention. We're looking at renewal -- net renewal rates which would be inclusive of price increases. We're looking at add-ons, net new revenues, new product sales. And importantly, this is also helping with competitive wins. So we think a good opportunity there overall. We wouldn't change the pricing strategy around our enterprise opportunities, but maybe the way to think about it, Manav, would be that we see both opportunities around the renewal discussions as well as the opportunity to sell net new, whether it's add-ons or net new data sets. . Operator: Our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Eric, just wondering if you can elaborate more on the pull forward of investments that you brought into the Market Intelligence business into 4Q? And I know you guys aren't guiding to segment level margins anymore, but any qualitative color you can give us on sort of the expected growth in expenses within MI for 2026 relative 2025? Eric Aboaf: Scott, it's Eric. Thanks for the question. On some of the fourth quarter expenses in MI, remember, there were two factors. There was the early integration of With Intelligence, so that came on and then which we're very excited about, followed by some pull forward on investments. Those are really in the technology, I'll call it, feature functionality area of several product lines, and it's the kind of reinvestment that we're making as we deliver productivity to also drive top line growth. Some of them are actually AI investments and the infrastructure that helps support that where we're finding that we've already seen a quick adoption by clients. What we're trying to do is invest behind that very quickly to expand that AI feature functionality in particular and some of the other features that will drive future growth. In terms of margin expansion, we're quite comfortable with the guide that we've provided in aggregate, the 50 to 75 basis points across the various divisions. I think as we get a little further during the year, we'll see how each of them perform, and we're being prudent in our guidance. Some of the -- in MI is the volumetric revenues, which we've seen bounce up around from time to time. So this isn't anything particularly new. But if you go back over the last 8 to 12 quarters, you'll see some of that. And so we're just being a little bit careful. In terms of margin expansion, we had said at Investor Day that MI has, I think, we said clearly, the largest surface area for margin expansion. We think that over time, it will be at the upper end of the 50 to 75 basis point margin guide. I think for this year, we think it's solidly in the middle of our guide. And we're here to meet that and to deliver on that and to do even better. And I think if some of the volumetric revenue growth comes in more like it did in '25, then we're prudently guiding for in '26, right? So if we see that same total year revenue growth as we'd like it to see, it will come in at the high end of the range. But it's a little early to make that prediction given that the volumetric growth is driven by a number of external factors. And so we start MI in the middle of the range, and we're looking to take it up during the year as we deliver. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: Eric, I wanted to continue the margin guidance. Again, I know you're not getting specific guidance by the different segments. But any qualitative color, if you can talk about the other segments like you just gave us for MI, we'd really appreciate it. Eric Aboaf: Sure. Jeff. Let me -- maybe we'll just take through MI, we covered at a high level, and I think you've got a good sense there. If we go to Ratings, one of our market-sensitive businesses, it's clear that it will depend upon the issuance environment, the rated issuance expansion during this year. And that's all driven by the M&A activity, the potential hyperscale investment-grade issuances, structured finance and so forth. So I think that one we've historically been careful at the beginning of the year and are doing so again. I think similarly in Indices, there, we've delivered really nice margin expansion performance. We expect to continue to do that. Here, we're being a little careful as well with the guidance on equity market appreciation. There's a good tailwind because of the averages and where they've come out relative to the average of '25 and where we are today. But if markets continue to trend upwards, there'll be opportunity towards the upper end of the range, but it's a little early to predict that. Energy, I think, will also deliver well. There, we've got some headwinds as we described, some of the sanctions, the turnaround in Upstream is underway. And I think what we'll see is margins and revenue accelerate from the first half to the second half of the year. And there we're also confident we can meet the middle of the range. But in each one of these, it takes a series of actions, a number of which we control and some of which we don't control to -- for us to get to the upper end, which is where we'd always like to deliver. I mean that's our intentionality. That's where management and the executive team is focused on. What we are committing to is that every division will expand margin, every divisional extent margin in this range. And there are certainly opportunities, I think, across every division, starting with the market-sensitive divisions, but also in MI and in Energy to deliver even more than the middle of the range depending on execution, depending on the market environment. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Alexander EM Hess: This is Alex Hess on for Andrew Steinerman. I just wanted to get a few points of clarification, if you don't mind. Could you elaborate as to what organic ACV growth was in the fourth quarter in MI? I know that's been a point that you guys have been highlighting, certainly, when it's been running ahead of pace. And then maybe on the balance sheet, just walking through sort of sources and uses of capital as you enter '26? Any call-outs there, especially at the debt buildup in the year. So I know it's two parter. Eric Aboaf: Let me take those in sequence. ACV growth continues to come in very nicely in MI. It was solidly in the 6.5% to 7% range this quarter, which gives us 2 quarters in a row of 6.5% to 7%. And if I remind you, the first half of the year was sitting at 6% to 6.5%. So I think we're starting to see the acceleration or maybe I'll say, continuing to see the acceleration that we had seen from the first half into the third quarter. We're now seeing it first half to second half. And that's what gives us confidence in the step off into next year. It's also related to where the subscription growth is coming in really nicely. And we think that subscription growth will be at the top half of our revenue guide. We think ACV will be at the top half of our organic constant currency revenue guide as well and will help propel revenue to levels that we'd like to see this coming year. In terms of balance sheet and capital management, I think maybe a couple of points that I'd highlight. A lot of the balance sheet management continues. As we've previously discussed, we did go ahead with a buyback and expanded buyback in the fourth quarter. We funded some of that with some debt in commercial paper. So you see that come through in the balance sheet, and that resulted in $5 billion of buybacks for the year for 2025. As you recall, our buybacks typically are lighter in the first quarter, and then build during the course of the year. Just given the market environment, the strength of our balance sheet, but also the stock price levels that we're seeing, we're likely to do a higher buyback this first quarter in 2026. I think last year was in the $650 million range. This year, we're targeting about $1 billion of buyback and see that as a way to expand EPS in these volatile markets. Operator: Our next question comes from Craig Huber with Huber Research Partners. Craig Huber: Martina, you gave several examples of initiatives on revenue front that AI is helping your revenues. But can you just simply if you would, please give me your 4 to 5 revenue AI contribution you think is going to help you the most for revenues this year, your products, your add-ons, but what's your 4 to 5 you're most excited about? And then as you roll it all up, your AI enhancements to your products, how much do you think that's actually going to help your revenue growth this year, your midpoint growth, 7.5% of revenue growth? Is it going to help by roughly 1 percentage point. Do you have a sense on that, please? Martina Cheung: Craig, thanks for the question. Well, look, we're not providing guidance around the contribution of AI or calling that out specifically. Let me maybe take a step back and characterize some of the groupings of how we benefit from AI as part of our products. And so as you know, we have been working really closely with our customers on this and they're really pointing the way in many cases around the types of functionality they want to see. And so that demand is really coming from the customers themselves. And what we're doing essentially is making our products smarter on their behalf and at their request. And so some of the examples I called out earlier, maybe just again, put them in buckets. So one would be how we're actually bringing really advanced capabilities into our products. We showed you document intelligence, for example, at the Investor Day and that has seen a really good uptick and gotten very positive reception from our customers. A second category would be where we launched an add-on, which is charged for separately and I mentioned automated data ingestion for iLEVEL, there are a number of others there across the divisions and within MI as well. The third would be just the overall conversation, oftentimes with the CCO clients and Kensho is resulting in increased demand for new data as a result of clients being able to use these technologies to do lots more interesting things with data. And so we may expect to see new product sales, new data sales as part of this as well. And remember, we're doing all of this with our philosophy of flexible delivery. So we will, as we have done for many, many years, lean into our distribution partners, including the model developers and hyperscale partners to create as much value for our customers as possible. And then what's the results or the contribution it's in a number of areas. It can be in revenues. It can be in retention. It can be in new data sales or new add-on sales. It can be in competitive wins. And we're seeing quite a bit of this across the businesses, whether it's an MI or in Energy, for example, we're seeing AI-enabled capabilities as we talked about last year in index as well. And so this this is quite exciting for us. We continue to lean in here. And we're seeing the momentum and some of the early traction. And we look forward to sharing more about that as we go throughout the course of the year. Thanks, Craig. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: I want to jump back to the volume base sales that were later in the quarter. Can you just go over your view on that in terms of those sales being kind of market-driven or why else they would have been lower. I just wanted to ask, I mean, straight out, is any of the wallet share going to clients investing in AI and other areas that just might not be with S&P? And then also just in terms of like the margin expansion, if you account for some of the pull forward of the investments, it sounds like the margin growth year-over-year would have been 80 basis points. We're just seeing a better trajectory in the last few quarters. And maybe you can kind of comment on that as well. I know it's two parter, but please indulge me. Eric Aboaf: Shlomo, it's Eric. Let me start with the margin impact. There -- this -- and maybe quantify it in a couple of ways. As we described, With Intelligence comes on in the fourth quarter. And that obviously starts with a lower margin, just given where it is in its growth trajectory, but one with significant margin expansion plans and forecast. There's the pull forward on some of the investment spend as well, which we're pleased to have done, and that's really offset in a way in other divisions where we saw higher-than-expected growth in particular in Indices. And so purposely, planned on some investments in MI where it made sense in effectively funded by another area. And together, those worth about 80 basis points for the quarter. And then there's another of 50 basis points or so that just comes from that lower variable revenues. If you factor that in, that between those three areas, I think margins for MI would have been in the 33.5% level, which is pretty close to the full year 34% margin. So we're sort of consciously navigating and managing, I think, actively, and that's some of what you saw this quarter. In terms of the variable revenue, this is really driven by sort of external factors. It's -- there are no cancellations. There are no questions around pricing. It's all been the variability in some of those external market factors. And so for example, we talked about the bank loan syndications and and the loan markets being slower in transactional activity. That just comes back to us directly in ClearPar as a set of lower revenues in that particular quarter. And we'll be exposed to that kind of volatility. Conveniently, in Market Intelligence subscription revenues is 85% of total revenues. But we'll have a little variability around that. And that's, I think, just part of the business model. Clients want to have a pricing schedule that's tied to how they make money, which is partly on the the amount of activity. And so we have a system that supports that. But we're pleased with the overall performance and just calling out what will some of the volatility that we'll see from time to time. I think we saw some real positives in some quarters this year. You'll see some slower growth, but it was still in the -- it was still positive. And so it's just a matter of seeing that it evolves over time. Martina Cheung: And Shlomo, maybe I could add a couple of additional examples here. So Eric mentioned earlier, investments that will help with revenue growth. Maybe two examples of that to make this tangible. One is that we invested more in cloud to accelerate the -- bringing together of our Data Fabric and the EDO and that's really creating the opportunity to do more with our content, connecting it together, produce more products, et cetera. And then the second area was we pulled forward some expense around sales enablement tools within Market Intelligence into Q4 as well. So just a couple of examples there. Thanks for the question. Operator: Our next question comes from David Motemaden with Evercore. David Motemaden: Just had a question on sales cycles within MI. Martina, have you seen any changes in MI sales cycles? And just given the announcements of some of the GenAI enhancements at the LLMs over the last 6 months or so. Has that impacted sales cycles at all? Are you seeing any changes to the pipeline? I'd be interested in what you are seeing. Martina Cheung: David, thanks so much for the question. I mean I think the only time generally that we might see a sales cycle being longer and this wouldn't be specific necessarily to AI or LLMs, but generally speaking, the only time you might say that happen is if you have a very large deal that might have multiple products in there. And so maybe some of the CCO deals where we're dealing with large enterprise opportunities could be some examples of that. But I wouldn't necessarily say that, that has differed from what we've seen in the past. What I will say is that the volume of meetings has increased dramatically with our clients, in particular with the CCO accounts, not just because we are bringing the whole enterprise together for a discussion with them, but also because they're looking at what more they can do with us. And so that's an area where, of course, we see opportunity as well. Thanks for the question. Operator: Our next question comes from Owen Lau with Clear Street. Unknown Analyst: Could you please add more color on the priorities of your private market solutions in 2026? What are some of the initiatives that can drive or even accelerate the growth in this area this year? Martina Cheung: Owen, it's Martina. Thanks so much for the question. While we're very excited about our private markets opportunities in 2026. Maybe just to kind of point to the different divisions around this. In Ratings, we've seen really strong performance around Private Market Ratings certainly in 2025. And the work that we've done really there to make sure that the issuers in the market understand our methodologies and that we have very established clear relationships in the broader business. That's all helpful for us, and we don't see a reduction in appetite for private market from investors. And so we'd expect that to continue to progress nicely in 2026. Look, it's possible that some of these hyperscale issuance could go through rated in our private markets teams. If that's the case, we might see a little bit of that potential for increased come through that channel, but generally very well positioned there. In index, we've seen a number of launches around private markets in 2025, and we are getting a lot of interest speaking with our clients about new index opportunities. And the team is also working with Market Intelligence team to see how they can accelerate innovation using the data from both With Intelligence and from the Cambridge Mercer agreement that we've struck. And then in MI, look, we're so excited about the closure of the With Intelligence deal early. And just the spectacular capabilities of the EDO team, enabling us to link that data through Kensho Link and get it out to market faster. We've already seen really early momentum around cross-sells that we talked about in the prepared remarks. And that With Intelligence team is phenomenal. We're super excited to have them on board. And I would say maybe just a last quick point. We launched the beta for Cambridge Mercer in Q4, as we had discussed, got very positive feedback. The taxonomy for private markets that we discussed as well around standardizing and reporting is also getting very, very good feedback from the market. And we're continuing to work with customers on that, and you can expect us to keep you updated on that as we go throughout the year. So I'd say, Owen, we're excited. There's always good opportunities here, and we'll keep you updated as we go throughout the year. Thanks for the question. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: I'm curious if you could talk about your outlook for bank loan issuance in 2026. I'm curious why that's been soft over the past few months and why you expect it to be softer? It sounds like that's correct me if I'm wrong, but it sounds like that's maybe one of the key factors in terms of the softer market intelligence and Ratings outlook than what you had for the Investor Day? Martina Cheung: Yes. Jason, thanks for the question. So I think for bank loans, if you take a step back, it's it's more of the mix, the overall mix that we expect, right? So in Q4, we saw a 50% increase in investment-grade issuance in Ratings. And so that weighed on the overall mix, which monetized -- made the sort of like effective monetization a little bit lower than we would have seen had it been more skewed towards high yield and bank loans, for example. And so think of it as more of the mix. I think if you look into 2026, the near-term maturity walls are reasonably evenly mixed between high yield and investment grade. There is that opportunity there for more investment grade if the issuance of hyperscalers were to increase. And so all of this we take into consideration not just as part of course of the Billed Issuance, but also as part of the the revenue guide. And so ultimately, I think we continue to expect to see a little bit of softness in bank loans as we think about the initial -- the overall guide here for Billed Issuance for 2026. And as always, the timing of rate cuts, the spread environment and things like that could impact us to the upside or downside. But generally, we're being prudent on the guide here, including a little bit more softness in bank loans continuing into 2026. Thanks for the question. Operator: Our next question comes from Jeff Meuler with Baird. Jeffrey Meuler: Can you just comment on how strategically important you think CapIQ is within Market Intelligence, obviously, vendor consolidation and CCR2 themes. But just like where are there meaningful product integrations with other MI products or how you think it impacts cross-sales, just how we should think about CapIQ potentially impacting MI more broadly beyond the traditionally reported desktop? Martina Cheung: Jeff, it's Martina. Thanks so much for the question. I think -- biggest picture view of desktop is that it's about 6% of our enterprise revenue. And as we think about the desktop going forward, firstly, I would say, we have been really leaning into investing and accelerating the deployment and release of AI-enabled capabilities across the desktop. This is very valuable to our customers, the combination of unique content that we are adding is also very valuable. And so the single sign-on between Visible Alpha and the Desktop, the single sign-on between the With Intelligence products and desktop. These are all things that create important interconnectedness of this platform. And as I said earlier, this is a sort of product that really benefits and works at its highest level of value when it is used in conjunction with the unique data that we provide to our customers. I will say one of the examples of the launches that we did in Q4, for example, is the integration of Doc Intelligence with Salesforce. Now that's something that our users who have really adopted document intelligence or asking us for. And so we're seeing a good reception from our users around all the ways in which we're enhancing desktop and that's coming through not just through the CCO conversations, but our broader usage base as well. And maybe, look, I'd add just one last point on this. Unsolicited, I've had two Ratings analysts come to me in the last several weeks and tell that ChatIQ has been life-changing for them. And a fun fact is that the Ratings analysts are actually the largest power user group of CapIQ Pro. So it was nice to hear that on an unsolicited basis from our own internal customers as well. So thanks for the question, Jeff. Operator: Our next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to double back on capital allocation. And more specifically, kind of the preference between buybacks and M&A. Obviously, it sounds like With Intelligence has gone very well and quicker than expected. You talked countless times about how important proprietary data is to your moat in this new AI paradigm. So I'm just understanding you want to be aggressive on the buybacks. Also in light of those factors, curious how you stack or rank the priorities and where you might be most interested to deploy capital on the M&A front going forward? Eric Aboaf: Andrew, it's Eric. Let me start and say that we're focused on all the opportunities in the marketplace. I think right now, we see a potential opportunity with buybacks, just given the stock market performance, accretion and so forth. And so it's a natural time for us to accelerate some of the buybacks from the back half of the year into the first half of the year and in a way, that is the active financial management that we're doing. I think at the same time, we're not signaling that buybacks are more important than growth. In fact, growth is what dominates our thinking, our activity, our actions, how to fund the growth through productivity. I got into that earlier. But buybacks is just one of the many tools. I think the other tools are continuing to invest through the P&L. We've done that actively this quarter and that we even did that with a view that margin might decline or not expand as quickly as we like in one business. But we did that very consciously and purposely and see good payback. And I think in M&A, you saw us do the kind of acquisition that we'd like to do, which is a bolt-on or tuck-in or complementary consolidating acquisition that's going to fuel future growth. And so pretty consistent, but maybe turn it over to Martina, as well. Martina Cheung: Yes. Thanks, Eric. Andrew, maybe the only other point I would add is -- and you hear me saying this all the time. We don't have any upside for transformational M&A. We're going to be -- always going to be very disciplined. And ultimately, we're solving for long-term shareholder value as part of this. Thanks for the question. Operator: Our next question comes from Peter Christiansen with Citi. Peter Christiansen: Martina, you continue to call out to centralized finance as a strategic focus. The thinking is as D5 protocols increasingly embed real-world assets, credit exposure, do you see a role for S&P on on-chain credit assessment or Oracle style type of verification? Or is the strategy more to be a layer removed from direct protocol integration? And I'm just curious if we see market structure legislation get past this year, does that equate to a stepped-up investment in D5? Martina Cheung: Peter, thanks for the question. And I'd maybe answer this in the context of Ratings and Index where we see some of the earlier opportunities here. So we're excited about this. We've been calling it out because we see a really good opportunity and we've been leaning into it. So our Stable Coin stability assessments, for example, are frequently featured as part of describing the overall health of some of the Stable Coin issuers. And so you'll see us mentioned quite frequently in terms of helping the market to understand the risk associated with various different Stable Coins. And we cover the vast majority of Stable Coin market cap. I'd also say that we have been leaning into our methodologies for thinking about rating some of these things. So we did the first rating of a protocol, for example, in Q3, we mentioned that in 1 of our prior calls. And that was a way for us to signal to the market that we are leaning into assessing the risk of these new types of infrastructure providers and protocols. So I'd say, definitely leaning in. And then for on-chain presence, we have some partnerships. We've actually had those partnerships for years now. and we're excited about the potential opportunity there for Onchain credit assessment. In Index, I would say that we've been innovating very, very quickly here. You've seen us announce the opportunity to tokenize the 500 million Onchain. We've done some really innovative launches off the back of that tokenization. So I'd say tokenization there is a good opportunity for that business. And we're going to talk to you a lot more about this over the course of the year, but I appreciate the question, and we see it as an opportunity, and we're leaning in. Thanks, Peter. Operator: Our final question will come from Sean Kennedy with Mizuho. Sean Kennedy: So I know there was some pull forward this quarter, but I was wondering if the expected investment in AI capabilities and products is greater than what you were thinking 6 months or even 3 months ago with everything that's happening in the AI and software markets? And how Kensho provides a significant advantage here versus the competition? Eric Aboaf: Sean, it's Eric. Let me start. No, this is not a higher level of investments in aggregate for the year. We don't expect that to be higher than expected next year from relative to 6 months ago. I mean, we routinely invest through the P&L, 3%, 4% of our expense base. And we're just continuing to do that. We're just shifting in some cases how we invest, where we invest and the particle feature functionalities that are important to customers changes over time. But we see it as quite sustainable and just part of our continued pattern. Martina Cheung: And maybe I'd just add in there, Sean. Just by having the Kensho team and our choice in how to allocate those as a really valuable scarce resource. That also gives us a lot of leverage around how we can actually making this happen more quickly across the organization as well as how we can actually generate growth opportunities through Kensho Labs. So well, thank you so much for all your time today. I'd like to reiterate how proud I am of what we've accomplished in 2025. We have a clearly defined strategy, an incredible leadership team, the best people and deep relationships with our customers and partners, all aligned on our mission of advancing essential intelligence. Thank you to our customers, our people and our shareholders who continue to support us in this mission. We are exceptionally well positioned and excited about the opportunity to drive value in 2026. Thanks for joining the call today. Mark Grant: Thank you all again for joining the call today. You may now disconnect.
Operator: Welcome to the Philips' Fourth Quarter and Full Year 2025 Results Conference Call on Tuesday, February 10, 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO, all participants will be in a listen-only mode. [Operator Instructions]. Please note that this call will be recorded, and the replay will be available on the Investor Relations website of Royal Philips. I will now hand the conference over to Ms. Durga Doraisamy, Head of Investor Relations. Please go ahead, madam. Durga Doraisamy: Thank you. Good morning from London, everyone. Today, we will start by reviewing our fourth quarter and full year 2025 results, followed by a short Q&A session. Then at 11 a.m., our Capital Markets Day webcast will begin and run until 4:00 p.m. You will hear from Roy, Charlotte and our Chief Business Leaders as they share how we're driving profitable growth to deliver sustainable value. The program continues with a North America-based Philips customer panel, providing real-world customer insights. Roy will wrap up the day with closing remarks and key takeaways. The press release for both events was published on our website this morning. The replay and full-time script of the webcast along with the presentation and transcript for our Capital Markets Day will be posted within the next 24 hours. As always, I want to draw your attention to our safe harbor statement on screen. With that, over to you, Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. We have consistently delivered on our commitments in every quarter this year, including a strong fourth quarter, and we are entering 2026 with momentum. This reflects the impact we are making for our customers and consumers, delivered through disciplined execution by our passionate teams. I want to start with the key highlights for Q4. Order intake was strong, up 7%, reflecting sustained improvement over the past year as we continue to expand and grow our order book, strengthening visibility into 2026 and beyond. Comparable sales growth of 7% year-on-year and was broad-based across all businesses and geographies and strong contributions from Personal Health and Connected Care businesses continued. Adjusted EBITDA margin improved by 160 basis points to 15.1% despite the impact from tariffs. For the full year, we delivered strong order intake of 6%. Comparable sales growth as per outlook and adjusted EBITDA margin of 12.3%, exceeding our outlook, and that's despite the impact of incremental tariffs. These results reflect margin accretive innovation, productivity gains and disciplined execution, translating into strong operational performance and cash generation delivered through a performance culture and highly engaged team. As we enter 2026, we are moving from a strengthened foundation and margin improvement focus into the next phase for Philips, one of profitable growth acceleration with a clear path to mid-single-digit sales CAGR and mid-teens margins by 2028. Now let's look at our fourth quarter and full year 2025 performance in more detail. Starting with orders. Equipment order intake grew 7%, reflecting sustained momentum over the past year. Growth was broad-based across D&T and Connected Care, driven by sustained double-digit growth in North America. We achieved a solid full year performance with D&T order intake up 5% and Connected Care up 7%. Order book grew 5% year-on-year with inherent quarterly unevenness. Within D&T, Image-Guided Therapy achieved strong order intake growth and Precision Diagnosis returned back to growth. Results were driven by strong demand for our high end Azurion 7 interventional platform, the EPIQ CVx ultrasound for cardiovascular imaging and continued successful ramp-up of our CT 5300. In Image-Guided Therapy, we expanded our relationship with Bon Secours Mercy Health, one of the largest U.S. health systems into a 10-year collaboration, spanning 80-plus interventional labs and reinforcing our role as a long-term partner in cardiac care delivery. You will hear more about this during our North America customer panel discussion at our CMD this afternoon. Turning to Connected Care. Demand for our monitoring and enterprise informatics solutions was strong. North America remained our strongest growth driver. Integrated delivery networks and large health systems continue to invest in enterprise patient intelligence and cybersecurity, increasingly through our enterprise monitoring as a service model in order to improve the clinical, operational and economic outcomes. During the quarter, we signed multiple strategic partnerships with leading U.S. health systems, including Atrium Health and UNC Rex. In Enterprise Informatics, we secured a landmark radiology partnership with a large health system in the U.S., standardizing our cloud-based imaging informatics platform hosted on Amazon Web Services across 27 hospitals. This will support more than 4 million imaging studies annually and enable scalable, efficient diagnostic workflows. Turning to Personal Health. We delivered another quarter of sustained broad-based growth across geographies and businesses. Importantly, this growth was driven by healthy sales trends across markets, supported by underlying category growth, resulting in continued market share gains. Demand was particularly strong for our OneBlade shavers and premium portfolio, including high-end shavers and IPL hair removal devices in Grooming and Beauty as well as the DiamondClean series in oral health care. In 2025, we accelerated execution of a multiyear road map centered on AI-enabled, patient-centric and scalable innovation platforms across our portfolio. In Q4, this momentum was [Technical Difficulty]. In December, we launched the world's helium-free 3T MRI. Verida, the world's first AI detector-based always-on spectral CT system; and LumiGuide, the first real-time AI-enabled light-based 3D navigation solution integrated with Azurion. These innovations are expected to support demand, improve mix and contribute to gross margin expansion over time. In Image-Guided Therapy, we closed the acquisition of SpectraWAVE in January, and I want to welcome the SpectraWAVE team to Philips. Their expertise and leadership in high-definition intravascular imaging and angio-based physiological assessment strengthens our innovation leadership in cardiology interventions, the largest value pool in interventional procedures. For consumers, at the China International Import Expo, Philips debuted new oral care, grooming and health care innovations, including the Sonicare Prestige 9900 and Norelco i9000 Prestige, reinforcing our commitment to meaningful locally relevant innovation in China. As a result, we enter 2026 well-positioned with strong innovations to drive profitable growth over the next 3 years, supported by a stronger pipeline and innovation platforms designed for scale. We will go into more detail during today's Capital Markets Day. This year, we continue to make a lot of progress also on our execution priorities, enhancing patient impact and quality, strengthening supply chain resilience and simplifying our operations. Patient impact and quality remains our highest priority, embedded across our businesses, innovation and culture. We delivered tangible improvements in quality performance, including CAPA time lines, significant progress in managing corrections and removals, and we continued year-on-year reductions in nonconformances, complaints and field call rates. We also continue to address the consequences of the Respironics recall and relentlessly work towards resolution of the FDA warning letter issued last October. We integrally designed new innovations and act fast and comprehensively when improvement opportunities arise. At the same time, we advanced innovation through close regulatory engagement, more than doubling our 510(k) clearances over the past 2 years. Together, this reflects simpler, more standardized quality system that embeds patient impact and quality at design stage, enabling high-quality innovation to support patients at scale. Turning to our supply chain. We delivered a step change in execution in 2025, building on the stability achieved over the last 2 years. Service levels are at all-time highs and lead times are back to competitive levels despite a significantly more complex global trade environment. Through decisive disciplined actions, our teams more than offset the impact of incremental tariffs by leveraging productivity improvements, cost discipline and active mitigation measures in the supply chain. With cross-functional teams fully engaged, we continue to strengthen our footprint in North America, our supplier network, but also drive productivity and pricing initiatives as we look ahead to 2026. We are focused on driving disciplined commercial execution with a strong innovation portfolio increasingly oriented towards attractive performance and premium segments, strengthening the order book and accelerating growth over time. Turning to the regions. We continue to see healthy supportive fundamentals across the markets we serve, particularly in North America, where hospital demand remains strong, but the landscape increasingly is segmented. Rising costs and workforce shortages are reinforcing consolidation among larger health systems. This, in turn, is driving the demand for secure, productivity-enhancing platforms as hospitals face constraints on people and costs, rising data volumes and increasing care complexity. This positions Philips well to continue to capture growth, reflected in sustained double-digit order intake growth in 2025, following double-digit growth in 2024, and we expect North America to remain a key growth engine in 2026 and into the midterm. In China, tender activity gradually increased throughout the last year, albeit from a low base, supported by stimulus measures. At the same time, the continued expansion of centralized procurement has led to longer processing times and tougher competition, negatively impacting the translation of higher bidder activity into meaningful market growth. As a result, we remain cautious on the near-term outlook for China, while continuing to see attractive long-term growth potential, also in innovation and in sourcing. As a result, we remain cautious -- sorry, going to Europe. In Europe, capital spending remains stable, while select international regions continue to increase investment in health care and digitization as reflected in strong wins in Indonesia and India. In Personal Health, sellout dynamics in 2025 remains strong across Europe and most growth geographies. Demand in U.S. proved resilient. In China, cautious consumer sentiment persisted and demand was subdued, although slightly improved from the prior year. As we move into 2026, we will continue to closely monitor consumer sentiment and market conditions across all regions. Overall, we expect comparable sales growth between the 3% to 4.5% range in 2026, led by North America and international regions. China sales growth is expected to be stable. Charlotte will now discuss our fourth quarter performance in more detail and also our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales improved sequentially, in line with our expected phasing, increasing 4% year-on-year in the fourth quarter and remaining flat for the year. Within the segment, Image-Guided Therapy continued to perform particularly well, delivering double-digit growth in the quarter. Performance was driven by continued momentum in our flagship Azurion platform and strength in coronary intravascular ultrasound. Precision Diagnosis sales were stable. Adjusted EBITDA margin in Diagnosis & Treatment declined by 30 basis points to 11.8% in the fourth quarter. This reflects incremental headwinds from tariffs, which were partially offset by improved gross margin from innovation and productivity measures. For the full year, adjusted EBITDA margin increased by 10 basis points to 11.7%, reflecting solid margin performance despite the impact of tariffs, supported by improved gross margin from innovation and productivity measures. Connected Care closed the year with strong momentum, delivering comparable sales growth of 7% in the fourth quarter and 3% for the full year. Fourth quarter performance was driven by double-digit growth in Monitoring and mid-single-digit growth in Enterprise Informatics, driven by robust order book conversion in North America. Adjusted EBITDA margin in Connected Care expanded 150 basis points to 16.5% in the fourth quarter, driven by operating leverage, improved gross margin and productivity measures, partially offset by higher tariffs. For the full year, adjusted EBITDA margin increased by 110 basis points, crossing the double-digit mark to 10.7%. As part of our ongoing portfolio simplification and focus on scalable, higher-margin platforms, we completed the sale of the Emergency Care business in Q4, in line with the time line previously communicated. In Personal Health, comparable sales growth improved sequentially, growing 14% in the fourth quarter and 8% for the full year, with all 3 businesses contributing. Growth was broad-based across geographies. China benefited from an easier comparison base following the impact of inventory destocking last year, which concluded in the second quarter of 2025, with channel inventory at appropriate levels at the end of 2025. Adjusted EBITDA margin in Personal Health improved 500 basis points to 23% in the fourth quarter, driven by sales growth and productivity measures, partially offset by tariffs and cost inflation. For the full year, adjusted EBITDA margin increased by 130 basis points to 18%. Now turning to our group results. Comparable sales growth accelerated to 7% in the fourth quarter, with broad-based growth across business segments and geographies, led by strong performance from North America. For the full year, comparable sales growth of 2.3% was in line with our outlook. In the fourth quarter, adjusted EBITDA margin expanded 160 basis points year-on-year to 15.1% and for the full year, increased 80 basis points to 12.3%. We are particularly pleased with the continued strength of our margin performance this year, driven by sales growth, gross margin improvement from innovation, favorable mix effect and productivity. This performance more than offset incremental tariff headwinds, which came in slightly better than our expected EUR 150 million to EUR 200 million range after substantial mitigation. As planned, our proactive and extensive mitigation actions delivered results with measures such as inventory management, specialty programs, supplier network optimization and selective regionalization efforts reducing the tariff impact. We continue to actively work on further mitigating measures, including further targeted localization, and we are confident in our ability to fully mitigate these headwinds through disciplined execution by 2028. In Q4, we delivered EUR 248 million in productivity savings, bringing total savings to EUR 815 million for the year, in line with our outlook. Since 2023, our cost management and productivity initiatives delivered more than EUR 2.5 billion, exceeding our original outlook of EUR 2 billion by the end of 2025. There is more we can and will go after. Adjusting items were EUR 179 million in the quarter compared with EUR 286 million in Q4 of last year and EUR 531 million for the full year, in line with our 300 basis points outlook. This compares to approximately 640 basis points last year or 410 basis points, excluding litigation provision net of insurance income, reflecting our strong commitment to reducing adjusting items over time. Income tax expense declined by EUR 376 million in the quarter, mainly driven by the comparative impact of the derecognition of deferred tax assets in the U.S. in Q4 2024 and the recognition of deferred tax assets in other jurisdictions in Q4 2025, partially offset by higher income before tax in Q4 2025. Net income increased to EUR 397 million in the quarter, primarily reflecting improved income from operations and lower tax charges. Adjusted diluted earnings per share from continuing operations were EUR 0.60 in the quarter, representing a year-over-year increase of 20% and up 15% for the full year. Despite significant volatility in major currencies, particularly the U.S. dollar, the impact on our adjusted EBITDA margin and EPS was flat, reflecting disciplined hedging and optimized currency footprint and targeted commercial actions in markets most exposed to currency fluctuations. We generated EUR 1.2 billion of free cash flow this quarter. This was EUR 85 million lower year-over-year, reflecting a tougher comparison base as Q4 2024 included a EUR 367 million Respironics insurance receipt. For the full year, free cash flow was ahead of our outlook, driven by higher earnings, reaching EUR 512 million after the payment of approximately EUR 1 billion in cash related to U.S. medical monitoring and personal injury settlements in the first quarter of 2025. We maintained a disciplined focus on working capital, delivering a strong year-over-year improvement in inventory as a percentage of sales despite ongoing tariff mitigation initiatives. Moving to the balance sheet. We ended the quarter with approximately EUR 2.8 billion in cash and net debt of approximately EUR 5.3 billion. Our leverage ratio improved to 1.7x on a net debt to adjusted EBITDA basis from 2.2x in Q3 and 1.8x in Q4 2024, driven by higher earnings and stronger cash balances. We remain firmly committed to maintaining a strong investment-grade credit rating. Our balance sheet remains strong, and we are pleased to offer shareholders the option to receive dividends in shares or cash while continuing to invest in profitable growth. Now turning to the outlook. We entered 2026 from a position of strength with sustained order intake momentum, improved execution and structural margin, cash and balance sheet improvements, we are well positioned to accelerate profitable growth in 2026 and beyond. We expect comparable sales growth to accelerate to 3% to 4.5%, driven by order intake momentum, innovation and improved commercial execution with all businesses contributing to 2026 growth. Adjusted EBITDA margin is expected to improve to 12.5% to 13% despite the impact from currently known tariffs and building on the strong margin expansion delivered in 2025. The margin improvement will be driven by growth, continued operational improvements and further productivity, partially offset by the incremental impact of tariffs. In 2026, tariff costs will be fully annualized, resulting in a net impact of EUR 250 million to EUR 300 million, net of substantial mitigations. This assumes that the current tariff levels remain in place throughout 2026. On quarterly phasing, we expect a relatively balanced growth profile in 2026. As a result, all 4 quarters are expected to be within our full year comparable sales growth range of 3% to 4.5%, with Q1 at the lower end, consistent with normal seasonality and following a very strong finish to 2025. Adjusted EBITDA margin is expected to slightly decline in Q1 2026 as operational improvements are more than offset by the incremental tariff headwinds, which were not in effect in the first quarter of the prior year. Building on the EUR 2.5 billion productivity program successfully delivered in the last 3 years and continuing to focus on what we can control, we are launching an additional EUR 1.5 billion productivity program for the 2026 to 2028 period. Adjusting items are expected to be around 200 basis points in 2026, down from 300 basis points in 2025, and we remain committed to further reducing them over time. Restructuring costs are expected to be roughly 80 basis points and relate to initiatives to drive cost competitiveness, unlock R&D capacity, enhance supply chain agility and enable central functions to operate at best-in-class cost benchmarks. Other charges estimated at around 120 basis points, mainly related to the Respironics consent decree, field actions, other quality-related and acquisition-related charges. We expect free cash flow in the range of EUR 1.3 billion to EUR 1.5 billion, driven by higher earnings and lower adjusting items. This is expected to be partially offset by a disciplined increase in capital expenditure, supporting growth and regionalization and higher income tax payments associated with improved profitability. This outlook reflects an uncertain macro environment and incorporates currently known tariffs. It excludes any effects of the ongoing Philips Respironics-related proceedings, including the investigation by the U.S. Department of Justice. Now over to Durga. Durga Doraisamy: Thank you, Charlotte. Before we move to a brief Q&A session, just a quick request. Please keep questions focused on our Q4 and full year 2025 results and our 2026 outlook. We will be discussing our midterm plans and outlook in more detail at our Capital Markets Day later today. Operator, we are now ready for questions. Operator: [Operator Instructions] We will now go to our first question. And our first question today comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I have a couple, please. So firstly, Charlotte, for the last couple of quarters, you've been vocal on the gross margin improvement in the business and specifically D&T, owing to a better mix in the order book converting. Can you help us understand how this unfolded in Q4 and how much of a driver you view the mix benefit as a tailwind to your 2026 margin profile? Secondly, order intake for the full year for D&T was 5%. It would be great if you can help us understand how this differs by modality in Q4 and how you can reconcile this with the expected slower revenue performance for 2026 and whether this could be an element of conservatism in your guide? Charlotte Hanneman: Thank you, Hassan. Let me take your first question on our gross margin improvement. We are indeed -- and I indeed have been vocal about that for many quarters, we are very happy with the way our gross margin is developing across Philips. We really see an increase across the board driven also by innovations and productivity as well. And let's keep in mind that gross margin, of course, that's also where our tariffs hit, so that is impacting that as well. So we have been very disciplined in executing across the board. So if I look at 2026, what I think will -- what we see from a 2026 perspective also in D&T, we see continued margin expansion despite the tariff impact. So that gives you a good sense of that. We also think that underlying gross margin strength will continue to be strong. So there are a few factors in the bridge for 2026 to think about. First of all, of course, we have the annualizing tariffs. That's a headwind. Then we have continued productivity, and I will talk more about that later. And then the third component, as you say, is also the gross margin of innovation impact. So all 3 factors contribute. And then for the second question, maybe over to Roy. Roy Jakobs: So if you look to the D&T profile, Hassan, and of course, we were happy with the 5% order intake and the acceleration that we saw towards that 5%. We also see actually order intake momentum continuing. As we said, that's on the back of a very strong North American market that is actually continuing to grow for us double digit in orders. Then we see that if you look to underlying which are the contributors, of course, we have very strong IGT contribution in that mix. We see an acceleration in MR and also ultrasound was a good contributor because we have launched some great new innovations there that have really started to yield very well, including in China. So if you look at the kind of the contribution, you had IGT double digit, then you had the PD business we saw the acceleration as well, but at a lower pace. Now that's something that then also when you look into the sales contributes into your sales conversion. Now, as you know, of course, these are businesses with a bit longer conversion cycles than some of the orders that we have in Connected Care, which were also very strong, but you have more book and bill in that business. So that's kind of where you see that phasing coming into sales a bit slower. Now that builds into 2026, we will continue to see strong order momentum, and that will also underpin the build of sales into the year. So we will see -- and that's what guided and also what Charlotte guided for and that we will start a bit at the lower end of the range, and we see that strengthening in due course of the year as the order intake momentum that we have also been building up to 2025 really lands well into the rest of the year. Hassan Al-Wakeel: Very helpful. And if I can just follow up on the '26 guide, but also beyond. Roy, looking back to 2023, your '25 range was conservative and wide, and you've clearly landed at the top end of this and meaningfully outperformed this year's guidance. What buffers have you built into the guide for '26 and also beyond that, particularly on the margin, given the journey from here is going to be a lot harder than the journey from 7.5% in 2022? Roy Jakobs: Yes. So 2 part of answer, Hassan. Of course, we will go in full detail, right, at the C&D into kind of our plan underpinning '26 to '28. So you'll have extensive views on that later today. The short answer for today is what we learned in the first plan was that indeed, we are living in a dynamic world. So the dynamic world requires that you need to be, on one hand, very diligent in executing your own plan, focus on what you can control. Therefore, productivity is another important contributor. But as we really started to drive innovation and we have that strong foundation now that we can build on, growth will be a big contributor as well to margin, bigger than in the first period. So actually, that will start to kind of really kick in. And then we keep an eye on an uncertain or dynamic environment where tariffs, for example, in '26 is something that, a, we still will have the full year impact of what is currently known, but you also don't know what could happen next, right? But we have adopted and adapted our organization to a much more agile and leaner one where kind of we are building resilience we adopt fast or we adapt fast if we see something happening. And that's also on the growth side, right? When we see growth happening in a certain part of the world, we can faster route to that piece so that we capture that opportunity. And if we see actually an event popping up somewhere, we can also address that faster. So I think that is where we kind of will share a bit more later today and this afternoon. But we are kind of taking an outlook that takes the world into account. Operator: Your next question today comes from the line of Richard Felton from Goldman Sachs. Richard Felton: Two, please. The first one, within D&T, I think Precision Diagnostics was flat in the quarter. I suppose given better order intake across MRI and CT earlier this year, I was surprised it was a little bit stronger than that. So any color on Precision Diagnostics in the quarter and how to think about momentum into 2026, especially as you're bringing new products and new innovation to market? And then the second one, you referenced that Q1 is going to be at the lower end of the full year '26 growth guidance range. I suppose despite the easier comp, any sort of other phasing or things to be aware of on that Q1 comment specifically? Charlotte Hanneman: Richard, thanks for your question. So first on your PD question within D&T. So what we've seen play out in Q4 was in line with expectations. Orders returned to growth in Precision Diagnosis. And then from a sales perspective, we improved sequentially. And let's not forget, of course, from a sales perspective, we have a higher exposure to China, which is also impacting the sales in the fourth quarter. And if I then take a step back from a PD perspective, as you know, we have really rebuilt the foundation from a quality, from a leadership perspective, we reduced SKUs. You will hear from Jay, our business leader, later today on, well, what we've done and also very importantly, the plan going forward. So then from a PD perspective, from a margin perspective, you will have seen the progression. We went from mid-single digit to high single digit. And later today, we'll explain that there is much more to come. And also the innovation that we spoke about and that Hassan asked about earlier is accretive and now turning into a tailwind, particularly related to the RSNA innovations that Roy mentioned on the call earlier. That, in combination with stronger commercial and service execution makes us feel very good about 2026 and will also drive a stronger funnel and order intake in 2026. So that is on your first question. Your second question was on the Q1 phasing that you asked if there were any impacts there. So as I said in my prepared remarks, our growth phasing is much, much more balanced than in 2025. We have a very balanced progression in 2025. And actually, all quarters are in the 3% to 4.5% range, which is a significant improvement from where we were last year. So we're pleased about that. Now Q1, indeed, as you said, starts at the lower end, a couple of reasons, nothing out of the ordinary there. On the one hand, it's just seasonality. Q1 is typically our lowest quarter, as you know. And then, of course, we had a strong finish in Q4 as well. So that's from a sales perspective. From a margin perspective, as I also said in the prepared remarks, look, the tariffs continues to be a significant headwind, and that is particularly impacting us in Q1 because the operating leverage from stronger sales really only kicks in at the end of the year primarily. So Q1 from that perspective is a little bit lighter, and that's where our tariff kicks in strong. But as I said on the prepared remarks as well, we are very committed to margin expansion. Our guide also includes a margin expansion of 20 to 70 basis points. So we go very hard at driving that. Operator: Your next question today comes from the line of Julien Dormois from Jefferies. Julien Dormois: Congratulations on a strong quarter and a very nice landing to '28. I have 2 questions, if I may, as well. The first one relates to Personal Health, which obviously was super strong in Q4 and accelerating sequentially. And this is despite tough comps in the quarter. So just curious whether there is any kind of stocking effect into that? Or is it just the very strong demand you highlighted for Europe and elsewhere? And the second question is more broad. It's just whether you have an update and a stance on the Section 232 investigation that's been running by the U.S. government? Any thoughts you might want to share on that side, please, would be helpful. Charlotte Hanneman: Thank you very much, Julien. And let me take your first question on Personal Health. We were indeed very pleased with our strong Personal Health performance in the quarter, 14% in Q4, actually not on a very tough comp, though. So what has been driving this strong growth, a few different things. First of all, we saw market share gains really across all businesses. Second of all, and this is very pleasing to see, we see very healthy sell-out trends across most geographies and also a very resilient demand in North America. And that is where the combination of our innovations that Roy also mentioned, combined with our strong commercial execution really, really saw great momentum in Q4. And then particularly on your stocking question, I also said it in the prepared remarks, we have, as we promised we would do, derisked the China trade inventory. And it is now roughly at 3 months, whereas a year ago, it was at 6 months. So that means we're now in line with market averages on that. So nothing further to add there. Roy Jakobs: Let me take the second question on the 232. So actually, the 232 investigation has not been concluded nor any outcome shared. How we look at it is that, in essence, it's equal to tariffs, but a different way of going after it, right? So I think this is a potential measure that could replace tariffs. So we don't think this will worse the situation. It could potentially actually improve the situation, but we don't speculate on that. How we look at it is that in essence, they've got to hit the high court who's going to take a different tariff stand. They have a different mean of kind of still securing or putting from some tariffs on imports into the U.S. So we are, of course, actively engaged. We also are part of the discussion. We also know they are looking into measures that potentially could be beneficial. But as I said, we don't want to speculate on any outcome. Operator: Your next question today comes from the line of Veronika Dubajova from Citi. Veronika Dubajova: Excellent. I'll keep it to 2 and also short term. First, I just want to get your flavor for China. Obviously, we've had you guide to flat China in '26. Healthineers has done the same. GE Healthcare, arguably whose mix is closer to yours, have expressed some more cautiousness. They expect China revenues to decline in '26. So just if you can more build -- talk a little bit to the building blocks of that assumption and what you're seeing in that market at the moment. That would be my first one. And then, Charlotte, if I can come back on that PH margin in the fourth quarter. So I've followed your stock for a very long time. I went back through the history. And I think the best margin you ever achieved in PH in the fourth quarter was 21%. So the 23%, especially with tariffs, is highly unusual. Can you maybe talk to some of the structural changes that have happened in the business that are enabling you to drive this substantially better margin dynamic that we have seen in PH versus what we have seen in PH in the past? Roy Jakobs: Thank you, Veronika. Let me take the first one on China. So on China, so we see the following, and as I also highlighted in my remarks. So actually, we see China stabilizing in 2026. So of course, it was a headwind in the last plan period and also in 2025, with stabilizing. So actually, we expect contribution from China, but we are remaining cautious on it. We see 2 different trends. One in PH, where actually we have seen step-by-step some improvement in the sell-out, and we expect that will also kind of result in improvement in sell-in and therefore, sales in the China market. Now on the health systems side, we remain more cautious because the outlook on tenders and how they convert into real orders is still less predictable. And therefore, kind of we are counting for a growth, especially on the health system side, much more on a very strong North America and also the other parts of the world. So that's kind of where we remain cautious overall. We still remain committed to it. We see a slightly differentiated picture between PH and D&T, but we do see kind of China contributing to growth, although to a lesser extent than any other region. Charlotte Hanneman: Yes. Thanks, Veronika. Let me take your second question on the PH margin in Q4. Of course, we are very pleased with that strong margin. And in Q4, particularly also driven by the operating leverage on the back of 14% sales. But if you think about the more structural drivers, I would call out a few and also Deeptha will explain more later today. So that is something to look forward to as well. But the key drivers, first of all, innovation. I mean, Roy spoke about the innovations. We have, for instance, the new platform for Sonicare. We have OneBlade that is doing extremely well. Those innovations, they come at a higher margin, and they also drive premiumization, which also helps to drive higher margin and also drive higher prices. The second component is really around commercial execution, which has been very, very strong in Personal Health. We, of course, win with the winners, the Amazons of the world and the JDs of the world, and that continues to be a very strong force for us as well. And then thirdly, and this goes for all of Philips, we really focus on productivity, on disciplined execution, on controlling the controllables. And all those 3 factors really, really helped us also in Q4 2025. And as I said, Deeptha will explain later how we are confident that we will also further improve over the next 3 years. Veronika Dubajova: That's very helpful, Charlotte. And if I can maybe just quickly follow up. I think originally, at the third quarter, you talked about sort of high single-digit growth in PH. It's obviously come in almost at twice the pace that I think many of us expected. Anything you'd call out? Is there a specific region or a specific category that helped drive this meaningful surprise on the revenues? Charlotte Hanneman: Yes. Thank you, Veronika. I would say it's pretty broad-based overall, both from a business and a geographical perspective. We just saw very good momentum across the board as there's really a lot of demand for our products. So we saw a really good performance in grooming, where -- and I spoke about the OneBlade platform just now. We see very, very good traction across the board. And just as a reminder, in Q4, we, of course, benefited from the lower comparable due to China because last year, we were still in full destocking mode. So that has helped absolutely as well. So -- but also, excluding China, the numbers are still very, very strong. Operator: We will now take our final question for today. And the final question comes from the line of Hugo Solvet from BNP Paribas. Hugo Solvet: Congrats on the [ prints ]. Two, please. First, on the drivers for D&T and CC, Connected Care demand. Patient volumes in the U.S. was not mentioned in the Q3 slide deck. So just wondering what magnitude of pickup you're seeing and how sustainable do you think it is? And on the Q1 margin comment, you expect to decline slightly. Is the decline that we've seen in Q1 2025 would be a good proxy for Q1 2026? Just trying to think about where we should land. Roy Jakobs: Yes, thank you. Let me take the first one in terms of strong demand in terms of the U.S. We see a few drivers, especially big investment in infrastructure in health care systems in the U.S. is driving significant uptake and demand for platforms. So if you look some of the CapEx spend and even if you look kind of the demand forecast on CapEx really highlights that they are strengthening monitoring, they're strengthening cybersecurity as a big priority, which, of course, also plays to our informatics business, both in imaging and again, in monitoring. And therefore, we have seen significant kind of momentum in North America on the Connected Care side. We expect that also to continue into 2025. Now that, of course, is also driven by strengthening of the financial health of the health care systems in the U.S., not all, as we know. So the stronger systems are getting stronger. They are consolidating and actually absorbing some of the smaller systems. But again, that then plays to our platform play because that actually is why they like us because we can provide the core infrastructure for interventional, for cardiac, for monitoring. So those are really key drivers for us that actually have been helping us in 2025. And actually, we see prolonged strong demand on that in '26 and beyond. And actually, I think what will be very helpful today is the customer panel as well because they will talk exactly about their needs to drive more reliability in their operations. So therefore, investing behind that because with the staff shortages, they need to make sure that they have actually systems that support the staff in the best possible way so that they can deal with patients because patient volume is actually strong and good. Also procedures are expanding, what we did also with SpectraWAVE, bolstering our cardiology play is because we see that procedure momentum in cardiology and the patient volume in cardiology especially continuing to grow. And that actually we are very well positioned to capture that across our portfolio with also the imaging part, the monitoring part and the interventional suite. Charlotte Hanneman: Thank you, Roy. Let me take your second question on the Q1 margin, Hugo. I would say it's not a bad proxy to say to take the decline that we saw in Q1 2025. So that's roughly right. Operator: That was the last question. Mr. Jakobs, please continue. Roy Jakobs: Yes. Thank you all. Let me close. We delivered our outlook in 2025 consistently across all 4 quarters. Order intake was healthy. Sales growth improved sequentially, margins expanded and cash generation was strong despite ongoing tariffs. These results demonstrate our strengthened foundation, improved resilience and disciplined execution in a challenging macro environment. This is how we deliver our innovations to consumers and customers across the globe where we see demand for them strengthening. Above all, I also really want to thank all our employees globally for very hard work, delivering these strong results whilst making a meaningful difference through our impact with care culture and delivering better care for more people. With sustained order momentum, robust innovation pipeline, clear focus on accelerating profitable growth and the continued dedication of our teams worldwide, Philips is well positioned to meet our outlook for 2026 and beyond. We look forward to sharing many more details at today's Capital Markets Day starting at 11 a.m. I really invite you to be there. Thank you so much. Looking forward. Operator: Thank you. This concludes the Royal Philips' Fourth Quarter and Full Year 2025 Results Conference Call on Tuesday, February 10, 2026. Thank you for participating. You may now disconnect.
Operator: At this time, I'd like to welcome everyone to the Coca-Cola Company's Fourth Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to remind everyone that the purpose of this conference is to talk with investors and, therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations Department if they have any questions. I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin. Robin Halpern: Good morning, and thank you for joining us. I'm here with James Quincey, our Chairman and Chief Executive Officer; Henrique Braun, our CEO-elect and Chief Operating Officer; and John Murphy, our President and Chief Financial Officer. We've posted schedules under Financial Information in the Investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to results as reported under generally accepted accounting principles. You can also find schedules in the same section of our website that provide an analysis of our gross and operating margins. This call may contain forward-looking statements, including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. [Operator Instructions] Now I will turn the call over to James. James Quincey: Thanks, Robin, and good morning, everyone. Before I get started, I'd like to thank all of you for your support and collaboration over the years, from the analysts on the call to the investors who are listening to the many employees and other stakeholders who are joining us as well. Today will be my last earnings call. It's been a tremendous honor to be the CEO of this remarkable company. Coca-Cola gave me the opportunity to serve consumers, customers and communities around the world and work alongside incredibly talented and dedicated colleagues and friends. Our company has achieved a lot over the last decade. Looking back to CAGNY 2017, we set 4 strategic priorities: accelerating our consumer-centric brand portfolio, strengthening our system, digitizing the enterprise and unlocking the power of our people. And I think we've done a good job meeting those priorities. We've added 12 billion-dollar brands to our total beverage portfolio, bringing our total to 32 billion-dollar brands. 75% of our billion-dollar brands are outside our sparkling soft drinks. And while we've expanded our portfolio to offer consumers more choice, we've also reinvigorated growth of our legacy sparkling soft drink brands. Trademark Coca-Cola retail sales grew by over $60 billion, and the brand is the highest valued food and beverage brand in the world according to Kantar with a long runway ahead. Alignment with our bottling partners is better than ever, and we have a clear line of sight into completing our refranchising strategy. This work created a virtuous circle for our system with higher returns, additional investment and further value creation. We've also taken foundational steps to digitize our system. We've made good progress connecting with consumers and customers on a more granular and personalized level. And lastly, we've built a culture that prioritize our willingness to take risks, learn through iteration, push each other and scale successes. Our people and our growth mindset remain 2 of our biggest advantages. As a result of delivering on these 4 strategic priorities, we've had a 7% average organic revenue growth since 2017, above our long-term growth algorithm. After years of being stuck at around $2 comparable earnings per share, we inflected our earnings, overcame ongoing currency headwinds and have achieved a $3 comparable earnings per share in 2025. We also created more than $150 billion of market value for our shareowners and outperformed the consumer staples industry. Our foundation today is as strong as it's ever been. No matter how you slice it by category, by consumer, by channel, we have immense growth opportunities ahead of us. Henrique will bring new energy to ushering our next chapter of growth, and he's particularly passionate about our brands, franchise operating model, digital engagement and our people. We both started at the Coca-Cola Company in the same year over 30 years ago, and he's been an invaluable partner to me over the past decade. He's worked across many functions and has created value for our system on every continent where we do business. The best days for our system continue to be ahead of us, and I'm confident we'll capture these opportunities under Henrique's leadership. So without further ado, I'll pass the call off to Henrique Braun, the next Chief Executive Officer of the Coca-Cola Company. Henrique Braun: Good morning, everyone, and thank you, James. I'd like to take a moment to thank you for your leadership during your tenure as CEO and for your incredible contribution to our system. You leave a legacy of returning our business to growth. It's a privilege to be the next Chief Executive Officer, and I look forward to partnering with you in your ongoing role as the Chairman. Now I'd like to discuss our 2025 performance. Despite a complex external environment in 2025, we delivered on our initial top line and bottom line guidance set last February. We also continued our streak of gaining value share for the last 19 quarters. Organic revenue growth was in line with our long-term growth algorithm. While unit case volume was flat in 2025, we ended the year with better momentum as volume improved each month during the fourth quarter. If you take a step back, we have a long track record of navigating complex external dynamics to hold or grow volume each year. Over the past 50 years, annual volume declined only once, and that was during the pandemic. Rounding out the P&L, ongoing efficiency and effectiveness initiatives drove strong comparable operating margin expansion in 2025, which contributed to 4% comparable earnings per share growth despite 5 points of currency headwinds and a 2-point increase in our comparable effective tax rate. During the fourth quarter, we grew volume despite cycling a tougher comparison versus the prior year. We continue to invest to build our system for the year ahead as well as for the long term. Starting with North America. We delivered strong results despite continued macroeconomic pressure on lower-income consumers. We gained both volume and value share and grew volume, revenue and comparable operating income. We had broad-based strength across our total beverage portfolio as trademark Coca-Cola, Sprite Zero, Fresca, Dasani, fairlife, BODYARMOR trademark and Powerade each group volume. Innovation contributed to our growth as Sprite Chill and Coca Holiday Creamy Vanilla had strong performance. Across our portfolio, our system focused on accelerating cold drink equipment placement, expanding availability of value offerings and winning share of visible inventory. In Latin America, we are lifting and shifting learning from across our markets and leveraging our systems capability to navigate a challenging external environment. During the fourth quarter, we managed to gain value share and grow volume, revenue and comparable currency-neutral operating income. Both Coca-Cola Zero Sugar and Sprite Zero Sugar had strong performance. In Santa Clara, our value-added dairy brand in Mexico, became another addition to our stable of billion-dollar brands. To drive consumer demand, we tapped into key passion points by linking Fanta with Halloween. We also continue to focus on refillable packaging, value offerings and attractive absolute price points across our portfolio. In EMEA, we gained value share and grew volume and revenue. In Europe, volume declined as the quarter started slowly before recovering. To drive transactions, we activated several campaigns focused on the holiday and the upcoming Winter Olympics. In the U.K., we leveraged our English Premier League partnership to engage consumers with customized product offerings. In Italy, to kick off the Winter Olympics Torch Relay, we launched a music festival in Rome. And our Coca-Cola truck followed the Olympic flame across key towns and cities ahead of the games. In Eurasia and the Middle East and in Africa, we grew volume in both operating units. We tapped into key innovations grounded in local consumers in sites like Sprite Lemon & Mint in the Middle East and had impactful marketing campaigns like Schweppes Born Social 2.0 and Cherry Coke in Nigeria. Our efforts to highlight the localness of our system and sharpen our revenue growth management capabilities led to volume growth in both operating units in 2025. Lastly, in Asia Pacific, we gained better share and had flat volume. However, revenue and profit declined during the quarter. Volume growth in Japan was offset by declines elsewhere, driven primarily by softer consumer spending, weaker industry performance and cycling a strong growth in the prior year. We are continuing to invest in long-term growth opportunities across Asia Pacific, and we are implementing granular channel execution plans and tailoring our brand price pack architecture with a focus on attractive absolute price points and value offerings. In summary, we are responding to different dynamics across our markets by adapting faster, leveraging our portfolio power and investing for growth. As I prepare to step into the CEO role and think about what's next, there will be a balance between continuing what's working, evolving where we can to become more effective and efficient. While we are proud of what we have accomplished, future success is never guaranteed. We must remain discontented. Every day, our system needs to focus on being a little bit better and sharper everywhere to drive transformational impact. We have enduring strength, which includes an incredible foundation of $32 billion brands and unmatched system reach. Our mission is both to increase this number of billion-dollar brands and to turn today's billion-dollar brands into tomorrow's multibillion-dollar brands. To drive product quality leadership, I'm excited about 3 key areas. First, we will aim to step-change recruitment, especially with the young adult consumers, by better integrating our marketing campaigns with commercial execution at the point of sale. We already have a good starting point. In the U.S., for example, we have 10 of the top 20 beverage brands for young adult drinkers, including Coca-Cola, which is the #1 beverage brand. Second, we need to get closer to the consumer and improve our speed to market. While we have made some progress with our overall success rates over the past several years, our innovation today is not where it needs to be. We are striving to better anticipate the next growth opportunity in beverages and shape what comes next, driven by our deep consumer insight. Third, I am energized about steering our future RAD system. We must be intentional about putting digital at the core of every connection with consumers, customers and across the system. The better than ever alignment that we have today with our bottling partners is simply the starting point. Putting all together, we'll look to continue expanding our horizons and shape our future. We have a durable strategy and our runway is long. I'm confident we will deliver on our 2026 guidance and capture the vast opportunities available. I look forward to sharing more details on how we are thinking about evolving our culture and our enterprise to fuel a new decade of growth next week at CAGNY. With that, I will turn the call over to John to discuss 2025 performance and guidance for 2026. John Murphy: Thank you, Henrique, and good morning, everyone. First, I'd like to recognize James and congratulate him for his tremendous career and amazing leadership as our CEO. It's been an absolute honor working alongside him. I'm also confident in the company's future as Henrique steps into the CEO role. Looking back at 2025, we remained agile and focused on improving execution of our strategy to deliver on our guidance. During the fourth quarter, we grew organic revenues 5%. Unit case growth was 1%. Concentrate sales grew 3 points ahead of unit cases, driven primarily by the timing of concentrate shipments and an extra day in the quarter. Our price/mix growth of 1% was primarily driven by approximately 4 points of pricing actions, offset by 3 points of unfavorable mix, which was driven by an unusual combination of business mix, category mix and timing of a number of items. Comparable gross margin and comparable operating margin both increased approximately 50 basis points. Both were driven by underlying expansion, partially offset by currency headwinds. Putting it all together, fourth quarter comparable EPS of $0.58 was up 6% year-over-year despite 5% currency headwinds and an increase in our comparable effective tax rate. Free cash flow, excluding the fairlife contingent consideration payment, was $11.4 billion in 2025, which is an increase of approximately $600 million versus the prior year's free cash flow, excluding the IRS tax deposits. Growth was driven by underlying business performance and lower tax payments versus the prior year. Adjusted free cash flow conversion in 2025 was 93%, in line with our long-term targeted range for the third consecutive year. Our balance sheet remains strong with our net debt leverage of 1.6x EBITDA, which is below our targeted range of 2 to 2.5x. We'll continue to judiciously manage our balance sheet as we await a court decision related to our ongoing dispute with the IRS. Enabled by our all-weather strategy, we have demonstrated our ability to navigate local market dynamics to deliver on our global objectives. Our 2026 guidance builds on the results we've achieved over the past several years. We expect organic revenue growth of 4% to 5%, which is in line with our long-term growth algorithm. We also expect growth in comparable currency-neutral earnings per share, excluding acquisitions and divestitures, of 5% to 6%. We continue to focus on investing behind our brands to drive balanced top line growth with volume as a key priority. Notwithstanding volatility in certain commodities and evolving global trade dynamics, we expect the overall impact on our class basket to be manageable. Divestitures are expected to be an approximate 4-point headwind to comparable net revenues and an approximate 1 point headwind to comparable earnings per share. This assumes the pending sale of Coca-Cola Beverages closes subject to regulatory approvals during the second half of 2026, and includes the impact of divesting CHI, which was our juice and value-added dairy finished product operations in Nigeria. Based on current rates and our hedge positions, we anticipate an approximate 1 point currency tailwind to comparable net revenues and an approximate 3-point currency tailwind to comparable earnings per share for full year 2026. Our underlying effective tax rate for 2026 is expected to be 20.9%. All in, we expect comparable earnings per share growth of 7% to 8% versus $3 in 2025. We also expect to generate approximately $12.2 billion of free cash flow in 2026 through approximately $14.4 billion in cash from operations, less approximately $2.2 billion in capital investments. Driven by our free cash flow generation, we have an unwavering commitment to reinvest in our business and grow our dividend. Approximately 25% of our expected 2026 capital investments related to company-owned bottlers and the remaining capital investment is primarily growth oriented, which includes building capacity for our concentrate and finished goods businesses. For the past 63 years, we've grown our dividend. In 2025, dividends paid as a percentage of adjusted free cash flow was 73%, which is relatively in line with our long-term payout ratio of 75%. With respect to acquisitions and share repurchases, we'll stay both flexible and opportunistic. On acquisitions, while our track record has not been perfect, we have created a lot of value in aggregate. Just over half of our portfolio of $32 billion brand was created inorganically. Most of these were bolt-on acquisitions that we never scaled ourselves. On share repurchases, we'll continue to repurchase shares to offset any dilution from the exercise of stock options by employees in the given year. Putting it all together, our capital allocation policy prioritizes both discipline and agility to drive the long-term health of our business and create value for our stakeholders. Finally, there are some considerations to keep in mind for 2026. First, due to a calendar shift in the first quarter, where we'll have 6 additional days, we expect approximately half of the benefit to be offset by concentrate shipment cycling and timing. Also, the fourth quarter will have 6 fewer days. Additionally, we will have lost equity income due to divesting our interest in Coca-Cola consolidated in November 2025. Lastly, assuming the pending sale of Coca-Cola Beverages Africa closes during the second half of 2026, subject to regulatory approvals, we expect the impact from acquisitions and divestitures to be back-half weighted. To sum it all up, we're focused on continuing what's working and transforming where needed to deliver on our 2026 guidance and create enduring value for our shareowners. We believe we're well positioned to drive top line growth, margin expansion, cash generation and returns over the long term. Next week at CAGNY, I'll elaborate further on how we will do this. And with that, operator, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: First, best wishes, James, after a remarkable run under your stewardship, and congratulations to Henrique. I just wanted to get into the nitty-gritty of the 4% to 5% organic sales growth outlook for 2026. I was just hoping to get some perspective on the balance between price/mix and volume in 2026. First, obviously, the Q4 price/mix result was dragged down by geographic mix and timing, as you mentioned. What's the more normalized price/mix run rate as you build up the geographies and look forward to 2026, particularly in a tough consumer environment and relative to what you view as a more underlying run rate on price/mix coming out of Q4? And then just on the volume side, impressive 1% result in the quarter against the tough 2% comparison, but you do have an extra drag on volume from taxes in '26, perhaps some concentrate timing, still difficult consumer environment. So I just wanted to get perspective on volume prospects also for '26 and just, again, the balance between volume and price/mix that's implied in the organic sales growth guidance. James Quincey: Well, thanks, Dara. And I was slightly worried there you're going to try and cram in all the questions for the next few years in your last opportunity to ask me one. Let me unpack a little, particularly, as you mentioned, 2025 price/mix, and then roll into '26. And again, I'll take this opportunity on my last call to make an exhortation to people, particularly as it relates to price/mix and inventory, given our position in the supply chain, to always try and take a 4-quarter view. What do I mean by that? In the fourth quarter, pricing came in at 1%, but actually, it was really 4%. Underlying pricing, as John mentioned, was really 4%. There was this 3% negative mix, partly with [ BIG ], partly with some geographies and categories. In previous quarters, it's been plus 2 or plus 3. If you look across the last 4 quarters, that mix number is even. So it's always useful to take a 4-quarter view on the mix component. If you take that, what you see is 4% underlying price and 1% volume. So you see the fourth quarter in simple terms as a 5% of revenue growth quarter, which is very much what we've been delivering through '25 and back into the previous year. So I think that's super important to bear in mind. And then if we talk historically, as we've -- as inflation has moderated as we have stabilized -- seen some of the economies around the world stabilize, we have been expecting our go-forward guidance to see a more balanced mix of volume and price. And so I think that's what you kind of see for 2026, is a view that we still are going to be top line driven. We see strength in everything we're doing. And I know Henrique and John will unpack that in CAGNY. But we are just being a little more realistic as we always are on where we need to improve to get that volume in '26 and being a degree of prudence, some of the weaknesses would need to resolve themselves and bounce back, India, China, some of the Aseana countries in Europe, and then we've got the kind of the Mexican tax headwind starting now. We have just been what we believe to be realistic and prudent, but still super important, we are leaning into growth. We believe we have all the strategies and execution to drive top line growth well into the future. Operator: Our next question comes from Steve Powers of Deutsche Bank. Stephen Robert Powers: Congrats again, both to you, James, on your past accomplishments, and Henrique, on the accomplishments to come. I guess following up on Dara's question related to the 4% to 5% call for '26. James, a few months ago, you talked about some steady, [ you expressed ] as light drizzle in the macro environment that seems to be trending worse for consumers. I guess, how have you assumed those general operating conditions trend in the year ahead? And as we think about the balance of that 4% to 5% growth that in '26, from a different perspective, you talked about volume versus price, I guess the contributions that you're expecting from emerging versus developed markets in the year ahead, would be helpful as well. James Quincey: Sure. Yes, I think light drizzle was the December phrase, which I still think is true relative to what people were expecting. And look, and I think this mix between volume and price also -- look, we believe we will get back to a balance, so call it 50-50. What is important this year is to know that the places that need to get better are contributors of long-term volume growth. India is a long-term contributor to volume growth. That needs to build back, and we would expect that to ramp up during the year. Similarly, China was a little weaker in the fourth quarter than it had been during the year, and we're looking to see that build back up through the year. And a couple of other ASEAN and European market. So the bit that will -- and obviously, the Mexican tax headwind is more likely to be impactful at the beginning of the year in the first quarter and then, to some extent, mitigate as we execute the actions to try and offset the impact. All of that would lead you to conclude that we need to see the actions executed and see that volume start to build back in some of the volume-driving countries through the year. So therefore, you might see a little more price at the beginning of the year and a little more balanced towards the end of the year, if that makes sense. But in the end, we're looking, and the guys will talk about it in CAGNY next week, to get more growth, more brands and more markets. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to talk a little bit about profitability. North America operating margin expansion, another strong year and now at 30% margins for the first time in this operating unit. I think, one, I've asked John, I've asked you about it in the past, you were like, "Oh, it's a one-off. Don't get too excited about profitability in North America." But it does look like there's been structural change. So I just wanted to talk about now maybe long-term view of that. Is this an appropriate level of margin? Is there more incremental reinvestment you need to do? Do you feel like you're kind of over-earning in some way profitability-wise? Is there more work to do and more expansion that can happen? John Murphy: Lauren, I'd answer it in 2 parts, take the opportunity to talk about it at the total company level. We have, I think in the last 8 years, have averaged about 60 basis points a year operating margin expansion. We have talked frequently about the fact that it's not a fluke. There's lots of levers that we have in the supply chain, marketing investment, how we run the business. And North America has been our, I guess, our performer over the last few years in tapping into all 3 sources. And they expect, and we expect there, our folks running North America, and we expect them to continue to sort of lead the way because there's still tremendous opportunity to, as Henrique said earlier, just get a little bit better every day. We'll talk again next week on a sort of a deeper dive into some of these levers and how they have been and will continue to help us deliver on our long-term algorithm, which, as you know, implies modest expansion on a going-forward basis. Operator: Our next question comes from Chris Carey with Wells Fargo. Christopher Carey: I wanted to bring the discussion back to some of these markets in 2025, which caused a bit more volatility for the business. Some are getting a bit better, I think India. China still has opportunities to get better. Mexico will be implementing the excise tax, so there could be some volatility around volume. I wonder if we just take a step back, can you perhaps comment on some of the markets which have been a bit more challenging or more volatile perhaps than usual in 2025 and how we should be thinking about overcoming those challenges into 2026? Both because the compares get easier, but also some of the actions that you'll be driving in these markets. James, you had mentioned a few in a prior comment. But I wonder if we could just focus in on this concept and talk a bit more strategically about the sequential development and some of the actions that you're thinking through. Henrique Braun: Chris, it's Henrique here. I'll take this one. So first of all, I think it's important to look at the numbers on Q4 because it tells a lot about what you mentioned in terms of how we got puts and takes all over the world, in stronghold markets that continue to have the momentum, in others that we expect to do better and, for different reasons, they were on ups and downs during the year, as James had mentioned, China, Indias of the world and Mexico this year with the headwind that's coming with the taxes. But I'll cover how we're going to actually leverage the whole world performance to continue to deliver towards our outlook, okay? But the all-weather strategy has been working for us because we leverage not only the ones that have the momentum to offset these other markets. If you go specifically into the 3 that we mentioned, in APAC, when we have China, for instance, being a big market for us, volumetrically speaking, but it has been also a market that we have seen the consumer sentiment and the spend being below pre-pandemic days. Nevertheless, we continue to gain share in the market. We took a strategy there to build this for the long term, and we continue to have good inroads on the quality leadership on the core, and we continue to win in that. So it's more of a long-term market, and we expect on our plans to continue to drive that next year, but with some volatility in that. With India, we had last year different impacts from industry dynamics, weather. It was a market that we continue to invest also ahead of the curve, and we believe that we can get back on track in 2026. Finally, the other market Mexico. We have to look at the context of Latin America. We have had headwinds in the past in different markets and the system together was able to build the right capabilities and address it through very good foundations on RGM. That's exactly what we're doing in Mexico, and leveraging the other markets that have the right momentum to get that algorithm going. So in a nutshell, we believe that we have plans to continue to navigate well and the all-weather strategy should put us in a good shape to deliver against the LTGA. Operator: Our next question comes from Filippo Falorni with Citi. Filippo Falorni: Congrats from me as well to both James and Henrique as you step in a role. Maybe first, just a little bit of expansion on the expectation for the North America business into 2026, especially around a few points. Obviously, you have incremental fairlife capacity coming in early in the year. So maybe give us a sense of how you're thinking that would play out throughout the year and the growth for the brand that you're expecting. And also as we get into the summer, you obviously have the World Cup and a lot of activation around that event. Any expectations around potential uplift there? And then lastly, last year in Q1, you had the negative temporary issue with Hispanic consumers around the video. So anything that you can think there to potentially see some more benefit in the first part of the year in North America? Henrique Braun: Filippo, I'll take that one as well. Look, North America 2025, remember that we started the year with the challenge that you mentioned, on some fake news that impacted part of the portfolio. And then we started to go on a sequential basis improving quarter on quarter. We finished, as you see the numbers down in Q4, on a positive note, and with good momentum across the portfolio. We continue to grow on the core, on sparkling, especially on Coca-Cola Trademark. And then we look at also fairlife continue the momentum. We have also very encouraging news on our dual strategy on sports with Powerade and BODYARMOR, not only gaining share, but volume in the market. smartwater continues to do well as well. So from a portfolio basis and a consumer resilience, we believe that we have the good momentum and the plans to continue to build on an environment that didn't change so far in terms of the low-income consumer being pressured and also allowing us to continue to drive this across the different parts of the country to continue to grow and do better every day with our bottlers executing that strategy. So in a nutshell, we believe that we have good plans to continue the momentum that we have, and we expect North America in 2025 to continue the momentum that we built in 2025 -- in 2026 with the momentum we built in 2025. Operator: Our next question comes from Rob Ottenstein with Evercore. Robert Ottenstein: Please let me echo everyone's congratulations. So maybe moving in a slightly direction, over on the FX side. Could you maybe remind us your approach to currency? It's a little complicated, different than some other companies. What the guidance entails and how that is, where I think I'm seeing a 1% tailwind to the top line, but 3% on the bottom line, if I read that correctly? So what is driving that? And then what is your philosophy in terms of currency benefits, whether you'll be investing that into the business or dropping it to the bottom line, perhaps making up for some of the, as James mentioned before, being stuck at $2 for a number of years due to currency. Is this a chance to catch up on that? And then if I may, just kind of looking out, given your hedging policy multiyear, based on where we are today, do you see currency being a similar tailwind to '27 or greater or less than the '26 guidance? John Murphy: Robert, indeed, it's been a while since we've talked about FX and even longer since we talked about FX tailwinds. So good to just anchor any conversation on FX to our broader growth equation. And at the root of that equation is a focus for us to win in each of our markets over time. And for that to happen, we have got to be able to invest in a consistent manner, which, among other things, allows us to price appropriately against both the local macros and the competitive backdrop. So that's part one. Hence, sort of fighting that, part two is, at the total enterprise level, we are committed to growing our U.S. dollar earnings as we've demonstrated over the last few years. And so our hedging program is an enabler to manage both of these tensions. So on the one hand, it removes the burden of sort of nonmarket-driven fluctuations at the local level. So that local market's kind of focus on winning. And secondly, it provides clarity to us at the enterprise level to the task at hand to grow U.S. dollar earnings. So that's sort of the strategic rationale as to why we hedge. And question for any given year is, okay, how are we going to execute optimally against that? And for 2026, we've taken advantage today of some uncertainty regarding the U.S. dollar, to lock in benefits. The tailwinds that we reflected in our guidance today is driven largely by a weaker dollar in some of our larger emerging markets, most notably in Latin America and South Africa. And on the point about how far we [indiscernible] well-hedged against the G10 currencies. Decisions on emerging market currencies are very much linked to the economics of doing it. As you all know, the further out you go, the more challenging the economics become. So we're well-hedged to '26 under G10 and we're as hedged as it makes sense economically on the emerging markets. So all of that's incorporated into the guidance, 1% NSR, 3% of net income. And we feel good about that being our going-in position for the year. As I say, it helps local markets focus on what they need to focus on, and it certainly gives us our homework here at the enterprise level to deliver the U.S. dollar earnings growth. Operator: Our next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: So James, congrats on your amazing run as CEO and now as Chairman, and wishing Henrique continued success now as CEO. My question is on the impact of SNAP changes in the U.S. And then a clarification regarding the Mexican tax, an initial read from the trade, and did that inform your conservative stance for organic sales growth in 2026? James Quincey: Sure. Andrea, I'll do SNAP and then Henrique can talk about the strategy in Mexico. Look, overall, SNAP, I think, is going to end up being manageable. It's a relatively small number from -- seen from a global basis, and we think it's manageable at the U.S. level. Clearly, we think that consumers should be allowed to choose, but regulation is regulation. What we think will happen is people will choose to spend the cash they got on certain things and they'll use the SNAP credits where they're applicable. And at the end of the day, what that all boils down to is we have to make them the brands and the beverages that they want to have and want to be able to spend their disposable income on. And that just puts the challenge on us to give them the category, the beverage, the brand, the pack size, the price point, the most works for them. And net-net, we see it as a manageable impact in the U.S. and overall globally. So I'll let Henrique comment on how we're approaching the Mexican tax situation. Henrique Braun: Yes. On the Mexico one, yes, clearly, it is a headwind that came to us in the beginning of the year, already implemented. But this is a market that you know as well that we have a system that has been for years working tremendously aligned, building the foundations of RGM and allowing us to play that impact of the taxes across the different packages, prices and channels in a way that optimizes how we actually go and try to be in front of our consumers and our customers with an impact that continues to be accepted, right, by the consumer and the customers moving forward. There is another point that helps us as well in 2026, is the fact that Mexico will host the World Cup event. It's the biggest event on earth in terms of engagement to its consumers and customers as well. And we are dialing up our campaigns. They're up from day 1, from Jan 1, we already had the campaign in place. On top of that, we celebrated 100 years of the system in Mexico as well. All of that helps us to go and navigate through what is a headwind. But with all the tools that we have in place as a very focused system, to navigate that throughout the year. Remember that as well we have other tax increases in the past, which we learned from the mistakes and the right movements that we made in 2014 moving forward, and we apply those learnings this time as well to navigate these in the best way. Operator: Our next question comes from Peter Galbo with Bank of America. Peter Galbo: John, I was hoping, just from your prepared remarks, to dig in on a couple of topics. I know we've talked about the mix impact. But maybe you could just give a little bit more detail. I think you specifically called out some timing of investments and there was a bit commentary more focused on EMEA and Asia Pac. So just any additional detail there? And then just the second part, John, in your remarks, I think you talked about maybe a headwind at the equity income line, not only related to some of the refranchising but some other initiatives. Just how much of a hit that is to the EPS for the year would be helpful as we try to think about bridging operating income down to EPS. John Murphy: On the first question, yes, maybe just a little bit more detail. There were 3 primary drivers and each them roughly worth about the same, about 1 point each. So we've had the impact of some of the emerging markets growing faster than the developed markets. And typically, the emerging markets are slightly lower margin. Secondly, in a couple of the developed markets, we've had some categories that in the fourth quarter, of a lower-margin nature, not dramatically up, but still lower, performing better than the higher ones. So that's another point. And then the third point relates primarily to just some of the timing of marketing investments, primarily to both factor in the end of the year and the fast start programs we have in place around the world. So it's very -- it's the first time that I can remember going back, gosh, many quarters, to have 3 of those types of effects hitting us in the same quarter. So it's a one-off, more than something to think of as a trend going forward. And as James said earlier, take a step back and look at the full year and the way we've built our guidance for '25 and reflects more full year view, and that's been a good benchmark in which to guide for next year -- sorry, for this year. James Quincey: I'm sorry, the second -- you had a second question? Yes. So as I said, the primary driver that I alluded to is the sale of the consolidated shares towards the end of the year. And there's a lot of puts and takes that go into the equity income line, so I won't get into all of that detail. But the primary driver is the last equity income on consolidated. Operator: Our next question comes from Peter Grom of UBS. Peter Grom: Congratulations to you both as well. I had a cash flow question. So just maybe with a much stronger year expected on cash flow front in '26, would love to [indiscernible] on your capital allocation strategy and specifically whether you would consider leaning further into any of your 4 strategic priorities in the year ahead. John Murphy: Great topic. I think the starting point here is to get -- is to look at the underlying drivers over the last few years. We've had some unusual items, the IRS tax deposit and the fairlife contingent consideration, which I know on a year-to-year basis has been a little confusing perhaps. But for me, what I look at is the underlying momentum coming from the business, and we see that having had a positive impact on a steady basis. As I mentioned in my prepared remarks, there's a very clear picture as to how we want to best utilize the cash that is coming in. When you go to the top 2 line items, we are investing in the business as the business needs. About 1/4 of our capital investments this year and last year goes towards the franchises that we still own in Africa and India. We have highlighted investments we're making in our finished goods businesses elsewhere in the world, notably with fairlife. And we also have the opportunity in a number of parts of the world to shore up capacity for our concentrate business as it continues to be challenged in some areas to supply market needs. So that's been a priority, will continue to be, and there's no -- there's not a lot of controversy about it. Secondly, with regards to the dividend, we continue to be very proud of the 63-year track record of growing the dividend, and we are supportive of that trend continuing. And then last, less longer term is the idea of being both flexible and opportunistic when it comes to any inorganic opportunities and share repurchasing. For 2026 in particular, the idea going into '26 is to have as much optionality as possible to manage some specific variables, one of which is the outcome of the tax case that we have had with the IRS for many years, which we expect to certainly have a have a significant milestone towards the end of this year, early next year. And it's important for us to feel good about whatever outcome happens either on that or in other areas, that we have what we need to deal with it. So '26, very clear on the flexibility needed. And in the meantime, we'll continue to focus the rest of the company on the core business, driving cash so that those longer-term priorities, as I just outlined, can get the attention that they deserve. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I'd like to maybe step back to maybe we started on the questions of the call, which is just sort of understanding the direction of travel for 2026. It looks like from an EPS perspective, you grew 4% with a 5% hit from FX. This year, you're expecting 7% to 8% with a 3-point benefit. So making adjustments there, it looks like quite a slowdown. So just curious what your -- what's underneath that? Is it investment? Are you just being conservative because it's the beginning of the year? Or is there something else in there? John Murphy: Yes. Let me take that and complement the comments already made. The starting point is what do we think the top line can deliver. And when you look at the guidance we've provided, the 4% to 5%, it reflects the sum of many parts around the world. We have momentum in some markets and we've had challenges in other markets coming out of '25. And we expect to be able to continue in the markets going well, and over the course of the year to have the kind of recoveries that this guidance deserve. So that's part one, really important. Secondly, we've had a long-standing conversation on staying ahead of the curve when it comes to investing in our brands, in our markets with our bottling partners and also in how we run the company. Henrique will talk next week about some of the priorities we have to continue to build capabilities. And so there is a bias going into next year to invest somewhat ahead of the curve. And then the third area, just to keep in mind, is that we have -- we've called it out, but it's important that there some structural cycling as well as some of the below-the-line items that I mentioned earlier regarding Coke. So we're being -- I think we're being prudent going into '26 given the dynamics at the top line level and given the work that's underway in a number of key markets to get momentum, particularly to get volume momentum to where it needs to be. Operator: Our next question comes from Charlie Higgs of Redburn. Charlie Higgs: And yes, just echoing congrats, James, Henrique and Robin on your new roles. All the best of the future on your great innings. James, I just wanted to ask about your move into the role of Executive Chairman. It sounds slightly more involved than the traditional Chairman role. Is that interpretation correct? And could you maybe just outline what your key priorities are in the role? And then I was just curious, Henrique, on your comments on more to do regarding innovation, I'm sure we'll hear more next week, so I don't want to jump the gun too much, but could you perhaps just give some high-level views of where you see the most opportunity and how to execute on those in the context of a slightly weaker global consumer environment? James Quincey: Charlie, I'll share a few thoughts and then pass the baton figuratively and literally to Henrique to talk about the innovation question. I think Executive Chair is clearly more than just a full-on independent nonexecutive chair [indiscernible]. The easiest way to understand it is that there are 2 buckets. One, which is things that the executive chair can do basically at the asking of the CEO to help him operate the business. There's a whole load of stakeholders and people and things, it's -- he has a very full agenda being CEO, he has a very full agenda at the Coca-Cola Company, notwithstanding there's a large team [ to helm ], and so there's an opportunity to help bridge that transition by continuing to carry the can on a set of things. But let's be clear, the person running the company is the CEO. The Executive Chair is there to help on certain issues where the CEO needs it, and that's part of the transition. The other piece of the puzzle is the Chair is involved because the Board is involved. I mean, the Chair is also the representative in a way of the Board. There are a set of issues around capital allocation, risk, long-term talent, where the Board is obviously interested. And there I can help work with Henrique and the team on making sure that we have the best possible dialogue at the Board level on those issues. That's the simple equation. Henrique Braun: Charlie, and you're spot on, we're going to share more next week at CAGNY, very excited about it. But let me give you a hint here about what I meant by that on the earlier remarks. Look, we're definitely making great progress on innovation over the years. You remember that we went from 400 brands to about 170, pruning those brands to continue to accelerate the pace on bigger and better brands connected to consumers. And part of that was to improve our batting ratio there out of the park on innovation, which we have been doing. We've been very disciplined about getting that success ratio better than the past. And we believe that now, just looking at the insights on the different markets, that the world continues to be really open and the consumers looking for more innovation at the local level as well. And that's where we believe that we can make a bigger difference. When I say that we want to be closer to the consumer, is to understand them from a local point of view and not miss that opportunity to start in a local market, something that can turn into a $1 billion brand later and then scale. We have put a lot of efforts in discipline on how to grown the brand, learn how to grow them, and leverage scale. Now it's about bringing more of those localness opportunities into the family and then accelerate. To that extent, you know that we announced today as well 2 more billion-dollar brands to the family, so innocent and Santa Clara from Mexico. That's a great example of something that started locally. And then we've invested behind it. Now the bigger brands and a lot of the learnings from that can be turned into other places to bring more brands to that family. So more next week, but that's the idea. It's an evolution for where we are with an acceleration of innovation being more accretive to the LTGA. Operator: Our next question comes from Carlos Laboy with HSBC. Carlos Alberto Laboy: James, John, Henrique, thank you for the focus, clarity and the growth. You previously said that you reinvest capital you raised from refranchising back into those markets. Should we expect a step-up in marketing and innovation investments in India? On a related basis, can you discuss for India the extent of the digital investments that you've been able to make in B2B platforms and advanced analytics and so forth for the purpose of more granular execution by point of sale before you refranchise? And what's your vision for how the demand fulfillment capability is going to evolve there? Henrique Braun: Carlos, great to hear for you. So let me step back here because it's not only about India. I think it's a strategy that has been working for us. And John mentioned 2 questions before that this idea of investing together, bottlers and us, ahead of the curve. It's, number one, showing the belief that the system has in this industry. And on top of that, that we invested that same idea in every market we operate in. That's very unique from the core. Every market has one mission and it's important. So India, specifically speaking, we not only have been investing with our bottling partners ahead of the curve. I think we mentioned a few quarters back the level of investment that we had on new lines in India that has been unprecedented. That's just to give you an idea about that investment. And we will continue to invest because this is a market for the future. We're still building the industry in there. And that's why we need to continue to invest ahead of the curve, because it's more -- almost on the model that build and will come, right? Because really on this market, you can actually continue to push forward. Digital, it's part of it. It continues to be an opportunity in India. Why? Number one, because digitally speaking, the country infrastructure is pretty high, as well as being an acceleration across the whole India in the last few years. And we also invested behind it with a lot of focus on not only engaging with the consumer through data, tech and AI, but also from a customer point of view, developing a platform that we call Coke Buddy, which is a platform that connects the bottler to the customers through a digital platform that has been growing from day 1. We're still at 1/4 of the entire outlet base that we can reach in India, but we think that we are already deploying digital ordering, AI, agentic AI, to determine the next best SKU. And the next phase of that growth will be an end-to-end digital platform that will connect not only the consumer, the customers, but the experiences, to translate that engagement into transactions. So India, for those reasons, is a market that, on that space, it's going to continue to be ahead of the pack as well. James Quincey: Great. Thanks very much, everyone. To summarize, we are well positioned, I think, to achieve our objectives both in 2026 and the long term. It's a great foundation that's been set. As we've talked, this is the time for a seamless leadership transition and I have every confidence Henrique is the best person to help lead the Coca-Cola Company, the team and the system on our next chapter of growth. Thank you very much for your trust, your investment in the company and for joining us this morning. Henrique Braun: Thank you, James. James Quincey: Yes. Operator: Ladies and gentlemen, this concludes our conference call. Thank you for participating. You may now disconnect.
Matthijs Storm: Good morning, and welcome to the Wereldhave webcast for the full year 2025 results. I'm here today with our CFO, Dennis de Vreede; and I'm Matthijs Storm, the CEO of Wereldhave. We'll take you through a presentation, which you can also find on our website. Already during the presentation you can type your questions in the textbox at the bottom of your screen. Towards the end of the presentation, we will deal with all your questions as usual. So let's get started. Let's start with some key messages of the 2025 results. Direct result per share, EUR 1.86, which is well above the initial guidance that we provided about 1 year ago and also above the latest guidance with Q3 of EUR 1.80 to EUR 1.85. Zooming in on the results, and we'll give you some more color later, of course, during the presentation, but we see improving occupier markets. Costs have been relatively stable, which I think is also a good achievement of the company with a growing portfolio. And last but not least, we also see growth in what we call other income. We'll get back to that later. Occupancy rate at 98%, we had to dive into quite some older annual reports to find a number like this. That was in 2013. That was actually before the big wave of a lot of bankruptcies in retailer chains in the Netherlands and in Belgium and I think also in other European countries. So it's nice to see that we're back at this high level. Like-for-like rental growth, plus 6%. Improving Dutch retail market is helping a lot with that, but also the other income I just mentioned. We'll zoom in on the breakdown of this later. We sold the Dutch Full Service Center Sterrenburg at EUR 60 million book value in December 2025, which I think is an interesting achievement because this is the first full service center we are selling with some compelling KPIs. Dennis will talk about that later. Stable cost base, I've mentioned. Total shareholder return last year of plus 51%. The dividend per share, we proposed EUR 1.30 for 2025, that will be decided on the AGM of May 2026. It's an increase of 4%. With that, we remain quite conservative. It's a payout of 70%, a little bit below the targeted payout range. But as long as our loan-to-value is above 40%, Dennis will talk more about that later, we think we should remain conservative. Outlook for 2026, EUR 1.85 to EUR 1.95. Zooming in on some of the key numbers of 2025. The direct result, I've already mentioned. The indirect result, unlike last year, was slightly negative. We'll zoom in on that later. We saw slightly negative valuations in the Netherlands and in Belgium. It's more asset specific. We'll talk more about it later. On the LTV side, you see a slight increase over the last year from 41.8% to 42.5%. Again, I want to stress, it is our priority to reduce this below 40%. The French disposals, equity-funded acquisitions, but also JVing existing Dutch assets, for example, will all help to reduce the LTV ultimately below 40%. We're now at 16.4% mixed use, so we also made nice progression on that side. The like-for-like rental growth, I'll zoom in on the callout box on the top right of your screen, 6.3%, driven first and foremost, by indexation, logical, other income. Thirdly, a reduction of property expenses, which was a key priority already in '24, but also in '25, which is yielding some very nice results, amongst others, recouping some older bad debt, I think a very nice performance of our finance team. Leasing, plus 0.6%, combination of positive leasing spreads, slightly positive leasing spreads of about 3%, but also some sales-based rent. Occupancy, a small increase with 20 basis points, contributing to the like-for-like. Then zooming in on what we call other income, which is becoming a more and more important revenue driver. When we talk about other income, we're not talking about rental income from the shops we are renting out or from the parking. For us, it's important to mention that in the definition, parking income is not other income, it's real estate. So it's real estate income, it's rental income. We talk about ESG income, for example, solar panels, EV chargers on the parkings. As you know, we own -- in most of the cases, we own the parkings, either underground, but in Belgium, for example, mostly outside. And those are interesting opportunities. Think about Ville2, we bought in Charleroi with about 2,500 parking spaces, all outside ground floor level, very interesting opportunity to roll out EV chargers. Marketing and media, digital screens, we signed an important deal in September last year with Ocean Outdoor for the Netherlands, boosting our direct result per share by at least 3% per annum. We'll be working on Belgium and Luxembourg this year. We signed our first joint venture with Sofidy for Stadshart Zoetermeer in June 2025. The management income from that JV is included in the other income. Of course, we also have a profit share in the entity where we are investing in Zoetermeer. But here, we're talking about the management fees. Self-services, for example, vending machines in our centers, and lastly, specialty leasing, I think that is a well-known concept, but that is also increasing. So let's talk about some numbers. In 2025, we had EUR 6.7 million other income and we think we can increase to EUR 10.1 million in 2027. Of course, this number does not yet include additional joint ventures. If we're able to sign and we're working on several projects -- in the Netherlands, if we're able to sign more joint ventures, of course, the figure will increase. Then we focus on the results itself. Operations, we're very happy with the results, particularly with the Netherlands, finally, a positive leasing spread. You'll see more about that later. If I focus on the core portfolio, Netherlands, Belgium and Luxembourg, you can see an MGR Uplift of 2.7%, which I think is compelling. but also the occupancy rate of 98%, as mentioned before. France is still a negative figure, but less negative at least than last year. And we also think that our NRI from France will be relatively stable to slightly up in 2026 despite, as you probably know, the very low inflation and indexation forecasted for '26 for France. The LifeCentral strategy, we already have about 4, 5 years of track record. So we thought it would be nice to show you some aggregated results. Footfall, full service centers, nicely above traditional shopping centers, also tenant sales, but also the total property return. Our key indicators, I think many of you know this, but I think the charts speak for themselves. Then we also published a table with some detailed result. I'm not going to mention it all. As you might know, in the first half of '25, we had about an EUR 8 million write-down on our Tilburg asset because we extended some leases. We chose for longer lease maturities that had some impact, of course, on the valuation results of the full service centers. But other than that, if you focus on the bottom of the slide, you can see some nice outperformance. Dutch leasing market, I mentioned it already. We see it improving. 2013, '14, '15, '16, a lot of bankruptcies, as we've mentioned previously. Then came the COVID period, which was also tough, of course. But now we see an improving market. What you can see here on the chart is, first of all, the leasing spread, new rent versus old rent, has been negative for a lot of years, that has now turned positive to plus 4%. And also the occupancy rate of the portfolio at 97.4% is actually at the highest since 2013, which is not even on this chart. We see an improving market. I'd also like to mention, for example, the vacancy of Blokker and Casa, the reletting of the units that took place in the first half of '25 [ rent ] pretty quick and occurred in total at a slightly higher rent than the previous rent. We could choose amongst several concepts, and that was a while ago. So we're quite positive and constructive on that. The footfall, I think you can see here in all the 3 charts that in the Netherlands, Belgium, Luxembourg, our core markets, we're nicely outperforming the market. Tenant sales plus 2%, a little bit slower growth than last year, particularly in Belgium. You can see, for example, in the Shoes segment in both countries actually, but in Belgium, that is a bigger segment in our portfolio, that dragged down the sales growth a bit. What's also impacted is the bankruptcy of Lunch Garden, the larger F&B concept, in 2024. Some of those units were vacant in '25. So that, of course, impacts the like-for-like sales growth in Belgium. In the Netherlands, plus 3% is above inflation indexation, which I think is a good result, except for multimedia and electronics, minus 5%. We had a tougher year, although the COVID years and the post-COVID years were a little bit stronger in this segment. Daily life, as you know, we use this as a gauge for the resilience of our revenue stream. We now have 65% daily life exposure, convenience, retail, nondiscretionary. It's a little bit lower than last year, and this is all because of -- and you can see that in the callout -- because of the acquisitions in Luxembourg, but also Ville2 in Charleroi. Of course, these shopping centers will also be turned in full service centers. And once that is completed, the daily life exposure will go up again. Then on the commercial update, first of all, Belgium, we signed about EUR 11 million of MGR, 8% above ERV and slightly above old rent. It's a little bit lower than the last couple of years. That is also because we did a lot of leases in Genk, which is in the north of Belgium in Flanders. It is a more difficult location, a city with higher unemployment and tougher economics and demographics. There was a lot of leasing activity in that city in '25, that's why the leasing spread was a bit lower. I think for '26, we expect a higher figure than plus 2% for leasing versus old rent. Luxembourg, it's only the start, of course, because these assets were acquired in 2025, but we've leased some units at 8% above ERV. We've extended, for example, Medi-Market, which is a very strong parapharmaceutical concept in Belgium that we've actually also now brought to the Netherlands. Medi-Market signed their first lease in Zoetermeer in our assets that we jointly own with Sofidy. In the Netherlands, very important lease signed in Tilburg with TK Maxx for 2,000 square meters. This was after the first half results, so that had a small positive impact again. It's a very strong anchor and I think also a very suitable tenant for a city like Tilburg, which already had some positive impact on the footfall on that part of the city. International leasing, I already mentioned the example of Medi-Market coming from Belgium to the Netherlands, but we also have some other examples, for example, Bestseller Group, which is becoming one of the largest tenants in our portfolio with brands like ONLY, ONLY & SONS, Jack & Jones, Vero Moda, that we have in all countries and is expanding rapidly and is showing very good turnovers in our portfolio. Before I hand over to Dennis, lastly, on the occupancy cost ratio. In the Netherlands, relatively stable. That is logical because the sales growth was in line with the rental growth. In Belgium, we see a slight increase. We had about 1% retail sales growth, but we also noticed in Belgium a small uptick in the service cost. And as a result, the OCR is up from 14% to 15%. I still believe that is a very sustainable level. OUR sales productivity per square meter in Belgium is higher. So this is a level we should maintain. And as I commented earlier already, we forecast for '26 a more positive leasing spread in Belgium than in '25. With that, I'd like to hand over to Dennis. A. de Vreede: Thank you, Matthijs, and also a warm welcome from my side. My first slide is showing our cost reduction efforts over the past 6, 7 years. As you can see here, we've been reducing and stabilizing our direct Genex. And at the very same time, we've also been focusing very much on our other cost buckets. And that results in a 20.6% EPRA cost ratio in 2025 and I think we have a stable cost basis, meaning that if we grow the portfolio further, if we grow our top line further, I would expect our EPRA cost ratio to go even below the 20% mark. On the direct result side, Matthijs mentioned already the EUR 1.86 per share, which is equating into EUR 101 million of direct results, a 10% growth, a nice growth. I think, if I would exclude the acquisitions and disposal effects of 2025, it would come down to close to 3% growth. But if I would also mention, and you can see that on the very right-hand side of the chart, the tax bucket, the -- this is the first year that we have been paying corporate income tax in the Netherlands, almost EUR 4.5 million. That would equate into another EUR 0.09 to EUR 0.10 direct results per share. So all in all, I think a very stable and a very solid year this year on our direct result side. Here again, a little bit of a color over the past few years. On the left-hand side, we are looking to grow the direct result per share to EUR 1.85 to EUR 1.95 in 2026. That is -- again, that is another 3% to 4% growth, if I would take the EUR 1.90 as the midrange of that. For 2025, Matthijs just mentioned, we will be proposing EUR 1.30 per share for dividends, and we would see that going into EUR 1.35 for 2026 as a forecast, as a guidance for our dividends. Moving on to the relative performance, I would say, we announced our LifeCentral strategy back in 2020, to be exact, almost 6 years ago. And as you can see here, we have achieved -- on the very right-hand side, we've achieved an 80%, 81% total return over those 6 years. So again, I think a very nice achievement if I compare ourselves to the 6 other peers, which are closest to us. We are #1, #2, as you can see on this chart. Also for this year, for 2026, I think year-to-date, we are already at a 16% return as per now. Moving into a few of the transactions which we haven't mentioned already in the first half or the third quarter of the year. I think the 2 most important ones in Q4 are the disposal of our full service center Sterrenburg in Dordrecht, a very important one for us. I think this was one of our nicest assets and one asset where we have been, I think, demonstrating that the full service center strategy really works. All in all, we have been realizing almost 10%, 9.3% IRR on the transformation and the disposal of this asset. At a 6% net initial yield, we have been able to sell this asset. And I think it also demonstrates the fact that the full service center strategy is working. I mean the values are real, as you can see here, proving by this first transaction of a full service center. Moving on to one of our latest acquisitions as part of our capital rotation strategy, we have acquired the Ville2 shopping center in Charleroi in Belgium. We are very happy with this asset. Again here, we have been able to raise quite some equity in Belgium to partly finance this transaction. And we believe this asset will be a very good contribution to the Belgium team and to, of course, to Ville2 as a group. Net rental income, almost EUR 10 million. We bought it at a net initial yield of 8%. So I think there's quite some work we can do there to further enhance the value of this asset. Demonstrated on this slide, we will be pushing Ville2 into the full service center to the LifeCentral strategy. We've been already scanning through the asset, what can we do, what can we add to enhance the value. And on the right-hand side, you see all the different buckets that we're looking at to make sure that we are increasing the value of this property. Moving back to Matthijs. Matthijs Storm: Yes. Thank you, Dennis. On the LifeCentral strategy, and Dennis already gave some examples for Ville2 in Charleroi. As you can see the bottom right of this chart, our mixed-use percentage is continuing to increase 15% to 16% this year, and we forecast another increase to 17% for 2026. And with that, I think it's also good to talk about the completions for 2025. Nivelles in Belgium, we've mentioned this earlier in October when we celebrated the opening of the redevelopment of Nivelles. It was fully let, first and foremost, I think the most important metric, but also some nice new concepts, for example, in F&B. In Arnhem in the Netherlands, we've completed the first phase of the transformation, Phase 1, also fully let with a new Jumbo supermarket. I'm looking at the pictures, but difficult to see here, but we have some on the website. It's another strong anchor to this center, but also the Eat & Meet Square that you can see on the top left of the pictures, is working very well with some interesting turnovers from the first month of operations. So we're happy with the first phase, and we're now working actually on the plans for Phase 2 of Kronenburg. 2026 will be a year of study and desktop work. And then I think in 2027, we can commence the works on Phase 2 of this center. A launch for transformation is Cityplaza. We already did some smaller things in this shopping center over the past years. On the top right-hand side, you can see several elements. We're adding a health and fit zone. The operator, a larger health care operator, Roerdomp has already signed the lease. That's done and dusted, and at the moment, we're doing the works. We already included a new gym with Basic-Fit on the right-hand side. In the middle, you can see the new Eat & Meet Square for which several tenants have already signed up. We communicated on that already, a fresh street every.deli on the left-hand side and also a little bit of rightsizing. We sold some units to a residential developer who will build housing on that part, which is, I think, beneficial for both because, again, the LifeCentral strategy is not only about turning retail into mixed-use. Sometimes it's also about rightsizing the retail. In Luxembourg, we have started to work on the transformation of Knauf Schmiede. That's one of the 2 centers we bought back in February 2025. Also here, there will be some rightsizing. We're adding mixed-use, for example, a fitness on the first floor. We're improving the visitor flows through a new layout of the center. And then we're adding several life central elements. You can see some examples like the point, our service desk on the top right-hand side, but you can also read some other examples that we will be adding in 2026 to turn Knauf Schmiede into a full service center. Polderplein, that's an asset we acquired in Hoofddorp back in 2023. It was the missing part of the shopping center Vier in Hoofddorp, that we added back then. Now we own the complete shopping center for 100%, and we've now started the works to also turn the acquired part into a full service center. You can see some examples on the bottom left-hand side of the slide. Hoofddorp is one of our best locations in the Netherlands from an economic and demographic point of view. So we're happy with the results so far. Stadshart Zoetermeer, we acquired in June '25. We already communicated on that. And also Stadshart Zoetermeer will be turned into a full service center. Even though this asset is in a joint venture, we are the manager of that asset. And also this asset, you can see it in the map on the top right-hand side of this sheet, will be turned over the coming years into a full service center with, amongst others, addition of health, a fresh cluster and self-expression. Then some numbers on Knauf Pommerloch and Schmiede. We bought those in the beginning of 2025. For example, in Pommerloch, we signed a new lease with Jack & Jones in the former Casa unit. When we acquired this center, we already talked with analysts and investors about reversionary potential. Well, you can see here plus 54% versus old rent. I'm not sure if this is indicated for all the leases we will be doing in Pommerloch, but I think it's a nice example. In Sweden, we've extended with Medi-Market and Veritas. And last but not least, we realized a very nice valuation uplift in '25. Dennis will tell you more later. Then on the CapEx, we changed this slide a little bit. Until now, we always showed you the initial, about EUR 300 million CapEx program for the LifeCentral strategy, as Dennis said, starting in 2020. But most of those transformations, the original ones have been completed. What you can see in the dark blue bar on the left-hand side, the EUR 25 million, that is the last part of the original EUR 300 million program, but we've added about EUR 36 million for the acquired assets in the meantime, that is Polderplein, that's the 2 centers in Luxembourg, and that is also Ville2 in Charleroi. And this is why the number has gone up a bit to EUR 61 million. But you can see over the coming years, it's nicely spread and most of it is still uncommitted. So if something -- if a big event happens in the global market or in the global economy, we're well prepared to scale down the CapEx. Capital allocation. Our IRR framework, which we base on the Green Street unlevered European retail IRR, which now stands at 7.1%. We still set the bar at 8%, almost 100 basis points above that threshold. What you can see is that most of our assets, also the acquired assets, of course, tick the box. We have one asset on hold. One asset is at the moment in the sell bucket that is in Genk because it's not reaching the required IRR. So we're working hard on that. The yield shift, as you can see, most of the assets, most of the completed full service centers have outperformed the market in terms of yield development. And then lastly, on residential profits, yes, this is, as we've mentioned earlier, it's the icing on the cake, a little bit of icing on the cake. Last year, we realized a payment of EUR 3 million for the building rights in Tilburg, as you can see on the right-hand side. So that is a nice achievement. In the coming years, we expect the payments for Nivelles, which is a larger one of about EUR 7 million to EUR 8 million, which will be coming. And also, of course, Kronenburg, which is our biggest project, I just mentioned, Phase 1. With that, I'd like to hand over back to Dennis. A. de Vreede: Thank you, Matthijs. Valuations to start with. As you can see here, a positive valuation result for the full year for our core portfolio of about EUR 11 million, mostly driven by Luxembourg in this case. as Matthijs already mentioned before. I think we mentioned already where the negative -- the slightly negative numbers came from the Netherlands, that was already mentioned in our first half year deal where we did this Tilburg deal. We secured a nice 10-year lease extension, but we were faced with an EUR 8 million write-off on that specific asset. In Belgium, again, there also almost stable. The negative valuation is mostly part of one single asset. Matthijs mentioned that already, Genk, which is a more difficult asset and which we are holding now in the sell bucket basically, as demonstrated on the slide before. All in all, stable yields, EPRA net initial yields in the Netherlands, slightly up in Belgium. But all in all, we look back at a nice year. The net LTV and the net LTV target, I'm not going to spend much time on this. I think we mentioned this already. We want to push this down still to the 35% to 40% mark. We have plans to do so in '26 and '27, very concrete plans. You could see on the right-hand bottom side, what steps we will be taking to get it down to the -- below the 40%. And as we are working our way through that, we will be cautious on the dividend side. So a slight increase next year for the dividend, as mentioned, but below our 75% dividend policy. Our debt profile was a busy year on the debt side for 2025. You could see that our net -- our interest-bearing debt increased, obviously, following the acquisitions we had in Luxembourg and in Charleroi, mostly. The average cost of debt slightly up really because we have been looking to acquire quite some new long-term debt, which was used PP, but also our first -- we mentioned that before, our first European PP in the Netherlands and at the very end of the year, also a European PP in Belgium. So I think we're happy with that to extend the maturities of our debt. You can see that on the bottom. It went up from 3.4 to 3.7 years. And as we are working our way towards refinancing our big corporate RCF, EUR 250 million RCF, which I am expecting to finalize this quarter, we will be moving up that 3.4 average maturity -- 3.7, I should say, average maturities up well above the 4 years. A nice debt mix, as you can see at the right-hand side for 2025. So again, mostly 49%, driven by the USPP, but you could also see that EUPP starts to get hold in our debt book. The rest is mostly bank loans. One bond, which is a Belgium bond, is the -- that is the 3%. We are on our way to refinance that. That is maturing in the second quarter of 2026, but we're almost there to have that also refinanced. This gives you a little bit of a view over the past 7 -- 6, 7 years of the maturities. That's the average debt maturity. We started off around 4 years. That went down to about 3.3 years, 2 years ago. We're back at 3.7. And if we are pushing the RCF, EUR 250 million RCF over the finishing line this quarter, we should be well over 4 years. And I think that is an important metric also for our credit agency, which is requesting us basically to focus on that and push that more towards the 5 years. On the ESG side, also a busy year. I've been putting a number of our projects here on this slide. I'm not going to read them all out to you, but focus points for us have been to keep increasing the solar panels. We also included last year the first -- or we signed the first leasing deal on our solar panels, which was with Jumbo. EV charging points, certainly in Belgium, we are rolling out at a very fast pace. You see the numbers right there. But also we are trying to make sure we copy the efforts in Belgium, in the Netherlands and enhance our other income with that. Green leases, which is part also of the interest of our RCF. So basically, we get a bonus and malus on our RCF with some green KPIs. This is one of them. We've been pushing that towards the 79%, which is also demonstrating the willingness of our tenants to help us on that part, and we keep focusing on that for the next number of years. So all in all, if you look at a number of projects on the bottom side, Paris-proof projects, we've been insulating and renewing new roofs in Cityplaza and Kronenburg. And again, also on Presikhaaf, our full service center in Arnhem, we are replacing the roof right here, a glass roof, and that should be expected to reduce the lease -- the heat loss by 54%. Moving on, I would say, to the final part of this presentation, I hand it over to Matthijs. Matthijs Storm: Thank you, Dennis. Let's go to the management agenda, and then we can go to the Q&A. I already see some questions coming in. Thank you for that. Creating scale, I think we did quite some work last year, but we have a lot of interesting projects in the pipeline. Of course, I cannot be concrete at the moment, but -- as I said also during the last road shows, there's quite some product on the market in the Netherlands and in Belgium that is interesting for us. Again, in Belgium, we would acquire full equity. In the Netherlands, it would be through a joint venture, like we did in Zoetermeer. Total return, slightly below the target last year, also driven by slightly negative valuations. I also see some questions about this. I think Dennis already commented on Genk and Tilburg specifically, but there are also some indirect expenses like deferred taxes. We'll get back to that. Capital reallocation, speaks for itself, finalizing the last transformations. But of course, we've started new ones like Schmiede. We have completion scheduled for 2026. ESG, Dennis focused on it already, phase out France, we're targeting to sell, of course, the last 2 French assets. We see some slight improvement in the French transaction market. There have been some deals. So hopefully, that is helping the momentum to finally dispose these. Last phase of the balance sheet derisking, LTV below 42.5%. Dennis already mentioned the 4 different streams that we are working on in order to get there. And lastly, other income, as I mentioned earlier, we now have EUR 6.7 million other income and the target is to grow that to EUR 10.1 million in 2027. With that, we go to the questions. Matthijs Storm: And I think Dennis, first question you could answer is a question from Steven Baumann from ABN AMRO ODDO. He is asking what are the key components of the indirect general cost for 2025? A. de Vreede: Yes. Okay, Steven, thank you for asking. Obviously, well, you could see the components are typically the same. These are the valuations. Obviously, we have the indirect Genex. The indirect Genex is the one-off Genex hits that we're taking slightly above last year. We've been spending quite a bit on acquisitions and the disposals, which we have been writing off on some of the projects which did not go through. But also this year, we have seen a big number, which is the indirect tax, which is part of the indirect expenses, obviously, and that is mostly driven by the value increases in Luxembourg. You've seen a EUR 22 million value increase there. But also on the Dutch side, on some of the assets, we've seen a value increase, and we have been taking the deferred tax liability on that value increase. So -- those are the elements driving the indirect expenses. Matthijs Storm: Okay. Second question from Steven is the key components of the other income in '25, this EUR 6.7 million, Steven, in '25 is mostly for the moment coming out of the Belgian market, where this has already been a larger figure for years, mostly driven by specialty leasing, a lot of the kiosks and pop-up stores, but also in Belgium coming from the point, our service desk, where we take and deliver parcels from several operators, but also sell several items. It's coming from ESG income in Belgium. So that country is the largest contributor, but the Netherlands is growing rapidly, as you noticed on the slide. The Ocean Outdoor deal will start this year 2026. So that's not yet a contributor to '25. And of course, the management income from the joint venture with Sofidy, which is counting for about half a year in '25 because we commenced in June '25. And of course, we'll have a full year contribution in '26. Steven is also asking what you can expect from these items in '26. I think the growth, Steven, is coming from a full year contribution of the Sofidy deal, the Ocean Outdoor deal on the digital screens, but also several smaller initiatives like the specialty leasing and the kiosks in the Netherlands, additional the point desks, but also additional solar panel and EV charging projects. That's all contributing to the income in '26. Steven is also asking if we assume acquisitions or disposals within that number? Answer is no, Steven, because we're -- the disposals we are working on is in assets, for example, the Belgian offices or the French assets where there is no other income. So that will not have an impact. And we're not assuming new acquisitions. Of course, if we acquire new assets, the figure could go up. Then Steven is also asking about the full year 2026 outlook, the EUR 1.85 to EUR 1.95, what are our key assumptions behind this? Like-for-like rental growth, indexation, well, to go into this, Steven, we assume indexation of about 1.75% for 2026, which I think is quite conservative. Property expenses will be relatively stable and the occupancy rate, we also believe will be relatively stable. The last question from Steven is about the average cost of debt. So maybe Dennis can give some views on that. A. de Vreede: Yes. Yes. Steven, average cost of debt is 3.62% at the end of '25, as mentioned before. I think a few large things will be happening in '26, as I was just mentioning, that is the refinancing of our corporate RCF, the EUR 250 million corporate RCF. And I can -- I would expect, let me put it like this, that we will be looking at a lower margin -- a substantial lower margin than we were paying before. So that will be driving our cost of debt -- average cost of debt down a little bit. On the other hand, we are still looking to refinance some USPP maturities this year, which is, I think, about EUR 40 million this year. And in Belgium, we are also looking to include or increase the long-term financing a little bit. So that will be driving up the cost of debt a little bit. So all in all, I would expect it to be stable for '26, maybe slightly lower depending on how much we draw from the RCF. Matthijs Storm: Maybe important for you as well, Steven, the refinancing -- the expected refinancing of the bonds in Belgium and the U.S. is more expensive. That is included in the outlook. But the potential reduction in the cost of debt coming from the new RCF is not yet in the EUR 1.85 to EUR 1.95. So that would be driving some additional growth if that were to be signed. Lastly, your expectation about like-for-like rental growth, I think we should still be in the 5% range. The components behind it, I've already mentioned, but with the growth in other income, we should certainly achieve a number in that territory. Then we go to Francesca Ferragina from ING. Guidance, what are the hypothesis about like-for-like in cost of debt for '26? I think we've answered that. Can we expect more partners and more JVs for '26? Yes, that is our expectation, Francesca. We certainly want to do at least one more joint venture like Zoetermeer in the Netherlands this year, potentially also JV-ing one or 2 of our existing Dutch assets, but continuing to manage it. Of course, nothing of that is included in our guidance. Are you open to new joint venture partners? Certainly. Can you make a comment about the asset valuations in H2? Yes, I think Dennis already mentioned that with Genk Stadsplein and Tilburg, we had some write-downs, also in the Belgian offices in [ Ville2 ], our more difficult office location outside Brussels. If you would take those out, the valuations would be relatively flat. Of course, they have an impact, but it is more asset specific. I think also it's logical that valuators increase the ERVs, but also the yields have gone up slightly. You can see that in an increased EPRA net initial yield. We've been buying Ville2 at 8%. We've been buying Zoetermeer at almost 10%. Then of course, the valuators move out their yields a little bit. So that's Belgium and Netherlands. You talked about little competition among buyers in the Benelux regions. I see there's more in this. What type of assets do you see on the market? Yes, we mostly focus on the larger shopping centers. So I think the criteria for us is at least 20,000, 25,000 square meters in terms of size in order to establish a full service center concept. We have more criteria that you can find in the materials online. Of course, there should be the potential to transform into a full service center. Again, there are several assets on the market in Belgium and the Netherlands that we think are interesting. We're working on that. A lot of activity at the moment. So we'll talk more about that later for sure. Do you notice any difference versus 12 months ago in the transaction market? No, I think it's still a buyer's market. Could you provide an update on the French assets? I think we did that. We're working on the disposals, but nothing concrete to mention as we speak. Do you expect more write-offs? No, not for now. Of course, if we did expect some write-offs, we would have taken them in the full year 2025 results. I think going forward for this year, we expect a continuous improvement in the ERVs. We keep leasing well above ERV. I don't have any assumption about the yields, to be honest, so let's see. In the past, you talked about entering new countries. That is true, Francesca. I think in the long-term, that will happen eventually. But again, there's so much interesting product on the market in our core markets, there's no need to do that this year. Do you expect other disposals? I think Dennis already mentioned the type of disposals we are working on. So for example, the Belgian offices, some equity out of Dutch assets through JVs and the French disposals. Right. Then I need to go back. Yes, there we go. Then we go to a question of Amal Aboulkhouatem from Degroof Petercam. Thanks for the question. Congratulations on these impressive results. Thank you for that, Amal. A few questions on my side. Could you comment on the negative revaluation in Belgium and the Netherlands? I think we did that. What is your outlook for the cost of debt in '26? Dennis answered that. And how do you intend to continue the expansion strategy? Would that be in existing markets or in the new markets? Yes, sorry, Amal. I think we've dealt with your questions, but again, still, thanks for answering -- asking them. And again, a new market is not something we are working on at the moment. It's something for the longer term. Then we have a question from Rahul Kaushal from Green Street. Congrats on the great results and thank you for the presentation. Thank you, Rahul. Can we expect further acquisitions this year? Certainly, we're working on, again, a lot of projects. So you can expect that. Are you looking at markets outside the Benelux? We've answered that. That is at the moment a no. In terms of disposals, can we expect further divestment in the Netherlands? The answer is no, if we talk about entire assets. We only consider this with existing assets and then selling part of the equity in a joint venture. And could you provide a timeline for the disposal of the French assets? Yes, I'd love to, Rahul. At the moment, it's not concrete enough to talk about this. I have mentioned that we see some transactions in the French retail market also in more secondary cities. Hopefully, that will continue and will allow us to sell one or 2 French assets finally this year. I'm going through the list. I don't see any additional questions for the moment. So with that, I'd like to thank you. I'd also like to thank our CFO, Dennis de Vreede, who, as most of you know, is unfortunately leaving Wereldhave as per the AGM of 2026. It's been a great ride, Dennis. Thank you for that. And we all know Dennis did a fantastic job in reestablishing Wereldhave, particularly financially. If you look at the balance sheet, if you look where we stand today, if you look where the share price is, yes, I think Dennis did a great job. And I'm very grateful on behalf of the management team, but basically all the stakeholders for Dennis for this fantastic work. This will be Dennis last webcast, but you will certainly see him in the future, and of course, he will be attending our AGM. So thank you, Dennis, for that. It's been a great ride. And as most of you know, Marcel Eggenkamp will be proposed to the AGM as our new CFO. You'll see him in the coming webcast. Thank you so much... A. de Vreede: Thank you. Matthijs Storm: For listening. Thanks for your questions, and see you with the first half results on the roadshow. Thank you.